Retail investors are being advised to avoid using current market volatility as a reason to dive into defensive trades, such as dividend-paying stocks and bonds. According to Nick Ryder of Kathmere Capital Management, this approach may lead investors astray.
"We often see people adopting an income-focused strategy, which leaves a lot on the table," Ryder, the chief investment officer of the firm managing $3.5 billion in assets, told CNBC's 'ETF Edge.' "We generally advise clients to take a total return-oriented approach across stocks, bonds, and everything in between within a portfolio."
Ryder warns against the dangers of "yield-chasing" in fixed income, cautioning against extending interest rate risk and moving from investment-grade to high-yield bonds, as they carry different risk and return expectations.
He stresses that income should not form the foundation of long-term investment portfolios. Investors, he suggests, should start with their investment goals and risk tolerance, adding income considerations thereafter. He warns that an income-first approach might inadvertently lead to unintended risks.
Despite the current market conditions, Ryder remains optimistic about the broader economic situation, noting, "Overall, the economy has been pretty darn resilient. Corporate profitability has shown resilience too."
In agreement, Christian Magoon of Amplify ETFs urges investors not to let distribution figures dominate their decisions. "We believe in balancing attractive yield with long-term capital appreciation potential rather than simply chasing the highest possible yield," he explained. "That's what we consider a yield trap."