Higher interest rates have ushered in an era where income opportunities abound.
Why it matters: That’s following years of parched cash flow streams and low rates, especially in fixed income. However, risks like stubborn inflation and elevated stock valuations exist. Morningstar researchers believe it’s important to identify income opportunities that could be resilient in today’s market. Dominic Pappalardo, chief multi-asset strategist for Morningstar Wealth, joined Investing Insights to discuss where to look.
12 Questions on Generating More Yield in 2026
- As we begin 2026, how would you describe the current environment for income investing?
- What risks and rewards must be balanced to generate predictable and reliable payouts?
- Before we look at investment opportunities from Morningstar’s global outlook, what should investors have on their checklist when researching ideas and tuning into Investing Insights?
- Morningstar researchers have investigated where to find income opportunities this year. Let’s start with bonds. Which wins out, short-, intermediate-, or long-term bonds, and why?
- The Federal Reserve cut rates three times last year. The Fed is scheduled to meet later this month. What could their decision mean for intermediate-dated bonds?
- Another income opportunity is global sovereign government bonds. But your team stresses that currency hedging is vital. Can you explain this strategy, and why it’s critical?
- Corporate bonds have historically offered higher yields over sovereign debt. Why has that changed, and is it a significant shift?
- A couple of fixed-income ideas got honorable mentions in the report: US agency mortgage-backed securities and emerging-market debt. Why do these look compelling?
- On the Jan. 2 episode, I interviewed Morningstar’s Chief European Market Strategist Michael Field about regions outside the US that look attractive. Michael mentioned Europe and Brazil. Why do UK and Brazilian stocks stand out to you?
- Which sectors from these areas do Morningstar analysts consider undervalued?
- Morningstar is favoring yield-focused growth assets over infrastructure ones in this year’s global report. Why are REITs winning against utilities?
- What’s the takeaway to create a resilient income stream in 2026?
Key Quote on Steady Yields in 2026
The more stable the income is, the less of it you receive. It’s a classic risk/reward trade-off. If you’re willing to take on a little bit more risk, you can generate more income. But that income stream could fluctuate more, or an investor may have to put more principal at risk to generate that higher income. It’s really no different than any other question in investing. It’s how much risk are you willing to take to meet the intended goal, which, in this case, would be income generation from your portfolio.
Dominic Pappalardo, chief multi-asset strategist, Morningstar Wealth
The Takeaway: Diversification is important, particularly when it comes to income, because your goal isn’t to maximize return. The more you can broaden out exposures in your portfolio, the more likely it is to remain stable and help you generate a more consistent income stream in 2026.
More From Morningstar on Finding More Yield in 2026
A popular source of income is high-yield credit. Yields were hovering near 6.7% in December 2025. But Morningstar researchers say spreads have tightened to their narrowest range in more than a decade. And valuations look stretched even though credit quality has improved in this area. Instead, they prefer local-currency emerging-market debt.
Morningstar’s 2026 Outlook is preparing investors to get ready for what’s ahead. Hong Cheng, head of fixed income and currency research for Morningstar Investment Management, writes about what a weaker US dollar means for investors. Watch Morningstar’s Chief European Market Strategist Michael Field discuss where investors should look for investment opportunities beyond the Magnificent Seven. And read about three big ideas for investors and six signals to watch that could drive the stock and bond markets this year.
