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Is It Becoming A Great Time For Income Investors? | Steven Bavaria

Adam Taggart | Thoughtful Money® Sep 27, 2026 1:06:52

Summary

Higher yields help income investors: floating-rate loans and BDCs (business development companies) reprice within months, lifting cash income.

For bond funds, skip the daily price and track net asset value returns, cash distributions, and whether capital is quietly eroding.

Wide discounts to net asset value price in default rates far above history, the guest argues, which is why credit funds screen as bargains.

For retirees drawing income, distributions that exceed total returns shrink the capital base, which the guest calls sequence-of-returns risk.

He points to business development companies and private credit, plus closed-end funds from PIMCO and Eaton Vance, as current openings.

Adam Taggart's takeaways

  • Top takeaway The host's top point is that this may be the best entry point yet for income investors: with 2026 nearly over after four straight double-digit equity years, many above 20%, he says valuations look stretched on almost any historical measure, so the odds of another sustained run of 7-8% capital gains are low while credit sits on a rising-yield tailwind.
  • He warns that the US investing public now carries more equity exposure than at any point in history, and that the exposure wrongly rises with age rather than falling, which matters most for the 45-and-over viewers close to retirement who would have little time to recover from a mean-reverting correction.
  • He frames the key retirement danger as sequence of returns: pulling required 4-6% distributions from a mostly equity portfolio during down years permanently shrinks capital, whereas an income portfolio yielding 8-10% in cash lets you fund the same spending without ever selling the capital that produces it.
  • He argues bond yields have already bottomed after 40 years of decline, from high-teens levels in the early 1980s to near zero, and that deficits and inflation point to the reverse over the next decades, making this a better backdrop for dependable growing income than the last 40 years were.
  • He suggests an 18-year-old could take this approach to become a multimillionaire by their 50s on average returns of 8%, with far less volatility and a better chance of sleeping at night than betting everything on the S&P 500.

Steven Bavaria's takeaways

  • Top takeaway The guest's top point is that rising bond yields are a net advantage for his income-factory approach rather than a cost: senior loans and BDCs reprice within a few months with little real duration risk, and a higher risk-free base rate slowly lifts income, which is why he calls late September 2026 one of the better times to start building one.
  • He says he only buys funds — closed-end funds, BDCs and some ETFs — and deliberately ignores their market-price swings, judging each on total return against net asset value and on whether it can keep paying an 8-10% distribution over a five-to-ten-year holding period.
  • He argues the 10-25% discounts now seen on many BDCs and closed-end funds price in default and loss rates far above anything historically observed, since even the worst credit crash produced roughly 10-12% defaults with about half of the money recovered, a loss rate near 6%.
  • As of the interview he named specific discounted credits he considers attractive, including Bearings BDC at what he puts at roughly a 19-20% discount despite Mass Mutual's credit record, the actively managed Putnam BDC ETF yielding about 11% with average annual total return near 14% over its roughly four years, and PIMCO's PDI, PFN and PTY now at discounts rather than their usual premiums.
  • He also pointed to Eaton Vance closed-end funds such as EOS, which he says averaged about 13% annual total return for 15 straight years on distributions in the 8% range, and to MLP and infrastructure funds like EMO, SRV and TYG, while screening out any fund whose price erosion drags total return below its distribution.