Prudential Investments

Meeting Financial Goals

Income investments can help you generate a stream of income—potentially in ways you had not considered. But they can also do much more.

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Income Investing 101

Brush up on the basic types of income investments. Get to know the investment options available and how they can work for you.

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A Diversified Approach

Different types of investments come with advantages and also risks. Diversification is a smart way to help mitigate investment risks.

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YOU PLAY MANY ROLES. INCOME INVESTMENTS DO TOO.

If you had to choose one word, how would you define yourself? Parent? Partner? Chef Teacher? Accountant? Entertainer? The truth is, you are more than any one of these titles. You may in fact be all of them, and then some. At any given time in our lives, each of us plays many different roles. The same can be said for income investments. At first glance, you may simply see income as bonds or fixed income funds that can help you generate interest income. And, if you’re not ready for retirement, you may dismiss them as irrelevant. But income investing goes far beyond bonds to include dividend-paying equities, real estate investment trusts (REITs), and utilities—all of which can play many important roles in your portfolio.

Yes, they can help you generate a stream of income—no small feat in today’s market environment. But they can also do much more. Income investments may help you:


INCOME INVESTING 101

Income investments come in many forms and offer an array of potential benefi ts. Whether you have just begun investing, are in the middle of your career, or are well into retirement, there are income options that can help meet your wealth building, capital preservation, and income needs now and in the future

GET TO KNOW THE INCOME OPTIONS

A wide range of bonds and dividend-paying equities are uniquely qualified to help you reach your financial goals. Click through the slider for a quick introduction...

  • Bonds (a.k.a., fixed income investments)

    WHAT ARE THEY?

    Bonds are debt obligations issued by governments, state and local municipalities, and companies all over the world to fund infrastructure projects and acquisitions, or to provide working capital. Bonds pay interest that can be fixed, floating or payable at maturity. The maturity date is the date the issuer of the bond repays the principal.

    ∙ Short-term bonds generally mature in one to three years.
    ∙ Medium- or intermediate-term bonds generally mature in four to 10 years.
    ∙ Long-term bonds are those with maturities greater than 10 years.


    HOW DO THEY WORK?

    When you purchase a bond, you are lending money to the issuer.

    ∙ The bond represents the commitment to paying you back.
    ∙ Generally, you receive interest payments periodically.
    ∙ At the maturity date, you receive the par value of the bond.
     


  • Dividend-Paying Equities

    WHAT ARE THEY?

    Companies around the world offer shares of ownership to investors. Typically, larger, more established companies may also share the profits with stockholders in the form of dividends.


    HOW DO THEY WORK?

    When you purchase stock, you become part owner of a company.

    ∙ Each share represents an equal portion of company ownership.
    ∙ Any dividends you receive are your share of the profits.
    ∙ Dividends are typically paid quarterly.
     


  • Real Estate Investment Trusts (REITs)

    WHAT ARE THEY?

    Investment companies create pooled investments that purchase groups of underlying properties. They sell shares of ownership to investors and offer income in the form of “dividends.”


    HOW DO THEY WORK?

    When you purchase a REIT share, you are buying part ownership of all the underlying properties.

    ∙ Each share represents an ownership stake in the REIT.
    ∙ Income received from the properties is paid to you regularly.
     


  • Utilities

    WHAT ARE THEY?

    These companies provide electricity, heating oil, and natural gas to consumers and businesses.


    HOW DO THEY WORK?

    When you purchase a share of a utility stock, you become part owner of the company.

    ∙ Each share represents an equal portion of utility company ownership.
    ∙ Any dividends you receive are your share of the profits.
    ∙ Dividends are typically paid quarterly.
     


  • Master Limited Partnerships (MLPs)

    WHAT ARE THEY?

    MLPs are publicly traded partnerships, not corporations, and are traded on major stock exchanges such as the New York Stock Exchange. Most MLPs are focused on natural resources and are engaged in transportation, storage, processing, refi ning, marketing, exploration, and production of oil and gas, and the mining of minerals or other natural resources.


    HOW DO THEY WORK?

    When you purchase a unit of an MLP, you become a limited partner in the venture.

    ∙ Each unit represents an equal share of the venture.
    ∙ Unlike corporations, MLPs are not subject to federal and state income taxes. This enables them to pass through potentially higher distributions to unitholders.
    ∙ Cash distributions are typically paid quarterly.
     


 

 

 

 

 

 

 

 

Investments in dividend-paying equities are subject to the inherent risks of investing in the stock market. There is no guarantee of receiving dividend payments or that dividend payments will continue in the future. Distributions from MLP and REIT investments may include a return of capital. Investing in real estate poses certain risks related to individual property, credit, and interest rate fluctuations.


Fund distributions are taxable and will be taxed as ordinary income or capital gains, unless investing through a tax-deferred arrangement such as a 401(k) plan or IRA. Such tax-deferred arrangements may be taxed at or upon withdrawal of monies from those arrangements. Dividends and distributions from the fund may also be subject to state and local income tax in the state of residence.


TAKE A DIVERSIFIED APPROACH TO INCOME

Each of the investments discussed offers potential advantages, but they also come with risks. Diversification is a smart way to help manage investment risks. Using mutual funds to diversify your portfolio is easy and affordable because they enable you to invest in large pools of securities for less than purchasing them on your own. Please keep in mind that diversification does not guarantee a profi t or protect against loss in declining markets.

A SPECTRUM OF DIVERSIFIED INCOME INVESTMENTS

Today, you have access to a wide range of mutual funds from around the world.

INVESTMENT TYPECHARACTERISTICSSUPPLEMENT SALARYREDUCE VOLATILITYGROW PORTFOLIOFIGHT INFLATION
GOVERNMENT BOND FUNDSGovernment bond funds invest in Treasurys, U.S. government agencies, and U.S. mortgages, or they may focus on international and emerging market government debt.
Government bonds may offer lower interest rates than other types of bonds, but they are generally safer. U.S. government bonds, or Treasurys, are backed by the full faith and credit of the U.S. government.
      
MUNICIPAL BOND FUNDSMunicipal bond funds invest in bonds of specific states or municipalities across the United States, or in the local debt of emerging markets.
The income from U.S. municipal bonds is often federal tax free, and it may be free from state and local taxes as well.
Investment-grade domestic municipal bonds are slightly riskier than Treasurys, but they may offer a bit more interest.
High yield domestic and international municipal bonds may carry additional risks associated with credit history, local politics, or currency movements.
      
CORPORATE BOND FUNDSCorporate bonds are often part of a diversified bond fund. They can also be the focus of funds like short-term corporate bond funds or high yield corporate bond funds.
Domestic and international corporate bonds offer higher yields and higher risk, as corporations (especially those with lower credit ratings) have a higher risk of default than municipalities or governments.
      
EQUITY INCOME FUNDSEquity income funds generally invest in stocks of firms known for paying moderate dividends. They tend to be larger, more established firms that are believed to be undervalued by the market. As a result, they may have the potential for capital appreciation.
The trade-off for the potential to grow both principal investment and income is the risk that your investment may lose value.
   
REAL ESTATE INVESTMENT TRUST FUNDSREITs can invest in properties both inside and outside the United States. REIT mutual funds may focus on U.S. REITs, international REITs, or global REITs (both domestic and international) to take advantage of real estate opportunities anywhere in the world.
Rental income can translate into levels of current income that may surpass inflation.
   
UTILITY FUNDSUtility funds can often invest across different types of utilities and utility-related companies to find the potential for capital appreciation and current income.
Utilities offer the potential for higher current income streams than bonds, but they come with the risk of loss of investment principal.
   
MASTER LIMITED PARTNERSHIPS (MLPS)MLP Funds can often invest in midstream companies that build, acquire, and operate transportation, processing, and storage facilities. Midstream operations tend to be more stable and provide more predictable cash flows.
MLPs generally offer distributions that are higher than other asset classes. Historically, MLPs have shown low correlation with broader markets.
   

Investments in dividend-paying equities are subject to the inherent risks of investing in the stock market. There is no guarantee of receiving dividend payments or that dividend payments will continue in the future. Distributions from MLP and REIT investments may include a return of capital. Investing in real estate poses certain risks related to individual property, credit, and interest rate fluctuations. A REIT may fail to qualify as a REIT as defined in the Tax Code, which could affect operations and negatively. Utility investments are sector specific, which increases the risks associated with any single economic, political, or regulatory development in the utility market which will affect the performance of the investment. Utility investments are sector specific, which increases the risks associated with any single economic, political, or regulatory development in the utility market which will affect the performance of the investment. MLPs are subject to complicated and in some cases unsettled accounting, tax and valuation issues as well as risks related to limited control and limited rights to vote, potential conflicts of interest, cash flow, dilution, and limited liquidity and risks related to the general partner’s right to force sales at undesirable times or prices. MLPs are also subject to risks relating to their complex tax structure, including losing its tax status as a partnership, resulting in a reduction in the value of the MLP investment and lower income to the Fund.  


CONSIDER INCOME-ORIENTED SOLUTIONS FROM PGIM INVESTMENTS

At PGIM Investments®, we offer potential solutions for all kinds of investor challenges, including the need for income. We can help turn your unique challenges into opportunities with a broad range of funds designed to meet a wide array of needs—in a variety of market environments. And behind each fund is Prudential’s renowned institutional investment management strength.

When you invest with us, you benefit from the same process, research, risk management, and competitive performance demanded by some of today’s largest and most sophisticated investors.

JENNISON ASSOCIATES

The true measure of an investment manager is the ability to deliver long-term competitive performance. Jennison Associates has been meeting that standard since 1969. The Jennison approach combines the experience and judgment of its portfolio managers with a consistent and disciplined investment process built on fundamental research and specialized teamwork. Jennison Associates had $184 billion in assets under management as of 12/31/2014.

PGIM FIXED INCOME

Since 1875, PGIM Fixed Income has been a research-driven manager with a keen eye for managing risk. Its distinctive approach to managing assets gives equal weight to risk management, credit research, and portfolio management to seek competitive returns while managing volatility. PGIM Fixed Income had $543 billion in assets under management as of 12/31/2014.

PGIM REAL ESTATE

PGIM Real Estate is among the largest and most experienced global real estate investors. It has almost 300 investment professionals on the ground in 17 countries and a 40-year track record of managing institutional real estate assets worldwide. PGIM Real Estate had $44 billion in assets under management as of 12/31/2014.

INCOME INVESTMENTS CAN PLAY MANY ROLES

Income investments are often seen as one-dimensional. But the truth is they can play many important roles in your portfolio. From helping to lower volatility to fighting inflation, creating income—and even helping your assets grow—income investments like bonds, dividend-paying equities, REITs, and utilities can meet your needs. Together, they can help you create current income in today’s market where it’s harder than ever to find.

PGIM Investments offers a broad spectrum of bond, dividend-paying equity, REIT, and utility funds that can help you turn challenges into opportunities. Talk to your financial professional about the important role income-oriented funds from Prudential might play in your investment plan.

 

 

Many MLP investments are in the energy sector, which subjects a fund to a greater degree to risk of loss as a result of adverse economic, business, regulatory, environmental or other developments affecting industries within that sector than if the a fund's investments were more diversified across different industries.

0283897-00002-00 Ed. 06/2017