In my last post, I indicated that the Federal Reserve would likely raise interest rates this year. It passed on raising rates at its meeting in October, and the next chance will be at its meeting in mid-December. The main point of that post was that even though the Fed has not yet acted to raise rates, the market had started to react in anticipation of a monetary tightening cycle. This particular anticipation of Fed action seems to be short term in nature — hence the rebound of the stock market in October from the August and September corrections.

No matter what the Fed decides to do, the important question for investors is: “How likely is it that longer-term interest rates will go up?” There are two important aspects to this. First, 10-year Treasury rates have historically been the measuring stick for determining stock valuations. Second, if longer-term interest rates do not increase, what can savers do to generate cash flow?

It isn’t likely that interest rates, beyond the overnight rate, will go up much, if at all. Why is this? First of all, the Fed is considering raising the federal funds rate (overnight bank lending rate) from 0.25 to 0.50 percent. Realistically, you can make the case it is still close to zero. We are in a world where interest rates across the globe can impact rates in every market as money flows to the areas of highest potential return. Currently, a sample of developed countries’ 10-year government bond rates are as follows:

— U.S.: 2.2 percent

— U.K.: 1.9 percent

— Germany: 0.56 percent

— France: 0.94 percent

— Japan: 0.31 percent

— Switzerland: -0.30 percent

Not to get too deep in the weeds, but U. S. rates are already well in excess of 1 to 2 ½ percent higher than similar rates in other developed countries, with the exception of the United Kingdom. Europe and Japan are still both printing money under their versions of quantitative easing. Because of this printing, if or when the Fed actually raises the overnight rate, the dollar likely gets stronger. If you are a European or Japanese bank or insurance company, the combination of higher yields on U.S. bonds, plus a gain due to currency translation, creates a strong incentive to buy U.S. bonds. Consequently, as long as these type of rate differentials continue, we do not believe longer-term U.S. rates will rise.

So what are people dependent on income from bonds to do? If you can make your life work on 2 percent returns, good for you — most cannot, and it isn’t just individual investors. On October 2, the Teamsters Central States Pension Plan petitioned the Treasury Department for permission to reduce the distributions it makes to approximately 200,000 beneficiaries. The investment return assumptions the plan has been operating under didn’t take into account a prolonged period of 2 percent or less returns on bond holdings. Consequently, without relief from the government to reduce benefits, the fund is on the verge of bankruptcy.

There are estimates that there are in excess of 100 pension plans with similar problems. When former Fed Chairman Ben Bernanke was asked by the Jon Hilsenrath of The Wall Street Journal — “What do you say to senior citizens out there who feel that they’ve gotten the short end of the Fed’s low-rate policies?” — Bernanke replied that the very rates that starve the savers help the still-recuperating economy. The powers that be appear to have no concern about the overall impact of their policies on individuals.

As a result, everyone is being pushed into riskier assets, so what are the best investing options? Investors who need income should consider taking part of their bond allocation and investing it in stocks that have a history of not only paying dividends, but increasing them as well. The goal is to create an income stream that increases every year. An investment in a 10-year Treasury bond today will still be paying only 2.2 percent on your original investment in 10 years. A portfolio of stocks oriented to growing their dividends could be paying a multiple of the Treasury return in 10 years.

For those who prefer to do their investing through a diversified fund, I suggest considering the Vanguard Dividend Appreciation exchange-traded fund (ticker: VIG). It has a current SEC yield of 2.44 percent.

If you are interested in holding your own individual stocks, consider Emerson Electric Co. (EMR). Emerson is coming off a few rough years in terms of sales and income growth. It is in the process of restructuring the business to focus on their strong segments and sell off those with lesser opportunities. We believe the time to purchase a company like Emerson is at the bottom of an earnings cycle. We think the bad news is currently reflected in the stock’s price and investors are currently buying the company at reasonable historic valuations. In addition, EMR stock has a dividend yield of approximately 4 percent and the company has increased its dividend for 59 consecutive years.

If you chose to turn to stocks to pursue growing income you must realize there is no guarantee and it likely will come with much more price fluctuation.

Disclosure: As of this writing, Bob Phillips owns EMR stock, as do the firm’s clients.

More from U.S. News

12 Tips for Investors in Their 50s and 60s

9 Money Faux Pas to Avoid at Holiday Gatherings

8 Smart Ways to Invest in Metal Stocks

Why Bond Yields May Be Bad for a Long Time originally appeared on usnews.com