Stock investors have taken it on the chin this year. So you'd think that people with a big chunk of their money in bonds would have little to complain about. While most stocks are down, the value of Treasury bonds has risen sharply in 2008 -- exactly the counterbalance you'd want from a diversified portfolio.

Yet despite the vital role high-quality bonds have played in preserving capital for conservative investors during the bear market, there's a trade-off. Recently, the yields on those bonds have gotten extremely low, jeopardizing the income on which so many investors rely.

Bonds and your retirement
During their peak earning years, most investors don't pay much attention to how much income their investments generate. After all, when you're trying to build wealth for the long run, you typically want to reinvest that income back into your portfolio so it can grow even more.

But as you approach retirement, making sure you can live off your investment portfolio becomes much more important in figuring out when you can afford to retire. And after you quit working, your retirement lifestyle depends on a steady and reliable stream of income you can use to supplement your Social Security and pay your living expenses.

That's why this month's brand new issue of The Motley Fool's Rule Your Retirement newsletter, available today at 4 p.m. ET, takes a hard look at the strange behavior within the bond markets. Treasury yields have fallen precipitously, with payouts below 3% on all but the longest-maturity bonds. Yet curiously, the yields of other types of bonds, such as corporate and municipal debt, have actually risen throughout the crisis.

How to manage your income
It's a strange phenomenon. Municipal bonds, which pay tax-free income, are actually paying higher yields than their taxable Treasury counterparts. Meanwhile, corporate debt trades at huge spreads to Treasuries, showing just how worried investors are about the risk of default during the recently-declared recession.

You don't have to put up with lousy income payments from Treasuries. Instead, you have several better choices -- and the one I like most right now is buying shares of blue-chip dividend stocks.

Where the income is
As Fool retirement expert Robert Brokamp notes, the total dividend yield on the S&P 500 now exceeds the payout on 10-year Treasuries by a fairly wide margin. That's not unprecedented, but it has been 50 years since payouts on stocks were so generous compared with bonds. Just look at some of the yields available on cream-of-the-crop companies:


Dividend Yield

1-Year Return

Chevron (NYSE:CVX)



Home Depot (NYSE:HD)



Coca-Cola (NYSE:KO)



Lockheed Martin (NYSE:LMT)



McDonald's (NYSE:MCD)



Wells Fargo (NYSE:WFC)



Wyeth (NYSE:WYE)



Source: Yahoo! Finance. Yields and return reflect closing price on Dec. 3, 2008.

As you can see, healthy yields of 3% or more are available on a wide range of strong companies in many different industries. So if you're looking for more income from your portfolio, stocks like these could not only boost your earnings but also give you some potential for capital gains down the line.

Safer alternatives
Of course, if you're retired, you definitely don't want to move all your money into stocks. Just looking at the one-year returns in the stock table above should remind you that stocks are risky -- and you don't want to take risks with the money you'll need to spend in the coming years.

But even if you don't need any more dividend stocks, the right mix of other investments can boost your income above what Treasuries pay. Inside this month's Rule Your Retirement, you'll find specific recommendations about where to move your money now, based on your income needs, risk tolerance, and current holdings.

That's exactly the kind of advice we offer every month to subscribers. If you want to get a sneak peek at the service, though, it's easy -- just take advantage of our 30-day free trial offer. You'll get full access to the new issue as well as every other resource we have for investors. Given how difficult today's markets are, the knowledge you gain might be what turns your losses into profits.

For more on how to retire well, read about:

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.