Now that the Federal Reserve has started cutting rates again, investors may be on the hunt for new sources of income. The central bank lowered the federal funds borrowing rate by 25 basis points — or 0.25 percentage point — on Wednesday. As that rate decreases, yields on short-term assets like money market funds and Treasury bills will follow suit. There is currently a record $7.3 trillion in money market funds, according to the Investment Company Institute . “We are encouraging investors to consider locking in higher yields and to diversify away from excess cash and short-term fixed income positions,” Wells Fargo wrote in a note Tuesday, ahead of the rate cuts. Still lower rates coming The Fed telegraphed two more rate cuts this year and one in 2026. UBS anticipates fed funds will end up 100 basis points — 1 percentage point — lower by early next year. “Excess cash often sits idle, earning little or no real returns, and is vulnerable to inflation erosion,” UBS strategist Matthew Carter wrote in a note Tuesday. “History shows that phasing excess cash into diversified portfolios delivers more robust long-term outcomes.” An analysis by the UBS chief investment office found that since 1945, cash has underperformed a strategy of phasing into diversified portfolios of U.S. stocks and bonds about 74% of the time based on rolling, one-year time horizons. It underperforms 83% on five-year horizons, Carter said. Of course, cash still plays an important role in a savings strategy, and in your portfolio. While yields will fall, they still remain solid. The annualized seven-day yield on the Crane 100 list of the 100 largest taxable money funds was 4.09%, as of Tuesday. Money market funds and certificates of deposit (CDs) are just two ways you can still earn solid income and maintain some level of liquidity. The asset you chose depends on when you’ll need the cash, since there are penalties for early withdrawals from CDs. High-quality bonds for income Once your cash needs are established, consider shifting leftover funds out of short-term assets, experts said. This can lock in yields that are still at attractive levels. Bond yields move inversely to prices, so when prices rise, yields fall, and vice versa. Wells Fargo suggests moving money into the intermediate part of the curve. The bank is particularly bullish on investment-grade credit and corporate bonds, as well as investment-grade securitized assets. The firm advises being selective among issuers and sectors, and emphasizes sound credit analysis. Investors can also access high-quality bonds with core bond exchange-traded or mutual funds. “You can get more yield on those high-quality core bonds” than short-term instruments, said Paul Olmsted, senior manager research analyst at Morningstar. “At the same time, it does serve as a better diversifier to risk.” Investors can look out for safe, solid payouts rather than chase the highest absolute income, Olmsted said. In this climate, active rather than passive management is important, with spreads over Treasurys tight tight and a degree of economic uncertainty, he cautioned. “Some of that can create opportunities — and not just opportunities to add to relatively better-yielding investments, but also manage overall risk,” Olmsted said. Here are some of Morningstar’s top-rated , actively managed, intermediate core bond funds. Those who want a bit more yield can turn to the “core plus” category, which means the products have slightly more exposure to the higher-yielding and somewhat riskier part of the fixed-income market. Again, active management is important, Olmsted said. For instance, The JPMorgan Core Plus Bond ETF (JCPB) has a 30-day SEC yield of 4.93% and net expense ratio of 0.38%. The Nuveen Core Plus Bond Fund (TCBHX) has a 4.65% 30-day SEC yield and 0.38% net expense ratio. Add in some high yield Investors comfortable with adding some more risk to their bond portfolio can consider high-yield bonds as a complement to high-quality — not a replacement. Wells Fargo is among those who favor such a move, thanks to attractive junk bond yields. “Granted, narrow high-yield corporate spreads appear to be pricing minimal risk, but the yield offer may serve as a cushion to help absorb moderate-price declines in case spreads widen,” Luis Alvarado, Wells Fargo global fixed income strategist, said in a note last week. A diversified multi-sector fund, which includes high-yield bonds and non-agency mortgage-backed securities, or a high-yield bond fund, can give investors higher income, Olmsted said. Although they’re riskier, higher-yielding assets generally work out over time, he said. “Be sure you have that high-quality, intermediate core first,” he said. “Then, based on time horizon, risk tolerance and all that, consider some other options, like multi sector or high yield.” Diversified multi-sector funds include iShares Flexible Income Active ETF (BINC) and Vanguard Multi-Sector Income Bond Fund (VMSIX). The former has a 5.19% 30-day SEC yield and net expense ratio of 0.40%, while the latter has a 30-day SEC yield of 5.10% and 0.45% expense ratio. BINC YTD mountain iShares Flexible Income Active ETF year to date That said, don’t stress about making big, immediate moves, especially as cash has yields that are still solid, Olmsted said. “If you have some of the short-term assets, consider moving a little bit now,” he said. “You don’t have to do it at once and think that you’re changing the overall profile of your asset allocation.” Municipal bonds For wealthy investors, municipal bonds are attractive because they are exempt from federal tax and, if the holder lives in the same state or city in which the bond is issued, free of state and local tax, too. Munis saw a surge in issuance earlier this year thanks to the uncertainty surrounding the Big Beautiful Bill and how it would affect municipal finances and the status of the bonds’ tax exemptions, explained Matthew Norton, chief investment officer for municipal bonds at AllianceBernstein. The excess supply was coupled with tepid demand amid wider volatility in the market, he added. “That also has created a very interesting opportunity in the municipal bond market, because yields are very high,” Norton said. Municipal bonds are cheap relative to Treasurys, especially as investors move longer out the curve, he added. Among the funds he manages is the AB Tax-Aware Intermediate Municipal ETF (TAFM). It has a 30-day SEC yield of 4.13% and a 0.28% expense ratio. Still, don’t expect that opportunity to stick around for long, said Tom Kozlik, head of public policy and municipal strategy at Hilltop Securities. Muni issuance is expected to fall off, he said. “Yields are falling. They are still attractive, but the opportunity can slip away if you wait,” he said. Kozlik prefers high-grade, general obligation bonds and high-grade revenue bonds. He also sees opportunities in the higher-education sector, which has been beaten up. Bonds from large universities are generally still a good place to be, but investors should check the credit scores and make sure enrollment trends aren’t dropping, he said. While the best relative opportunity is in longer-duration munis, in the range of 20 to 30 years, investors can also earn attractive yields in shorter- to intermediate-term bonds, he noted. Norton at AllianceBernstein is particularly bullish on the longer end. A 30-year municipal bond that has a 4.2% tax-free yield equates to around a 7% tax-equivalent yield for someone in the top tax bracket, he said. He suggests a barbell approach for those who want a portfolio that is shorter in duration. “We love the long part of the market right now. We think that’s really attractive and will outperform,” Norton said. Dividend stocks While equities are riskier than bonds, dividend stocks can also be a good source of income. Many on Wall Street prefer dividend growth strategies, which means the company has a history of raising its dividend. For instance, the ProShares S & P 500 Dividend Aristocrats ETF is limited to companies that have raised their payouts in each of the past 25 years. NOBL YTD mountain ProShares S & P 500 Dividend Aristocrats ETF year to date By turning to dividend stocks, investors also have the opportunity for capital appreciation. “We want an expectation that dividends will increase over time,” said Kevin Simpson, founder and chief executive officer of Capital Wealth Planning in Naples, Florida. He doesn’t look as far back as 25 years for dividend growth, but generally prefers a history of about 5 years of increases. “If you take that a little bit further, and you think that the dividends are growing because their earnings are increasing, then generally speaking, you should see share price appreciation at some point if you’re investing in a company that’s increasing its earnings,” he added. (Learn the best 2026 strategies from inside the NYSE with Josh Brown and others at CNBC PRO Live. Tickets and info here .)
