With the Federal Reserve lowering interest rates, income investors might want to check their portfolios. The central bank cut rates in September and could do so again in November, according to CME FedWatch. In this situation, Vanguard favors high-quality fixed-income assets. They think the economy will slow down but avoid a recession, and yields will eventually rise. Sara Devereux, head of Vanguard's fixed income group, said they're sticking to their strategy. She's being tactical with Treasurys for now, expecting yields to fall if recession risks rise.

Vanguard also likes investment-grade corporate bonds. They believe these bonds, especially shorter ones, are valued right given the economy and corporate health. BBB-rated bonds are their top pick. Colleen Cunniffe, head of Vanguard's credit research, says these companies work hard to keep their ratings. Utilities and banks are their favorite sectors. Utilities have solid balance sheets and face growing energy demand. Banks, meanwhile, are in better shape than before.

For high-yield credit, Vanguard picks bonds carefully due to varied issuer risks. High-yield bonds have done well this year. CCC-rated bonds rose 12. 5% by September, compared to 4. 3% for AA credit. Individual investors can access corporate credit through mutual or exchange-traded funds.

Vanguard's Smart Moves for Income as Rates Drop

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