Income investing in 2026: Are investors missing the middle?

Income investors aren’t asking for much. Just reliable cash flow, sensible risk, tax certainty, regular payments, decent yields, capital preservation, and ideally no nasty surprises from Canberra.

Our latest reader survey suggests the challenge for 2026 is that these goals are becoming harder to reconcile. Livewire readers – or those responding to the Income Series survey at least – still overwhelmingly value income. Many need portfolio yields that sit well above traditional defensive assets.

Yet when asked where they are invested, and where they plan to increase exposure, the answer remains familiar: Australian equities first, global equities second.

That raises an important question for 2026: are investors leaning on equities because they offer the best income opportunity, or because the middle ground between cash and shares remains underappreciated?

The equity comfort zone

Even among respondents who say they need portfolio yields above 7%, the planned response is not a wholesale shift into private credit or specialist income assets. Most still expect to lean on Australian and global equities, despite the current average yield on the ASX sitting just above 3%. This suggests that the income challenge is being met largely through equity risk rather than a distinct move into alternative income strategies.

In a bygone era, when Australian investors options were limited to equity income, hybrids, and REITs, that made a lot of sense. But nowadays, investors now have access to a wider range of listed credit, floating-rate and duration-hedged bonds, and private credit strategies than they did a decade ago.

Yes, these assets are higher risk than traditional government bonds. But with limited duration risk, a wide range of options for credit risk levels, and yields often well above 5% p.a., perhaps these are more worthy of more consideration than they currently receive?

In other words, there is now a broader middle ground between cash on one side and equity income on the other. However, based on the survey responses, many investors still appear to be treating equities as the default answer.

And that makes the results of this year’s Income Series survey a useful place to begin.

Income still sits near the centre of the portfolio

The first result needs a little context. This was an Income Series survey, so it was always likely to attract readers with a stronger interest in income investing.

Even allowing for that selection bias, the result is still telling. Around three-quarters of respondents said investment income was either essential or very important to their overall financial goals today. Only a small minority said it was not very important or not important at all.

That suggests this survey has captured a highly income-focused slice of the Livewire audience. It also gives us a useful lens for the rest of the results: among investors who clearly care about income, where are they looking for it, what level of yield do they need, and what risks are they willing to take?

Budget timing put policy risk front of mind

The timing of the survey is worth noting. Responses were collected between 19 May and 26 May 2026, just one to two weeks after the Federal Budget.

That likely helped push government policy or taxation changes to the top of the worry list, with around 29% of respondents selecting it as their biggest investment concern.

It ranked ahead of recession or slowing growth at around 21%, geopolitics at 19%, and inflation and interest rates at 16%.

For income-focused investors, this concern is understandable. Portfolio income is not only shaped by market returns, dividends, coupons and distributions. It can also be affected by tax settings, superannuation rules, franking credits, pension treatment and other policy decisions.

Retirement remains the main income driver

Retirement funding was the clear standout, selected by 1,686 respondents, or roughly 62% of the sample.

Building long-term wealth was the next most common reason, selected by around 32% of respondents. A smaller but still meaningful group pointed to cash-flow stability, replacing primary income, covering living expenses, or supplementing salary or business income.

That helps explain why regular income remains such a powerful theme for this audience. For many respondents, the issue is how their portfolio can support spending needs without forcing them to rely too heavily on capital withdrawals.

Most respondents expect to be worse off

The post-Budget timing also shows up clearly in respondents’ expectations.

More than 70% of respondents said they expected Labor’s proposed tax changes to leave them either slightly worse off or significantly worse off. By contrast, only a small minority expected to be better off.

That helps explain why government policy and taxation changes topped the list of investment concerns. Among respondents who expected to be significantly worse off, 53% nominated policy or tax as their biggest concern. Among those who expected to be slightly worse off, that fell to 24.9%.

The pattern was very different among those who expected to be unaffected or better off. For those groups, geopolitics and recession or slowing growth were the two biggest concerns, both sitting around 30%, while only around 7% nominated tax or policy as their top concern.

In other words, policy anxiety was not evenly spread. It was concentrated among respondents who believed the proposed changes would affect them directly.

Monthly income remains the clear preference

When it comes to payment frequency, respondents showed a clear preference for regularity.

Monthly payments were the standout choice, selected by 1,164 respondents, or around 48% of the sample. Quarterly payments were the next most popular option, while only a small minority preferred half-yearly or annual payments.

That preference makes sense in the context of the earlier results. If income is being used to fund retirement, living expenses or cash-flow stability, then timing matters. A high annual yield may look attractive on paper, but for many investors, the appeal lies in income that arrives often enough to support real-world spending.

Return expectations have softened

Respondents were more likely to say their long-term return expectations had fallen than risen over the past 12 months.

Around 37% said their expectations were unchanged, while 40% said they now expect lower returns. Only around 14% said they expect higher returns, with the remainder uncertain.

That makes the income challenge harder. Investors are looking for reliable cash flow at a time when many are less confident about future returns. The danger is that lower return expectations can push investors toward higher-yielding assets without necessarily changing their tolerance for risk.

Most respondents need yields above 5%

The required yield numbers help explain why the income question is not straightforward.

Only a small minority said they needed less than 3%, while around 12% said they needed 3–5%. The largest group, roughly 38%, said they needed 5–7%, while around 30% said they needed 7–9%. Another 16% said they needed more than 9%.

That puts a large share of respondents above what cash and traditional defensive assets have historically provided in many market environments.

It also helps explain why equities remain so popular. But it raises the same question running through the survey: are investors being adequately compensated for the risks they are taking to reach those yield targets?

The equity comfort zone remains dominant

Australian equities dominate, selected by 2,353 respondents (89.2%), followed by global equities at 1,219 (46.2%) and cash at 1,130 (42.8%). Term deposits also remain prominent, while property, infrastructure, REITs, hybrids, private credit and bonds sit well behind.

(Note: Respondents could select multiple options)

This is not especially surprising. Australian equities are familiar, liquid, widely held, and often associated with dividends and franking credits. For many local investors, they remain the default income asset.

What’s more interesting is the lack of exposure to corporate bonds (12.4%), government bonds (9,5%), private credit (14.7%), and other credit-style assets. These sit in the middle ground between cash and equities but appear to play a much smaller role in respondents’ income portfolios.

We’d love to hear from readers – if you’re relying on your investments for income, especially if you require a yield in the 5-7% p.a. range, but you don’t use fixed income, why is that? Let us know in the comments. 

Planned increases still point back to equities

The forward-looking result tells a similar story; when asked where they were most likely to increase exposure for income over the next 12 months, respondents again favoured Australian equities, followed by global equities. Term deposits were a distant third, with cash also attracting some interest.

By contrast, planned increases to government bonds, corporate bonds, hybrids, private credit, REITs, infrastructure and alternatives were comparatively modest.

That is where the survey becomes most revealing. Even among investors with higher yield requirements, the response does not appear to be a broad move into specialist income assets. The preferred answer is still equities.

Equities can provide income, growth and inflation sensitivity. But they also bring equity-market risk. For investors seeking stability and regular cash flow, the concentration of attention around shares suggests the middle of the income market may still be underused.

Cross-analysis section: The higher-yield puzzle

Among respondents who said they needed yields above 7%, the planned response was still not a wholesale shift into private credit or specialist income assets. Most continued to favour Australian and global equities, suggesting many are trying to solve the income challenge through equity exposure rather than a broader mix of income assets.

There was also an interesting split in expectations. Respondents who said they needed more than 9% were more likely to expect higher future returns, with 19.8% expecting returns to rise. By contrast, those needing yields between 5% and 9% were more likely to expect lower returns, with around 39% saying they expected returns to fall.

That combination is worth watching. The investors with the highest yield needs may not necessarily be the most diversified across income assets. In fact, the survey suggests some respondents requiring more than 9% may have a narrower current income toolkit, despite needing higher returns.

Conclusion

In my view, the income conversation in 2026 needs to be broader than cash and dividends alone. Many respondents want regular income, need yields above 5%, expect lower long-term returns, and remain sensitive to policy and tax changes. Yet relatively few appear to be making major use of the income assets that sit between cash and equities, including credit, duration-hedged fixed income, listed private credit and other specialist income strategies.

Of course, these assets carry their own risks, and some require more care than a simple dividend portfolio. But if the challenge is to generate reliable income without relying too heavily on equity risk, then the “middle” of the income market deserves a closer look.

That is where this year’s Income Series begins.