A good yield is hard to find.

With interest rates so close to zero across the board, many investors are undoubtedly wondering whether they can afford to keep a portion of their portfolio safe.

In fact, you can’t afford not to.

Since the Federal Reserve is depressing interest rates, it seems only fair that I should depress you. So please allow me to point out that $100,000 in a savings account will earn, if you’re lucky, $220 in interest income in 2020. That’s $1,509 less than you would need to outpace inflation this year, estimates J.P. Morgan Asset Management.

As recently as 2010, the yield on your savings account would have nearly kept up with the cost of living. For most of the years from 1985 through 2007, the return on cash resoundingly beat inflation.

Today, at banks, the national average interest rate on savings accounts is 0.16%, according to DepositAccounts.com; the average one-year certificate of deposit yields 0.46%.

U.S. investors have amassed $4.79 trillion in money-market funds, says Crane Data, a firm in Westboro, Mass., that tracks cash accounts. Yet the average money fund yields a piddling 0.03% in interest income. In the third quarter, reckons Crane, investors pulled $238 billion out of these funds. Yield is so hard to come by that several asset managers have begun shutting down tax-free money funds.

Investing for income in this environment is like trying to squeeze water out of a fistful of sand at high noon in Death Valley. The standard advice from pundits and financial planners is to squeeze more desperately: If you take a lot more risk, you can wring out a little more income.

You could, for instance, buy stock in electric utilities, banks and other financial companies, real-estate investment trusts or master limited partnerships in the energy industry. All offer the promise of high dividend income, often 4% and up. In recent years, especially since the financial crisis of 2008-09, all have been described as “bondlike” by promoters touting their supposed safety.

This year has subjected these assets to wholesale slaughter. In the first nine months of 2020, utilities lost 6%, real estate 7%, financials 20% and MLPs 49%, as measured by leading exchange-traded funds that invest in those sectors.

The performance numbers include the dividend income these investments distribute. So even after earning big dividends, investors suffered even bigger losses. The income didn’t come with safety; it came at the price of safety.

Meanwhile, in the bond market, the siren song of low risk may never have been louder, says Nancy Davis, founder of Quadratic Capital Management LLC in Greenwich, Conn., and manager of the Quadratic Interest Rate Volatility and Inflation Hedge ETF. In late September and early October, she says, interest-rate volatility hit all-time lows in data going back to 1988.


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With the Fed seeming to assure near-zero interest rates for years to come, says Ms. Davis, more bond investors may feel forced—or emboldened—to take extra risk.

She likens this dilemma to a scene of two nautical hazards in “The Odyssey” by Homer. “It’s like trying to steer between the Scylla of ridiculously low yields and the Charybdis of credit risk and interest-rate risk,” says Ms. Davis. “Even a little bit higher rates can cause you to lose a year’s worth of return in a day.”

One of Wall Street’s favorite adages is “Don’t fight the Fed.” That means that when the Federal Reserve is raising interest rates, which generally hurts the prices of stock and bonds, investors should be conservative. When the central bank is cutting rates or keeping them low, investors should be aggressive.

If you want to keep some of your money safe, however, you need to defy that maxim. You should fight the Fed.

I like to say that at least 90% of what makes investors successful isn’t knowing what to do, but knowing what not to do.

If you invested $10,000 in a 10-year Treasury note at this week’s prices, it would yield you less than $77 in income over the next 12 months. Even a 30-year Treasury will yield only $156 in annual income on a $10,000 investment.

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So it’s never been more tempting to take extra risk with the money you want to keep ultrasafe. But knowing what not to do is vital.

Fooling yourself into thinking that you can find absolute safety in any asset yielding more than 1% is a terrible idea. We live in a 1%, if not a sub-1%, world right now. Nothing you do can change that.

You can earn 1.06% on up to $10,000 invested in I-bonds, inflation-protected U.S. savings bonds. You can shop around for savings accounts that yield almost 1% or CDs that yield a pinch more. But you have to recognize that anything above that comes with risks, and risks have consequences.

When your future self looks back at the decisions you face now, which will you regret more: Earning less income than you could have but keeping your cash safe, or earning higher income that came at the cost of destroying your capital?

Write to Jason Zweig at intelligentinvestor@wsj.com

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