{"id":21983,"date":"2011-06-28T13:00:45","date_gmt":"2011-06-28T17:00:45","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=21983"},"modified":"2011-06-28T13:00:45","modified_gmt":"2011-06-28T17:00:45","slug":"5-things-every-income-investor-needs-to-know-now","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/06\/28\/5-things-every-income-investor-needs-to-know-now\/","title":{"rendered":"5 Things Every Income Investor Needs to Know Now"},"content":{"rendered":"

<\/strong>By Carla Pasterna, DividendOpportunities.com <\/a><\/strong><\/span><\/p>\n

We’re sitting on the edge. This year, 2011, \t\t\t\t\tmarks the tipping point.<\/span><\/p>\n

Don’t worry; it’s nothing dangerous. In fact, if you’re an \t\t\t\t\tincome investor, this might be the start of a very \t\t\t\t\tprosperous trend.<\/p>\n

In 2011 the first of 75 million Baby Boomers will hit 65 — \t\t\t\t\tretirement years. You might be among them. This marks a \t\t\t\t\tmajor shift for millions of people that will play out over \t\t\t\t\tthe next years and decades. And I think that it could mean \t\t\t\t\tsoaring popularity for income investing.<\/p>\n

In fact, my colleague Amy Calistri outlined the case in \t\t\t\t\ta \t\t\t\t\trecent Dividend Opportunities<\/em> article<\/a>:<\/p>\n

\n\n\n\n
“Think about it. Some estimates \t\t\t\t\t\t\t\thave this group [Baby Boomers] controlling over \t\t\t\t\t\t\t\t80% of personal financial assets — that’s \t\t\t\t\t\t\t\ttrillions of dollars. Much of that is tied up in \t\t\t\t\t\t\t\thousing and other non-liquid investments, but \t\t\t\t\t\t\t\tthere are still loads of cash in traditional \t\t\t\t\t\t\t\tspots. According to the Investment Company \t\t\t\t\t\t\t\tInstitute, there is $10.7 trillion in mutual \t\t\t\t\t\t\t\tfunds alone.<\/span> <\/p>\n

As Baby Boomers wind down their working years, \t\t\t\t\t\t\t\tthey’re going to do what retirees before them \t\t\t\t\t\t\t\thave done — shift from riskier stocks and \t\t\t\t\t\t\t\tcommodities into more buttoned-down income \t\t\t\t\t\t\t\tinvestments. In fact, given the rocky market \t\t\t\t\t\t\t\tover the past decade and disappearing pensions, \t\t\t\t\t\t\t\tthe shift could be larger than most people \t\t\t\t\t\t\t\tthink.”<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

This could lead to a golden age for income \t\t\t\t\tinvesting. But as attractive an opportunity this may be, \t\t\t\t\tthere is no guarantee the graying of the Baby Boomers will \t\t\t\t\tsimply lead to a massive bull market across all<\/em> income securities. That’s why it’s still most<\/span> important to select high-quality ideas. \t\t\t\t\tIf you do this, then any broad bull \t\t\t\t\tmarket will simply be icing on the cake.<\/span><\/p>\n

So to help you find the best high-yield plays — and \t\t\t\t\tmaximize your returns — I’ve rounded up some of my favorite \t\t\t\t\tincome investing tips. I use these tips personally to help guide my portfolio \t\t\t\t\tchoices in High-Yield Investing<\/em>, so no matter your \t\t\t\t\texperience level, they should give you an edge in finding \t\t\t\t\tthe best income investments on the market. And if we see the \t\t\t\t\tbig shift into income securities in the years and decades \t\t\t\t\tahead, all the better.<\/p>\n

Tip #1 – Look off the beaten path:<\/strong> Always remember \t\t\t\t\tthat yield is a combination of dividends paid and share \t\t\t\t\tprice. If prices rise, the yield on a security falls, all \t\t\t\t\telse being equal.<\/p>\n

So what will happen to many of the most popular high-yield spots \t\t\t\t\tif millions more are looking for solid income? Their prices \t\t\t\t\twould likely rise, pushing yields down.<\/p>\n

That’s why I think it’s valuable to look off the beaten path \t\t\t\t\tfor higher yields. You have to look into the special classes \t\t\t\t\tof securities built for income investors. My years of \t\t\t\t\tresearching the income field have uncovered even the most \t\t\t\t\trare of these assets, including securities like \t\t\t\t\t business development companies<\/a>, stapled products, \t\t\t\t\tmaster limited partnerships<\/a>, and \t\t\t\t\teven exchange-traded bonds. This is where you’ll \t\t\t\t\tuncover truly mouth-watering yields overlooked by the \t\t\t\t\tmajority of investors who are focused on common stocks.<\/p>\n

Tip #2 – Dividend safety is key:<\/strong> For us income \t\t\t\t\tinvestors, nothing should be held in higher esteem than the \t\t\t\t\tsafety of our dividends. After all, what’s the use of a high \t\t\t\t\tdividend if it’s only going to be cut a few weeks later?<\/p>\n

But an amazing thing happens when you follow my first tip \t\t\t\t\tand look off the beaten path for income investments.<\/p>\n

Common stocks are under no obligation to pay a dividend; \t\t\t\t\tthey can cut their payments at any time if they please. But \t\t\t\t\tI’ve found a few securities — such as preferred stocks — \t\t\t\t\tthat can’t change or reduce their payments. A number of \t\t\t\t\tother little-known securities have the same restrictions, \t\t\t\t\tall but guaranteeing you’ll be paid a stream of income you \t\t\t\t\tcan count on.<\/p>\n

<\/span><\/p>\n\n\n\n
<\/ins><\/ins><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/span><\/p>\n

Tip #3 – Use market downturns to find higher yields:<\/strong> Most investors look at a market downturn as a bad thing, and \t\t\t\t\tin fact, I would rather the market rise than fall. But I \t\t\t\t\talso appreciate the opportunities that appear in a downturn.<\/span><\/p>\n

As I said, a stock’s yield is a function of its price. If a \t\t\t\t\tstock pays $1 per share and trades at $20, its yield is 5%. \t\t\t\t\tIf the same stock dips to $10 per share, the yield has risen \t\t\t\t\tto 10%.<\/p>\n

That’s one reason why I bought heavily during the recent \t\t\t\t\tmarket downturn — the yields became too high to ignore! If \t\t\t\t\tyou can stomach volatility during a bear market, you’ll \t\t\t\t\tlikely have a chance to lock in unnaturally high yields.<\/p>\n

Tip #4 – Don’t be afraid to take a loss:<\/strong> High-Yield \t\t\t\t\tInvesting<\/em> subscribers always ask me when to sell \t\t\t\t\ttheir holdings. And for good reason — when you sell is just \t\t\t\t\tas important as when you buy.<\/p>\n

I’m personally never afraid to take a loss. Many investors \t\t\t\t\tcontinue holding losing stocks and hope for a rebound, \t\t\t\t\tonly to watch them sink further. I’ve seen this countless \t\t\t\t\ttimes, so I’m always sure to look at the reasons a holding \t\t\t\t\tis falling and if I should sell.<\/p>\n

If the stock in general is falling with the market, I may \t\t\t\t\tnot be worried. However, if a change in the company’s \t\t\t\t\toperations mean it could see rocky times ahead, I don’t want \t\t\t\t\ta part of it.<\/p>\n

Tip #5 – Taxes matter:<\/strong> When is a lower yield more \t\t\t\t\tattractive than a higher yield that’s just as safe? When the \t\t\t\t\tlower yield is taxed at a lower rate.<\/p>\n

Consider this: An investor in the top federal tax bracket is \t\t\t\t\tinvested in a municipal bond that pays 6%. Because the \t\t\t\t\tincome from this bond is tax-free, the taxable-equivalent \t\t\t\t\tyield is actually 9.2%! In other words, if the same \t\t\t\t\tinvestment were in a fully taxable security, our investor \t\t\t\t\twould have to earn 9.2% to have the same income after taxes.<\/p>\n

It doesn’t take long for that difference to add up to \t\t\t\t\tserious cash.<\/p>\n

Good Investing!<\/span><\/p>\n

<\/span><\/p>\n

\"\"
\nCarla Pasternak’s Dividend Opportunities<\/em><\/span><\/p>\n

<\/em>P.S. — Don’t miss a single issue! Add our address, \t\t\t\t\tResearch@DividendOpportunities.com<\/a><\/span>, to your Address Book or Safe List. For instructions, \t\t\t\t\tgo here<\/a>.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Consider this: An investor in the top federal tax bracket is invested in a municipal bond that pays 6%. Because the income from this bond is tax-free, the taxable-equivalent yield is actually 9.2%! In other words, if the same investment were in a fully taxable security, our investor would have to earn 9.2% to have the same income after taxes.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-21983","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/21983","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=21983"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/21983\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=21983"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=21983"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=21983"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}