Category Archives: Stock Analysis

High Income Guide

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highincomeguideBy Andrew Packer (2013)

This book is a very hands-on guide that really tells you specifically which are the things to buy in the context of America.

There are 3 financial sources in America to secure “golden years” – Social Security, retirement account and value of home.

Today’s retirees face significant headwinds especially in inflation. Albert Einstein calls “compound interest is the most powerful force in the universe. Inflation is also a compounding force. A dollar invested today, with interest re-invested, performs substantially better than if you don’t re-invest.

In a 1994 book “Stocks for long run”, Siegel’s research showed that over a long enough time period, returns on stocks with the dividends reinvested beat every other asset class hands-down.

These are some of the guides that the author provides. However, it may not be latest and things may change. Hence, take it with a pinch of salt.

  1. 3 Dividend giants safe for income : – Johnson & Johnson, Wal-mart and Cisco.
  2. 3 REIT : – Realty Income, Long term care type of REIT (skilled nursing properties), Annaly Mortgage (NLY)  etc.
  3. 3 Master Limited Partnerships (MLPs) : – Kinder Morgan, Buckeye Partners, Boardwalk Pipeline Partners.
  4. 3 Trust Preferred Payout : = Nuveen Quality Preferred Income Fund (JTP), Goldman Sachs Preferred Series D, ING Perpetual Hybrid Trust.
  5. 3 Covered Call Opportunity : – ING Global Equity Dividend and Premium Opportunity Portfolio Fund (fund writes covered calls), Madison/Claymore Covered Call and equity Strategy fund, Blackrock Enhanced Dividend Achiever Trust.
  6. 3 Business Development Companies (BDC) : = Hercules Technologies Growth Capital, Ares Capital, Apollo Investment Corp.
  7. Currency Plays : – Aberdeen Asia Pacific Income Fund (FAX) – bond fund which is low risk and income oriented, some currencies trade in opposite direction of US$ :
    1. Currency Shares Australian Dollar Trust (FXA)
    2. Currency Shares Swedish Krona Trust (FXS)
    3. Currency Shares Mexican Peso Trust (FXM)

 

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The Story of Rich

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StoryofRichThe Story of Rich: A Financial Fable of Wealth and Reason During Uncertain Times by J.D.Joyce (2012)

This is an investing story that provides insights into dealing with your money and finding financial security. There is usual things like you must make a plan, have goals, risk tolerance, cash flow etc.

Tom’s brother put almost all of his money into investment portfolio and lived on capital gains and dividend payments. When market crashed, Tom’s brother’s portfolio dropped in value and stopped producing returns. He had to cash out part of his portfolio when it was undervalued just to have money to cover basic expenses.

Tom was not going to make the same mistake as his brother. He and his wife figure that they need a figure of $180,000 a year for living expenses and travel. So they took $720,000 – 4 years worth of cash flow – out of their potential investment funds and set it aside.

The first $180,000 was left in cash for year 1. Then they bought 3 certificates of deposit (CDs) for the remaining 3 years. They put $180,000 in a one year CF for the second year of the ladder, $180,000 in a 2 year CD for the third year, and $180,000 in a three year CD for the fourth year.

At first it was difficult to watch so much of our cash sitting in short- and medium-term fixed income assets, making virtually nothing. Infact, if you look at the real return after inflation, some of it may be generating a slight loss.

From the peak of the market in October 2007 through the trough in March 2009, the S&P 500 dropped 58%, while small caps fell 59% and international holding decline 62%. Tom looked around at his community of retired friends. Many had seen their cash flow dry up because they had everything invested in stock market or real estate.

“I was worried, of course,” Tom said. “But I wasn’t overly concerned because I knew I had over 2 years of cash flow before I needed to rely on earnings from my portfolio.”

The following year 2010 the stock market grew and their financial advisor started pointing out some healthy gains in their small caps. That’s when they revisited their cash flow ladder to prepare for the years beyond their original 4 year plan. They harvested some gains from the small cap assets and put them towards their cash flow savings for year 5 along with $30,000 they had saved in 2009. Three years into their cash flow ladder, they were pretty much set for year 5. Since then, they had been making similar preparations for year 6.