Net-Teams, Inc.
HOME | Membership Websites | SMM Solutions | CRM Solutions | Online Training Systems | Publishing | Clients | Guarantee | Log In

Income Investing: News, Information, Opportunity

Submitted by The Investment Shadow | RSS Feed | Add Comment | Bookmark Me!

Whoa! Stop! Hang on a minute. There is absolutely nothing scary about falling income security prices. There is nothing to be particularly concerned about or afraid of. Relax, take a few deep breaths, and read on.

The future fall in income security prices is all the buzz in the financial media these days, but why does this translate into such fear and confusion? I saw a news report the other day that encouraged investors to abandon their income ship and sail away on a stock market steamer that has been cruising steadily higher since March 2009!

And lest we forget, the over-riding purpose of investing in income securities is, drum roll please, the generation of income. That's income, Alice, not growth in market value. Just income.

Income securities, as measured by an index of high quality closed end funds (CEFs), are roughly 65% above where they were at the bottom of the financial crisis and, more importantly, precisely within their normal price range of the past twelve years. The most conservative CEFs are yielding from 5.5% tax-free to 7% taxable.

There are reasonable explanations for recent price volatility --- there are excellent reasons why investors should be viewing all price weakness as a buying opportunity. Clearly, the financial press has not attended any of my income investing seminars. Lower prices and higher yields are good news for income investors!

One: Income security prices vary inversely with interest rate expectations (IRE) --- freshman finance. After several years of historical (hysterical) lows, the world expects interest rates to rise during the next few years.

Two: Rising IRE, regardless of its impact on the price of fixed income securities, has absolutely no impact whatsoever on the income generated by existing securities. In fact, in CEFs, it will eventually lead to higher payout levels when managers have access to higher yielding instruments.

Three: The surging stock market has outsmarted most mutual fund managers, and rather than look stupid by holding income securities, they are taking losses in that area and "window dressing" their portfolios with equities that MCIM (Market Cycle Investment Management) investors are taking profits on.

Inexperienced investors too, much too often, move from income to equity at precisely the wrong time.

Four: Rumors about the weakness of individual state treasuries may lead to some downgrading of their bond offerings, and this certainly has added some pressure to municipal bond pricing --- but there hasn't been a significant Municipal Bond default since the WHOOPS fiasco of the early 1980s.

CEFs contain hundreds of different issues, and defaults are not likely to occur when so many other fiscal alternatives are available. Perhaps the state employee unions will be forced to weaken their stranglehold on private sector worker pocketbooks.

Five: As any MCIM practitioner would explain, income CEFs have been a bountiful landscape for profit taking as they rebounded from the price "haircut" of the financial crisis. By adding to positions during the 24-month decline, profits were quick to appear as prices rose to normal levels --- profit taking has been replaced by other investors' irrational loss taking, as CEF income continues unabated.

Six: Recent speculation that Congress would raise income taxes led to increased demand for tax-free securities. Now, with that nearly certain, demand may increase again.

Seven: CEFs, and the securities they own, are much less liquid than equities. Consequently, when there are more sellers than buyers (for whatever reason), prices will fall more quickly --- but the impact on income? Nadda.

Eight: During December and January each year, most CEF managements disburse their accumulated capital gains. This welcomed "bump-up" in income to investors is recorded in the market as a reduction in price as the cash is distributed to shareholders.

So now you know why closed-end income fund prices, particularly for tax-exempt issues, are where they are today --- roughly 20% below their highest levels ever, and begging for your attention. I look at it as a double Holiday bonus (or "gelt", for those of you who know).

Whether it is profit taking by MCIM aficionados, or loss taking by window-dressers; whether it is irrational "priceaholism" or simple issues of supply and demand --- history tells us what to do about it.

When prices rise, we take our profits, reinvest and increase our cash flow. When prices fall, we reinvest our unaffected (even increased) earnings, reducing cost basis while increasing yield on investment. Double your holiday pleasure with increased distributions and lower priced shares to choose from.

Have you ever had so much fun? Who says income investing is boring!


Contact Us
Support and Sales
Contact Us

LinkedIn Recommendation: Carl Madden - Search Engine Marketing Consultant at Osato Tree - There are many times I have been stuck on something, but now I that I am working with Teo Graca, I know I can get unstuck quickly. He has a way of getting at the meat of the solution to any problem when it comes to business planning. I really don't know anyone with such a well rounded skill set. I think that is what makes it possible for him to do what he does. I highly recommend Teo and Net-Teams! - March 15, 2012, Carl was Teo's client

Welcome!

Search Articles On Net-Teams

Featured [income investing] Articles:
Net-Teams - Helping Businesses Prosper With Custom CRM, SMM and Online Training - Net-Teams, Inc. (NTI) is a technology and marketing firm and offers access to a core set of system t...
The Benefits Of A Membership Program For Your Website - Building membership through your website allows you to automate the acquisition of prospects and cus...
eWorkshop Hosting - The More Effective Way to Build Your Business with Online Ed - More and more companies are using eWorkshops to reach out to customers, prospects and employees. An ...
eWorkshop Publishing From Net-Teams - As many people are discovering, self-publishing is a time consuming venture, which takes time away f...
What is Social Media Management And Why Is It So Critical? - Whether or not you have a customer relationship management (CRM) system in place, there is one key r...

Related Tags (related articles): income investing (33), CEF (127), media (370), securities (87), fixed (82), equities (30), Wall Street (156), markets (211), interest (1045), Fed (121), government (159), taxes (82), yield curve (2), index (79)