Saturday
Update on Selected Income Investments
Some traders are even selling these funds SHORT, although we do NOT recommend doing so.
Instead, we are recommending NON-leveraged funds such as NCA, which invests in high-quality investment grade bonds, is tax-free for the residents of 8 states (otherwise you will owe only state taxes) and pays 4.7% tax-free. In addition to this handsome yield--which beats fixed annuities, many equity-indexed annuities and CDs--we think you may also enjoy price appreciation!
NCA has a tax-equivalent yield of about 7.2% for many investors. HOW MANY ANNUITIES OR CDs DO YOU KNOW OF THAT CAN MATCH A 7.2% TAX-EQUIVALENT YIELD AND PROVIDE LIQUIDITY WITH NO SURRENDER CHARGES?
Another outstanding tax-free fund to consider is ICS, which has a high tax-free yield and contains a large percentage of AAA-rated insured bonds. The yield for ICS and NCA is tax free for residents of California, Florida, Nevada, Texas and any other states with no income taxes. Otherwise, only a small state tax will be owed.
ICS and NCA far exceed the after-tax yields of CDs or money market accounts and they are totally liquid. There are no early withdrawal penalties. You can get to your money any day the stock market is open.
Charles Schwab, Ameritrade, ETrade or any other brokerage firm account enables you to buy tax-free funds such as ICS and NCA at extremely low commission rates. For as little as a $10 commission, you could buy $100,000 or even $1 million of NCA or ICS.
Another great benefit of many of these closed-end bond funds is that they sell for below the value of their extremely high-quality bonds. This is something that nomutual fund or annuity can say.
Many very successful Income Planners start their clients out in liquid tax-free bond funds such as NCA or ICS. Later, when their clients want no volatility and absolute safety of principal, they move them to equity indexed annuities or variable annuities. A number of Income Planners have built multi-million dollar practices by doing so. Most importantly, they have helped their clients reach their financial goals.
Income Planners are attracting many high net worth clients and multi-millionaires with NCA and other similar offerings such as ICS. Many of these wealthy investors will later buy annuities from you and will bring you much additional money to manage. In addition, they are providing Income Planners with a great number of referrals.
New Income Recommendation
Major corporations buy billions of dollars worth of these bonds to fund pension plans. For example, if you need to pay your retirees $50 million in benefits in 20 years, you can figure out exactly how many of these bonds you need to buy to TOTALLY FUND that obligation.
This powerful concept is called "pension immunization" and it can prevent the serious problem of pension underfunding.
These long term bonds are also a favorite of governments around the world. The 20 year US Treasury Bond is the new gold standard in income investments.
TLT currently pays more than 4.50% interest each year. Plus, these bonds may have appreciation potential (there are no guarantees).
It can be a hassle to buy individual Treasury bonds. Now, you have a convenient and easy way to buy just the amount of Treasury bonds you want. The yield is higher than CDs and most fixed annuities and the TLT is totally liquid.
You can buy and sell TLT any day the market is open.
TLT is highly liquid. The average trading volume is more than 1.38 million shares!
For ultra-conservative quality minded investors, we recommend buying TLT. For sophisticated advisors who would like to get an even higher yield, we recommend buying TLT and using the options strategy.
Many people were recommending Treasury bonds when they were at 97 earlier this year. We did not recommend them then. Now that TLT has dropped so much in price, we think it makes an outstanding investment--especially since it is backed by the full faith and credit of the US government and yields 4.5%, totally free of state tax!
Countries such as China, Japan and others buy tens of billiions of dollars in US Treasuries. They do not buy annuities. THIS OFFERS SIGNIFICANT PRICE SUPPORT FOR US TREASURIES. Especially now that the price has dropped, this makes TLT a compelling investment.
Update on Frontline (FRO)
While this trade has been profitable every single month in 2005, there is no guarantee that it will continue to make money every month.
So far, 100% of our recommendations on Frontline have been profitable. We cannot guarantee that in the future, but we will do our absolute best to help you make money with Frontline and all of your other income investments.
This stock, FRO, the largest oil tanker company in the world, has performed very well over the past 1 1/2 years. Last year, between earnings and dividends, it was up more than 100%. FRO paid dividends of more than 20% in 2004. The price appreciated more than 80%.
At the time, the dividend alone was the equivalent of about ten years of bank interest on 1 year CDs. Income investors have loved Frontline.
This year, the price is down, giving FRO a P/E ratio of about 4 (that is not a misprint).
The reason some investors took positions in June was to capture the June dividend. It was $3.10. There were also large cash dividends in March and September.
NEW INFORMATION ON FRONTLINE
If some of your clients have wanted exposure to the energy sector and a way to simultaneously generate income, FRO may make sense for a portion of their portfolio.
Frontline is about a $2.5 billion company and is the largest company in its line of business, the shipment of oil, which is an essential business the world needs in order to function. TK is of similar size and ships more than oil.
Needless to say, the investments and/or investment strategies discussed here are not investment advice to any individual. All investments have risk and nothing is guaranteed.
We wish you and all income investors great success.
Disclosures and Warnings
Always check the timeliness of an investment before you make an investment decision.
We believe in income choice. No income investment is right for everyone.
Positions and recommendations can change at any time without warning or notice. The author may hold positions, either long or short, in securities, options, mutual funds, exchange traded funds (ETFs) or indexes mentioned on this site. Dr. Moine may also hold positions, either long or short, in investments not mentioned on this site.
Dr. Moine is not responsible for the investment decisions made by any individual or any financial advisor.
Information shared on this site is believed to be from accurate and reliable sources. However, this information cannot be guaranteed.