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Income investing idea
Old 09-20-2008, 09:12 AM   #1
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Income investing idea

I have a jumbo C.D. maturing soon. I'm looking for income investing ideas. I'm looking at pipeline MLP's but I don't really understand why they are so volatile so I'm hesitant to invest there since I don't understand them. Many were up yesterday as much as 12% just in one day. Why?? I don't mind moderate fluctuation in value because this is long term but I don't see much that interests me right now in bond funds or C.D.'s. Any ideas?
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Old 09-20-2008, 09:17 AM   #2
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Lots of things were up 12% yesterday. If you read the news headlines you will see that the government stepped in to prop up the stock market.

I'm amused at your post because you discuss very safe and riskless CDs in the same sentence as risky MLP's and both as solutions for income.

You can't make lots of money without taking on risk. So you have to tell us where you stand on risk. From your original post, I can't tell. Maybe you like to gamble with commodities, maybe you don't.

See also this related thread: Best place to stash cash?
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Old 09-20-2008, 09:26 AM   #3
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you can check out prevailing CD interest rates at www.bankrate.com to compare to what your local bank is doing for you for your jumbo.
i never owned a CD, believe it or not. but that may change in the next year...
question for you veteran CD owners: is the interest earned on CDs fully taxable? i'm in the 15% fed tax bracket now so i may look another look at them.
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Old 09-20-2008, 09:29 AM   #4
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CDs held in a Roth IRA are not taxed. CD interest earned in a traditional IRA is tax-deferred. CDs held in a taxable account ....
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Old 09-20-2008, 09:34 AM   #5
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Be careful about stretching too much for yield with your safe money. I put about 5% into closed end preferred funds early this year because of the great yields. They are now down about an average of 30% but seem to be maintaining their dividends for now. I don't know how long this will continue. I'm sure glad the 40% fixed/cash portion is all FDIC insured.
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Old 09-20-2008, 09:42 AM   #6
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Lots of things were up 12% yesterday. If you read the news headlines you will see that the government stepped in to prop up the stock market.

I'm amused at your post because you discuss very safe and riskless CDs in the same sentence as risky MLP's and both as solutions for income.

You can't make lots of money without taking on risk. So you have to tell us where you stand on risk. From your original post, I can't tell. Maybe you like to gamble with commodities, maybe you don't.

See also this related thread: Best place to stash cash?
Okay I'll try again. You are easily amused..Obviously I'm looking for more income than I can get with a c.d. Even though their risk is low they do have risks such as loss of purchasing power due to inflation. I know of no investment that is without risk. I'm very clear on the concept that reward and risk are closely correlated. That's not to say that some investments don't have a higher risk/reward ratio that others.. That goes to the cruxt of my question..Any ideas on income investing that provide more income than a c.d. but do not take on as much risk as a trip to Vegas?
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Old 09-20-2008, 09:08 PM   #7
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Okay I'll try again. You are easily amused..Obviously I'm looking for more income than I can get with a c.d. Even though their risk is low they do have risks such as loss of purchasing power due to inflation. I know of no investment that is without risk. I'm very clear on the concept that reward and risk are closely correlated. That's not to say that some investments don't have a higher risk/reward ratio that others.. That goes to the cruxt of my question..Any ideas on income investing that provide more income than a c.d. but do not take on as much risk as a trip to Vegas?
I think pipeline MLP qualify as having being good source of income and are less risky than a trip to Vegas. It is highly likely that their volatility will continue to be be very high, due to highly volatile energy prices, the credit crisis dramatically increasing expansion costs, and the dumping of MLPs by hedge funds facing liquidity crisis.

So I would be shocked if we don't see the stock prices raise and fall by 20-50% each month for the foreseeable future. Most of the MLP I own saw ~10% changes on a daily basis last week.

On the other hand I would expect to see distributions from them to remain flat to increasing modestly over the next year. For the most part their income is primarily related to volume of natural gas/oil and not the price. So if you buy them and resolve to not to look at the price for a year I think they are a good investment. FWIW (what you pay for it), I am lightening up on financials and increase MLPs in my search for higher income portfolio. If you are looking at more than 5 figure investment in MLP, the M* dividend investors newsletter covers them extensively, signing up the newsletter (30 day free trial) is money well spent.
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Old 09-20-2008, 09:38 PM   #8
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I think pipeline MLP qualify as having being good source of income and are less risky than a trip to Vegas. It is highly likely that their volatility will continue to be be very high, due to highly volatile energy prices, the credit crisis dramatically increasing expansion costs, and the dumping of MLPs by hedge funds facing liquidity crisis.

So I would be shocked if we don't see the stock prices raise and fall by 20-50% each month for the foreseeable future. Most of the MLP I own saw ~10% changes on a daily basis last week.

On the other hand I would expect to see distributions from them to remain flat to increasing modestly over the next year. For the most part their income is primarily related to volume of natural gas/oil and not the price. So if you buy them and resolve to not to look at the price for a year I think they are a good investment. FWIW (what you pay for it), I am lightening up on financials and increase MLPs in my search for higher income portfolio. If you are looking at more than 5 figure investment in MLP, the M* dividend investors newsletter covers them extensively, signing up the newsletter (30 day free trial) is money well spent.
thanks ...That's what I'm looking for..Do you prefer owning the MLP's to a closed end fund such as TYY? I like the idea of not having to complicate my tax return and spreading my risk..Any opinion?
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Old 09-21-2008, 07:40 AM   #9
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thanks ...That's what I'm looking for..Do you prefer owning the MLP's to a closed end fund such as TYY? I like the idea of not having to complicate my tax return and spreading my risk..Any opinion?
Again, they pay those higher rates because of higher risks. They may go along great for years but the risk doesn't go away. Also, some of these are depleting assets that won't go on "forever."

I own high income issues myself. I don't say no to them. Just use them in moderation. I include them in my equity asset allocation like REITs.
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Old 09-21-2008, 07:59 AM   #10
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I like the idea of a MLP mutual fund in general. Unfortunately last I looked TYY had a high expense ration 2% and appeared to be trading at a premium to the Net Asset Value. Especially now days that many CEF are trading at huge 20% discount to NAV. I also don't like the fact that it is not transparent, unlike most Closed End funds where I can get a comparison of the NAV on a daily basis TYY is always delayed. So I honestly dislike TYY in particular.

If you are in the accumulation phase you can by KMR which is a MLP that distributes additional shares instead of cash and has no tax issues.

My real recommendation is to subscribe to the newsletter and get the six (some have multiple securities) MLPs that it recommends. You can purchase 100 or 200 share for in total around 25-30K.

You will spend several hours your first year with turbotax cursing the IRS and their complicated rules but by the 3rd year it took me 5 minutes or less per MLP to enter the date.

The upside is you'll get a yield of around 7-8% from companies with very stable revenue that are IMO likely to keep up with inflation. (Actually all the ones I've owned the distribution growth have exceeded inflation). I thing of energy MLPs as slighlty exotic utilities stocks with higher yields. While it is true that some of them have depreciating assets most certainly pipeline the assets can last virtually forever (50-100 years) or well past my lifetime. Taxes are for the most part deferred on the distribution. The stock prices will very dramatically but the income will not.


I agree with 2B use them in moderation and treat them somewhat like REITs.
Most importantly I really urge you to do your homework on these things, which in my case is primarily (but not exclusively) reading the M* Dividend investor newsletter.
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Old 09-21-2008, 10:46 AM   #11
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Since everyone loses money in Las Vegas, it appears that you can handle a whole lotta risk. Go to ETFconnect.com, search on all ETFs, then sort on yield. Buy the top 5 or so ETFs and enjoy the ride. Furthermore, you might as well go for dividend-paying financial stocks.
Full disclosure: I've owned ING for years. It was up 14% on Friday and has a reported dividend yield of 8.3%. LOL!
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