Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Income Investing Today -- book
Old 01-18-2008, 03:55 PM   #1
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
Income Investing Today -- book

I recently read Income Investing Today by Richard Lehmann. He advocates a broadly diversified assortment of preferred stocks, REIT preferreds, convertible preferreds, royalty trusts and high dividend stocks. There are even mutual funds that try to track some of these indexes as well as the usual assortment of managed funds.

His basic conclusion is that he can achieve the return of a typical common stock portfolio with much lower volatility and risk.

I'd like to know if anyone is juicing their fixed income returns this way. There is market risk but they are paying significantly above current CD rates.

Is there a place for a 5% asset allocation in this area?
__________________

__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-18-2008, 04:13 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
There is probably room for a 5% allocation to anything.

I have started doing this with my FI allocation. The credit market sell-off has made yields a LOT more juicy and you can now get an attractive yield even on pretty solid credits. But the ride is more bumpy with this approach vs. a bond index.
__________________

__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 01-18-2008, 09:47 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Apr 2007
Posts: 1,304
Quote:
Originally Posted by 2B View Post
I recently read Income Investing Today by Richard Lehmann. He advocates a broadly diversified assortment of preferred stocks, REIT preferreds, convertible preferreds, royalty trusts and high dividend stocks. There are even mutual funds that try to track some of these indexes as well as the usual assortment of managed funds.

His basic conclusion is that he can achieve the return of a typical common stock portfolio with much lower volatility and risk.

I'd like to know if anyone is juicing their fixed income returns this way. There is market risk but they are paying significantly above current CD rates.

Is there a place for a 5% asset allocation in this area?
Yes, I am 'juicing' as you call it, my fixed income stream with preferreds, royalty trusts (Canadian oil), and muni's. You need to be doing this strictly for income reasons, as over the past few years, the value of these things rollercoasters. If you are a panicker, then this is not for you. You have to close your eyes to the day to day values and just say thank you for the monthly income stream. I get over 7.5% return (tax adjusted for muni's). But the ride can make you dizzy if you are the nervous type. It makes up about 25% of my portfolio and allows me to FIRE in a bit more comfort.
__________________
Life is GREAT!
megacorp-firee is offline   Reply With Quote
Old 01-19-2008, 07:54 AM   #4
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
Quote:
Originally Posted by megacorp-firee View Post
Yes, I am 'juicing' as you call it, my fixed income stream with preferreds, royalty trusts (Canadian oil), and muni's. You need to be doing this strictly for income reasons, as over the past few years, the value of these things rollercoasters. If you are a panicker, then this is not for you. You have to close your eyes to the day to day values and just say thank you for the monthly income stream. I get over 7.5% return (tax adjusted for muni's). But the ride can make you dizzy if you are the nervous type. It makes up about 25% of my portfolio and allows me to FIRE in a bit more comfort.
You are a lot more aggressive in this approach than I intend to be. I was looking at 5% with the upside, if it proves to work well, of up to 10%. The reason for the 10% max is exactly what you say - volatility.

Do you primarily own individual issues or do you buy the funds? Analysis of the individual issues seems to require a lot of attention considering the possibility of changing credit ratings and the terms of individual issues. That could turn managing this "fixed income" asset class into a j*b.

The appeal to me is that a 5 to 10% allocation returning in the 8% range just about puts my fixed income at 100% of my midrange living expenses. My equities would generate 100% fun money. A significant loss in principle wouldn't be a significant factor (ouch!) as long as the income continues.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Old 01-19-2008, 08:23 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Apr 2007
Posts: 1,304
Quote:
Originally Posted by 2B View Post
You are a lot more aggressive in this approach than I intend to be. I was looking at 5% with the upside, if it proves to work well, of up to 10%. The reason for the 10% max is exactly what you say - volatility.

Do you primarily own individual issues or do you buy the funds? Analysis of the individual issues seems to require a lot of attention considering the possibility of changing credit ratings and the terms of individual issues. That could turn managing this "fixed income" asset class into a j*b.

The appeal to me is that a 5 to 10% allocation returning in the 8% range just about puts my fixed income at 100% of my midrange living expenses. My equities would generate 100% fun money. A significant loss in principle wouldn't be a significant factor (ouch!) as long as the income continues.
You are correct, this could turn into a j*b. That is why I found a FA that charges me $1000/yr to help me find appropriate vehicles for my income side of the portfolio (as well as give me a yearly health check on the entire portfolio). They are individual issues, which the FA put me into. I paid no loads, I paid his firm a transaction fee which is a bit more than the big discounters. But since I am buying and holding, I kinda don't care. This is going into year 4 of this arrangement and I am happy.

The other side of my portfolio are 401k 'proprietary' (I don't know what else to call them) index funds (equities, bonds, reits) from megacorp and some taxable index ETFs, and cds and mm.

So the cd's, mm, and my 'income portfolio', along with my pension feed my day to day habits. My equities will be used to replenish my cd's, mm's. I do not touch the preferreds, muni's, and royalty trusts unless my FA tells me that something went south and we need to make an adjustment. So far no changes (if you are one that is concerned about churning).

As I said, if you are a 'tinkerer' and you won't be able to keep you hands off when your preferreds, reit's, and royalty trusts go down in value, then you probably shouldn't get into them. If you are using them to provide an income stream only, then you can do this. If your 10% allocation will give you 100% income target, then go for it. Since, like me you aren't (overly) concerned about losing some value from time to time, then I believe this strategy may be for you too.

Best of luck to you.
__________________
Life is GREAT!
megacorp-firee is offline   Reply With Quote
Old 01-19-2008, 08:48 AM   #6
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
Lehmann has a newsletter that I think is $195 per year. I looked at a sample and it has all sorts of details on individual recommendations. There are also various "portfolios" that are directed towards conservative, moderate and aggressive income investors.

I plan on looking at the performance of his recommendations from the sample newsletter dated August 2007. That should really show how wild the ride can be.
__________________

__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Income investing in IRA uncledrz FIRE and Money 5 07-23-2007 07:19 AM
Book report: "The Little Book of Value Investing" Nords FIRE and Money 5 01-08-2007 12:00 AM
Coffee Table Investing Book TromboneAl FIRE and Money 8 02-07-2006 12:30 PM
Book Report - Four Pillars of Investing cute fuzzy bunny FIRE and Money 24 03-25-2004 12:24 PM

 

 
All times are GMT -6. The time now is 10:13 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.