Income from cash...where to invest?

[arebelspy]

I know you said you were scared off by your experience with rental/investment property but that's exactly what I've been doing lately. In the last year I've purchased 5 rental properties with cash. All of them were bank owned or short sales and I'm getting them at prices of less than 50% of what they sold for 5-6 years ago. I'm only buying townhouses (no yard maintenance) and newer units built since 2000 (less upkeep). Earning 9%+ and plenty of appreciation options down the road. I project those 5 units will bring an income stream of over $30k/year which is almost half of what I'll need when I do ER in 3-5 years.

The majority of this board aren't fans of landlording, save a select few. But I agree with you on investing in real estate right now, FWIW.

But maybe not for this topic, as someone looking to invest cash generally (but not always) wants it more liquid, which is one big downside of real estate. Still, I suppose they could always get lines of credit on the houses, if they didn't need it very liquid, but just potential access if necessary.

 

[tightasadrum]

We have a muni portfolio of 13 issues with a current yield of 4.48%.
Yields to first call range from 3.15% to 5.48%.
The earliest purchase in the muni portfolio was done in 2002, the most recent in 2010.
The first call dates range from 2012 to 2023.
20% is in AA3 rated, 11.5% in AA2 rated, and 68.5% in AA1 or better.
If you have several brokerage accounts, it pays to shop around because the markups can vary substantially.

Because of my investment real estate my tax bracket is typically pretty low. Because of that I've never felt muni bonds fit my needs. However, when pension and social security kick in a closer look may be in order.

 

[JOHNNIE36]

prosper.com, check it out

I just checked it out by going to your posted website and I see where the SEC has shut it down (prosper.com). I didn't read the entire article but that was enough for me.

 

[tightasadrum]

I would pursue the options listed above nd also look into a modest slice in junk. While not totally embarassingly good a deal, junk has sold off with equities and yields are reasonably attractive. You could also look at some floating rate loan funds or closed end funds. But these things are considerably more risky than a CD (but less than equities).

Of course I've heard of junk bonds, though I've never bought any, maybe it's the name that turned me away . But I'll admit I've never heard of floating rate loan funds. I suspect they may be above my pay grade of financial understanding, but I intend to investigate to see what it is.

 

[tightasadrum]

I only have CDs and munis. Have you thought having a ladder-CD approach ?

Just doing a CD ladder would probably be the easiest thing to. But I'm curious about maybe trying other options, I might even learn something I never knew before. I failed to mention that I signed up for a class being taught at church about investing that starts with the first of three sessions next week. And the price is right...,free! (I know, I know. It's worth what you pay for it.) But the instructor is a retired economics professor that I have a lot of respect for. He called the dot.com collapse months before it happened. Of course I didn't listen.

Sorry I forgot to say that it is nice to read your wife is doing better. Take care.

Thank you. She's had a very rough three years or so. It was so good that I had stopped working just before her cancer diagnosis. The accident, that totaled her car, was an unfortunate complication. The other driver apparently was texting when he hit her. Badly broken arm required surgery and rehab. Things are greatly improved now, and her spirits are finally back to her old self.

 

[justplainbll]

Because of my investment real estate my tax bracket is typically pretty low. Because of that I've never felt muni bonds fit my needs. However, when pension and social security kick in a closer look may be in order.

I've dabbled with tax-exempts for nearly 40 years. Back then they were bearer bonds with interest coupons. We began a more serious program of investing in munis ten or so years ago, after being retired for six years. In 2005 we further stepped up tax exempt investment activity to diversify investment of inherited monies.
So far, we've been relatively fortunate by having spread our purchases over a relatively long period of time rather than all at once at a point in time where the market rates were as unfavorable as they perhaps are today.

 

[tightasadrum]

I know you said you were scared off by your experience with rental/investment property but that's exactly what I've been doing lately. In the last year I've purchased 5 rental properties with cash. All of them were bank owned or short sales and I'm getting them at prices of less than 50% of what they sold for 5-6 years ago. I'm only buying townhouses (no yard maintenance) and newer units built since 2000 (less upkeep). Earning 9%+ and plenty of appreciation options down the road. I project those 5 units will bring an income stream of over $30k/year which is almost half of what I'll need when I do ER in 3-5 years.

The majority of this board aren't fans of landlording, save a select few. But I agree with you on investing in real estate right now, FWIW.

But maybe not for this topic, as someone looking to invest cash generally (but not always) wants it more liquid, which is one big downside of real estate. Still, I suppose they could always get lines of credit on the houses, if they didn't need it very liquid, but just potential access if necessary.

If I was younger, I would jump all over this real estate market opportunity. Of course, if I was much younger I wouldn't have a lot of money to invest in it either. (I was once so leveraged buying real estate that I was taking out personal loans from people I didn't even know to make the purchases. And the market for buying was not nearly as good as it is today. Thankfully it all worked out so far.) But the work involved maintaining rental property can be inconvenient to someone that might want to do other fun things. Of course all my friends expect me to die with my boots on cleaning out someone's drain or something, and I'll admit I don't hold up well to idleness. The bottom line is that I think I've got enough in the real estate sector of my portfolio. But you never know...I still have a hard time walking away from a great opportunity.

 

[brewer12345]

Of course I've heard of junk bonds, though I've never bought any, maybe it's the name that turned me away . But I'll admit I've never heard of floating rate loan funds. I suspect they may be above my pay grade of financial understanding, but I intend to investigate to see what it is.

Start by looking at FFRHX, a Fidelity fund that invests in this stuff and which has a long track record. These are junk-rated bank loans that have floating interest rates, a fair amount of credit risk, and some decent yield. The loans typically have better investor protections (collateral, borrower restrictions, etc.) than junk bonds, so it is a way to get soe extra yield without taking as much risk as junk bonds.

 

[NYEXPAT]

Have you considered an offshore CD ladder or treasury bonds in a developing economy? Some countries offer CD's in both Dollars and local currency (currency and inflation risk) and the banks tend to be better capitalized. You will get a higher rate in the local currency. Here in Peru I can get the following:
10 year treasury = 5.7% with 2.5% inflation. Must hold to maturity (8-9 years) as you are paying more than par value.

Municipal Caja CD = Equivalent to a savings and loan only they are owned by the Municipality where they lend.

DW is currently getting 8-9.5% for 1-3 year CD's in local currency. Rates in Dollars are maybe 1% less.

Mortgage rates are currently 10.5-11 % for a 20 year mortgage and the caja also does Micro-financing with rates up to 52% interest on loans of $80.00 -$200.00

You need to do due diligence on the banks/caja with the ratings agencies, be familiar with inflation rates (i.e Brazil 7.6%) and be aware that because of the expected recessions in USA and Europe, Many developing countries with Fiscal
surpluses have held the Prime rate steady for four months and anticipate lowering in the coming quarters, which will negatively impact CD rates going forward.

 

[tightasadrum]

Have you considered an offshore CD ladder or treasury bonds in a developing economy? Some countries offer CD's in both Dollars and local currency (currency and inflation risk) and the banks tend to be better capitalized. You will get a higher rate in the local currency. Here in Peru I can get the following:
10 year treasury = 5.7% with 2.5% inflation. Must hold to maturity (8-9 years) as you are paying more than par value.

Municipal Caja CD = Equivalent to a savings and loan only they are owned by the Municipality where they lend.

DW is currently getting 8-9.5% for 1-3 year CD's in local currency. Rates in Dollars are maybe 1% less.

Mortgage rates are currently 10.5-11 % for a 20 year mortgage and the caja also does Micro-financing with rates up to 52% interest on loans of $80.00 -$200.00

You need to do due diligence on the banks/caja with the ratings agencies, be familiar with inflation rates (i.e Brazil 7.6%) and be aware that because of the expected recessions in USA and Europe, Many developing countries with Fiscal
surpluses have held the Prime rate steady for four months and anticipate lowering in the coming quarters, which will negatively impact CD rates going forward.

I have to say that of all the suggestions I might have expected, this wasn't one of them. I must admit that the rates are interesting. I, like most Americans probably, tend to be a wee bit narrow minded about anything outside of the US. I don't even speak a foreign language. But, how do you purchase these if you live in the US?

 

[MichaelB]

I have to say that of all the suggestions I might have expected, this wasn't one of them. I must admit that the rates are interesting. I, like most Americans probably, tend to be a wee bit narrow minded about anything outside of the US. I don't even speak a foreign language. But, how do you purchase these if you live in the US?

With great care and considerable risk.

 

[NYEXPAT]

I have to say that of all the suggestions I might have expected, this wasn't one of them. I must admit that the rates are interesting. I, like most Americans probably, tend to be a wee bit narrow minded about anything outside of the US. I don't even speak a foreign language. But, how do you purchase these if you live in the US?

I am sorry, I thought you were living in Greece!

From what I have read here, Most members who have done this have used Everbank, located in Miami but they are more currency oriented and their CD selection is limited.

If you have not "Offshored Assets" already your window is narrowing as we speak. US banking is becoming oppressive and many overseas banks are shutting down/no longer opening accounts for Americans because the reporting requirements are to costly (software implementation costs) to warrant doing business with.

Then you have Obama's 30% tax on all foreign transfers beginning Jan 2013.

If you decide to transfer money overseas, you should first visit the institutions (in person) get a "permission to sign contracts" in your passport, make yourself aware of any "in country" tax issues and you will be required to file a FBAR yearly with the IRS.

You also need to be sure you have a version of local FDIC insurance ( in Peru it is only S/.85,000 PER INSTITUTION).

 

[justplainbll]

Have you considered an offshore CD ladder or treasury bonds in a developing economy? Some countries offer CD's in both Dollars and local currency (currency and inflation risk) and the banks tend to be better capitalized. You will get a higher rate in the local currency. Here in Peru I can get the following:
10 year treasury = 5.7% with 2.5% inflation. Must hold to maturity (8-9 years) as you are paying more than par value.

Municipal Caja CD = Equivalent to a savings and loan only they are owned by the Municipality where they lend.

DW is currently getting 8-9.5% for 1-3 year CD's in local currency. Rates in Dollars are maybe 1% less.

Mortgage rates are currently 10.5-11 % for a 20 year mortgage and the caja also does Micro-financing with rates up to 52% interest on loans of $80.00 -$200.00

You need to do due diligence on the banks/caja with the ratings agencies, be familiar with inflation rates (i.e Brazil 7.6%) and be aware that because of the expected recessions in USA and Europe, Many developing countries with Fiscal
surpluses have held the Prime rate steady for four months and anticipate lowering in the coming quarters, which will negatively impact CD rates going forward.

Political risk (e.g. H.R. Chavez)?

 

[MichaelB]

I am sorry, I thought you were living in Greece!

From what I have read here, Most members who have done this have used Everbank, located in Miami but they are more currency oriented and their CD selection is limited.

If you have not "Offshored Assets" already your window is narrowing as we speak. US banking is becoming oppressive and many overseas banks are shutting down/no longer opening accounts for Americans because the reporting requirements are to costly (software implementation costs) to warrant doing business with.

Then you have Obama's 30% tax on all foreign transfers beginning Jan 2013.

If you decide to transfer money overseas, you should first visit the institutions (in person) get a "permission to sign contracts" in your passport, make yourself aware of any "in country" tax issues and you will be required to file a FBAR yearly with the IRS.

You also need to be sure you have a version of local FDIC insurance ( in Peru it is only S/.85,000 PER INSTITUTION).

NYEXPAT, we request members to keep political references (Obama's 30% tax) out of their posts because they lead to political discussion.

Would you care to reference your post on a new tax on foreign transfers?

 

[GregLee]

But, how do you purchase these if you live in the US?

I have a small investment in T. Rowe Price PRELX, Emerging Markets Local Currency Bond fund.

 

[justplainbll]

I am sorry, I thought you were living in Greece!

Touché

 

[justplainbll]

You need to do due diligence on the banks/caja with the ratings agencies, be familiar with inflation rates (i.e Brazil 7.6%)

Things go up and down but over the past 3 years the $US cost of the $R (Brazilian Real) has risen by > 30%.
Coupling that with a 30% emigration tax would imprison many people.

 

[NYEXPAT]

Would you care to reference your post on a new tax on foreign transfers?

H.R. 2847, Commonly referred to as the HIRE Act was signed into law in March of last year.

 

[MichaelB]

H.R. 2847, Commonly referred to as the HIRE Act was signed into law in March of last year.

Got it. Thanks. This is not a new tax, though. It's just withholding on transfers to foreign financial institutions that refuse to provide information to the IRS on US citizens with overseas accounts. This is to reduce tax evasion and should not affect most people. It also affects non-US entities transferring money out of the US when they might owe tax.

As related to the topic of this thread it should be a non-issue.

 

[justplainbll]

U.S. corporations earning income overseas do not have to pay US income tax on those earnings if they are not repatriated but U.S. citizens earning and keeping that income overseas have to pay U.S. income tax?

 

[MichaelB]

Lets try to stay on topic and away from issues that lead to politics.

 

[MichaelB]

I have a small investment in T. Rowe Price PRELX, Emerging Markets Local Currency Bond fund.

This is a fine alternative for anyone thinking about rates in Brazil or other emerging countries, with the added benefit of an experienced fund manager, diversified portfolio and available at most brokerages. TRP has a pretty decent EM team. PIMCO has a couple of similar offerings, Fidelity has one as well that are also good options.

 

[steelyman]

I parked my spare cash in FGMNX, a GNMA bond fund. Less volatility than most of the other options I looked at (particularly 2007-2009) and a decent current yield. Up a few percent in price from when I bought it, plus dividends. Much better than the 0% I was trying to beat. But I'm no bond investor, so maybe someone has a better current recomendation.

I have a pretty sizable amount of money that has been sitting (flatlining) in Fidelity's Select Money Market Porfolio within my 403(b) account and have been slowly transferring portions over to FGMNX in order to get a higher return. So far, so good although I would be interested in hearing what the risks are that are inherent in this approach. This is money I don't anticipate needing for about 6 years.

 

[clifp]

If you don't need the money for a couple of years. The two year Greek bonds are yielding 83% . Just think all you need to do is invest in the bonds for a week and you'll come out of most yields we have been talking about.

Now of course there is always the potential of defaulting but what are the odds they default the one week you own them.

 

[steelyman]

Coincidentally, I stumbled across an article (which I am not sure has been posted before) that offers some comments that relate to my questions about GNMAs a few posts back in this thread.

Here's a quote from early on in the article:

"I like [Ginnie Maes] because they are backed by the full faith and credit of the U.S. government," says George Hahn, a 77-year-old retired stockbroker in San Diego. "It seems like a lead-pipe cinch to me." Even after the U.S. lost its triple-A credit rating from Standard & Poor's last month, U.S.-government-backed obligations generally are seen as among the safest investments. But Ginnie Mae funds—the name refers to the federal Government National Mortgage Association—do have risks investors should consider.

Using Ginnie Mae Funds as a Cash Stash - WSJ.com

I have a pretty sizable amount of money that has been sitting (flatlining) in Fidelity's Select Money Market Porfolio within my 403(b) account and have been slowly transferring portions over to FGMNX in order to get a higher return. So far, so good although I would be interested in hearing what the risks are that are inherent in this approach. This is money I don't anticipate needing for about 6 years.