Retirement Ready Income Programs

Experienced (old?) Investors Love Higher Interest Rates... Say What!

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Municipal Bond Yields Rise to 12 Month Highs
Unfortunately, I am not permitted by regulation to make this announcement, so please disregard it. Big brother does not think you know that: (1) all investment securities can and will fluctuate in price for many reasons, and that other professionals (and non professionals) may disagree with either the data or the conclusions that follow.
Since the end of November 2012 profit taking and the anticipation of higher interest rates ahead have forced the prices of tax free Closed End Funds (CEFs) to fall --- pushing yields on the majority of the best 20-year-old-plus funds into the 6.5% (average of about 50 such funds) neighborhood.
Note that both my research and my personal experience confirm that mostly all (I can't actually say all, even if I think it is true) of these funds routinely paid their monthly income dividends to shareholders in spite of past changes in interest rates AND the most severe financial crisis of our lifetimes.
You can check these assertions out in various places on line or by asking me for real live references you can correspond with.
Three Outstanding Opportunities For Higher Tax Free Income
Most seasoned income investors understand that lower corporate bond, preferred stock, and government security prices have zero impact on contractual payments. Those who invest in the individual securities pretty much just ignore the price fluctuations and buy higher yielding securities with new investment income --- thus increasing their portfolio average yield.
Inexperienced investors get advised (Wall Street speak for "conned") into taking losses on their uncooperative older paper and replacing it with new stuff that will never be cheap enough to make up for the losses they have incurred.
Wall Street never ever (clearly just my opinion) suggests profit taking on income purpose securities when they are selling for premiums --- perhaps because the inflated prices on client portfolio statements can never actually be obtained...
While tax free bond CEF prices are retreating, you do have the opportunity to:
1) increase portfolio and individual security yield by adding to existing positions;

2) purchase a wide selection of "experienced" CEFs that are yielding well over 6% tax free (federally, of course, but you knew that); and perhaps most importantly

3) reduce the cost basis per share of your current holdings, to be in a much better position to take "a-year's-income-in-advance" profit sometime in the future.

Three Outstanding Opportunities For Higher Taxable Income, Too

Although it may be slightly more complicated, all of the above is generally true for taxable CEFs as well. 

Action Plan For An Upward Interest Rate Expectation Environment
So, take that potential investment money out from whatever intellectual (or actual) mattress it is in and put it back to work at the highest rates we've been able to obtain in years.
Those of you who refused to take profits on your existing CEF portfolio (you know who you are) can now use income or cash to take advantage of lower prices --- and remember the error of your ways the next time profit taking opportunities arise.
Clients who want to add to their portfolios... well you know what to do.

Retirement Ready Income Programs
2971 Maritime Forest Drive
Johns Island, SC 29455
Phone (800) 245-0494 • Fax (843) 243-8509
Contact Steve directly for additional information: 800-245-0494
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Please read this disclaimer:
Steve Selengut is registered as an investment adviser representative. His assessments and opinions are purely his own. None of the information presented here should be construed as an endorsement of any business entity; the information is only intended to be educational and thought provoking.

Please join the private article mailing list or Call 800-245-0494 for additional information

Risk Management: Income, 401k, and IRA Programs

Take a tour of a professional investment managers' private SEP IRA program during ten years surrounding the financial crisis:


In developing the investment plan, personal financial goals, objectives, time frames, and future income requirements should all be considered. A first step would be to assure that small portfolios (under $50,000) are at least 50% income focused.

At the $100,000 level, between 30% and 40% income focused is fine, but above age 50, the income focus allocation needs to be no less than 40%... and it could increase in 10% increments every five years.

The "Income Bucket" of the Asset Allocation is itself a portfolio risk minimization tool, and when combined with an "Equity Bucket" that includes only Investment Grade Value Stocks, it becomes a very powerful risk regulator over the life of the portfolio.

Other Risk Minimizers include: "Working Capital Model" based Asset Allocation, fundamental quality based selection criteria, diversification and income production rules, and profit taking guidelines for all securities,

Dealing with changes in the Investment Environment productively involves a market/interest rate/economic cycle appreciation, as has evolved in the Market Cycle Investment Management (MCIM) methodology. Investors must formulate realistic expectations about investment securities--- by class and by type. This will help them deal more effectively with short term events, disruptions and dislocations.

Over the past twenty years, the market has transitioned into a "passive", more products than ever before, environment on the equity side...  while income purpose investing has actually become much easier in the right vehicles. MCIM relies on income closed end funds to power our programs.

To illustrate just how powerful the combination of highest quality equities plus long term closed end funds has been during this time... we have provided an audio PowerPoint that illustrates the development of a Self Directed IRA portfolio from 2004 through 2014.

Throughout the years surrounding the "Financial Crisis", Annual income nearly tripled from $8,400 to $23,400 and Working Capital grew 80% $198,000 to $356,000.

Total income is 6.5% of capital and more than covers the RMD.

Managing income purpose securities requires price volatility understanding and disciplined income reinvestment protocals. "Total realized return" (emphasis on the realized) and compound earnings growth are the key elements. All forms of income secuities are liquid when dealt with in Closed End Funds. 

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Please read this disclaimer:
Steve Selengut is registered as an investment advisor representative. His assessments and opinions are purely his own and do not represent the views of any other entity. None of his commentary is or should be considered either investment advice or a solicitation of business. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be or should be construed as an endorsement of any entity or organization. The reader should not assume that any strategies, or investments mentioned are any more than illustrations --- they are never recommendations, and others will most certainly disagree with the thoughts presented in the article.