Retirement Ready Income Programs

Interest Rates Are Rising - The Sky Is NOT Falling

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Once upon a time, in the dark ages of income investing, there were no closed end income funds (CEFs) ... whoa!

When interest rates were expected to rise, the market prices of all "interest rate sensitive" securities fell --- thus bringing their "effective yields" more in line with what "current" interest rates were expected to be.

Wall Street, always willing to help investors deal with perceived adversity, offered this sage advice: "Have no fear, we'll just sell your old securities (salivating at the thought of another 3% markup in the pocket) and buy new ones with shorter maturities --- they won't fluctuate as much with higher rate expectations."

Neither the relationship with interest rate expectations, nor the self-serving Wall Street solution has changed: mainstream, transaction driven, market value myopic, lower-price paranoid, Wall Street sales organizations just don't get it. Actually, I'm fairly certain that they do "get it"--- they just don't want you to.

It?

"It" is the (apparently) much too simple income investing truth that more income is absolutely always better than less income and that higher market interest rates are the only force of nature that can make higher income levels possible.

"It" is the corollary "truth" that lower prices on existing income securities of all shapes, forms, qualities, and durations generally have no impact on either the borrowers' ability to make their payments, or the amount of the payments that are being made.

"It" is the still larger truth that, when dealing with higher quality (IGVSI) equities and most classes and categories of income purpose securities, lower prices have invariably been much more of an opportunity than an adversity --- particularly when in CEF form.

Until the mid-eighties or so, only well informed major investors could buy more of lower priced preferreds or huge corporate and municipal issues --- not an easy trick for the average investor to pull off. Thus, smaller income investors were easy "marks" for Wall Street fear mongers.

But with the advent of managed Closed End Income Funds, all the hype and fear should be gone. Now all of us can dance to the interest rate cycle symphony with pretty much the same level of enthusiasm as we "Shake, Shake, Shake" with the much more energetic gyrations of the Stock Market.

If you have any sense of market rhythm, either dance is pretty easy to master --- when you use your iPod and earphones to block the commercial, fear-inciting static from lower Manhattan and the sensational (sic) investment media.

Higher interest rates and lower brokerage statement market values, do not mean that the financial sky is falling --- quite the contrary. Higher interest rates should eventually translate into higher payouts to investors; higher market values will reappear when the investment gods reverse the cycle.

Here's how your Market Cycle Investment Management (MCIM) portfolio manager will assure you of higher monthly payments down the road, without the unnecessary losses and associated media whining.

Don't know an MCIM manager? Obtain more information with an email to: marketcycleinvesting@gmail.com.

MCIM managers focus on the "purpose" of income investing ( i.e., the income itself), recognizing that lower prices directly result in higher yields on all income securities, and normally without any change in the underlying quality of the securities themselves. Eureka!

So MCIM managers feel really comfortable about these three actions (the very same approach that (we believe) worked so effectively during the most severe financial crisis of our lifetimes):

  • They add to their positions in some income CEFs using monthly income produced by the entire portfolio and additional deposits to accounts from MCIM experienced investors. This process reduces per share cost basis, increases yield per share, and increases portfolio income.
  • They add new positions to their CEF portfolios, taking advantage of lower than usual prices and higher than usual yields using new deposits from investors who recognize that lower prices are opportunities for higher income and future profits. This process increases total portfolio income and overall portfolio yield, while improving portfolio diversification and safety.
  • They reach out to clients, followers, and strangers even, hoping to make all income (and equity) investors as comfortable with the opportunities afforded by higher interest rates (and lower prices on quality securities) as they are.

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

CLICK HERE

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.

https://www.dropbox.com/s/b4i8b5nnq3hafaq/2015-02-24%2011.30%20Income%20Investing_%20The%206_%20Solution.wmv?dl=0

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.