| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Two High Yield Bond Funds for 2011 |
Seeking Alpha - Dec. 16, 2010 - by Barry Barker
Structuring Your Portfolio for Tax Efficiency in 2011
When you rebalance your investment allocations in early 2011, use this time to also scrutinize and structure your taxable investment portfolio to avoid paying more tax then you have to. If you already have an adequate emergency fund, first maximize your contributions to your qualified retirement plans, 401(k), 403(b), 457, SEP or Simple IRA to defer taxes until you begin taking distributions. If you are age 50 or older, make catch up contributions as well if you can afford to.
If you can also contribute to a Roth IRA, then make after-tax contributions to the Roth so that your money will grow tax-free until you need it. Interest bearing bonds, like TIPS or corporate bonds should go into these accounts as well as mutual funds that throw off a lot of capital gains like some foreign funds. One thing that you might want to do differently this year is to hold more money in cash, like money market funds, CDs, and short term bonds, in your taxable accounts because they are paying historically low returns and you will pay little tax on them.
This seems counterintuitive, but if you are in retirement and need the income, you can use the cash from your taxable account and let the interest accumulate and compound in your retirement accounts which also means that you continue to defer paying income tax on the distributions.
Market Watch
After closing at 11,118 with a 3% return in October, the DJI closed at 11,006 in November returning -1%. A moribund economy continues to drag on the market as unemployment ticked up over 9.6%. The Fed has decided to prime the pump to the tune of $600B in Treasury bond purchases which may or may not have the desired effect of stimulating additional spending.
In fact, interest rates have ticked up slightly as investors turn away from bonds and buy equities which began in the month of December.
December looks like it will be a good month with higher than expected holiday spending and some certainty on taxes emanating from Capitol Hill. The DJI stands at 11,457 as of Dec 15, thus jeopardizing my forecast of 10,900 for year’s end! My timing may be a little off, but I sense a little over exuberance so I would not be surprised to see a minor sell off dropping the Dow under 11,000 by early next year.
Lions and Tigers and Bears, Oh My!
The title of this section refers to the famous quote by Judy Garland, as Dorothy, in the Wizard of Oz. At the time, Dorothy and her companions were traversing the enchanted forest to reach the Emerald City and the great Wizard of Oz in hopes of attaining a brain for the scarecrow, courage for the lion, a heart for the tin man, and a way home for Dorothy. These noble pursuits bear an Oz-like parallel to what investors must do to earn a decent return in 2011 and beyond. To succeed today, investors need knowledge, courage, compassion, and fortitude as the Great Wizard, pulls the levers of the money supply amongst prodigious gouts of steam and a booming voice in his efforts to restore growth to a moribund economy.
As we have learned, the days of earning a decent return in a tarnished Emerald City beset by fraud and rampant greed mandates that smart investors develop a new investment paradigm, a horse of a different color, and to use all of the knowledge at our disposal to develop a winning investment strategy.
Great courage and fortitude is needed to change our thinking and behavior about the way we invest. Especially since the curtain has been pulled back on the wizards of Emerald City and revealed inherent conflicts of interest, a lack of a fiduciary standard, and an addictive tendency to exploit the very investors that make the business of wizardry possible.
Therefore, we must take stock (pun not intended) and do things a different way as it is unlikely that Congress will give Glinda enough power to wave her regulatory wand and stem the greed and avarice in Emerald City to protect the good denizens of the Land of Oz.
Meanwhile, if you are using a Wall Street broker or advisor, consider hiring a fee-only advisor to be your financial advocate, and, if you are buying mutual funds with front-end loads, deferred sales charges, marketing fees, and exorbitant management fees, consider buying comparable low cost index funds or ETFs instead.
The new investment paradigm may also include compassion and we must consider the role we wish to play when we invest or help investors. There is no compassion when a wizard builds a fund filled with companies or mortgages doomed to fail, sells it to those less knowledgeable, then bets against the very fund they created, and except for the occasional social or green fund, compassion is not often considered when designing an investment strategy, but should it play a role? It can.
A compassionate investor succeeds when he or she earns a good return and provides capital to companies who then hire more workers or buy new equipment. These investors may buy stock in wind, solar, and wave energy companies whose success benefits all of us. An investment in emerging markets helps developing countries grow their middle class and reduce poverty. There are many opportunities to make compassionate investments and often these investments perform better than investments that make money at other people’s expense. As you develop your investment strategy for 2011, consider the investment paradigm you are operating on and remember that unlike Dorothy, we can’t click our heels three times and say, there is no place like home… we are not living in Kansas anymore.
Two High Yield Bond Funds for 2011
There is still at least a year of decent earnings left in high yield bond funds and two worth mentioning are Fidelity Capital & Income (FAGIX) and Buffalo High Yield (BUFHX). Both yield 6% and have a 5 year total return of 9.63% and 7.99%, respectively.
To get FAGIX’s higher return, however, you will experience 50% more volatility. This is primarily due to the fact that FAGIX holds a substantial stake in stocks, up to 15%. BUFHX is a relatively small fund with $210M in assets and an expense ratio of 1.02% while FAGIX is 50 times bigger with an expense ratio of 0.76%. If you want a good yield with a potentially higher total return consider FAGIX and for lower volatility BUFHX could be a good pick.
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| Stuff to look at |
Yield and Income Newsletter: A must have for income investors. subscribe NOW
S&P Commentary and Newsletters: S&P
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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