Do you invest with an eye toward regular income? Senior editor Jeffrey Kosnett will be online in one hour to help you learn how to earn a decent return in this low interest-rate world. Ask questions about dividends, yields, CDS, bond funds, ETFs and more.
Welcome to today's live chat! Kiplinger senior editor Jeffrey Kosnett will be taking your questions about income investing for the next hour. Thanks for joining us, Jeff.
Yes. Generally speaking, the principle is the shorter-term the fund's focus. the lower the risk, and then they can spice the fund with a few bonds that offer higher income. So a fund like Baird Aggregate Bond (bagsx) can pay about 4% and still have no more risk than a Treasury fund that's paying around 2%. I also like GNMA funds in general.
Great, we'll cover medium-risk and high-risk bond funds later on. Now, for some reader questions.
Hi, Debbie. Thanks for writing. Inflation-protection funds are only suitable if you think the rate of inflation, and by that it's the CPI, not what YOU think it is in real life , is going to soar. We don't think so. So 75% of your money there is way too much because you won't make any income or return to speak of. Spread the money around all segments of the bond market, such as in a mix of intermediate-term corporates, mortgages and Treasuries. And don't forget municipal bonds. They're safer than most people think.
Hi, and thanks for writing. To give a one-size-fits-all answer would be unwise, but it's generally wise to lock in some guaranteed returns as part of a retirement income strategy. Perhaps you can look at annuities with provisions to take money out and reinvest it at a higher rate if that makes sense. But keep in mind that the older you are when you buy the annuity, the lower the payments-- and inflation and rates aren't going much of anywhere for a while. And annuities pay more than CDs
Hi, Hmich, thanks for writing. As long as your bonds are general obligations or secured by essential services such as roads, hospitals and education, you're fine. The risky municipals are generally involved with land developments or nursing homes and assisted living. Those, you ought to avoid at any time.
Hi, Stacy. We think you shouldn't dump all stocks, but if you want to limit them to about 25% or 35% of your investments, I understand. You can look on our web site for a portfolio I call Tofurky, which is designed to offer stock-like returns without stocks. It features investments like real estate investment trusts and oil and gas wells.
Hi, Ramseth. Thanks for writing. I've generally been a big REIT fan and remain one beacuse the long-term record is spectacular. That said, there are many kinds of REITs and so I'd need to know if you want maximum dividend income now, growth and income, or diversification. REITs can and do get you all of those.
I misspoke in a comment before about annuities when I said the older you are, the lower the payments. What I meant to say was the older you are, the less of your principal you are likely to have left to invest in a new annuity, and then you may not get as much as you need. The interest rates are not guaranteed to be higher later on.
Thanks for the clarification, Jeff.
I would look at property classes that can appreciate in an economic recovery, such as industrial land, warehouses, and rental housing. Office buildings are still lagging in much of the country. There are REITs like SL Green and Boston Properties that own offices only in New York and Washington and places like Princeton, NJ that are prosperous, and that makes more sense than an office REIT with a national focus. In any event, your goal should be 4% or 5% yield and an equal rise in the shares. More than that would be a bonus.
Hi, Jane, and this is an excellent question. First, "fee-based" means fee and commission, not fee-only. 1.5% if actually not outrageous if you have a small amount (in this crowd, that's anything under $250K or $500K). You might see what Fidelity, Schwab and Vanguard have to offer you, but that's not going to get you as much personal attention as a direct engagement with a CFP. And it may be that the adviser will protect you from losses, which means that 1.5% could well be worth it.
Hi, Mark. Simply, yes, and there was no chaos to speak of.
Speaking of munis, we also covered these in our March article. Jeff, what kind of yields can people expect from municipal bonds this year?
Somewhere in the 2.0% to 3.0% area on intermediate-term municipals, up into the 4s if you go out 25-30 years. There's a burst of buying going on now. Inflows to municipal bond funds are enormous so far in 2012, so that will keep prices high and yields low for the next few months at least. But it's still ahead of Treasuries, and that's before the tax exemption.
Jane, if you can manage your money yourself fairly well and you don't need any other services or guidance from the advisor or planner, the answer is yes, it's another layer. But millions of people do not want to be bothered on a daily basis and would feel more confident outsourcing the decision-making. And, just as with any other professional service, investment managers don't work for nothing. I wouldn't let fees and costs drive your entire decision here, provided you would be hiring a firm that lays out its entire compensation structure and disclose everything that could possibly run up your tab. BrokerCheck at www.sec.gov gives you access to what registered investment advisers charge and how, and sometimes they offer various arrangements for different clients.
Hi, Bara, that's the question for the ages. The best advice I can give is to spread it around amongst all kinds of investments, from bonds to dividend-paying stocks to real estate or oil and gas funds. Just make sure everything is liquid (you can get the money out when you need it) and avoid paying excessive fees and taxes. Bonds and an annuity will give you a base of income and then you can take a few moderate risks on top of that.
Hi, Jonny. Even if you could roll that $15,000 into a high-yield bond fund (junk to most of us), you would get about 7% yield, or $1,000 of interest, and you'd be taking some risk to the principal. A much safer bond fund.. say a total bond market fund such as from Vanguard.. will pay you around $500 a year in interest. If that floats your boat, fine. But most people regard CDs as an anchor rather than risk capital, so don't dismiss the idea of rolling it over for 6 months or one year and foregoing the interest income if you have other investments that are working harder.
No, they're fairly sound at this time. Generally, though, they should be a small slice of a broad bond strategy. But I'd be OK with 10% or 15% of the portfolio there this year, subject to reconsideration in six months. Most of the good mutual fund companies have very well-run junk funds and I'd go there instead of with the ETF called JNK, which is for index-fund fans.
Alright, we have time for one more reader question.
Paul, what do you mean by a "decent yield?' If 3% counts, a mix of dividend stocks, a GNMA fund, and a broad total bond market fund will get you that with ease and safety. If you want or need 6%, you're going to have to take considerably more chances and the best ideas would be in the areas of REITs, pipelines and oil and gas royalty trusts, but selectively and certainly not with anywhere close to 100% of your savings.
Alright folks, it's time to wrap up today's chat. A big thanks to Jeff for joining us today.
And thanks to all of you who submitted questions and/or learned from Jeff's advice. Join us again next week for a live tax Q&A with Kiplinger Editorial Director and Tax Expert, Kevin McCormally. Thursday, 3/1 1:30pm-2:30pm ET.