Making Money in This Market Remains Tough

Income investors are finding out something we all knew already, but on occassion we need a reminder.  Earning a relatively safe 7% isn’t easy!

Preferred stocks, exchange traded debt and REITs have taken a shellacking in the last week or so.  Even though they have been knocked down the preferreds and exchange traded issues are still off just 3-4% from their highs of the last 52 weeks. Of course REITs are off more than 10% from their 52 week highs and some issues are off much more than 10%.

Early in the year the prospect of higher interest rates lead us to opine that it would be tough to reach our 7% goal this year (but we said that last year when we had a gain of 9.76%).  At this moment we have a gain of 3.05% for 2015 (which is down from a peak of 4.75% a couple weeks ago) and we are fairly certain that there will be more pain to come as the year progresses–in particular in the perpetual preferreds.

For now all we can do is try to be positioned in the correct sectors–minimize REITs and stay away from anymore perpetual preferreds.  For those that are not as sensitive as we are to movements in assets positioning may not be as important (meaning those searching for pure income believe they can tolerate the ups and downs of their account value).

ONE NOTE of caution–when you are investing simply for income and believing you can tolerate net asset movement to the downside you should reconsider whether you can really tolerate a potential capital loss.  It is a rare investor that can watch their assets go up in smoke (even if it is believed to be temporary). The vast majority of investors panic and sell out at the bottom (buy high sell low) thus having no income and no capital.  Can you really tolerate a fall??