Slow and Steady Wins Every Time

By Tim McPartland

Anyone who has read my writings over the last 12 years would not accuse me of “swinging for the fences.”

Whether it be common stocks, master limited partnerships (MLPs), real estate investment trusts (REITs) or preferred stocks and baby bonds, one can find a way to swing for the biggest gains while putting the entire portfolio capital at risk. In our opinion, most investors in their 60s like me should define a conservative investment plan that fits their needs and then do their best to stick with it.

Over the last few years, we have been continually tempted to move away from our conservative ways and, in fact, we do add a little zest to the investment mix on occasion. But by and large, we stick to the conservative plan. When the plan is followed, the results are pleasing, despite as unspectacular as the results may be to some. We have only one person we have to please and that is ourselves.

Our plan is simple. Garner annual gains of 6-7% per year — every year. Achieve the goals by investing in the most conservative income securities we can find that will get us to our goal. At this moment in time, achieving a 6-7% return in a conservative manner is difficult, maybe even impossible. But we will not vary from our plan and start increasing risk by a whole lot to try to stretch.

Personally, when we can achieve a 0.5% gain in a month, we are ready to celebrate a win. Roughly 80-85% of all the securities we own are term preferred stocks and shorter-dated maturity baby bonds which are generally pretty stable. Currently, we do own one perpetual fixed-to-floating rate preferred, which we had written about last week. With the exception of one very high quality term preferred, which is the Kayne Anderson MLP 3.50% term preferred (NYSE:KYN-F), we hold positions to not greater than 3% of the portfolio total. The KYN issue is a large holding and is somewhat a proxy for “cash.”

We have been following this plan for about three years now and our results very much mirror the results of two of the model portfolios on this site. The Short/Medium Duration Income Portfolio, which was started in late 2014, and the Medium Duration Income Portfolio with Zip Portfolio, which was started in August, 2015. These long-term portfolios have achieved near their goals since inception.

If one is to peruse these portfolios, you would note that most of these issues are not investment grade and, in fact, some are issues that we might hesitate to hold if the economy was weakening. But given the relatively strong nature of the economy, the risks are mitigated.

Don’t be lured into chasing the highest yields just to try pleasing others who think you should be invested beyond your comfort level.