We Love It and You Might Too

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Ok, we’ll admit it right up front.  Sometimes we are lazy and don’t check our investments for days on end.  There are also months where we might make only 1 buy or 1 sell of a security.  We have written before that it is our goal to NOT trade unless we have a real reason to do so.  We have staked out that position based upon our individual circumstance.  In our household we both continue to work at least 1 full time job and many times that job turns into 7 days a week.  We are comfortable with our minimal trading and 7% annual return target and each investor needs to define their goals and then find a way to realistically make them happen.  For us to try to trade continually would probably be a disaster since we simply don’t have the time to monitor our positions.

We have noticed that there are a fair number of income investors that are very active traders.  I believe they do this for a couple of different reasons.  1st off if they are totally retired they may be bored and active trading helps to fill the day while hopefully providing some added returns to there account.  2ndly, in a trending market one can truly pick up an extra 1%, 2%, 5% or more in return over the course of a year.  Is there anything wrong with trading actively?  Absolutely not!!  The best way to invest is the way that fits your situation and gives you the return that you desire.

So we return to the topic of this note – “We Love It and You Might Too”.  We are simply referring to our 2015/2016/2017 Moderate Duration Income with Zip Portfolio (such a lousy name).  We love this model and very much have used it as a basis for our own personal investing. Recall that this model was put together in August, 2015–just over 18 months ago.  The holdings are either baby bonds or term preferreds since we are looking to avoid “interest rate risk”  and thus we avoid perpetual preferreds.  Thus far the portfolio has shown a return of 13.54% (about 9% annualized) which we consider excellent for the modest risk inherent in the portfolio (at least during times of trending interest rates and stable U.S. economic performance).  Starting with a value of just over $80,000 the portfolio now is nearing $91,000 in value. There have been 8 sales from the model and 9 purchases–just about 1 transaction per month. Most of the sales have been caused by either issues being called or by the need to “capture” profits on one of the “zip” items held (for this model we define the zip items as simply either REITs or MLPs which give us the potential for added return).


Digging a bit deeper we can anticipate that readers question whether a portfolio with so many baby bonds from business development companies (BDCs)  is safe.  Our answer is that it is a reasonable risk as long as the general economy stays healthy.  Remember that BDCs are closed end funds and this means they must have an asset coverage ratio of 200% of their debt–this helps mitigate risk with an added level of safety. If the economy was to move toward a recession, which there is no sign of now, we would likely move toward some higher quality baby bonds.

In summary we simply love this model portfolio and believe it can be a base for many investors like ourselves.  Maybe you toss in a couple perpetual preferred to the base to juice yields a bit.  Maybe you use a higher percentage of REITs or MLPs to again help juice the yields–but always mindful that the higher the reward the higher the risk. No portfolio is right for everyone, but at this point in our lives this one works well.

To get more information on preferred stocks and exchange traded debt (baby bonds), screen them, set up your own portfolio and receive email alerts, go to www.preferred-stock.com now.

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