After 45 years of investing, I’ve come to the conclusion that the equity (or growth purpose) market is a far easier medium for investors to understand than the far safer, and generally less volatile, income purpose securities market. As counter intuitive as this sounds, experience supports the premise.
“Understanding” boils down to the development of reasonable expectations: just how do you expect the market value of your income purpose securities to react to varying market, interest rate, economic, political, atmospheric, and “other” conditions”… and, does it really matter?
Few investors grow to love volatility as I do, but most expect it in the market value of their equity positions. When dealing with “income purpose” securities, however, neither they, their guru/advisors, nor market commentators are comfortable with any downward movement whatsoever.
Not to make excuses for them, but most professional and media folk think in terms of the individual bonds and other debt securities that Wall Street markets to brokerage firms and other large investment entities. Bond traders hate to discount their inventory due to higher interest rates… it’s bad for year end bonuses. But their bond market disaster is the individual investor’s opportunity to buy the same amount of income at a lower price.
Most investors are also more receptive to loss taking advice on income securities than they are with respect to equities… always the effect of a “market value” rather than an “income production” focus… and a well kept Wall Street secret.
The list below describes some important characteristics and concepts involved with investing in income purpose securities. Familiarization with these will aid in the development of valid “performance” expectations. Doing so will also help develop an appreciation of this important (and somehow not too often mentioned) relationship: changing market values (in either direction) rarely have any impact on the income being generated by the security.
Confucius say: keep your eye on the ball, you can’t buy groceries with market value or total return, only income pays the bills… without depleting sacred capital
General attributes of income purpose securities:
They generate a predictable stream of interest, dividend, rent, royalty or other income.
They pay income in specific amounts on specified dates.
Their risk of financial loss varies dependent upon security type, issuer quality, and maturity, BUT, all normal income securities are considered far less risky (financially) than the common stock of their respective issuing entities. State government paper is less risky; federal government issues carry no financial risk at all.
The purpose of the income asset allocation of an investment portfolio is the production of income in an amount large enough to assure: annual growth of income producing capital and annual growth of income production.
High dividend common stocks (utilities, etc.) are not included within the income purpose security definition, although they may be less risky than other equities.
Bonds, loans, and other interest bearing securities are issued by both corporations and government entities and have maturity dates upon which the principal is returned to investors.
Income securities that are guaranteed as to principal and interest, or protected by “safety mechanisms” of any kind always bear a lower yield than otherwise similar securities.
Generally, fluctuations in market value have nothing to do with the financial viability of the security issuer. Most often, they are the result of anticipated changes in the direction of interest rates, or the tax code.
Any form of either market value or total return performance analysis in a predominantly income purpose investment portfolio is counterproductive, at best… particularly when comparisons are made with any form of equity index.
Bonds, mortgages, notes, and other “debt” instruments are generally illiquid securities with wide price “spreads”, and difficult to either sell at “statement” prices or add to from the marketplace.
Income closed end fund portfolios are liquid containers for illiquid securities, thus eliminating the major drawbacks of owning individual bonds, mortgages, loans, etc.
Higher interest rates (lower prices) are good for income investors because they produce higher yields from new (and existing) securities that are available for purchase.
Lower interest rates (higher prices) are good for income investors because they can provide “reasonable” profit taking opportunities on securities already owned.
A reasonable trading profit on an income purpose security is anything in the neighborhood of “one year’s interest in advance”, keeping in mind that three 7s always beat two 10s.
Theoretically, income purpose securities should be the ultimate “buy and hold” security blanket within retirement income portfolios. But if you examine the average retirement portfolio, especially 401k portfolios, you would find a remarkable low “income purpose” asset allocation. This seemingly nonsensical behavior is as much the result of government regulation as Wall Street manipulation. For example:
The Vanguard Retirement Income Fund (VTINX), with nearly $17 billion in assets, is one of the most popular and well respected of all funds in retirement income portfolios, particularly 401ks. The five individual funds inside yield just 1.75% in actual spending money to investors… but they are dirt cheap.
A diversified portfolio of income purpose Closed End Funds (CEFs), with payment histories stretching back more than twenty years, would yield well in excess of 7.00% after somewhat higher expense (that the security owner never actually pays).
CEFs are never found in 401k plans and rarely appear in IRA and other retirement portfolios created by investment professionals; please tell me if you know why.
Confucius say: if you buy cheap, you get what you pay for
The focus of an income purpose portfolio needs to be: the amount of realized, spendable, income produced irrespective of market value fluctuations. The operative investment management objectives need to be: growing both the productive working capital and the spendable “base income” produced by the portfolio.
Wall Street has you believing that lower market values are always bad and that higher prices are always good. This is the conventional wisdom we’ve all had thrust upon us for decades. But price volatility is the very nature of securities markets, the very reality that creates both buying and profit taking opportunities, particularly in income purpose securities.
Higher income purpose security prices mean lower yields, but also increased realized profit potential; lower income purpose security prices mean higher yields and buying opportunities. I see no bad or good; just the opportunity created by either scenario. (The same is true, incidentally, with Investment Grade Value Stocks.)
It is the inherent safety (i.e., lower risk of financial loss) of income purpose securities (and IGVSs) that creates this almost perfect relationship. Price volatility is always good.
“It’s OK, it’s natural, every market value fluctuation is satisfactual” is what I’ve been singing for decades… particularly since the creation of income CEFs. Rarely, even in the three major meltdowns of the past 40 years did any high quality company or government entity default, regardless of tremendous price fluctuations in all securities. Each time, the vast majority of CEF income payments kept rolling in, unscathed by the surrounding chaos.
Online bill pay is fast becoming a popular means of payment among people who want to practice good debt management skills, and save on both time and money in the process.
What exactly is online bill pay?
Generally, it is a payment method that lets an individual carry out payment instructions to creditors electronically through a computer program. This can virtually get rid of errors, making it easier to manage debt. In addition, it is faster than mailing checks.
Online bill payment methods come in two basic categories: those being offered via a bank, and those offered via a service provider- like a credit card or phone company.
In general, online bill pay is designed to be fast and simple to use. Majority of major banking institutions, as well as businesses, provide this service without any charge. Individuals can choose to manually enter their payments every month, or arrange for an automatic withdrawal from their account. Automatic withdrawal allows them to set up their payments before their due date without worrying about giving manual instructions to make a monthly payment. The creditor will transfer funds straight from the bank, and enter these funds into their account with no action needed whatsoever.
Advantages of Choosing Online Bill Pay
The following information will help you consider the different advantages of using online bill pay:
Individuals can save on time when using the online bill pay platform. Instead of writing out checks, wetting stamps and filing lots of papers, they can set up an online account to get rid of all these steps. It will also be easier and faster to manage their debt.
When they need to go over past bills, they do not have to waste time in looking for them – because all their account information can be seen in one centralized location.
They can save on the stamping costs, which can add up. The average household gets 15 bills every month, which could amount to $70 a year in just postage costs.
They can avoid late payment fees that are incurred every time a payment is received after the due date. Missed payments could lead to the following:
Increase in interest rates;
Late payment charges and over limit fees.
When the payment is past due, their account could possibly go to collection status.
What is a more convenient solution to managing debt? Individuals could create their own automatic online bill account, so they can set up recurring payments that are to be regularly withdrawn from their account. This decreases the chance of late /lost payments, saving time in the process.
When they find out that one of their bills is due for payment on the next day, the best way to make sure that their payment will be posted on time is through online bill pay.
Would you like to be able to accept rent online? Come and visit our website to discover our online rent payment system!
There are many ways in which a consumer’s purchasing power can be boosted to have value without many risks. There are different providers that offered different instant credit that can be used as they shop at different stores. In some cases, customers are allowed to get a loan and then pay in installments over a period of time that is predetermined.
Financing without risks is something that most people are interested in. Customers can enjoy pay later options in a secure and safe way. It is a risk-free kind of arrangement for both the buyer and the seller. It is important to accept the fact that most shoppers would not make purchases without financing available. The value of orders goes up incredibly with financing.
In the past, only the big retailers got financing, but advancement in payment methods has made it possible for all kinds of businesses to offer consumers great financing options at costs that are affordable. There are some things that you should keep in mind before settling for a provider and they include:
Impact on the consumers
Price is a big determinant whether a customer makes a purchase or not. When a lump sum is broken down into installments, then it becomes more palatable. The behavior can be leveraged when you show the monthly financing available alongside the purchase price to show the buyer that he could very well fit the item into his or her budget.
The interest that is charged is also something that many people will think about. There are different terms of payments regarding how often they will make charges. Other things considered are the use of credit cards, flat fees, and so on. It is important to deal with a provider who offers rates that are favorable.
One of the things that the people look out for is how easy it is to make an application. There are options where you have to fill out pages of paperwork and can take many days to complete. Some only require very little information and only some minutes to approve.
This kind of financing is aimed at increasing your sales and therefore the application should not be made complicated. If it takes too long, then most people will just give up and try to purchase somewhere else.
Most of the financing options also require the buyers to have smartphones where they can get authentication codes. Though it is a minor step, there is the assumption that everyone has a smartphone. It is therefore important to ensure that your buyers can use the option easily depending on the target group.
Flexibility in branding and marketing
When you are planning to offer to finance your clients, it should fit very well on the website as well as an online store. Consider marketing flexibility as well as branding that is offered by the different companies.
You need a provider who offers flexibility that allows you to white label the option. This means that you can brand the option as if it were your own. When you change the message, then the buyers will feel confident taking it from you instead of a third party. This allows the finance option to fit with the brand and image.
No credit checking financing sounds like a dream to many. It is important to have consumers financing if you really want to boost your sales. Giving the buyers an option to pay slowly over a set period of time makes your items more accessible to a wider audience.
“Thrift” comes from the verb “to thrive”. To thrive means to flourish, grow vigorously, to gain in wealth or possessions, to progress towards or to realise a goal in spite of or because of circumstances… ” (Mirriam-Webster dictionary). In other words, thrift isn’t so much as cutting down or not spending money. It’s about being careful in your behaviour so you can reach your goals, be happy, successful and prosperous and live your best life without unnecessary financial stress.
The three scarce resources
In life, there are three scarce resources which need thrifty management to achieve your goals, objectives and dreams. And no, money isn’t one of these scarce resources, at least not directly.
Time, Health and Energy
These are the three resources that are finite in this life. You can only use them once. They are non-renewable. So be careful how you spend them!
The thing about time, health and energy is that you don’t know how much of each of these scarce resources you have left to you. It’s impossible to know how long you’ll live, how healthy you’ll be in your later years and how much energy you’ll have. And all of these factors have a direct effect on how much money you’re going to be able to generate during your lifetime.
Money is time
People often say that time is money, but, in reality, the reverse is true. You trade your time, your health and your energy to generate money that many people then squander unnecessarily on things they don’t really need and often don’t even bring them much enjoyment. Every time you make a spending decision, you’re committing yourself to working more days, months and years in a job that perhaps you don’t even like to get your bank balance back to where it was before or to move forward financially.
Given this, when you spend money on non-essentials, make sure that the enjoyment those things bring you more than offsets that extra time that you’ll have to dedicate grinding away at that day job! When you spend money, you’re really spending your finite resources of time, health, and energy which are in diminishing supply. Just because that paycheck comes in at the end of every month doesn’t mean it’s going to last for ever. Jobs come and go, you get old, sick and tired. And there will be a time when you’ll have to live only on what you haven’t spent and have saved up instead of just spending next month’s paycheck. State pensions are unreliable at best and they’re kicking in at an ever more advanced age – 65, 67 years old or even more by the time you get there.
Thrift is closely linked with work ethic. Some historians tell us that Protestants in Northern Europe in the sixteenth century developed an ethic of hard work as benefitting both yourself and society as a whole. The concept of thrift went hand-in-hand with this. After all, if you’re working hard for your money, it makes no sense to squander it. There have been various counter-arguments as to where and when all this really started, but for our purposes it’s unimportant. The concept is still just as valid, wherever it came from.
The mentality of entitlement is almost the exact opposite of thrift. Entitlement is where we assume we deserve things but without having to work too hard to get them. In reality, just because we went to university or did well at school doesn’t mean we’re entitled to a comfortable way of life with all the luxuries and conveniences of the 21st century. You could even say there’s no such thing as rights if you don’t accept the responsibility to work hard to get them. Of course, I’m talking in the sense of material possessions, not clean affordable drinking water or free education to the age of 18 which I regard as basic human rights.
Every time you put a cigarette in your mouth, drink too much, even exercise too strenuously you’re squandering your health. Every time you spend a whole evening watching rubbish on the television or even sleeping too much, you’re wasting time that you could use in a better way. And every time you waste energy on things that don’t bring you real enjoyment, you’re throwing away the chance to use that energy on more important things.
Richard Quest in his financial programme on CNN always finishes with the words, “And whatever you do, make sure it’s profitable.”
Enjoy yourself but be thrifty with your finite resources. Be selective in how you spend them, get the biggest bang for your buck and make them last you as long as possible for the rainy day that’s bound to come along at some time or another.