MSN posted an article today on their homepage from Barron’s titled, “Investments for Generating Income.” The article discussed investments they recommend based on how best to generate income in this economy. As a fee-only investment advisor, I always read what other people post and was curious to see how valid their information was as soon as I read the eye-catching title. Below is my un-biased, expert opinion of the article and the investments they discussed:
#1 Barron’s Recommends: Dividend-paying stocks
Some big consumer-staples companies are offering attractive dividend yields, such as Coca-Cola (KO, news) (its shares yield 2.8%), General Mills (GIS, news)(yielding 3.3%), Johnson & Johnson (JNJ, news) (yielding 3.4%) and Procter & Gamble (PG, news) (yielding 3.3%). While the yields will decline when the stocks strengthen, you could end up with some nice capital appreciation.You can also play dividends through mutual funds. Carrie Coghill, chief executive of Coghill Investment Strategies in Pittsburgh, likes the Federated Strategic Value Dividend (SVAAX) fund, now yielding about 3.3%. It has the benefit of geographic diversification, with exposure to both U.S. and overseas companies.
John P. Chladek, MBA, CFP’s opinion of dividend-paying stocks:
I agree with this and invest in ETF’s that hold high-dividend paying companies in both the US and overseas. While the above point discusses mutual funds, I’m a firm believer in the benefits of ETF’s over mutual funds.#2 Barron’s Recommends: High-yield bonds
#2 Barron’s Recommends: High-yield bonds
High-yield bonds, commonly known as junk bonds, sport yields that are more attractive than those of Treasurys — right now, their yields are about 4 percentage points higher. There’s always the risk of default, but the default rate has fallen sharply, to 2.6% in April from a high of 14.5% in 2009, according to Moody’s. And credit quality could strengthen further in a rising-rate environment, because the first leg higher in Treasury yields usually corresponds with a pickup in the economy. That, in turn, benefits the companies that have issued the bonds. One other risk: Trading can be relatively illiquid, making it tricky to exit.
John P. Chladek, MBA, CFP’s opinion of high-yield bonds:
I agree with this point by utilizing a high-yield bond ETF within my client’s portfolios.
#3 Barron’s Recommends: Bank-loan funds
Bank-loan funds, also known as floating-rate funds, contain adjustable-rate bank loans to corporations, often for leveraged buyouts or refinancing. Their rates usually reset every 90 days, making the bonds “valuable in a rising interest-rate environment,” said Bart Earley, director of investment research for Manchester Capital Management. The rates are now about 4%. All of the bank loans are made to below-investment-grade companies, so you do have to watch credit risk. But the companies are mostly at the high end of the junk spectrum, and the loans tend to be secured. The word on bank-loan funds is out, and demand has reached record highs, potentially setting up a bubble. So advisers are recommending that you seek out fund managers such as Eaton Vance (EV, news), Fidelity and Oppenheimer (OPY, news), which have experience in this tricky corner of the market.
John P. Chladek, MBA, CFP’s opinion of bank-loan funds:
I agree, and I utilize an Eaton Vance floating-rate bond mutual fund within my client’s portfolios.
#4 Barron’s Recommends: Bond funds
The bond funds that offer the potential to turbocharge income these days are “not your grandmother’s bond funds,” says Green. They tend to mix it up, holding a variety of bond types. Among Green’s favorites are the Fidelity Strategic Income (FSICX, news) fund, which covers global, corporate and government bonds and yields around 5%; the Franklin Income A (FKINX) fund, which combines bonds and dividend stocks and yields around 6%; and the Eaton Vance Tax-Managed Global Dividend (EADIX, news) fund, a portfolio consisting of bonds from all over the world and yielding around 5%.
John P. Chladek, MBA, CFP’s opinion of bond funds:
I actually disagree with using bond funds. At this point, interest rates are low and act inversely to bond prices. That said, as interest rates rise again (they have no where to go but up), bond fund prices will go down.
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John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit http://www.chladekwealth.com.