INCOME-ORIENTED ETF YIELDS FOR FEBRUARY 11, 2012: The current market is still reflecting an increasing tolerance towards risk. Money that has been in money market funds yielding zero and intermediate-term (7-10 year maturities) treasury bonds & notes yielding 2.5% are searching for higher rates of return. All that remains for these conservative investors and institutions is the all-clear signal that the return sufficiently compensates for the risk in lower quality bonds, high dividend paying equities, and high yielding preferred stocks.
The following list is comprised of ETFs that are geared towards income and income plus growth. They are ranked according to their present dividend yield with average daily volume exceeding 1 million shares for maximum liquidity and the most efficient executions.
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All of the funds that are mentioned above excluding XLU – Utilities Select Sector SPDR and TLT – Barclay’s 20+ Year Treasury Bond Fund have enjoyed spectacular price runs since last October – November. While their yields may appear attractive, their charts indicate that a correction is overdue in these issues. Bonds and preferred stock are like any asset class and are subject to periods of overvaluation, overbought conditions, and too much optimism from the public. There will be a better time in the future to take positions in these high-yield investments.
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“Some investors live or die by earnings reports. Earnings are important, but who knows if the reported earnings are accurate? A clever accountant can make earnings appear good or not so good, depending on the season or objective. There can be no subterfuge about a cash dividend. It is either paid or it is not paid. If it is paid, the shareholder knows that the company is making money. If it is not paid, no rhetoric can disguise the circumstances.”
Geraldine Weiss and Gregory Weiss ~ Authors of The Dividend Connection (1995)
INCOME-ORIENTED ETF YIELDS FOR JANUARY 27, 2012: The current market is reflecting an increasing tolerance towards risk. Money that has been in money market funds yielding zero and intermediate-term (7-10 year maturities) treasury bonds yielding 2.5% are searching for higher rates of return. All that remains for these conservative investors and institutions is the all-clear signal that the return sufficiently compensates for the risk in lower quality bonds, high dividend paying equities, and high yielding preferred stocks.
The following list is comprised of ETFs that are geared towards income and income plus growth. They are ranked according to their present dividend yield:
- 7.73% JNK – SPDR Lehman High Yield Bond (Average volume=4,590,090)
- 7.69% HYG – iShares High Corporate Bonds (Average volume=2,319,270)
- 7.62% PGF – PowerShares Financial Preferred (Average volume=357,127)
- 6.99% PFF – S&P U.S. Preferred Stock Index (Average volume=1,277,100)
- 6.78% PGX – PowerShares Preferred Portfolio (Average volume=467,321)
- 5.42% CVY – Guggenheim Multi-Asset Income (Average volume=239,577)
- 3.94% XLU – Utilities Select Sector SPDR (Average volume=7,383,240)
- 3.70% PEY – PowerShares High Yield Dividend (Average volume=518,074)
- 3.44% DVY – iShares DJ Select Dividend Index (Average volume=1,849,590)
- 3.30% TLT – Barclays 20+ Year Treasury Bond Fund (Average volume=8,469,930)
- 3.23% SDY – SPDR S&P Dividend Index (Average volume=1,278,950)
- 2.94% VYM – Vanguard High Dividend Yield (Average volume=541,831)
- 2.56% IEF – Barclays 7-10 Year Treasury Bond Fund (Average volume=946,802)
- 2.44% DIA – SPDR Dow Jones Industrial Average (Average volume=7,470,160)
- 2.14% VIG – Vanguard Dividend Appreciation (Average volume=1,342,150)
- 2.05% SPY – SPDR S&P 500 (Average volume=191,876,000)
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“Approximately 75% of the companies traded on the New York Stock Exchange pay cash dividends to their shareholders. It is perhaps the most sacred of all corporate financial components and the measure of value we hold in the highest regard.”
Geraldine Weiss and Gregory Weiss ~ Authors of The Dividend Connection (1995)
asset allocation:
1. the process of intelligent decision-making regarding the placement of financial assets for investment purposes.
2. the ability to move financial assets from one investment class to another, based on prudent risk/reward evaluations and individual investor objectives.
3. the critical decisions that savvy independent investors must make regarding where to put their money and in their proper amounts in order to play Wall Street Craps successfully over time.
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“True diversification is hard to achieve. The major portfolio building blocks tend to move in the same direction at the same time. That severely limits the protection that diversification affords. Recognize that the building and deployment of cash equivalent reserves is probably your best diversification tool.”
Robert Metz and George Stasen ~ Authors of “It’s A Sure Thing” (1993)
diversification:
1. the act of placing money in a number of different investments in order to reduce the risk of overall poor performance caused by having too much money concentrate in any one investment.
2. when investors spread money around in a variety of investment classes in an effort to create more safety and less volatility in their results.
3. what many part-time amateur stock players fail to create when they concentrate their bets on the stocks of too few companies, industries, or market sectors in the naïve effort to achieve greater financial gains.
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“Behold the fool saith, ‘Put not all thine eggs in one basket’ – which is but a manner of saying, ‘Scatter your money and your attention’; but the wise man saith, ‘Put all your eggs in one basket and – WATCH THAT BASKET.’”
Mark Twain ~ American author & humorist (1835-1910)
TAKE CHARGE OF YOUR OWN MONEY MANAGEMENT: When it comes to managing your money, the primary rule is to take charge of it yourself. Don’t make the critical mistake of delegating the responsibility of money management to someone else because in far too many cases delegating means neglecting.
I know that the whole concept of money management may appear at first to be too complex for average amateur investors to understand and do effectively. The good news is that it really isn’t.
The basic fact is that investing for the long-term is easy. On the other hand, trading for the shorter term is hard. All you have to do in order to simplify your money management strategy is three things: (1) put at least 80% of your money in a balanced portfolio of stable long-term investments, (2) set aside no more than 20% of your funds for trading purposes, and (3) remember to have plenty of cash available so that you don’t feel unnecessary pressure to make money quickly in order to pay current expenses.
By following the discipline of a well-designed money management plan, you will be able to let your assets grow over the long-term. You’ll also remain flexible enough to take advantage of short-term opportunities as well as meet your current expenses. Remember, when it comes to achieving financial wealth, nothing is more important than choosing a wise money management strategy to consistently follow over time.
NEVER WIRE HOME FOR MORE MONEY: Don’t borrow money or dip into your long-term security assets for the purpose of speculating. Understand that making money in the stock market is never a sure thing and sometimes you’ll be flat-out wrong. Face the reality that sometimes you will win and sometimes you will lose. But at the same time, don’t make the foolish mistake of thinking that success in the stock market is just a matter of luck.
The major cause of consistent failure can always be traced to either: (1) playing the market incorrectly, or (2) managing your money unwisely. The smarter alternative is to take a health break from the action in order to clear your head, learn from your mistakes, and refine your approach to suit your individual situation. Then you can carefully rebalance your asset allocation plan to desired cash levels in order to play again at another time.
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Note: The game of casino craps is a perfect illustration of how strong the desire is to get back to even after sustaining a loss. But this desire comes from an unhealthy emotional source which boils down to the need to be right. So it’s smart to set a rule for yourself that you will never wire home for money when your gambling in Las Vegas and you’ll never dip into your “security assets” to fulfill your trading urges.
REACH FOR YOUR WALLET: Don’t play with a short stack of chips. When necessary, reach into the cash reserves of your trading funds account and replenish your chips to a comfortable level. That way, you will relieve the pressure caused by playing with scared money.
Like the $5 player at a Las Vegas Craps table who is on an extended losing streak, it is really hard to play smart when you only have a few chips left in your tray. What often happens when players get low on short-term trading funds is that they impatiently go “all-in” with one giant bet on a single stock. This unwise impulse to boldly go “all-in” has an uncanny way of resulting in a total loss of capital.
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Note: This also means that if your chips get down to super low levels, it would be wise to cash out, move to the sidelines, and regroup. That’s because playing the stock market with scared money almost always leads to disastrous results.
KEEP PLENTY OF CHIPS IN YOUR TRAY: Realize that the more you have invested in the market, the more pressure you will naturally feel. To lessen the impact of this phenomenon, make sure that your trading account cash level is as much or greater than the dollar amount you have invested in the market.
This simple discipline will help you feel less fearful and more clear-minded about holding your present investment positions. The main reason for doing this is that it’s nearly impossible to play the stock market correctly when negative emotions such as fear, doubt, and worry are clouding your ability to think clearly.
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Note: This also means that the more you have in your cash reserves, the less pressure you will feel while you’re trading. This allows you to buy and sell without undue pressure. The caveat is that having a lot of money in reserve may make a player lose their mental discipline.
BET EVENLY – ONE OR TWO CHIPS AT A TIME: Don’t plunge into the market with large uneven bets right from the start. Get your feet wet by taking initial positions in your selected stock choices and then add to those positions if underlying market indicators dictate. Stay balanced and avoid the sudden emotional pull of the market, which will cause you to make unwise decisions at precisely the most inopportune times.
From the preceding example, choose a round number like $10,000 to put at risk in your trading account. Now break that amount into 10 equal size “betting” units or a “chip size” of $500. At a Las Vegas Craps table, this is like a guy with $200 in his wallet who buys in with a hundred dollar bill and asks for a stack of twenty $5 red chips. He has defined the amount of money to play with, the amount of money in reserve, and the dollar value of each betting unit. This important exercise helps an investor develop the disciplined money management mindset that is necessary to play the stock market game under control.
For example, finding the exact bottom of the market and the absolute lowest price for the stock you want to buy are nearly impossible tasks to accomplish on a consistent basis. Resist the temptation to be “perfect” by entering the market gradually and evenly. This tactic will keep you disciplined in your actions and humble in your attitude towards timely buying.
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Note: It is therefore important that you determine the amount of your “$5” red chip bet. I like to round off this number to the closest hundred or thousand dollar. Then I use this amount to determine how many shares of a particular stock I can buy. For me personally, I then like to determine the closest “round lot” I can then buy with that approximate amount of money. Hence, my $5 bet would eventually boil down to something like “100 shares of QQQ.” So when I am presented with a timely buying opportunity by my market indicators, I simply take a pilot position of 100 shares of QQQ without much mental strain.
PURCHASE YOUR INITIAL CHIPS: Buy in with a sensible portion of your liquid assets. It’s almost impossible to think objectively when you play a risky game with scared money.
From the preceding example, choose a round number like $10,000 to put at risk in your trading account. Now break that amount into 10 equal size “betting” units or a “chip size” of $500. At a Las Vegas Craps table, this is like a guy with $200 in his wallet who buys in with a hundred dollar bill and asks for a stack of twenty $5 red chips. He has defined the amount of money to play with, the amount of money in reserve, and the dollar value of each betting unit. This important exercise helps an investor develop the disciplined money management mindset that is necessary to play the stock market game under control.
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“Tolerance of risk? ‘To each his – or her – own’ applies, but only after honest soul-searching. No investment is without some risk. Sometimes the acceptance of higher risk is dictated by personal circumstances.”
Robert Metz and George Stasen ~ Authors of “It’s A Sure Thing” (1993)