I've said it in here a million times...... just as "things to watch out for" in investing. There are always correlations of money chasing a return. Bonds have sucked as an investment vehicle for years now (in my mind - forever) with low yields (interest), and no growth (a very basic statement). A decent common stock dividend has paid double or more. But the market has always reacted to "bond yields". Money chases money....
So -- what am I saying?? I'm saying that as yields on bonds rise -- money will seek out the return rate that is equal to (factor taxes in here) safe returns in stocks.
Now -- make no mistake -- the long term historical return on stocks far exceeds bond returns... but there is a huge amount of investor capital that loves bonds "safe" predictable yield.
What's that look like?? As bond yields seek a normal level --- rising --- you'll see sellers in the market raising cash - taking their gains (huge gains) -- and running to bonds. For me -- these inevitable selloffs are buying opportunities. Just don't go all in every purchase. Pick your names - make a list - and buy some as opportunity allows.
The lowest paying dividend yields will get hit as money moves out of them and into higher yielding names or in to tax free bond yields.
REMEMBER TO ALWAYS CALCULATE YOUR YIELD AT YOUR COST BASIS!! Don't look at what the yield is at today's closing price!! Your yield might be double, or better, than what the current price/yield is. So don't get tricked making this common mistake!
The math for this ----- your cost per share divided in to the annual (not quarterly) dividend in dollars and cents. Move the decimal point in the answer.
div is $1 (.25 every quarter X's 4)
your cost is $12 per share
1 divided by 12 = .08333333
Move the decimal point 2 places ---- it's paying you 8.33%
The fact that it's now selling for $24 a share and showing a 4.16% dividend is correct if you bought it today - but you were so smart and bought it 3 years ago !! LOL
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We've discussed LLC's and "commercial real estate" investments - such as multi family (apartments) etc. I've invested in this type of opportunity for almost 30 years now. I was reminded of something that just happened to one of my investments when I wrote the part above about calculating your yield on your cost basis.
5+ years ago I invested in an apartment complex in Seattle. Seattle has been one of the hottest real estate markets for quite awhile now. The yield on this investment is 7%. That's great income - and income from this type of investment is offset by the depreciation come tax time.... so these work great for guys like me. Eventually you have to "recapture" all of that when you sell etc - but for the typical hold period of 10 to 15 years -- you're collecting that payment "tax deferred".
Now -------- every 6 months we get a state of the investment (LOL) letter along with our check. They've been very "rosy" and have shown a massive increase in the value of the property.
When it crossed the line exceeding 100% of original purchase price (couple years ago) --- I wrote to management that it should be discussed whether it was time to capture that gain... because the CURRENT ROI (return on investment) is half what it could be if we sold and reinvested in something else. This is not exactly true if you calculate it all out - taxes have to be paid etc -- but basically -- think of it this way.... I invested over 1MM in this deal -- I get 70+K annually -- but now my 1MM is worth 2+MM - and even if I paid 40% taxes I'd get 1.6MM net.... if I invested 1.6MM in something that paid 6% ---- I'd get more cash (ROI). Plus -- nobody ever went broke taking a profit.
Now ---- that does not mean that you should be doing this with STOCKS. Stocks are LIQUID --- real estate is not! Your cost basis stays where it is -- and the growth in capital is your paper gain and the ROI should INCREASE over time as they raise the dividend rate -------- these real estate investments DO NOT do that -- they're like bonds -- as long as you hold them they're going to pay the agreed to rate. They're tax plays along with capital growth over time.
I'm mentioning all of this as an INVESTING 102 "lesson" ------- pay attention to your ROI --- know how to calculate it --- all investments are NOT equal!! Each type has its own parameters. Make sure you understand those and don't get caught selling a sure fired winner because you miscalculated your real return etc. Or don't get caught holding a low rate of return when you could have sold and moved it to a higher rate etc.
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