Investing 102

[GregWeld]

I just sent an email to my bond broker and instructed to sell my entire muni bond portfolio. I think we are going to start to see interest rates rise. Houses are selling. Employment seems to be improving. And in order to make money you must be AHEAD of the game many months. If I wait to be certain it can make a giant difference. As low as rates are right now, a very small move up would mean a huge drop in bond values. Since I have a nice capital gain now. I'd prefer to lock that in. And if I'm right I want to have even more money in equities.

[bdahlg68]

Originally Posted by GregWeld

I just sent an email to my bond broker and instructed to sell my entire muni bond portfolio. I think we are going to start to see interest rates rise. Houses are selling. Employment seems to be improving. And in order to make money you must be AHEAD of the game many months. If I wait to be certain it can make a giant difference. As low as rates are right now, a very small move up would mean a huge drop in bond values. Since I have a nice capital gain now. I'd prefer to lock that in. And if I'm right I want to have even more money in equities.

Will be interesting to see how NLY and the like mange the spread going forward if rates do in fact continue upward.

[GregWeld]

Originally Posted by bdahlg68

Will be interesting to see how NLY and the like mange the spread going forward if rates do in fact continue upward.

Well.... NLY has already cut it's dividend - and the share price is down a pretty good tick from it's highs a couple months ago.


That's why I've reminded folks that these are not the "buy and forget" kind of stocks ---- these are places to put money to work if you're sharp and keep an eye out for what's coming. You've got to be nimble in names like these. They're really not for Investing 102... or for IRA's and that sort of thing.

I've moved in and out of NLY several times in the last year... ditto JNK and HYG.... I purely use them to park money - pick up a dividend and wait for something else to come along.

[GregWeld]

Since people are asking about Annaly Capital Management (NLY) here's a Motley Fool report on them.

PLEASE NOTE THE FINAL COMMENT ---- This is an INCOME investment --- not a price appreciation investment. The income is currently sky high and as such has been great for people like me... but please understand what your individual situations are and what each stock does or doesn't do for you.




http://beta.fool.com/jordobivona/201...l-cliff/20301/

[glassman]

Greg, what's the difference between an income investment and a price appreciation investment?

Mike

[GregWeld]

Originally Posted by glassman

Greg, what's the difference between an income investment and a price appreciation investment?

Mike

Income investment - let's say NLY - are bought because they spin off super sweet income in the form of dividends or interest... But you're not investing in them because you think the price per share is going very far.


A price appreciation investment would be where you expect (hope) that the share price is going to go higher. So I might buy a stock where I "only" get 3% dividend - but to offset that smallish dividend - I need the share price to appreciate to give me a "TOTAL RETURN". Dividend plus share price growth.

[GregWeld]

I had a funny thought this morning -- partly because of Mikes question about income vs appreciation... and partly because I got my Annaly Capital Management (NLY) dividend this morning.

Most of you guys own houses.... I think a "jumbo" mortgage is $417 grand in most states...

I have about that much invested in NLY ($437 grand) -- but instead of paying someone -- IT pays me... $12,891 per quarter or $51,564 per year.

That is INCOME investing...


Side note --- AT&T is trading "ex" dividend today - so part of the price drop this morning is "market" and part is the "ex" dividend trade.

[Bucketlist2012]

Originally Posted by GregWeld

I just sent an email to my bond broker and instructed to sell my entire muni bond portfolio. I think we are going to start to see interest rates rise. Houses are selling. Employment seems to be improving. And in order to make money you must be AHEAD of the game many months. If I wait to be certain it can make a giant difference. As low as rates are right now, a very small move up would mean a huge drop in bond values. Since I have a nice capital gain now. I'd prefer to lock that in. And if I'm right I want to have even more money in equities.

Greg, I did something just like that...Due to the conditions , I am decreasing my Bond exposure and increasing my Dividend Stock exposure.

Also I am selling off some of my "Insurance",Precious Metals, and going into Dividend Stocks.

I feel the Interest rates are going to rise and hammer Bonds, and i feel that I have got all the gains I can out of my Precious Metals.

Normal Investing would say own more Bonds the older you get, and it seems counter intuitive to go heavier Stocks, but with the present conditions and Politics, I am decreasing my Bonds and Precious Metals and increasing my Dividend stocks...

Mike

[GregWeld]

Smart move. If the economy is going to come around - which I think it is.... and houses are selling again... rates are going to rise from here.

Now for those that don't understand BONDS. People buy BONDS because you get 100% of their capital back upon maturity. That is - if you buy a 5 year bond - you'd get semi annual interest payments (NOT dividends!) each year and then at maturity you'll get all your cash back.

Okay - so big deal!? Right!? Well.... the catch is that if bond yields (interest rates) RISE -- then the VALUE of your bond declines until it's STATED yield meets what someone could get by buying a new bond at current rates. Not a big deal IF -- BIG IF -- You're holding until maturity... but then let's say you have a 5 year bond @ 4% -- FIVE YEARS is a long time.... and it's ONLY going to pay 4%. Period. If I want to earn more money for the next 4 years... I have to sell that bond at a loss of face value... or I have to accept a sub par interest rate.

Right now -- I owned bonds that paid above market rates -- therefore they were worth MORE than face value... so if you think rates are going to go up -- then not only would I lose the CAPITAL GAIN from the sale by holding to maturity -- I'd have below rate interest rate income as well and if I wanted to change that anytime before maturity I'd take a loss. So why not sell now - capture the capital gain --- and invest in something that is a little better going forward. Perhaps.

I hope that makes some sense.

[GregWeld]

Now here's a TREND we need to see more of!!


http://www.foxbusiness.com/news/2013...hire-veterans/