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Posts Tagged ‘monthly income plan’

Why Buy and Hold Investing Doesn’t Work for All

If you are starting your investing journey than you should consider the best methodology to achieve your objectives. Some popular theories include John Bogle suggesting to buy 50% in a stock index and 50% in a bond index. This is a set and forget move that only requires periodic rebalancing. I am sure this works for many investors. Then, there is the buy stocks for the long haul like Warren Buffett and others to let them appreciate in value and grow dividends over the lifetime of your portfolio.  Most investors subscribe to this theory for managing their investments. I prefer to more actively manage my portfolio and focus on multiple steams of income.

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You may have heard the old adage that the best way to make a small fortune is to invest a large fortune. Another one is that the most difficult time to invest is always now. Mark Twain famously considered every month of the year was peculiarly dangerous for investing in stocks. And there is the wall is a thoroughfare that begins in a graveyard and ends in a river.

Sometimes Wall Street analysts urge the public to buy stocks they know are poor investments as they are probably selling in private deals. Insiders can play games using their superior information because they hold insurmountable advantages. Even Jim Cramer has acknowledged how easily stocks are manipulated by big-time money managers.

To some, this theory is referred to as buy and hope.

As you learned from the past two decades, stocks don’t always go up. Remember the market downturn not so many years ago. Some people buy stocks at the end of a bull market after listening to the crowd full of bull market stories for years only to watch their stocks for years through a bear market. If you are in your 30’s this may not be a concern. But if you are approaching middle age or retirement, do you have time to wait out a secular bear market?

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The market went up an average of 8-9% in the last century but the key word here is this is an average. There have been periods of time when stocks turned in negative returns for several years. I know retirees who had their portfolio cut in half by market corrections. At that age, you no longer have the wherewithal to make earnings via working. A history lesson in it toke 20 years for the market to make gains after 1966. The latest bull market is being fueled by those prepping for retirement but eventually they will spend those dollars during retirement. You know what this means for the market.

Picking stocks that will last a lifetime to grow in value and appreciate in price is tough. We had debacles such as Enron and others and today bell weathers such as GE are in trouble. Yet to get rich in these stocks the security must perform well in all areas. Most of these stock picks are based on the fundamentals of the stock. However, there are many factors that affect long-term success such as changes in technology and markets. I am thinking of Amazon, Google, Facebook, Netflix and others. Where have all the books stores gone? Who was the major search engine before Google? Why are brick and mortar retailors going away because we shop on Amazon?

In general, buy and hold does not produce income. Stocks just lying around the portfolio doesn’t produce any cash flow unless they pay dividends. Growth stocks that are likely your home run stocks usually don’t pay dividends. If you asked a successful entrepreneur their opinion of tying up precious cash in a non-producing investment for years with the risk of a bear market, what will they say? They will probably tell you it is all about the cash flow. When income is not being produced, you are hoping stocks will increase enough over time to produce wealth.

The buy and hold investing ties up your capital without producing income to use in your life. If stocks are higher, then you can sell them, take gains and access the money. But if stocks are down, you are digging into your capital in order to get your hands on some cash. And it is all because stocks are not producing income.

Then there is the value investors. You know them, they buy low and sell high to capture the true value of the stock. Generally, the market moves all boats and your value investment will likely flow with the tide. Value is a relative term based on the perception of the assets as all do not agree on the correct value. Therefore, you had better be right if you are a value investor. Some stocks may be value plays for years!

Wall Street tends to be traders so they don’t do buy and hold investing but you are listening to their recommendations. Odd that Wall Street would tout a strategy they don’t follow themselves. There no mystery that Wall Street needs buyers for stocks. They turn their money generating cash flow all the time. Shouldn’t you?

Remember seeing two market crashes with one in 2000 and the next in 2007 with a span of 10 years. Some investors were ruined twice within a decade. With stocks at all-time highs, when will the next crash happen? Are you prepared to protect your capital?

The smartest strategy would be to buy stocks that pay dividends at the market bottom in 2009. You get the market rebound and cash flow from income. You may have picked up yields of 5% or more during this period.

Then, the best approach would be writing calls on your portfolio stocks to generate more income. A declining market is a perfect time to write calls on a long-term holding. The stocks are declining anyway so why not produce income out of them?

Instead of buy and hope investing, you should try income investing using a conservative approach that can produce an average monthly return of 3-5% which builds wealth quickly using dividend stocks. Think about it, you get dividends from the stock and premium income from writing covered calls.

Imagine that: you can force a stock to generate excellent income – paying you rent – while defining and limiting risk at the outset. And you can choose how much risk to undertake.

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How to be a Multimillionaire

Grace Groner started her career as a secretary at Abbott Laboratories more than 80 years ago. Four years into her job, she purchased three shares of our company stock for just under $200. She held on to those three shares until she died, in 2010.

Those three shares alone made her a multimillionaire. She could thank the company dividend — and the miracle of compounding — for her $7 million fortune.

Grace wasn’t abnormally lucky. Any investor who bought $1,000 worth of high-dividend-paying stock 75 years ago would have about $3 million today.

Are you ready to start your million dollar journey? Get Rich using our income methods.

You can learn how to compound your money even faster than Grace. To do this, you need consistent returns to increase your dollars being compounded. Secondly, you need monthly income to accelerate the compounding effect. Lastly, you need an investment plan to achieve your goals.

Our monthly income subscribers are well on their way to financial independence. Here is the monthly returns from selling outs:

July:                 3.1%

August:            1.5%

October:          1.6%

November:      2.7%

These returns result in a 4 month return of 9.2% when compounded and near 30% when compounded annually!

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How to Earn a Potential 134% Return with a 16% Dividend Yield

We strive to create monthly income by investing with several strategies. One long-term play for our monthly dividend stock portfolio is Center Coast Brookfield MLP & Energy Infrastructure Fund (CEN). While the energy sector has been soft in the past year, this has brought the energy stock prices down with it. This stock has a great monthly dividend with some significant price upside too.

This CEF trades around $7.80, which is close to the NAV. The big win is you get a 16% dividend with monthly distributions. This means you get all of your capital back in 4.5 years and still own the stock. According to Yahoo Finance, analyst have a 12-month price target of $17 on this stock. This is an increase of 118% on price alone. Therefore, your total return is projected to be 117% plus 16% dividend that equals 134%!

You should not fear the talk of return of capital. A distribution received from the Fund’s investments in MLPs generally are comprised of income and return of capital. The Fund’s dividend distribution policy is intended to provide monthly distributions to its common shareholders at a rate that over time is similar to the distribution rate the Fund receives from the MLPs in which it invests, without offset for the expenses of the Fund.

The Fund seeks a high level of total return with an emphasis on distributions to shareholders through investing in MLPs and energy infrastructure companies. Under normal market conditions, the Fund will invest at least 80% of its Managed Assets in securities of MLPs and energy infrastructure companies. The Fund may invest up to 20% of its Managed Assets in unregistered or restricted securities, including securities issued by private companies. The Fund may invest up to 10% of its Managed Assets in securities of issuers located outside of North America.

Regardless of the recent market swings, our outlook for the asset class remains favorable. To start, the corporate and financing maturation process that has contributed to sector-specific price volatility over the last several quarters appears to be largely behind us. Since the beginning of 2018 there have been over 15 simplification transactions resulting in generally healthier, lower risk companies in the sector, lower financial leverage, better distribution coverage, self-funding of capital expenditure and improved governance. This leaves us with less than 10% of the current market cap in structures with legacy corporate structures. In addition, public equity issuance is expected to significantly decrease, due to the transition to self-funding business models, reducing sector reliance on external equity capital markets. Sector fundamentals also remain robust as the energy industry set new records for production and transportation of U.S. hydrocarbons in 2018. The U.S. grew crude oil production by almost 20% in 2018 and is now the largest oil-producing country in the world—recently surpassing both Russia and Saudi Arabia—with output at 11.7 million barrels per day (MMb/d). Natural gas production is also at an all-time high after growing approximately 15% in 2018. Moreover, exports of U.S. crude oil, natural gas, and natural gas liquids (NGLs) hit record levels in 2018 and together grew by approximately 40% in 2018. We expect exports of U.S. hydrocarbons to continue to grow and expect that new projects will further add to our nation’s export capacity. One study estimates there will be almost $800 billion of new energy infrastructure investment through 2035 – with much of it expected to be centered around export activity on the U.S. Gulf Coast. Our optimism is somewhat blunted by geopolitical risks globally, and in particular, the worsening trade relationship between the U.S. and China.

At Get Rich Investments, this is the type of opportunities we want to create long-term passive income. I am a buyer here and you should consider adding this one to your income portfolio. We always have a diversified group of monthly dividend stocks to minimize market risk.

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Beat the Market Pullback with Monthly Dividends

Here is the latest listing of monthly dividend stocks with high dividend yields. These investments can be used to create additional streams of income. remember, to diversify your investments across at least 5 or more stocks. You can conduct more detailed research into these opportunities before selecting the right stocks for your portfolio.

If wake of the market pullback, it is interesting to see what monthly dividend stocks performed the best. The S&P 500 is down over 6% in the past month due to the economic concerns around trade tariff and other issues. The list of EFTs paying monthly dividend below has performed the best during this period. As you can see, many are taxable bond funds which drives home the importance of having multiple monthly income payers diversified across several asset classes.

Don’t let the market volatility mess with your head. Income investors should continue to focus on dividends and buy more shares on these pullbacks. You should keep in mind the need to have diversification of assets and multiple streams of income.

Over the millennia, evolution has sensitized humans to danger. “Imagine that you’re a caveman and saw a horrible mauling by a bear on a certain path,” says Prof. Shiller. “That will stick in your mind and you will tend to think, ‘I’m going to avoid that path even if the bear isn’t there anymore.’ A path with delicious fruit will also stick in your mind, but that’s not as important to your survival, so it’s not as memorable.”

That doesn’t mean every investor will sell in a panic. It does mean investors who have witnessed a recent sharp decline are more likely to fear another in the near future.

 

CEFs with monthly dividend distribution 3

 

 

 

 

XAI OCTAGON FR & ALT INCOME TERM TRUST XFLT
FLAH&CRUM PREF INCOME OPPS PFO
COHEN & STEERS SELECT PREF & INCOME PSF
FLAH&CRUM PREF SECURITIES INCOME FFC
PIMCO CORPORATE & INCOME OPPS PTY
BLACKROCK TAXABLE MUNICIPAL BOND TRUST BBN
PIMCO DYNAMIC INCOME PDI
FIRST TRUST INTER DUR PREF & INCOME FUND FPF
GUGGENHEIM TAXABLE MUNI MANAGED DUR TR GBAB
PIMCO CORPORATE & INCOME STRATEGY PCN
MFS® GOVERNMENT MARKETS INCOME MGF
FIRST TRUST MLP & ENERGY INC FUND FEI
DREYFUS ALCENTRA GL CREDIT INCOME 2024 TARGET TERM FUND INC DCF

Three Steps to Early Retirement as a Millionaire

Notwithstanding a strong U.S. economy, only 25% of Americans say they feel financially prepared for retirement, according to a report just issued by the Certified Financial Planner Board of Standards. : Close to 80% of participants surveyed say they are not reassured that they have the best retirement savings strategies available to them. The good news is, three simple steps can help people build wealth and retire early.

While anyone can benefit from these action steps, they can be particularly powerful for financial independence and early retirement.

1. Pay yourself first

The single most important decision you’re going to make is to pay yourself first. This means, when you earn a paycheck, the first person who gets paid is you. Most people don’t do this even if they have employer matching funds. They focus on paying bills and other personal expenses without considering saving money.

2. Invest your savings

To be clear, simply saving a lot of money doesn’t make you rich. You have to have this money invested for growth. You cannot put this money in a money market or a CD, where it grows at 1% or 2%. You’ll never build wealth that way. We have created an investing plan to purchase monthly dividend stocks. These investments pay you a dividend check every month. Even better, we focus on yields above 10% to beat the market. How would you like 5, 10 or 30 checks coming to you each month?

3. Compound your wealth

When you receive your monthly income, reinvest a portion into new monthly dividend stocks. This grows your wealth over time, increases your income each month and offsets the impact of inflation. Also, this creates a lasting legacy as you are living from the dividends and not touching your capital.

The earlier you start, the better, thanks to the power of compound interest, which can cause your wealth to snowball over time. Yes, early retirement is possible as your monthly income exceeds your living expenses.

Create your legacy by joining our Monthly Income Plan today.

How To Use Moving Averages in Covered Call Selection

The use of moving averages are important to assessing the price trend of a stock.  Even better is using multiple moving averages to increase your accuracy of identifying the stock trend.  The definition of a moving average is the average of the stocks closing price over a period of time. As a new closing price is made, it is added to the calculation and the oldest closing price is removed from the calculation. This creates a new data point on the moving average as this process continues into the future.

The simple moving average (SMA) is the total of all closing prices for the time period divided by the number of points in the period. The exponential moving average (EMA) weighs more recent closing prices higher than older data prices as the newest data point is more relevant than older price points.  the EMA is more sensitive than the SMA but it has more frequent false signals.

I prefer to use the 20-day SMA and the 50-day SMA in my price charting.  There is nothing magical about these SMAs as other investors may use a 14-day and 40-day SMA.  I like the 20 and 50 day SMAs as a 20-day is 4 weeks or one month based on closing prices and the 50 day is 10 weeks. I usually sell the current month so the 20-day is more suitable to a one month call option while the 50-day serves as my longer term marker.

What should you look for in moving averages?  First, any time one SMA crosses the other the trend has changed (see chart below).  When the 20-day crosses ABOVE the 50-day, then the stock is starting an uptrend.  Conversely, if the 20-day crosses BELOW the 50-day the trend is moving down. The predictive factor happens when the stock price gaps way above the 20-day SMA as this signals a pullback for the stock.

The best covered call candidate will have the 20-day SMA above the 50-day with a flat or uptrending price line.  If the 20-day is below the 50-day, I usually pass on the stock as there are so many other stocks better suited to a profitable covered call trade.

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The Best Method for Call Writing

Most experts in the stock market will generally say, “the writer of an options is foregoing any increase in stock price that exceed the strike price for the premium received when selling calls.  The option writer continues to bear the risk of a sharp decline in the price of the stock. The cash premium will only offset this loss.”  Do you buy into this way of thinking?  This is not correct based on how I trade covered calls.

With my method, you no longer care about the price of the stock that you purchased.  When the stock does go down, we would buy back the option at an inexpensive cost and immediately write a new option.  For example, we received a premium of $3.00 and close it at $0.25 when the stock price drops.  If the stock price went down $5.00, we would write a new call at at a $5 lower strike price.  This may net an addition premium of $3.00 so when you add the premiums minus the buy back of the first option we have $5.75 while the stock only dropped $5.00.  The second premium helped to offset the loss from the strike price.

When the stock does not reach the strike price, let the option expire, keep the premium, and write a new cal at the same strike price.  When the stock price goes above the call strike price, buy back the call option and write a new option at a higher strike price to reflect the gain in the stock. the second premium will help defray the cost of the buyback while you have a gain in the stock price.

For the buyer, options are a wasting asset as time decay erodes value.  The time value portion of a option is always zero at expiration.  Selling the time value repeatedly on the same stock makes option income work for you.

With my trading method, you will not be waiting on the stock price to go up to make money.  You will make money on the wasting time value of options you have sold.  this will change your investing philosophy about the stock market.

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A 20% Dividend Yield from Small Caps with Monthly Dividends

Small-caps have been on a tear in Q2 clearly outperforming its larger counterparts. President Trump’s protectionist agenda and the resultant trade war fears started weighing on large-cap stocks that have considerable international exposure. And the domestically focused pint-sized stocks soared

In additions to trade tensions, there were some other factors that played their roles in pushing pint-sized stocks higher. The U.S. economy has been on steady ground. This gave a boost to small-cap equities. Apart from this, upbeat earnings sent small caps rallying in recent times.

And what could be better than a high dividend feature attached to this segment? The fund yields about 20.45% annually.

The UBS ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend ETN (SMHD) is linked to the monthly compounded 2x leveraged performance of the Solactive US Small Cap High Dividend Index, less investor fees.

This is a relatively new ETN released in late 2018. It does carry risk being in the small cap area, being leveraged and with such a high yield. However, it can offer diversification to a high yield portfolio especially since it tracks small caps that usually don’t produce yield. It is trading 30% below its stock price high for the year.

Leveraged ETNs have interest-rate risk since they implicitly borrow at short-term interest rates to finance their leverage. A significant part of their high dividends results from the carry that is generated when the dividends paid by the securities in the indices upon which the ETNs are based exceed the implicit borrowing rate. While typically called dividends, the payments from ETNs are technically distributions of interest payments on the ETN note based on the dividends paid by the underlying securities that comprise the index, pursuant to the terms of the indenture.

As with all investments, you should be conservative with the total percent of your portfolio allocated to high risk. I like to have a few high yield stocks rounding out my monthly income plan. SMHD is in my personal portfolio as I believe the dividend is sustainable. Over time, the yield will compensate for the increased volatility and risk.

I am working on creating several new portfolios. The one most exciting is the monthly income stocks as a income resource to reach financial independence with passive (side hustle) income. I will hae more to come on this opportunity.

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Adding a Put to a Covered Call

When you buy a put for a covered call trade, you then have both a sold call and bought put on the stock you own.  This is called a “collar” as you have a  protective put on a covered call.  The classic collar has an at-the-money (ATM) call and put at the same strike price.  In the case of the covered call trader, the  bought put serves as additional downsize protection against a stock price decline.

When you add a put to a covered call trade, you are adding additional cost to the trade.  This will increase your cost basis for the trade. However, you can create a totally riskless covered call trade.  Let’s look at an example using XYZ.

XYZ is trading at $74.77 in the market.  You can sell the 75 Call for $4.20 and buy the 75 Put for $4.00.  If the stock is above 75 at closing, if will be called away and you gain $0.43 in profits (75-74.77+.20).  Additionally, we could sell the put if there is any value left before expiration.  In this scenario, you make money from the covered call side.

If XYZ is trading below 75 at expiration, the call will expire worthless but the put will have value.  You would exercise the 75 put which will give you $75.00 for the stock shares trading below the 75 strike price.  You would then make a profit of $0.43 on the protective put side of the trade.

XYZ
Stock Price         74.77
Sell 75 Call           4.20
Buy 75 Put           4.00
Net Premium           0.20
Net Cost         74.57
Downside Risk                –
Max Profit           0.43

 

This trade is a risk-free trade because the total cost basis ($74.57) is below both strike prices of 75.  Regardless of what happens to the stock price, you will receive $75.00 for your stock. You can say that this collar trade is an arbitrage trade because there was a positive difference between the call and put prices at the 75 strike price.  The return of $0.43 is only a 0.58% return.  When you add trading commissions to the cost basis, this can’t be arbitraged by a retail investor.  For more active traders, you can vary your timing of closing the call and put sides to increase your profit.  For example, when the sold call loses the majority of value, you can close this side by buying to close the call.  Then, you will own the stock with the put guarentee at the strike price.  There are numerous possibilities when you actively managed the collar trade if you make adjustments before expiration.

You can construct a similar trade with different strike prices for the call and put.  When you vary the strike prices this, you are changing the cost basis and risk exposure.  For example with the 75 covered call on XYZ, we might buy the 72.5 put for $3.15 (see table below).  This will give us a max profit of $1.05 and downsize risk of $1.22.

XYZ Stock
Stock Price         74.77
Sell 75 Call           4.20
Buy 72.5 Put           3.15
Net Premium           1.05
Net Cost         73.72
Downside Risk           1.22
Max Profit           1.05

 

The great part about this type of trade is that you are limiting the amount of downsize by using the blanket put.  If the stock market bottom falls out with a 10% correction, you will only lose $1.22 per covered call or 1.65%.

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Writing Covered Calls With High Quality Stocks Using Volatility

This is a great strategy because it uses the highest quality stocks that high a high volatility.  I define a high quality stock as a stock rated 5 stars by the S&P rating agency.  As we know, when volatility is high you get more premium from selling calls against your stock.  This will increase your return on investment for covered writes.

Here is how it works:

  • stock volatility is higher than the market volatility measured by the S&P 500 index (SPY);
  • stock has high implied volatility to generate good call writing return on investment;
  • Stock pays an annual dividend whose yield is at least 3% or better.

Then, if not called out, you can rewrite the call month after month until you are called away.  This strategy will minimize the amount of time used in selecting stocks and managing trades.  This will also lower the stress involved with covered call trading.

To implement this strategy, you should look for:

  • A low to medium historical volatility between 20-40% but higher implied volatility which tends to generate more premiums;
  • A historical volatility of 30-60% with similar implied volatility as you will hold these stocks for several months – the high HV will provide more premium each month.
  • Lastly, do not try this strategy on a lower quality stock just to increase your returns – stay with the 5 star stocks.

The use of high quality stocks will lessen the number of potential stocks because you have preselected a stock list.  The high quality stocks are generally blue-chip stocks that pay a dividend.  I am not a fan of buy and hold investing but this strategy is an effective way to maximize monthly income from investments.

The high quality stocks or blue-chips tends to move less in price compared to smaller cap stocks.  These high quality stocks tend to outperform during periods of uncertainty in the markets.  This is why we use these stocks in this strategy as they can weather the market downturns and rise during a bull market.  this a nice strategy to include in your monthly income plan.

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