Survivor Puts--bonds that elderly should own

Did you know that you can buy bonds issued by companies such as GMAC, Ford, Catepillar, CIT, and others that when the owner of the bonds passes on, the beneficiaries can put the bond back to the issuer and get par for them (100). It's called a Survivor or Death Put. Many of these bonds now are selling at 50 cents on the dollar and you can collect very juicy premiums (10-12% or more) for these bonds while you wait, you just have to be sure that the company isn't going to declare bankruptcy before they pay you off! You can buy a 30 year Ford or Catepillar bond and if the person dies next year, get 100 cents on the dollar for it. Not all bonds have this survivor put, so be sure to ask your advisor to make sure they have them. Is it a little morbid?? Yes, of course it is, but I think if people are over 80 years old, they should all own some of these. It would benefit their heirs greatly.

Happy Investing...

Ivan

Where to put cash in a rising interest rate environment

Interest rates are about as low as they're gonna get right now. When the economy starts to improve (I'm not sure if that's started to happen yet), the Fed will start rising rates again. Now is the time to figure out what does well in a rising rate environment. Here are some ideas:

Commodities- Gold, silver, oil, natural gas

TIPS (Treasury inflation protected securities)- These are bonds that are issued by the government that adjust their interest rates for inflation, which will also be a natural consequence of all the dollars we've been printing recently. Premium Ginnie-mae paper are also good in a rising rate environment. There's also no credit risk because Ginnie's are a direct obligation of the government.

Short-term paper-- won't be affected too much when rates rise because you're holding them to maturity anyway.

High quality preferred stock- Preferred stock is like a hybrid between a stock and a bond, as it trades like a stock, but it pays you interest. A lot of the banks issue preferred stock that pays 8-9.5%. You're also a little bit higher up in the debt structure, so if a company goes bankrupt and the common stock gets wiped out, preferred stock holders might still get something. Make sure you buy the higher up trust preferreds as you have a better chance of getting something back if the company goes belly up. You can also get preferreds with adjustable or floating rates that go up as rates go up.

Bond funds- There are some great bond managers out there that do a great job making sure you get a decent return in all types of environments. Bill Gross runs the Pimco Total Return fund, which is the largest, is one of the best. They've even managed to be up a couple percent last year and you also get good interest. Other good bond funds are run by Franklin, Oppenheimer, Lord Abbot, and Van Kampen.

Finally, Cal G.O.'s (CA General Obligation municipal bonds)- G.O. Muni's are issued by states, counties, hospitals, school systems and are backed by the full faith and credit of the municipality. There is a great opportunity for Californians to buy Cal GO's because they sold off in the great sell-off of last year and Cali is in bad shape. People must realize though that the state HAS to pay off it's bond debt according to it's constitution. They would have to not pay police officers and fire fighters before they default on their own debt, therefore you're getting a good spread right now (not as good as earlier in the year, but historically still really good) You can get 5% interest and that's tax-free!!

Let me know if you have any other ideas. Leave comments!!

Ivan

MLP's--A Necessary Component of Your Portfolio

The markets hit new highs for the year today. Nasdaq is up 58% from it's lows in March and crossed 2,000 for the first time since last October. The S&P crossed 1000 and is up 50% from the lows. I guarantee there are people reading this who sold out of positions at the lows and went to cash. It was scary back then and I agree that it was prudent to get out of some of the riskier stocks where bankruptcy was a real possibility (Citi, AIG, even B of A before the gov't came in), and go defensive. Oil went from $147 last July to the low 30's earlier in the year and currently up to $72.

The volatility of the last year is unprecedented and has also provided the opportunity to make a lot of money. If you bought into the stock market 10 years ago, you would have slightly less money than what you started with. That's not exactly a great investment right? Not only did you lose money, you didn't even get to enjoy it. Might as well have taken a nice vacation. You need to have components in your portfolio that you can rely on and you need to have a strategy. Dividend paying stocks and interest paying debt instruments are essential.

Dividends and bonds give your portfolio breathing room of 5-15% that's income you can rely on. When the markets are in a free fall, you have to go back to the basics of the market. What do people need to live on? Food, medicine, and energy come to mind. Where are there monopolies? They still exist. You only have one choice if you want gas and energy in your house right? You look for business' that can survive without needing to borrow money and have cash coming in that you can count on.

There's a group of stocks called Master Limited Partnerships (MLP's), which are primarily comprised of energy pipeline companies that own and lease thousands of miles of pipeline to transport and store natural gas or any other liquid. Many have virtual monopolies in the states that they operate in. The beauty of them is they're tax advantaged so long as they pass on at least 90% or their earnings to their investors. They have a great history of cash distributions anywhere from 7-20%!! They have also outperformed the broader market for the better part of this decade. The group hasn't been immune from the credit crunch though, but that's why valuations are still compelling. They've rebounded nicely with the market since March and the yields are still juicy. My top picks are KMP, OKS, PAA, and EPD. I would choose the larger, more stable ones that can handle their debt during what is sure to be continued tough economic times for years to come. I think can establish a position right now and dollar cost average your price down over time and definitely reinvest your dividends!!

Happy Investing,

Ivan

Thanks for all the emails!! Try to leave some comments too so everyone can be in on the discussion.