On average, they're yielding 7.6%. That's nearly four times the
of the S&P 500. Try getting that amount from a money
But that's not the half of it. In tandem with those high yields,
the capital gains have been great too. The average total return for
38 securities is 23.6%. The best performer has gained 131.6%, yet
still yields 5.0%.
This isn't the performance of some secret
or an exclusive hedge-fund's holdings. It's what is currently
happening within the portfolios of my
What's the secret to that sort of performance? How can you build
a similar portfolio for yourself? Don't get me wrong -- I do an
enormous amount of research and watch my holdings and the market
like a hawk. But much of the good fortune comes from sticking to a
few simple rules that you can use as well.
Over the years, these rules have proven their value in
and bear markets. The techniques are not complicated. Anyone can
follow them and potentially get the same results. So I wanted to
share with you, my fellow income investors, the four basic rules I
follow to build my winning
portfolios. I'm confident these tips can work for you as well:
Rule #1: Look for high yields off the beaten path
To find exceptional returns and yields, I frequently venture off
the beaten path. Some of the best yields I've found have come from
classes few investors know about. A case in point is Canadian
real-state investment trusts (REITs). These REITs delivered
exceptional yields this year (some as high as 12%), but many
stateside investors have never heard of them.
Other lesser-known securities I look at are exchange-traded
, master-limited partnerships and income-deposit securities. All of
these usually yield more than typical common stocks. In addition,
they can also be less volatile and hold up better during market
If you're not familiar with these securities, then don't
fret. I have -- and will continue to -- cover them within
Rule #2: Consider alternatives to common stocks
It is a well-known fact that the vast majority of common stocks
simply don't yield much. The S&P 500's average yield is only
So when I can't find the income I want from common stocks I
like, I look elsewhere. My first stop is often
of the same company, which almost always yield more. Say you wanted
to invest in
General Electric (NYSE:
. The common
of General Electric currently yield 3.7%, but you can find
preferred shares of GE yielding upwards of 6.5%. You still benefit
from the underlying company's backing, but with a much higher
Similarly, many companies offer exchange-traded bonds. While you
don't get actual ownership of the business as you would with common
stock, you will earn a much higher yield and have your
backed by the underlying company.
Rule #3: look for securities trading below
Some of my highest returns have come from buying bonds when they
trade below par value. Par value is simply the
assigned to a stock or
on the date it was issued. Most exchange-traded bonds (which you
can buy just like a share of stock) have a par value of $25 per
But sometimes -- for instance, during a market panic --
investors indiscriminately dump these bonds, pushing their prices
down. By purchasing the bonds at a discount to
, you lock in great opportunities for capital gains in addition to
A case in point was Delphi Financial Group 8% Senior Notes
(which have since been called). I purchased the notes in July 2009
for $19.27 -- a 23% discount to par value. During the 16 months I
held, I collected $3.00 per note in interest payments, while the
shares rose to their $25 par value. In total, the notes returned
more than 45%.
Rule #4: Sell when it's time
This rule may seem the most obvious, but it is also the most
difficult to follow.
Like everyone else, I hate to admit I was wrong about an
investment. But I find it even harder to watch losses mount as a
pick falls further. That's why I'm not afraid to take a loss. I
swallowed my pride and closed out several positions for losses
during the last
, and I'm glad I did. Continuing to hold these would have greatly
reduced returns on my portfolio.
It may sound like a cliche, but knowing when to sell is just as
important as knowing when to buy. A wise investor knows when to cut
losses and move on to the next opportunity. If the security in
question is falling with the market, then I may not be worried.
However, if changes in the company's operations
it could see rocky times ahead, I don't want a part of it.
Action to Take -->
The rules I've shared above should help guide you to higher yields
and better returns -- they've certainly done well for my
subscribers. I hope you can put them to good use in the coming
year. And if you'd like to learn more about
, including how to access my full portfolios, click here.
-- Carla Pasternak
Disclosure: Neither Carla Pasternak nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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