On average, they're yielding 7.1%. That's more than three times
theyield of the S&P 500. Try getting that amount from a money
market orsavings account .
But that's not the half of it. In tandem with those high yields,
the capital gains have been great too. Of the 34 securities, 31 are
showing positive returns. The best performer has gained 118.9%, yet
still yields 5.2%.
This isn't the performance of some secret
index
or an exclusive
hedge fund
's holdings. It's what is currently happening within the portfolios
of my
High-Yield Investing
advisory.
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 inbull and bear
markets. The techniques are not complicated. Anyone can follow them
and potentially get the same results. So as a little gift to my
fellow income investors, I wanted to share with you the four basic
rules I follow to build my winning
High-Yield Investing
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
assets classes few investors know about. A case in point is
Canadian
real estate
investment trusts (
REITs
). These REITs deliver exceptional yields (some as high as 12%),
but many stateside investors have never heard of them.
Other lesser-known securities I look at are exchange-traded bonds,
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 downturns.
Rule #2: consider alternatives to common stocks
It's a well-known fact that the majority of common stocks simply
don't yield much. The S&P 500's average yield is under 2.0%.
So when I can't find the income I want from common stocks I like, I
look elsewhere. My first stop is often
preferred shares
of the same company, which almost always yield more. Say you wanted
to invest in
General Electric (NYSE:
GE
).
General Electric's commonshares currently yield 2.9%, but you can
find preferred shares of GE yielding more than 7.0%. You still
benefit from the underlying company's backing, but with a much
higher yield.
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
principal
backed by the underlying company.
Rule #3: look for securities trading belowpar
value
Some of my highest returns have come from buying bonds when they
trade below
par value
. Par value is simply the
face value
assigned to a stock or
bond
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
note.
But sometimes -- most recently during the recent market panic --
investors indiscriminately dump these bonds, pushing their prices
down. By purchasing the bonds at a discount to
par
, you lock in great opportunities for capital gains in addition to
higher-than-normal yields.
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
bear market
, and I'm glad I did. Continuing to hold these would have greatly
reduced returns on my portfolio.
It may sound like 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, I may not be worried. However,
if changes in the company's operationsmean it could see rocky times
ahead, I don't want a part of it.
Action to Take -->
These rules should help guide you to higher yields and better
returns. But if you want more income tips... and high-yield
investment ideas... you can join my free weekly
Dividend Opportunities
newsletter.
-- Carla Pasternak
P.S. -- If you're looking for quality stocks with high yields,
you should take a look at this one. It pays a 19.2% dividend yield.
It borrows cheap, gets paid handsomely and then pockets the spread.
You'll get the full story on this cash machine and others like it
in this video.
Disclosure: Neither Carla Pasternak nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
