Income Investing: Picking A Good Appropriate Investment Option

When is 3 percent better than 6 percent? Yeah, we all know the answer, but only until the prices of the securities we already own begin to fall. Then, logic and mathematical acumen disappear and we become vulnerable to all kinds of special cures for the occasional onset of higher interest rates.

We'll be told to sit in cash until rates stop increasing, or to sell the securities we own now, before they lose even more of their precious Market Value. Other gurus will suggest the purchase of shorter-term bonds or CDs to stem the tide of the observed erosion in portfolio values.

You will discover two important things that your mother never told you about Income Investing: (1) Higher interest rates are good for investors, even better than lower rates, and (2) Selecting the right securities to benefit from the interest rate cycle isn't particularly difficult.

Higher rates are good for investors, particularly when retirement is a factor in your investment decisions. The more you receive for your reinvestment dollars, the more likely it is that you won't require a second job to maintain your quality of life.

Selecting the right securities to take advantage of the interest rate cycle is not particularly difficult, but it does require a change in focus from the statement bottom line and the use of a few security types that you simply might not be 100% comfortable with.

I'm going to assume that you are familiar with these investments, each of which could be considered (from time to time) for a spot in the well diversified Income Portion of your Asset Allocation:

(1) The traditional individual Municipal and Corporate Bonds, Treasuries, Government Agency Securities, and Preferred Stocks.

(2) The Unit Trust varietals, Closed End Funds, Royalty Trusts, and Real Estate Investment Trusts.

The market rules that apply to all of these are fairly predictable, but the ability to produce a safer, higher yielding and flexible portfolio varies considerably within the security types.

So do a little research and spread your dollars around the numerous management businesses that are out there. If your adviser tells you that all of this is risky, tell them to look into corporate debt restructuring before you restructure your investment plans.

In the meantime, keep doing your own research on restructuring finance and investment plans to yield excellent returns.

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