How About a Quickie Income Portfolio?

Many investors are simply saying "screw it" and ditching securities in favor of The Select Comfort National Bank and Trust. I say, go for a quickie fix with a small portfolio of funds that may give you a chance for both decent yield and capital appreciation.

Not necessarily Viagra for the long haul, these selections appear to be, in proportion, good for now and the immediate future. Your risk tolerance will determine what dose of each Mr. or Ms. Portfolio can stomach. Get on top of, not inside, the mattress and squeak some bucks out of those springs.

Fidelity Strategic Income Fund [FSICX]. Priced at $8.57 with an expense ratio of 0.73%, this $4b fund yields 6.45% and has been a stalwart performer in its class for years. Managed effectively with the goal of high current income and the chance of capital appreciation, FSICX had a recent mix of 32% U.S. government agency debt, 27% corporate bonds, 23% foreign government bonds, 10% short term cash assets, 7% floating rate loans, and a smidgen of preferred shares and stocks. I believe that many of the fund's assets are under priced vs. risk, and that the few securities in the fund that may go belly up will not have a material impact upon FSCIX's ability to deliver cash into your portfolio.

iShares' TIPS Bond Fund (TIP). Priced at $98.40 with an expense ratio of 0.20%, this inflation protected U.S. government security ETF with a current cap of $10.7b yields 5.26%. If you believe that the United States Congress is spending just a little bit too much money which may result in not so insignificant inflation fairly soon, this ETF will provide current and future gratification. TIP pays you a nice dividend to wait until that time arrives. Or, open an account with Treasury Direct (U.S Government securities web site) and buy your own without the ETF in the way.

iShares 1-3 Year Treasury Bond Fund (SHY). Priced at $83.98 with an expense ratio of 0.15%, this ETF will definitely give you a good night's sleep. Extremely conservative and resistant to what many experts are calling a bubble in government bonds because of the short portfolio duration, SHY yields 3.30% and has a current market cap of $7.7b.

Vanguard Short Term Bond (BSV). Priced at $78.18 with an expense ratio of 0.10%, this one-five year corporate debt fund yields 3.56%. BSV has a $1.5b market cap and is a nice complement to SHY if you believe that most corporate short term debt is attractive for potential capital appreciation as the recession eventually lifts.

iShares iBOXX Investment Grade Corporate Bond ETF (LQD). Priced at $92.65 with an expense ratio of 0.15%, this is a fairly risky ETF is spite of being touted as investment grade. Yielding 5.93% with a market cap of $7.7b, LQD goes out and reaches for yield with a maturity duration and quality stretch. That said, size matters and the holdings should offset the risk of default in certain securities for good total return. I believe it complements FSCIX quite well.

State Street Barclays International Government Bond ETF (BWX). Priced at $49.72 with an expense ratio of 0.50% and a market cap of $877m, this world bond ETF yields 2.56% and provides diversification with high quality international government bonds.

iShares Preferred Stock Index ETF (PFF). Priced at $20.70 with a 12.61% yield, PFF has had a large move upwards over the past week. Too much, in my opinion. The large majority of this index consists of bank preferred stock, thus the strong performance. I would pull the trigger on a pullback if you believe we are in a bear market rally. $17.00 would be a nice entry point. Risky, but a better bet than common stock for this quickie income portfolio.

I am not advocating exclusively purchasing the above securities, sell everything else and head to the hills with your sack of gold, shotgun, dried foods and a cask of Jack Daniels. I am advocating proportional risk yield, expectation of inflation, international diversity to a degree and confidence that many corporate bonds and preferred stocks are priced to give you a nice enhancement to an otherwise conservative investment scheme.

Importantly, don't make one big mistake and risk not reasonably protecting your assets.

Comments

[Another View:]

I didn't think TIP had paid a dividend since last October. Also, ETFCONNECT lists current yield on SHY as only 1.85% (3/13/09).

Mar 16 07:38 AM

[oldman:]

Where do you do your research? TIP paid no dividend since Oct 2008.

iShares' TIPS Bond Fund (TIP). Priced at $98.40 with an expense ratio of 0.20%, this inflation protected U.S. government security ETF with a current cap of $10.7b yields 5.26%

Mar 16 09:52 AM

[DuffBeer:]

Tom ,
Good to hear from you. Hope you are feeling much better and getting out and about. Look forward to reading your post . I "hope" it was not Mr Obama's idea of " change "
that got to you . I do think he will be serving up alot more of this kind of ill making stuff.
Mr Obama please do not tax the empty beer glasses too .
Cheers,DuffBeer

Mar 16 11:56 AM

[henarl:]

MLPs beat all of your positions for yield and are likely at least as safe if you choose the most established ones such as KMP, PAA, OKS. Also, since they are currently somewhat beaten down, more potential for capital gain.

Mar 16 11:57 AM

[notsosmart:]

mlp's are the best.served me well

Mar 16 05:23 PM

[TAS:]

I wrote extensively on MLPs in previous posts, and own a couple. A maxim regarding the tax advantaged treatment of MLPs:

What the tax man giveth, the tax man can taketh away.

Regarding TIPs, the yield is relative based upon what measurement you determine to use. What is a lock, imo, is inflation around the next bend in the road. Every income portfolio needs inflation-protected securities as a hedge.

Mar 16 09:54 PM

[Delojozafado:]

MLP's without K-1 and UTBI are available through some great etfs and cefs. MTP consistently discouted has about 5% outside the asset class in megatrend blue chips. BSR is a "note" but pure index. KYN isz pur but often at a premium due to quality of management, KYE gives you exposure to integrateds and trusts with exposure to the Loonie ((Up 3.5% in 2 weeks against the Feds dumping US Pe$os on the bonfire). Also a pure play on th eLoonie is the ENY always volitile, but currently in the up direction, ENY is a dogs of the dow type strategy. The North American Natuaral gas market has had the global supply of LNG dumped here to advantage sales in the here-to -fore strong US $. If this reverses Nat Gas may beable to reclaim the $4 handle and stay there forming a base that trends higher on environmental issues as well as Summer A/C peaking generation. We see oil persistently pushing against the $50/BBL handle. Lastly do not be too put off buy the slide in TBT yesterday. We already see the US long bond market dropping off and the rates going a little higher. The announced $300 billion is likely to end up like TARP. There will be Q easing II and II. Just s we arenow continuously rolling over the TRCAs (T+Temporary???), the FEd will of course want to buy the Bund as well. TBT is really a must if you invest in anything outside the style of (SHY) given the tremendous interest rate risk involved in (TLT), (AGG), (LQD), etc.

Beware the low yield of the BWX at least consider getting the same investment themes with a CEF like (MIN).

Just look at yesterday's intra-day charts of AGQ and DGP ! Every picture tells a story!!!

Mar 19 07:30 AM