The Search For Yield

Jan. 07, 2008 5:43 AM ETEPD, KMP, USB, GM, C, BGM, RGM, GMW, XGM, GMS-OLD, HGM, PBA5 Comments
Greg Boop profile picture
Greg Boop

Risk free yield is shrinking, as many investors have been finding out when recently logging into their on-line bank accounts. The interest rate on many “high yield” bank accounts has shrunk to near 4%. Leaders such ING Direct (4.10%), EmigrantDirect (4.65%), and HSBC (HBC) Direct (4.25%) have reduced rates over the past months. While these rates are not dreadful for FDIC insured deposits, the yields are significantly down from the 5% region before the Fed started to drop the short term rates.

The situation at your neighborhood brick & mortar bank is even bleaker, many money market funds are back to yielding below 1%. Heaping further injury on banking customers, most local corner institutions have been busy increasing fees for every imaginable service. This combination has left many investors seeking opportunities for better yield.

The current environment is a challenging time for income seekers to be focused on yield, investors must navigate the turmoil of bond downgrades, shrinking dividends, falling interest rates, falling real estate, and a financial sector immersed in the subprime fallout. Fortunately a few solid income opportunities are available in less utilized instruments such as Master Limited Partnerships (MLPs), Trust Preferred Securities (TruPS), and Canadian Royalty Trusts. Many of these opportunities are directly associated with the natural resources sector which is hot. Energy and commodities are likely to see growth over the upcoming years.

As always there is no such thing as a free lunch, attempting to increase yield will amplify your portfolio risk. The theory is to select high-grade investments that have minimal risk relative to the generated income. The best policy to decrease overall risk is to select different instruments across various sectors. This minimizes the risk relative to sector performance, individual company credit rating, and taxation changes.

Another key consideration is taxation. Most of these

This article was written by

Greg Boop profile picture
Greg Boop recently joined others in the RTP area in founding HingeFire Inc. The first product is a free stock screener that supports both fundamental and technical criteria. More information can be found at ( Greg has managed teams at Cisco, IBM, Nortel, and Applied Innovations. Prior to this, he has provided technical expertise at Alcatel, Spectrum Communications, V-Band, and Unisys in introducing multiple innovative hardware and software projects. Greg has an interest in trading technologies, financial engineering, economics, and investing. He also worked briefly in the brokerage industry. Visit Greg's blog (

Recommended For You

Comments (5)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.