Does the increase in Italian bond yields have you salivating for 7%+ returns? If your rational side is keeping you from taking that risky plunge into Italian bonds, here are some tips from expert investment journalists on ways to find attractive returns from domestic investments.
#1 - Closed End Muni Bonds
Jeffrey R. Kosnett, Senior Editor for Kiplinger’s, reports the opportunity for tax-free income from closed-end funds that invest in tax-free muni bonds. “Many of them sport current yields of 6% to 7%. If you’re in the top, 35% federal tax bracket, a tax-free yield of 6.5% is equivalent to 10% from a taxable security.”
That’s not to say they are without risk. Their use of leverage to boost yields can be a successful strategy if the cost of borrowing is less than the yield on the fund's holdings. The risk of that strategy is that a spike in interest rates above the yield will result in negative returns.
Jeffery reports, “As long as short-term interest rates are near zero and tax free bond yields remain high relative to yields on Treasury bonds, however, investors have little reason to worry.”
Karen Hube, of SmartMoney, reported the following investment ideas that offer solid income at a time when any income is hard to come by.
#2 - Real Estate Investment Trusts
She points out that REITS are currently paying respectable yields. REITS in the apartment sector are particularly strong because of increased demand from families who are seeking the lower cost alternative to home ownership.
“But when it comes to income, mortgage REITs that invest in mortgage-backed securities issued by Fannie Mae and Freddie Mac may be your best bet. Since their portfolios are guaranteed by the federal government, there's very little credit risk. So the main risk is that the Fed raises interest rates, and it has told us that won't happen before 2013.”
#3 - Equipment Leasing
Karen uncovers an interesting opportunity to invest in pools of equipment leases. For example, large companies lease oil tankers or railroad cars for up to 20 year terms. An investor can buy into one of these pools, usually comprising about 50 leases, to earn an income stream. Though it’s only accessible through brokers or wealth managers, it is currently yielding 6% to 7%. The default rate is minimal, as the companies leasing the equipment usually have a good track record of making payments.
It should be noted that it’s not a liquid investment, with a five to seven year commitment of the investor’s money.
#4 - Immediate Fixed Annuities
After an initial lump sum investment, immediate fixed annuities start immediately paying guaranteed income for life. Karen suggests that investors can “get a higher monthly payment than they could if they tried to create their own income stream from their investments.”
The example she gave: “With yields of 6% to 7%, a 65 year old man in good health can turn a $200,000 annuity into monthly payments of $1,100 for life.”
#5 - Longevity Insurance
The risk of living a long life is that your retirement savings will not last as long as you. Longevity insurance is a deferred annuity that you buy years in advance to be guaranteed an income stream 5 to 20 years down the line.
With reasonable fees, they are cost efficient and make retirement planning easier by reducing the problem of an unknown time horizon.
What income producing investment strategies do you use?