Author Archive: Michael Foster

The price-to-earnings (P/E) ratio has long held a lock on investors’ imaginations. So when it jumps to near 30, like it has in the last few weeks, they’re inclined to think stocks are pricey and pull back.

Now is not the time to do that.

Instead, we’re going to do what we always do at times like these: Look to a closed-end fund (CEF) that keeps us invested in stocks but gives us a hedge against a potential pullback. Three hedges, actually:

• The sale of covered call options, which generate extra cash for the fund, supporting the dividend it pays out to us.

CEFs are renowned (by the few people who know about these high-income funds, of course!) for their outsized dividends—around 8%, on average, across the board as I write this.

But buying a CEF is not like buying a regular stock. When it comes to picking CEFs, we’ve got a whole bunch of different factors sitting in front of us that we need to weigh.

Sometimes CEFs Are Cheap for a Reason

There are, for example, some things that go beyond, say, past performance or discounts to net asset value (NAV, or the value of a fund’s portfolio—the main measure of a CEF’s value).… Read more

Well, that was fast. As you no doubt know by now, stocks gave back their post-election bump nearly as fast as they took it. Now they’re more or less where they started pre-election.

There’s a story behind this “pop and drop” that showed me something we need to bear in mind more and more as we head into 2025 (and a new presidential term): The need to diversify our portfolios, not only within stocks but (especially, with more volatility likely) beyond them.

And that need for diversification goes for our holdings of high-yielding closed-end funds (CEFs), too.

Now, market veterans will no doubt be quick to say that these short-term moves are just noise, and in the long term it doesn’t really matter who is the president.… Read more

If you have a wealth manager working for you, I have one simple piece of advice: Seriously consider moving on from them (or managing your investments yourself) if they recommend following the “60/40” rule.

It simply says that most people should invest 60% of their assets in stocks and 40% in government bonds for retirement.

In a moment, we’ll talk about one fund we’d have completely missed out on by following 60/40 ourselves—or by signing on with a wealth manager who does so. (And not to worry, this one is still available for us to tap into for a solid 5.5% dividend, with upside.)… Read more

Immediately after President-Elect Donald Trump won his second term last week, the US dollar surged, while US Treasuries fell:

Election Sends Dollar Up, Treasuries Down in Early Trading

Both moves are opposite sides of the same coin: Investors believe Trump’s policies will be inflationary. The theory suggests this would happen for a couple of reasons:

1. The US government will spend more, and interest rates will rise higher than rates elsewhere in the world in response. That will attract foreign capital to America while making it less attractive for capital to leave the US.
2. All of that extra capital in America will boost economic activity and demand for the dollar.

I can’t tell you how many times I’ve mentioned closed-end funds (CEFs) to investors and been met with blank stares in return.

It’s too bad more people don’t know about these powerful income plays because …

1. CEFs let you diversify, not only within stocks but beyond them. Among the 500 or so CEFs out there are funds that own stocks, corporate bonds, municipal bonds, real estate investment trusts (REITs) and more.
2. CEFs often trade at discount to net asset value (NAV, or the value of their portfolios). This means we can buy shares of high-quality firms like Apple (AAPL) for less than market value.

At times like these, with the economic outlook uncertain and volatility likely, we want to be certain of one thing: We’re still in stocks (and stock-focused funds)! But of course, we want to make sure we’re tempering our risk, as well.

Because one thing we can be sure of is that any volatility, no matter if it’s tied to an election or any other outside event, will pass. The last thing we want is to be out of the market when it does. (And of course, we want to keep our dividends rolling in, especially in volatile times.)

That brings me to what I want to discuss today—two things, actually.… Read more

With more volatility likely as we move past the election and into late 2024, retirement planning might not be top of mind for you right now.

I get it.

But with investing—income investing, especially—it’s critical to keep the long term in focus. And over the long term, the direction of the markets is up.

When we invest in closed-end funds (CEFs), we get an extra advantage: High income, which often comes our way monthly. The average CEF yields 8% now. That’s roughly the long-term average annualized price gain of the S&P 500, depending on the timeframe you look at, delivered to us in dividend cash every year.… Read more

One often-overlooked way for closed-end funds (CEFs) to give us a profit boost is for management to buy back a fund’s shares.

By now, buybacks are probably familiar to most investors: With “regular” stocks, buybacks reduce a company’s share count, which boosts earnings per share and other per-share metrics, indirectly boosting share prices.

With CEFs, buybacks have a bit of a different effect. With these high-yielding funds, we want to focus instead on how buybacks affect the discount to net asset value (NAV, or the value of a CEF’s underlying portfolio).

Buybacks, Fixed Share Counts Help Management “Control” CEF Discounts

Members of my CEF Insider service know that we love discounts to NAV because they’re the primary indicator of CEF value.… Read more

I get it if you’re a bit wary of this latest market rally: We’ve got a volatile (to say the least!) election now days away. And while the Fed says rates are headed lower, there’s still a lingering uncertainty about where, exactly, they’ll land.

While a bit of anxiety is understandable, we do not want to make the same mistake many “vanilla” investors do at times like these: go all into cash.

For one, humans are terrible at predicting the future—remember those warnings of a 100% chance of a recession in 2023?—so safe to say a good number of today’s investment worries are unlikely to come to pass.… Read more