Author Archive: Michael Foster

When choosing between closed-end funds (CEFs), you might be tempted to put a lot of focus on fees. That makes sense. Nobody likes high costs eating into their returns.

But there’s more to CEF performance than just the expense ratio, and if you focus on buying the funds with the lowest fees, you might leave a lot of money on the table.

Because the truth is, there’s no clear relationship between fees and long-term returns. A CEF’s portfolio and the skill of its managers play a far greater role in determining its success than fees alone.

Breaking Down the Data: No Simple Relationship Between Fees and Returns

Let’s start with the data.… Read more

Sometimes as income investors we face a situation that sounds like a good problem to have: We have to pick among a group of very impressive investments!

That’s obviously much tougher than, say, picking between a stock or fund with a winning record and another with a losing one.

But when you think about the investment choices you’ve made over the years, I think you’ll find that picking between options that seem equally good is actually what you’ve had to do most of the time.

To get into how to make a call when you face this situation, we’re going to use my favorite high-income plays: closed-end funds (CEFs), which routinely yield 8%+.… Read more

With stocks back in “climb” mode (at least for now!), it could seem like a good time to look for a hedge against the next downturn.

If you’re looking for hedges that also pay big dividends, you might be considering resource funds—especially those in oil and gas, or maybe even gold.

Today I’m going to show you why you should resist this strategy, or at least be very careful about it. Closed-end funds (CEFs), which yield 8.3% on average today, are my beat at my CEF Insider service, so I’ll use CEFs (which we love, especially outside the resource space!)… Read more

When it comes to investing, there are two critical “bedrocks” we need to keep in mind. Everything else builds out from there.

They are:

1. Diversification cuts your risk of loss. The more diversification, the lower your risk.
2. In the long term, stocks and bonds make money, regardless of short-term volatility.

These two facts are why 95% of my favorite high-income investments, closed-end funds (CEFs), have made investors money over the last decade. Those include the 8.4%-yielding Adams Diversified Equity Fund (ADX).

ADX’s portfolio of large cap stocks includes Microsoft (MSFT), Visa (V), JPMorgan Chase & Co. (JPM) and Eli Lilly & Co.… Read more

The spike in volatility we’ve seen in the last month has gotten me thinking a lot about the last decade—when bonds were a bust and tech ruled the day.

Put yourself back in that (seemingly innocent) time for a second.

If you had money to invest back then, you had one choice: stocks. With rock-bottom interest rates, bonds were a bust. And stocks—particularly tech stocks, which tend to do better when rates are low—soared.

You can clearly see the massive scale of the 2010’s tech surge in the chart below, with tech shown by the benchmark ETF for the sector, in purple.… Read more

Just a week ago, I wrote to you about the dangers of investing in a tired investor go-to called the 60/40 portfolio.

You know the one—the so-called “rule” that you should invest 60% of your holdings in stocks and 40% in bonds to reduce your overall volatility.

But investing this way—according to arbitrary standards like 60/40—is a recipe for leaving money on the table, especially when we’ve got a terrific way to get a much bigger dividend stream from stocks, which we’ll get to in a moment.

Your Odds of Long-Term Profits in S&P 500 Stocks? 100%

I’m coming back to this topic so soon because I recently read Ben Carlson’s fantastic analysis of the 60/40 portfolio.… Read more

Think back just a couple weeks: The “yen carry trade” had investors running scared, and we had a terrific opportunity to buy stocks—better still our favorite income plays on stocks: closed-end funds (CEFs) yielding 8%+.

But wow, was that window brief! Stocks have more than recovered since, and are what I’d call highly valued, with a price-to-earnings ratio of around 27.5.

Let me be clear: I’m not saying stocks are overvalued: They’re likely to keep posting good returns because earnings are rising, and the economy is still dodging the recession we’ve been warned about for three years now.… Read more

When I see people touting the 60/40 portfolio, I kind of feel like Haley Joel Osment’s character in the Sixth Sense. But instead of seeing dead people, I see dead ideas.

You likely know what I’m talking about: a portfolio that seeks to automatically balance risk by holding 60% in stocks and 40% in bonds.

It sounds sensible enough, but history shows that people who invest by this rule have been leaving a lot of money on the table for a long time:

60/40 Portfolio Pays Too High a Price for Low Volatility

One quick glance at US stocks, seen above in purple through the Vanguard Total Stock Market ETF (VTI), and bonds, in orange through the Vanguard Total Bond Market ETF (BND), over the last decade shows a problem.… Read more

With stocks again on the upswing after the August 5 pullback, the appetite for risk is back!

Rising markets are terrific, of course. But they do bring dangers. One is that they might tempt some people to abandon sound long-term investing and take a stab at more speculative approaches, like day trading.

Before we go too far into whether you can actually make a reliable return from day trading, I’d say that to be a successful day trader, you should be aiming to beat the market … and a lot of ink has been spilled about how active managers—and I’d include individual investors here—can’t do that on the regular.… Read more

Stock market predictions, of course, are just that—predictions. All of them (including mine!) should be taken with a grain of salt.

I normally prefer to avoid making them. But every now and then I partake because, well, the prediction game is fun! And we do need some kind of forecast to work from when it comes to buying stocks—and our favorite income plays: 8%+ yielding closed-end funds (CEFs).

The key, of course, is knowing when to stick to your forecasts and when to change tack. So as we move past the August 5 correction and toward the final third of 2024, it’s a good time to check in on a couple predictions I made back in January and see how they’re playing out.… Read more