Author Archive: Michael Foster

It’s been a great year for high-yield bonds. If you’ve held them during 2016, congratulations.

But if you’re like me, you’re probably wondering whether to keep holding or take your profits and invest them somewhere else.

That’s the question I’m facing with a high-yield bond fund that has gone up over 22% since my purchase.

To decide what to do, I first want to look at how the asset has performed relative to alternatives. The leading index for this asset class (the Bank of America Merrill Lynch US High Yield B Total Return Index) has risen 17% in 2016:

High-Yield Bond Index Soars

Meanwhile, the S&P 500 has gone up 13% in the same period, including dividends:

Stocks Doing Well, Too

Of course, no one will be crying themselves to sleep at night for getting “only” 13%, but it is less than high-yield bonds paid out.… Read more

I’m sick of hearing people worry about the Federal Reserve raising interest rates.

The mainstream media and the market go into panic mode when they fear rates are going up. I’m hearing more worries about a major stock correction coming in 2017. Since Janet Yellen’s interest rate hike, the market has taken a dip—and the trend is worrying:

The Rally Is Over

Investors are losing faith in the Trump rally, and many people are anticipating more declines to come. The Fed said it’s going to raise rates three times next year—and each rate hike is expected to drive more investors out of the stock market and into safer and better-yielding US Treasuries.… Read more

2016 has been a crazy year—so it’s no surprise closed-end funds (CEFs) have been offering crazy returns.

As we’ll see in a moment, the best fund is up over 50%, which crushes just about every unleveraged ETF and mutual fund out there. Plus, that fund pays a whopping 7.6% yield—which is pretty typical for CEFs. If you bought in when it was at its 52-week low, you would have been getting an unbelievable 14.7% yield throughout 2016, while also seeing your portfolio’s market value go up and up.

This is the power of getting into the right CEF at the right time, and it shouldn’t be ignored.… Read more

Warren Buffett’s done it again.

Don’t look now, but year-to-date, Berkshire Hathaway (BRK.A, BRK.B) stock is up 25% and is actually outperforming the incredible 20% a year, on average, it’s returned since 1964.

A Chart Any Investor Would Love

In a moment, I’ll show you an overlooked investment that lets you duplicate the moves of the world’s smartest investor—and you won’t have to buy a single share of Berkshire Hathaway to do it.

In fact, you’ll be able to pick up Berkshire and the companies it invests in for 19% less than you’d pay on the open market!

A Banking Boost

Berkshire’s year-to-date gain has come, in part, thanks to the financial industry’s recovery post-election.… Read more

Few people know it, but you don’t have to buy a stock for the price you see on Yahoo Finance.

The truth is, you can buy some of the best large cap dividend payers for cheaper: and I don’t mean a little cheaper. I’m talking a 16% discount.

How?

Through a closed-end fund (CEF) that’s trading at a ridiculously high discount to its net asset value (NAV). That’s despite a strong track record, low expenses and an attractive 4.4% dividend yield.

Let’s break each of those things down one at a time, starting with the name of this unheralded investment.

It’s called Tri-Continental Corporation (TY), and it holds some of America’s safest and highest-quality stocks.… Read more

It’s as close to a sure thing as you can get: interest rates are headed higher.

The futures market tells the tale. Right now, it pegs the odds of a hike at the Federal Reserve’s December 14 meeting at near 100%:

Everyone Agrees: Rates to Rise

What’s more, futures markets expect interest rates to go up again in 2017. So if you invest in bonds in a market like this, you need to consider how you can protect yourself from higher rates.

I’ll show you a one-buy option that will do just that—and hand you a nice 6.9% yield in the process—in just a moment.… Read more

You can take it to the bank: interest rates are going up.

Everyone from Janet Yellen to Donald Trump says it needs to happen. Traders betting through the Fed futures markets agree, pegging the odds of a quarter-point rate hike at the Fed’s December 14 meeting at 94.9%:

More hikes seem likely next year, if oil prices keep rising, taking inflation along with them.

Since higher rates are bad for high-yield assets, does this mean it’s time to give up and accept that 2% dividends are the only income you can expect in this market?

No way.

Because there’s an easy way we can protect ourselves from higher rates and still collect a nice 6.8% dividend yield.… Read more

On the lookout for safe dividends? (Who isn’t, right?)

These days, you generally have three options: large-cap stocks with long dividend histories, municipal bonds and US Treasuries.

Treasuries are considered the safest of that group, and large-cap stocks the riskiest, but they’re still much safer than plenty of other investments, such as small caps and junk bonds.

I’ll show you two low-risk investments that are great buys now in a moment. But first, I want to tell you why recent events have called the safety of some of the options I just named into question.

Let’s start by looking at the following chart:

“Safe” Assets Turn Volatile

First, note how the iShares S&P National AMT-Free Municipal Bond Fund (MUB), a good proxy for municipal bonds as a whole, is the least volatile of the three funds shown above.… Read more

There’s no doubt Donald Trump’s election win has been great for stocks.

Municipal bonds? Not so much.

In the last month alone, “munis” have lost over 3% of their value—a huge decline for an asset class that’s supposed to be safe and stable.

So is it time to sell your munis, give up on safe income and try to ride the Trump rally in stocks?

No way. In fact, if you’re just thinking of doing that now, you’re probably too late.

The Trump rally reversed course after Thanksgiving, with a down day that threw a damper on the stock market’s post-election euphoria.… Read more

It’s a classic death spiral.

I’m talking about the flight to dividend-paying—and dividend-growing—stocks in the past eight years.

It’s easy to see what triggered it: US Treasuries don’t offer pay enough to cover inflation, and despite President-Elect Trump’s inflationary policies—more on those below—that won’t change anytime soon.

That’s prompted income-starved investors to pile into higher-yielding options, like municipal bonds, utility stocks, corporate bonds and dividend-growth stocks. These are all good choices, of course.

But here’s where the death spiral comes in: the rush into these investments has dragged down their dividend yields (because you calculate yield by dividing the annual dividend by the current share price), sending investors into even riskier areas of the market.… Read more