Closed-end funds sometimes give us hard choices … like do we want high dividends or really high dividends?

Okay, so maybe I’m being a little flippant here—but not much!

A reader got me thinking about this recently, with a question about the differences between the 10.9%-yielding Western Asset High Income Opportunities Fund (HIO) and its sister fund, the 14%-yielding Western Asset High Income Fund II (HIX).

Both are managed by the same team, are in the same asset class (high-yield bonds) and have virtually the same name. So surely they’re pretty much the same, right?

Not so fast. In reality, choosing the right CEF is part science and part art, and a deep dive into these two to determine which is, in fact, the best buy is a good way to get a handle on the process.… Read more

Last time we spoke about safe bond funds, I recommended an unconventional alternative: my mattress.

It was June 2022. Interest rates were rising, bond prices plummeting, and we contrarians were smartly sitting on sizeable cash positions.

Thoughtful reader William wrote in asking about using short-term bond funds as “cash equivalents.” After all, wouldn’t some yield be better than no yield?

No. Short-term bond funds were no match for my mattress, which does not trade inversely with interest rates. Bond prices and interest rates are an inverse seesaw—when rates rise, bond prices fall and when rates fall, bonds rise.

Plain ol’ cash outperformed the three safe bond funds we used as cautionary examples.… Read more

Look, this worry that inflation will stick around forever is ridiculously overblown. It’s only a matter of time before it settles out.

Heck, it’s already starting to happen: Last week’s personal consumption expenditures (PCE) print for January—a fav of the Federal Reserve—tells the tale. The headline number came in at 2.8%, as expected. That’s still above the Fed’s 2% target.

But the core number of 2.4% (excluding more volatile categories like food and energy) was the lowest since February 2021.

We looked at one way to profit from overwrought fears last week: low-volatility dividend-payers like utilities and food makers. Many folks see these as “bond proxies.”… Read more

It’s undeniable that NVIDIA (NVDA) is the hottest stock out there right now.

In just five years, it’s soared nearly 2,000%. That’s over 80% annualized (!), including both the pandemic and the 2022 selloff. Most of those gains have come in the last year and a half, thanks to the AI boom.

And NVIDIA is perfectly positioned to profit from that boom, with demand for the company’s computer chips so high that it has to pick and choose buyers (NVIDIA has said it’s trying to sell the chips “fairly,” since demand has far outstripped its capacity to make them).… Read more

I think I’ve been asked every day this week from ordinary people if I’m trading NVIDIA (NVDA).

Be careful out there, my fellow contrarian!

A sharp pullback is possible. Something has to shake the froth out of this market. When that happens, investors will look for stocks that are high on income and low on volatility. Today we’ll highlight six paying up to 8.6%.

The secret is beta, a measure of an investment’s volatility against a benchmark. For instance, usually the S&P 500.

If a stock has a beta of 1, it means it’s every bit as volatile as “the market.”… Read more

There is a ton of demand for bonds out there right now, and it’s easy to see why: they’re offering big income streams—especially when you buy your high-yield “corporates” through our favorite income plays: closed-end funds (CEFs).

These days, there are plenty of CEFs kicking out yields of 12% or more. Put just $10,000 in a dividend-payer like that and you’re getting $100 per month. Or you could replace the median American income of $41,261 a year with just $342,842 invested.

These days, thanks to the Fed’s rate hikes, holding bonds—and essentially becoming a lender by doing so—means a lot more cash in your pocket, since you’re essentially “lending” at rates not seen in over two decades.… Read more

Many investors say they buy low and sell high. But how many really do?

Let’s pick on the people buying NVIDIA (NVDA) at atmospheric levels. First, can they even spell NVIDIA? (Hint: Two “I”s).

Second, do they realize it sports a price-to-sales (P/S) ratio of 32? It is usually a really bad idea to pay 10+ times sales for a stock. Let alone thirty-two.

Note that I did not say earnings. I said sales. Revenues. The ol’ top line. Money before everything.

Scott McNealy, the co-founder of Sun Microsystems, famously told investors it was insane to pay 10-times sales for Sun’s stock.… Read more

You know what we’re gonna do about that hot January inflation print that dropped a couple weeks ago?

Ignore it.

Actually, we’re going to go one better and profit from it by grabbing stocks most folks see as “bond proxies”—solid companies whose stocks move up when rates come down.

But wait—isn’t that the opposite of what we should be doing when everyone is panicking that rates are going to stay high—and inflation is going to stick around?

Here’s the thing: Despite the noise, I don’t think that’s going to happen.

Truth be told, the panic we saw following the January CPI release looked like a mini version of last October’s freakout, when 10-year Treasury rates spiked to near 5% and worry was everywhere.… Read more

If you’re like me, you’re starting to collect your tax documents with a certain sense of dread.

It’s understandable as another April draws nearer. But there is a ray of light in the tax-season gloom for us—it comes in the form of municipal bonds, which can boost our income and minimize our future tax burden, too.

“Muni” bonds offer big yields these days, thanks to the Fed’s interest-rate hikes over the last couple years. That’s doubly valuable now because these yields are federally tax-free for almost all American investors.

That means if you’re in the highest tax bracket, you could buy 5%-yielding muni bonds and end up with the equivalent of an 8.3% yield from taxable assets like stocks or corporate bonds.… Read more

Bond bargain alert! Three secure funds yielding 8% to 9% are for sale on the discount rack.

Thanks to a two-year run of rising interest rates, these bond-like investments are cheap. I don’t expect this to be the case for long, with rates ready to relax.

These hybrid vehicles are part-stock, part-bond. They prioritize yield over price gains, which is just fine for us income-focused investors.

These “preferred” stocks share some elements of common stocks (the normal shares of companies that most of us own). We buy preferreds on a stock exchange. They represent ownership in a company. And they can move higher and lower in price.… Read more