Tess Millay wrote:
- quote -

You've changed your moniker since last we talked.

I only mentioned GJM because Dan works for GMAC and expressed faith in
the company. (actually, that's all the more reason it would not be a
good choice in my opinion -- if the company suddenly goes under, who
wants to lose his job and savings at the same time?) But if Dan knows
something we don't about the strength of GM/GMAC, the yield is pretty
close to his target plus there's room for a little capital appreciation
if/when the bond rating is upgraded.

I'm holding my "exchange traded debt securities" ;-) but I'm not adding
to them. I wish I had sold my Ford Motor Credit (FCZ) when it topped 26
earlier this year. I had a limit order at 27.

Best regards,
Bob

if I had $1,000,000 invested to yield $20,000 a year, some would be in
REITS.

if I used the logic that to get the $20,000 in income each year, I
would only need $333,333 invested. Biggest issue is this $333,333
would require each REIT to maintain it's performance for 20 years to
maintain the $20,000 per year dividend stream.

if I had $1,000,000 invested, about 20-30% would be REITS, another
30-40% large cap dividend stocks, another 20% mid cap value/dividend
stocks and large cap stocks which hold cash (Oracle is a good example
of this- large company, has hords of cash, but does not pay a dividend
yet, MSFT was like this 3 years ago as well). Last 20% would be in
small cap dividend paying stocks.

The logic is that many of these companies which are chosen for
dividends NOW will not pay dividends LATER. Great examples of this are
XRX and DCN. Both used to pay large dividends (> 4%) when the companies
were doing well. Then they fall on bad times and some other portion
needs to pick up the slack... so REITs can pick up the slack, but I
will not depend on them by themself.

"zxcvbob" <zxcvbob[at]charter.net> wrote
- quote -

To clarify, I don't advocate per se any of the advice any
journal (online or off; academic or popular) gives. I do
think processing the ideas these journals propose can be
helpful. I personally am finding many of the ideas fool.com
is putting forward lately consistent with my own goals:
Investing mostly in stocks with a record of dividend growth,
consistent with certain allocation guidelines for
diversification yada.

I googled the MIFP archives recently for what people here
thought of the Motley Fool. IIRC as of a few years ago, it
was a mixed bag. There was a concentration on some of the
test portfolios MF editors had constructed. These "test
portfolios" do not interest me at all. Of course how MF
makes its money (advertisements and I guess subscriptions)
was also pointed out. Nothing about it today seems
unscrupulous. They push a particular philosophy, sure, but
they provide support for doing so. Nor is its philosophy off
the wall: It leans towards value investing. It's an exercise
for the critical reader to dig further and see how legit its
ideas are. Noncritical readers: Take MF's and others' advice
at your own risk.

I get a kick out of comparing MF's ideas with those in the
National Association of Investment Club's publication
"Better Investing." (A friend gave me a subscription to this
several months ago.) I find BI irritating lately, for a
number of reasons. But it does provoke thought and force
re-examination of my ideas on investing, to make sure they
hold water (or not).

Its authors seem to admit regularly to poor picks. That
implies a certain amount of integrity, IMO. Disclosing this
info is also simply helpful to understanding the markets.

"zxcvbob" <zxcvbob[at]charter.net> wrote
- quote -

Bit of a nit: I don't think the convention is to refer to
something like GJM as a "bond." From Quantum online, it's
apparently technically an "Exchange Traded Debt Security."
When generalizing, I call it a "hybrid stock."

Bob, I know we've discussed these before, so I'm sure we're
pretty much on the same page as to what hybrids can and
cannot do for an investor. I haven't investigated what the
future may portend for GMAC; sounds like you have at least
somewhat.

I personally have soured on hybrids for the short term. In a
rising interest rate environment, I urge against them for
the long term as well. I had a few as an "experiment" yada,
but hold only a small position in exactly one now.

The prices of non-junk-rated hybrids do dive (and have dove)
as interest rates rise (rose). In a rare act of omniscience,
earlier this year I sold the few I had at a small gain.
They're all now notably lower in price. I do not expect them
to come back.

If I'd chosen to simply hold them until they matured, then
assuming interest rates continue upwards, I'd be sitting on
a very low yield 20 years hence. And my principal would have
eroded!

My sense is hybrid stocks /right now/ are for
speculators/gamblers. They are not really a tool for those
seeking a safe (from principal erosion and inflation
effects) fixed income. This is contrary to a discussion
another regular poster and I had here a few years ago.

Should interest rates get back up to 10% or so, my feelings
will change.

Again, though, this is not to discount particulars of GMAC's
status that Bob appears to have researched. Such info has
value.

"Tess Millay" <elle_navorski[at]earthlink.net> wrote on REIT
Fundamentals:
- quote -

Oops. Major post-o. It's Dividend Payout Ratio that should
be less than one. Many are, etc.

Right now not unhealthy P/FFO values are roughly in the low
teens. E.g. WRI's is about 13 right now. (That could be
high-ish at the moment. Remember, REITS have gained a lot in
the last few years. The question is which categories will
dive, etc. as interest rates rise etc.)

"dan" <dan.gosser[at]gmail.com> wrote
- quote -


Then I would go with a combination of money market funds; a
short-term investment ( = high and so low risk) grade bond
fund; or individual bonds and CDs. You should be able to get
a yield of 4%, with extremely low risk, pretty easily right
now.

How to allocate between the money market fund and the other
instruments will depend on your monthly living needs. Maybe
have six months in the money market fund (emigrantdirect.com
? ) and the rest in the other instruments. Shift from one
instrument to the other as needed to maximize income and pay
the bills.

DODIX is an intermediate term bond fund, which is IMO a
little risky in a rising rate environment, especially for
the short term. I predict over two years your principal will
decline in value with it. Given its current yield of 4%, I
think you can do better, and with less risk, using the
instruments I name above (money markets, etc.). What you say
below indicates you seem to be onto this.

Investing in any stock or only a stock mutual fund for only
a couple of years is very risky. You can do it, but as an
example of the risks involved, let me offer the following: I
bought a certain REIT in 2002 yielding a dividend IIRC of
10+%. A few months after its purchase, it cut its dividend
by a third or so. Its price dove about 20%. Only this past
year, upon being absorbed into another REIT, did its price
recover. The dividend did not, but it's still a healthy (to
me, and for my portfolio's needs) 7%, and its fundamentals
still look good for the long term. But if I'd needed that
money within two years, I would have taken a hit.

- quote -

Assuming you do want to take on a bit more risk via REITs,
just as a (huge) starting point, I would do the following:

1. Read http://biz.yahoo.com/special/reit05.html . As an
introduction, and like the latter says, pay particular
attention to a REIT measure called "Funds from Operations
per Share" (FFO/share, or just FFO, for short). It is the
equivalent of "net earnings/share." FFO takes into account
depreciation and amortization of properties yada, so its
more realistic than just black-and-white "net earnings" when
it comes to measuring earnings from real estate. Instead of
the ubiquitous P/E measure, one should use P/FFO to compare
REITs and choose among them. Ideally P/FFO should be less
than one. Many are. Many are not. the P/FFO measure is not
always given directly. Often one will have to ferret out the
FFO/share from specialized sites.

2. Next read
http://www.fool.com/news/commentary/...entary05121508.
htm?source=eptyholnk303100&logvisit=y&npu=y&bounce =y&bounce2
=y . It will help get you thinking about the /types/ of
REITs you might want. There are several categories. IMO,
some of them are going to take a hit as interest rates rise
and/or the housing bubble bursts on the coasts.

3. Get comfortable using
http://www.nareit.com/library/perfor...watchquery.cfm
to look up the P/FFO ratio, particularly estimates for the
next year. There are other resources for this. Just remember
this ratio is not as easy to locate as P/E. The latter site
also quickly coughs up how REITs in the same category are
doing. You want that low P/FFO, for one thing.

4. Look at what some of the popular REIT mutual funds hold.
E.g. go to finance.yahoo.com or morningstar.com , type in
VGSIX, Fidelity's popular REIT mutual fund. Look at its
holdings/portfolio there, and explore individual companies.
LRY is one of its holdings, as is SPG, EOP, VNO, EQR; many
more listed. If you are inexperienced with stocks, consider
a REIT mutual fund instead.

5. Lately I am homing in next on Dividend Payout Ratio,
which should be less than one. From the site above, you use
the price/share and price/FFO ratio to compute the FFO. Then
DPR = annual dividend / annual FFO. Compare to Google for
this if you want more info, or see
http://www.nareit.com/portfoliomag/05mayjun/feat1.shtml

6. There are other factors to consider. REIT dividends are
complicated, tax-wise. If a high percentage of a REIT
dividend is "Return of Capital," be wary. When you sell the
stock, that has major, and usually detrimental, tax
consequences, by way of increasing your capital gain. I want
a record of dividend growth. I prefer older REITs, though I
have some younger, much smaller caps ones with good
fundamentals, too.

- quote -

Sorry, I did not mean to imply you should get a
subscription. I think their free articles are informative
and tend to emphasize reliable dividend stocks, explaining
why.

IIRC now and then I see an article pushing growth stocks,
which is not what you want for immediate income.

- quote -

I agree, per what I say above. But maybe the other posters
weren't aware of how short a time period you were investing.

- quote -

Yes, be careful. I held some short-term GMAC bonds a few
years ago, when they were not junk rated. But today, I can't
afford the risk GM/GMAC entails, apart from its FDIC insured
products. demandnotes.com says their product (some kind of
bond, I suppose) is NOT FDIC insured.

I'd only buy junk bonds via a good mutual fund.

dan wrote:

- quote -


These are senior *unsecured* bonds, and they trade on the NYSE as if
they were stocks. The face value is $25, they mature in 20-something
years, and the coupon is about 7.6%. Since the bonds are currently
trading at 21.4, that gives a yield of 8.44%. The bonds will eventually
mature and GMAC will have to pay 25 for them -- unless they default
before then. The bonds are also callible in another year or two, but
that's not likely to happen and it would be a good thing anyway since
the bonds are trading below their face value.

Most of this is from memory. You can verify it and get the real info at
quantumOnline.com

Best regards,
Bob

Bob, how are GMAC bonds purchased? How do you track that return
percentage?

Thanks,
Dan

Jim, it seems that most REIT's yeild 6-8%, would you consider them
exceptionally risky?

dan wrote:
- quote -

Be careful here. I haven't been impressed with MF's advice or their
track record.

- quote -


I have GMAC bonds (ticker is GJM); they are currently yielding about
8.5%, I think. And they should get a pop in price if GM sells the
controlling stake in GMAC. I bought them before they were downgraded to
junk status (the day before, actually) and I don't necessarily recommend
them as an investment -- but if you are comfortable with GMAC you might
consider it. I've gotten all my interest payments from them on time.

Bob

Tess, I'm only 25, so I wouldn't call it an early retirement, but my
goal is to be able to relocate without immediate employement lined up.
I'd like to be able to relax and enjoy myself for 1-2 years. I have a
long way until I can withdrawl from my 401k

I've considered REIT's in the past, but the only one I know of is LRY.
Can you name any others just so that I can research and get an idea of
their results?

I've also thought about subscribing to motley fool, I was never really
sure if it was worthwhile info. I might give it a shot.



It seems odd to invest in these income mutual funds and bonds etc when
I can get 4.3% in a money market. I thought about investing in
www.demandnotes.com which pays 5.5%. I work for GMAC, so I suppose I
feel more comfortable investing in something with them then someone
else may!

"do you have any example income mutual funds?"

PRFDX (T Rowe Price Equity Income). I own this fund for it's dividend
payout and dividend/ value philosophy.

I like the issue expressed in the original post. I invest with
intention of building a portfolio where I can live off the dividends
alone. I would also agree with some other posters, if you find a
technique which yields 10% consistenly, for a sustained period of 5-10
years, please post it here (for free) so the rest of us can benefit
(sarcasm intended).

I build my portfolio so a 2% yield will generate the income I need. 2%
yield for stocks is reasonable. 4% would be incredible. 6% starts
getting too risky (something is awry if a portfolio with several
securities has started yielding 6%). By the time 8-10% comes around,
it is a high risk venture, IMO.

My response to original post would be to the effect if a 7% yield is
what the goal is, the principle amount is not high enough, generally
speaking. Save more, add more the the principle and build up pronciple
so a 2% yield will give you the desired income.

dan wrote:

- quote -

One that immediately comes to mind is DODIX. You can see the
performance doesn't quite match up to what you need, and yet it
has additional risk.
http://personal.fidelity.com/product...html?256210105

You may also want to look into municipal bond funds which are
exempt from Federal income tax.
http://personal.fidelity.com/product...html?31638R204
But these also have some risk.

These, IMO, would be far less risky that buying 20 or 30 dividend
paying stocks, but it looks like they would fall short of your target
rate of return.

(Disclaimer: I don't invest in either of these.)

- quote -

It's a bond sold by the US government that pays interest in proportion
to inflation. In some sense, all this will do is protect the
purchasing
power of your money, yet at least for the past few years it has done
much better than CDs and money markets with no additional risk.
They have the advantage that the interest earned is tax-deferred
and is not subject to state taxes.
See http://www.savingsbonds.gov/indiv/pr...nds_glance.htm.

Anoop

Skip, I didn't have many specifics in mind. A friend of mine swears by
the gas pipeline stocks like PBT and SJT.

Bo Peep, I'm looking to reloate from NJ to AZ, so I'd prefer the
property be sold. I just sold a rental prop, and have another one to
sell, so I know the importance of managing your own rental, and not
trusting a property manager 3k miles away. I'd also like to sell while
the markets up.

Anoop, do you have any example income mutual funds? I'm curious as to
if they would meet my needs.
What is an I-bond?

Thanks,
Dan

anoop wrote:

- quote -

Careful, some bonds are extremely risky.

- quote -

No, you only *have* to hold them for a year (it used to be 6 months).
If you cash them before 5 years, you pay a 3 month interest penalty.


- quote -

There aren't many stocks that pay 10% dividends, and if they do pay a
divie that high, you need to find out why.

Some preferred stocks pay a 6 to 8% dividend, or more (but not much
more.) You can also look at less-than-investment-grade bonds (and plan
on losing some of your money)

You haven't said how long you need this income stream to last. That
makes a difference.

Best regards,
Bob

"dan" <dan.gosser[at]gmail.com> wrote
- quote -


For an early retirement, and so the rest of your life? Or
just temporarily?

Can you say about how old you are? Do you expect to have an
income from Social Security at some time? Have a pension,
401(k), or IRA?

- quote -

DIY-er here. Been investing over 20 years. Currently getting
away from mutual funds and far more into stocks. I own a
number of short term CDs, too, but those may shift to
conservative stocks or bonds.

If you are exploring doing an early retirement, then IMO,
this approach requires a strong stomach for risk.

First, one has to ask why certain companies are paying
yields much higher than average. Right now, the S&P 500
averages about a 2% yield, and short-term CDs (say a couple
years, at most) may be had paying 3.5% to 4.5%. The S&P 500
is mostly larger, older companies, so they tend to be lower
risk. Historically speaking, what one gets with such
companies is a greater promise of growth in principal and in
dividend size. So why would a company today pay a dividend
yield of greater than about 4.5%?

The companies paying 10+% are either in financial trouble
(forcing their share price low but simultaneously paying a
higher dividend yield); are very new and so likely to reduce
their dividend yield in the coming years (and when it does,
share price will probably go down); and/or offer little
chance for growth in principal.

General Motors (GM) is a great example of what I consider a
risky, high dividend yield company. Its price has fallen so
low that it's now paying over 9%. But, as you may have read,
rating authorities have downgraded the company's financial
credit-worthiness, and there is a fair possibility it will
go bankrupt in the next few years.

The safer higher dividend (like over 5%) yield investment
tends to be REITs. They are a bit pricey right now, and some
feel the bursting of the housing bubble on the coasts may
adversely affect at least some categories of REIT. REIT
stock share prices and dividend size also do /not/ grow at
the same rate as certain large company blue chip stocks.
Still, if one is willing to take on some risk, they may very
well /end up/ being a better bet than holding CDs for ten
years or longer. REITs pay a high income because this what
they are required to do with their earnings, per the terms
of their incorporation yada. Contrast this with a company
like Procter and Gamble (PG). It can reinvest its earnings
and so promote growth of the company, along with the stock
price. Your principal rises.

But the great thing about big companies with an established,
fairly diverse, product line, like PG, is that they tend to
increase the absolute dollar value of the dividend over
time. PG, for example, has been increasing its dividend by
over 6% each year for the last several years or more. For
the last few years, it's been over 10%. See
http://finance.yahoo.com/q/hp?a=01&b...d=10&e=28&f=20
05&g=v&s=pg

Since 1970, the S&P 500's dividend (not yield, but actual
dollar value of dividends) has grown about 6% a year.
(Source: Shiller data) Using the Rule of 72, that means,
that a stock paying 2.5% right now would increase to a yield
of 5% (on the original principal) in about 72/6 = 12 years.
And this dividend income will keep on growing. So will the
principal!

These are pretty safe bets in my estimation. But that's
based on a lot of reading and so building confidence. It
also demands you have the discipline to live within your
dividend/interest income /now/ and have the patience to wait
for it to grow.

There is an online publication called "The Motley Fool" at
www.fool.com that puts a lot of emphasis on dividend growth
stocks. I suggest reading it for a couple of months or so.

Also, from my reading, a portfolio of 20 to 30 stocks is a
safer bet to protect from volatility than 10 stocks. More
than about 30 is said to be inefficient (though I'm not
/quite/ clear why). Also, the number may very well be a
function of one's goals and allocations to different
categories of stocks and bonds. Keep reading on the subject.
Good luck.

dan wrote:

- quote -

Almost anything other than bonds/cds/money market will entail
some risk. To get an idea of this look at, for example, what some
of the income mutual funds have done in terms of performance.

As an aside, you can probably get higher returns than money
market with i-bonds (at least at this time). The catch is that you
have
to hold them for at least 5 years.

- quote -

I don't have a good way to quantify the risk associated with this,
but you need to be aware that doing this does entail a significant
risk. Are you sure that you're up for it? If there was no risk,
everybody
else would be doing it.

Anoop

<<I am considering a relocation to a lower cost of living area. I'd
like to sell my house and other non-liquid assets.>
If your old house is in a high cost of living area, it is probably also
in a high rental cost area. Perhaps you could make more by renting it
out rather than selling it and investing the proceeds.

John Cowart

On Mon, 19 Dec 2005 11:05:57 -0600, "dan" <dan.gosser[at]gmail.comwrote:


- quote -

The answer depends on which stocks. How about listing the dozen under
consideration?


-HW "Skip" Weldon
Columbia, SC

Please forgive my lack of appropriate terminology. I am considering a
relocation to a lower cost of living area. I'd like to sell my house
and other non-liquid assets. I'd like to invest these funds so that I
could receive interest or dividends to help me survive without a job.
I'm not so much looking for specific investments, but am hoping for
other ideas aside from the typical bonds/cd's/money market. I have a
money market now earning 4.30%, but in order to support myself I'd
really need to be in the 7%+ range.

Would it be foolish to diversify my funds across a dozen stocks that
pay dividends of 10%+ ?

Thanks,
Dan