Gennaro "The Broker" Savarese

CONNECT

Address:

16776 Bernardo Center Dr. Ste
San Diego, CA 92128

Phone:

(858) 605-2868

Fax/Other:

(858) 451-5651

Invest for Income

Bonds, stocks and other ways to potentially make money last and minimize risk

Why Consider Investing for Income?

  • You are approaching a period in life where you will be relying on this income for lifestyle maintenance. In this case you wouldn’t be reinvesting your income, but using it.

  • You are expecting some potential large expense. For example your car may be on its last leg. It may die tomorrow or maybe even 3 years from now. You would like to have the availability of your funds “just in case”

  • You feel more secure. Some people down right like the feeling of getting periodic positive feedback from their investments.

In the area of income producing portfolios, you must understand your risk. Knowing your risk if very important to know when you are investing for income. Please remember that typically the higher the risk the higher the returns and the lower the risk the lower returns. There are rating agencies such as Standard and Poor’s and Moody’s that rate securities that produce income such as Bonds, and Preferred Stocks. 

Now that we know what the ratings are on we can select the types of bonds or preferred stocks that fit into our risk tolerance. Understanding how bonds and preferred stocks trade is important.

Bonds typically have a stated maturity and a stated interest rate that it pays (monthly, quarterly, or semi annually). Now that we understand that we must understand the interest rates which are controlled by the Federal Reserve can go up and down depending on economical conditions in the market place. Understanding how bonds trade in the different environments is important. 

During raising interest rates, the further you are out in time, the bigger the current market evaluation risk. That is to say if you were in a 30 year bond and rates whet up, the current market value would go down. Current market value is approximately what you could sell the bonds for. So if you were in a 30 year bond and interest rates went up and you needed to get your money out of the market you could potentially end up with less than what you put in. Understanding where we are in the economy and where interest rates could be going is important. 

Preferred Stocks, which typically pay interest at a stated interest rate on a quarterly basis, usually have no maturity and can be called for “par” the most part on any interest payment date. Par is usually what the preferred stock was originally price at when it came public or the original offering price.(such as 25.00 or 50.00 or 100.00) Since Preferred Stocks do not have a stated maturity then they may have the biggest market swings when interest rates go up or down. So when interest rates are raising markets prices for Preferred Stocks tend to drop and when interest rate are dropping market prices for PreferredStocks tend to go up. Understanding your risk tolerance is very important. 

I would suggest you communicate with your investment professional before investing.

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