Planning Her Bond Portfolio

A good friend lost her job in the most recent down sizing of Corporate America. She came to me because she did not know what to do with her 401k. So I rolled her $40,000 into an IRA back in September 2009. As of Sept. 2, 2010, her account was worth $48,265.83. On Sept. 11, 2010, it was worth $48,602.50. My friend’s return is 1.05% per month or YTD 9.41%. For a year her return is 21.5% or over 1.79% per month. She would had more in her account but she had to make a withdraw of $10,000 to cover some personal expenses. One fact remains! Very few investments are giving this type of return.

By this time next year, her account should be worth at least $51,762.59. She will have at least an increase in her account of 7.245%, providing no bankruptcies of the companies that I placed in her account occurs.

Bankruptcy of her companies would be her only negative that can happen to her account. When a company files for bankruptcy, interest and principal is tide up for months, even years. The investor may get stock and bonds in a newly formed company, bonds with a lower interest rate, stock only in the new company, or cash. Very rarely will the bond holder walk away with nothing. Stockholders usually walk away with nothing. This is why when it comes to Business Risk, bond holders are in a better position than stockholders.

Since this woman will be at retirement age in less than 10 years, I invest her money in a conservative junk bond portfolio. The discounted bonds that I place her account into only go out (matures) no more than 7 years. Bonds are rated B- to BBB. I buy only bonds that give interest monthly, quarterly, or semiannually. And I only buy bonds that have a “Yield to Maturity” of 8% or greater.

Look at the data chart below.

With the online Brokerage firms that we discussed before, it is easy for me to find out how much interest and dividends I can expect from her income stocks and bonds. This information allows me to plan her purchases of bonds in her account. As of September 2, 2010, she already had $717.43 in her account. At the end of December, 2010 she will have enough to buy another bond which will give interest in the future. Another bond will be purchased at the end of February. Then major bond purchases will take place in June, July, and August because bonds purchased in 2009 will mature.

This is why her net worth will increase more than the 7.245% projected if nothing at all happens in her account for a year.

Estimated Income for Her Account

Date___________Amt______________Running Totals

Balance in Acct _________________ $717.43

OCT 2010___ $8.75____________726.18
NOV 2010___ 66.38________ _____792.56
DEC 2010___ 671.25___________ 1464.31
At the end of December 2010, 1 new bond will be purchased
JAN 2011___ 165.75
FEB 2011___ 827.50
I estimate 1 new bond will be purchased
MAR 2011___ 8.75
APR 2011____ 8.75
MAY 2011____ 66.38
JUN 2011___ 671.25
A major bond purchase will take place.
JUL 2011____ 165.75
A major bond purchase will take place.
AUG 2011____ 827.50
A major bond purchase will take place.
SEP 2011______ 8.75

I use ZionsDirect Online Brokerage to look at the dates that her interest is due then I plan my future purchases accordingly. Below is the ZionsDirect website that I use.

https://www.zionsdirect.com/

The directions to get to the Income Summary is as follows;
1. logon with your ID and password
2. Go to Account info.; Portfolio; Summary Tab
3. Click on Estimated Income.

At the bottom of the Page should be your income summarized by month. From this, you can add up the money that will hit your account. When it adds up to over $1,000, you will know that you have enough money to buy at least one discounted non-investment grade B- to BBB bond.

This is what I do for my friend and I might spend up to 2 hours per year on it. Very little time spent to make big returns.

If you open an account, please tell them that you heard about this firm from me.