My Greedy Friend’s Portfolio Value Projection

Example 1A -- Click on report to view

Example 1B -- Click on this report to view

The Secret to Income Investing

We are going to discuss the secret to income investing. In my blog “My Greedy Friend’s First Quarter 2012” dated Thursday, March 29, 2012, we talked about what I do when I invest in junk bonds. As you know an investor knows how much they are investing, they know how much they expect to get in return, and they know when to expect it. Speculators and gamblers don’t know these things. That is why every person who buys stocks and bonds are not investors.

I am going to pass on to you what the old steel workers in Pittsburgh, Pa. told me 40 years ago. This information still works today.

I am not the brightest crayon in the box. My friends and relatives can tell you that. So I can’t do that complicated so call investing that you see on the cable TV channels. Most of them tell you stuff then you try it and lose your shirt over it. All I know how to do is make money.

Look at (Example 1A and 1B). This is a snap shot of my Greedy Friend’s portfolio. They use an online broker called “Zions Direct” headquartered in Salt Lake City, Utah. I use another online broker but this one is also a good one to use. If you open an account, use my name and you will get a good deal when opening an account.

Look at the screens in this example. I invest for income and only income. I leave safety to the rating agencies, such as Standard & Poor’s or Moody’s. I try to buy corporate bonds that are as near “BBB” as I can get giving me the highest interest that I can get.

Example 2 -- Click on the report to view

Look at (Example 2). Your bond interest is automatically calculated for you by bond and by month where the interest and dividends are given. My Greedy friends could expect $10,384.22 in dividends and interest in the coming 12 months. My Greedy Friend’s bonds give interest mostly on a semi-annual bases. To make a projection of their Net Worth for 12 months into the future, add this figure from Example 2 to the Account Net Worth in Example 3.

Example 3 -- Click on the report to view

Look at (Example 3); my Greedy Friends have a screen that gives them to the minutes, how much cash they have available to purchase more securities. When there bonds and stock give enough interest to buy a bond(s), I buy more bond(s).

In my friend’s IRA, they make an annual contribution and buy more bonds. The more bonds they buy, the more interest flows into the portfolio (see example 2 and 3), the more bonds they buy (entered in their portfolio, see example 1A and B). This works very much like compound interest in a savings account.

The risk here!

Bonds as well as any business securities come with risk. With bonds you have the risk of default, they may not pay you. Business Risk, they may file for bankruptcy and go out of business or they may reorganize and give you little or no money. You may be faced with inflation risk where the inflation rate is higher than the amount of interest that you are making with your securities.

Tax Advantages of this plan!

An IRA allows my friends to accumulate interest and appreciation of the bonds tax deferred. Plus they get a tax deduction for their yearly IRA contribution. Once they reach 59 ½ they can withdraw funds from their IRA without a 10% Federal Income Tax Penalty. When you retire and you are in a very low income tax bracket, you will pay taxes at the lower income tax bracket.

This is the secret to what you see in my greedy friend’s portfolio. Its value rises in their bond portfolio over time. Why don’t brokers tell you about what I am doing? They don’t because they can’t make money off of you. They can if you buy and sell all the time. Since my Greedy Friends rarely sell, brokers make very little money. So why would they bother with my Greedy Friends? As I always said, a broker makes you broker. I can become broke by myself!