Part 3: Dividends for My Daughter’s New Car

In the last part of this series, we are going to look at Portfolio Management of an Income Stock Portfolio. The difference between a bond portfolio and a stock portfolio is that bonds mature, stock do not. This means that you do not have an almost guaranteed appreciation of your issues in the account. In a bond portfolio, we take the interest and the proceeds after maturity and reinvest this into more bonds. The Investor always has a few dollars left over in the account after every transaction because in most cases only whole bonds can be purchased.

The Williams Plan uses income producing securities such as Utility Stocks. These stocks give high dividends. The idea is to use the dividends to purchase more high income stocks. With the Share Builders Account, the speculator can buy full and fraction of shares. This means that the speculator can use every cent in the account when they execute a transaction.

Here is an example of an account using Share Builders;

Name of Stock ___Symbol Div._ Yield__Price --- Dividend Quarters ---
Nisource Inc. Holdings NI__$0.92 _5.83% _$15.79 __Feb, May, Aug., Nov
Firstenergy Corp ____FE __$2.20 _5.89% _$37.38 __Mar., June, Sept., Dec.
PG&E ____________PCG__$1.82_ 4.26% _$42.74 __Jan., Apr., July, Oct.

These stocks are not recommendations. This example is to show you that your portfolio should be made up of income stocks that give a dividend covering a total of every month in the year. As your stocks grow over time, you as the speculator will be paid every month.

As discussed in Part 2, in every quarter, you will take your dividends plus any additional funds and invest it into one of the stocks in your portfolio, purchasing full and fractions of shares. That means that in March, you invest in Nisource Inc. Holdings, in June, you invest in Firstenergy Corp., and in September, you invest in PG&E.
THE END…….

Part 2: Dividends for My Daughter’s New Car

Last time, we talked about the Williams Plan. The Williams Plan uses income producing securities such as Utility Stocks. These stocks give high dividends. The idea is to use the dividends to purchase more high income stocks. This will give your account a compounding affect.

We talked about several online accounts before. However, for people investing from $59 to $25 per pay, I suggest using the “Share Builders” Account managed by ING Direct. This account allows you to purchase full and fractional shares for only $4.00 per transaction. I will provide you with the link to the Share Builders Account web page:
http://www.sharebuilder.com/sharebuilder/Default.aspx

You can schedule investments on a weekly, bi-weekly, or monthly bases. You can also invest when you want with no schedule. You can invest using any dollar amount since you can purchase fractions of shares. You can choose from over 7,000 investments and ETFs.

If a person can afford to invest $25 per pay and gets paid 26 times a year, that person will pay $104.00 in commissions and invest $546.00 per year. In this case, it might be better to place $25 per pay into the account and invest 4 times a year paying $16.00 a year in commissions. This will make available $634.00 per year to invest. In ten years, you will have $6,340 and in twenty years, $12,680 if no interest or dividends are given and the stocks refuse to appreciate.
On the other hand, if you see a total return (stock appreciation and dividends) for ten years at 10%, you will have $10,954 and in twenty years at 10%, you will have $40,365. This looks like money for some big ticket items like a car, down payment on a house, pay off a home, or payment toward trade school or college. Whatever you use it for, you will be further ahead than if you spend it on something else over the years.

You may also consider investing in DRIPs. Here is a link that is self explanatory.
http://www.directinvesting.com/drip_learning_center/what_are_drips.cfm

As you probably already guessed, success centers around the investment, type of account, the time when you need the money for purchases, and portfolio management. In our next part of this series, we are going to look at Portfolio Management of a Williams Plan Portfolio.

Dividends for My Daughter’s New Car

In the mid-1970s I talked about the “Williams Plan” on my radio show at WAMO radio in Pittsburgh and on my cable TV show called “Finance and You।” The Williams Plan is a way that people with very little money can buy income producing Utility Stocks such as the stocks found on the Dow Jones Utility Average. These are not the only Utility Companies that give dividends. Utility companies usually pay a high dividend. So speculators can get paid while they wait for their stock price to go up.

The Dow Jones Utility Average is made up of 15 large US Utility Companies. See http://www.money-zine.com/Investing/Stocks/Dow-Jones-Utilities/

Yield = Dividend/Recent Yield

Just like we discussed with bonds, the speculator can have the dividends accumulate in the account and buy more income producing stock as time goes on। One advantage that Utility Stocks have over bonds is that the speculator participates in future earnings increases of the company. For example: the speculator may start out receiving a dividend of cents .25 per quarter in 2010 but by 2020, the dividend might be $1.50 per quarter. The stock may have been bought at $16.50 per share but in ten years sell for $75.00 per share.

Payout Ratio = Dividend /Earnings Per Share

The higher the ratio, the more in trouble the dividend becomes। If a company pays out all of its earnings or more than it earns in dividends, the less chance that the company will grow. Not paying a dividend gives the company cash to grow. This situation gives a very good chance for the company’s stock to appreciate. However, the speculator has no dividend to take advantage of.

Yield and Dividend Dates

Taking a Payout Ratio below 80% and the highest yield will give you good growth in stock price and a good dividend return। Utilities usually give four dividend payouts per year. If the speculator buys stocks that in total give dividends every month, payout will hit the speculators account every month. This gives the speculator a change to purchase more stock every month. That will increase the speculators return with a compounding affect for the total portfolio.

In 1983, I started accumulating Utility Stocks for my oldest daughter’s account. When she graduated in 2001, I sold all the stock and bought her a 2001 Hyundai Accent. Recently her and her family sold the car and bought a crossover van. This is how over time, you and your family can pass on the wealth that was accumulated over several life times.

Why I Write This Blog?

The reason why I write this blog is because I want you to train your nieces, nephews, brothers and sisters, children and grand children, as well as cousins about how to build wealth in their families। I was trained by the old retired steelworkers in the early 1970s. All they asked is that I train others coming up after me. They claim that it would not be long before the national elite will take away the rights of the common person to own and control companies and to make money in America’s financial markets. I really did not believe that but I only had to wait until the late 1980s before I started seeing the average person being shut out of the market place by lack of education and steering people into mutual fund with high sales charges.

The leaders of the US Economic System do not want the average person to know what I am telling you। It is not to their advantage for you to make money the way they make money। That is why this is not taught in public schools, most colleges or universities. They want you to go to them for wealth building advice so that they can charge you money for it.

Not too long ago a woman who worked for the past 45 years, ask me to review her retirement account। After I did and showed her how her nice helpful broker was taking her for everything she had, she fired her broker. Now she makes over 10% per year in herself managed accounts.

Next time in Part 2, we will examine the ideal accounts to carry out the Williams Plan.

Investing in the Junkiest of the Junk.

The world is filled with many debt rating services। We are going to look at one in relation to bond investments। Below is the Standard and Poor’s (S&P) rated area known as Non-Investment Grade or Junk Bonds। S&P rates borrowers on a scale from AAA to D. Intermediate ratings are offered at each level between AA and CCC (e.g., BBB+, BBB and BBB-). For some borrowers, S&P may also offer guidance (termed a "credit watch") as to whether it is likely to be upgraded (positive), downgraded (negative) or uncertain (neutral). If you looked at the bond details in the online brokerage website, you may have come across bonds on Credit Watch.

• BB : more prone to changes in the economy
• B : financial situation varies noticeably
• CCC : currently vulnerable and dependent on favorable economic conditions to meet its commitments
• CC : highly vulnerable, very speculative bonds
• C : highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to pay out on obligations
• CI : past due on interest
• R : under regulatory supervision due to its financial situation
• SD : has selectively defaulted on some obligations
• D : has defaulted on obligations and S&P believes that it will generally default on most or all obligations
• NR : not rated

High Credit Ratings are not as reliable as one might think। Credit ratings of AAA (the highest rating available) were given to large portions of even the riskiest pools of loans. Investors, trusting the low risk profile that AAA implies, loaded up on these CDOs that later became unsellable. Those that could be sold often took staggering losses. For instance, losses on $340.7 million worth of CDOs issued by Credit Suisse Group added up to about $125 million, despite being rated AAA by Standard & Poor's।

Companies pay Standard & Poor's to rate their debt issues। As a result, some critics have contended that Standard & Poor's is beholden to these issuers and that its ratings are not as objective as they should be. Issues as low as “BB” or lower is already in trouble and the public is well aware of their problems. Therefore, an S&P Rating should be more believable. I am sure actor John Wayne would say that a Credit Rating is not half as reliable as a horse.

Back in 2009 when the stock market was at its lowest point in the past 10 years, I bought Ford bonds rated CCC by Standard and Poor’s (S&P) with a yield of 36%। Many people thought that they were going out of business along with the other car companies. But I saw the CEO of Ford Motor Company on C-Span, speaking at a US Senate Hearings. He said that his company was “OK.” He was just there to support the other car companies. So I bought the bonds. Today, their debt is rated CCC but the bonds sell at a premium. Its Credit Company’s debt is a B-. Now the bonds are popular with the investment public. The company is making money again. Soon you will see the bonds rating go up.

Here is why I bought “MOHEGAN TRIBAL GAMING AUTHORITY 6.87500% 02/15/2015 SR SB.” They have holdings in gambling institutions on Native American Reservations. It is rated CCC+ by S&P. I am getting 18.39% Yield to Maturity. But it is only 1.2% of my portfolio. So if something bad should happen and I have to wait to get my money, the event will not devastate my portfolio.

Building a Portfolio

It took me 30 years to build the following Portfolio. I invest for income and my portfolio shows it.

---------------Darnell's Portfolio Make Up------------
Type of Investment -------Percentage ------Interest

Cash --------------------------0.32310%------------1%

Growth-------------------------- 0.53%
Growth --------------------------2.50%
Growth --------------------------0.16%

Growth Stock Total -----------3.19081% ----------No Interest

Closed End Income Bond
Funds ------------------------0.51846% -----------12%

CCC+ Bonds -------------------1.21990% -----------18.39%
B to BBB Bonds ---------------94.74773% -----------12%

Bond Investment Total ----95.96763% ----------12.5%

Total Portfolio -----------100.00% Double in5.76Years

I have very little cash. That is because I usually stay fully invested. That allows me to make the maximum amount of interest that I can. Growth Stocks like Ford allows me to take advantage of bull markets but the amount invested in Growth Stocks will not hurt me in Bear Markets. I am in the Income Bond Funds for the 12% income. But the amount invested will not hurt me in case the manager of the fund screws up or the management fees become outrages.

Most of the money is invested in “B to BBB” Bonds. Here I get around 12% per year. Using the “Rule of 72,” I project that I should double my money in a little more than 5 3/4 years. Now why did I invest in a few “CCC” rated bonds? They are bonds with a great deal of risk. We will find out next time!

Personal Bond Investment Training

In “Do You Want to Make Money? Part 2”, I showed you two online brokerage accounts. I also talked about a bond that I purchased, getting a “Yield to Maturity” of 14.48%. This blog is a training blog designed to show you how to find bonds making a yield of 10% to 20%, with a Standard and Poor’s Rating between “B-“ to “BBB.” For this exercise, we will find bonds with these criteria.

Go to the http://www.optionsxpress.com/index.aspx website by clicking on this site. For training, open an account by clicking on “Open an Account” and follow the instructions. You will have 30 days to use this account (general cash, IRA, company) for free before your free time will expire. When they ask, how did you find out about this firm? Type “Customer Darnell L Williams.” If you feel like keeping the account but have no money to invest right now, just buy a few shares of Ford Stock (Stock Symbol F). As of July 4, the stock sold for $10.28. Two shares will cost you $20.56 plus about $10 commission. That will hold your account open until you can get some money together and start some serious investing.

Once your account is open, click on Login at the top of the screen. Then put in your User Name and Password. Press Enter. Place your curser over “Trade.” You will see “Bonds.” Click on “Bonds.”

Exercise: We will look for bonds that mature in 5 years or less. Click on the intersection where “5yr” and “Corporates A” meet. Click on “Advance.” Choose “Corporate” by selecting it from the drop down window that says “Treasury”. In “Maturity” place 1yr in “From” and “5yr” in “To.” In “yield” put 10% in “From” and 20% in “To.” In “S&P Rating” put “B-“ in “from” and “BBB” in “To.” Take the check mark out of “Or.” Sort by Maturity, then by Yield. Make the sort by Yield, Descending. Press Search at the bottom of the inner screen.

You will get a list of Corporate Bonds. Examine these bonds. Click on the name of the bonds and get more information. Look at the “QTY” column. Here you will see how many bonds are available, the minimum amount of bonds that could be purchase per transaction and how many bonds you have to buy in increments. For example, if it says that you should buy bonds (5/5), that means that you buy 5 bonds at a minimum and if you want more, it has to be bought in increments of 5. That is 5, 10, 15, 20, 25, and etc.

To make a trade click on “Trade” at the right of the line. If you just want to make a calculation of the transaction that you want to conduct, click on “Calc.”

If you have been following my blogs then you have enough information now to do a bond trade. You can explore this website for more information to help you with your investment needs. Good luck and good investing!

Using Discount Online Brokerage Services

In the last Bond Blog Series, we talked about using online accounts to buy Discount Corporate Bonds. Now we are going to talk about how to do this in more detail. I gave you two online brokers that I use for my accounts. I suggested these accounts to my friends and many are using them today. Few brokerage firms will educate you in high finance. As I told you before, I got my high finance education from the retired steel workers hanging around the brokerage firms in downtown Pittsburgh in the 1970s. You can’t do that today but you can do the next best thing.
I want you to go through the tutorial that OptionsXpress has on its website.

The first thing that I want you to do is click on the OptionsXpress link; http://www.optionsxpress.com/

Type the word “Bonds” into the Search Area at the top right part of the screen. Click “Search.” Click on “Leading Online Bonds Investing Platform at optionXpress.” Read what they offer you as far as service.

Next, click on “Site Tour” at the very top right corner of the screen.

The Introduction to the Site Tour will start automatically. Make sure that your Volume is turned up on your computer. When the Introduction is over, click on the eight topics on the left of your screen. It looks like below;

***************************************************************
What you will see
1. Why optionsXpress
2. Free Services
3. Tools
4. Customer Service
5. Education
6. Products
7. Opening an Account
8. Security
************************************************************
Optionsxpress specializes in trading especially trading Options. As a Bond Investor, you will not do that. However, they had a good Education Section and a very good Corporate Bond Section. The Education Section allows you to take tutorials on subjects, interact with other investors, and you can ask questions about something that you want to know about. Under Products, you can get help with finding discounted bonds that meet your investment criteria. This is how I find bonds that give a “Rate of Return” of 10% or more, are Standard and Poor’s Rated “B” to “BBB” that sell below Par ($1,000) and meet my criteria for maturity. This is how I get the investments to meet my investment criteria.

If you like, you can open an account with them and explore the account free for 30 days. If you like what you see and do, you can send them money and buy your first Discounted Corporate Bonds.

Do you want to make Money Part 4

In our last part of this series, we will talk about why you want to invest for the future. Don’t get investments mixed up with gambling. You gamble for fun. Some people have a sickness and destroy themselves and their families using gambling as the means to do it. Investment is to help you and/or your family achieve the objectives that you would like to do in the future.

At age 8 through 18, I decided to make a living by becoming a technical expert in the computer field. I also studied finance and business so that I could manage the money that I wanted to make. I made out a time line for such things as being baptized, getting my driver’s license, buying a house, getting married and having children, creating an organization for educating my descendants in the professions and trades, funding my children’s education, retirement, and plans for my death. I recently showed my plans to my 27 year old daughter and mother of 2. She has her own plans with her husband and children. I asked her if my time line from my youth to now was on track. She agreed that I did much of what I wanted to accomplish.

This was done because I was able to generate money by means of investments. I used 10% to 20% of the money that I made to finance these projects over a 50 year period. Anyone can do what I did. I can give you reasons why most don’t do what I have done.

Pier Pressure -- People don’t like to see other people accomplish things. That is why the average person calls people who want to achieve something names like “nerd” or “egg head.” Most people don’t want to be called names so they do nothing to fit in with everyone else.

Loving Money – Some people will call you names such as”Money Lover” because you use money as a tool. They think it is OK to get paid on Friday and it’s gone on Saturday. I am sure you heard people say that it is “Money Transfer Day” not “Pay Day.” That is because they live paycheck to paycheck and when the money stops, they lose everything that they have.

Religion – I wish I had a dollar for every time someone told me that it is easier to take a camel through the “Eye of a Needle” than to enter the Kingdom of God. This shows ignorance because what the Bible is referring to is the small opening in the city walls of a city like Jerusalem. If you approach the City from behind, you don’t want to go all the way around the city to enter. So you go through the small opening on one of the three sides of the city wall. These openings are called the “Eye of the Needle.” Here you have to unload your camel go through then reload your camel. It is not impossible to go through; it is just harder to do. How do you think Jesus got his money to run his ministry? God did not rain money down on him.

Only care about next weekend – Most people will plan for an event that happens within the next two weeks. How many people do you know wait until their children become 16 year olds then decide to look into financing college that starts in less than 2 years? How many people wait until their car stops running before they try to figure out how to get another car? How many people spend and have a good time just to wake up one day to find the “Repo” man jacking up the refrigerator, the car, and the furniture because of none payment? Most of this happens because years or decades before, no one did any financial planning.

These are the reasons why you have to plan for future event and use your money as a tool to achieve them. That is what investments are for! THE END….