I am retired and take educated guesses on all things financial.

March 14, 2009

March 15, 2009: How About A Quickie Portfolio for Income?

Many investors as simply saying "screw it" and ditching securities in favor of The Select Comfort National Bank and Trust. I say, go for a quickie fix with a small portfolio of funds that may give you a chance for both decent yield and capital appreciation.

Not necessarily Viagra for the long haul, these selections appear to be, in proportion, good for now and the immediate future. Your risk tolerance will determine what dose of each Mr. or Ms. Portfolio can stomach. Get on top of, not inside, the mattress and squeak some bucks out of those springs.

Fidelity Strategic Income Fund (FSICX). Priced at $8.57 with an expense ratio of 0.73%, this $4b fund yields 6.45% and has been a stalwart performer in its class for years. Managed effectively with the goal of high current income and the chance of capital appreciation, FSICX had a recent mix of 32% U.S. government agency debt, 27% corporate bonds, 23% foreign government bonds, 10% short term cash assets, 7% floating rate loans, and a smidgen of preferred shares and stocks. I believe that many of the fund's assets are under priced vs. risk, and that the few securities in the fund that may go belly up will not have a material impact upon FSCIX's ability to deliver cash into your portfolio.

IShares' TIPS Bond Fund (TIP). Priced at $98.40 with an expense ratio of 0.20%, this inflation protected U.S. government security ETF with a current cap of $10.7b yields 5.26%. If you believe that the United States Congress is spending just a little bit too much money which may result in not so insignificant inflation fairly soon, this ETF will provide current and future gratification. TIP pays you a nice dividend to wait until that time arrives. Or, open an account with Treasury Direct (U.S Government securities web site) and buy your own without the ETF in the way.

IShares 1-3 Year Treasury Bond Fund (SHY). Priced at $83.98 with an expense ratio of 0.15%, this ETF is will definitely give you a good night's sleep. Extremely conservative and resistant to what many experts are calling a bubble in government bonds because of the short portfolio duration, SHY yields 3.30% and has a current market cap of $7.7b.

Vanguard Short Term Bond (BSV). Priced at $78.18 with an expense ratio of 0.10%, this one-five year corporate debt fund yields 3.56%. BSV has a $1.5b market cap and is a nice complement to SHY if you believe that most corporate short term debt is attractive for potential capital appreciation as the recession eventually lifts.

IShares iBOXX Investment Grade Corporate Bond ETF (LQD). Priced at $92.65 with an expense ratio of 0.15%, this is a fairly risky ETF is spite of being touted as investment grade. Yielding 5.93% with a market cap of $7.7b, LQD goes out and reaches for yield with a maturity duration and quality stretch. That said, size matters and the holdings should offset the risk of default in certain securities for good total return. I believe it compliments FSCIX quite well.

State Street Barclays International Government Bond ETF (BWX). Priced at $49.72 with an expense ratio of 0.50% and a market cap of $877m, this world bond ETF yields 2.56%and provides diversification with high quality international government bonds.

IShares Preferred Stock Index ETF (PFF). Priced at $20.70 with a 12.61% yield, PFF has had a large move upwards over the past week. Too much, in my opinion. The large majority of this index consists of bank preferred stock, thus the strong performance.I would pull the trigger on a pullback if you believe we are in a bear market rally. $17.00 would be a nice entry point. Risky, but a better bet than common stock for this quickie income portfolio.

I am not advocating exclusively purchasing the above securities, sell everything else and head to the hills with your sack of gold, shotgun, dried foods and a cask of Jack Daniels. I am advocating proportional risk yield, expectation of inflation, international diversity to a degree and confidence that many corporate bonds and preferred stocks are priced to give you a nice enhancement to an otherwise conservative investment scheme.

Importantly, don't make one big mistake and risk not reasonably protecting your assets.

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