Thanks for all of the good ideas.
Just to be clear, unless you are talking about March 2020 or Great financial crisis, preferred in regular bear market don’t go illiquid.
I have done quite well in REIT preferred stocks, guided by a very good Motley Fool Board. I am completely out of them at the moment.
I describe them as a “heads you lose, tails they win” situation in that if rates go up, they never get called and you are stuck with a relatively low yield sub-par issue. If rates drop, they get called and you end up with cash with no way to replace them at a comparable rate. You need to be happy with the rate when you buy, and be willing to hold if the market dictates.
They are very thinly traded, so you need to buy and sell on limit orders. A market order on low volume PFDs can be a disaster. The low volume creates a rare situation for the small investor. Many issues are just too small for funds and institutions to mess with, so in when a market gets scared, prices can plunge if there is much liquidation going on. If you know what companies are securely funded there are bargains.
At these low rates and over optimistic market it just isn’t an investment I want to mess with currently. Next crisis, big or small I’ll probably get back.
I’ve maxed out IBonds for me and my wife. I recently bought some high yield stocks in our IRAs but they went up so much so fast I sold. I have a decent pile of cash that I’m sitting on, waiting for Devine guidance.
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I posted this before but buy real estate that you can short term rent (air bnb) in a south east state. There are quite a few locations, Orlando area, any major beach area in FL, Myrtle Beach, Savannah, etc. I would use leverage to help with inflation should it show up, you can still get a 3.5% investment 30yr loan for 240k, you can buy a 4 bedroom house 300k to 400k. Furnished homes are common, but you will probably have to refurnish the things you care about. Hire a property manager, 6 to 8% return is not difficult even before you take real estate appreciation into account. Also you are somewhat diversified, can now go somewhere on vacation stay for free and write it off, and learning a new life skill.
You can also long term rent them, which is easier, but comes with a different set of problems. Would not do if you expect real estate to come back down, as many of these places have appreciated 10 to 20% in the last year. I would also avoid any area other than the South East, just because the politics may be challenging.
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I describe them as a “heads you lose, tails they win” situation
I was big at one time and now except one I have no REIT preferred. Most of my preferred holdings got called away. Time to time I buy some special situations, like the DBRG preferred I recently bought, I bought for $25.28 on Dec 30th, they had gone ex on Jan 18th for .445 dividend and it will stay above par because they are committed to redeem these preferred. The REIT is planning to bring down their cost of capital and these 7.125 coupon is high cost for them. So I parked some cash there.
I use limit order and the brokerages anyways split your order. In any case, I expect this to be called before I will have a need for that cash.
Just sit tight… there are opportunities opening up.
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Most of the replies in the thread remind me very much of the adage “never reach for yield”.
Only cash is cash. (in the conventional sense that 3-month T-bills are about the only acceptable substitute)
Either invest the cash or don’t, but it’s usually a poor idea to put the money into something pretending to be like cash but offering a better yield.
For the pretender assets, there is pretty much never a good match among the increased credit risk, the increased price risk, and your intended investment horizon.
If you think you know what you’d like to invest in, but think it’s not a very attractive valuation at the moment, there are alternatives.
- Buy it anyway and live with no expected return for a while–let it grow into its price.
- Wait till the price is attractive enough then invest it all in what you want. Spend the time reading about that thing and alternatives.
- Conventional dollar cost averaging (DCA) into that asset over a fixed period. I’m not a huge fan, though the times it adds value is when starting at a very high valuation level.
- Adaptive DCA over a fixed period, for the geeks.
e.g., each month end calculate how much the thing’s current price is below its all time high.
Multiply by 0.3 and invest that percentage of your starting cash pile into the asset in question.
If it’s 30% below its all time high this month, invest 10% of your starting cash pile this month.
This gets you gradually invested in increasing amounts during a typical bear slide, attempting to get you fully invested somewhere in the rough vicinity of the time it bottoms.
It’s possible QQQE would be a good candidate for this starting now. Check back in a few years.
Of course, if you want yield, buy something with yield.
High yield bonds at under 3% really need a new name, so they don’t count.
But a basket of Russian large cap equities will get you around 11%.
Since you’re largely investing alongside the Russian government which needs the dividends, they might even be pretty reliable.
I guess the day to do that is during the market panic when the first shots are fired.
Of course, some people might not find that morally acceptable, including me.
I’m sitting on a cash pile waiting for an opportunity.
There’s always another one coming. (and there’s always one hiding on any given day, if you can find it)
For a different adage as a parting thought: You make most of your money in bear markets. It just doesn’t feel like it at the time.
Jim
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Treat cash as an investment in opportunities, not sitting in idle. With market valuation so high and so much risk in geopolitics, the expected return of opportunities looks good.
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Hopefully I’ve learned my lesson about reaching for yield. Unhappy with 0.5% at Ally, I thought I would stash a good chunk of cash that I wouldn’t need for at least a year in BSV (Vanguard short bond ETF)and eke out 1.2% or something like that. I would have been better off at Ally.
Now between Ally and I-bonds I’ve got a nice cushion.
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If you hunt around a bit you can get 1% returns on largish balances - e.g. T-Mobile Money which is where most of my cash is ATM. The rest is used to get bank and brokerage bonuses which have an effective yield around 3-4%. Does require some time.
Do you have the CUSIP for t mobile bond? Thanks
whoops, sorry about that. I don’t know the difference between a CUSIP and a ISIN.
Do you have the CUSIP for t mobile bond? Thanks
If you meant the Sprint/Nextel bond:
852061AS9
It is continuously callable and selling at a premium, so beware.
And the ratings agencies consider it speculative.
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Hopefully I’ve learned my lesson about reaching for yield. Unhappy with 0.5% at Ally, I thought I would stash a good chunk of cash that I wouldn’t need for at least a year in BSV (Vanguard short bond ETF)and eke out 1.2% or something like that. I would have been better off at Ally.
BSV is 1-5 years. That’s too long for a cash substitute. As you found out.
I use FLRN and VUBFX in IRA accounts. Both right about 0.5%.
Alliant CU is paying 0.55%.
A couple of other random choices.
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Spend it? Just sayin’. Beer and pizza are getting more expensive, you might as well buy it now.
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Buy Carmax stock? KMX at $113.40
Jim
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GM is getting into used car sales, it is the first car company, I expect others to follow. The intense competition phase starts. Why now?
ATVI
very contrarian at the moment. Expect dead money for a while, so maybe wait in cash. I don’t know, I suck at buy/sell timing.
Buy some well-diversified international stock ETFs! International stock markets are undervalued, especially Japan and emerging markets. Additionally, the underlying currencies are cheaper than usual in the Big Mac Index. The combination of undervalued stocks and undervalued currencies can yield a double play - appreciation stocks AND appreciating currencies. This combination yields a level of undervaluation that the US stock market hasn’t offered since the 1930s and 1940s.
This is the opportunity of a lifetime! It feels like a gift from the ghost of John Templeton for those of us too young to have bought US stocks in 1982.
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This is the opportunity of a lifetime! It feels like a gift from the ghost of John Templeton for those of us too young to have bought US stocks in 1982.
No, it’s not the opportunity of a lifetime.
As an example, Japan (where capital goes to die) trading at CAPE today around 33 does not at all resemble the US (where capital makes money) in 1982 at a CAPE of about 6.3
It’s certainly true that a lot of markets are not nearly as painfully priced as the US market is these days.
And a few are apparently cheap on basic metrics.
But most markets are not particularly cheap compared to their own histories or what they’re actually worth.
Russia is trading at a CAPE of about 10.5, but that’s actually more expensive than the historical usual for them which is in single digits.
Ladas are cheap for a good reason.
One exception might be Hong Kong.
Aside from geopolitical issues, at the top level it seems relatively cheap on both an absolute and relative-to-history basis.
But the index is skewed by a lot of heavy Chinese deadwood so that might be misleading.
Jim
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ATVI
very contrarian at the moment. Expect dead money for a while, so maybe wait in cash. I don’t know, I suck at buy/sell timing.
Pretty good call…
Microsoft buys Activision for $95/share, valuing video game company at $68B
https://seekingalpha.com/news/3788646-microsoft-in-talks-to-…
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