As we move into 2011, the biggest challenge facing DIY investors continues to be yields. Yields are historically low, and DIYers are on the lookout for yield enhancement opportunities. It can't be stressed enough, however, that risk has to be carefully managed. A lot of money has been lost by investors seeking higher yields.
I have read with interest the post by MoneyCone on royalty trusts. This is an area that yield seeking investors should know about. Yields in excess of 6.5% are not unusual in this area. Again, however, risks need to be managed. It is possible to get stuck in a long-term security in a rising rate environment or have the underlying resource price collapse, etc. Be sure to understand what you are investing in. MoneyCone provides an excellent introduction.
A big help also along these lines is available at The Yield Hunter. This site lists a number of areas where high yields are available, as well as commentary on the various sectors, types of issues, etc. Click on a sector such as "U.S. Royalty Trusts" and scroll down. You'll come across an informative table, listing several securities, that provides comparative information at a security specific level. Again, note the commentary. This is where you will learn what a grantor trust is, what happens when the resource is depleted, etc.
Also, be sure to click on the model portfolios on the upper right hand side. These are excellent guides, for those who might need them, on a basic setup to track income paying investments that, with a little facility with Excel, can be easily set up.
Thanks for the mention Robert! As an investor, I believe one should be aware of all options available and that was the motivation behind my article series. As you rightly point out, yield chasing should be done with caution. For example Alon Holdings has a yield of 41! I wouldn't blindly rush to invest in it.
ReplyDeleteThanks for the reference.
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