Income Options for Your Portfolio

 
I believe that we have reached an important point in the market.  We had our massive sell off followed by a nice recovery, but the market currently has no direction.  Too many uncertainties exist and nothing is stepping up in the economy to lead us. As a result, I believe that the market will continue to flow in a channel with 5-10% upward and downward swings for the next three to five years. 
 
Over the past thirty years, growth stocks have been the place to be.  The market continued to rise from the early 80's through 2000 and has been on a roller coaster ride over the past decade.  If the market levels off for the next three to five years, there won't be much room for growth stocks to grow.  If this is the case, income investments will be of utmost importance for your portfolio.
 
Below are some of the possible income ideas that you could consider including in your portfolio.
 
Dividend Paying Stocks:  Many companies pay dividends out of their common stock.  Frequently these companies are medium and larger sized businesses and are often in the financial and utility sectors.
 
Preferred Stocks & Convertible Bonds:  Preferred stocks are shares of company stock whereby the company is required to distribute dividends before it can pay dividends to the common stock shareholders.  These securities also typically pay a higher dividend rate than common stock.  The flip side is that they don't typically see the same growth that common stocks do as the share prices increase.
 
Convertible bonds are bonds that are exchangeable for common shares of stock within the same company. They are usually for a predetermined amount of shares and can be exchanged automatically if the stock reaches a target price.  These bonds pay income like traditional bonds but can also see additional price movement as the common shares of company stock increase or decrease in value. They will often pay a greater dividend than preferred stock but less than traditional bonds.
 
REITs:  Real Estate Investment Trusts are a form of business entity that can invest in real estate and mortgages.  They frequently receive favorable tax treatment on the dividends they distribute.  REITs can be public or private. Because REITs collect rent and mortgage payments, they often generate a fair amount of income.  In order to receive the favorable tax treatment, REITs must pay at least 90% of the income they receive to shareholders.
 
These ideas are to be added to a diversified portfolio.  Consult an investment professional to determine the appropriate mix of investments for your risk tolerance and time horizon.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations.