Duke Energy and FKINX-A

[Lynxville]

An advisor I talked with wants me to invest in these two. I am retired and just hate the low cd rates and looking for some extra income. Just wanted opinions on these two.

Thank you in advance

[SSSS]

FKINX-A appears to be a load fund, which is one of the worst things you can do to yourself. It also has a 0.64% expense ratio which is high by modern standards.

Investing in an individual stock is generally not recommended when you could invest in a low-cost total market index fund instead.

It's a bad idea to shift assets from fixed income to equity just because you're unhappy with current fixed income rates.

Do you have a firm, suitable asset allocation yet? Changing your asset allocation on a whim usually will lead to sub-optimal results.

http://www.bogleheads.org/wiki/Boglehea ... art-up_kit

You might consider something like Vanguard Target Retirement Income:

https://personal.vanguard.com/us/funds/ ... IntExt=INT

[Valuethinker]

Investing in single stocks is normally a bad idea. Utilities get into trouble with their regulators, cost overruns on new power plants, etc.

As to income, if you invest in equities you take on more risk. If you are OK with that, then simply investing in Vanguard Total Stock Market, and then redeeming units when you need money, is probably the best strategy. They also run various equity income funds.

You should also consider an SPIA annuity, which will allow you to realize more income from a given pot of capital, and you cannot outlive an SPIA, ie you cannot ever discharge all your capital. There is a wiki here, and note virtually every other kind of annuity (which they try to sell you because they pay higher commissions) is bad.

[Grt2bOutdoors]

An advisor I talked with wants me to invest in these two. I am retired and just hate the low cd rates and looking for some extra income. Just wanted opinions on these two.

Thank you in advance

Why would you place a slice of your total assets in one income paying equity? I would rather place my money in an assortment of income producing securities to diversify the risk of loss. Duke may be a fine utility, but it is not immune to the risk. They orchestrated a merger with Progress Energy in 2012 and in the process managed to tick off the regulators - a big "no-no" where the returns of the utility is based upon regulator approval. Now Duke is under the very watchful eye of its regulators. Did you advisor inform you of that? Owning a basket of securities would limit these types of risks.

viewtopic.php?f=1&t=73812&p=1037375#p1037375 - In this thread you posted back in 2011 you mentioned you were "risk intolerant". Those investments suggested by that advisor are not suitable for someone who is both risk intolerant and expense wary. You also mentioned you hold other individual equity, it would be easier for us to opine if you list your holdings, though we as a group do not advise purchasing individual equity.

[BarbK]

RE: FKINX - there are ADV share class (FRIAX) that you could get NO LOAD, with a min of $50K and expense ratio of .49

I inherited it and have kept it; Brokers don't do you any favors with the Franklin Income Fund; My mom's broker put her in the "C" shares (ER of 1) - I found the ADV share class after she owned it for several years and had it switched. It meant more than $40 per month of income.

Beware though; that the bond portion of Franklin Income Fund is over 80% JUNK bonds.

[Lynxville]

Thanks for your replys. I am sitting on a large amount of cash, that's not making much income. I am really interested in increasing monthly cash flow.

[dbr]

Thanks for your replys. I am sitting on a large amount of cash, that's not making much income. I am really interested in increasing monthly cash flow.

Investments can generate income by any combination of dividends, interest, capital distributions, and selling shares. Selecting investments to match dividends and interest with income indicates a fundamental misunderstanding of how investments work. This is also a dangerous misunderstanding if the result is making investing mistakes such as concentrating in single stocks or buying funds that siphon money out of your pocket in excessive expenses.

It is possible to select diversified, low cost portfolios at an appropriate level of risk that will supply income by taking withdrawals at a safe level. For persons of an appropriate age and situation single premium immediate annuities are an alternative method to convert assets to income that may be very helpful.

[Valuethinker]

Thanks for your replys. I am sitting on a large amount of cash, that's not making much income. I am really interested in increasing monthly cash flow.

If you are over 65 you really need to look into annuitization (SPIA and only SPIA amongst annuity products) -- there is a wiki here.

It's the best way of turning capital into income. You still carry inflation risk (unless you purchase a CPI linked SPIA) but you cannot then outlive your money. If you have particular health issues you may qualify for an advantageous rate. You can add spousal survival benefits.

An SPIA is really the personal equivalent of the old private sector defined benefit/ final salary pension plans.

Otherwise your best option at the moment may be a 'ladder' of CDs, out to about 5 years. The rates on CDs are more attractive than they are on bond funds, generally. And within FDIC insurance limits, you know you'll get your money back.

[G-Money]

Not the first time Duke Energy's been mentioned on this board:

viewtopic.php?f=2&t=98067
viewtopic.php?t=82435
viewtopic.php?t=68593
viewtopic.php?t=79927

My advice: stay away. There's no free lunch with higher-yielding securities.

[Valuethinker]

Not the first time Duke Energy's been mentioned on this board:

viewtopic.php?f=2&t=98067
viewtopic.php?t=82435
viewtopic.php?t=68593
viewtopic.php?t=79927

My advice: stay away. There's no free lunch with higher-yielding securities.

I know Duke from another context. They are in a real mess with one of their subsidiaries. A new kind of power plant called an Integrated Gasification Combined Cycle-- a cleaner way of burning coal. I don't remember all the details but they are way over budget and the regulator was not going to allow them to charge the additional electricity costs to their ratepayers. Also the CEO of sub had to resign for improper relationships with the regulators (I vaguely recall).

Which is not to say Duke is a bad company but to underline the kinds of risks these utilities get into: cost overrun on a power plant, trouble with the regulator. They can lose a *lot* of money at the shareholders expense. My father in fact lost his job when his utility restructured after overruns on nuclear power plants- -that was the end of his career.

The stock market is well informed about these big companies- analysts follow every move, share price moves on significant news. If a utility has a higher yield it's almost always because there is higher risk or limited prospects for dividend growth/ possibility of a cut in the dividend.

[G-Money]

Having reread the OP, I'm more concerned that (1) the OP has an advisor and (2) the OP is looking for ways to "beat" the low-interest rate environment.

On (1), if you know enough to post here--and I see you've been a member here for 2 years--you know enough to manage your own money. I don't know how your advisor is compensated, but I'd strongly consider dumping him/her. If your advisor charges an AUM fee of 1%, that would be like getting an extra 1% income on all of your investments. Take the time to get a full portfolio review:

viewtopic.php?f=1&t=6211
viewtopic.php?f=1&t=6212

It costs you nothing, and you could stand to gain a lot.

As for (2), I think most investors are frustrated by today's low-interest rate environment. But there's nothing you can really do about it. We are, after all, talking about passive income: we get the returns of the various markets in which we invest, minus costs. Once you get the basics of investing down--and the links above will do that for you--there's really no magic to it. Your advisor is not some wizard who has mastered the secrets of the markets. You are far more likely to get yourself into trouble trying to increase income (chasing yield, buying high-yielding individual stocks or concentrated funds) than if you simply set a reasonable plan and stick to it.