Creating income stream..Reits? Preferreds, Dividends?

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28mm
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Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Fri Mar 09, 2018 5:02 pm

Hi All,

Before I move funds to a preferred income fund being offered to me, I thought it might be a good idea to post here for some suggestions and how efficiently I can replicate it on my own.

I can use some fixed income and have been buying dividend stocks and a few reits that are beaten up. It's a good start but I want to start fresh with a new account and fund it with $250K.

The preferred fund being offered to me will cost 1-2% to buy in, 1.5 management fee. All that being said it's performance is excellent.

As I mentioned in my first and somewhat regrettable thread here was that I am a do it myself investor who has been in the markets for many years. I only used and will use my FA for products I can't easily do on my own.

The company I am being offered to invest with is http://ldrcapitalmgmt.com..They have a solid track record but I do prefer to do it myself for many reasons including, easily liquidity, no fees and just as importantly, it can be fun for me.

Any ideas or thoughts on what I am trying to accomplish are appreciated!

livesoft
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by livesoft » Fri Mar 09, 2018 5:04 pm

I disagree with what you are trying to accomplish. Personally, I would just sell shares to create income. It certainly saves me on taxes and I don't miss out on gains either.
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Chuck
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by Chuck » Fri Mar 09, 2018 5:08 pm

28mm wrote:
Fri Mar 09, 2018 5:02 pm
The preferred fund being offered to me will cost 1-2% to buy in, 1.5 management fee.
I would never consider this. How long will you hold this investment? 20 years? You will lose 30% of your money to fees.

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Sandtrap
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by Sandtrap » Fri Mar 09, 2018 5:10 pm

An alternative, outside of the box way of creating an income stream with $250,000 is to purchase either 2 townhouses in an area of high appreciative value, rent at a min. of 6% net CAP. Enjoy the tax benefits, income, appreciative value, etc. Or, a Duplex and do the same thing. Or, a fourplex with a mortgage on half the value and do the same thing.
Income streams + relative security of principal if purchased properly in a well selected area + tax benefits.
A thought of many options.
aloha
j :D

retiredjg
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by retiredjg » Fri Mar 09, 2018 5:16 pm

Trying to create an income stream on which you can depend on can result in some pretty skewed portfolios and portfolios containing investments that have high expenses. What you are proposing is an example of the latter.

Rather than try to "prove" it is a bad investment, I'd rather point out that trying to produce an income stream is not the best approach in the first place.

Portfolios can produce money in two ways. There is income like dividend paying stocks and a high percentage of bonds - maybe including a lot of poor quality bonds. And there are increases in the investment's "net asset value" which is similar to price per share. If your shares go up in price, you can sell some shares to use for income. Many people don't want to sell a share but it is a false ideal they are clinging to.

I don't know anything about a "preferreds", but I do know that paying a 1.5% management fee is nuts. If you can reasonably take about 4% from your portfolio, how can you afford to give more than 1/4 of that to a management fee? And you are going to give another percentage to taxes....leaving you with about 2.2% to live on.

There is a better way to live on your portfolio. It is called "total return" which means using the income a balanced portfolio produces as well as harvesting some of the gains the share prices reflect. This paper from Vanguard discusses the "total return" approach vs the "income" approach.


https://personal.vanguard.com/pdf/s557.pdf


And, no, you don't want to use REITs for a lot of income. REIT income is taxed at your ordinary tax rate, not the capital gains rate. You pay less taxes if you use plain old stocks.

alex_686
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by alex_686 » Fri Mar 09, 2018 5:23 pm

Focus on "Total Returns", not income. Ignoring taxes, why do you care where your returns comes from? Considering taxes, income tends to be taxed at a higher rate.

REITs: Has the same risk and return as equities. I favor REITs because it has a low correlation with the rest of the market.

Dividends: As they say, don't judge a book by its cover. Dividends are the cover, "Value" is the book. Dividends gives you higher risk for the returns, so anything but this. Investing in dividends rests on flawed logic. Value stocks are strictly better in terms of risk and reward. That being said, both value and dividend stocks then to be high risk.

Preferred. A good fixed income product, sorta of like a higher risk bond. I hold a slight overweight in my bond portion of my AA. Tends to be concentrated in the banking sector, so there is risk there. Take a look at the returns during 2008 for an idea of the risk.

Question on the preferred - why go though a company and not just buy a preferred fund or invest in individual preferreds? What value does the company offer that requires such a steep fee? I have not check out the web site - just asking.

28mm
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Fri Mar 09, 2018 5:30 pm

Wow, really great responses and so fast! Very appreciated.

It's hard to include every nuance in what exactly I am trying to accomplish on my own but that being said, while the fund being offered to me is not for me for many of the reasons being pointed out, I still wanted to see if I could create something similar on my own.

But the real point is not replicating anything and I agree about tax efficiency of stocks and other ways of doing this.

I don't want to own any more real property to manage as I do that with a home I rent out. I love what I have but am not looking for more hands on stuff. A great idea though and at a different time in my life, it would be right up my alley.

I've started a portfolio that is more geared towards dividends it consists about about 15 holdings such as XOM,ATT, VZ, JPS (nuveen fund) and many more.

I'll check the link to vanguard and read up.

Thanks all!

delamer
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by delamer » Fri Mar 09, 2018 5:32 pm

retiredjg wrote:
Fri Mar 09, 2018 5:16 pm
Trying to create an income stream on which you can depend on can result in some pretty skewed portfolios and portfolios containing investments that have high expenses. What you are proposing is an example of the latter.

Rather than try to "prove" it is a bad investment, I'd rather point out that trying to produce an income stream is not the best approach in the first place.

Portfolios can produce money in two ways. There is income like dividend paying stocks and a high percentage of bonds - maybe including a lot of poor quality bonds. And there are increases in the investment's "net asset value" which is similar to price per share. If your shares go up in price, you can sell some shares to use for income. Many people don't want to sell a share but it is a false ideal they are clinging to.

I don't know anything about a "preferreds", but I do know that paying a 1.5% management fee is nuts. If you can reasonably take about 4% from your portfolio, how can you afford to give more than 1/4 of that to a management fee? And you are going to give another percentage to taxes....leaving you with about 2.2% to live on.

There is a better way to live on your portfolio. It is called "total return" which means using the income a balanced portfolio produces as well as harvesting some of the gains the share prices reflect. This paper from Vanguard discusses the "total return" approach vs the "income" approach.


https://personal.vanguard.com/pdf/s557.pdf


And, no, you don't want to use REITs for a lot of income. REIT income is taxed at your ordinary tax rate, not the capital gains rate. You pay less taxes if you use plain old stocks.
Just wanted to second this analysis.

Why would you give up 1.5 percentage points of your income off the top, when you are investing for the purpose of creating income? Even if you consistently make above-average income of 4.0%, you are losing 37.5% of it to management. (Not to mention the front load fee.)

Ask yourself why a fund with an “excellent” performance would even bother with $250,000? If it is so outstanding, why not require $10 million to get in the door?

28mm
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Fri Mar 09, 2018 5:44 pm

alex_686 wrote:
Fri Mar 09, 2018 5:23 pm
Focus on "Total Returns", not income. Ignoring taxes, why do you care where your returns comes from? Considering taxes, income tends to be taxed at a higher rate.

REITs: Has the same risk and return as equities. I favor REITs because it has a low correlation with the rest of the market.

Dividends: As they say, don't judge a book by its cover. Dividends are the cover, "Value" is the book. Dividends gives you higher risk for the returns, so anything but this. Investing in dividends rests on flawed logic. Value stocks are strictly better in terms of risk and reward. That being said, both value and dividend stocks then to be high risk.

Preferred. A good fixed income product, sorta of like a higher risk bond. I hold a slight overweight in my bond portion of my AA. Tends to be concentrated in the banking sector, so there is risk there. Take a look at the returns during 2008 for an idea of the risk.

Question on the preferred - why go though a company and not just buy a preferred fund or invest in individual preferreds? What value does the company offer that requires such a steep fee? I have not check out the web site - just asking.
Such a great post. To start with if I can have less correlation than the market in this new portfolio that is ideal. (this is obviously one piece of my assets). Once I set this up (and it's not really about needing 'fixed income', I will scale into it as funds come from other investments expiring or ending.

It's a good valid question about the company that charges for their fees. From what I gather they are very good at what they do and their numbers against peers seems excellent. Before people start posting trashing the company, it's enough for me that I am not going to invest in it. But I do like what they do and as in individual investor, I can try to replicate pieces of what they do along with a mix of stocks that has low beta to the rest of the markets.

Any advice on how to best pick REITs towards this goal are appreciated. I have a few I added recently but am open to hearing more of course.

Thank you again for all the posts and Alex_686, I very much appreciate our chats.

itstoomuch
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by itstoomuch » Fri Mar 09, 2018 5:52 pm

We are doing GLWB annuities (2008-2012 origination) and rentals as Sandtrap has suggested but in a HCOL area.
Very little remains of our Index/MFs; We have little exposure to the stock/bond Markets other than fixed mortgage rates.
What is remaining, are Discretionary stock/MF accounts of < 10% of retirement value.
IOW, we have avoided Reits, PF, Dividend stocks except for what is in the Discretionary.
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

28mm
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Fri Mar 09, 2018 6:00 pm

.......
Last edited by 28mm on Sat Mar 10, 2018 12:45 am, edited 1 time in total.

itstoomuch
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by itstoomuch » Fri Mar 09, 2018 6:13 pm

Comment:
Giving and receiving takes truthfulness.
I post in the signature line what we have done so that the receiver can make a better analysis.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

delamer
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by delamer » Fri Mar 09, 2018 6:16 pm

[Content containing sensitive personal information removed by admin LadyGeek (OP's request)]
Now wait a minute — in your initial post, you said “Before I move funds to a preferred income fund being offered to me,...”

But now you are saying “it was never really my intention to buy into this fund”.

So which is it?

jpsc
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by jpsc » Fri Mar 09, 2018 6:56 pm

28mm wrote:
Fri Mar 09, 2018 5:30 pm

I've started a portfolio that is more geared towards dividends it consists about about 15 holdings such as XOM,ATT, VZ, JPS (nuveen fund) and many more.
If you want dividend, I would look at VIG - return is about 2% in dividend. Why buy individual stocks, when VIG is better, it is like buying SP300

alex_686
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by alex_686 » Fri Mar 09, 2018 8:00 pm

28mm wrote:
Fri Mar 09, 2018 5:44 pm
Any advice on how to best pick REITs towards this goal are appreciated. I have a few I added recently but am open to hearing more of course.
This is not a strong suit of Bogleheads. We focus on passive investing. Passive investing gets you the average return with low fees. On average active funds get you the average return with high fees. Picking superior funds is hard. I think it is harder to pick out a winning fund than it is to pick out a winning stock. Of course a single stock carries high specific risk so you want to invest in at least a dozen, so you are kind of back to the start.

The default setting is to by a passive index. Only invest in a active fund if you are confident that the active fund can beat the index on a risk adjusted basis after fees. This is a high hurdle.

2 more points.

To the original point of your post, you imply that income producing assets carry less risk. This is not true. These assets tend to put along just fine, have a crisis, and then collapse. Risk equals returns, so to get some returns we must take some risk. Just be aware.

I feel like you are at a crossroads. Sometimes you express a DIY ethos, other times you want to rely on a FA. Sometimes you want something simpler, other times something more complex. You want a high return and less risk. Which is o.k. - this is common for investing, our lack of knowledge and emotions tend to get in our way. Just step back and look back at the big picture.

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by MrPotatoHead » Fri Mar 09, 2018 8:36 pm

If this is the route you wish to go you might want to look at preferred stock newsletters. Or Value Line has an offering called Convertibles Survey. It will run you $425 a year or a .0017 on your 250K.

Depending on how you are psychologically wired there can be much merit in the newsletter or paid service model. For many people implementing third party advice is easier on them mentally. To my way of thinking, sleeping well at night is a good investment.

It is described as follows:

If you’re a risk-conscious investor seeking excellent opportunities for income and growth, convertible securities may be for you.

Convertibles are financial instruments, usually bonds or preferred shares, that you can choose to exchange for a pre-determined number of common shares at a specific price. As a result, you can pocket the upside potential of the common stock to which the convertible is linked.

The Value Line Convertibles Survey arms you with a unique, highly effective approach to assessing the risk and return. Subscribe to take advantage of expert, unbiased analysis that throws a spotlight on the convertibles our analysts consider the best buys, and which ones you should probably sell.


Cheers...

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nedsaid
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by nedsaid » Fri Mar 09, 2018 9:28 pm

28mm wrote:
Fri Mar 09, 2018 5:02 pm
Hi All,

Before I move funds to a preferred income fund being offered to me, I thought it might be a good idea to post here for some suggestions and how efficiently I can replicate it on my own.

I can use some fixed income and have been buying dividend stocks and a few reits that are beaten up. It's a good start but I want to start fresh with a new account and fund it with $250K.

The preferred fund being offered to me will cost 1-2% to buy in, 1.5 management fee. All that being said it's performance is excellent.

As I mentioned in my first and somewhat regrettable thread here was that I am a do it myself investor who has been in the markets for many years. I only used and will use my FA for products I can't easily do on my own.

The company I am being offered to invest with is http://ldrcapitalmgmt.com..They have a solid track record but I do prefer to do it myself for many reasons including, easily liquidity, no fees and just as importantly, it can be fun for me.

Any ideas or thoughts on what I am trying to accomplish are appreciated!
How old are you? Are you a retiree or near retiree?

Interest rates fell sharply in the aftermath of the 2008-2009 financial crisis. So income investors had been chasing yield like crazy since then. The higher yielding investments got bid up like crazy. Now that interest rates have been ticking up, the yield chasing has stopped. You are seeing bond prices drop a bit, REITs and some of the High Yielding Low-Volatility stocks have been dropping too. That is expected in a rising rate environment. Why is it you are interested in an income strategy NOW??? Where were you in 2007??? Don't you think you about 11 years too late?

Just curious why you are interested in this fund and its strategy?
A fool and his money are good for business.

28mm
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Fri Mar 09, 2018 9:41 pm

Thank you all for the replies.

I think I need to sit on the sidelines of this forum and read more before I create anymore threads.

There's much nuance and detail that to do the forum justice, it would be better to post fully thought out clear situations and or questions rather than a quick off the cuff as I've done.

I do appreciate the feedback, suggestions and observations.

28mm
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Fri Mar 09, 2018 9:44 pm

nedsaid wrote:
Fri Mar 09, 2018 9:28 pm
28mm wrote:
Fri Mar 09, 2018 5:02 pm
Hi All,

Before I move funds to a preferred income fund being offered to me, I thought it might be a good idea to post here for some suggestions and how efficiently I can replicate it on my own.

I can use some fixed income and have been buying dividend stocks and a few reits that are beaten up. It's a good start but I want to start fresh with a new account and fund it with $250K.

The preferred fund being offered to me will cost 1-2% to buy in, 1.5 management fee. All that being said it's performance is excellent.

As I mentioned in my first and somewhat regrettable thread here was that I am a do it myself investor who has been in the markets for many years. I only used and will use my FA for products I can't easily do on my own.

The company I am being offered to invest with is http://ldrcapitalmgmt.com..They have a solid track record but I do prefer to do it myself for many reasons including, easily liquidity, no fees and just as importantly, it can be fun for me.

Any ideas or thoughts on what I am trying to accomplish are appreciated!
How old are you? Are you a retiree or near retiree?

Interest rates fell sharply in the aftermath of the 2008-2009 financial crisis. So income investors had been chasing yield like crazy since then. The higher yielding investments got bid up like crazy. Now that interest rates have been ticking up, the yield chasing has stopped. You are seeing bond prices drop a bit, REITs and some of the High Yielding Low-Volatility stocks have been dropping too. That is expected in a rising rate environment. Why is it you are interested in an income strategy NOW??? Where were you in 2007??? Don't you think you about 11 years too late?

Just curious why you are interested in this fund and its strategy?
I'm actually not that interested in this fund. As I just posted I like some of the ideas and it got me thinking of more fixed income

As said, before I make anymore threads, I will have a clear, specific purpose in doing so rather than this off the cuff stream of consciousness that was not yet fully baked and not ready for primetime here.

I do appreciate the response.

28mm
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Fri Mar 09, 2018 9:45 pm

MrPotatoHead wrote:
Fri Mar 09, 2018 8:36 pm
If this is the route you wish to go you might want to look at preferred stock newsletters. Or Value Line has an offering called Convertibles Survey. It will run you $425 a year or a .0017 on your 250K.

Depending on how you are psychologically wired there can be much merit in the newsletter or paid service model. For many people implementing third party advice is easier on them mentally. To my way of thinking, sleeping well at night is a good investment.

It is described as follows:

If you’re a risk-conscious investor seeking excellent opportunities for income and growth, convertible securities may be for you.

Convertibles are financial instruments, usually bonds or preferred shares, that you can choose to exchange for a pre-determined number of common shares at a specific price. As a result, you can pocket the upside potential of the common stock to which the convertible is linked.

The Value Line Convertibles Survey arms you with a unique, highly effective approach to assessing the risk and return. Subscribe to take advantage of expert, unbiased analysis that throws a spotlight on the convertibles our analysts consider the best buys, and which ones you should probably sell.


Cheers...
Thank you for that information and I will check it out this weekend.

Very appreciated!

28mm
Posts: 38
Joined: Thu Mar 08, 2018 2:13 am

Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Fri Mar 09, 2018 9:48 pm

alex_686 wrote:
Fri Mar 09, 2018 8:00 pm
28mm wrote:
Fri Mar 09, 2018 5:44 pm
Any advice on how to best pick REITs towards this goal are appreciated. I have a few I added recently but am open to hearing more of course.
This is not a strong suit of Bogleheads. We focus on passive investing. Passive investing gets you the average return with low fees. On average active funds get you the average return with high fees. Picking superior funds is hard. I think it is harder to pick out a winning fund than it is to pick out a winning stock. Of course a single stock carries high specific risk so you want to invest in at least a dozen, so you are kind of back to the start.

The default setting is to by a passive index. Only invest in a active fund if you are confident that the active fund can beat the index on a risk adjusted basis after fees. This is a high hurdle.

2 more points.

To the original point of your post, you imply that income producing assets carry less risk. This is not true. These assets tend to put along just fine, have a crisis, and then collapse. Risk equals returns, so to get some returns we must take some risk. Just be aware.

I feel like you are at a crossroads. Sometimes you express a DIY ethos, other times you want to rely on a FA. Sometimes you want something simpler, other times something more complex. You want a high return and less risk. Which is o.k. - this is common for investing, our lack of knowledge and emotions tend to get in our way. Just step back and look back at the big picture.
Thank you for the feedback as always.

I should not have posted the specific fund and again, this was not a fully baked specific idea that should have been more cooked before asking for advice.

I do like how you point out the differences but not less risk.

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arcticpineapplecorp.
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by arcticpineapplecorp. » Fri Mar 09, 2018 9:57 pm

28mm wrote:
Fri Mar 09, 2018 9:45 pm
MrPotatoHead wrote:
Fri Mar 09, 2018 8:36 pm
If this is the route you wish to go you might want to look at preferred stock newsletters. Or Value Line has an offering called Convertibles Survey. It will run you $425 a year or a .0017 on your 250K.

Depending on how you are psychologically wired there can be much merit in the newsletter or paid service model. For many people implementing third party advice is easier on them mentally. To my way of thinking, sleeping well at night is a good investment.

It is described as follows:

If you’re a risk-conscious investor seeking excellent opportunities for income and growth, convertible securities may be for you.

Convertibles are financial instruments, usually bonds or preferred shares, that you can choose to exchange for a pre-determined number of common shares at a specific price. As a result, you can pocket the upside potential of the common stock to which the convertible is linked.

The Value Line Convertibles Survey arms you with a unique, highly effective approach to assessing the risk and return. Subscribe to take advantage of expert, unbiased analysis that throws a spotlight on the convertibles our analysts consider the best buys, and which ones you should probably sell.


Cheers...
Thank you for that information and I will check it out this weekend.

Very appreciated!

Now hold on there just a moment. Before you go off paying a lot of money for newsletters you might want to read more about value line in this article by Larry Swedroe entitled "The Value Line Enigma":

https://www.cbsnews.com/news/the-value-line-enigma/
The implication for investors is that they would never have earned the returns implied by the recommendations and advertised by Value Line since the recommendations carry no transactions costs or taxes (200% turnover will generate substantial expenses and taxes).

My book was published in 2000, so I have updated the data (all returns are for the 10-year period ending June 30):

The Value Line Fund (VLIFX) has lost 5.9 percent per year, while the MSCI US Midcap 450 Index returned 3.2 percent per year. The fund has done so poorly it carries Morningstar's one-star rating and now has less than $100 million of assets.
The Value Line Leveraged Growth Fund is now Value Line Larger Companies Fund (VALLX). It lost 4.1 percent per year, while the S&P 500 lost 1.6 percent a year.
The Value Line Special Situations Fund is now Value Line Premier Growth Fund (VALSX). It gained 0.3 percent per year, while the MSCI US Midcap 450 Index returned 3.2 percent per year.
The Value Line Small-Cap Growth Fund is now Value Line Emerging Opportunities Fund (VLEOX). It returned 2.6 percent per year, underperforming the MSCI US Midcap 450 Index by 0.6 percent per year.


The conclusion is that it's often a long way from the theoretical results of a strategy to the actual results. Keep this in mind the next time you hear some investment pornographer touting spectacular results. And finally, ask yourself this: If the system is so good, why they are willing to sell it to you? source: https://www.cbsnews.com/news/the-value-line-enigma/
Better than investing in an expensive newsletter (enriching the writer and impoverishing the subscriber in equal amounts), perhaps you should look into reading Larry's book "What Wall Street Doesn't Want You to Know":

https://www.amazon.com/What-Wall-Street ... 827&sr=8-1
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

28mm
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Fri Mar 09, 2018 10:07 pm

^^^thank you for the link to the book and your comments.

Very appreciated.

28mm
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Fri Mar 09, 2018 10:15 pm

livesoft wrote:
Fri Mar 09, 2018 5:04 pm
I disagree with what you are trying to accomplish. Personally, I would just sell shares to create income. It certainly saves me on taxes and I don't miss out on gains either.
You pretty much have described a large part of my history and portfolio.

I think I will get back to basics and tweak a bit of what has always worked for me.

Great posts and thoughts here for sure.

ChinchillaWhiplash
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by ChinchillaWhiplash » Fri Mar 09, 2018 11:50 pm

You could always take big risks for dividends in mREITs/REITs like DX, CHMI, NRZ, MPW, LTC, etc and set a stop limit to get out if it crashes. Lots of BDCs also pay a high dividend like SUNS, GAIN, PNNT, PFLT, CPTA, SCM, PSEC and carry tons of risk. No one on this board will encourage such purchases. Goes against the Boglehead philosophy for sure. No ER with these. The business structure requires that they pay out 90%+ of profits to shareholders. Probably the least tax efficient equities you can get too. You can look into some ETNs like MORL and CEFL that pay huge dividends, but these are even more risky. You want ideas on high dividend portfolio and I'm giving them too you. Be warned that there is HUGE risk with these. Have fun :twisted:

jpsc
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by jpsc » Sat Mar 10, 2018 12:14 am

Or just wait for the FED to raise interest rate 4 times this year - that should make US Treasuries paying 3.75 to 4%
worth to wait to get some US Treasuries

finite_difference
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by finite_difference » Sat Mar 10, 2018 12:54 am

Since you are 60, you can also purchase an SPIA. Could buy a $500k SPIA, which will get you ~$2400/month for life. Then at 65 could buy another $500k ($2650/mo), and at 70 do the same ($3070/mo). At that point you have around $8120/mo income.

So by 70 you have spent $1,500,000 + whatever you needed from your portfolio to get you to 70 (maybe another $1,000,000), and by delaying SS to 70 to get a guaranteed 8% return, you then will be getting ~$8120 + SS every month.

So you spent $2.5 million out of $4.5 million, let’s say you got 0% real return because the entire economy collapsed, so you have $2,000,000 left (in 2028 dollars.)

At that point you can probably live off that monthly income and don’t need to touch your portfolio, or if you do you can withdraw like 1% or something (subject potentially to RMDs if not all in taxable.)

The SPIAs are nice because it’s guaranteed income that you don’t need to worry about.

But honestly I would just setup your $4.5 million in the 3-fund portfolio and withdraw 3%-3.5% per year ($11,250 to $13,125/mo) — should last you a very long time.
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by jbranx » Sat Mar 10, 2018 1:05 am

In choosing to invest in reit preferreds, note that they are like reits themselves in not enjoying the the lower tax rate on dividends. If you want to choose a closed-end fund that invests half in reits and half in reit prefs., look at Cohen and Steer's RNP, currently selling at a 10% discount. Flaherty Funds are a recognized institutional investor in prefs of all types and their main closed-end, FFC, is now selling at a rare discount. First Trust uses an outside adviser experienced in investing in $1000 prefs, ticker FPF.

All said, in a rising interest rate environment, leveraged closed-ends may see their discounts rise. Ishares PFF and similar from other ETF providers are apt to do as well as any other providers with lower ER's, wider diversification, more narrow spreads, and solid indexes to follow. And no leverage.

I invest in all the above vehicles and buy individual issues that I have followed for years. Many prefs have very thin trading, are very sensitive to interest rates, almost none except those of closed-end funds are ever rated AAA, are called if rates move lower, and have unlimited duration frequently when rates rise, ie, they are not called. Check the performance of prefs the week after Lehman Bros. went under: even well rated ones went from par of $25 to the teens, with some bank prefs going even lower. I limit them to a small portion of my fixed income allocation and hold them mostly in tax-deferred accounts. The closed-end prefs are now yielding in the high seven percent range; PFF about 5.5%. The yields are higher because of all the risks. Note that many prefs are non-cumulative, meaning if they skip a dividend, they don't make it up. www.quantumonline.com is an excellent free website for research on individual issues.

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Sat Mar 10, 2018 1:16 am

jbranx wrote:
Sat Mar 10, 2018 1:05 am
In choosing to invest in reit preferreds, note that they are like reits themselves in not enjoying the the lower tax rate on dividends. If you want to choose a closed-end fund that invests half in reits and half in reit prefs., look at Cohen and Steer's RNP, currently selling at a 10% discount. Flaherty Funds are a recognized institutional investor in prefs of all types and their main closed-end, FFC, is now selling at a rare discount. First Trust uses an outside adviser experienced in investing in $1000 prefs, ticker FPF.

All said, in a rising interest rate environment, leveraged closed-ends may see their discounts rise. Ishares PFF and similar from other ETF providers are apt to do as well as any other providers with lower ER's, wider diversification, more narrow spreads, and solid indexes to follow. And no leverage.

I invest in all the above vehicles and buy individual issues that I have followed for years. Many prefs have very thin trading, are very sensitive to interest rates, almost none except those of closed-end funds are ever rated AAA, are called if rates move lower, and have unlimited duration frequently when rates rise, ie, they are not called. Check the performance of prefs the week after Lehman Bros. went under: even well rated ones went from par of $25 to the teens, with some bank prefs going even lower. I limit them to a small portion of my fixed income allocation and hold them mostly in tax-deferred accounts. The closed-end prefs are now yielding in the high seven percent range; PFF about 5.5%. The yields are higher because of all the risks. Note that many prefs are non-cumulative, meaning if they skip a dividend, they don't make it up. www.quantumonline.com is an excellent free website for research on individual issues.
Super well thought out response that I will look into in the days ahead. Very appreciated!

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Sat Mar 10, 2018 1:18 am

finite_difference wrote:
Sat Mar 10, 2018 12:54 am
Since you are 60, you can also purchase an SPIA. Could buy a $500k SPIA, which will get you ~$2400/month for life. Then at 65 could buy another $500k ($2650/mo), and at 70 do the same ($3070/mo). At that point you have around $8120/mo income.

So by 70 you have spent $1,500,000 + whatever you needed from your portfolio to get you to 70 (maybe another $1,000,000), and by delaying SS to 70 to get a guaranteed 8% return, you then will be getting ~$8120 + SS every month.

So you spent $2.5 million out of $4.5 million, let’s say you got 0% real return because the entire economy collapsed, so you have $2,000,000 left (in 2028 dollars.)

At that point you can probably live off that monthly income and don’t need to touch your portfolio, or if you do you can withdraw like 1% or something (subject potentially to RMDs if not all in taxable.)

The SPIAs are nice because it’s guaranteed income that you don’t need to worry about.

But honestly I would just setup your $4.5 million in the 3-fund portfolio and withdraw 3%-3.5% per year ($11,250 to $13,125/mo) — should last you a very long time.
While it's unlikely I'd go this route (and you conclusion suggests another way), It's really great to see other people's thinking and approach. I appeciate the gift of your time very much :happy

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Sat Mar 10, 2018 1:18 am

jpsc wrote:
Sat Mar 10, 2018 12:14 am
Or just wait for the FED to raise interest rate 4 times this year - that should make US Treasuries paying 3.75 to 4%
worth to wait to get some US Treasuries
It's true and a rising interest environment certainly isn't all bad for many reasons. Thank you for the response!

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Sat Mar 10, 2018 1:20 am

ChinchillaWhiplash wrote:
Fri Mar 09, 2018 11:50 pm
You could always take big risks for dividends in mREITs/REITs like DX, CHMI, NRZ, MPW, LTC, etc and set a stop limit to get out if it crashes. Lots of BDCs also pay a high dividend like SUNS, GAIN, PNNT, PFLT, CPTA, SCM, PSEC and carry tons of risk. No one on this board will encourage such purchases. Goes against the Boglehead philosophy for sure. No ER with these. The business structure requires that they pay out 90%+ of profits to shareholders. Probably the least tax efficient equities you can get too. You can look into some ETNs like MORL and CEFL that pay huge dividends, but these are even more risky. You want ideas on high dividend portfolio and I'm giving them too you. Be warned that there is HUGE risk with these. Have fun :twisted:
Thanks for the response and I think you are maybe pranking me with some of those suggestions! I certainly deserve it if you are :happy

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by SGM » Sat Mar 10, 2018 5:30 am

Avoid REITs as their dividends are not qualified and are taxed at your highest rate. SPIAs have state insurance limits in the $100k to $300k range and are better purchases at age 70 and older. A ladder of $500k SPIAs seems extreme to me regardless of the size of a portfolio.

Vanguard has a variety of national muni bond funds and the dividends are tax free to the federal government. With a large portfolio one can live off mostly dividends. Selling mutual funds is more tax efficient than dividends.

Paying extra for advice and higher expense ratio active funds just eats away at income and the long term growth of a portfolio. Best of luck.

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by Valuethinker » Sat Mar 10, 2018 6:36 am

Chuck wrote:
Fri Mar 09, 2018 5:08 pm
28mm wrote:
Fri Mar 09, 2018 5:02 pm
The preferred fund being offered to me will cost 1-2% to buy in, 1.5 management fee.
I would never consider this. How long will you hold this investment? 20 years? You will lose 30% of your money to fees.
I am sure you know this, but as a general point to other readers skimming.

Beware compounding. (1+0.015)^20 - 1 = 34% loss of capital.

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by tennisplyr » Sat Mar 10, 2018 7:28 am

livesoft wrote:
Fri Mar 09, 2018 5:04 pm
I disagree with what you are trying to accomplish. Personally, I would just sell shares to create income. It certainly saves me on taxes and I don't miss out on gains either.
+1
Those who move forward with a happy spirit will find that things always work out.

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by nedsaid » Sat Mar 10, 2018 9:45 am

28mm wrote:
Fri Mar 09, 2018 9:44 pm
nedsaid wrote:
Fri Mar 09, 2018 9:28 pm
28mm wrote:
Fri Mar 09, 2018 5:02 pm
Hi All,

Before I move funds to a preferred income fund being offered to me, I thought it might be a good idea to post here for some suggestions and how efficiently I can replicate it on my own.

I can use some fixed income and have been buying dividend stocks and a few reits that are beaten up. It's a good start but I want to start fresh with a new account and fund it with $250K.

The preferred fund being offered to me will cost 1-2% to buy in, 1.5 management fee. All that being said it's performance is excellent.

As I mentioned in my first and somewhat regrettable thread here was that I am a do it myself investor who has been in the markets for many years. I only used and will use my FA for products I can't easily do on my own.

The company I am being offered to invest with is http://ldrcapitalmgmt.com..They have a solid track record but I do prefer to do it myself for many reasons including, easily liquidity, no fees and just as importantly, it can be fun for me.

Any ideas or thoughts on what I am trying to accomplish are appreciated!
How old are you? Are you a retiree or near retiree?

Interest rates fell sharply in the aftermath of the 2008-2009 financial crisis. So income investors had been chasing yield like crazy since then. The higher yielding investments got bid up like crazy. Now that interest rates have been ticking up, the yield chasing has stopped. You are seeing bond prices drop a bit, REITs and some of the High Yielding Low-Volatility stocks have been dropping too. That is expected in a rising rate environment. Why is it you are interested in an income strategy NOW??? Where were you in 2007??? Don't you think you about 11 years too late?

Just curious why you are interested in this fund and its strategy?
I'm actually not that interested in this fund. As I just posted I like some of the ideas and it got me thinking of more fixed income

As said, before I make anymore threads, I will have a clear, specific purpose in doing so rather than this off the cuff stream of consciousness that was not yet fully baked and not ready for primetime here.

I do appreciate the response.
I am 58 and am interested in income generating investments. Your thinking about this wasn't off the wall, this is something that many investors think about as they get older.

What I am saying is that the timing wasn't the best. As interest rates fell after the 2008-2009 financial crisis, people piled into these type of investments like crazy. Pretty much, you are buying in near the top of the market. Never a good idea.

Help is on its way. Interest rates have been ticking up and bonds are providing more competition for such things as REITs and higher dividend low-volatility stocks. The prices of bonds themselves are dropping a bit. So valuations are better. If you were going to do something like this, better to wait when investors aren't fixated on income for income's sake.

A big problem with certain high-yield investments is that they can be self-liquidating. You get a great yield but the principal keeps dropping. You can get this problem with some energy Master Limited Partnerships, Preferred Stocks, and some high yielding Common Stocks. You want to check and see that the dividend payments are sustainable.

An area for you to explore would be the Low Volatility stocks. These tend to have higher dividend earnings, solid balance sheets, and slow earnings growth. These are good, but mature companies. It is a good strategy but the prices of these got bid up too. There was a time when these were more expensive than the market itself! Most of the time, this stocks are considered Value stocks but in recent years got bid up so high that they were in Growth territory. Valuations have improved but still not a buy.

So there is an issue of questionable timing and valuations. There is also the issue of cost. There are cheaper and better options to get what you are seeking. Thanks for posting and asking the question. This is how we all learn and this is what makes the forum interesting.
A fool and his money are good for business.

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by ChinchillaWhiplash » Sat Mar 10, 2018 9:55 am

28mm wrote:
Sat Mar 10, 2018 1:20 am
ChinchillaWhiplash wrote:
Fri Mar 09, 2018 11:50 pm
You could always take big risks for dividends in mREITs/REITs like DX, CHMI, NRZ, MPW, LTC, etc and set a stop limit to get out if it crashes. Lots of BDCs also pay a high dividend like SUNS, GAIN, PNNT, PFLT, CPTA, SCM, PSEC and carry tons of risk. No one on this board will encourage such purchases. Goes against the Boglehead philosophy for sure. No ER with these. The business structure requires that they pay out 90%+ of profits to shareholders. Probably the least tax efficient equities you can get too. You can look into some ETNs like MORL and CEFL that pay huge dividends, but these are even more risky. You want ideas on high dividend portfolio and I'm giving them too you. Be warned that there is HUGE risk with these. Have fun :twisted:
Thanks for the response and I think you are maybe pranking me with some of those suggestions! I certainly deserve it if you are :happy
I actually have some of these in my portfolio. Small positions in tax deferred accounts. Most do not have a long history to see past performance. Most have low book value ratios and earnings cover dividends. Risky for sure, but are worth a look if you want high yield.

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by alex_686 » Sat Mar 10, 2018 12:59 pm

One last thought, partly based on the thread, partly based on our PM.

What you want to do is focus on the big picture, work top down. Figure out your goals (required return), your risk tolerance, market expectations, and taxes. This will lead you to your Asset Allocation (AA). It could be as simple as 60$ Equity / 40% bonds or something more complex. Or maybe something more complex, such as overweight Value and REIT equities, 10% to preferred. Whatever works to build the portfolio you want.

Boggleheads is good at doing stuff like this. If you go down the active management road, tour asset allocation will determine 80% of your return. So figure this out first. It is less sexy or exciting than examining individual securities.

Only 20% of the explanatory power will come from your actually active selection. This active fund over that individual stock selection. Bogleheads does this less well.

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by 28mm » Sat Mar 10, 2018 2:25 pm

I really had never heard of this site or knew of Jack Bogle. From our PM's and others and spending more time here, I have a better understanding of the community and the methodology that many here ascribe to. After reading up on Jack Bogle, I was delighted to find out he lives in my town! I love that!

It's very different time that my past investing years, which was all active and done on my own. As my portfolio grew and I found myself in a happy sort of retirement in my early 50's, I felt I needed to diversify and I started up with a rare find in a Financial Advisor. Never was the idea to hand it all over but only for investments I felt I couldn't have done on my own or products such as I mentioned in my first thread.

What this thread really was about is exactly what you are saying in your post. I am actually working from the top down.

As we had discussed in some PM's and since I have recently liquidated some of the very structured products I had been discussing, I have an influx of cash. I had gone over with my Advisor several ideas that I was considering and he sent over the fund that I had posted. Frankly, I probably considered it for a few minutes but in my heart there's no way I want to get into anymore investments that have such fee structures even if they might offer something that might be better than what I can do on my own. I have decided to manage as much of my portfolio as I can. Much of it is locked up in Private Equity or other instruments that eventually be called, generating more cash. The grand idea that I have started is to build something as I am doing and be prepared to scale up as the cash eventually comes in.

That's why I made this thread, it was more like thinking out loud and sharing to see what might come up. And it's worked, as the thread's generated some good ideas, even if some I'd not do, it's helpful to see what others would do given the stated objectives of the thread.

Thank you for the post as usual, it's very appreciated.

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by finite_difference » Tue Mar 13, 2018 8:54 am

SGM wrote:
Sat Mar 10, 2018 5:30 am
Avoid REITs as their dividends are not qualified and are taxed at your highest rate. SPIAs have state insurance limits in the $100k to $300k range and are better purchases at age 70 and older. A ladder of $500k SPIAs seems extreme to me regardless of the size of a portfolio.

Vanguard has a variety of national muni bond funds and the dividends are tax free to the federal government. With a large portfolio one can live off mostly dividends. Selling mutual funds is more tax efficient than dividends.

Paying extra for advice and higher expense ratio active funds just eats away at income and the long term growth of a portfolio. Best of luck.
Re: SPIAs very good point. This was more an exercise for me, but it doesn’t say on the Boglehead wiki that SPIAs are only meant for small amounts or past a certain age. They do recommend to split it up across insurers to meet this state limits though.

EDIT: they do say it’s for people with “medium” savings, that is not enough to self insure and not too little to afford an SPIA (don’t want to 100% do SPIAs, just a fraction.) The OP should have enough self insure.

The reason for the large amounts is because the OP wants large monthly income! ($10k+/month).

I do think SPIAs are worth thinking about, certainly better than most of the crap out there.
Last edited by finite_difference on Tue Mar 13, 2018 9:43 am, edited 1 time in total.
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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by peterinjapan » Tue Mar 13, 2018 9:21 am

One of the few benefits I get to being an American living in Japan is, all dividends are taxed at 20%, qualified or not. And all capital gains are 20%, short term or long. Which is nice.

It's made less nice by the fact that America refuses to follow its own tax treaties, of course, taxing me on investment income that only Japan has the right to tax.

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by dbr » Tue Mar 13, 2018 9:26 am

livesoft wrote:
Fri Mar 09, 2018 5:04 pm
I disagree with what you are trying to accomplish. Personally, I would just sell shares to create income. It certainly saves me on taxes and I don't miss out on gains either.
What is it that over and over and over again causes people to think that making a withdrawal from a portfolio requires finding investments to pay out dividends and interest to get the money? Somehow once and for all getting past this would be a huge step ahead for personal investing. Alongside this what causes people to ignore the fact that no matter what you are invested in you still have to tally up the total return and all the withdrawals to find out what is happening and what is going to happen to the investors wealth?

The suggestion of SPIAs is, of course, a legitimate alternative that should be considered on its own merits.

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Re: Creating income stream..Reits? Preferreds, Dividends?

Post by nedsaid » Wed Mar 14, 2018 12:15 am

28mm wrote:
Sat Mar 10, 2018 2:25 pm

That's why I made this thread, it was more like thinking out loud and sharing to see what might come up. And it's worked, as the thread's generated some good ideas, even if some I'd not do, it's helpful to see what others would do given the stated objectives of the thread.

Thank you for the post as usual, it's very appreciated.
Thank you for your patience and understanding. By coming to this forum and learning, you are already way ahead of most investors. You are to be commended for that.

Hope it didn't seem like I was hammering you. You actually had a pretty good idea. Just pointing out the timing wasn't the best and that lower cost options for income investing are available. Many of us have had similar thoughts about income, particularly as we get older. I enjoy watching the dividends roll in.

I don't see financial decisions as all or nothing. You can, in many situations, do some of both. For example, I work with an independent broker with about 1/3 of my retirement funds. I self manage the other 2/3. So I do some working with an advisor and some doing it myself. You seem to be thinking along the same lines as I have. You are not alone.

So anyways, many best wishes for your life and continued investing success.
A fool and his money are good for business.

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