Income by Diversification

I read an article in Barrons today and it got me thinking.

"I've pretty much subscribed to the fact that you can't live off the interest any longer. Investors in retirement are going to be forced to have more volatility in their portfolios due to the fact that when interest rates go up, bond prices will fall."

http://online.barrons.com/article/SB50001424052970204374404575630983764352448.html#articleTabs_panel_article%3D2


Currently we get next to no yield from keeping our money in the money markets.  Those of us who have invested in bonds have either seen them appreciate, mature or get called away.  Currently, with yields so low it is foolish to invest new money in bonds, especially with the federal budget and US trade deficits.  It may even be wise to sell longer maturing bonds that have appreciated in our portfolios.

There are ways to obtain a yield on our money, but there are no guarantees.  If you want to stretch for yield you have to accept some risk.  The key is to minimize risks.
How do you minimize risk?
Answer:  Diversification, diversification, diversification.... Diversify by asset class, by location and by time of purchase.

Examples of asset classes... Dividend paying securities, Preferred Stocks, Treasury Bonds, REITS, Commodities, MLPS

Examples of location diversification... US, Canada, Far East, Latin America etc.

Examples of timing diversification... Dollar cost averaging into an investment...  Make a decision to buy into various assets but do it over
time...Put $3,000 into each of the following every three months.  If you invested it all at once you would increase the risk of buying something just before the market tanks.  If that should happen you would still be able to purchase more later at higher yields and lower prices.

Lockheed Martin LMT... Equity... Dividend Yield = 4.34%... dividend growth 20% per year over last five years.
McDonalds MCD Equity... Dividend Yield = 3.0%... dividend growth 29.5% per year over last five years.
Intel INTC Equity... Dividend Yield = 3.0%... dividend growth = 17.61% per year over last five years.

The above  are American based corporations with businesses that are growing and earning enough internationally to easily grow their earnings and dividends.  Their managements are nimble enough to bob and weave through the economic minefields created by currency rate fluctuations, trade imbalances and tax changes.  I may be naive but something tells me these companies can husband a portion of my nest egg better than lending it to Uncle Sam. 

Below is an assortment of closed end funds and one MLP investing in different asset classes.  These will make their payouts and their net asset values or NAV's will fluctuate.  Higher interest rates and appreciation in the dollar  will put pressure on their NAV's.  Lower interest rates and a depreciating dollar will raise their NAV's.

Gabelli Gold GGN... Closed End Fund/ Commodities... Payout = 9.13%... selling at a 1% premium to NAV
Nuveen Quality Preferred Inc JTP...Preferred Stock Closed End Fund Payout = 7.96% ... selling at at 6.8% discount to NAV
ALLIANCE BERNSTEIN GLOBAL HIGH INCOME FUND INC AWF... Payout = 8.13%..... selling at a 4.18% discount to NAV
ABERDEEN ASIA PACIFIC INCOME FD INC FAX... Payout = 6.09%... selling at a 4.3% discount to NAV
Kinder Morgan Limited Energy Partners  KMP... Payout... 6.29%... 7% annual payout growth  over the past five years.
ING Clarion Global Real Estate   IGR ... Payout = 7.01%... 8.33% discount to NAV.  (The oldest/largest closed end fund investing in global REITS)

With this portfolio you would make 6.1%

You will notice that I have not listed any US Treasury Bonds.  Currently the 10 year is paying only 3%.