What's the best way to generate income if my goal is NOT "preservation of capital"?
The obvious answer (if my goal were preservation of capital) would be to buy bonds. But since I'm asking you to assume I'm a growth investors, how would you recommend I go about generating steady income without investing in fixed income securities?
Best Answer
2709 points
Oldman answered one year ago …
Buy CEF's that trade near their historic discounts and have a managed distribution policy. These currently pay 8-12%, often monthly. In a down market, their capital base erodes, , but some (such as Zweig Total Return or Zweig Fund) have been paying 8-10 % for more than a decade. It's a lazy way to control the buildup of the IRA's total value, while getting sufficient return to handle the first 15 years of required MRD's. About 40 % of the account could be in these CEF's.
Another passive source is convertible bond CEFs or senior subordinated debt CEFs. See ETF-Connect and CEF Association sites for comparisons. Avoid high (>1.5%) management fees.
For taxable accounts, one might try the MLP's or Canadian Trusts, but the tax reporting is late for the MLP's and the Canadian trusts may have to change the distribution policies by 2011. ATPWF and PVX are two Canadian trusts that should be able to continue their distributions, but these are variable payments...if energy prices fall, their income will be less.
The other answers above entail considerable work, and if you're an oldman, like me, and you aren't concerned with a legacy, may be you want to relax.
Answers
2172 points
ChaosNantuko answered one year ago …
Here is the strategy i would use in those conditions...
if your looking at steady income, and your willing to take risk, then my suggestion would be to become proficient in technical analysis, specifically support and resistance, moving averages, the RSI, and the main reversal candlestick patterns (doji, bearish engulfing, bullish engulfing). Also become proficient in option trading, specifically, calls and puts, vertical spreads, and butterfly spreads
Then, trading no more then 5% of your trading capital per trade (2-3% would be preferable), look for stocks that have a strong chance of reversing, due to a bounce off support or a bounce off the moving average. Also insure that the stock is strongly trending. This means your more likely to be right, and it also makes the size of the bounce more predictable. Look at the last 3 bounces of the moving average. If they were all about the same, assume that this one will be about the same as well. Setup a butterfly spread with the sold strike at your price target, expiring in 20-40 days. Only make the trade if the spread has max profits of at least 200%, preferably 300%. Invest a maximum of 20% of your stock portfolio in these trades at any given time. The rest should be in something more conservative, such as covered calls on an upward trending ETF could work well (sell the calls when the etf has been overbought for about a week, buy them back if it reverses near the 30 day moving average.).
114 points
redlodge75 answered one year ago …
Instead of possible future gains I am interested in instant gratification, buy optionable dividend paying stocks that way you get paid twice, selling covered calls, collecting dividends. Canroys are great because they pay monthly dividends, examples; pvx or aav, i am still working and thinking this through for further fine tuning
Read more from redlodge75 flag as abuse great answer
357 points
SharonMR answered one year ago …
At the most basic level, if I wanted to create a residual income, I would buy a strong company with good fundamentals. Then I would use options on the stock to create increased value and work the trend to take profits.
Read more from SharonMR flag as abuse great answer
3966 points
EthanR answered one year ago …
Here is a link to the S&P 500 stocks with the highest paying dividend yields:
http://moneycentral.msn.com/investor/finder/deluxestockscreen.aspx?query=Highest-Yielding+S%26P+500+Stocks
Just remember that the dividends are so high because the stocks are doing poorly, and sometimes a company will cut its dividend to preserve capital. If the dividend gets cut, the stock price will drop, and you will probably want to sell your shares.
