What is probably the best investment strategy?
By Daniel at 12 December, 2009, 12:28 am
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There is, pay close attention to the following:
Think MLPs (Master Limited Partnerships) and their General Partners (GPs) and the concept of COMPOUND INTEREST.
MLPs are far superior for long term, income seeking investors than the stocks, bonds, cash or any combo of the three. The Alerian Index (top 50 MLPs) for the last 10 yrs is +375% or about 16% CAGR (Compound Annual Growth Rate.) Intelligent, selective choices with mostly GPs, would have grown even more.
The Wachovia MLP Primer
(at http://www.naptp.org/documentlinks/071508wacoviaprimer.pdf) (Third edition, July 14, 2008) may be the best detailed discussion of MLPs around. I would recommend anyone seriously interested in investing in what is probably the best investment the market has to offer, to read and study it.
After spending 9 months full time investigating the market and the related meltdown, I put 100% of a mid 6 figure inheritance into 7 MLPs: ETE, NRGP, EPE, NSH, BGH, LINE, and CPNO (that’s right, 100%!) 60% of that went into the General Partners of investment grade, midstream pipeline and storage MLPs (including the one propane MLP,) which all increase their distributions much faster than their underlying MLPs. (NRGP has a CAGR of about 30%!) I sleep easily at night knowing all my money is in extremely safe enterprises that are not going to go out of business in the foreseeable future, and will continue not only generating high distributions (10.8% on my initial portfolio purchase price) but will continue INCREASING those distributions over time as they have been doing for years, (especially so once the recession is behind us.)
And please don’t scream “Diversification!” to me. Diversification did how good of a job protecting equities in the last couple of years? That’s right, ABSOLUTELY NO GOOD. In fact, it guaranteed disaster.
Wall Street is full of wonderful suggestions that are meant to make Wall Street lots of money, not protect investors. You pay attention to the likes of analyst’s specific recommendations” and “insights” at your own peril, including generalized articles like the one you just read.
You must do your own due diligence and listen to nobody (including me) whose advice you cannot confirm for yourself. So, prove to yourself that the following investment advice is the best you will ever receive:
1) Think LONG TERM. How many more years will you be alive? I’m 63 and I could be alive another 25 or 30 years. Just about EVERYONE should think long term. Remember the race between the tortoise and the hare? Who won? Short term thinking like “buying and selling,” generates taxable events and in the long run is not smart.
2) Think DIVIDENDS and DISTRIBUTIONS. Academic studies have shown div /dist stock investing has always beat non div/dist stock investing.
3) REINVEST (compound the interest) as much of the income stream as possible (ALL if you can) right back into your portfolio.
4) Think MLPs. The incredible tax advantages, the high dividends that regularly increase, the solid businesses, wide moats, etc., are irresistible and REAL. You can even pass on your portfolio on death, and the receiver will not owe any of the deferred taxes that you would have had to pay, if you would have sold.
5) Pay less attention to capital gains and more to divs/dist. This will set up a “cash flow engine” that will far outpace mere capital gains in the long run. Keep in mind that a portfolio which pays a 10% yearly div/dist, with div/dist and stock/units also rising 10% yearly, generates a cash flow engine that doubles the value of a portfolio about every 4 years! (not counting taxes or inflation.) I don’t expect my portfolio to double every 4 yrs, but it could, theoretically.
These five points will make you rich if you do your DD and they will put a big smile on your face. Your future will be assured.
To get started learning about compound interest with a visceral feel, go below to see a color, graphical, real time (with sliders - no need to enter numbers) compound interest calculator, which will allow you to play with various scenarios like distribution rates, inflation, taxes etc.
http://personal.fidelity.com/toolbox/growth/growth.shtml
Good luck!
- brentbb
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