Income Securities

Income securities that we use most often are:

• Treasury Bills and other short-term government bonds

• FDIC insured bank CDs

• Bond index ETFs

• Real Estate Investment Trusts

• Dividend paying common stocks

• Preferred stocks

• Hybrid preferred securities

As a rule, we do not invest your money in Collateralized Mortgage Obligations (often referred to as "CMO's") unless you have a strong preference for, and clear understanding of, this often-misunderstood derivative product sold by many stockbrokers.

Bond Strategies

Fixed-income securities can help to manage overall investment risk while receiving investment income.  When your portfolio allows, we utilize strategies like "bond ladders" and "bond swaps."

Laddered Portfolios - a risk-reduction strategy

Building a laddered bond portfolio of differing maturities, coupons, and issuers makes the most sense for income investors, and reduces risk during both rising and declining interest rate environments.

Let's say your fixed-income component was $500,000.  We might invest $50,000 each into a series of ten maturities (each paying a little higher current yield as the maturities lengthen).  That way, you always have money maturing to take advantage of higher interest rates; and if interest rates go down you at least have money locked in for a while at higher (than current) rates.

Bond Swaps

A bond swap can be an excellent tax-reduction strategy for bond investors. 

A bond swap is where you sell a bond and simultaneously buy another bond with similar coupon rate, credit rating, maturity, and price.  The idea is to intentionally create a tax deductible loss.  This strategy can be useful during slowly-rising interest rate environments.

There are specific IRS rules that must be followed for the swap to be tax deductible.  We will work with your tax preparer when doing a bond swap in your account.

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