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August 2018 Vol. 5 Issue 3 Investing with a Long Term Prospective s my tenure as the Dividend Hunter has evolved, I have become more and more A focused on providing investing education In This Issue and recommendations that will help you be a long- term successful investor. Bond Investing Strategy ........................... 4 By long term, I mean strategies that can be adjusted Portfolio Update ...................................... 6 to work for decades. I am building my own portfolio using the Dividend Hunter, 30 Day Dividends, and Current Portfolio ...................................... 7 Automatic Income Machine strategies, and I plan to have them support my life style for many, many years. As Dividend Hunters we face two somewhat mutually exclusive facets of investing in higher yield stocks. The benefit of high yield is the predictable income stream. I focus on building with an 8% yield to produce growing income stream portfolios as opposed to strategies that try to time buying and selling to generate capital gains. I believe that an income focused stock market strategy is more sustainable for the long term. The flip side of our income focused strategy is that we must stay invested in stocks through market swings, including the inevitable bear markets. Emotionally, it is very hard to hang on to stocks when your portfolio has dropped by 30%, 40% or even more. To avoid that expected pain, investors fearfully look for signs of the next bear market, so they can sell stocks before it arrives. That strategy results in the unwanted effect of cutting off the dividend income stream. The final piece of the dilemma is to determine if our high yield stocks will be able to sustain dividends through the next bear market. What happens to dividend payments through the next bear market will likely be determined by the cause of the bear market. A FAANG collapse bear market should not affect dividend payers. An economic recession driven bear market could lead to dividend cuts. It will be my job to keep a close eye on the finances of our individual stocks and try to ferret out those whose businesses have been put at risk. As part of my long term focus and desire to help you have a stable long term investment plan, I am always on the look out for investment ideas that would diversify and protect our high-yield stock portfolios. 1 August 2018 Vol. 5 Issue 3 To that end, I have recently discovered some investment products that would be a great way to add bond exposure to an income portfolio. I am not at this time officially adding these investments to the Dividend Hunter recommendations list. However, they are an attractive and safe way to get bond exposure in your portfolio and will provide some peace of mind if you are afraid of a pending bear market or economic recession. About the next recession, I am spending a lot of time reading different “expert” opinions on when the next economic slowdown will arrive. The just released second quarter GDP growth number of 4.1% indicates we are a long way away from a recession. That level of growth is the opposite of what we would see with a pending recession. Corporate profits show strong continued growth. Jobs are plentiful, and unemployment is falling. The economy currently is really doing well. The best it has since before the last recession. Many pundits point to a possible inversion of the yield curve as a sign of a coming recession. The rear view mirror shows yield curve inversion as a reliable leading indicator of each recession. I am thinking it might be different this time. The Fed is raising short term rates to normalize those interest rates. That’s a good thing. Long term rates, as indicated by the 10-year Treasury rate, have trouble rising when government bond rates in Europe and Japan remain close to zero. Long term bond money natural flows to U.S. bonds, holding down yields. This chart shows that none of the usual precursors to a recession are currently occurring. 2 August 2018 Vol. 5 Issue 3 There is also the possibility of a “black swan” event drives the U.S. or global economy into recession. One example would be if the Strait of Hormuz was closed by some sort of military action. One-fifth of the world’s oil supply travels through the Strait and if that oil couldn’t move, energy prices would sky rocket. There is also the possibility that the U.S. stock market could go into a correction that leads to a bear market just because investors get scared and overwhelm share prices and ETF holdings with sell orders. This type of market action would be truly ugly, but in the long term not have a meaningful effect on our investment theses. My point with these discussions is that I keep watch on both the Dividend Hunter recommended stocks and the big picture as far as the economy and markets go. I also strive to give you as much information and knowledge as possible so that you will have confidence to get your investment portfolio safely through market disruptions. To access this months Monthly Dividend Paycheck Calendar, please click here. Land, Fly or Die, Tim Plaehn Editor The Dividend Hunter P.S. On Tuesday, August 7th we’re hosting our next Insiders live session and I’d like to send you an invitation. This upcoming live session will be a “ask anything” format where you can ask me and even other attendees questions about dividend and income investing. We’ll also talk about how to handle current volatility, how to balance aggressiveness with diversification and reinvestment of dividends, and the much discussed – at least by the so-called experts – inverted yield curve and coming recession. To find out how to become an Insider and get on the list for the invitation click here now. This month’s issue will still be here when you’re done but the invitation might not be. Go ahead and click now. 3 August 2018 Vol. 5 Issue 3 Bond Investing and A Strategy to Do So A balanced portfolio of bonds and stocks is the Fund managers constantly buy and sell bonds at traditional diversification strategy. Percentages the current market prices and yields. vary, but it has long been recommended to have at least 30% of an investment portfolio in With a bond fund there is not the certainty of bonds. I recently read a recommendation for getting the face value at some future maturity 70% bonds and 30% stocks. Investors who date. As a result, bond funds can be terrible follow this type of asset allocation typically use investments in a rising interest rate ETFs, either on their own or through an environment. investment advisor. Buying individual bonds with the plan of holding For the last decade, bonds have not been an the bonds to maturity avoids the bond fund attractive investment asset. The Fed’s zero dangers. However, unless you can buy bonds in interest rate policy—ZIRP—resulted in very low $100,000 increments, it is nearly impossible to rates across the yield curve. Earning very low, get decent prices, especially outside of U.S. single digit yields is not a way to make a Treasuries. There are very few bond dealers or portfolio grow or to generate a decent income. brokers who want to work with individual investors. From 2008 until the present time, investing in bonds or bond funds kept your money almost Also, once you own individual bonds (outside of completely idol. Most of us with capital to Treasuries) it is very difficult to sell them invest want to earn some sort of return from without taking a serious haircut. Even if we those investments and the bond market did not don’t want to buy individual bonds for an fill that goal. investment portfolio, I want you to understand the individual bond strategy of building a With interest rates now creeping higher, I think laddered bond portfolio. This involves spreading it is time to again understand the investment your bond investments across a range of potential in the bond markets. First, let’s look at maturities. the biggest negative of owning bonds. Rising interest rates cause bond prices to fall. It’s a Once established, the ladder operates more like strictly mechanical, mathematical effect. If you a downward moving escalator where, as near own bonds, and rates go up, you will see your term bonds mature, the capital is reinvested bond values fall. Losing money on bonds can be into longer-term, higher-yield bonds. avoided by holding them until they mature. Now let’s discuss a real investment opportunity. At that time the full face value is paid off. This I recently became aware of the BulletShares technique does not work with bond funds. The Corporate Bond ETFs from Invesco. These funds fund share prices will go down with rising rates were acquired by Invesco in April, purchased and will not recover unless rates decline. That’s from Guggenheim Investments. because a fund’s portfolio is not fixed. 4 August 2018 Vol. 5 Issue 3 With the purchase, Invesco slashed the This means you can count on each of the funds management fees on the investment grade to earn the listed annualized return. You can bond ETFs. The BulletShares are ETFs with fixed also see how the yield is higher as the termination dates, a date when the bonds in maturities get longer. each fund will mature and the proceeds paid With this five-year ladder, the blended yield-to- out to investors.

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