Have some input regarding incoming income
© St. Petersburg Times
Workers usually can't control the timing of their incomes. It's the boss who decides not only how much but when they get paid. But investors can design a portfolio tailored to their income needs.
Timing income is one of the top five issues for bond investors, said Tampa broker Greg Ghodsi at Robert W. Baird & Co. Typical requests: monthly income for regular expenses or quarterly income to pay estimated taxes when they come due. Some want an annual payment that arrives just before it's time to pay their property taxes.
"It's peace of mind knowing that without any shuffling of money, they'll have $500 coming in to make that payment," he said.
Stashing money in the bank or a money market mutual fund is the easy way out. But in exchange for convenience, safety and accessibility, cash investors give up potential returns. In the past year, money market rates have nearly evaporated and investors renewing certificates of deposit have seen their incomes cut drastically.
One alternative is buying a bond mutual fund and withdrawing the earnings each month, either by having them mailed to you or by having them transferred to a money market account. That's convenient, though not necessarily stable because fund dividends decline with interest rates. And funds, like the stocks and bonds they own, are subject to fluctuations in value.
Another choice, for investors who have at least $150,000 to $200,000 to invest, is to put together a portfolio of individual securities paying dividends or interest when you need it.
"With a little extra work, they can have much more control and do it on a cheaper basis over the long run," broker Ghodsi said.
Most bonds pay interest twice a year, usually on the first or the 15th of the month. Those common stocks that pay dividends typically do so quarterly, while preferred stocks may make monthly or quarterly dividend distributions. An investor (or the investor's broker) can put together a portfolio that will make payments in the months when the money is needed.
That sometimes requires being flexible, perhaps including bonds from other states even if you normally would buy an all-Florida municipal bond portfolio.
It also requires paying attention to risk and sticking with top quality investments. If you own only a few bonds, a default on any one of them can be devastating. Investors who are concerned about risk should opt for the safest bonds: U.S. Treasury, U.S. government agency or AAA municipal bonds.
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