Another top quality income idea is to learn the secret of "positive carry."

Porters second best income idea is to learn the secret of "positive carry.

From Stansberry & Associates

As I noted in my September 2009 issue, "The Seven Real Secrets of the World's Best Investors," most individual investors use margin (borrowing) in the wrong way. The most common way individual investors use margin is through buying put or call options. They want a big leveraged position, and they buy their leverage in the options market. They would get better odds in Vegas. Buying leverage in the options market is extremely expensive and unlikely to lead to success over the long term. Most of the great investors I know never buy options. They only sell them.

Why? Positive carry.

"Carry" refers to the cost of borrowing money. With interest rates this low, most institutional traders can get margin loans for 3%-4% annually. To make money with these loans, they don't have to earn very much. Using conservative strategies – like selling puts on stocks they want to buy anyway (which Dr. David Eifrig does inRetirement Trader) – they can earn 15%-30% per year. These kinds of highly leveraged positions involve some risk. But if you're good at it, you can make incredible profits. You're borrowing money at 4% and earning 20% with it. This is "positive carry."

You can earn positive carry in lots of ways. You can invest in higher-yielding debt obligations, like junk bonds. You can lend money to payday-loan vendors. You can invest in high-yielding stocks, like energy infrastructure master limited partnerships (MLPs). The point is, most of the great investors I know are always involved in carry trades of some kind. They keep 25%-50% of their capital tied up in these kinds of trades, which will earn them around 20% a year. They only take their money out of these trades when they have a unique and profitable opportunity.

Don't use margin to buy speculative positions. Don't use margin because you're not disciplined enough to keep a cash reserve. Only use margin when you can calculate that it will enable you to produce a substantial amount of positive carry.

Regards,

Porter Stansberry

A Word About the Importance of Saving!

Here's a word about the importance of saving from Porter Stansberry of Stansberry & Associates.  
Porter is terrific about helping others learn about investing, I only wish I had run across him when I was younger. So take note! 


If you can teach your children one thing about money, it should be teaching them how to save and why it's important to do so. Share this example with them… and ask, "Who will end up with the most money at retirement?"

Saver No. 1 is a hard worker who understands the value of time and the importance of saving. He gets a job at age 16. Each year, he saves $2,000 – roughly 250 hours of work at minimum wage. That's roughly six weeks of full-time work in the summer, or 25 weeks of part-time work (10 hours per week) during the school year. Either way, it's not an unrealistic amount of money for an enterprising 16 year old to earn, while still having plenty of money for current spending.

Saving $2,000 per year becomes a habit, and Saver No. 1 does it every year. Even after he begins his career in his mid-20s, he simply continues to set aside $2,000 per year. He invests these savings in a conservative way. He opens an IRA account so his investments won't be taxed. He puts 40% of his savings into short-term, highly rated corporate bonds. He puts 40% of his savings into high-quality "dividend growing" stocks. And he puts 10% into gold. Simple.

His portfolio only produces modest returns. Over time, he earns about 8% a year – mostly by reinvesting his dividends and interest payments. He's not worried about getting "rich." He's just saving his money. And it's easy because he never saves more than $2,000 a year. He has plenty of money to spend on things he needs and wants – but he always remembers to save first.

By the time he's 40 years old, he's contributed $48,000 in savings to his portfolio. At that point, he calculates that if he continues to earn 8% a year on this portfolio and reinvest all of his dividends and interest, he'll have plenty of money for retirement at 65 years old. So at age 40, Saver No. 1 stops saving money. He's now free to spend all the money he makes for the rest of his life.

Saver No. 2 doesn't learn to save as a child and doesn't even get a job until after college. By that time, he's so busy buying things – cars, vacations, dinners at nice restaurants, clothes, houses, etc., he never can "afford" to save a dime.

He wakes up at age 40 and realizes he doesn't have anything in the way of a retirement fund or really any liquid savings at all. So he begins to save, and he does a great job. He's putting away $10,000 per year, every year. He knows he's got to play "catch-up." Like Saver No. 1, he invests conservatively and earns 8% a year. He reinvests everything, like Saver No. 1. By the time he turns 65 years old, Saver No. 2 has contributed $250,000 towards his retirement.

Guess who has a bigger portfolio at age 65? Is it Saver No. 1 who never contributed more than $2,000 per year and whose savings totaled $48,000 in his lifetime… or is it Saver No. 2, who saved more than five times as much money initially?

At age 65, Saver No. 1's portfolio is worth a bit more than $1 million. Saver No. 2's portfolio is worth $800,000.

The point is, if you're planning to take the safe and sure route to wealth – which is saving and compounding your wealth – it pays to start early. If you don't, you'll have to contribute large sums of capital to your plan. Or… you've got to discover ways of getting high rates of income…
 
If I could do one thing for every one of our subscribers, it would be to give them the confidence and the knowledge to buy high-yield corporate bonds – bonds trading at a discount from par. Yes, you have to know what you're doing to buy these bonds, but once you understand the secret to making these investments in the right way, you can easily and safely earn annual income in excess of 10% a year, every year.

In fact, once you've made money like this, you'll probably never go back to buying stocks again. I've written about the idea of buying discounted corporate bonds many times in the Digest over the years… so I won't use today's space to talk about them. I'll simply say: Please… develop the confidence and knowledge required to buy discounted corporate bonds. It will change your life. It did mine.

Now… despite my pleading… Many readers aren't interested in acquiring this skill. They prefer to stick with income investments they can buy with one click of the mouse. And that's fine… You can still earn terrific yields on your money with this strategy.

This Simple Stock Market Strategy Would Have Increased Returns 926%

Sage advice worth noting! By Tom Dyson, publisher, Common Sense Investing Friday, June 24, 2011

"Dividends don't matter." I was playing golf with a stock trader last weekend. When I told him I specialize in stocks that pay dividends, he gave me a look of condescension. "I don't understand what the big deal is with dividends," he explained. "The stock falls by the amount of the dividend, so you can't benefit from it. Total return is the only thing that matters." On the surface, my golf partner is right. A dividend is simply a cash payout from the company to the shareholder. Whatever the shareholder gains, the company loses. So it seems shareholders don't actually come out ahead. But as I'll show you today, to say cash payouts like these don't matter is wrong. They improve returns by thousands of percent over the long term. My friend Meb Faber proved this to me the other day… Meb is a professional stock market number cruncher, or as he calls himself, a "quant." He's used his skills to create some incredible investing strategies. (You can read more about them here and here.) He alsolaunched an ETF (the symbol is GTAA) so you can follow his system with just one click. Meb recently crunched the numbers on dividends and other cash payouts and found something amazing. He started with the Russell 3000, an index of 3000 small-cap stocks. Since 1972, the market-cap weighted Russell 3000 index gained 9.98% a year on average. But when Meb took the highest dividend payers in the index, (the top 10% of dividend payers), he found they returned 13.29% per year… an improvement of more than 3% over the common index. Meb didn't end his study there… When most people think of companies returning cash to investors, they think of dividends. But there are two other ways a company returns cash to shareholders. Stock buybacks are the first way. A company might decide to pay shareholders by buying back its own stock in the open market. To an accountant, it's an identical transaction as a dividend. Cash leaves the company. Cash goes to the shareholders. The difference is, instead of sending each shareholder a check for, say, $100, the company causes the investors' stock to rise in value by $100. The shareholder has a capital gain instead of a cash income, but the result to the shareholder is the same. The second way a company returns cash to shareholders without paying dividends is by paying down debt. Cash flows from the company and accrues to shareholders, just like a dividend. In this case, the cash pays off a bondholder who has a senior claim to the stockholder. Once the bondholder is out of the way, the shareholder is that much closer to the future profits. When you include these two additional ways companies return cash to shareholders, you get the true "cash" yield to shareholders. Meb calls this the "shareholder yield." Meb repeated his study on the Russell 3000, taking total shareholder yield into account. This is what he found… Group Average Annual Return Russell 3000 9.98% Dividend Yield (top 10%) 13.29% Shareholder Yield (top 10%) 16.93% Earning 9.98% over 38 years turns $1,000 into $37,147. Earning 16.93% a year over 38 years turns $1,000 into $381,229. In other words, over 38 years, that annual difference of nearly 7% would have increased your total returns by 926%. The conclusion is, my golf buddy is totally wrong. Stocks that pay out cash generate far higher returns than stocks that don't. If you're investing for high returns and are ignoring stocks that pay cash out to shareholders, you're missing the point. You should almost always favor companies that pay out cash to investors over those that don't. Good investing, Tom

One of the best kept secrets of retirement investing

From Dividend Growth Investor:
There are over 60 million baby boomers in the U.S., most of which will retire over the next two decades. Most of them will generate income in retirement through Social Security, while some of the lucky ones will also enjoy a pension provided by their employers. Some boomers might also have some amount of money that they want to learn how to invest, in order to generate income in retirement.

Financial Advisers typically offer the 4% rule as a solution for managing ones money in retirement. This method assumes that investors will rely on total returns in order to monetize their portfolio for living expenses. 

... The danger of this method is that it requires total returns each year in order to grow your portfolio, and avoid eating/spending your principal. Otherwise investors could end up depleting their asset base and might not be able to enjoy retirement for long...

Read full article...

Six world-class stocks that could pay larger and larger dividends for decades

From Dividend Monk:

When building a dividend-growth portfolio, finding high-quality companies that will continue paying larger and larger dividends for decades rather than just the next few years is important. The longer you can hold onto shares of a company, the lower your trading costs and taxes will be compared to what they would be if you trade often.
But this is only a good strategy if the companies you hold onto continue growing shareholder value.
So the key is to look for companies that, among other things:
a) Have a large and sustainable competitive advantage.
b) Are in an industry that is timeless, or nearly so.
c) Are in a solid financial position.
Here are six sample companies... JNJ, LOW, MCD, WMT, MDT, CVX
Read full article...
More on dividend stocks:
These stocks are an income investor's dream
This list of top stocks for 2011 has something for everyone

Four criteria the world's greatest dividend stocks have in common
View the original article here