Thanks for your response to my idea of starting a blog. I named it "Small Town Investor", as I believe small town investors when they do their research can beat the big city guys anytime.
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I am frequently asked when is a good time to invest or buy a stock. Truthfully right now is the best time to get started. There are always opportunities in stocks and nothing beats regular investments in retirement accounts. As this blog will focus on people who are doing their own investing and people who are likely still working for a company I will limit my blog posts to subjects for those investors.
As I mentioned earlier if you have not maxed out your company 401-k and Roth IRA now is the time. The limits for a 401-k is $16500 this year and an additional $5500 for those over 50 years old. The Roth IRA limit is $5000 and $6000 for those over 50. A 401-k is an excellent vehicle for investing, most especially if your company provides a good selection of funds and keeps the fees and charges to a minimum. But understand it IS your retirement plan so keep your investments to age appropriate selections. This is your safety net for those without the blessings of a pension, which fewer and fewer have access to today. Your 401-k generally provides a match, but also is pre-tax so take advantage of the free money from your company and the government. I know the max amounts might be more than most are able to contribute at this time, but max this out before you proceed to any other investing.
The next investment vehicle is a Roth IRA and no one does that better than Vanguard Funds. Since most people will be doing their Roth IRA outside their workplace use the best. Vanguard is investor owned, runs funds cheap, and passes on the savings to fund holders with low low fees. If you are just starting, pick some good stock funds that invest in total worldwide stocks. Later on you can move to more balanced funds, but never give up owning some stock in your funds. Let me know if you have questions on 401-k's and Roth IRA's. Note I did not mention regular IRA's as I believe with the Roth available it is foolish to put money in regular IRA accounts.
Many people confuse being "rich" with having a "high income". Even our politicians get in on the action, talking about "taxing the rich". Note that most politicians mean taxing "high income", not taxing wealth. You actually can be "rich" and pay very little tax no matter how high the politicians raise rates. Part of the idea of 401-k's and IRA's is to defer income to a later date, thereby building wealth. Use these opportunities to defer income to build wealth and avoid paying taxes now and allow your money to compound grow over the years. Do not say it can not be done as if I can do it anyone can.
Now on to those stock and bond selections I promised in the last post. One note here, I concentrate on a portfolio of about 30 stocks that have dividends of 5% plus and will highlight them as we move forward. But I will discuss some other opportunities as well as we move forward.
If you are in the highest tax brackets and need ways to avoid taxes, NC based municipal bonds offer good value. 5% interest fully federal and state tax free bonds are out there and are sold daily. Most of these are county hospital bonds, power agency bonds, and senior living bonds. Yes, these are not AAA,rated but they are A rated and above, in the 30 plus years I have been investing in BBB rated and above bonds I have never lost a dime and interest has been paid on schedule regularly. You can buy these from NC bond funds or as individual bonds. If you want to build a portfolio of individual bonds now is a good time to start,as rising tax rates make tax free investing profitable. With the sell-off in bonds which commenced late last year, even NC Muni bond funds are now an excellent value. In late 2008 and early 2009 I bought many bonds for 55 cents to 80 cents on the dollar when many investors were fearful and heading to the door. I am comfortable with the safety as I have a large number in my portfolio and know that when they become due I will get my full 100 back for each netting a nice capital gain. Note the minimum individual bond are sold in $5000 par value. A bond fund is a smaller alternative, but be careful with the sales charge and ongoing management fees. Of course there will be some sales charge from the broker for individual bonds, but if you buy at par or below you simply will not lose money if you hold to due date, assuming they do not default. Default again, is not likely in a state like NC where the economy is still reasonably sound and taxes not high compared to somewhere like California. If you would like contact for a bond broker I will pass on the one I use if you e-mail me with the caveat that I am not recommending anyone. Full disclosure I am long a good number of NC Municipal bonds.
Dividend stocks also offer a great alternative to today's low rates. Not only do you get nice dividends, but you get the chance for growth and unlike bonds some inflation protection. A smart portfolio has some bonds and stocks for a well balanced approach, even for young people.
The safest, best run, most dependable stock in my opinion now is Southern Company, symbol SO. SO provides a 4.8% dividend and they have paid basically forever and raise their payout most years annually. SO is managed by experienced people who know how to take care of their customers and investors. Most importantly as a regulated utility, they operate in states that are not hostile to the company. Those states, Georgia, Alabama, and Mississippi, allow SO to make a fair profit and allow rate increases as needed. These states also have not put the hammer down on utilities, in my opinion, beyond the common sense environmentally regulations. The price of the stock even during the downturn last year was only down 10% or so and has bounced back nicely since then. Over 10 years you are up 45% or so plus dividends. Nice huh? I would put my grandmothers money here and sleep well at night. SO is trading around $38 presently, but traded as low as $31 earlier this year. Try to get it below $36 or so on a pullback. I have owned it for many years as a long or as a put option.
Another stock that is solid is Centurylink. Many of you have home phones and chances are Century Link provides the service. Last year Centurylink bought Embarg and now are the largest rural telephone company in the business by far, a fortune 500 company. Centurylink has recently announced a soon to be completed merger with Quest, another land line company. This merger should be a nice plus to the company as Quest has more urban customers and offer excellent opportunities Do not be alarmed about the rural telephone part, there are several of these companies out there that are spin offs of the now wireless companies like AT&T and Verizon. The wireless part was the growth area and the big boys spun these slow or no growth rural companies off several years ago with lots of old land lines and frankly a good bit of debt. But these companies provide phone service, cable, and Internet to areas of this country that the big operators do not wish to provide such service and that mean opportunity for rural telecom and investors. Centurylink pays out a nice 6.6% divy and for about 30 years has raised the payout every year, yes I said every year. They have more than adequate cash flow to cover debt, buy back some stock, and pay out the divys, what's better to like. CTL is trading at around $43 now and would be a good buy below $40. I have owned this stock for many years now and plan on holding for many more years either as a long or as a option. Another of these rural telecoms is Windstream, symbol WIN, which pays a 7.7% divy. Frontier. symbol FTR, is another one, pays about 8.1% annually. Note all three of these rural telecoms are S&P 500 members. This segment is consolidating as the three stocks mentioned here are buying up the smaller telecoms. Larger bases means better profit here. Take a look and consider an investment here. I own all of these securites as an option or long now.
Lastly today, I offer a real estate company. Realty Income, symbol O. This might be the most investor friendly company on the market. They are most open about what they do and where they invest your money the annual report is a pleasure to read. No hiding investments, no hiding mistakes the few they make. How about this a 5.0% divy that they pay out MONTHLY, and Realty Income raises the payout quarterly. Again I have owned this stock long or option for several years. Realty Income holds little or no debt, meaning they own most of their properties straight out, no mortgages. Of late as a real estate investment trust, they are getting close on paying out their full cash flow, but as a class A holder of commercial property I expect as the commercial market consolidates Realty Income will be a net acquirer of the most coveted real estate and strong growth will return. O is trading around $34 now and is a good buy here, but as I am always looking a bargain I keep a option out to buy it anytime it dips below $30. This stock is a core holding for anyone. National Retail Properties, symbol NNN, is similar to Realty Income as both are triple net lease companies. NNN pays a 6.1% divy. Again NNN is a core holding.
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