Investments

Everything started from money. Then the, as people might call them – gods of investing created a corporation. The two forms of capitalization of this corporation were: Debt and Equity. Corporations usually raise money by selling shares of ownership and by borrowing money. Income investing meaning is that companies pay investors for the use of this borrowed capital with interest and dividends, and such payments are expressed as Fixed Amounts. Only the income is fixed, market values of all securities do fluctuate, for various reasons.  Still, income investing is way safer and significantly more secure than Equity Investing, therefore, one of the tools used to keep the level of overall investment portfolio risk under control. Income securities might also be callable, at various times, fully or partially, and usually at face value. Certainly something to be aware of when purchasing – “Is a corporation more likely to call-in a bond or preferred stock when interest rates are rising or falling? Thought out Asset Allocation Plans always allow for a portion of the Investment Portfolio to be invested in Income Securities, particularly once the six figure level has been achieved.
Municipalities and their Agencies are also significant issuers of Fixed Income Securities. One of the most important features of these securities, called Municipal Bonds, is that the interest they pay to investors is totally exempt from Federal Income Taxes.

Investors can also obtain shares of Investment Company Closed End Mutual Funds  (CEFs) that invest in all of the securities mentioned above in many different ways, and Industry Specific Income Securities that specialize in various kinds of royalties, all kinds of commercial, residential, and industrial Real Estate, and Mortgage Income. There are right and wrong (high risk vs. lower risk) ways of investing in these types of securities as well, and they have become the security of choice for Sanco Services because of their liquidity, ease of trading on the NYSE, monthly cash flow, etc.
In higher interest rate environments, individual Preferred Stocks, and Bond Unit Trusts (Corporate and Government) become more attractive than they are at lower rates.
All Income Securities are Interest Rate Expectation Sensitive securities, and as such, their market price will always vary inversely to the anticipated direction of interest rates.
WHAT! In the simplest of terms, this means that all Bond, Preferred Stock, REIT (Real Estate Investment Trusts), etc. prices will rise in market value when lower interest rates are expected and fall if higher interest rates are anticipated. The amount of movement in the price of these Interest Rate Sensitive, Income Securities, will vary depending on: the Quality Rating of the Issuer of the Security, and the amount of time until the Maturity, or Call Date (if applicable) of the issue. Sector specific CEFs will also react to expectations other than those affecting interest rates… even more so.

Income Security Prices themselves have no impact either on the actual Quality of the securities or the ability of issuers to pay interest. Therefore, it is critical to investors that they learn to take advantage of lower prices/higher yields rather than to lose sleep over them! This seems to be a whole lot more difficult than it sounds. In and of itself, in all the years that I have tended to people’s investment portfolios, this is the area where the most investment errors are made, and simply out of ignorance.