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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 922  
Subject: Re: Income Investing: 5.5% possible? Date: 6/22/2011 2:06 PM
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I think you got a pretty good answer over on the Bond & Fixed Income board.

Bond funds have the problem that interest rates now are very low. As rates rise over the next few years, the NAV of bond funds will fall to compensate so new investors get the then current interest rate.

In this situation, you are best off to invest in a laddered maturity bond portfolio. Holding the bonds to maturity, you get the full face value back at maturity regardless of interest rates. You probably want to buy investment grade rated corporate bonds rated A or better. And you want reasonable maturities ideally 7 to 10 years, but maybe out to 15 years for a good quality bond from a well known company.

Any broker can set this up for you. And ideally you might want to get several quotes and compare. The minimum investment is usually $5K per bond, but for diversification, you probably want 5 bonds for a min total portfolio of $25K.

I see that IBM has trust preferred issues paying 6.2%. They are callable soon, but you should be able to get 5.5% on your portfolio. You will probably want to avoid short maturity bonds as often their yields are quite low. But as long as you pick quality companies you trust, you should do fine.

You can also do this with muni bonds if tax free bonds are appropriate in your tax bracket. However, some worry about muni bonds defaulting in these difficult times. That aspect is a bit iffy.

You can also consider common stocks that pay good dividends. At&T is paying 5.6%. Verizon is paying 5.5%. Ameren is paying 5.3%. There are others. Most have a history of increasing dividends from time to time, helping you keep up with inflation.
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