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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308685  
Subject: Re: Why is Mortgage Debt "Different" Date: 3/6/2014 12:51 AM
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Would you share more about your portfolio (you can PM me)? I'm interested in doing something similar now that I'm ready to start investing in taxable (vs tax-advantaged accounts). TIA.

Here's some general information:

I use www.quantumonline.com They have some pretty comprehensive lists of preferred stocks, REITs, closed end funds, convertibles, ETFs, etc. They also provide lots of information about individual securities - coupon rates, call dates, links to the prospectus, etc. Be sure you understand call provisions and conversion provisions, as applicable.

Other good resources can be the REIT board here on TMF, Morningstar, the WSJ and www.seekingalpha.com In this post on the REIT board http://boards.fool.com/you-might-look-at-the-portfolios-belo... LordXot provides a link to a spreadsheet that can be used to screen securities and several Morningstar links with some portfolio ideas. Looking at what some of the preferred security ETFs/mutual funds hold in their portfolio can give you some ideas, too.

As a general rule, for securities that are callable, or have a call date in the near future, I will pay, at most, par plus accrued interest, and I try to buy under par. On the other hand, securities under par in the current low rate environment may have some significant risk factors, so you need to do due diligence on the underlying company. When looking at income paying securities, one of the big things to look at is cash flow - make sure the company has enough cash flow to cover the dividends they have committed to without having to dig into their capital.

If you are buying a callable security, make sure you understand what the YTW (yield to worst) is, as well as the current yield.

Beware of buying higher rate callable securities. If they haven't already been called, there's probably a reason - the company doesn't have the cash to call them, or can't issue more debt at a lower rate in order to call the higher rate security - which, in this low rate environment, can be a red flag.

Many of these securities are pretty thinly traded and can be volatile, so I buy using limit orders. Sometimes they take a while (days/weeks) to fill, so you have to be patient.

Understand that if rates go up, the value of income producing assets will fall, in line with the perceived risk. If you are comfortable with collecting the income, and don't plan on cashing in the security before it matures or is called, that can be okay. If you may need/want to sell before maturity/call, then you may have to eat a loss. To help protect against these losses, you can try to match security maturity dates with times that you anticipate needing funds - when you want to replace your car, pay for college for a child, buy your retirement home, pay off your mortgage, etc.

I try to not put more than 10% or so of my income producing portfolio in a single company, so that if something bad does happen, I don't take a really big hit.

Good luck - it can be very freeing to be able to say "I don't need to worry about where my mortgage payment is coming from - I collect enough money from my investments to pay it every month".

AJ
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