Managing Disposible Income

Asatar's picture
Rank: Senior Neanderthal | 4,279

Quick question for you guys with a couple of years of salary under your belt. What do you do with your excess salary and bonus. I'm looking for ideas as to where to put my money for longer term income generation, getting 2% in a current account just doesn't do it for me. Looking for something closer to 5% PA. I would expect to keep ~6 months living expenses in savings for emergencies.

Thoughts, ideas and experience welcome!

Comments (25)

Apr 8, 2012

Balanced portfolio, a Mreit or AMreit (high yield), bank trust preferred, healthcare yielder, energy yielder, telecom

REIT: NLY (best of breed in my opinion, 14%ish)

TRUP: MER-f (Merrill trust preferred, 7.3% yield)
TRUP: C-W (citi, in case BofA spooks you, slightly lower yield)

energy: KMP, or something to that effect

these are just a few suggestions. I have a similar portfolio.

Patrick Bateman would eat Eddie Morra's lunch (and probably his brains).

Apr 9, 2012
AlexanderHamilton:

Balanced portfolio, a Mreit or AMreit (high yield), bank trust preferred, healthcare yielder, energy yielder, telecom

REIT: NLY (best of breed in my opinion, 14%ish)

TRUP: MER-f (Merrill trust preferred, 7.3% yield)
TRUP: C-W (citi, in case BofA spooks you, slightly lower yield)

energy: KMP, or something to that effect

these are just a few suggestions. I have a similar portfolio.

It seems like it wouldn't take much for NLY to blow up. How do you really know exactly what their assets are? They might be highly illiquid if another credit crunch occurs. The yield looks very appealing, however, and I'm genuinely interested in what your investment rationale on this one is.

Apr 8, 2012

By the way, I have other investments... But this is a nice substitute to a savings account with <2% yield.

The trups will serve for capital preservation.

Patrick Bateman would eat Eddie Morra's lunch (and probably his brains).

Apr 8, 2012

Big fan of NLY. What a well managed fund.

Apr 8, 2012

1.) Pay off all student debt at greater than 10% interest and build up 2 months of emergency savings
2.) Get 401k match.
3.) Pay down all other debt/ build up eight months emergency savings.
4.) Max out IRA, max out 401k contribution.
5.) Dividend stocks and ETFs. Look at MLPs, international dividends, telecom, and utes.
6.) Be careful about fixed income in a rising rate environment.

Apr 8, 2012
IlliniProgrammer:

1.) Pay off all student debt at greater than 10% interest and build up 2 months of emergency savings
2.) Get 401k match.
3.) Pay down all other debt/ build up eight months emergency savings.
4.) Max out IRA, max out 401k contribution.
5.) Dividend stocks and ETFs. Look at MLPs, international dividends, telecom, and utes.
6.) Be careful about fixed income in a rising rate environment.

I have no real debt to pay and we don't have 401ks in the UK. Student loans are effectively 0% interest and are automatically taken out of our earnings at a rate of around 6-9%. In total I'm paying around 50-55% tax. We have SIPPs which are self invested pension plans and you get income tax relief on those so I would make maximum contributions into that. I was also looking at things like high dividend ETFs as currently I only have detailed knowledge of around 10-15 stocks, none of which are great for dividends.

Apr 8, 2012
IlliniProgrammer:

6.) Be careful about fixed income in a rising rate environment.

Can you elaborate on this point?

Apr 8, 2012
brandon st randy:
IlliniProgrammer:

6.) Be careful about fixed income in a rising rate environment.

Can you elaborate on this point?

Without putting words in his mouth, I imagine that if you lock into a fixed interest rate investment (that doesn't index with interest rates) a spike in interest rates, which is a likely occurrence at the moment could see you effectively losing money. ie. 3% ROI in a 5%inflation market devaluing your investment.

I think...

Apr 8, 2012
brandon st randy:
IlliniProgrammer:

6.) Be careful about fixed income in a rising rate environment.

Can you elaborate on this point?

it means don't pour money into fixed income securities when interest rates are expected to rise in the near future leaving the value of your current investments less

I didn't say it was your fault, I said I was blaming you.

Apr 9, 2012
IlliniProgrammer:

1.) Pay off all student debt at greater than 10% interest and build up 2 months of emergency savings
2.) Get 401k match.
3.) Pay down all other debt/ build up eight months emergency savings.
4.) Max out IRA, max out 401k contribution.
5.) Dividend stocks and ETFs. Look at MLPs, international dividends, telecom, and utes.
6.) Be careful about fixed income in a rising rate environment.

These are GREAT pieces of advice. It seems you have your house in order OP, but these are words to live by.

NLY is wonderfully managed. They have scaled back leverage significantly, and are in a position to react quickly to changes in the prevailing interest rate environment.

6-12 months cash is a great moat to build.

Patrick Bateman would eat Eddie Morra's lunch (and probably his brains).

Apr 8, 2012

Lucky you. The UK is ripe with dividend opportunities in stable industries like utilities, telecom, and oil. The problem is that for us Americans is that to get these 4-7% yields, we have to put up with a lot more negative skew from the GBP than a domestic investor would have to.

Major UK and American grid operator= 6% dividend.

Major UK and American oil company= 4.5% dividends, trading at 6x earnings.

Major UK telephone company with a stake in a MAJOR US wireless brand= 7% dividends.

Cheap, cheap, cheap.

Does the UK offer preferential tax treatment on dividends?

Apr 9, 2012
IlliniProgrammer:

Lucky you. The UK is ripe with dividend opportunities in stable industries like utilities, telecom, and oil. The problem is that for us Americans is that to get these 4-7% yields, we have to put up with a lot more negative skew from the GBP than a domestic investor would have to.

Major UK and American grid operator= 6% dividend.

Major UK and American oil company= 4.5% dividends, trading at 6x earnings.

Major UK telephone company with a stake in a MAJOR US wireless brand= 7% dividends.

Cheap, cheap, cheap.

Does the UK offer preferential tax treatment on dividends?

Great reply, thanks. Dividends here come under capital gains tax (28%) but there is a threshold of around PS11k ($17k) before you pay any capital gains at all. My favours opportunities for dividends are in telecoms, utils and real estate. Frankly I think a low leverage REIT operating in London yielding around 5% is a sound investment.

Apr 9, 2012
Asatar:

Great reply, thanks. Dividends here come under capital gains tax (28%) but there is a threshold of around PS11k ($17k) before you pay any capital gains at all. My favours opportunities for dividends are in telecoms, utils and real estate. Frankly I think a low leverage REIT operating in London yielding around 5% is a sound investment.

Rats! I'm not sure if you're covered by the same rules as me about specific stock recommendations online, but would love to hear your REIT idea. In the US, most residential REITs are capping out at around 2.5-3% dividends right now.

Apr 8, 2012

buy physical gold

Apr 8, 2012

wine, alpaca farm

Apr 8, 2012

My goal is to have cash savings equal to half my annual salary before going really heavily into investing. Just makes sense to me to have that for a rainy day.

Metal. Music. Life. www.headofmetal.com

Apr 8, 2012

I'm just saving....and researching for opportunities...Real estate is what i've been looking at

Do what you want not what you can!

Apr 9, 2012

Great thread...how many months of living expenses do you other monkeys keep in an emergency fund?

Apr 9, 2012
cinnamontoastcrunch:

Great thread...how many months of living expenses do you other monkeys keep in an emergency fund?

Enough to last you until you find a new job if you get laid off :P Im opting for 6 months because I also like to treat myself occasionally to a new iPad or other such toy.

Apr 9, 2012

Immediately liquid? If you're just starting off, I'd say 3 months expenses. Once you've been working for a while, push it up to half a year+.

Apr 9, 2012

Agree with IP's advice, but you can also be more aggressive. Dividend stocks are for people in their 50s and 60s.

Apr 9, 2012
Comment
Apr 9, 2012