One of things I like best about writing Cabot Wealth Advisories is that it allows me to get outside my comfort zone–all week long I’m working within the growth stock system we follow at Cabot. But occasionally, like any investor, I also look for alternative investments that I can use to grow my wealth. That, after all, is why we’re all here.
Personally, I tend to be sort of a barbell investor. On one hand, I tend to be very aggressive on the growth side of the equation, running a concentrated portfolio of strong leading stocks during bull markets, and, of course, holding cash during bear markets.
However, I also spend a little time looking at other types of investments, especially in the income world. And in this area, I tend to look for safety; while there are undoubtedly opportunities for higher-yielding, higher-risk income investments, I try to find any unique-but-safe instruments that yield more than the current 1% (or less) found in money-market funds.
What have I recently found? Here are a couple of safe exchange-traded funds that recently piqued my interest; both of them pay dividends monthly.
The first is what I think of as a money-market alternative. It’s the PowerShares VRDO Tax-Free Weekly Portfolio (PVI); basically, it invests most of its money in variable rate demand obligation bonds, issued by municipalities. Its current annual yield is just 1.5% … although that’s free from federal taxes, so it would be like having a taxable fund yielding 2% to 2.25%, depending on your tax bracket. At the end of last year, all of the firm’s holdings were ranked either AAA (the highest ranking) or AA.
Flash Player 9 or higher is required to view the chart Click here to download Flash Player nowMoreover, the fund, which has been around since November 2007, has a remarkably stable net asset value. At month’s end, its NAV has always totaled between 25 and 25.06 per share! And the share price (it trades just like a stock) has also been stable, closing near 25 almost every day; even during last fall’s market mayhem, the lowest close was 24.6 before bouncing back within a couple of days.
If you have money that you’ve decided to just keep on the sideline for the next year or two (possibly you’re buying a house or for a child’s education), this could be a low-risk way of getting a bit more yield.
One that’s a bit higher up on the yield scale is the Vanguard Total Intermediate-Term Bond ETF (BIV). The company’s holdings, at the end of 2008, were very high quality–58% were rated AAA (most of which are Treasuries and Agencies), 8% AA, and another 18% rated A. That leaves just 15% rated BBB or below. And, as the name suggests, its holdings are generally intermediate-term (five to 10 years in length).
The annual yield is currently in the 4% to 4.25% range, and it pays dividends monthly. Moreover, the fund, which has been around since April 2007, has a relatively stable NAV–it’s closed every month between 70 and 78.
There are smarter income investors than me, and undoubtedly, there are some outright bargains these days in the higher-yielding, junk bond, or commodity trust securities. (Income Digest, which Cabot publishes, is really a great source of these ideas.) But if you plan on making most of your money in growth stocks, but also want to safely earn a few extra bucks, consider some stable bond funds like PVI and BIV.