Richard Lehmann is president of Income Securities Advisor, Inc., (ISA) and a columnist with Forbes magazine, with whom he publishes jointly, the Forbes/Lehmann Income Securities Investor newsletter. Mr. Lehmann is also the publisher of the Distressed Debt Securities Newsletter and the Forbes/ISA Closed End Fund & ETF Report. He has been actively involved in fixed-income investing since 1976 and offers income portfolio management through Richard Lehmann & Associates, a registered investment advisory firm. Mr. Lehmann has authored numerous articles on bonds, bond defaults, and fixed-income investing, both in financial columns and book form. His book titled, Income Investing Today, is published by John Wiley & Sons. Mr. Lehmann has an MBA from Columbia University and is a CPA.
Income investing expert Richard Lehmann discusses the pros and cons of both investing for income and investing for growth.
Richard Lehmann is my guest, and we’re talking today about income versus growth. Hi Richard, and thanks for coming by.
Thank you Nancy.
So I know there really aren’t many investors that just want to do just plain income or just plain growth. Maybe some of the younger folks want to do just plain growth, and some of the older folks plain income, but most of us are sort of in between. So what would you advise investors when trying to choose between income and growth?
Well, I think it is an individual choice and it depends on a couple of variables. One is how old are you? Are you retired? Is this money that you need to live off of, or is this something that you just want to see grow and it’s not really money that you need to tap into any time in the near future? Those are variables that enter into the decision.
Also, the question of what is their tax status. Obviously, the type of investments you make in an IRA should be differentiated from what you invest in a taxable account.
Right. Now for a person that say is already retired, or getting very close to it. Do you have a certain percentage that you recommend that people keep in income investments versus growth when they’re a certain age?
Pretty much 100%. We basically feel that, especially given the long-term outlook for economic growth in the country, growth stocks are not the place. They’re for somebody that needs to build the size of their retirement portfolio.
People that are already retired, I think their No. 1 orientation should be "how do I maximize the income that I have to live off of." And therefore, we say that the allocation should be pretty much toward income.
Now, what about people that do want to participate in the bond market versus just buying stocks with dividends? Would you recommend bond funds to them?
Absolutely, particularly for junk bonds. That market, junk bonds—there are mixed sentiments about that. Some people think it’s overpriced now and it’s due for a fall.
My opinion is quite the opposite. The current economic and low-interest situation is causing junk-bond issuers to refinance much of their debt, extend out maturities, increase the size of their offerings, and lower their interest rate, so as an economic operating concept for them going forward, their profit demands are going to be less in order to service this debt.
But also they’re using that money to pay down their bank loans, and that increases their capacity to take on debt in the future, should they need it. It’s a very healthy trend for junk-bond issuers. Where some people are saying it’s a sign of a big wave of defaults coming, I don’t believe that at all.
So it’s a different cycle than what it was before, when we had the rash of junk bonds.