Income Investing Takes the Lead

10/18/2010 12:00 pm EST


Richard Lehmann

Publisher, Forbes/Lehmann Income Securities Investor

Richard Lehmann, publisher of Forbes/Lehmann Income Securities Investor, says that despite its low profile for many years, income investing has routinely beaten stocks over the past decade.

It’s become routine for us to announce that once again, income investing has outperformed the

stock market.

By routine, we mean most years since 2000, when we first began publishing our model income portfolios. Sad to say, stocks still prevail in the thoughts of most investors and most investment professionals.

This is truly a sad situation, given the dismal outlook for stocks and the savings needs of an entire generation of baby boomers who have suffered dearly in 2008 and are facing a serious redo of their retirement plans.

We will continue to try to influence this mindset, but fear we are battling an investment industry that will continue to sell the myth that stocks for the long run are the only way to go. I guess some people will never get it.

Yes, equity investors are going to catch that once-in-a-decade bull market—provided they live that long and have money left to invest. We wish them well.

Looking forward, I see an increased awareness that inflation is now the main concern of income investors and that interest rates can only go up from here. Reinforcing this perception is the Federal Reserve’s perception that the inflation rate is too low, [which caused gold to shoot up and the dollar to sink]. Can interest rate rises be far behind?

Those who have not yet responded to my urging that they buy some adjustable-rate securities may want to reconsider this option. Aside from this, oil trusts, convertible closed-end funds, and gold continue to be alternatives benefiting from the increased level of concern.

In any case, I believe we are at or near a turning point for income securities and maybe for stocks as well. Whether the turn is for better or worse is still unclear, but be thinking defensively.

One thought for those with tax-sheltered accounts: The Canadian trusts have mostly converted to corporations, and as such, will no longer be subject to Canadian withholding tax for US tax-sheltered accounts.

This means you should now hold Canadian energy stocks in your IRA rather than your taxable account and thereby keep 100% of the dividend distributions. This may be the last actual tax cut you will see in your lifetime, for which you can thank Canada.

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