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Avoiding Taxes, if Not Death
03/29/2010 2:19 pm EST
Bryan Perry of Cash Machine points out some investments that can help keep investors' tax bills down.
MoneyShow.com: They say that there are two things that are inevitable, death and taxes. We cannot do anything about death. Is there anything we can do about rising taxes?
Perry: There is, there is. There is a new wave of buying I see on the horizon here in what are called master limited partnerships.
Master limited partnerships have special tax treatment. Almost virtually all of their income is tax-free because they are allowed to depreciate all of their assets on a federal schedule that allows them to take these write-offs against income; and, therefore, virtually almost 100% of their income is tax-free. It is structured that way, and because it is a limited partnership, you have limited liability. Management might be sued, but you cannot be sued, and they have far outperformed every asset class on the board.
MLPs are up over 341% in the last ten years versus 34% for the Standard & Poor's 500. In just the last eight years alone, they have averaged 20% a year as an asset class-far, far, far outdistancing the 3% on the S&P 500.
Q: Now, you mentioned great return and limited risk. Then,
is this only appropriate for high-income investors?
A: No, not at all. It is appropriate for everybody, simply because the performance is outstanding. I mean they really are. There is nothing to touch these in terms of performance, and I think it is still in the adolescent stage. They were the nascent group, because Wall Street does not cover these, because they are not institutional products. They are made for the little guy. You know, Wall Street is all about big corporate deals and big corporate bond issuances and big secondary offerings and big preferred offerings. They are not into this, because it is not appropriate for most pension funds.
Q: But, they are liquid, aren't they?
A: Oh, hugely liquid. You can buy them today and sell them tomorrow. They trade on the New York Stock Exchange, for the most part.
Q: Did you have any ticker symbols for us?
A: The first one would be Blackstone Group (NYSE: BX), which is the big hedge fund, you know, private equity company, pays 9%. They are bringing out seven initial public offerings this year as exit strategies, so you are getting a buy-in to a hedge fund. Most people feel like if I only had $25 million, you know, I could be in a hedge fund. You can, you can own one of the biggest hedge funds in the world in the form of BX, and the stock is down from $38 to $13 in this meltdown that we have gone in the last couple of years.
Linn Energy (Nasdaq: LINE) is an oil and gas exploration company. They have hedged their gas and oil prices through 2012 at $90 a barrel and $8 for gas, so that dividend is locked and loaded for the next 2-1/2 years. (At recent prices, it pays a yield above 10%-Editor.) We are up about 80% on that position already.
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