Good day

Well DogFather on the surface you have made a correct assumption with regard to IGR.

But if you dig deeper, you will see that IGR is a Global REIT. Managed by ING, which is a very large well run Dutch financial company.

With real estate holdings throughout the world, Austrailia, southeast Asia, Europe, and of course about 30 percent in the USA.

It is a very solid fund that will fluctuate with the market, currently it is below its 200 day moving average. If you look you will note that the SPX, along with the DOW are also below there 200 day moving average. The NASDQ just above.

So not to worry,,,, as it is not doing anything abnormal that the rest of the market isn't doing as well.

In fact what you really have here is a buying oppurtunity so that if one holds it you can average your costs down some and reap higher returns.

IGR has not failed to make monthly payments of dividends since we bought it back in January. Currently they are paying 10.30%. So this is a good time to purchase a few more shares and average your cost down while you average your return higher.

It is a very well managed fund and it is well diversified in the global real estate market.

Allow me to repeat myself here as I sated in my original post when I disclosed this portfolio.

Anyone who may have purchased these 8 funds should hold your positions. These are LONG TERM income funds, and are not intended for capital appreciation (they will appreciate over time but very slowly) This is the kind of portfolio that will provide a monthly income. When you die, your children will thank you as it will have appreciated as well as provide them with an income.

These 8 funds are not for trading in and out of everytime the market is up or down.

These funds are for a retired person or some one who is nearing retirement and is looking for monthly income, not for market traders.

Now to address your other comment, "why don't you share how your others did"

I can break all the numbers down for you if you like. But here's the bottom line, they are all down, the same as the market.

When the tide goes out it lowers all the boats in the harbor.

The tide may even go lower, however on an intermidiate term the markets will be a little choppy yet, and then they will be going north within a week or two.

So if your thinking about adding to a stock or purchasing some, now would be a good time.

One more thing if you are looking to purchase anything in the Perpetual Money Machine. BUY ALL 8 FUNDS, this fund is designed for diversification buy equal dollars not equal shares. You will recieve 96 paychecks a year to your account. How big they are is dependant on how much you invest.

Green Lights
Badwater Bill



If you do want to leave them you will have to do it over time when the value is equal to or better than your purchase price.

quote:

It is a very solid fund that will fluctuate with the market, currently it is below its 200 day moving average. If you look you will note that the SPX, along with the DOW are also below there 200 day moving average. The NASDQ just above.

Badwater Bill...I have no opinion of the prudence of investing long term in the 8 funds listed by you in late January of 2007 (Perpetual Money Machine). They may end up being a great investment...and maybe not. However, let's not downplay (as I believe you did) the plummet in market value between your advice (1/29/07) and today (11/26/07). If you dollar averaged (as you suggested) by purchasing $1,000 worth of each of these funds at the time of your original post you would have invested $8,000. Today that $8,000 investment would be worth about $6,300. That is a loss of about 21.25 per cent in about 10 months. During the same period of time the S&P 500 is down less than 1 per cent, the DOW is UP about 2 per cent and the NASDAQ is UP about 4 per cent. Putting the same $8,000 in these (indexes) would result in about $8,133 today...a positive return of about 1.67 per cent. To me, there is a huge difference between a loss of 21.25% and a gain of 1.67%.

Again, I am not arguing with the portfolio that you selected. I do not believe that just because it looks bad now, it will remain that way. I do not profess to have any special investment knowledge or the ability to give investment advice. I just like to see numbers used accurately.

I am currently looking at a small investment in a REIT. I hope to take advantage of the current market conditions, especially in the real estate area. I will add IGR to my list of prospects. I am not looking for an aggressive payout, I just want a growing FFO, a decent dividend and a low debt to market cap (hopefully under 40%).

Thanks for all of your hard work in this forum. When possible I read it whenever there is a new post. I definitely enjoy the information provided by you and others.

Good Day

agkcpa, I guess you are a cpa since you have this in your screen name.

That being the case, you are an expert with numbers, I am certainly not. So I will subordinate to you.

However I believe when you take the dividend income these funds have generated monthly since 1/29 you will find that they are down 12.7% from the initial $8000.00 invested not the 21.25% you suggest.

Reality is that this portfolio of 8 funds will go up and down over time and measured month by month may not out perform the major indices all the time, year over year.

But over the long haul a person should do rather well, and very well when you take into cosideration the income that is generated.

The purpose, and my intent when I listed these funds was income. I was trying to find well managed funds that paid a monthly dividend and would give a person a monthly income, not so much capital appreciation.

It would be nice to have both, but I haven't found any free lunches.

These funds pay monthly when they are down or up, and I believe would provide income for someone who is on the road or someone who does not want to be bothered about managing their investments.

But if you compare apples to apples, for someone who wants income, and capital appreciation is not as important, then I believe they are very good.

As I have stated many times These are only suggestions, everyone should research and decide for themselves if they believe its right for them.

Green Lights
Badwater Bill

[I had a lot of problems formatting the tables in this post and ended up using dots to try and get the columns aligned after many edits. If anyone wants a better version, send me an e-mail and I can forward a PDF file with clean tables]

I have been intrigued by Badwater Bill’s Perpetual Money Machine (PMM) recommendations for a while, but the recent discussion prompted me to do an in-depth analysis of them. I couldn’t resist my curiosity about whether there really was such a thing as a “Perpetual Money Machine” in the financial markets. The name is suggestive of a perpetual motion machine, which is impossible under the laws of thermodynamics and often synonymous with “hoax”.

Well, I hate to be the bearer of bad news, but my analysis (which follows) pretty clearly demonstrated (to me at least) that the PMM has broken no laws of finance or physics. There is nothing magic, or even very special, about the PMM.

The PMM recommendations are for 8 high-yielding closed-end mutual fund investments with some (minimal, as I will explain later) diversification. But, as is always the case, there is no free lunch. When you seek a high yield you trade-off the chance for capital appreciations and/or you take a lot of additional risk in exchange for the high yield. In the case of these recommendations, the high yield has come at the cost of both capital appreciation and higher risk.

Now for the details of my analysis:

For those who don’t recall, here are Badwater Bill’s recommendations, made in January of 2007, for 8 closed-end mutual funds, along with the Morningstar category classification:

__________________________________________________________________
Name ............................................. Symbol .... Category
__________________________________________________________________
Aberdeen Asia Pacific Fund ................. FAX ....... World Bond
ING Clarion Global Real Estate Income ... IGR ........ Specialty-Real Estate
Blackrock Debt Strategy Fund ............. DSU ....... Intermediate-Term Bond
Solomon Brothers Global High Income .... EHI ........ High Yield Bond
PIMCO Floating Rate Income Fund ........ PFL ........ Bank Loan
The Zweig Total Return Fund .............. ZTR ....... Conservative Allocation
Calamos Convertible & High Income ...... CHY ....... Convertibles
Eaton Vance Equity Income Fund II ...... EOS ....... Mid-Cap growth
===========================================================

The following table provides the dividend yields that Bill quoted in January and the actual year-to-date total returns, including all dividends and other distributions, assuming they were reinvested:

__________________________
............. Jan ......... 2007
Symbol ... Yield ....... Return
________ _________ _______
FAX ....... 6.80% ...... 1.27%
IGR ........ 7.60% .... -34.78%
DSU ..... 11.91% .... -17.97%
EHI ........ 8.20% ..... -8.85%
PFL ........ 8.80% ... -13.05%
ZTR ....... 9.60% ... -16.33%
CHY ....... 9.10% ... -21.66%
EOS ....... 9.30% ... -10.56%
_________________________
Average .. 8.91% ... -15.24%
======================

So what at first glance looked like it could produce a nice stream of income of almost 9% has, over this short period, actually lost almost twice that much.

Now, as Badwater has pointed out, dividends have continued to be paid, so his checks keep coming and he is happy. But that means that he is not reinvesting that income, so the value of his principle has actually declined by even more--close to –24%.

As Badwater has also said in earlier posts (I am paraphrasing): so what, that is just a short term paper loss, he isn’t selling, and the prices will go back up some day. Probably true, but not necessarily anytime soon.

I checked the current yields on these funds based on yesterday’s prices and found that the average is 8.64%. So at their substantially reduced prices, they are paying about the same rate of income as they were in January. That means much less actual income than they were paying in January (I estimate about $328/mo now versus $446/mo in January on a $60,000 initial investment). So the losses are not just on paper; the monthly checks have been getting smaller too (or will be over the next few months, anyway). In the meantime, if the principle is needed for something else, a big chunk of it is gone; at least for now.

But Badwater or others may object that price fluctuations are a normal part of investing—so what if these investments are down, the whole market is down. That is true, but the fair comparison is to look at both the rate of return and the amount of fluctuation over somewhat longer time periods. The PMM portfolio has returned 3.5% (dividends and price changes included) over 3 years and 9.76%/year over 5 years.(These figures are somewhat misleading because not all of the funds in the portfolio have been around for 3 or 5 years, but these are the averages of those that have been.) These returns should be compared to the variability of the portfolio. The average standard deviation of the PMM funds that have been around for 3 years is 6.95%.

So are those statistics good or bad? Well, for comparison, I looked at some potential simple alternatives. Here are the returns for 2007 year-to-date, 3 years, and 5 years plus the 3-year standard deviation for 4 good Vanguard mutual funds that are designed to produce retirement income:

_________________________________________________________________

Name ............................................ Symbol ...... Category
-------------------------------------- ----------- -----------------------
Vanguard Intermediate-Term Bond ...... VBMFX ...... Intermediate-Term Bond
Vanguard Wellesley Income Fund ........ VWINX ...... Conservative Allocation
Vanguard Target Retirement Inc ......... VTINX ....... Target-Date 2000-2014
Vanguard Wellington ......................... VWELX ...... Moderate Allocation
==========================================================


__________________________________________
............................ Return
................ ________________________
Symbol ..... 2007 ...... 3-year ... 5-year ... SD
----------- ---------- --------- --------- ------
VBMFX ..... 6.57% .... 4.70% ..... 4.71% .. 2.85%
VWINX ..... 4.67% .... 6.92% ......7.63% .. 3.21%
VTINX ...... 7.10% .... 6.01% ..... n/a ...... 2.80%
VWELX ..... 5.90% .... 9.96% ... 11.78% .. 5.00%
------------------------------------------------
Average ... 6.06% .... 6.90% ..... 8.04% .. 3.47%
=====================================

Notice that the Wellington Fund returned an average of more than the PPM portfolio over the past 5 years (11.78% versus 9.76%) and has a lower standard deviation (5.00% versus 6.95%). This lower standard deviation translates into lower risk, which is clearly seen in this year’s results, which remain respectably positive (+5.9%), unlike the PPM portfolio (–15.24%). The Vanguard Wellesley Income Fund has better year-to-date and 3-year returns than the PPM and not much less over 5 years, but with less than half the risk/variability (standard deviation).

Now, I am not recommending that anyone put all of their assets in any one of these Vanguard funds or even investing in a portfolio of them; this is not sufficiently diversified. I am just presenting these as simple alternatives that clearly outperformed the PPM based on both return and risk characteristics. Even better portfolios are certainly possible.

So what went wrong with the logic that led to the PPM portfolio? I don’t know exactly what criteria Badwater Bill used to choose the 8 funds he did, but one of them was clearly high monthly income (dividends), as he stated. Again, using Morningstar data to analyze the content of the PMM portfolio, I found the following characteristics that I consider to be important flaws:

1. The average expense ratio (fees) for the PMM portfolio is 1.21%. This is very high for a portfolio consisting largely of bonds. By contrast, the average for the 4 Vanguard funds listed above is 0.24%. So the fees for the PMM portfolio are 5 times higher!

2. The PMM portfolio was heavily weighted toward low-grade (i.e, high yield, high risk) bonds and the financial services industry (42% of the stock portion of the portfolio, versus only 21% in the S&P 500). Guess what has been hardest hit by the sub-prime mortgage fiasco? The PMM portfolio was also substantially under weighted in energy and industrial metals, which have been doing spectacularly well (anyone notice the price of gas or gold?). Clearly, this was not an especially diversified portfolio. Yes it had bonds, domestic stocks, some foreign stocks, and commercial real estate; but there were very strong tilts toward specific sectors of these broader markets, making them more risky than a more broadly diversified portfolio.

I think what fundamentally went wrong in selecting this portfolio was the pursuit of apparently high income (dividends) without sufficient consideration for total return and risk. I know that it is a very common misconception among investors that it is somehow better to spend "income" than to spend "principle", so that finding high income-producing securities is a primary goal of retired investors. The rational view, however, is that money is money—it makes no difference whether you earn it as dividends or capital gains, except to the IRS. But at the moment, most dividends and long-term capital gains are taxed at the same rate anyway. Interest, however, is taxed at a higher rate and the bonds in the PMM portfolio produce interest. If you need a monthly check, it is very easy to have a mutual fund electronically transfer (or send a paper check) each month from any fund, regardless of whether its earnings come from dividends or capital gains. There is no logical reason to select investments based on their dividend, except to the extent that the dividend contributes to total return. What matters is the total return and risk.

It is almost always the case that when an investment appears to offer a higher return than a very broadly diversified portfolio, that investment entails higher risk. There is no free lunch. If you strive for income of 9%, as the PMM portfolio did, it is bound to come with pretty high risk. If you really need to earn 9% (which is roughly 6% real return after 3% inflation) then I recommend a much more broadly diversified portfolio, such as those recommended by Index Investor or Retired Investor. This level of income can be achieved with a reasonable probability at much lower risk and with much lower fees than the PMM portfolio.

I also strongly urge anyone to use the Morningstar (or comparable) service to evaluate the characteristics of a portfolio before buying it. If you had done this with the PPM portfolio in January you would have known that it was heavily concentrated in a few risky sectors and had historical standard deviations much higher than alternative investments with similar historical returns and lower costs. Even not knowing that the sub-prime mortgage collapse was coming, you would have known that the PMM portfolio was only obtaining high income by taking on high risk.

One final point. If you have a portfolio that produces high income and minimal capital gains, you are fooling yourself by thinking that you can safely spend all of the income. Inflation will erode the value of the capital (and the income) over time unless you are reinvesting a portion of the income. Spending 9% of your assets each year is doomed to failure (if you potentially have many years to live). Financial advisors typically recommend withdrawing something like 4-5% of your assets for spending each year and allowing the rest to be reinvested in order to keep up with inflation. Spending 9%, whether it was generated by dividends or not, is not likely to enable you to maintain purchasing power over a full retirement.

Bruce

This message has been edited. Last edited by: Someday Fulltimers,

If anyone received my last (very long) post before I had finished formatting the tables (which took many attempts of trial and error) you may want to check the web site again to see them after the formatting to align columns. This formatting may be completely messed up if you receive the post by e-mail. I am also happy to forward a PDF version if anyone wants to contact me by e-mail to request one.

quote:

agkcpa, I guess you are a cpa since you have this in your screen name.

Yes, that is true. I used that name when I started using the Escapees Forum over 5 years ago. However, I just now changed my screen name to a more personal "name". This will be the first post using the new name. Let's see if it works.

Nicely done Bruce.
I have been watching this topic for the last year and wondering how many people were following the leader off the cliff? It just proves you should never take investment advice off a forum, especially one devoted to RVing. Unfortunately some folks who are not good at managing personal investments think they are getting sound advice...and as you have pointed out - not true.

I hope it was not a large number who followed this advice.

I am one who has a hard time understanding all of this investments advise, I was interested in what Badwater Bill had to say, I am quite sure he was trying to help, but now I see the wisdome in "No Free Lucnch"

thanks to all, including Badwater Bill, who was trying to help

ESW

PS
Any advise on finding a Financial Advisor in the greater Bellevue/Seattle area?

quote:

Originally posted by doit2010:
PS
Any advise on finding a Financial Advisor in the greater Bellevue/Seattle area?

There is no free lunch in obtaining financial advice either. Whatever you do, don't use a financial advisor who offers his services for "free", as most do. What they do is recommend very high commission and high fee investments that are not in your best interest.

The only useful financial advisors are the ones who charge you explicitly for their services and who do not make their living selling over-priced financial products. Be especially wary of anyone selling variable annuities. These are among the most common and worst investments available.

I would ask 3 questions:

1. Do you sell any financial securities with loads or commissions or do you derive any of your income from selling financial products, as opposed to charging clients fees for your services?

2. Do variable annuities play an important role in the portfolio of an average (not wealthy) retired investor?

3. Do you think your advice can help me do better than investing in a diversified portfolio of index funds?

If the answer to any of these questions is "yes", run, do not walk, as fast as you can . Find a financial advisor who not only answers "no" to all 3, but understands why you would ask these questions and can explain to you why they are good questions and why you are right to run from anyone who answers yes to any of them. It may take you a while to find the right advisor because 90% of them will be of the despicable kind that answers yes (or, even worse, lies ).

Good luck. It is a jungle out there for anyone who doesn't take the time to learn the basics of investing, which are not really that hard to grasp, and become his own financial advisor. The financial industry wants you to think that investing is rocket science so that you will put your money in their hands, where they can skim off a big chunk for themselves.

If you don't have to have a financial advisor in your local area, then I would suggest using the (pay for service) planners available at one of the larger no-load, low cost mutual fund companies. Vanguard is the best, but you could use T. Rowe Price or Fidelity if you have some reason to prefer them. The fees they charge are reduced for investors who place more money with them. They will recommend their own mutual funds for the most part, but these companies have a very broad range of excellent funds to choose from, so you will not be ripped off. A financial plan should cost $250-$1,000, but the low end of this range will come with some strings attached (i.e., you have to place $100,000 with their company).

Bruce

Good Day

I stated back in January of this year when I posted these 8 funds, and called it a Perpetual Money Machine. That these were 8 funds that I had researched and that I believed would provide a good income, and over time will appreciate in value. A long term hold.

Let me re-state that claim, these are very good funds, with very good managers. They are no-load funds, they are closed end funds that openly trade on the market.

I hold these funds in one of my portfolios, and will continue to do so.

I recommend that anyone who may have purchased these funds should at this time add to your positions, by dollar averaging thru all 8 funds. All 8 of these funds are currently a buy.

On thursday the market turned the corner on an intermidiate bases and is again begining to go up.

As I stated back then I am not a financial advisor, every person before investing should do there own research and decide for themselves.

Green Lights
Badwater Bill

Well said Bill.

My recollection is that the PPM was designed purely as a source of income. Any capital appreciation was a side benefit at best.

As you have mentioned, the funds continue to provide income just as designed.

I'm having a very hard time understanding what all the commotion is about.

I personally expect the market to go sideways over the next couple of years. Growth may become very hard to find.

George

George,

I think the "commotion" as you put it is , this web site allows discussion of various investment ideas and in this case, Badwater Bill has offered a very interesting idea which can now be evaluated over the past 10 months or so to see the pluses and minuses

I believe Badwater Bill is an experienced investor who knows what he is doing and the pros and cons of his investment decisions and offered this idea for those interested in income sources. But like all investments, there are investment cycles (ups and downs) which result from many other factors

When these were put forth a little examination would have shown they were mostly near their recent peak prices and at that time most income yielding investments were being bid up as more money chased higher yields mainly due to the low rates on alternative investments. This combined with the fact that many of these closed end funds were investing in higher risk sources for their income..........offering a high risk situation where one could enter these investments at that time for income and then face new economic periods which weren't favorable for high risk investments and end up losing much of ones investment

I cautioned at that time of the risk that could be involved with PPM closed end funds, especially at that time, and of course no one could forsee the "sub-prime loan" problem coming which was the worst circumstance for these funds. The upshot is that an investment at that time provided about 9.5% income while losing about 20% of the original investment

Now that is an unfortunate circumstance and unusual, but highyield and high risk investments often result in more volatile results when alternative investment yields change from the economic climate Therefore one should recognize what they are getting and not blindly go in thinking...."gee I can get 9.5% return so I'm getting out of my low yielding savings accounts, etc., etc."

Most investments have attractive times to be bought and more risky times to not buy and that is a major evaluation each investor needs to learn to make as best as they can to minimize investment losses

For instance today the PPM Closed End funds have dropped below their average 5 year price range by about 10%, alternative market interest rates are currently dropping and their 9.5% average return might be more attractive now with less historical risk...............with the understanding that the "sub-prime problem could continue and get worse", the economy and business profits may be slowing with impact on higher yielding investments, and the dividends could continue to be reduced as apparently has happened over the past year.........

So there are many factors that will decide the future value of these yields and ones investment , but if one looks at the data on these funds, today would appear to offer a better chance than it did a year ago..................but on the other hand if the "sub-prime problem" had not ocurred, we likely would be looking at these PPM funds as having been fairly successful with competing interest rates being stable and these funds kicking off fairly stable yields.........

Hi All,

I was so glad to read the complete discussion. You will always be the safest person to manage your own money. At first it can be overwhelming but with some time (aka retirement) and some great resources you can grow your knowledge and your results.

Years ago my husband and I started listening to Bob Brinker's Money Talk on ABC Radio. He is not perfect but has certainly been an amazing teacher for us. With internet makes it easy since now for $5 a month I can listen to his 6 hour weekend 'class' at my convenience. (www.bobbrinker.com)

The first lesson I learned is 'beware the sharks' ... along with
-asset allocation!!! (%age in bonds, stocks, savings) What's right for you?
-the best low fee no load mutual fund family(s)
-how to analyze rental rate returns
-inflation adjusted bonds
-diversification, diversification, diversification...oh did I mention diversification?
-fee ONLY financial planners


Anyone else have someone they like on the radio?

Happy Holidays to you and yours...

Badwater Bill,

Ok, I'm in, I've been watching and studying and pulled the trigger yesterday.

FAX $6
IGR $17.13
DSU $5.97
EHI $11.7799
EOS $17.7428
CHY $13.9199
ZTR $4.6699
PFL $16.5699

Thanks for all the discussions. We'll see what happens.

dreamer.

quote:

Originally posted by 2ndtwenty:

So there are many factors that will decide the future value of these yields and ones investment , but if one looks at the data on these funds, today would appear to offer a better chance than it did a year ago..................but on the other hand if the "sub-prime problem" had not ocurred, we likely would be looking at these PPM funds as having been fairly successful with competing interest rates being stable and these funds kicking off fairly stable yields.........

Yes, and hindsight is 20/20. There is an equally good (or perhaps - better) chance that in a year's time today will seem like a lousy time to have bought anything. The market goes down and up.

I still fail to see why anyone feels the need to pile on Badwater, he was very clear with appropriate cautions up front, and those that chose to read the cautions did so.

Of course, there are a number of investments that are NOT paying out nearly as well as they did a year ago, at least the PPM II isn't represented in those statistics (yet?)...

George