Nick Maggiulli, chief operating officer at Ritholtz Wealth Management, offered “The 9 Best Income Producing Assets to Grow Your Wealth” on his website, Of Dollars and Data. The nine are, in order of appearance: stocks, bonds, second homes, REITs, farmland, small business ownership, peer-to-peer lending, royalties and sell your own products.
The author provides sensible advice on how to successfully benefit from the conventional categories, but I want to focus on the lesser-known ways of generating income.
In a world where wildfires and hurricanes threaten both coasts daily, farmland is the most topical income-based investment. If climate volatility reduces arable land globally, this would certainly push farmland prices higher. The increasing protein consumption in the developing world, and a rising global population, are also tailwinds.
There are a number of agricultural-themed ETFs, but few that concentrate on farmland prices specifically. The U.S.-traded Farmland Partners Inc. – with a 3 per cent yield but flat year over year returns – is worth looking at for suitable investors.
Peer to peer lending, which allows investors to contribute to a pool that offers loans to small businesses, carries extra risk at the best of times and maybe too much risk during a pandemic. Platforms like Lending Loop could be an investor option for a portion of portfolio assets in the future.
Investing in royalties – the income stream from popular movies, music and trademarks – is an option I didn’t know existed. According to Mr. Maggiulli, the U.S.–based site Royalty Exchange facilitated an US$190,000 investor purchase of the royalties for the Jay-Z and Alicia Keys' song “Empire State of Mind” for the next 10 years. The song apparently generated $32,000 in royalties in the past year.
There are obviously risks in the royalty approach because consumers are fickle and their future consumption choices are hard to predict. There is also the issue of stiff membership fees at Royalty Exchange.
I can’t comment too much on whether these alternative income investments are a good idea or not – they are all unfamiliar to some extent. The article did, however, remind me to think more widely to find the income ideas that an aging population demands.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Kinaxis Inc. (KXS-T) Given the stock’s strong performance (and high valuation), investors have been managing their risk and taking profits off the table – including company executives. However, analysts remain positive on the software provider’s growth potential. Delays in contracts experienced due to COVID-19 may simply be a timing issue, making management’s guidance too conservative. Jennifer Dowty has a profile of the stock. (for subscribers)
A new ETF offering 4-per-cent retirement income is going to be big
The new Vanguard Retirement Income ETF Portfolio, which made its debut on Wednesday, is designed to pay predictable amounts of monthly income to retirees. Rob Carrick tells us more about the product, and shares some thoughts on who it’s ideal for. (for subscribers)
Balanced portfolio bulletin: The bond outlook is worse than you think
Some projections from investment dealer Richardson GMP suggest the years ahead could be quite the challenge for balanced or bond-heavy portfolios. Bond yields are expected to rise in the next 12 months, and that means falling bond prices. Combine projected yields and price declines and you get a total return that could easily be negative. Rob Carrick has more. (for subscribers)
These skyrocketing Canadian transportation stocks are in the sweet spot of the pandemic economy
The sudden acceleration of the retail shift from bricks and mortar to online has been a windfall for transportation and logistics companies. In Canada, the main beneficiaries have been names such as TFI International Inc. and Cargojet Inc., which have returned 127 per cent and 141 per cent, respectively, since their lows in March. Resilient consumer spending in North America is also helping support the recovery in rail traffic. Tim Shufelt reports. (for subscribers)
Here’s when it’ll be time to switch out of growth stars such as Apple and into unloved value stocks
In a telling indication of just how infatuated investors have become with a handful of fast-growing tech companies, Apple Inc. is now worth as much as the entire British stock market index. It will take broader economic shifts, notably a move away from rock-bottom interest rates, to make investors reliably prefer broad assortments of value-priced stocks to the shares of a few high-growth superstars such as Apple - at least in the views of Citigroup. Ian McGugan tells us more. (for subscribers)
Others (for subscribers)
Wednesday’s Insider Report: Board chair tops up his position in this REIT yielding 6.7%
Tuesday’s Insider Report: CEO and CFO cash out millions from this top performing tech stock
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Ask Globe Investor
Question: I have about $140,000 to invest in my registered retirement accounts. I’m 42, so I’ve got 23 years before I turn 65. I don’t like mutual funds because of the high fees, and I am leery of exchange-traded funds because with markets being so high, I’m worried my nest egg will take a hit that will take years to recover from. I was thinking of investing in bank stocks because they pay good dividends and are still trading below prepandemic levels. What do you think?
Answer: I have news for you: Your nest egg is going to take a hit at some point – many hits, actually. Market setbacks are a perfectly normal part of investing. Instead of trying to avoid them, successful investors learn to live with them. Volatility – sometimes severe volatility – is the price investors pay for the long-term rewards that stocks deliver.
With that in mind, your goal should be to construct a low-cost, well-diversified portfolio that is appropriate for your level of investing knowledge. I’m a big fan of stocks with rising dividends. However, unless you are an experienced investor, owning individual stocks may not be the best choice as they require research and monitoring, and may not provide proper diversification.
Exchange-traded funds are a great alternative. A Canadian index ETF will give you exposure to all the big Canadian banks – plus utilities, power producers, railways, tech stocks, pipelines, real estate and other sectors – at very low cost. The iShares Core S&P/TSX Capped Composite Index ETF (XIC), for instance, charges a management expense ratio of just 0.06 per cent and pays a dividend yield of about 3.3 per cent. To enhance diversification, consider adding a U.S. market ETF such as the BMO S&P 500 Index ETF (ZSP), which trades in Canadian dollars, has an MER of 0.09 per cent and yields about 1.5 per cent.
Want an even simpler solution? Check out the newer one-stop ETFs that give you a globally diversified basket of stocks and bonds with a single purchase. Vanguard Canada, for example, offers five “asset allocation ETFs” with varying levels of equity exposure. Given your long investing horizon, the Vanguard Growth ETF Portfolio (VGRO) – which has an 80/20 mix of equity and fixed income – might be appropriate.
Finally, if you are nervous about the short-term market outlook, you could always invest your money in stages over the next six months to a year. Studies have shown, however, that investing a single lump sum usually (but not always) produces higher returns.
What’s up in the days ahead
Gold is having trouble staying above US$2,000 an ounce. Has it seen its top for the year? David Berman will explore what’s next for bullion.
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Compiled by Globe Investor Staff