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The most common advice given to retirees is to invest in bonds, but 25 percent of the eldest respondents to a recent Gallup survey expect to outlive their nest egg, leaving them with the daunting prospect of social security as their sole income source. For retirees, structuring an investment mix to improve the safety of their nest egg while providing returns that outpace inflation requires the skill of a professional able to build a portfolio using direct investments in the securities markets. This tailored individual investment is unavailable in mutual funds and isn’t an easy feat even for the most skilled portfolio manager.
Extensive research and thoughtful structuring of a preferred income-producing a portfolio of high quality preferred equity securities, which act similar to bonds, is a proven method to provide for the needs of retirees. Their need for income requires investments that offer growth and interest, which can be found in the U.S. preferred markets when distressed sectors exist.
In 2009 and 2010, Fogel Capital Management uncovered an opportunity in the bank devastation by analyzing growth, income, and secured assets—investing in 15 various bank preferreds offering 7% to 19% interest. To adjust risk across the 15, one percent of each portfolio was invested into each of the 15, resulting in 15% total allocation to bank preferreds. The banking system stabilized over the following 24 months; the investments grew in value while generating income and each portfolio grew from returns exceeding 20% in the preferred.
Distressed energy market securities are today’s opportunity. Affected by heavy regulation, devastated oil, and energy securities warrant a smart look to identify undervalued bonds. The downward pull of the market affects all securities in the sector, yet opportunities may exist in fundamentally strong yet undervalued storage companies that earn fees for holding and storing oil, pipeline companies that transport oil and gas, and drillers with long-term future contracts which secure revenues.
By identifying the strongest opportunities and managing risk, the combined contribution to returns is expected to be higher than overall market performance. This type of direct investing is only available through individual portfolio construction, unlike broad-based investments in ETFs or mutual funds.
When the cycle turns and the energy valuations become balanced, another sector will probably be entering its own down cycle. That may be the right time to exit energy investments and rotate into securities in fundamentally strong companies in that newly distressed sector. By practicing this cyclical investment strategy, investors may preserve capital while enjoying above-average returns with less risk.
This is a complex and sophisticated investment method. It should be undertaken only with the guidance of an experienced portfolio manager with a record of identifying “hidden gems” and creating superior returns through research and analysis.
For retirees to preserve their nest egg principal, stay within their risk tolerances and generate income, it may be time to reconsider holdings of some “safe” but low return sectors and redeploy the funds into the energy sector to take advantage of this opportunity.
About Fogel Capital Management: Preferred and secured debt income producing portfolio strategies are the bedrock of the $300 million FCM manages for its high net worth clients. Their aptitude for research and expert analysis has been developed over their 20-year history and four major bear markets. Fogel has a staff of skilled portfolio managers and traders who can discuss Income Producing Portfolio strategies with you.

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