The S&A Book of Income Secrets

The S&A Book of

IncomeSecrets

Dear Reader,

Now more than ever, retirees and those wanting to retire soon wantmore income.

But most folks either don’t know the best ways to boost their in-come... or are too scared to try anything new...

Those folks will likely join the 42 million American retirees whohave run out of money... and survive on Social Security benefits alone.

You see, you’re nevergoing to get enough income tolive on by using traditional in-vestments like CDs, Treasuriesand ordinary savings accountsthat pay 2% or less.

If you really want to col-lect enough money to meetyour needs – with plenty leftover to enjoy – you need tolook at a group of unique in-vestments that could pay youtriple the amount of incomeyou’re currently getting.

In short, you need to sup-plement your cash incomewith ideas that you might nothave considered in the past.You need ideas with hidden in-come and plenty of downside-risk protection.

The investments we’regoing to tell you about in thisguide are very safe... and easy

The S&A Book of Income Secrets

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Already, some investors are using the

opportunities revealed in The S&A Book

of Income Secrets to collect thousands

of dollars in income.

Retiree J. Merlot told us he no longer wor-

ries whether the market is up or down:

"I needed regular income to

help off-set my living ex-

penses. Social Security alone

won't cut it. Now, I'm getting

$20,000 per year."

Bill Taylor collected $588 per month in

2008, without buying or selling a single

share of stock.

"This is a no-brainer. How can

you go wrong? It's very good for

a person interested in income."

And Mark Finley says:

"I've made tens of thousands of

dollars. I use the income for

everyday things like bills and

other expenses. And I still get a

check... every single month.

It’s never failed me.”

Publisher’s Survey: We hope you’ll take 2 minutes to

send us your feedback on The S&A Book of Income

Secrets, once you’ve read it. Your comments and

suggestions will be invaluable in ensuring that our

anticipated printed book is the best it can be. And if, in

the past, you have invested in any of the income

vehicles we cover (like MLPs or covered calls, for

instance), we’d love to hear about your successes.

Please submit your comments here:

www.dailywealth.com/feedback

Thank you for your time.

www.dailywealth.com/feedback

Contents

Quadruple the Power of Your Savings page 5

A new savings account could pay you $4,208

per month… 100% tax-free

How the A.O.P. Could Pay for Your Retirement page 12

The secret investment that’s crushing gold!

A Rock-Solid, High-Yield Gem in the World’s

Most Hated Industry page 21

12.5% dividends from the one company that can

save the FDIC

Make 16% Thanks to the US Government page 30

The only investment-grade bond we know that’s due

to return 40% in the next 13 months

Make Our “Dividend Accelerators” the

Cornerstone of Your Portfolio page 36

It’s the best time in 35 years to buy these dividend stocks

The “Dividend Boost” page 42

Get 5 to 10 times bigger dividends when you buy direct

$1,667 a Month with a Little-Known Strategy page 51

Collect your “dividend” overnight

Retire Rich with the Best-Performing Stock of All Time page 59

Triple your money within 10 years, even if the share

price doesn’t budge

Guaranteed Retirement Contracts page 66

The only investment with zero downside and unlimited

upside

to understand.

Using these vehicles, we believe you can realistically collect an extra$1,500 to $2,000 a month in income, beginning immediately.

If you are still working, these opportunities may give you more thanenough money to cover all of your living expenses. Maybe you’ll want toquit working. Or maybe you love your job and want to keep at it.

If you’re already retired, these opportunities could give you moremoney than you thought possible... allowing you to travel more...spend more... or give more money to your favorite charity.

Either way, it’s nice to know that you’ve got enough cash comingin each month so you’re free to do whatever you want... whenever youwant.

So let’s get started...


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Chapter 1Quadruple the Power of Your Savings

By Dr. David Eifrig,Editor, Retirement Millionaire

It’s the most fascinating financial product I’ve ever seen.

I was investing my college money 30 years ago. I spent years withtrading geniuses at Goldman Sachs. I’ve lived in the world’s threebiggest financial hubs. And now that I work for one of the world’slargest financial publishers, I’m surrounded by new investment ideasevery single day.

But not long ago, in Florida, I found the most fascinating financialproduct I’ve ever seen. It has to be... because it addresses the biggest fearmost every American has: That late in life, our health will fail and we’llrun out of money, ending up sick and destitute.

Just consider: Medicare reports 30% of all health care dollars arespent in the last 12 months of life. And 401(k) behemoth Fidelity In-vestments reports 65 year olds will need $225,000 for health care be-fore they die. The Center for Retirement Research pegs the figure at$105,000.

Please don’t count on Washington to pay your bills and hold yourhand while you die. Medicare doesn’t cover everything you’ll need(long-term care, for instance).

And worse, it lowers your chances to die with dignity.

Bureaucrats are worried about budgets, not your quality of life...And they aren’t any good at managing budgets, so payouts and benefitsrarely match patient needs.


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As I said at the outset, Medicare doesn’t pay for long-term care likenursing homes. You have to use up your personal assets and declareyourself broke before Medicaid will cover it... Even then, not all costsare covered.

Worse, statistics say about 50% of us will need nursing home careat some point in our lives. And it’s not cheap. A nursing home can costabout $78,000 a year, and even in-home care runs $35,000 a year.

Insurance companies offer policies designed to cover these costs.But the application process is burdensome and conventional policies areexpensive. For example, a 70-year-old male might pay close to $3,000 ayear for $4,000-a-month of benefits.

The benefits last for three years, which adds up to $144,000 ofbenefits.

Now, that could be pretty good deal if you land in a nursing homeat age 75. But remember, it’s only 50-50 you’ll even use that policy. It’sa coin flip. You could easily spend $60,000 of your money for nothingexcept a little peace of mind. If you don’t go to a nursing home (or sim-ilar facility) the insurance company keeps your premium. It’s a “use itor lose it” proposition.

But ABCs are different. You keep everything. Let me explain...

How to Leverage Your Cash Safely

The ABCs combine annuities with long term care insurance.Here’s what you get:

• Long-term tax-deferred growth of savings• Long-term care benefits• A meteoric increase in the value of your benefits• You can keep all your money if you don’t use the

long-term care benefit• You can pass on the money to your heirs

Most of us are going to need a pile of cash or the ability to easilytap assets to make ends meet. How much probably depends on yourhealth and family history.

But with my latest discovery, if you already have a little cash foremergencies – and you should – I’ve found a way to at least quadruplethe value of your cash overnight.

This product allows you to safely move rainy-day money from onetype of savings to another and guarantee the care and comfort you wantshould your health turn sour.

And if you remain healthy until passing, you still keep your savings(and can pass them on to your children).

Annuities and Long-Term Care

The investment I’m talking about is called Asset-Based Care(ABC). It’s a new insurance product – it didn’t exist before November1, 2009.

Yet despite their relative newness, ABCs are safe, liquid, and yieldmore than most certificates of deposit (CDs) at your local bank.

Essentially, an ABC is an annuity on steroids.

You can find all kinds of annuities on the market. In essence, theyare insurance products that guarantee income for a holder’s lifetime (orperiods like five or 10 years).

For example, I could pay $10,000 at age 50 in exchange for a pay-ment of $50 a month until I die. If I lived to 80, I’d receive $18,000(30 years x 12 months/year x $50) from that initial $10,000.

The details vary. You can buy annuities with a single, lump-sumpayment or extend your principal across multiple payments. Annuitiescan pay at fixed or variable rates, and you can opt for deferred or imme-diate payouts.


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To top it all off: The money you receive from these policies istax-free. Yep, not just tax-deferred but actually 100% tax-free at the fed-eral and state level. This is a true win-win deal.

Here’s a way to shift money from one form of savings (moneymarkets, and CDs) and put it into another (an ABC plan) and makeyour net worth explode in value and grow tax-deferred and tax-free. Ican’t imagine Congress letting this deal stand on the books for long.

Use the Money Any Way You Want

In order to tap the funds for long-term care, a physician must de-clare the annuitant (that’s you) is unable to perform two of the six “ac-tivities of daily living” OR has cognitive impairment. These are the sixcritical activities:

• Eating• Bathing• Dressing• Toileting• Transferring (this means moving from bed to chair)• Maintaining continence (this means you’re able to hold your

urine or stool)

Cognitive impairment essentially means you have medical docu-mentation of a dementia, including Alzheimer’s.

The beauty of these policies is you can buy them on what’s calledan “indemnity” basis. This means once a doctor signs off on two of thesix or the cognitive impairment, the money is sent to you monthly, noquestions asked. The money is yours to pay for home nursing care,flowers, babysitters, or anything else.

This is very different from policies that use a “reimbursementbasis” like most long-term care policies. And in fact you should neverconsider one of those because you’ll spend the rest of your life or yourspouses’ dickering with the insurance company over which bills are cov-

Here’s how ABCs work: Imagine you’re 65 years old and have$100,000 in four different certificates of deposit (CDs) with creditunions all earning 1.5% to 2.5%. The CDs are simply contracts thatpay a fixed amount of interest over an agreed upon term. You pay taxeson the interest, and your heirs get the money on your passing.

If you needed to go to a nursing home, your money would dry upin 18 months (three years if you could use in-home care). Then, you’dhave to tap the rest of your assets. And if you outlived those assets, yourfamily would pay for the rest of your care (and decide your fate sincethey control the purse strings).

Instead, if you bought an ABC plan with that $100,000, the insur-ance company places it in an account with a guaranteed fixed rate of1.5%. Your money grows tax-deferred... but you also get long-term careinsurance. A small percentage of your account balance pays the insurance.

Your Cash Explodes in Value

At the end of one year, your long-term care accumulated value be-comes $100,259. But should you actually need to tap that value for anursing home, the total care benefit explodes to $403,982.

You can tap into that total care benefit the moment you are unableto perform your daily living – formally called “activities of daily living.”I’ll tell you exactly what that means in a moment.

In this case, you’d get $4,208 a month for up to eight years (totalpayments: $403,982). Again, that’s from an initial deposit of only$100,000. This is a true quadrupling of your savings or assets into pro-tection for long-term care. It’s as if you earned 50% a year on your ini-tial investment for eight years.

If you don’t ever use long-term care, your initial deposit is stillearning interest. It’s not a “use it or lose it” deal. In fact, you’re free touse the $100,000 at any time.


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estate planning business. Feel free to tell him we sent you... and let usknow how it goes... 888-892-1102 or e-mail him at [email protected].(We have no financial connection.)

ered and which aren’t. Don’t waste your time. Make sure you get a pol-icy with an indemnity feature.

The Risks Are Covered

Of course with any investment, ABCs come with some risk. Butit’s the same risk you take any time you buy insurance... Does the com-pany have the ability to pay the claims?

First, in the case of ABC plans, companies are required by state lawto keep cash and securities liquid to pay benefits on their policies. Thus,the risk with companies in this business is quite low. Second, you cancheck out the claims-paying abilities of any insurance company bylooking at ratings provided by either Standard & Poor’s or A.M. Best.

What to Do Next...

If this sort of policy makes sense to you and you have a pile of sav-ings for a rainy day, I urge you to look into setting up an ABC. Espe-cially if you sense you’ll eventually need long-term care.

Qualifying is easy if you’re healthy. The application can be doneand approved over the phone, unlike the regular long term care plansthat require a full underwriting process.

Only a handful of national insurance companies offer them – Gen-worth and Nationwide among them – but their terms vary. And ABCsare so new, some states don’t even have these products yet.

One option to investigate is the 137-year-old Indiana-based insur-ance company State Life. It garnered S&P’s fourth-highest (out of 21possible) rating, and A.M. Best’s third-highest rating (out of 15). AndState Life offers one of the better “explosions” of your asset value outthere. Your money is safe with companies rated so highly.

Alternately, I recommend giving one guy I trust a call – DavidPhillips, CEO of Estate Planning Specialists LLC. He specializes in the


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Imagine this: For every $10,000 you invest in A.O.P., you’ll get anextra $600 in your account every year... even if shares remain exactlywhere you bought it. But they won’t stay flat... A.O.P. companies arebuilding new energy “toll roads” in some of America’s most importantnew oil and gas fields.

Those new “roads” will increase your paychecks over time... that’swhat we want from this investment – ever-bigger paychecks – even ifthe prices of oil and natural gas stagnate. They won’t, but it’s good toknow our investments will flourish either way).

What Is an A.O.P. Company?

Our A.O.P. companies are code for the best of a group of compa-nies called master limited partnerships (MLPs). These companies payno corporate tax. They return all their profits to shareholders in largemonthly distributions.

Most MLPs operate oiland gas infrastructure, likepipelines, processing plants,and storage tanks. However,some were created aroundlong-lived production assets.

The roots of these invest-ments lie in the 1979 energycrisis. As you may remember,OPEC cut exports of oil to theWest. And of course, the priceof oil nearly tripled – from$14 in 1978 to more than $35per barrel in 1981. Americawas in a state of panic. Re-member the “odd-even” daysof filling up at the gas tank?

Chapter 2How the A.O.P. Could Pay for

Your Retirement

By Matt Badiali,Editor, The S&A Resource Report

Everyone knows the incredible performance of gold. Since 1996,it’s gone from $395 to over $1,300 an ounce... and climbed every sin-gle year for the past 10 years.

But a special type of investment has not only beaten gold by 9%over that period, but destroyed practically every other asset class on themarket as well. In terms of average, annualized returns, this type of in-vestment has:

• Performed 18 times better than the S&P 500• Outperformed mutual funds 17 to 1 • Beaten utilities 6 to 1 • Outpaced bonds 3 to 1

In fact, I couldn’t find a single type of investment that has comeclose to this “gold-beater.” Better still, this investment returned 11%from 2008 and 2009... a hellish period when the S&P 500 lost 20%of its value.

That’s the trend we want to invest in. We’re doing it with theAmerican Oil Pension (A.O.P.).

Spawned by a 31-year-old snippet of U.S. corporate tax code, theA.O.P. has been generating capital gains and progressively higher levelsof income for its participants every year.


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How We Share in

the Tax Breaks

Unlike regular stock dividends, roughly

80% of the distributions paid out each

year from MLPs aren't immediately sub-

ject to income taxes.

So let's say your yearly MLP payouts are

worth $10,000... you would likely only

owe income taxes on $2,000 come tax

season. Taxes on the rest of the income

from these companies are deferred until

you sell your position.

Essentially a large portion of the money

you receive from an MLP business is

treated as a "return of capital" rather than

"income," which means you pay income

tax on a small portion of the payouts

now, and defer additional taxes until the

position is sold.

And America needs energy... Our quality of life is built on energyconsumption. We want to drive our cars. We want every electronicgadget that comes our way. We want Maine lobsters shipped to Florida,and California oranges shipped to North Carolina...

All those things require energy.

A classic example is Kinder Morgan, one of the oldest MLPs inAmerica. A Texas-based oil pipeline company, Kinder Morgan ownsand operates 37,000 miles of pipelines in the U.S.... and it gets paid totransport oil and gas.

There’s nothing sexy about what it does, except they have paid outan absolute fortune to shareholders.

Take a look:

The Kinder Morgan of 1996 is exactly the kind of company wewant in an MLP.

Kinder Morgan’s growth profile went straight up. Today, KinderMorgan is worth tens of billions of dollars. It’s tough to keep growingat such a huge rate. That’s why we aren’t just slapping down our cashfor shares in it.

Not every MLP in the energy business is worth your investment.MLPs need to be healthy and well run to attract your investment. I’m

The ridiculously long lines? The “Out of Gas” signs at the neighbor-hood gas station?

President Carter instituted price controls... calling the crisis, “themoral equivalent of war.”

MLPs got their start against this backdrop of energy shortages,rampant public fear, and government desperation. The idea was to en-courage investment in domestic oil and gas production.

In exchange for generous corporate tax breaks, these businessesagree to distribute at least 90% of their earnings as a dividend to share-holders. This stipulation allows these businesses to distribute largeamounts of money to shareholders.

The Source of MLPs’ Largesse

Since 2006, ... oil prices have fluctuated from $145 to $30 a bar-rel... Gas prices soared from $4 to $14, dropped to $2.75... andclimbed back to about $4.50 today...

Meanwhile, MLPs have increased their payouts by 10% a year, onaverage.

How can they keep paying you, year after year, no matter whathappens to the price of oil and gas? It’s simple, really.

Like I said, most (but not all) MLPs are transportation and pipelinecompanies. They’re in the business of moving oil and gas, not selling oiland gas. That’s why I called them “toll roads.” The tollbooth ownerdoesn’t care how much the car on his road cost. A Mercedes pays thesame toll as a Kia. As long as there are lots and lots of cars, he doesn’tcare what they cost.

Same with MLPs. It doesn’t matter how much oil and gas costs. Aslong as Americans demand more and more energy, then these pipelinesget paid to move it.


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If it earns $90 million and spends $100 million, it has a coverageratio of 0.9. That’s bad... It means the company had to borrowedmoney to pay its dividend. That’s unsustainable. A dividend cut may becoming soon.

While we’re talking dividends, we also need to know how the com-pany plans to grow its dividend. Which brings us to...

Rule No. 2: Buy companies with clear growth strategies.

A specialty (for example, geographic specialization or control ofsome novel technology) helps. Right now, we want to buy companiestaking part of the huge growth potential in the unconventional shalesof the United States.

In a conventional oil field, oil is held in a reservoir. The oil and gasleaks out of the source rock and collects in the reservoir rock, which islike ice in a glass of water. To extract it, we put in a well and, like astraw, suck up the oil and gas from the reservoir.

The source rock is full of oil and gas, but it holds on like a spongeholds water. Unconventional oil and gas targets the source rocks, calledshales. It’s a lot trickier getting at the source rock, but technological de-velopments over the past decade have made us wildly successful at get-ting the resources out of shale. And unconventional shale gas fields, likethe Eagle Ford and the Barnett in Texas, are the growth industry in do-mestic energy.

While I was down in Texas recently, I heard about wells that pro-duced more than $80,000 per day in oil and gas... but there was nopipeline to take it to market. Those companies were losing more than$2.5 million per well every month.

There’s huge demand for new pipelines in certain regions of theU.S. Knowing which companies are building in those areas is impor-tant. That’s where we want in our MLPs. We want to buy companies

going to show you two simple rules to identify the type of MLP youshould look for.

Two Secrets to Success for MLPs

You must evaluate two fundamental pieces of information beforeyou put money in an MLP. These are more important than the marketcap or price-to-earnings ratio.

These two pieces of information let you gauge your risk and evalu-ate your potential gains.

First, we must know if the company earns enough money tocover its dividend. That tells us whether or not the dividend is sustain-able. Nothing kills an MLP faster than cutting its dividend. In Septem-ber 2009, we saw lots of dividend. The Alerian MLP Index (AMJ) – anexchange traded fund that invests in energy MLPs – fell 42% in valuefrom September 2009 to November 2009.

To ensure the dividend is safe we need to calculate a “coverage”ratio for each company. That means we need to know how muchmoney the company brings in and how much it spends on dividends. Ifwe divide earnings by dividends, we get our coverage ratio.

Rule No. 1: Buy companies with a coverageratio greater than 1.

To calculate the coverage ratio, use earnings before interest, taxes,depreciation, and amortization (EBITDA). EBITDA is an easy measureof the cash generated by the business before the accountants start mess-ing with it. EBITDA is money that could be applied to its dividend.That makes it perfect for calculating coverage ratios.

For example, if our MLP has an EBITDA of $100 million andspends $90 million on dividends, it has a coverage ratio of 1.11. That’sfine, because it earned more money than it paid out on dividends.


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The second area of strategic importance Penn Virginia is the Mar-cellus shale of Pennsylvania. The company has a strategic agreementwith big shale explorer Range Resources. The company plans to add700 million cubic feet per day of pipeline capacity by 2015.

Action to take: Buy Penn Virginia Resource Partners (NYSE:PVR) up to $29 and use a 25% trailing stop.

DO NOT BUY Penn Virginia Corp (NYSE: PVA) or Penn Vir-ginia Group Holdings (NYSE: PVG). These are sister companies, butthey are distinctly different.

Bonus Recommendation: Enterprise Products Partners (NYSE: EPD)

Enterprise Products Partners is a $25 billion company that ownsabout 19,200 miles of natural gas pipeline systems.

Fees account for about 70% of Enterprise Products Partners earn-ings. That means more than two thirds of its earnings are independentof the price of natural gas.

Enterprise’s growth is pegged to developing assets in the giant un-conventional shale plays. Enterprise owns pipes in the Barnett andEagle Ford shales in Texas. It’s also active in the Green River in Mon-tana.

Its near-term growth focus is the Eagle Ford Shale. The companyhas two new pipelines under construction there. They should be com-plete by the end of 2010. Looking to 2011, the company has threemore shale projects. Two are in the Haynesville, and the third is in theEagle Ford. It’s also expanding its gas storage capacity.

In addition to developing pipeline assets in the right regions, En-terprise has a second valuable specialty – pipelines and services for natu-ral-gas liquids (NGLs). Some natural gas, referred to in the industry as“wet” or “rich” gas, comes out of the ground rich in liquids like butane

that can grow with the shale plays.

Those are two simple rules that will add a layer of safety to our in-vestment. If we buy companies with high coverage ratios and cleargrowth potential, you’ll do well.

As of this writing, this particular MLP would be one of the topones we’d choose. But keep in mind, when making your own choiceyou should follow the two rules above.

Penn Virginia Resources (NYSE: PVR)

Penn Virginia owns everything from coal royalties, to timber, to oiland gas leases. However, its growth over the next five years will comefrom its natural gas pipelines.

Its average coverage ratio since 2005 was two times. And its currentcoverage ratio is 1.8 times. Perfect for our needs.

Two-thirds of its earnings to date come from its royalties oncoalmines. This is an ideal business because it collects cash from mineswithout any of the risk. You can think of Penn Virginia as a coalminelandlord. Miners pay for the right to mine the coal.

Penn Virginia owns large coal reserves, about 827 million tonstotal. The company increased coal reserves by 68% since 2001. Most ofthe coal is in the Appalachian Mountains from West Virginia to easternKentucky.

That’s a nice big and stable business. However, the “juice” willcome from its natural gas infrastructure. Penn Virginia owns natural gaspipelines in some of the best unconventional shale plays in the UnitedStates. Two regions in particular look great for Penn Virginia growth.

The liquid-rich Granite Wash in Oklahoma now has three process-ing plants. Penn Virginia recently acquired the third, which added 23%to the company’s processing capacity. The company also owns 1,680miles of gathering pipelines in the region.


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Chapter 3A Rock-Solid, High-Yield Gem Buried in the

Stock Market’s Most Hated Industry

By Dr. Tom Dyson,Publisher, Common Sense Publishing

Over the years, I’ve been able to find pockets of rock-solid high-yield stocks buried in the trash. Recently, I found one of these “pock-ets” in the mortgage industry...

There are two types of mortgages. First, there are mortgages in-sured by the government. In the industry, they call these “agency”mortgages. Then, there are mortgages issued by private lenders likebanks or mortgage companies. These mortgages do not have govern-ment backing. They call these “non-agency” mortgages.

Over the last three years, investors in non-agency mortgages havelost trillions of dollars. The recession has made it much harder forhomeowners to make their monthly mortgage payments. Defaults,delinquencies, and foreclosures have soared. With no protection from agovernment guarantee, holders of these mortgages have lost fortunes.

Mortgages have caused losses for virtually anyone who touchedthem in the last 10 years. They are probably the last investment you’dconsider buying right now. Normally, I’d agree with you, and I’d leavethem with the rest of the junk my screens turn up. But one of the se-crets to making profits in the stock market is to buy when things gofrom bad to less bad.

And that’s exactly what’s happening in the mortgage market rightnow. For the first time in years, fewer people are defaulting on their loans.

and gasoline. Those liquids sell for just a little less than the crude oilprice. That makes wet gas far more valuable than dry gas.

The problem with wet gas is you can’t mix it with dry gas in apipeline. Wet gas needs its own special pipeline to a specialized strip-ping plant. (“Fractionation” is the technical term for stripping the liq-uid portion of natural gas production.) Wet gas must be treateddifferently from dry gas.

That’s where Enterprise squeezes a little extra juice from thepipeline business. That accounts for about 60% of its earnings.

I expect that to continue. Wet gas commands much better eco-nomics than dry gas. Exploration companies would rather produce it.In some regions, finding and producing wet gas is the difference be-tween making money and losing money. That’s why the Eagle Fordshale is booming. That trend will continue as long as natural gas pricesremain low. That means Enterprise’s NGL processing will continue torake in the cash.

Another of Enterprise’s interesting assets is the giant salt domes ituses to store natural gas. The company owns two giant caverns in Mis-sissippi that can store nearly 20 billion cubic feet of natural gas. It leasestwo others in Louisiana that can hold about 8 billion cubic feet of natu-ral gas.

Enterprise’s coverage ratio has averaged 2.1 over the past five years.

Action to take: Buy Enterprise Products Partners (NYSE: EPD)up to $46 per share and use a 25% trailing stop.


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A REIT is a special stock-market vehicle authorized by the govern-ment that allows investors to buy real estate and real estate related as-sets. REITs don’t have to pay corporate income tax as long as theydistribute at least 90% of their earnings back to shareholders each quar-ter in dividends. Mortgage REITs are simply a type of REIT that spe-cializes in mortgage investments.

Outwardly, Walter Investment Management is a mortgage REIT likeany other. It owns a basket of mortgage loans which generate income. Itfunds these mortgages with around debt. After it has paid the interest onthe debt and covered the other costs of running its business, it returns theremaining capital to shareholders each quarter in a dividend. Walter’scurrent yield is about 11%.

While the mechanics of Walter Investment Management’s portfo-lio work like any other mortgage REIT, its operation is totally different.Walter is unique in the industry...

Most REITs make money on the spread between the income theyreceive from their mortgage-bond portfolios and the interest rate theypay on their debt. Both yields are floating (meaning they change everyday with movements in the financial markets). The mortgage marketdetermines the yield on a REIT’s portfolio of loans, while short-termWall Street bank rates – and indirectly the Fed – set the interest ratesthe REIT pays on its debt.

When the Fed lowers short-term interest rates relative to longer-term mortgage rates, mortgage REITs generally make wider spreads,generate higher profits, and pay bigger dividends. Right now, thebiggest mortgage REITs are earning interest rate spreads between 2%and 4%. When the Fed raises interest rates relative to long-term mort-gage rates, mortgage REITs lose money and their stock prices fall.

Walter Investment Management’s portfolio is different. Walter has“locked in” the interest rates in its portfolio, so whatever happens tomortgage rates or Fed policy, it’ll continue receiving a 3% income spread.

The market is turning around. It’s time to hold your nose andbuy non-agency mortgages, even though they stink.

Mortgage REITs are stock market vehicles that specialize in in-vesting in mortgages. The handful of mortgage REITs that invest innon-agency mortgages are trading like junk bonds and paying 12%dividends.

As fewer homeowners default on their mortgages, mortgage REITsshould be able to generate more income and pay bigger dividends. Asother investors realize mortgage REIT dividends are sustainable, they’llpush up the stock prices, giving you capital gains, too.

In short, the mortgage market is moving from “bad” to “less bad”and it’s giving us a rare opportunity to receive a safe, high incomestream from the mortgage REIT industry.

This REIT invests exclusively in the non-agency residential mort-gages that have the most room to rise. It currently pays an 11% divi-dend. As the thaw continues, it’ll pay bigger dividends... and its marketprice will go up.

This mortgage is unlike any other mortgage REIT in America. Forone thing, it has no interest-rate risk. Bernanke could raise rates to20%, and it wouldn’t change this company’s dividend. For anotherthing, it has more than 50 years experience managing mortgages... byfar the longest track record of any mortgage REIT in the market... yetfew investors even know this stock exists.

These differences – and others I’ll explain in a minute – give meconfidence we can make safe long-term gains in this stock.

The Safest Mortgage REIT in America

I’m talking about Walter Investment Management (AMEX:WAC). It’s the safest mortgage REIT in America. And it’s going to payus a steady 11% dividend... with a significant chance of appreciation.


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houses to “handy” people who needed cheap housing in rural areas...like war veterans. Jim Walter would lay the foundations, put up thewalls, floors, and roof, and sell the house for less than $5,000. Thebuyer would do all the interior work, and Jim Walter would sell himthe building materials.

Cheap financing was one innovation Jim Walter used to grow hisbusiness faster than the competition. In the 1950s, it was difficult to getmortgages. Because buyers already owned the land underneath JimWalter’s shell homes, they were able to use it as equity instead of adown payment, and Jim Walter could offer mortgages with 0% down,100% financing.

It was a great concept for people looking for brand new “fixerupper” houses on their own land. By the end of the 1970s, Jim WalterHomes had constructed more than 200,000 homes and was one of thebest-recognized housing brands in the nation. By 1987, Jim Walterhomes had a mortgage portfolio of $1.6 billion.

Jim Walter Homes went out of business in 2009 when the real es-tate market crashed. But the mortgage portfolio lives on under thename Walter Investment Management.

All the mortgages in Walter’s portfolio were originated by Walter’smortgage subsidiary on houses built by Jim Walter Homes. This is re-flected in the homogenous nature of the mortgages in Walter’s portfolio...

• 99% of Walter’s mortgages are fixed-rate, 30-year loans onowner-occupied, single-family homes.

• Walter only made loans to the southeastern corner of the U.S.Two thirds of its loans are to homeowners in Texas, Florida, Ala-bama, Louisiana, and Mississippi. Much of this region – Floridanotwithstanding – didn’t participate in the housing bubble. Ad-ditionally, Walter loans are mostly on houses in rural areas, whereprices are more stable.

• Walter didn’t expand its mortgage portfolio aggressively in the

How did it do this? Walter only invests in 30-year, fixed-rate mort-gages. Instead of financing its portfolio with volatile short-term financ-ing like other mortgage REITs, it chose fixed-rate, 30-year debt tofinance its portfolio. This money costs a little more.

Walter pays a fixed 7% to finance its portfolio. Using fixed-ratedebt generates much less volatility in Walter’s earnings... and eliminatesall interest-rate risk from its business.

All this means when the Fed finally raises interest rates, while thestocks and dividends of the other mortgage REITs will fall, Walter’swill not.

The Most Experienced Mortgage REIT in America

Most mortgage REITs act like day traders. Managers click theirmouse and trade mortgages. When they have money to invest, theystudy the markets and buy large blocks of mortgages from other banks,insurance companies, hedge funds, or mortgage REITs. When theyneed to sell assets, they look up a price and dump the bonds.

Walter never trades mortgages. It originates its own mortgage in-vestments, one homeowner at a time, on houses that it built itself.Then, it holds the loans to maturity. It’s like a community bank or sav-ings and loan in this regard. Or you could say Walter’s mortgage loansare “home grown.” Let me explain...

The story starts in 1946. Thousands of veterans were returninghome from the war and looking to settle down. They wanted cheaphouses.

Jim Walter was looking to escape from his job as a truck driver. Heborrowed $500 from his father and purchased the shell of a house for$850. The exterior was complete, but there was nothing inside thehouse. Three days later, he was fixing the house up when a passerby of-fered to buy it from him. He sold it for a $300 profit...

The deal sparked an idea. Jim Walter figured he could sell shell


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the investors see any return.

The big Wall Street banks like Citigroup, Wells Fargo, and Bank ofAmerica are the largest mortgage servicers in the country... but there aremany smaller companies that perform this function, too.

Walter Investment Management is one of these companies. Walteris one of the leading mortgage servicers in the Southeast. It takes its jobfar more seriously than Citigroup or Wells Fargo...

Walter employs a staff of 125 field officers. Each month, these fieldofficers travel the region, visiting customers and helping them maketheir mortgage payments.

According to Walter’s statistics, each month, its officers make5,000 home visits, and place 76,000 phone calls to homeowners. Ninepercent of its accounts receive a home visit, and 40% of its accounts re-ceive a phone call, each month.

Walter understands its customers, their financial situations, and thehouses they live in. When borrowers stop making mortgage payments,Walter can create new payment plans or modify their loans. This “boots-on-the-ground” mortgage lending strategy gives Walter a huge advantageover the standard “glass office” strategy most mortgage REITs use.

Also, because Walter is acting as both investor and debt servicer, itnever has to deal with the conflicts of interest that hurt other mortgageinvestors. For example, mortgage-servicing companies have an incentiveto push borrowers into foreclosure and earn up to $10,000 in penaltiesand fees, which may not be in the investor’s best interest. But Walter’sdecisions are always made in the best interests of its investment.

In the industry, Walter’s approach is called “high-touch servicing.”It works...

Walter’s portfolio shows much lower delinquency rates than thenational average. Lower delinquency rates translate into much higheryields on Walter’s investments and much less volatility for us.

boom. Walter wrote 56% of its mortgages in 2004 or earlier.

By only holding mortgages on properties Jim Walter built, WalterInvestment Management is now in a position to know exactly whateach mortgage is worth, and it has the contact details of every borrowerin case it needs to make loan modifications or collections.

Walter Investment Management is the oldest and most experiencedmanager of mortgages in the REIT sector. This company has beenmanaging mortgages since 1956.

Another Difference Between Walter and the Rest

Managers of mortgage REIT portfolios tend to be finance wizards.They sit in glass offices all day, analyzing pre-payment speeds, yieldcurves, and risk variances on their computers. They know everythingabout yield spreads in the credit markets, but nothing about the indi-viduals who owe them money.

Anytime these “finance wizards” invest in mortgages, they mustfirst pay a mortgage servicing company to administer the mortgage in-vestments... and squeeze the maximum value out of the portfolio.

A mortgage servicing company performs all the mundane adminis-tration behind a mortgage loan. They send out the bill. They collect thepayment each month and pass it on to the lender. They operate a web-site where borrowers can make online payments and check balances.When a borrower misses a payment, they assess the fee. And in the caseof a default, the mortgage servicer handles the collections, eviction, andsale of the property.

Mortgage servicing companies are basically corporate debt collec-tors. They act as middlemen between the owner of the house and theinvestor in the mortgage. It’s their responsibility to create maximumvalue from a portfolio of mortgage loans for an investor. They typicallyreceive up to half a percent of the balance of the loan from the investorin return for administering the loan... and they get paid first... before


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Walter was hidden inside a coal company for years. It only has abrief history as a public company. And it doesn’t trade mortgages ordebts with the rest of Wall Street. These traits give Walter InvestmentManagement a low profile in the investment and mortgage REIT com-munities. I believe this is one reason Walter offers such good value.

As the word gets out about this unique mortgage REIT, its stockprice will rise.

Action to take: Buy Walter Investment Management (AMEX:WAC) up to $20 a share and start collecting its 11% dividend. Usea 25% stop loss on this position to protect your downside.

Given its 50-plus years of experience, the fact that it built thehouses, originated and continues to service the mortgages, and that itsportfolio is concentrated on rural areas of the Southeast where therewasn’t a property bubble, it’s easy to understand why Walter’s mortgageportfolio has much lower delinquency rates than the industry average.

Why Walter Is Not Well-Known inthe High-Yield Community

You’ve probably never heard of Walter Investment Management...

Even though Walter has been managing mortgages for more than50 years, it’s only been a public company since 2009. This makes it oneof the newest mortgage REITs in the industry.

For most of its life, Walter Mortgage was a subsidiary of Jim WalterIndustries, the Fortune 500 conglomerate formed by Jim Walter in the1970s and 1980 with more than $2 billion in annual revenues. As thehomebuilder business fell from prominence, and Jim Walter Industriesdivested some of the other businesses it had collected over the years, JimWalter Industries became better known as a coal-mining company.

In 2009, management de-cided to spin off the Waltermortgage subsidiary from thecoal company and float it as amortgage REIT. With all thehurdles involved in launching anew REIT, management de-cided the easiest way to form aREIT would be to merge withan existing mortgage REIT.

They found Hanover Capital Mortgage, a left-for-dead mortgageREIT whose stock had fallen 99% in the credit crunch. On April 17,2009 the new company was formed. For the first time in its history,Walter’s mortgage company was trading on its own.


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Don’t be shocked...

Don’t be shocked when you look up Wal-

ter Investment Management’s stock

chart. It shows Hanover’s stock price

history and the 99% decline. You can see

the date Walter Mortgage merged with

Hanover. The stock closed at 14 cents on

April 17 and reopened at $5 a week later.

Hanover shareholders got 1.5% of the

newly formed company.

scenes, printing money, guaranteeing debt, bailing outfailed companies, building infrastructure, supplyingcredit, and buying financial assets, there will be NOmore bankruptcies, NO more defaults, and NO morecredit crunches. Just a “vegetable” economy.

This vegetable economy will be difficult for most invest-ments, but for bonds, it couldn’t be better. It’s the perfectenvironment to be a bond investor.

This chart shows the performance of investment-grade corporatebonds. Investment-grade corporate bonds are loans issued by thebiggest and strongest companies in America. As you can see, they’vecompletely recovered their losses from the credit crunch...

Now, the Golden Age of Bond Investing is over. The opportunityto load up with mispriced bonds paying ridiculously high yields haspassed.

Except... a few bonds are still trading at crisis levels. And they’repaying a 16% dividend.

It’s like cleaning up after a dinner party and finding an unopened

Chapter 4The 16% Government Bond

By Stansberry & Associates Investment Research

It was the “The Golden Age of Bond Investing.”

In early 2009, the stock market was collapsing, the economy wascontracting, the Fed was pumping money into the markets, and thegovernment was rescuing the banking system.

But as long as America stayed solvent, bonds made great invest-ments.

To understand this idea, you have to understand the differencebetween a bond and a stock.

A stock is ownership. When you buy a stock, you are entitled towhatever dividends it generates until you decide to sell your stock.Profits, revenues, and growth are extremely important to you. With-out them, your asset loses its value and your investment declines.

A bond is not ownership. It’s a loan. You lend your money, re-ceive interest, and after a certain time, you get your money back. Youhave no interest in future profits, revenues, or growth at the companyyou loan to. So the borrower’s solvency is what matters most to you.

In a contracting economy, revenues and profit shrivel. Stocks getcrushed. But as long as America remains solvent and liquid, interestand principal payments continue. In other words, bonds were safe.Here’s what I wrote in February 2009:

As long as the government is working hard behind the


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As there’s no credit risk in Annaly’s portfolio, Annaly is an inter-est rate play. Investments generate interest for Annaly. Annaly pays in-terest to Wall Street. The greater the interest rate on Annaly’sinvestments compared to the interest rate on Annaly’s debt, the moremoney Annaly makes.

Annaly has been trading agency RMBS since 1997, and it’s donea great job for its owners... producing $22.24 in dividends per sharein 13 years. Annaly’s current stock price is below $18.

It’s no exaggeration to say Annaly’s portfolio managers are amongthe most successful and experienced traders of RMBS in the world.

Annaly’s managers recognized a huge opportunity developing inthe non-agency RMBS market. They couldn’t take advantage of thisopportunity with Annaly. Annaly never buys RMBS that aren’t in-sured by the government. It only buys agency RMBS.

So they set up a brand new company, raised $500 million in anIPO, and put it to work investing in non-agency RMBS. They calledthis company Chimera Investment Corporation. Annaly owns 9.5%of Chimera’s stock.

Chimera’s borrowing costs are its major expense. Chimera has nobank branches or office towers. It doesn’t even have a managementteam. Chimera is managed externally by four executive officers fromAnnaly. Chimera doesn’t pay taxes either, as it’s set up as a REIT.

Gains and losses from its RMBS portfolio are the only otheritems significant to Chimera’s profits. Chimera has to value its entireportfolio every quarter as if every asset was for sale. They call this“mark-to-market” accounting. When the bonds gain in value,Chimera’s accountants report profits at the end of the quarter. Whenthey fall in value, they show losses.

At the end of each quarter, Chimera’s accountants figure out howmuch income they received from their portfolio, and then they sub-

bottle of wine.

These bonds are the last opportunity to make a fortune from theGolden Age of Bond investing.

Deep Discount Bonds With Huge Yields

These bonds are backed by mortgages. Specifically, bundles ofresidential mortgages that Wall Street turned into bonds during thelast real estate boom. If you took out a loan to buy your house, yourmortgage is probably inside one of these bundles somewhere.

On Wall Street, they call these bonds “residential mortgage-backed securities,” or “RMBS.” If Fannie Mae, Freddie Mac, or oneof the other government mortgage agencies insures the mortgages in-side an RMBS, then Wall Street calls them “agency” RMBS. If themortgages came from private lenders, like banks or mortgage compa-nies, Wall Street calls them “non-agency” or “private label” RMBS.

Like corporate bonds, RMBS have rallied back to pre-crisis levels.Today, non-agency RMBS is the only sector of the credit markets thathasn’t rallied back to near pre-crisis levels.

Chimera Investment Corporation (NYSE: CIM) is a pureplay investment in non-agency RMBS...

You might be familiar with the name Annaly. Annaly is thelargest and most respected mortgage real estate investment trust(REIT) in America.

Annaly buys mortgages issued by Freddie Mac and Fannie Mae.These are government guaranteed securities, or agency RMBS.

Annaly finances its portfolio of agency RMBS by borrowingmoney from Wall Street. It uses its portfolio of safe securities as collat-eral on the loans. This allows Wall Street to lend Annaly the money atlow interest rates.


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RMBS right now.

This is your last chance to make a fortune with little risk fromthe Golden Age of Bond Investing. You’ll enjoy the 16% dividend.

Action to take: Buy Chimera Investment Corporation(NYSE: CIM). Use a 25% stop loss.

tract the borrowing cost. This is Chimera’s net income. Then, theyadjust for asset gains and losses in the portfolio and pay the sum toshareholders as a quarterly dividend.

Chimera’s Dividend History

Date Dividend per Share

12/7/2007 $0.03

3/8/2008 $0.26

6/8/2008 $0.16

9/8/2008 $0.16

12/8/2008 $0.04

3/9/2009 $0.06

6/9/2009 $0.08

9/9/2009 $0.12

12/9/2009 $0.17

3/10/2010 $0.17

6/10/2010 $0.17

9/10/2010 $0.18

12/10/2010 $0.17

This is the perfect income investment. You’re buying deeply dis-counted bond investments, paying 16% dividends. The deep discountlimits your downside risk... and the huge dividend compensates youwhile you have your money tied up in these securities.

Meanwhile, the government is doing everything it can to supportreal estate and re-liquefy the RMBS markets. It’s only a matter oftime before the Golden Age of Bond Investing starts exerting its posi-tive influence on the price of RMBS securities.

As I explained earlier, non-agency RMBS don’t carry the govern-ment’s guarantee. But in many cases, they’re actually safer. Withoutthe government backstop, lenders were more cautious when theymade the loans. Non-agency RMBS come with insurance too, justnot government insurance. And because of the higher rates, non-agency RMBS are much more attractive investments than agency


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Most investors dismiss dividends. In fact, some alleged professionalstock pickers refuse to even consider companies that pay a dividend.After all, they argue, the company should be plowing all the moneyback into the growing business. If the company reinvests the cash in it-self, the company can grow even bigger, right? Wrong.

Here’s what investors whose sole focus is on capital gains miss:Nearly half your total long-term returns from investing in stocks comefrom dividends.

Sure, you want the company to use some of its earnings to grow,but you also want to get your money back along the way. In fact,among the most important rules to investing (along with asset alloca-tion and position sizing) is defining your exit strategy – how will youget your money back? When you invest in a small startup, you’re happyto let your money grow as the business grows. But what happens whenthe growth slows? Do you sell the stock?

Not if it’s still a good business. You don’t want to lose out on reap-ing the success of the business as it evolves into a larger, steadier com-pany. Dividends are a simple way to pay back owners who’ve investedin the business. By keeping some of the money and paying the rest toshareholders, dividend-paying companies can continue their growthwhile rewarding shareholders at the same time.

Below, I identify six stocks that I call “Dividend Accelerators”.

In the past 30 years, I’ve seen Wall Street lie and cheat... fromBlodgett to Madoff. The simplest, most effective way to fight back isdemand a dividend. Companies that pay dividends are sending you realmoney – and these dividends don’t lie.

The Best Time in 35 Years to Buy Dividend Stocks

During booming economic cycles (growing economy, light infla-tion), you want to be invested in companies that can ride the wave and

Chapter 5Make Our “Dividend Accelerators”the Cornerstone of Your Portfolio

By Dr. David Eifrig,Editor, Retirement Millionaire

“Dividends don’t lie.”

Accountants can mess with a company’s books in all kinds of ways,but they can’t fake a cash payment. And if a company can pay a divi-dend, it’s almost always making money.

In the past 20 years, we’ve seen Merrill Lynch’s Henry Blodgetttouting stocks he privately dismissed as crap (actually, his term wasworse)... Bernie Madoff mailing out phony account statements tohoodwink $18 billion from clients... Corrupt lenders building a multi-billion-dollar firm based on worthless “no-doc,” “liars” loans... Andthat’s just a sample. There’s nothing new about accounting fraud.

The irony is, protecting yourself from these convoluted shell gamesis simple...

Demand a cash dividend from your investments. It’s hard topay shareholders year after year if you’re cooking the books.

A dividend is money a company pays its shareholders. Every quar-ter, the company counts its earnings and pays out some portion to itsowners (the shareholders). Essentially, it’s your cut of the profits. Andit’s hard cold cash. Focusing on dividend-paying stocks is one of thegreat secrets to building wealth.


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I researched all the stocks traded in the U.S. that have increasedtheir dividends for the past 25 years or longer. (The list isn’t as long asyou might think... It’s only 100 stocks, down from nearly 145 compa-nies three years ago.)

To pare down the list further... I used a critical tool in evaluatingdividend payers: payout ratio. This is the percentage of earnings used topay the dividend. A company that pays a high percentage of its earningsmay struggle to maintain the dividend. Stay away.

But a company with a payout ratio of less than 60% is plowing40% or more of the earnings back into the business. This is good forfuture growth and suggests the dividend is safe. In fact, a 2008 studyshowed 60% of the companies with a payout ratio of less than 60%raised their dividends down the road.

After eliminating any stock with a payout ratio of more than 55%,I was left with 17 companies. Finally, I wanted to pick out the stockswhose dividend increases are accelerating.

Specifically, I looked for companies that raised dividends moreduring the past five years than in the past 10. Think about that for amoment... If I can find a business increasing its dividends during thetoughest stock market and business market we’ve ever faced, they’llmanage all right when things improve.

In the end, I uncovered six companies with double-digit growthof their dividends in both the past five and 10 years.

Here are the special Dividend Accelerators that have been able togrow dividends by double digits for 10 years AND increased the rate ofincreases during the past five years...

Years of 10-Year

Dividend Increasing Dividend

Company Ticker Yield Dividends Growth

Johnson & Johnson JNJ 3.5% 47 13.5%

Procter & Gamble PG 2.9% 53 10.7%

return profits. Companies that can charge higher prices and grow earn-ings along with the economy will prevail... And if they can increase thereturns they pay to shareholders through dividends, that’s perfect.

Also, when inflation is low and rates on savings are meager, buyingstocks that pay big steady dividends is another formula for growingwealth. The ability to maintain a healthy dividend through boom timesand lean ones is the hallmark of great management.

One time you want to avoid big dividend payers is when theyield companies pay is low or declining relative to other alternativeincome-paying investments (like bonds). That’s about the only timeyou wouldn’t want to buy these stocks.

Right now, we have a rare moment in modern history when theyield on dividend-paying stocks matches the yield on U.S. 10-Treasurynotes. At this moment, you can get all the capital gain potential of astock and still capture all the income of the U.S. 10-year note. Wehaven’t seen this setup in more than 35 years.

As investors reach for income and safety, they’ve bid down theyield for the U.S. 10-year Treasurys to less than 3.5%.

I understand the rush to safety. But giving $1,000 to the govern-ment to get less than $35 a year for 10 years is a poor choice, especiallywhen there’s no upside.

If you want to wait to earn $350 over 10 years, so be it. But I thinkwe can do better by looking at other securities paying at least that sameincome stream of 3.5% in dividends.

Stocks That Will Compound Our Wealth

The No. 1 fear of retirees is inflation will lead to a decrease in pur-chasing power in the future. Thus, if you’re on a fixed income, like So-cial Security, it’s imperative to own securities that keep up with futureprices and pass some of that growth back to investors.


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Don’t put more than 4%-5% in any one stock. And be sure andset a stop loss limit of 25% of your invested capital in each and everyposition.

Most of us have the same basic goals of wealth preservation andsafe income. These are stocks that spit off about as much as the 10-yearU.S. Treasury and have a history of taking care of their shareholders. Ifyou’re looking for income and believe like I do that these brands andbusinesses will make it, start buying businesses like these.

It’s possible that the economy stagnates, in which case we’ll makeat least 3% income on our capital. Plus, our dividend should be safe nomatter how bad it gets. Conversely, if things pick up faster than ex-pected, these businesses have loyal followers and brand names that peo-ple will pay good money for – heck, they’ve been doing it through ofthe worst recessions ever. They should be able to do it going forward.

Pepsi PEP 2.9% 37 12.7%

VF Corporation VFC 3.1% 37 10.8%

McDonald’s MCD 3.2% 33 26.5%

Coca-Cola KO 2.8% 48 10.0%

Obviously, these are some of the strongest brands in the world.

In fact, only one company on this list, VF Corp. (NYSE: VFC),wasn’t immediately recognizable to me. But I discovered it makes severalof my longtime favorite brands of clothing and outdoor gear: Wranglerjeans, North Face, Eagle Creek, and Eastpak. Their product quality andlifetime guarantees make them some of the best buys in the world today.

The most powerful aspect of investing in companies like this is whatI call the “dividend payback.” You see, if a company is paying you 3% ayear in dividends and growing the dividend at a minimum of 10%, thenyou will get 100% of your money returned in less than 14 years.

And remember that all of these companies raised the rate of theirdividend increases by double digits in the past five years – so you’ll getback your money even faster if things continue this way.

When I look at the list, I see powerful businesses set to profit fromglobal growth in consumer products and if the U.S. economy revives.These companies are ready with well-known products and services to sell.

More importantly, these businesses have shown themselves to pros-per through all sorts of business cycles. Just to remind you, these sixcompanies have been INCREASING THEIR DIVIDENDS for acombined 255 YEARS. These are Dividend Accelerators!

What to Do Now

I recommend you take at least 15% of your portfolio and investequal parts in three to six of these Dividend Accelerators immediately.Feel free to buy them at current market prices.


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You’ve never heard about these plans before because the govern-ment discouraged companies from advertising these plans. Otherwise,too many people would get involved, putting brokers out of businessaltogether.

You see, under this plan, there were no brokers... no Wall Street...and no stock exchanges to deal with. In fact, a few of these companieseven gave huge discounts (up to 10%) for buying shares directlythrough the company.

To encourage direct investment, these companies paid out unusu-ally high dividends and designed programs that automatically rein-vested the profits. Now, ordinary Americans like you and me couldstart out small – with as little as a fraction of a share – and accumulatethousands of dollars in savings without ever investing another penny.

The technical name for these programs is “Dividend ReinvestmentPlans,” or DRIPs.

DRIPs are schemes where companies sell their stock direct to theinvesting public. It’s like buying a pair of sneakers from a “factory di-rect” outlet instead of going to Foot Locker at the mall. Using DRIPsoffers many benefits. The absence of broker fees is a popular one. Be-cause you buy stock directly from the company, you avoid the broker-age commissions (the fees brokers and money managers charge).

Every corporate DRIP plan is different, so you have to check witheach company to find out the exact details of the DRIP they offer. Also,some companies do charge small fees for buying shares through theirDRIP... These fees are always cheaper than regular broker fees, but still,make sure you understand the fee structure before you sign up. Investorrelations will give you the information, you’ll also find it on the corpo-rate website in the investor relations area of the company you’re inter-ested in. Finally, you can order the Moneypaper’s Guide to DirectInvesting Plans. It’s a guide to every DRIP plan in America. You canorder it here: http://www.directinvesting.com/product_descriptions/guide_fact_page.cfm.

Chapter 6The Dividend Boost

By Tom Dyson,Publisher, Common Sense Publishing

“Dividend Boost” plans began in the 1960s, during America’s eco-nomic and population boom.

Back then, our country was experiencing a period of rapid eco-nomic growth. To keep up with this growth, America’s basic infrastruc-ture – things like bridges, highways, oil refineries, water and sewagesystems, the power grid, and commercial and residential real estate –needed to be built or improved.

Naturally, only a few companies could handle such large projects.And more importantly, these companies needed a constant supply ofnew capital to ensure the projects were done right.

The government came up with an ingenious solution based on em-ployee stock purchase plans. These plans originated at many of Amer-ica’s richest blue-chip firms during the early 20th century. Theyenabled employees to purchase shares directly from their company at adiscount, collect the company’s dividends, and automatically reinvestthe profits.

In the ‘60s, the government decided to make this format availableto the general public. It allowed this group of companies to sell equityshares directly to the public, rather than through the traditional financialmarkets. Americans no longer needed brokers to become investors. Theycould send a check in the mail and begin investing in a company rightaway. And the companies could use public investment for their projects.


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counting, and different inventory valuations. Because investors pay at-tention to earnings more than any other number, it becomes reallytempting to manipulate them.

But think about a dividend. A dividend is a fact. When companiespay their dividends, they mail out checks to every shareholder. Themoney leaves the bank and never comes back. It’s that simple.

Regular dividend payments are a real mark of quality. The manage-ment and directors know their company better than anyone else. Sowhen a company announces a dividend payout, it’s saying, “We havecash we don’t need.” A strong dividend payment almost always indi-cates a healthy business that generates lots of cash.

And a company knows if it takes the dividend away suddenly, itsstock will drop. It’s not always easy to pay out cash to the shareholdersevery year... Cash is a scarce resource, and it’s critical to every business.So when companies are able to maintain their dividends through badtimes, it sends a strong signal to the market that management knowswhat it’s doing... that it has good control of its company’s finances.

Rising dividends protect stock prices in bear markets. Dividendstocks are by nature defensive stocks. But a rising dividend acts like bal-last and prevents the stock price from falling too far.

Finally, a dividend payment signals management’s intention to re-ward investors for offering their capital. As a stock analyst, I place moreweight on the dividend payments than any other statistic when I size upa company. A strong dividend payment is a sign of a healthy business.

How DRIPs Generate Huge Dividend Yields

DRIPs are a convenient, cost-effective tool for investing in stocks.But the real magic in DRIPs happens when you pick DRIP stocks thatpay larger dividends each year... and then you compound your gains byreinvesting the dividends.

Let’s say you enroll in a DRIP. Shares trade for $10 each and you

In general, most plans allow you to make automatic monthly pay-ments and invest as little as $10 at a time, even if the amount buys onlya fraction of a share. This is an ideal way to start out small and continueto invest monthly, or as often as you like. Some DRIPs offer the op-tional cash purchase of additional shares directly from the company,sometimes at a 1%-10% discount and with no fees attached.

Finally, most DRIPs offer automatic dividend reinvestment...again, without any fees.

There’s no catch here. DRIPs are highly efficient ways of makinglong-term investments in the world’s most dominant companies. Thestocks tend to pay larger dividends every year... and soon you’re makingreal money from your small initial investment.

Later, I’ll tell you about my favorite investment that offers a DRIP.This company has a solid dividend yield, a long history of raising itsdividend, and is extremely safe. It’ll continue raising its dividends, nomatter what happens to the economy. With this DRIP, you can makelump-sum investments or you can start small, investing as little as $40and adding to your position at any time.

I recommend getting into this DRIP immediately, and planning tohold it for at least the next 10 years.

Let’s get started…

Why You Want to Own Stocksthat Pay Larger Dividends

A good accountant can fudge 99% of the figures on a balance sheetor a profit statement. I spent the better part of five years putting to-gether accounting statements for Citigroup by day and attending pro-fessional accounting classes by night, so I know.

Take Wall Street’s favorite number – earnings. Earnings are subjectto all sorts of bookkeeping adjustments like depreciation, reserve ac-


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trades for $12.10. So your reinvested dividend buys you 12.1 newshares. You now own 133.1 shares. At $12.10 a share, your position isnow worth $1,611.

In year four, the company pays $1.33 per share in dividends. Youhave 133.1 shares, so you receive $177 in dividends. The stock nowtrades for $13.30 a share, so your reinvested dividend buys you 13.3new shares. Your position is now 146.4 shares. At $13.30 a share, yourposition is now worth $1,947, almost twice what you put in.

Today, I’m going to tell you about two companies that both offerautomatic dividend reinvestment plans and pay out large and growingdividends. But most importantly, they are my top investment ideas – inany market, in any asset class.

I want you to buy these stocks, sign up for their DRIPs, and thenforget about them until you retire. As you’ll see, they are in different in-dustries. They’re both safe, long-term investments. And above all, I’msatisfied each company will keep paying large dividends for many yearsto come.

If you buy both the stocks in this report, you’ll get paid an averageof twice a quarter – about eight times a year. And because you’ll bereinvesting the dividends using the companies’ DRIPs – avoiding anybroker fees, bid-ask spreads, or commissions – you will compound yourprofits into a fortune faster than you ever imagined.

The longer you hold them, the better. The miracle of compoundinvesting – the real secret behind “424 Dividend Boost” plans – re-quires time. I’d say your retirement plan probably needs at least 10years to mature into a fantastic income generator.

Our Favorite Dividend Boost:This Super-Safe, Blue-Chip Dividend Has

Grown 25.93% Per Year for the Last 16 Years

Have you noticed how many products have microprocessors in

buy 100 shares. Total cost: $1,000. Let’s say the stock yields 10% andthe dividend does not grow. We’ll assume the share price stays fixed at$10 for simplicity’s sake.

At the end of the first year, you’ll receive $100 in dividends.That’s 10%. You reinvest the dividend. This increases your position to110 shares. In year two, you earn $110 in dividends. You reinvest thistoo, adding another 11 shares to your position. You now own 121shares. Repeat this process for six years and in the sixth year, you’llmake $161 in dividends. That’s like a 16.1% dividend yield off yourinitial $1,000 investment.

This is what accountants call “compound” investing. Your divi-dends turn into stock. This extra stock then produces dividends of itsown. Compounding interest or dividends is one of the strongest waysto build wealth in finance. Warren Buffett built his fortune by com-pounding dividends.

But I’m not finished yet. Now, let’s assume this company grows itsdividend by 10% each year. Your position compounds at twice thespeed. The 10% dividend yield turns into a 60% yield in the sixth year.

Let’s keep the basics the same. You enroll in a DRIP. Shares tradefor $10 each and you buy 100 shares. Total cost: $1,000. Let’s say thestock yields 10% and the dividend grows at 10%. We’ll assume the shareprice rises in line with the dividend to maintain the 10% dividend yield.

At the end of the first year, you’ll receive $100 in dividends. That’s10%. You reinvest the dividend. This increases your position to 110shares by the end of year one.

In year two, the company pays $1.10 in dividends per share. Youhave 110 shares. You receive $121 in dividends. You reinvest this at $11per share, adding another 11 shares to your position. You now have 121shares worth $11 each for a total position value of $1,331.

In year three, the company pays $1.21 in dividends per share. Youhave 121 shares, so you receive $146.50 in dividends. The stock now


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was way too expensive. Since then, Intel’s earnings per share haverisen nearly fourfold, and its share price is more than 70% lower. It’sa fantastic bargain today, at about 9.3 times free cash flow. It’s easilyworth 50% more... maybe even 100% more.

Today, Intel pays an annual cash dividend of $0.72 per share. Atjust a 3% yield, it doesn’t look big now. But it has raised its dividendevery year for the last seven years in a row. Since 1993, Intel’s divi-dend has grown at a rate of 25.93% per year. At that rate of dividendgrowth, you can hold the stock five years, and you’ll find yourself col-lecting dividends totaling 11% per year over today’s cost. Then holdit another five years, and with that kind of dividend growth – this isnot a typo – you’ll get 40% per year over today’s share price.

But maybe Intel’s dividend growth slows. Big companies likeIntel don’t grow fast. Intel’s last dividend increase was 15%, from$0.1575 to $0.1812 per quarter. Even at that more modest dividendgrowth rate, you’ll have a double-digit yield over today’s cost inabout nine years.

Your core dividend portfolio should be filled with long-termholdings of stocks like this.

Most investors don’t want to hear it, but it’s true. The best, safestway to earn a huge annual cash income from stocks is to plan early,buy world dominators that grow dividends, hold on for years, andreinvest the dividends until you really need the income.

Intel is a perfect dividend reinvestment vehicle. Again, you proba-bly don’t want to hear this. Investors hate hearing about anything thatrequires patience (the most important trait for dividend investmentsuccess). Investors would much rather hear their prejudices confirmed.

So just remember, the more you don’t want to hear this, themore you should listen: A 3.5% yield today, growing 14.3% a year,paid by a company that owns 80% of its market, will provide betterreturns than most stocks with double-digit current yields.

them now? I’m not just talking about your new smart phone, yournew iPad, or your new laptop. I’m also talking about your refrigerator,your car, your washer and dryer, dishwasher, oven, stove, ATM ma-chines, electronic billboards and road signs, self-checkout systems...

Everywhere you go, the world is filling up with more and morecomputerized devices. This trend won’t stop growing during ourlifetimes.

One company dominates the microprocessor industry, selling80% of all microprocessors consumed in a given year.

It’s impervious to competition. Its closest competitor sued it for$1.25 billion and won. The suit required this dominator to share tech-nology with the competitor (which it’s done before)... and still thedominator is stronger than ever, bringing in record sales. This market-dominating company is still blowing its obnoxious, lawsuit-lovingcompetitor out of the water, with revenues nearly seven times greater.

Intel (Nasdaq: INTC) dominates the global microprocessor in-dustry. In business, nothing beats being No. 1. By definition, No. 1companies have a flawless track record of trouncing competition. Andit shows in the financials...

Intel gushes free cash flow (out of which dividends are paid) at arate of $10.3 billion per year. Its profit margins are consistently thick,with 50%-plus gross profits and double-digit net profits every singleyear, year after year.

Intel is one of the most financially strong institutions on Earth(including all the banks in the world). It has a double-A-plus balancesheet, with $21.8 billion in cash, stocks, and bonds, versus just $2.3billion in debt. Intel’s pretax earnings cover its interest expense morethan 44 times over. Imagine earning 44 times your mortgage paymentevery month. Now that’s a margin of safety!

Because the stock has gone nowhere for 10 years, investors areavoiding Intel today. That’s a mistake. Ten years ago, every tech stock


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Chapter 7$1,667 a Month with aLittle-Known Strategy

By Jeff Clark,Editor, Advanced Income

Fixed-income investors are having a tough time right now. Noth-ing is working.

You can sit in a money-market fund and get 0.3% or maybe 0.5%.That’s $300 to $500 per year in profit off of every $100,000 you havein savings. Yes, it’s safe. But really, why even bother?

You can boost your yield with long-dated Treasury bonds. Loaningyour money to the government for 10 years earns you about 3% annu-ally. Of course, if interest rates tick up, you could lose a good chunk ofyour principle if you need to cash out early. You could buy a real estateinvestment trust or maybe a utility stock or two. But none of theseideas held up very well during the recent stock market correction. Andyou’re still looking at yields of just 3%-4%.

That’s why I want to introduce you to an income secret that couldeasily give you all the money you need for the rest of your life. It’s astrategy that originated in Amsterdam hundreds of years ago, but wasperfected on Wall Street in the 1980s.

Over the past 25 years of managing money for wealthy folks inCalifornia, I’ve used this secret to help people make a small fortune.

I can remember one client, for example, who started out with2,000 shares of a company eventually taken over by multibillion-dollarsoftware company Oracle. By using this strategy, my client generated an

There is no substitute for a world dominating company with arapidly growing dividend. Nothing protects and grows a dividend likea world dominating business.

BUY Intel (Nasdaq: INTC) up to $22 per share. Sign up forthe DRIP and begin compounding immediately.

To sign up for Intel’s DRIP, you don’t go through your broker orthrough the company. You go through its transfer agent, Computer-share Investor Services...

You can sign up for the Intel DRIP on the internet by going towww.computershare.com. Once you select your country, click on “In-vestor Centre” in the middle, then “Buy Stock Direct” on the right-hand side. Search for “Intel” and then click “View” under PlanSummary. You should find all the details you need there.

If you have any questions or problems, contact Computershare at1-800-298-0146 (or 1-312-360-5123 if you’re outside the U.S.). Ore-mail [email protected].


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incredible half-million dollars in income in less than two years.

This guy bought a vacation home in Tahoe with his earnings.

I had another client who simply needed to generate about $2,500 amonth in income to cover his monthly expenses. He was easily able todo that using the income strategy I’m going to show you today.

Another client sold a piece of real estate and wanted to get moreincome than she could by putting the money in the bank. I helped hergenerate an amazing $150,000+ per year.

You get the point.

Today, I’m going to show you a way to generate income. Seriousincome.

I have used and continue to use this strategy myself, for my ownaccount. Recently, for example, I used it to generate about $4,000 inincome on a stock called NovaGold Resources.

Before I give you the details, you should know the strategy I’mtalking about is an “options” strategy... but it’s completely differentfrom any risky options trading you’ve ever heard about or tried before.In fact, what I’m going to show you is actually LESS risky than owningordinary stocks.

The technique is called “selling covered calls,” which is sometimesreferred to as “covered call writing.”

In short, covered call writing is the only income-producing ideathat offers high returns and low risks when interest rates are rising. It’sprobably the best way to add extra income to your portfolio. And I’mnot the only one saying this:

• Brian Workman, a senior vice president at Citigroup, says: “Thiswas a definite eye-opener... it makes you wonder what else WallStreet has been keeping from us.”


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• Financial author Ronald Groenke says: “This really is ‘new money.’”

• Paul Kadavy, a member of the American Institute of Banking,says: “You get your 12% or greater return paid up front immedi-ately the day after you make your investment trade... no waitingas with other investments. And you can take that money and useit right away for your personal expenses or use it to reinvest andmake even more money.”

Here are the details...

How Covered Call Writing Works

Although covered call writing involves the use of options, it is re-ally quite simple. In a nutshell, the strategy involves buying a stockand then selling someone else the right to buy it from you at ahigher price in the future.

That’s it.

Think of it in terms of real estate...

Let’s say you buy a piece of property for $200,000. You then turnaround and sell someone the right to buy it from you anytime in thenext three months for $210,000. For that right, you charge a premiumof 4%, or $8,000.

You pocket the $8,000 immediately. It’s your money now. You arealso obliged to sell the property for $210,000 if the buyer chooses to ex-ercise his right.

This scenario has three possible outcomes...

1) The property goes up in value, and the buyer exercises hisright to buy. In this case, you’ve pocketed the $8,000 premium,and you’ll be selling the property for $210,000. That’s an$18,000 gain (9%) in three months. You’ll have to find anotherinvestment property to buy in order to continue the strategy.

What you want to look for are low-risk stocks where the optionscan generate safe 15%-20% annual returns.

The other pitfall to covered call writing is you sell off your poten-tial for enormous gains.

Take our previous property investment, for example. We are obli-gated to sell the property for $210,000. That’s a good gain, especiallyconsidering the extra $8,000 premium. But if the property jumps to$300,000, then we’ll be kicking ourselves for selling at such a cheap price.

But here’s the thing... The purpose of covered call writing is togenerate income, not capital gains. It’s the difference between buying abond and buying a stock. Stock buyers look for capital gains. Income issecondary. Bond buyers want the income, and any gains are a bonus.

Folks who write covered calls are bond buyers.

If you like the prospects of a stock and believe it could easily dou-ble or triple, then you shouldn’t sell options against it. All you’re doingis capping your profit potential and guaranteeing you’ll be out of thetrade before it explodes higher.

To put it another way, you should only sell calls against stocks thatyou wouldn’t mind unloading at the agreed upon price. If it moveshigher after you’re out, who cares? You met your objective and moved on.

Let’s look at an example...

One of my favorite covered call trades we used in my covered-callwriting service Advanced Income, was on King Pharmaceuticals (KG).This wasn’t our most profitable trade. But it’s a perfect example of alow-risk trade we look for.

King Pharmaceuticals is a prescription drug manufacturer. It was acheap stock when I recommended it to Advanced Income readers. At$10 per share, KG was trading at about eight times earnings. It held $4

2) The property keeps its $200,000 value. In this case, you keepthe $8,000 premium. Since the buyer won’t be willing to pay$210,000 for a property that’s only worth $200,000, you’llkeep the property, too. You’ve made 4% in three months, andyou can sell the right to someone else for another three months,repeating the process.

3) The property falls in value. In this case, the $8,000 premiumyou received helps to offset the loss on the property. The prop-erty can fall $8,000 in value before you lose any money. Thebuyer walks away when the right expires, and you’re free to sellanother right for another time period.

If the investment goes up, we sell it for a gain. If the investmentstays the same, then we profit off of the premium. And if the invest-ment drops in value, then the premium helps offset the loss.

It’s a terrific strategy. But there are two major pitfalls...

First of all, if the investment collapses, the small premium you re-ceived by selling the option won’t do much to alleviate the loss on your“safe” money. You have to make sure that your investments are ab-solute bargains.

For example, if a stock drops 10%-20%, you can make up for theloss by selling another series of options a few times and collecting morepremium. But you will not recover from a 50% loss with this strategy.

Unfortunately, a lot of people who try selling covered calls getsucked into buying expensive stocks because the call premiums arequite large and the theoretical returns can be huge. But that strategycarries a lot of risk, and it’s not a good place for “safe” money.

There are plenty of opportunities to generate 15%-20% annual re-turns by selling calls on safe, cheap stocks. You don’t need to try tojuice the returns even more by taking on large risks.


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ate a terrific return.

It may sound confusing at first. But covered call writing is one of theeasiest and most profitable income generating strategies you’ll ever see. Ihope you’ll stick with it to try a few of these simple trades on your own.

You’ll be amazed at how easy it is for you to collect thousands ofextra dollars of income a year with little risk. I’ve used this strategy formore than 20 years in the real world...

An ideal covered-call portfolio would hold eight to 10 positions.You want to stagger the expiration months of the options, so you cangenerate some income on the portfolio every month. When one seriesof options expires, sell another and pocket the additional premium.

If you end up having to sell your stocks because they’re tradingabove the option strike price, just take your profit and move on to an-other position. Remember, the objective is to generate 15%-20% annu-alized income on a conservative portfolio of low-risk common stocks.Fifteen to 20% might not seem like much... but it could mean an extra$1,667 of income every month on every $100,000 of savings.

The trick, of course, is to keep the risk to a minimum. And you dothat by picking the right stocks. By focusing on conservative, value-ori-ented stocks, you eliminate a lot of the volatility that can wipe out sev-eral months worth of gains overnight. You also need to avoid thetemptation to chase the highest-yielding covered call positions, as thosetend to be the trades that are most likely to blow up.

Understand that this is different than the way in which most peo-ple approach covered call writing. Most people start by looking for op-tions that carry the fattest premium and then find a way to justifyowning the stock. That’s why most people have a tough time generat-ing consistent income through covered call writing.

You’re starting with the proper stock selection. Once you’ve nailedthat down, you can move on to finding the right options to sell. Ideally,you’ll be selling options that expire within three to five months, gener-

in cash per share on its balancesheet.

I didn’t see much moredownside to the stock. But withthe overall stock market fallinginto bear market territory anynew recommendation had to besafe and generate enough in-come to cover any potential hitto the stock’s price.

We generated an 11% re-turn by agreeing to sell ourshares just slightly above ourpurchase price within the nextthree months.

Those options expiredworthless – this means the dealwe made with the stock buyerexpired, we kept the premium,and continued holding thestock. We then sold another series of covered calls. Those options ex-pired worthless, too.

So, we did it again. And again.

By the time KG was called away from us (meaning the buyer exer-cised his right), we had earned a safe 52% in 18 months by selling cov-ered calls.

The stock was only 10% higher than where we bought it. Sellingcovered calls, however, brought in so much money we earned morethan 50% during one of the worst bear markets of our lifetimes.

KG was a cheap stock with limited downside risk. The option pre-miums were high enough to compensate us for any risk and still gener-


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How to Get Started

Remember, we’re not buying options

here. That’s a strategy for traders and

speculators. Most options expire

worthless – so we’re taking the other

side of the typical options investment.

We’re selling covered calls. This is the

lowest-risk form of options trading. In

fact, it’s less risky than just buying

stocks outright.

To take advantage of this strategy, all

you need to do is contact your broker

and make sure your account is ap-

proved for covered call writing. In

most cases, you’ll just need to fill out

and sign a one-page form called an

“Options Disclosure Document.”

If you have any questions about set-

ting up your account, don’t hesitate to

ask your broker. He can help you get

ready to make these trades.

Chapter 8Retire Rich with the Best-Performing

Stock of All Time

By Dan Ferris,Editor, Extreme Value

You’ve probably read stories about how state and local govern-ments are desperate for cash...

• Colorado recently released 264 prisoners from jail to save$14 million, turned off almost half its streetlights, and soldtwo police helicopters on eBay.

• In Connecticut, the governor has ordered budget cuts to pro-grams that help prevent child abuse and provide legal services tofoster children.

• Arizona recently eliminated preschool for 4,328 children andhalved funding for kindergarten.

State governments have to make drastic budget cuts because 49 outof 50 of them have a balanced budget requirement. They’re not allowedto spend more than they take in from year to year.

But the states have struck deals with roughly a dozen of the mostprofitable companies in America. In exchange for paying a large chunkof their profits directly to state governments, these companies in turncan operate as virtual monopolies.

Since these deals were signed, these companies have been handingover billions of dollars, which the state governments are using to fundvarious public programs...

ate 15%-20% annualized returns even if the stock goes nowhere, andoffer the possibility of additional capital gains on the stock.

I know this sounds like a tall order, but I’ve been doing it for years.


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several smaller tobacco companies signed on, too. It’s the biggest civilsettlement in history. It’s basically an agreement to pay the 50 U.S.states a total of $246 billion over 25 years.

A Competitive Advantage Like Microsoft’s

There’s an important detail that most people don’t know about the1998 agreement: The master settlement payments rise and fall with ciga-rette shipments.

If cigarette volumes go down, the payments go down. But if thevolumes go up... payments go up even more. It’s a perverse paradox:Your state government hopes you smoke like a chimney. It – notBig Tobacco – is going to gouge you for the privilege.

The Master Settlement isn’t the only meal served up to politiciansand lawmakers by Big Tobacco. Federal and state excise taxes kick thepayoff up another notch. The federal excise tax is $50.50 per thousandcigarettes, or about $1.01 a pack. In 2010, state excise taxes rangedfrom $0.17 (Missouri) to $4.35 (New York) per pack of cigarettes.

Between high state excise taxes and the Master Settlement, tobaccocompanies have become a bizarre sort of utility company. A public utilityis really just a good business into whose pockets and affairs the govern-ment has permanently intruded, but whose survival is thereby assured.

State governments make more money off each pack of cigarettes thananybody. If Big Tobacco fails, municipalities all over the United Statesfail. Municipalities need money more desperately than ever, so theyneed the tobacco industry more than ever.

That’s no phantom idea, either. There’s real leverage here... Back in2003, an Illinois judge told a Big Tobacco company it had to post a$12 billion bond before it could appeal a defeat in a class-action law-suit. The company said the move could force it into bankruptcy courtand prevent it from making a Master Settlement payment.

Washington’s state attorney general flew to the company’s side –

• Illinois received $857 million from these companies in 2010.Most of the money helps pay for Medicaid, with a small portiongoing to substance abuse programs.

• Florida received $1.54 billion, which has been allocated to med-ical research, at-home services for the elderly, and transportation.

• Kentucky is using the $383 million it received in 2010 to subsi-dize education, children’s health insurance, and at-home visitingservices for senior citizens.

These companies are immensely profitable, generating $169 billionannually.

And as I mentioned, they have a unique arrangement with the gov-ernment: In exchange for the money they pay the states each year, theyget huge competitive advantages... For example, by virtue of their mo-nopoly-like status, these companies have a 97% market share of thefourth-most profitable industry in the U.S.

The money that pays for so many government programs each yearcomes from roughly a dozen companies, all of which operate in thesame industry. They’re not defense contractors, oil companies, or phar-maceutical giants.

But they do produce something their customers use every day...

And because state governments are so desperate for cash, themoney these companies pay out gives them an enormous amount ofpower – arguably more than any other industry. As The New York Timesputs it, the reliance of state coffers on this money “could be viewed as agovernment guarantee for the survival of the... industry.”

I’m talking about the tobacco industry.

In 1998, four of the biggest tobacco companies – Altria Group, R.J. Reynolds American, Brown & Williamson, and Lorillard TobaccoCompany – signed the Tobacco Master Settlement Agreement... Later,


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have purchased, with smokers’ money, permission to raise prices collu-sively and suppress competition.”

For investors, all this adds up to a single, simple, inescapable truth:Big cigarette companies have an enduring competitive advantage over allexisting competition.

The No. 1 Brand on Earth

Reduced competition in the cigarette industry and great profitsbenefit the No. 1 player more than any other company. That companyis Altria Group (NYSE: MO).

If you don’t buy my argument that Altria’s essentially a high-profitutility, take a look at its income statement: You’ll find huge taxes and athick bottom line. Utility company returns on equity are capped byregulation. In exchange, they get access to consumers with little or nocompetition. With tobacco, the cap is on profits, enforced via taxes – asis its competitive advantage.

Altria’s gross margin before excise taxes is 66%. That explains howit can pay out 36% of its revenues in federal and state taxes and stillearn a thick, 14% net profit margin.

Altria is not an exception to the rule in its industry, though it’s alittle more profitable than the industry as a whole. What we have hereisn’t merely one wonderful business. It’s a pretty wonderful industry, interms of profitability.

U.S. cigarette sales total about $70 billion a year. The total profit isroughly $8.8 billion, a 13% net margin. Philip Morris USA, Altria’sdomestic subsidiary, captures 36% of that profit. Its top four brands ac-count for more than 50% of the U.S. cigarette market.

Among those four top brands, none is nearly as important toAltria (or to the cigarette business) as Marlboro – the No. 1 ciga-rette brand on Earth.

seven years after suing it for billions – telling the court, the bond “coulddeal a significant, unnecessary financial blow to the states.” Virginia, Cali-fornia, New York, and Kansas put more than $7 billion in bond issues onhold until the matter was cleared up. The company didn’t go bankrupt.On the contrary, it’s made more than $50 billion in net profit since then.

Overall, the tobacco industry has been successful in court. Between1995 and 2005, 59% of tobacco cases in the U.S. were won by the to-bacco industry either outright or on appeal.

The federal government is doing its part to give existing tobaccoproducts an advantage over possible new ones. In 2009, The FamilySmoking Prevention and Tobacco Control Act was signed into law. Itprohibits flavored cigarettes. But menthol cigarettes are exempted fromthe law. So the government is saying menthol is OK (since it brings inbillions in profits every year), but any new product that might competewith menthol is illegal.

Wouldn’t every business love it if the federal government outlawedthe competition?

Over the years, I’ve discovered different types of competitive advan-tages a business can have. One type of competitive advantage stems from“rules and regulations.” The SEC’s rules and regulations keep Standard &Poor’s and Moody’s entrenched as national ratings organizations. TheFood and Drug Administration and its rules for new drugs keep big phar-maceutical companies entrenched, making it difficult for smaller compa-nies to fund new drug development. Without intellectual property law,Microsoft would be a much smaller company, if it existed at all...

Big Tobacco benefits from the onerous taxes only it can afford, theMaster Settlement. States demand such high payments, they’ve putsmall manufacturers of bargain-priced cigarettes out of business.

The Cato Institute, a libertarian think tank, is even less delicatethan I am about Big Tobacco’s competitive position post-settlement. Ina 2000 report, Cato’s Thomas O’Brien wrote, “Tobacco companies


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Aside from entrenched cigarettebrands and growth markets in MSTand cigars, Altria’s sales force wouldmake any Big Pharma company jeal-ous. Altria made more than four mil-lion sales calls last year to a quarterof a million locations.

Remember, too, though it’s indecline domestically, the cigarettebusiness is not cyclical. The econ-omy is bad right now, but smokerswill keep smoking. Cigarettes re-mind me of what the late, great LeeGarfield, creator of the Baltimorelandmark, Lee’s Ice Cream Factory,once told me about his business. Hesaid, “I never worry about the econ-omy. When people can’t afford to goto the beach or buy a new car, theycan still afford to shell out a buck ortwo for some ice cream.”

Cigarettes are like that, too – acheap, readily available form of dailyescape. What’s a smoke break but achance to get away from it all with-out spending $15,000 and flying to Hawaii?

I recommend you BUY Altria Group (NYSE: MO) up to $25 ashare.

Plan to hold onto it and collect a hefty stream of dividends formany years to come.

Right now shares are fluctuating around our buy price. Just be pa-tient and wait to purchase until it’s below $25.

Marlboro’s global market share has fallen the last few years, but itsU.S. market share has grown steadily since it launched as one of thefirst filtered cigarettes in 1955. Marlboro’s U.S. market share is largerthan the next 10 biggest brands combined. It is the No. 1 cigarette brandamong men and women in every one of the 50 states.

There’s no Coke/Pepsi duality here. Newport is competitive alongthe Eastern Seaboard, and Camel is competitive in the West. But meas-ured by market share, Marlboro is No. 1 everywhere.

The Growing Tobacco Market

From 1998-2007, domestic cigarette shipments declined at a com-pound annual rate of about 2.5%, according to market researcher Man-agement Science Associates. The broad decline in smoking is expectedto settle to around 2.5%-3% per year over the next few years.

Though cigarettes are in decline, there’s strong growth in the U.S.tobacco market – as much as 5% a year recently. The growing market isin moist smokeless tobacco (MST), so-called chew. In January 2009,Altria bought UST, the largest maker of smokeless tobacco products.

I’m highly skeptical of most mergers and acquisitions. But this isone of the few Altria could have done to improve its business. What Al-tria and Marlboro are to cigarettes, UST, Skoal, and Copenhagen are tosmokeless tobacco. UST dominates the smokeless tobacco market inthe U.S., with 56% market share.

In addition to smokeless tobacco, there’s another growing tobaccomarket in the U.S. – cigars, specifically, machine-made large cigars. Ci-gars don’t have near the stigma that cigarettes do. Cigar bars have beenpopping up in every major city in the developed world for several yearsnow. The machine-made large-cigar market has been growing at 4%-5%since 2003. Philip Morris recently acquired John Middleton, owner ofthe Black & Mild brand, the No. 2 brand of machine-made large cigars.Middleton’s market share is 28%.


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Triple Your Money in the

Market's Best-Performing

Stock of All Time

According to Harvard professor

Jeremy Siegel, Altria is the best-

performing stock of all time.

Siegel documents Altria's record

run in his best-selling book, The

Future for Investors... From

1925 to 2003, Altria returned

17% per year with dividends

reinvested. If you'd put up just

$1,000 at the beginning of this

period, you'd have ended up

with over $20 million at the end.

Imagine, making $20 million

from a single $1,000 investment.

It's truly spectacular.

I'm not claiming you'll make $20

million over the next several

years from Altria, but, believe it

or not, you could triple your

money on dividends – even if the

stock price goes absolutely

nowhere from today's levels.

Another thing that makes this investment unique is that you can setup your contract so the monthly payouts you receive can go up in value...but never down, even if stocks, bonds, and real estate stay in a bear marketfor another 20 years. In other words, you cannot lose money.

It gets even better...

Unlike any other investment I know of, the money you receivefrom a Guaranteed Retirement Contract could be sent to you for therest of your life, and can even be passed on to your heirs.

But before I go any further, I have to warn you... these GuaranteedRetirement Contracts are not right for everyone, and you must meetseveral requirements before you can begin collecting payouts. The goodnews is, most Americans near retirement age do qualify, and it will takeyou no more than 10 minutes to complete the necessary forms.

Let’s take a closer look...

Will You Have Enough Cash in Retirement?

If you are getting near retirement, you can drive yourself crazy try-ing to figure out how much money you’re going to need.

How long will you live? How high will inflation be? What will hap-pen to the stock market and the economy? All these things affect yourretirement income... and it’s absolutely impossible to know the answers.

That’s why you should consider making sure you’ve got at least acertain level of guaranteed income. Even in the worst-case scenario,you’ll know that you’ve got enough money to meet your basic expenses.

If you’ve got a pension, that’s a good start. The problem is, unlessyou’re a teacher, a postal employee, or a big wig at a Fortune 500 com-pany, you probably don’t have a lucrative pension.

There’s Social Security too, of course. But it was really only meantto be a safety net.

Chapter 9Guaranteed Retirement Contracts:

The Only Investment WithZero Downside and Unlimited Upside

By Dr. Steve Sjuggerud,Editor, True Wealth

It’s a scary world out there if you’re an American retiree.

Stocks have returned nothing over 10 years. Real estate has plum-meted. Government bonds and CDs pay a measly 3%. If that weren’tbad enough, pension plans are falling apart... and supposedly “safe”banks and Wall Street brokerage firms are now collapsing.

How can you be absolutely certain you’ll have enough money tolast for your retirement? Today, I’ll show you how. I want to introduceyou to a potential retirement solution few Americans have considered...

In short, I’m going to lift the veil on one of the most mysterious,misunderstood, and well-kept secrets of the rich... something we callthe “Guaranteed Retirement Contract.”

The Guaranteed Retirement Contract is probably unlike any in-vestment you’ve considered before.

For one, the money you receive is guaranteed by a company that(unlike a bank or brokerage firm) is required by law to have enoughcash on hand to meet all future obligations. Your money is also guaran-teed (up to $100,000 or as high as $500,000) by a “Guaranty Fund”regulated by your state government.


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get back more later, depending on how the investment performs. It’sinsurance in the sense that you pay a premium to make sure your moneywill never lose value... and you will collect a worst-case gain.

It’s like a mutual fund that offers you insurance. No matter whathappens in stocks, bonds, real estate, or the rest of the economy, yourincome will never go down. Remember, it’s the only investment inthe world – besides Social Security and a pension – that can guar-antee you a certain amount of income, for as long as you live.

Here’s another way to think about it: You pay to insure your homeagainst damage. You pay to insure your car against collision. When youbuy an annuity, you’re insuring your future income stream against any-thing the market can throw at you.

About 100 U.S. insurance companies offer annuities. When youbuy an annuity, you enter into a contract with the company. You givethe company either a lump sum, or several payments over time, and itguarantees you income according to the terms of the contract.

There are several basic differences in annuities:

• Fixed Rate vs. Variable. Fixed-rate annuities give you the samepayout every month. Variable annuities, on the other hand, typi-cally have a guaranteed minimum payout, but the payout can goup depending on how your investments do.

We prefer variable annuities, because your payment can go up,but won’t ever go down. Those are the annuities we’ll be talkingabout in this report.

• Immediate vs. Deferred. Immediate annuities begin payingyou, as the name indicates, pretty much immediately. Deferredannuities can either pay you immediately or at some pointdown the road.

Whether you’re interested in an immediate or deferred annuity

One way to be prepared is with a Guaranteed Retirement Contract.You may have heard of this investment by another name: an annuity. Anannuity is a product designed to pay retirees guaranteed income.

I know what you may be thinking... Over the years, annuities havegotten a bad name.

But according to my good friend, financial planner Jeff Winn,“Everything you knew about annuities years ago has changed today.Costs are lower, benefits are higher, the investment options are night-and-day better... Competition has heated up in the industry, and that’sbeen great for investors.”

Today, there are literally thousands of annuity options: You caninvest in an annuity that pays you for the next five years or the next 10years... or one that pays you for as long as you live. You can find onethat pays you immediately, or defers your payments for 10 years ormore. You can buy an annuity that increases your payouts when infla-tion rises or when stocks go up... or one in which the payouts stay thesame for the rest of your life.

It’s easy to get frustrated or confused.

So over the next few pages, I’ll spell out the basics of annuities,some of the options, and how they work. I’ll tell you the eight things tothink about when investing in an annuity. And I’ll show a real-worldexample of how the process will work for you.

Then I’ll explain my favorite type of annuity, which I think offersthe best options for most retirement-age Americans.

Let’s get started...

How These Investments Work

An annuity is part investment and part insurance.

It’s an investment in the sense that you put money in and hope to


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nuities are NOT for you. You must be committed to using them for thelong term.

The issuer will only let you withdraw a certain amount of yourprincipal per year during the “surrender period.” The surrender periodtypically lasts four to seven years.

So, for example, you may be able to take out as much as 10% ofyour initial investment per year without penalty for the first four years.After that, you can take out as much as you want... or liquidate your in-vestment entirely.

Is the tax situation right for you? Annuities are taxed like IRAs.Because the IRS treats annuities as an insurance product, your moneygrows tax-free. And annuities aren’t subject to annual contribution lim-its like on IRAs and 401(k)s.

If you withdraw your money before you’re 59½, you’ll pay incometaxes plus a 10% penalty tax. Otherwise, you only pay taxes on the pay-outs you receive.

Are the costs worth it? For years, annuities have gotten a bad rap.One of the big criticisms is the expenses... that the stock market “gener-ally” always goes up, so you don’t need to pay for protection. That maybe the case “generally,” but what about now?

Of course, guaranteed income does not come free of charge. Andbecause they can offer more benefits, annuities have more expenses thanmutual funds. You can expect to pay about 1% above the costs of yourtypical mutual fund.

But you can shop for annuities on a “cafeteria plan.” It’s simple:You only pay for the benefits you want. You don’t pay for the benefitsyou don’t want.

Are your heirs taken care of? If you die before you receive yourfull principal back in monthly payouts, your heirs can continue to re-ceive payouts or a lump sum until – at the very least – the principal has

depends on whether you’re looking for income now... or arepreparing for retirement down the road. Generally, the olderyou are when you start receiving payouts, the larger the payoutswill be.

• Single Premium vs. Flexible Premium. When you start an an-nuity, you can make one single principal payment, or you mighthave the option of making multiple payments in the amount andthe time of your choosing.

If this all sounds confusing, don’t worry... It’s easier than it seemsat first. And we’ve prepared a checklist of things to keep in mind whenyou’re shopping for the perfect annuity...

Annuity Checklist: Eight Things to Lookfor in Your Guaranteed Retirement Contract

Is the company secure? A.M. Best provides ratings for insurancecompanies, judging their ability to pay claims. We recommend buyingannuities from insurance companies with an A+ rating or better.

Annuities, remember, are guaranteed by an insurance company.So you want to know that the insurance company is going to bearound in 20 years. The higher the rating, the safer the company. Youcan simply ask your broker the rating of the insurance company that’soffering the annuity.

All insurance companies are regulated by the government of thestate where they operate. Part of what these state agencies do is run a“guaranty fund” that every local insurance company must contributeto. If the insurance company that issued your annuity goes out of busi-ness, the money from this fund will be used to pay you back some or allof your principal. You can check with the insurance commission in thecompany’s home state for more details.

Can you invest for the long term? If you are looking for a highlyliquid investment that you can buy one day and cash out the next, an-


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So your downside is limited – at zero. And your upside is unlim-ited. If your chosen investments skyrocket, you’ll see your monthly pay-outs balloon. Your monthly payouts can only increase. They cannever go down.

Let’s look at an example...

Let’s say you’re 65 and you’ve got $100,000 to put in an annuity.You’ve found one that will pay out about $5,000 a year.

Now if you spread that out among subaccounts that end up losingvalue, your payments will stay the same. They’ll never go down.

But if your investments double over four years, your payout couldgrow to $10,000. This higher payout is now locked in.

So now let’s say in year five, your subaccounts lose all of their gainsand drop down to $100,000... or even down to $50,000. For most in-vestors, that kind of loss would be devastating. But with the “lock-in”benefit, you will still receive at least $10,000 every year for life,guaranteed. It’s as though your principal is still worth $200,000, anddidn’t lose a penny.

Given the market’s volatility... skyrocketing one year, plummetingthe next... this benefit can be unbelievably valuable. Imagine if youcould get all of the gains of the stock market, and none of the losses.That’s what happens when you lock in your gains.

Will you benefit in a bear market? Many annuities will guaranteeyou annual compounding growth of 5% as long as you’re not takingpayouts. This means that even if your chosen investments lose money,your income stream is growing.

Let’s look at our example again...

You invest $100,000. But you start right at the beginning of ahorrible bear market. It’s five years later, and your investments haven’t

been returned in full.

Let’s say you are 65 years old, and you would like to put $100,000of your savings into an annuity to guarantee some income for the restof your life.

And let’s say you’ve found an annuity that will pay you $5,000 ayear for as long as you live. If you live another 25 years, you’ll receive$125,000, no matter what happens in the stock market... even if we’rein a terrible bear market for the next 25 years. (As I’ll explain, youcould receive a lot more if the market goes up.)

But what if you live just five more years? You’ll have received just$25,000 from your $100,000 investment. Doesn’t sound like a verygood deal.

That’s why we recommend you opt for a “death benefit.” If youlive a long time, you make out great. But if you don’t live very long,you still won’t lose a penny of your initial investment.

If you die before the original investment has been paid, your heirswill continue to receive payments until your money has been paid backin full. That’s in the worst-case scenario. If your investment has goneup in value (see below for more details), your heirs can receive at leastthe cash value of your investment... if not more.

Opting for a death benefit will increase your costs slightly, but itguarantees you can’t lose money, no matter what.

Will you benefit from a bull market? Some annuities allow youto invest your principal in “subaccounts,” which are like mutual funds.The more choices the annuity offers, the more control you have overyour investment.

But that’s not even the best part: If your chosen investments go up,your payouts increase. But even if your investments go down in value,your payouts will never decrease.


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pal is less than your locked-in highest gain and as long as you’re notcollecting payouts. This gives you a worst-case return you can counton without limiting your gains. Your money can grow in bull marketsand in bear markets... Your income will increase every year, guaranteed.

Next, let’s look at a real-world annuity...

A Real-World Example

Here’s an annuity I reviewed recently with financial planner JeffWinn. I asked Jeff to show me an illustration of an annuity, with thefollowing assumptions:

• I was 60 years old when I invested.

• I made a one-time investment of $100,000.

• I started getting paid immediately.

Jeff chose a simple annuity, just for illustration, from an A+ ratedinsurance company.

For simplicity’s sake, this annuity was invested in just three “subac-counts.” They were:

1. A growth portfolio (which had holdings in companies likeGoogle, Microsoft, Nokia, Berkshire Hathaway, and Cisco).

2. A growth income fund (which held income-paying companieslike GE, Bank of America, and Loews).

3. An intermediate bond portfolio (which invested mostly in cor-porate and government bonds).

If you’d bought this annuity with a single $100,000 investmentback in 1985, you would have received payouts so far of $301,643...and you’d still be collecting a minimum of $17,697 a year, which you

grown a penny... In fact, they’ve lost money. Your $100,000 hasturned into $80,000.

As I said above, your payments will never go down. So you’ll neverreceive less than $5,000 a year once you start taking payouts. But withguaranteed growth, your future income can increase even if your invest-ments lose money.

So with 5% guaranteed annual growth, five years later, it’s asthough your principal is worth about $128,000. It’s as though you’reup more than 25% instead of down 20%.

In other words, your future income will grow if the markets do ab-solutely nothing and even if they tank.

So by locking in your gains, you get all the benefits of a bull mar-ket, but none of the volatility. And by getting guaranteed growth, younever have to suffer in a bear market again. But the best part is, you cancombine these two features...

Are you getting the most out of the bull and the bear? Nowa-days, some annuities can “stack” your worst-case bear-market return(the guaranteed growth) on top of your best-case bull-market return(your locked-in gains).

Let me show you...

Let’s start with the same $100,000, and we’re back in the bull mar-ket. By year four, your $100,000 has grown to $200,000. But then inyear five, your investments take a hit, and drop back to $100,000.

Remember, your future income doesn’t fall. Your gains are“locked in,” as though your principal is still worth $200,000. But ifyou’ve got 5% guaranteed growth, it’s actually more like $210,000($200,000 plus 5%).

That 5% will keep compounding every year as long as your princi-


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How Much Money Do You Wantto Collect Every Month?

Here’s one rule of thumb to “guarantee” a comfortable retirement:

Figure out your living expenses, then subtract any pensions or So-cial Security payments. Now you’ve got the minimum income youneed to meet your basic expenses in retirement. That’s the monthlypayout you should look for from your annuity.

For example, if you are receiving $1,000 per month from SocialSecurity, and you get a pension that pays you $700 a month, that’s$20,400 a year.

Let’s say you figure your basic living expenses are around $25,000a year. Well, you may want to consider an annuity that pays you at least$5,000 a year (or about $415 per month).

Beware of anyone who tries to pressure you into more than that...We would never recommend you put the bulk of your money into anannuity. Stay away from someone who tries to put all or most of yourmoney into an annuity.

How the Process Will Work for You

So now you know just about everything you need to know to findthe best annuity for you... and ensure you collect guaranteed incomefor life.

Once you’ve figured out all the options you want, when you wantto get paid, and how much you want to collect each month, you’re readyto talk to a professional about which annuities will best fit your needs.

Many different financial institutions can sell you an annuity, in-cluding your bank, your online broker, your insurance agent, and possi-bly your financial planner. But they might have a limited selection...and not the right one for you.

would receive every year for the rest of your life. All of this was on onesingle investment of $100,000.

In fact, here’s what you would have received every year since yourpurchase:

Year Payout Year Payout

1985 $5,000 1998 $11,464

1986 $5,249 1999 $13,417

1987 $6,310 2000 $14,388

1988 $7,773 2001 $17,697

1989 $7,881 2002 $17,697

1990 $7,881 2003 $17,697

1991 $7,881 2004 $17,697

1992 $7,881 2005 $17,697

1993 $8,079 2006 $17,697

1994 $8,079 2007 $17,697

1995 $10,006 2008 $17,697

1996 $10,006 2009 $17,697

1997 $11,075

Total: $301,643

Keep in mind, you would continue receiving this annual payout(equal to monthly payouts of $1,474). It could increase in value... but isguaranteed to NOT go down. And your investment would still haveabout $140,000 in cash value... which you could pull out at any time –or pass it along to your heirs.

Considering the fact that the stock market has basically gonenowhere for the past decade, these guaranteed payments start to lookpretty good.

Would you have made more by simply investing your money di-rectly in the stock market in 1985? Perhaps... but what if the stock mar-ket had gone down? You would have had none of the guarantees thatthese offer, which is what a lot of retirees need.


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fixed term. This will give you maximum peace of mind.

• Add a “death benefit,” which will guarantee you and your heirswill get at least what you put into it.

You can put as much as you need to cover your basic retirement ex-penses (after your existing pension or Social Security), but you should stillkeep plenty of money outside of your annuity to have funds on hand.

Guaranteed income-for-life variable annuities are ideal for a smallpiece of your retirement money, so that you’ll know, beyond all reason-able doubt, you’ll have at least a certain level of income for as long asyou live. You owe it to yourself to seriously consider them for a portionof your retirement money.

More Resources

Annuities are a great way to ensure you’ll have some income for aslong as you live. You just have to figure out which options are best foryou. Here are a few more sources to help you out...

• Read the SEC’s “Investor Tips” on variable annuities:www.sec.gov/investor/pubs/varannty.htm.

• Vanguard offers annuities... but not the kind I recommend. It of-fers fixed annuities, which don’t give you stock market upside.And it offers variable annuities, which don’t offer guaranteed in-come for life. But it still has good information on annuities:www.aigretirementgold.com/vlip.

• T. Rowe Price also has annuities... but T. Rowe’s annuities onlyguarantee 80% of your first payment as your worst-case scenario.But you can take a look here: www.troweprice.com. Type “vari-able annuities” in the search box.

• You could check out Fidelity’s Growth and Guaranteed IncomeAnnuity: personal.fidelity.com/products/annuities/content/growth_and_income.shtml. While it doesn’t offer the ability to

With the huge number of options, we suggest dealing with an hon-est independent advisor. They generally have the best selection and canbest match a product to your needs.

Once you and your advisor have found a suitable annuity, ask toreceive an “illustration.” This illustration will include all the details, in-cluding fees, benefits, withdrawal penalties, etc. Take your time to re-view it. You’ll then fill out an easy application. As I said, it should takeabout 10 minutes. You can select your subaccounts then, or wait tochose your investments.

After that, you’ll get a “free look.” When you buy an annuity, youhave between 10 and 30 days to cancel the contract. This free look pe-riod gives you one last chance to opt out. Ask how long your “free look”lasts, in case you change your mind. (Just a note: If your subaccounts godown during the free look period, and you decide not to go ahead withthe annuity, you will only get back the market value of your principal.)

If you’re happy with your “free look,” you don’t have to do any-thing. You’ll start receiving monthly payouts as soon as your contractspecifies.

What I Recommend

Because of the extraordinary number of choices available to you,and because each individual’s circumstances are different, I can’t say forsure the perfect annuity for you.

But here are some of the options I think will get you the most outof your guaranteed retirement income:

• Choose a variable annuity that will guarantee your payouts willnever go down... but leave plenty of upside for your payouts toincrease.

• Look for a good selection of subaccounts to choose from.

• Choose an annuity that will give you payouts for life, not over a


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make the investment choices or the best benefits, the funds in theVIP Funds Manager 60 option are a pretty good mix.

• Talk to your financial planner and see if he deals with annuities.It’s important that he works with lots of different insurance com-panies so that you can be assured he has an independent view.

• Talk with Jeff Winn. If you explain your goals to Jeff, we knowyou’ll end up with what’s right for you. (Jeff and I go way back...He and I were groomsmen in each other’s weddings! We have nofinancial relationship. I’ve just known him for 20 years and trusthe’ll treat you right.) Let him know you’re a Stansberry & Associ-ates subscriber.

• Jeff also said he’s happy to give you a second opinion on any-thing you’ve gotten from your own broker. You can reach Jeff at800-432-4402 or [email protected].

Few Americans have considered variable annuities – or GuaranteedRetirement Contracts, as I like to call them. But they’re an incrediblysafe solution for lifetime income. Unlike stocks or mutual funds, there’sno guessing about how much you’ll have or when you’ll get your money.

You can step up and secure your financial future right now... andknow exactly when and how much you’ll be collecting for the rest ofyour life.


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Published by Stansberry & Associates Investment Research.

Stansberry & Associates welcomes comments or suggestions at [email protected]. This ad-dress is for feedback only. For questions about your account or to speak with customer service, call 888-261-2693 (U.S.) or 410-895-7964 (international) Monday-Friday, 9 a.m.-5 p.m. Eastern time. Or [email protected]. Please note: The law prohibits us from giving personalized investmentadvice.

© 2011 Stansberry & Associates Investment Research. All rights reserved. Any reproduction, copying, or redis-tribution, in whole or in part, is prohibited without written permission from Stansberry & Associates, 1217 SaintPaul Street, Baltimore, MD 21202 or www.stansberryresearch.com.

Any brokers mentioned constitute a partial list of available brokers and is for your information only. Stansberry& Associates does not recommend or endorse any brokers, dealers, or investment advisors.

Stansberry & Associates forbids its writers from having a financial interest in any security they recommend toour subscribers. All employees of Stansberry & Associates (and affiliated companies) must wait 24 hours afteran investment recommendation is published online – or 72 hours after a direct mail publication is sent – beforeacting on that recommendation.

This work is based on SEC filings, current events, interviews, corporate press releases, and what we’ve learnedas financial journalists. It may contain errors, and you shouldn’t make any investment decision based solely onwhat you read here. It’s your money and your responsibility.

Stansberry’s & Associates Investment Research1217 St. Paul Street

Baltimore, MD 212021-888-261-2693

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