I am with ScotTrade. I am 68. I want to gradually invest about 100,000 in either KMP or KMR. I want to use the proceeds of the investment for living expenses. My retirement income now is only 15,000/year. I am expecting to inherit, in the near future, a large sum (1,000,000). In essence, I need to live off income from the inheritance. Should I buy KMP or KMR. Thanks.
@ age 68 safety is #1. You have no need to hit home runs, just suppliment your income. Individual stocks even KMR and KMP can go through rough time and losses, no stock is safe, perhaps a good Vanguard (no load, low management fees) a growth and income fund would be best investement, with $100K you should be able to get admiral shares. Having 100K profit wont change your life as much as losing 100K ! Risk what you can comfortably afford losing. With 100K I would never buy individual stocks, only a good mutual fund.
Most financial advisers suggest $10k to $50k first in a broadly diversified mutual fund like Fidelity Contra Fund or ETF where SPY is the best proxy for the S&P 500. I agree.
After that individual stocks are appropriate. Look for a diversified mix of stocks that are growing their dividends. Also, look to scale back your investments when you have a nice chunk of profit. All too often retail looks to sell after a substantial decline. If your $100k goes to $110k, sell $10k and put it into a money market fund. If the market sells off, say to $90k, move the $10k back in.
great advice ! @ 68 don't look primarily to make $,but keep what you have !.I'm in that age bracket and have friends who retired in 2005-2009 and are now working part time to supplement their incomes becaused they focused on the return side of the double-edged sword instead of the risk side.
In a taxable account, buy KMP. Add to that shares of KMM (8.9%), AGNC (16%), and VGR (15%, which includes an annual 5% stock dividend in addition to the 10% cash dividend), for income and balanced portfolio. Historically, those stocks have held up well for CapGains in the market, have been able to maintain (or increase) their dividends in bad times, and are excellently managed companies.
Since you appear to be in a relatively low income tax bracket, the 100,000 invested in KMP will currently net you approximately 1226 shares of KMP at the current price of 81.51. This gives you a quarterly dividend of $1507.98, or $6031.92 on an annual basis.
So depending on your tax situation, marriage, dependents, taxable retirement income, etc, the annual dividend should have no significant impact on your tax situation. Just remember that you will recieve a K-1 report from your broker for tax purposes, but any tax impact should be small, if any, because of the MLP structure of KMP.
Good luck & happy retirememt.
Putting almost all of your investments in one stock is poor diversification. Putting it all in at one time is poor timing. Tax changes (individual, corporate, MLP or a mix of them all), management departures (managers are mortal), a major recession, all could send your investment value down by quite a bit.
That said, you can have your cake and eat it too with KMR. "approximately 1226 shares of KMP at the current price of 81.51." But you can buy 1226 shares of KMR for $92,330.06 (1226 * $75.31) leaving you $7,669.94 cash. "Pay" your self the cash out of this $7,669.94 by transferring it from your brokerage account to your checking account, let's say $500 per month. By the time the $7,669.94 has run out in 15.33 months ($7,669.94/$500), you will have plenty of extra KMR shares you can sell to start the process over.
You should look at other investments that are growing their dividends. At 68, you might well live another 20 years and the growth in dividends will be much appreciated by then.
Only KMP will provide you with an income stream. KMR is structured such that its dividends are paid in the form of shares instead of actual cash. Therefore KMR is treated as a Corporation instead of an MLP, meaning less tax headache's for shareholders. KMP however is more suitable for you as it will provide you regular cash distributions. Given that you are looking for income, KMR is not the way to go (the only way to generate income off KMR is to sell a portion of shares on a regular basis, which is kind of a strange way to generate income). KMR is more suited for the long term investor. KMP for the income investor.
AAPL investors may wish they had sold a small part of their position on a regular basis. A strange way to generate income, but it is better than buy, hold and then the inevitable complain when OMG, AAPL went down, KMR went down, KMP went down ad nauseum.
Anyway, my example above does NOT require selling any KMR for 15 months. You just dip into the cash leftover from buying the same number of shares of KMR as you would KMP. The KMR discount to KMP provides enough cash for 5 distributions.
"Given that you are looking for income, KMR is not the way to go (the only way to generate income off KMR is to sell a portion of shares on a regular basis, which is kind of a strange way to generate income)."