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Resource Income Secrets of the RichBy
Thursday, November 11, 2010
The United States government has declared war on you – the saver.
If you're reading an investment advisory like this, chances are you've made good decisions regarding your wealth over the years. You've likely started a profitable business or acquired useful skills that provide you with employment and a good income. You "followed the rules" and worked hard... You paid your debts... And you've socked away money for retirement – money you'd like to put to work and earn income on.
Here comes the kick in the teeth...
Rather than take unpopular steps of reducing government spending and welfare programs, politicians are taking the easy way out... lowering interest rates and printing money to stimulate the economy.
You – the saver – are the loser in this game.
Lower interest rates mean low bond yields... low dividend yields... and the specter of inflation eroding the purchasing power of your savings. You are punished for socking away cash. It's as if you've waited patiently in a theater line with a ticket you've worked your whole life to buy, only to get to the window to see Ben Bernanke slamming it shut, saying, "No income for you."
I focus on resource investments. And while my primary job is to find the world's best "blue sky" resource stocks that hold home run potential, I'm always on the lookout for ways folks can safely tap the resource market for income... income that can rise along with inflation. I'm on the lookout for ways to win the war on savers.
One of the most popular income strategies of wealthy investors is to participate in private oil and gas drilling partnerships.
Done the right way, these partnerships consist of a driller who brings experience and equipment to the table, along with a portion of the cash needed to perform the drilling.
Alongside him is a group of investors who pony up the rest of the cash needed to drill. If the drill program is successful, investors earn a steady income stream as the wells are pumped out. These income streams can last for over a decade... and can pay out double-digit dividends.
These types of deals create large after-tax income streams, which attract wealthy investors... The federal government allows these partnerships to enjoy special tax status because it wants to stimulate investment in domestic oil and gas.
The great thing about drilling oil wells is you can write off about 60% of the money you spend. You get to expense all the "stuff" you use to drill. Then, you get to depreciate your equipment over the first three to five years. Say you drill a $500,000 well. Immediately, you can write off $300,000 of it as drilling costs. Then, thanks to accounting rules like depletion and depreciation, 70% to 80% of the income from that well is tax-free.
If your well works out and pays back your $500,000 in oil production, you are only taxed on roughly $100,000... but you keep receiving tax-sheltered income for years.
Doesn't that sound great? Problem is, there's a catch. It's not for most investors.
To be invited to the table, you have to have a huge net worth and be an accredited investor. In other words, you've got to be able to write big checks... the kind with five or six zeros (in front of the decimal).
However, I've found a way we can make these same tax-advantaged investments in the stock market. These investments are open to anyone, whether you have $1,000 to work with... or $1 million.
I've spent the past few months interviewing some of America's best tax professionals and corporate lawyers... guys who spend all day setting up these deals for some of America's wealthiest individuals. The consensus is clear – the best sector to find tax-sheltered income is in domestic oil and gas.
Several tax-advantaged oil-drilling partnerships trade on the stock market. You can buy them right now, and enjoy distribution payments north of 8%. These distributions are based on the price of oil, which will rise if Ben Bernanke continues to stoke inflation with low interest rates and more money-printing.
In tomorrow's essay, I'll explain more about how these partnerships work... and give you a list of the half-dozen I've uncovered so far.
Until then...
Good investing,
Further Reading:
Tom Dyson also decided to fight the government's agenda. "I'm going to save my money regardless of zero-percent interest rates and an overvalued stock market," he writes.
Market NotesTHIS "GURU-APPROVED" ASSET IS SOARING The "food rally" we've been highlighting for the past year is in full bloom. Just ask the "DBA."
DBA is the symbol of the popular investment fund that allows investors a "one-click" way to take a position in vital agricultural commodities, like corn, soybeans, wheat, sugar, cattle, hogs, and coffee. We keep an eye on this fund because "ag" is a favorite idea of super investors, like Marc Faber and Jim Rogers.
The bull case here is the same as most commodity sectors. Growing demand from Asian markets like China and India will keep a long-term tailwind at the sector's back.
As you can see from today's chart, this potential tailwind is howling right now. After spending much of the past year in the dumps, the DBA has climbed 28% since July… and just reached a fresh 12-month high. The trend is up for this "guru-approved" basket of commodities.
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