Warning: This High-Income Investment Just Got Doubly Risky

At this point of the credit cycle, a lot of securities look cheap. But the question is whether they really are cheap or whether they are cheap for a good reason.

One class of investment is looking exceptionally cheap right now – trading at 82.7% of their net asset value, and kicking off very high income of 10-17% at the same time. But in fact the whole class is in trouble.

It’s a group of companies known as Business Development Companies (BDCs). A BDC is a closed-end investment company that lends money to small and mid-sized companies. Due to their structure as closed-end funds that pay high dividends, BDCs are designed to appeal to retail investors. The problem is that investors often forget that high dividends come with a price – and that price is usually that the loans made by these companies are illiquid and high risk. And that means that when the economy weakens and the credit cycles turns for the worse, these companies tend to get into trouble. It happened in 2008/9 and it is happening again now, as I’ll show you in a moment.

But Congress just made the risk much worse…

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How to Buy from the Amazon.com of Gold Coins

I told you recently that I’ve been buying more American Gold Eagles, and a lot of you asked for specifics.

I’m happy to elaborate.

There are a number of ways to own gold. The best way is to own physical gold, and I like coins, which can be purchased from a number of reputable dealers.

The dealers I like personally are Kitco (www.kitco.com), Blanchard (www.blanchardgold.com), and JM Bullion (www.jmbullion.com). These firms offer a wide variety of newly minted coins, historical coins, and rare coins, as well as coins from different countries, such as American Gold Eagles, which are my favorite, South African Krugerrands, and Canadian Maple Leafs. You can choose from different weights, ranging from 1 oz. down to 1/10th oz. (and Kitco even offers 1/20th oz.).

They have great service, too. Buying gold is as easy as buying a book on Amazon.com. You can have your gold in hand in a few days. JM Bullion offers free shipping, while Kitco has a flat rate. Kitco is the only one that will ship gold internationally, so be aware of that.

Now let’s talk about prices…

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