One Quick Trade for an Extra $850 a Month

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When the Fed's "no taper" surprise sent stocks soaring to new all-time highs, it also sent bond yields plunging and bond prices soaring, as traders scrambled to cover short positions.

In fact, Treasury bonds had their biggest daily price gain in more than two years on Wednesday, Sept. 18, the day the Fed let the air out of the taper expectations. And while a drift lower in long-term interest rates (i.e., bond yields) could continue for a bit longer, there is no doubt that over the course of the next year, interest rates will rise.

So here's the smartest thing you can do right now:

Take advantage of the rally in bonds by selling bonds... and any of the "bond proxies" listed below, including utilities. Then, move the proceeds into one of the four investments I'm about to show you.

They'll give you much better long-term growth potential. And they'll send you a ton of cash, too - up to $850 a month, depending on how much money you put in.

Here's what makes these "specialty funds" so special...

They Do the Work, You Get the Money

Eventually, the Fed will rein in its bond-buying program, and anyone holding traditional income assets such as bonds or "bond proxy" sectors - preferred stocks, utility stocks, and mortgage REITs - will once again be left wondering what happened to their so-called "safe" investments.

To counter this situation, we need to look to non-traditional methods of generating income. And one way to do that is with "buy-write" funds, also known as "covered-call" funds.

Buy-write funds are basically either closed-end mutual funds or exchange-traded funds that employ a covered-call options strategy. They trade just like stocks on an exchange, and that makes them easy to access in your brokerage account with just one click.

In the current upward-drifting market, I think selling covered calls is one of the best ways to generate income and supersize your total return. But for many investors, playing the options game is a bit uncomfortable. And while a covered-call strategy is both low risk and high probability, for some the idea of selling options in their account is a little too daunting a proposition.

Buy-write funds essentially eliminate the trepidation associated with writing your own calls, because here the fund managers do the trading for you. So all you have to do to begin collecting the same kind of income from writing your own covered calls is to buy one or more of the many outstanding buy-write funds available today.

Here are four to consider:

Fund Name
Recent Yield
PowerShares S&P 500 BuyWrite ETF (PBP)
4.09%
Madison/Claymore Covered Call & Equity Strategy (MCN)
8.94%
Nuveen Equity Premium Opportunity Fund (JSN)
9.19%
BlackRock Enhanced Dividend Achievers (BDJ)
7.39%

As you can see, the yield on these funds is very attractive. Even more attractive is the fact that many buy-write funds actually are selling at a discount to their net asset value.
It is cheaper to buy these funds than to buy the underlying stocks that these funds hold. That makes these closed-end funds "on sale" at current values, and well positioned to deliver solid capital appreciation in the future.

Perhaps one of the best features of buy-write funds, at least in the current climate, is that they offer investors shelter against a rising rate environment.

Unlike bonds, preferred stocks, and utility stocks; mortgage REITs; and other high-yield income plays, these funds offer great growth potential and are less impacted by rising interest rates.

And the current income you'll collect certainly won't hurt...

If you were to invest $100,000 in a good closed-end, buy-write fund, you could easily generate $850 a month... and possibly more in capital appreciation. And you can do it without actually ever writing a call option.

Robert Hsu is one of the world's leading financial analysts. He made his mark on the financial world early, first as a quant analyst for a billion-dollar hedge fund, then as a portfolio manager for Wall Street powerhouse Goldman Sachs. He earned his first million at 29 and then retired at 31.

After five years in retirement, Robert founded the world-class money management firm Absolute Return Capital Advisors LLC to help private investors build their wealth. He currently serves as president and lends his special expertise in income investing to his clients and subscribers.

Robert is a published author and appears regularly on national financial TV and radio shows like Bloomberg and CNBC. He graduated from the University of California-Los Angeles with a degree in economics. Robert and his family divide their time between their homes in Beverly Hills and Taipei.