DRIGGS, IDAHO – Do you have cash in a bank account? Does it irritate you that you’re not receiving any interest?
I found a great solution to this problem. It’s like a U.S. savings account but it pays 5.5% interest…
(More below.)
Hunkering Down for the Winter
Greetings from our Airbnb in the mountains…
My family and I are a traveling family. We drift from town to town, adventure to adventure, without owning a home or maintaining a base. We live out of a suitcase and homeschool our kids on the road.
We’re currently in Driggs, Idaho, hunkering down for the winter and getting dumped on by snow. (We’re doing a ski season at Grand Targhee on the cheap.)
While Kate and the kids do their schoolwork, I study economics and investing… and I try to make a living off our investments.
That brings us back to the “bank account” paying 5.5%…
A Low-Risk Way to Earn 5.5% on Your Savings
Normally I don’t discuss specific investment ideas in these Postcards. (I save them for Tom’s Portfolio, my premium service.)
But this is such a conservative “low yield” idea, it doesn’t really fit in with the rest of my Tom’s Portfolio research.
And besides, my subscribers and I are using a strategy that minimizes holding cash. (We’re expecting a devaluation of paper money, so we’re mostly in gold and silver.)
Still, this would be a good place for Kate and me to keep our travel funds in, for example… and earn 5.5% interest instead of earning nothing at the bank.
So what is it exactly?
It’s what some people are calling a “cash box.” That is, a publicly traded company that’s got a massive pile of cash and not many other assets.
The one I’ll tell you about in a moment, for example, has $3 billion in cash and $258 million in office property. (Cash is 92% of its total assets.)
Even though they have this mountain of cash, they have issued debt in the form of something called a preferred share, which is paying 5.5%.
Preferred shares are debt instruments. Think of them like a cross between a stock and a bond (they’re a little bit like both).
In theory, buyers of these securities get their money back in full – plus annual interest. They don’t participate in profits or losses. As long as the company doesn’t go bankrupt, they get their money back.
Of course, no investment is completely risk-free… And with preferred shares, one of the main concerns is usually credit risk. For example, if a company defaults on its debt, investors who own preferred shares may not get their money back.
But the company I have my eye on doesn’t have that problem. Its debt is risk free, as the company has $3 billion in cash and practically no other liabilities.
Nice way to make 5.5% without any credit risk.
And that’s the beauty of buying preferred shares in quality companies. Which brings us to the company I’ve got my eye on today…
Betting on a Real Estate Mogul
The company is Equity Commonwealth, a real estate investment trust (or “REIT”). It’s a Sam Zell company for investing in office buildings.
Zell is the chairman of the board… and he’s also a real estate mogul and billionaire investor.
He got his start as a boy in Chicago, reselling Playboy magazines to neighborhood boys for a 600% markup. But his real break as an investor came in the ’80s, when the real estate market crashed… and he scooped up office and residential properties on the cheap.
Right now, Equity Commonwealth only holds four properties. They’ve sold 161 buildings over the last six years and hoarded $3 billion in cash. (An excellent move by Zell to sell all these office buildings before COVID-19 arrived.)
One of these days, they’ll announce they’re spending some – or all – of this cash on a big exciting new real estate deal.
Knowing Zell’s track record in real estate investments, it’ll probably be a home run. (Zell’s previous office REIT, Equity Office Properties (EOP), generated a compounded return of over 17% from ’97 until its sale to Blackstone in ’07.) But investors don’t have to consider this now…
For now, they can collect 5.5% interest by lending to a company that’s basically just a $3 billion pile of cash.
The Equity Commonwealth preferred stock has the symbol EQC-PD. (You can buy and sell it through most brokers, just like a regular stock.) It trades around $30 at writing. The current yield is 5.5%.
– Tom Dyson
P.S. Equity Commonwealth is just one way to beat inflation and preserve your buying power. At my Tom’s Portfolio advisory, I put together an entire model portfolio with my top gold and silver recommendations to fight the currency devaluation I see coming. If you really want to protect your portfolio and grow your wealth over the next few years, watch this.
Like what you’re reading? Send your thoughts to [email protected].
FROM THE MAILBAG
More kind messages for Tom, after he shared the eulogy he wrote for his mom…
Reader comment: Dear Tom, what a beautiful woman your mom was! I’m so sorry for you, your brother’s and family’s loss. She sounds like an amazing woman who loved family and friends and knew how to live life to the fullest! We should all have such a positive outlook on life! What an inspiration she must have been to everyone who knew her. Thank you for sharing her story, it has inspired me!
Reader comment: My condolences on the passing of your mom, Teddy Dyson. At least you got to see her in the end. It was not easy for you. I know. Thank you for writing the eulogy and telling us about your mum. She died too early. I am your reader in Paris, France and pray for you that you get strength to continue.
Reader comment: Tom, your words for your mother (mum), are moving. They will carry and sustain you. I lost both parents to an equally debilitating disease, Alzheimer’s. One mourns twice. But like your eulogy demonstrates, the happy memories will remain powerful. Bless you and your family.
Another reader inquires about the Dyson family’s skiing adventures…
Reader comment: Enjoy your messages on your life and views on investing. You have not, that I have seen, indicated how you are getting on skiing. As a lifetime skier who believes it is the best family sport there is, I would be interested in learning how the skiing is going.
And finally, the debate on China continues, following a reader question in last week’s Friday mailbag edition…
Reader comment: I disagree that we won’t be able to compete with China. The one thing that has made Western civilization prosper is patent law. The profit motive lives in the human spirit. Whether it’s the Chinese, the Russians, or whoever, all they can do is copy the best innovations the West puts out. There is no incentive to innovate in the socialist world, thus there is stagnation. Success stories are always born in the West.
Reader comment: You know, Tom, China has become such a contentious, emotional topic! I understand the current suspicion, fear, and outrage people are feeling, knowing that China’s goals, values, and aspirations are probably in conflict with our own. However, it takes a physical visit there, in the flesh, to fully appreciate the incredible accomplishments they have made. One needs to walk in Shanghai and look at the skyline and realize that Toronto, Canada is a sleepy provincial town in comparison.
Talking with the people and hearing their pride and faith in the future, and looking at the fantastic remodeling of a country makes you realize their response to this change is positive and supportive of what the government has accomplished.
They understand they are giving up personal freedoms, but many seemed to feel that this was warranted given the challenges that the government of China has faced in raising China out of the ashes. I am not saying we in the West have to agree with or share the Chinese values or vision of the future. In fact, I think it is imperative that we do not. But this is a culture that deserves tremendous respect, and it is imperative that we learn how to understand and communicate with them effectively.
As always, please keep sending Tom your questions and comments to [email protected], and he’ll answer as many as he can in a future Friday mailbag edition.