First, the good news: From June 2007 through September 2008 (i.e., during the credit crisis) Income CEF payouts per share were virtually unchanged. From June 2008 through September 2008, payouts rose slightly--- 29 funds raised their payouts and 17 lowered them. Your portfolio spending money should be higher than it was a year ago.
Brokerage firm monthly statements are designed to promote either fear or greed, depending on the current market environment. Nowhere on your statement can you find numbers that report your net investment, your total working capital, or your true asset allocation. Current and projected income numbers are given little attention, and monthly withdrawals are treated like losses of principal.
Income portfolios are reported upon using the same format as growth portfolios, and too much analysis is required to determine if the income production is either safe or adequate based on each investor's personalized plan. Even for portfolios that, by design, are retirement income providers, sleep-inducing comfort information is not provided.
The most disconcerting column on the statement is the "Unrealized Gain/Loss Column", particularly when you manage your portfolio according to the Working Capital Model. All profits of any magnitude are realized ASAP, and you should not expect a lot of your positions to be "in the black". Wall Street statements create a perception that the red numbers are bad, without any analysis of what should be expected based on market conditions.
Wall Street has long ignored the income portion of the portfolio, combining it in overall totals and summaries to confuse and befuddle those who would prefer to have comfort and clarity on a more personalized level. Recently, some pretty boring securities have been speculatively sliced, diced, and re-formatted into MBWMFDs (Mortgage Based Weapons of Mass Financial Destruction), causing most income investors a great deal of discomfort.
The "Investment Grade Value Stock Expectation Analyzer" helps investors understand the market value movements of high quality equity securities. No statement should ever be a surprise--- in either direction. A similar presentation for income CEFs cannot be produced for lack of a recognized content rating system. The statistics in the first paragraph are based on a portfolio of 114 managed income CEFs.
Income investing is naturally less risky than equity investing, except when the credit markets are in turmoil as they are today. Steps are being taken to reduce the problems, but no cure should really be expected overnight. There have always been two types of risk in income investing, and in that sense, nothing has changed.
(1) Credit risk involves the ability of corporations, government entities, and even individuals, to make good on their financial commitments; we minimize this risk by selecting only higher quality (investment grade) securities.
