The air is rarefied. Less than 3% of managed money is allocated to these special accounts.
That’s unfortunate. Investors can generate investing income up to five times the market average. They can buy the income at a deep discount. Discounts of 20% and more are available.
They’re known as 893(C) accounts. Famous investors – Warren Buffett, Carl Icahn, Bill Gates, Bill Ackman, and others – have invested in, or are invested in, 893(C) accounts. They’ve made millions from income and capital gains.
The attraction is easy to understand. 893(C) accounts are the Holy Grail of income investing: They offer low risk and high yield – yields two, three, and even five times the dividend yield of the S&P 500 are on offer. They offer the potential for exceptional capital gains.
The 893(C) account structure offers numerous advantages compared to other managed-money structures. The opportunity to buy at a discount is the overarching advantage.
When an 893(C) account trades at a discount to net asset value (NAV), investors can buy a dollar’s worth of assets for less than a dollar. Buying at a discount offers two worthwhile prospects: the prospect of capturing high-yield income and the prospect of realizing additional share-price appreciation.
The potential for huge income and huge capital gains is readily observable.
Let’s assume an 893(C) account with $20-per-share NAV, a market price of $18, and $1 of annual distributions per share. The yield – based on the market value of the portfolio – is 5% ($1 divided by $20). If the same investment portfolio were bought through a mutual fund or an ETF, this is the yield you would receive.
But for the 893(C) account investor, the yield based on actual dollars invested is 5.6% ($1 divided by $18). The investor buying at the discount picks up 60 basis points of additional yield.
Now assume that the NAV holds steady on the underlying portfolio, but investor demand for the 893(C) account shares increases. The share price rises, even though the underlying NAV remains unchanged. The $18 market price rises to $20 – the NAV per share.
The investor will realize $2-per-share of price appreciation – an 11.1% additional return even though the underlying value of the portfolio remains unchanged. Because mutual funds and ETFs trade at NAV, the potential to capture additional return through discount contraction never occurs.
The discounts can be deep. Many trade at a 20% discount to NAV. You could pay 80 cents (or less) for investments that cost a dollar on the open market. The selection of investing options is extensive: Discounted bonds, stocks, preferred stocks, master-limited partnerships, REITs, commodities, and gold accounts are available.
Risk reduction is another benefit. 893(C) accounts are fund investments. Many hold over 100 different securities. Diversification has been proven to reduce risk.
Best of all, there’s no velvet rope. 893(C) accounts are open to everyone. No minimum wealth or income requirements exist like with a hedge fund. No minimum investment requirements exist like with many mutual funds.
893(C) accounts accommodate all investing budgets. You can start with as little or as much money as you like.
Few investors know 893(C) accounts exist, and even fewer own them. If you want to learn how to earn 5X more investing income and buy investments at discounts of 20% or more to market value, click here.