Finding investments that return more than a percentage point or two of interest can be a difficult task for the wary person who wants to see substantial results while protecting the investments. Too many stocks, funds, or partnerships that promise above-average returns instead become financial drains that take away hard-earned dollars. However, there’s a type of investment that can bring in returns of more than seven percent. Even more importantly, up to 90 percent of this investment’s earnings are not taxable, truly making it a great find for the savvy investor.
The investment is known as a master limited partnership (MLP). This type of investment is made up of companies in the energy business that extract, transport, process, or store such commodities as natural gas, oil, or coal. The companies don’t actually own the gas, coal, or oil but, instead, own the pipelines and storage areas the energy products require. Because these companies don’t have ownership of their products, they aren’t as likely to be found on commodity exchanges. However, their business is in demand and consistent, so their benefits as an investment are obvious.
Companies that are part of MLPs see results no matter whether energy prices are rising dramatically or are slumping. For these reasons, many financial advisers recommend that investors consider putting money into MLPs. However, there are a few things that must be considered first. MLPs are considered pass-through entities, meaning that, according to tax regulations, individual investors are responsible for the taxes on the income of the percentage of the energy company they own through the MLP no matter how large or small it is. However, capital gains rules allow individuals to defer these taxes until the investment is sold. Investors can accumulate large profits and only need to pay taxes on about ten percent of it.
There are other reasons an investor needs to be careful when considering MLPs. When looking at a partnership’s income statement, the numbers can be deceptively high and might mask some financial drawbacks. The fund’s cash flow statement is a better indication of its health. Investors considering master limited partnerships can get more online by visiting online oil and energy investment blogs.