Fixed Income

[cyclone6]

I would like to generate income from the fixed income portion of my portfolio that exceeds the measly yields ZIRP has given in CDs and MMs. So this is what I came up with...

BND: 25% - Vanguard Total Bond
DLTNX: 25% - Doubleline Total Return Bond
NUV: 25% - Nuveen Municipal Value fund
PCEF: 8.3% - Powershares CEF Income Composite CEF
DSL: 8.3% - Doubleline Income Solutions Fund
PFF: 8.3% - Ishares US Preferred Stock

The combined current yield of these 6 at the percentages listed is 4.49%.

I know the bottom 3 are rather "alternative" choices.

Any opinions on an allocation like this? Or maybe a better question is what are some of you doing to try to generate some cash flow?

 

[Big_Hitter]

I put extra cash into a whole life policy that pays 6% dividends.

 

[pb4uski]

....The combined current yield of these 6 at the percentages listed is 4.49%....

What about interest rate sensitivity? What is the weighted average duration?

I have been staying relatively short and using target maturity bond funds as a CD substitute... the 2020 Corporate Bond versions currently yield about 2.6% and have a duration of ~4.

 

[mickeyd]

Any opinions on an allocation like this?

Seems life an awful lot of bond funds as well as a stock fund that you are calling a FI source. Sure, if it works for you, go get it.

 

[Mulligan]

Not recommendation, just viewpoint. I assume unlike me you have a retirement based on your personal assets not a pension that I have. Assuming that is true, your 8.6% asset allocation for preferreds is within reason as 10% is considered a full investment.
I am probably close to 80% preferreds with most in electrical utility area. If one has no desire to buy individual ones Ishares is probably the way to go. However, I disdain them for a few reasons. 1) Their expense ratios steal almost 10% of your precious income right off the top. 2) They are extremely overloaded with banks and non cumulative issues 3) They stuff convertibles in portfolio which are not true preferreds. These are just a short 2 year yield chase and then get converted at the mercy of the common price. 4) Hold many non investment grade issues 5) Due to liquidity issues cannot buy the "good, high grade", illiquid stocks 6) When regular market tanks, they generally go south in unison.
I can buy individual ones that are safer, higher grade, and receive all of my dividends with a higher yield than what a preferred stock mutual fund provides.
I own my preferreds for safety and income. But personally I would be a "total return" investor and just sell shares when needed from a common mutual fund as opposed to owning a preferred stock fund for the above reasons.



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[jebmke]

You get what you pay for. Right now, real yields on anything stable are < 1%. I assume zero because it makes it easy to calculate my RMD when I turn 70.5. The difference between zero and a reasonable estimate isn't worth the arithmetic.

 

[Mulligan]

You get what you pay for. Right now, real yields on anything stable are < 1%. I assume zero because it makes it easy to calculate my RMD when I turn 70.5. The difference between zero and a reasonable estimate isn't worth the arithmetic.

Mostly true but when you dig deep into illiquid preferreds you can find anomalies that return real positive yields in a safe manner. Take for example my favorite one that I have accumulated thousands of shares through patience, an Ameren Illinois (AILLL) preferred issue..

Jan. 4, 2005, Inflation 3%, 10 year note 4.22%. Stock price $24.40, yield 6.78%.... 3.78% above inflation rate

Jan. 4, 2016, Inflation rate 1.4%, 10 year note 2.09%, Stock price $26.20, yield 6.32%..... Yielding 4.92% above inflation.

Steady eddy and always cashes like clockwork every 3 months!


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[jim584672]

Be extremely careful chasing yields. Most of the high yield issues have been straight down for the last year and a half. Only on this recent rally are people starting to go back in due to oil recovering a bit.

Total return is a much better way, just sell some shares for income as needed.