Looking for income

[Raymond01]

Two of my bonds have matured so I'm sitting on $70k. I was earning about 6% on each. I'd like to try to replace that income as close as possible. How would you do it? Current bonds are earning around 4% I think. I've considered buying individual dividend stocks such as Exxon (5%), IBM (5.2%), Ford (6.7%) etc. Also thought about an income mutual fund, or a bond fund.

My AA is currently pretty close to where it needs to be, and this amount wouldn't swing it too much either way. Are individual stocks too risky for this?

What are your thoughts, which way would you go?

 

[kgtest]

Well, according to Buffet every company in the US is overvalued right now... but then again, where else will you put your dough? I always thought people hoped for 3-4% from bonds, so anything extra would be a bonus.

In terms of where you get income... MSFT, AAPL? Both of these companies should return double digits next year...but that's just what the crystal ball told me.

 

[bloom2708]

What is your mix of stocks and bonds?

Going from bonds to stocks to get "income" isn't a great plan. Tax drag and the stocks could drop 50% or more.

Do you want the $70k to be relatively safe? Individual Muni bonds would give you the best income, but there is risk there too.

Total Return > Income

 

[pb4uski]

What was the term and credit risk of the 6% bonds that matured? If you want 4%, you'll need to buy just above investment grade or go longer. How long were you planning to go?

Also, check out the preferred stock thread... http://www.early-retirement.org/for...ood-the-bad-and-the-in-between-77428-235.html

 

[gwraigty]

I use ETFs in the categories of long-term and high yield corporate bonds, preferred stocks, and high yield stocks. Until recently, I exclusively bought individual corporate and muni bonds, so I do understand the dilemma of having to reinvest at lower coupons. With the exception of the long term corporate bond ETF, most of my ETFs have a dividend yield between 4% and 6%.

 

[ckelly78z]

Look at some of the pharmaceutical, and energy penny stocks in NASDAQ for who has future potential, but be careful.

https://www.marketbeat.com/market-data/biggest-percentage-gainers/

 

[audreyh1]

I don’t reach for high yields. I just pull my annual income from the portfolio without concern about dividends or interest. I sell whatever is highest to meet my annual withdrawal and rebalance to my target AA.

 

[COcheesehead]

You might want to look at closed end bond funds. They are risky, but if held long term can provide reliable cash flow. Pimco is the king.
I own PFN, PTY and PCI - all yielding in the 9%-10% range paid monthly.

 

[Mr._Graybeard]

You might want to look at closed end bond funds. They are risky, but if held long term can provide reliable cash flow. Pimco is the king.
I own PFN, PTY and PCI - all yielding in the 9%-10% range paid monthly.

I'm in Pimco's PIMIX, which is lagging the field in total return at the moment. NAV has taken a hit but the monthly dividend of $0.0555 has remained pretty consistent. Pimco's website lists the current distribution yield at 5.46%, which looks accurate to me.

One problem for the OP -- PIMIX requires an initial $100K investment. PIMIX's little brother is PONAX, which boasts a distribution yield of $5.07%. A lot of people on this forum would blanch at the expense ratio of either fund, though, as it hovers around 1%.

Edit: Schwab lists the PONAX ER at 1.45%. I believe other custodians charge a front-end load, though.

 

[OldShooter]

... I was earning about 6% on each. I'd like to try to replace that income as close as possible.

Wouldn't we all?

How would you do it?

I probably wouldn't try. High yield walks hand in hand with high risk, including risks I would not be interested in trying to understand.

Those who do understand the risks are the ones who have effectively established the yield based on their bids for whatever product you're considering. With about 10,000 mutual funds and a huge number of pension and other private funds you can be pretty sure that pricing inefficiencies do not exist. Luck exists, though. With respect, do you feel lucky?

 

[racy]

How about real estate debt investing? Accredited investors only & high risk, but you might get your 6% interest! Check: https://www.peerstreet.com/
I have 47 loans. The weighted average interest of all my loans is 7.8%. However, some loans are late or in default. So, the weighted interest of the performing loans is 6.3%. YMMV!!!

 

[24601NoMore]

You can buy PIMIX at Vanguard for $25K vs the $100K minimum required elsewhere.

ETA - looks like ER is currently 1.05%. Crazy high for an "Institutional" class fund, but I own it as well as it's tough to beat the yield, TR and long term consistency.

 

[jazz4cash]

Uhaul Investment Club. 5.5-5.75% for 12-15,years pays interest and a portion of principal quarterly
Disclosure: I am not an investor but I might consider it.

 

[LiveBelowMeans]

For income I currently like: RDS/B paying 6.6%, NTR paying 3.9%, and XOM paying 5.1%. Jmho

 

[targatom2019]

I don’t reach for high yields. I just pull my annual income from the portfolio without concern about dividends or interest. I sell whatever is highest to meet my annual withdrawal and rebalance to my target AA.

is there a strategy to pull money out ? like right before rebalance, small portion each month or lump sump, when market is high or don't pull it out when market is low.

 

[davidsawallisch]

Two of my bonds have matured so I'm sitting on $70k. I was earning about 6% on each. I'd like to try to replace that income as close as possible. How would you do it? Current bonds are earning around 4% I think. I've considered buying individual dividend stocks such as Exxon (5%), IBM (5.2%), Ford (6.7%) etc. Also thought about an income mutual fund, or a bond fund.

My AA is currently pretty close to where it needs to be, and this amount wouldn't swing it too much either way. Are individual stocks too risky for this?

What are your thoughts, which way would you go?

Try Worthy

https://worthybonds.com/?r=uhJAQ

They sell asset backed loans and in return give you 5% I've used then for 6 months now and it's been great huge bonus is it compounds daily..... that was huge for me most dividend stocks only payout quarterly and my bond funds pay out monthly and real estate is monthly... but worthy gives you your interest everyday.

 

[DrRoy]

The only way to get 6% fixed income in the current environment is to take on more risk. Your choice.

 

[Perryinva]

Worthy looks interesting. May take 30 days to get your money, so definitely for non critical funds. For only $70k, I’d certainly consider throwing it there.

 

[24601NoMore]

If you can live with mid 4% range, both VWEHX (High Yield Bond) and FNMIX (Fidelity New Markets Income) have ~4.5% yields.

6% yield in this rate environment is unlikely, IMHO without a ton of risk to principal.

Another potential strategy is VWIAX. Wellesley pretty consistently has a TR of ~6% and has done so for a heck of a long time (1, 3, 5, 10 and 15 year TR averages are all north of 6%). Albeit, you're selling appreciated shares to get to 6% as yield is now < 3%, but it's one of the least risk approaches I can think of to withdrawing 6% with reasonable confidence that your overall account value will sustain that..

Note that Wellesley has had a couple of years of down performance, though..I believe the worst was ~-10%. But overall average returns of 6+% should make this a somewhat viable approach..

 

[COcheesehead]

Plot FNMIX against PFN. What do you get? Sub par returns, sub par yield. Sometimes risk is rewarded. I would rather have a 10% yield vs 4.5% and weather a little volatility.

 

[mrfeh]

I don’t reach for high yields. I just pull my annual income from the portfolio without concern about dividends or interest. I sell whatever is highest to meet my annual withdrawal and rebalance to my target AA.

+100

aka Total Return

 

[COcheesehead]

+100

aka Total Return

Yield is part of total return.

 

[mrfeh]

Yield is part of total return.

Yes, I am aware of that.

The OP is chasing yield and not taking a total return approach.

 

[OldShooter]

Plot FNMIX against PFN. What do you get? Sub par returns, sub par yield. Sometimes risk is rewarded. I would rather have a 10% yield vs 4.5% and weather a little volatility.

With respect, there is a false premise baked in here.

Markowitz and his Modern Portfolio Theory pals have successfully sold the idea that volatility is risk and vice versa. This is necessary for them because they have no idea how to measure risk but they can pretend that they are looking at Gaussian data and can play with standard deviations, T-tests, efficient frontiers, etc. more or less forever.

This apparently works for them. It got Markowitz a Nobel after all, but IMO it is misleading. Risk is also Enron, GE, Montgomery Wards, Lehman Brothers, Under Armour, megabank divididend cuts, etc. IOW, risk involves losing real money, not just playing statistics games or waiting out a market dip.

To the point for this thread, several investment ideas with real risk have been mentioned. For example, U-Haul would not be screwing around hustling retail investors if the professionals had not concluded that the interest rate being offered was not acceptable considering the risk level of the investment. I don't have to read a prospectus to know this. It's just simple deductive logic. Re "asset backed" small loans, really? Who is going to foreclose on that collateral, liquidate it, and send the retail investors their "asset backed" money? At absolute best the sellers of these loans are white hat guys, so the retail investors will get whacked only to the extent of court fees, legal fees, and the price discount necessary to dump the collateral.

Any deal for which there is no ready and liquid market has more risk yet. A forced sale will involve a lot of effort and a big discount if it can be done at all.

Volatility is not all there is to risk, and the riskier the deal the less important the volatility aspect is. Just MHO of course.

 

[Raymond01]

Some good insight and suggestions everyone, thanks.

Regarding the "total return" vs. chasing yield debate.... Right now I am able to live on my pension plus interest/dividends/capital gain distributions. So I am not pulling any money from my principle. Which feels really good to me, perhaps a false sense of security. If I sell some of the principle, I lose that plus whatever yield it was producing. Perhaps its just a shell game, but it feels better to keep all investments intact.

My question is really this: At age 57, with AA of 70% stock, 30% bonds, what are the pros/cons of buying individual dividend stocks instead of buying bonds? Based on my current spend, I should not need to sell the new stocks any time soon. So even if they lose value for 10 years, it shouldn't matter since I will have the income from them coming in.