A High Income Strategy for a Retirement Portfolio

Discussion in 'Trading' started by jodistrict, Apr 19, 2010.

  1. I now have sufficient money in my retirement account and my expenses are low enough that I could actually live on an annual return on my account if I got at least 6% a year. However, that is not possible in the current environment of low interest rates, and its risky to buy bonds now because the interest rates may increase in the future. Thus it is necessary to assume some market risk. I would like to achieve this rate with the minimum risk possible.

    I am interested in any ideas from other traders in this position and what they do.

    One idea I have is to buy a portfolio of Fixed Income ETFs, but have a sell or hedging discipline that would protect my portfolio in the event that interest rates start rising in the future. For example, the ETF JNK has a yield of 10%. I would like to avoid high-dividend stocks because stock prices could decline significantly in the future.

    I am interested in any insights traders may have. I am also interested in any suggested tools, books, articles, or other resources that could give me insight into implementing this strategy.

    I currently have an account on IB with the NinjaTrader platform. Do you think this is adequate for management and backtesting?

    I also have enclosed a link below of a professional firm managing portfolios which executes a high-income strategy. I invite any comments on his description of his "steady income portfolio". He claims their target is 7% a year.


    http://www.fabianwealth.com/asset_management/strategies.php
     
  2. no easy way. Only timing will help return, everything else won't.
     
  3. Shhhhh

    Shhhhh

    This is why you need to find cheap stocks that pay divys... one of my favs at the moment is MRK. Nice steady 4.2%, P/E Ratio of 6.7, even for pharma a generally cheap sector this is rediculously cheap. and the 4% Div will more than compensate you for the price risk in the stock.
     
  4. Look into the boutique type brokerage firm. they are often invitation only, however.

    This category of brokerage does aggresive trading for very successful business executives. this type of client has expectations similar to those of his business rate of success.

    About 60% ROI is the standard of this type boutique brokerage. Your job is to let the staff work for you in lieu of your becoming informed about making money. you will become informed to be sure but your primary job is to behave like a very successful businessman or what is called an entrepreneur who knows how money works as a commodity.
     
  5. wave

    wave

    Have you considered a corporate bond portfolio or guaranteed variable annuity?
     
  6. You've posed some questions that 10's of 1,000's of investors and retirees have asked for ages. How to live off the nest egg? There's no easy answer.

    Interest rates are about 1.5%, give or take. To get 6%, you'll need to accept some risk. Simple as that. Unless as someone suggested, you go for a 6-7% guranteed variable annuity. Consistently attaining 6% annually in the market isn't that difficult (trading) but it takes most people a good number of years before they get there.

    I took a quick look at your link. It's the typical "We can do it!" pitch. When I saw the name Fabian, it triggered memories of Dick Fabian who championed the 39 week moving avg as a timing signals during the 80's and 90's. I noted in the "About Us" link the name Douglas Fabian. He's one of the sons who took over. Do a web search on him. I recall some articles at MarketWatch citing his poor timing performance last year.

    If you're going to consider managed money, make sure you see a long term audited track record. Apart from consistency, you want to see how they performed during '07 to '09.

    Don't be snowed by Fabian's annual income targets. Mine is 100% a year and I seldom get there :)
     
  7. piezoe

    piezoe

    I have studied this issue at great length. Your best bet is to buy a diversified portfolio of dividend yielding stocks in companies with very sound financials and low betas. A portfolio you manage yourself so there are no management fees to pay. The portfolio should be diversified among both companies and countries. Choose companies selling at modest to low P/E ratios with a long history of upping dividends. Do not choose so many different investments that you have trouble keeping up with them. Half a dozen or so is enough. Reinvest dividends, and in a few years you will have your 6% yield safely, and more. Remember that even as stock prices fluctuate the kinds of companies I am talking about tend to hold their dividends steady or grow them. Thus when the stock price drops the yield goes up so your yield in dollars tends to stay steady and grow slowly regardless of the market.

    The main driver of earnings and the US stock market is now inflation. If you omit dividends the average return from the market in constant dollars is about what bonds yield. Dividends make the difference and the equities offer a measure of inflation protection.
     
  8. Nexen

    Nexen

    How much cash is required to even consider this as a feasible alternative to income ?

    Obviously depends on one needs but with taxes and inflation I would not even know what to set as goal.
     
  9. wave

    wave

  10. lindq

    lindq

    If by now you haven't mastered trading to the extent that you can feel confident in generating a consistent return, then I suggest that you don't bother at this point.

    Or, if you feel you must pursue it, allocate only a very small amount of capital and do not count on it for present or future income. Set a hard limit, then cut yourself off before you bleed your nest egg.
     
    #10     Apr 19, 2010