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A friend of mine who is about 50 years old has about Two Million Dollars in his Fidelity Brokerage Account. He is just sick and tired of the corporate rat race and wants to semi retire and travel the world for about a year, living in 10 different cities, and then work part time.
He has been looking at creating a portfolio of about 25 different high yield funds across a diversified range of investments. These include REITS, Business Development Corporations, Energy Trusts, High Yield Bond Funds, Closed End Investment Funds, etc. The only constant is they all average about a 10% yield and pay dividends monthly and they have a history of constant or increasing dividends.
He would live on the monthly dividends. He won't care as much if the ETF's goes up or down, just as long as their dividends keep paying monthly at the same or similar amounts. (He has budgeted for a possible 3% combined decrease in dividend payouts due to unexpected business issues, but that is not expected with his large number of diverse investments.)
Invest wisely. Expect the dividends and value of the portfolio to change with ups and downs. Withdraw amounts that are consistent with needs and long term growth expectations. Ignore the fluctuations.
hey jrk , we are headed to planting fields today to do a photo shoot if you are in the area.
i would think he would want a better diversified mix than betting the ranch on high yield stuff at this point. especially with interest rates poised to rise hurting mortgage reits and 1/3 of the high yield market made up of small energy companies that can be driven out of business or into default .
total return on high yield bonds sucked for 2014 having the risks way outway the rewards. decent etf's like HDV did well but they are at a lot of risk at this stage. with exxon and chevron their biggest holdings they got pounded the last few weeks.
alot of these high yielding etf's are high yielding because they hold alot of the energy sector or mortgage reits.
you have to remember natural gas plunged 50% in 2008 and never recovered. we do not know if 50 bucks will be oils new range for years to come too.
if your friend was not planning on living on this i would say what the heck roll the dice but if this will be your bread and butter income i think you need to give this alot more thought and skill.
Last edited by mathjak107; 01-10-2015 at 07:50 AM..
and many did, 2008-2009 saw 100 billion in dividend cuts just from the s&p 500 alone that share holders did not get . those dividend aristocrats are dividend payers not the high yield stuff your friend is referring to.
Fidelity has managers, if people wish to not be bothered, he can draw say 5% a year and let them manage the fund with either a 60/40 or a 50/50 or however conservative or not conservative he wishes to be. The managers seem to manage to make around 6 to 8% a year using conservative re-balancing on 60/40 or 50/50 , so that way your friend would have 100k a year less taxes to spend and hopefully keep his portfolio at approx the same value over time.
Tell your friend to talk to his Fidelity rep to see what suggestions they might have for him, such as investing in tax free or in taxable bonds as part of his balancing, depending on the tax bracket he is or will be in.
Strange the article doesn't point out that once a dividend is paid out that money is perm removed from the company and can no longer work to compound their earnings and growth. Really the same functionality of you selling and not being able to have those shares grow
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