Retirees: Where are you going for income?

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Explorer
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Re: Retirees: Where are you going for income?

Post by Explorer » Wed Oct 19, 2016 6:34 am

Unleveraged or low-leveraged Closed End Funds with discounts..is what I use.

But - limit your exposure to CEFs to a very small portion like salt & pepper on your omlette.

Many other factors with CEFs need to be considered as well..

Good Luck.

rgs92
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Re: Retirees: Where are you going for income?

Post by rgs92 » Wed Oct 19, 2016 7:33 am

Preferred stock ETFs like PFF maybe? Just take the 5 to 6% dividend and ignore the share price I would think (assuming you could leave the original investment there permanently if you need to). Any comments/opinions on the safety of this? Thanks.

By the way, if held in a taxable account, are these dividends taxed at 15% or your full rate? If they are qualified for 15%, this would seem to be a good deal or even a nice loophole. Thoughts??

The share price of these ETFs seem to be extremely stable relative to normal stock ETSs. Utility stocks are an obvious alternative, but a single utility could be volatile and a utility ETF or fund has lower interest rates it seems.

I've had a big chunk of PFF for many years now in a retirement fund and have been enjoying the dividend which seems like candy to me.

SGM
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Re: Retirees: Where are you going for income?

Post by SGM » Wed Oct 19, 2016 8:17 am

Many preferred dividends are qualified and taxed at the same rate as qualified dividends from common stocks.

If you limit your preferred and higher dividend closed end funds I think you may be okay. You have to be willing and able to take the additional risk. I like the idea of SPIAs later in life for additional income as well as delaying SS until 70.

Gee I don't know where we are going to spend the extra 0.3% SS COLA for 2017.

rgs92
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Re: Retirees: Where are you going for income?

Post by rgs92 » Wed Oct 19, 2016 8:26 am

Yeah, SPIAs can be great. I have a bunch of them that I put a little over a half million into about 10 to 15 years ago that pay about 6 to 7 %. No inflation protection and principal is gone of course, but they still make me happy and luckily inflation has been subdued.

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Re: Retirees: Where are you going for income?

Post by JW-Retired » Wed Oct 19, 2016 8:34 am

furnace wrote:
ruralavalon wrote:Age 71, retired 5 years, and our income needs are met by Social Security and Required Minimum Distributions from my traditional rollover IRA.


I'm glad you don't have to touch your giant nest egg yet, and the future is still far ahead. But it seems like, while many people under-save, some have over-saved. Hopefully this will give some comfort to those who are behind on their savings -- that it's possible to retire on a smaller nest egg than otherwise believed :sharebeer

I'm not following this. The RMD is now touching ruralavalon's rollover IRA giant nest egg for almost 4%/year, and this % amount will get a yearly boost. He implies he is spending some or all it on income needs. This is pretty much how tax deferred retirement saving is supposed to work.

Is there another untouched giant nest egg somewhere I missed?
JW
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LarryAllen
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Re: Retirees: Where are you going for income?

Post by LarryAllen » Wed Oct 19, 2016 9:02 am

honduranhurricane wrote:Bank loan funds. Some are yielding 5+% and loans sit at the top of the capital structure. No duration thanks to the floating rate but there is credit risk. I am ok with that.



I just read in Barons about bank loan funds. Where do you invest in them? Is it easy to diversify among several companies to spread your credit risk?

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Re: Retirees: Where are you going for income?

Post by Dave55 » Wed Oct 19, 2016 9:17 am

LarryAllen wrote:
honduranhurricane wrote:Bank loan funds. Some are yielding 5+% and loans sit at the top of the capital structure. No duration thanks to the floating rate but there is credit risk. I am ok with that.



I just read in Barons about bank loan funds. Where do you invest in them? Is it easy to diversify among several companies to spread your credit risk?


Fidelity has a fund, Fidelity Floating Rate High Income FFHRX.

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Re: Retirees: Where are you going for income?

Post by Kevin M » Wed Oct 19, 2016 12:43 pm

boater07 wrote:
Kevin M wrote:
nisiprius wrote:There isn't any place to get a safe 3% that I know of.

<snip>You can't get 3%

Yes you can.

Kevin

apparently it depends ont the county where you live
I can't log in

Huh?

Kevin
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Re: Retirees: Where are you going for income?

Post by flyingaway » Wed Oct 19, 2016 1:26 pm

After reading all posts, I think the paycheck from my employer is the safest income. Keep working.

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Re: Retirees: Where are you going for income?

Post by Trader/Investor » Wed Oct 19, 2016 1:50 pm

Dave55 wrote:
LarryAllen wrote:
honduranhurricane wrote:Bank loan funds. Some are yielding 5+% and loans sit at the top of the capital structure. No duration thanks to the floating rate but there is credit risk. I am ok with that.



I just read in Barons about bank loan funds. Where do you invest in them? Is it easy to diversify among several companies to spread your credit risk?


Fidelity has a fund, Fidelity Floating Rate High Income FFHRX.


I have my entire liquid net worth in two open end floating rate funds but with an exit strategy in place if needed. They have been a win/win recently. Rising rates are a positive and absent rising rates the fundamentals have drastically improved. See link below. Were I not retired (from trading) I would be 100% in high yield corporates at this juncture.

http://blogs.barrons.com/incomeinvestin ... september/

Explorer
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Re: Retirees: Where are you going for income?

Post by Explorer » Wed Oct 19, 2016 2:43 pm

rgs92 wrote:Preferred stock ETFs like PFF maybe? Just take the 5 to 6% dividend and ignore the share price I would think (assuming you could leave the original investment there permanently if you need to). Any comments/opinions on the safety of this? Thanks.

By the way, if held in a taxable account, are these dividends taxed at 15% or your full rate? If they are qualified for 15%, this would seem to be a good deal or even a nice loophole. Thoughts??

The share price of these ETFs seem to be extremely stable relative to normal stock ETSs. Utility stocks are an obvious alternative, but a single utility could be volatile and a utility ETF or fund has lower interest rates it seems.

I've had a big chunk of PFF for many years now in a retirement fund and have been enjoying the dividend which seems like candy to me.


Some preferred stocks issue 'qualified' dividends while others don't, have to check the fund prospectus to see what PFF holds.

Preferred stocks act like 50% bonds and 50% stocks - meaning they are interest rate sensitive and they will have volatility of stocks.

Majority of the preferred stocks are issued by financials companies - so you do take sector risk by investing heavy in preferred stocks.

In this market, there is no juicy yield without inherent risks....

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Re: Retirees: Where are you going for income?

Post by dbr » Wed Oct 19, 2016 3:35 pm

There is a section on preferreds in Larry Swedroe's book on alternative investments. Out of the good, the flawed, the bad, and the ugly preferreds fall in the flawed, which is not horrible but not the optimum holding.

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Re: Retirees: Where are you going for income?

Post by Van » Wed Oct 19, 2016 4:08 pm

One of two responders have mentioned Vanguard's High Yield Corporate (VWEHX) as a possible way to get income yield without too much risk. The SEC yield is an attractive (by today's standards) 4.80%. The Vanguard Risk Potential is a moderate 3 rating (the same, for example, as the popular Wellesley Fund).

I'm strongly considering the High Yield Corporate fund for 20% or so of my bond allocation (in tax deferred). All opinions are welcome.

Van

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Re: Retirees: Where are you going for income?

Post by dbr » Wed Oct 19, 2016 4:11 pm

Swedroe places high yield bonds also in the flawed category. One can find mixed opinions.

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Kevin M
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Re: Retirees: Where are you going for income?

Post by Kevin M » Wed Oct 19, 2016 4:39 pm

Van wrote:One of two responders have mentioned Vanguard's High Yield Corporate (VWEHX) as a possible way to get income yield without too much risk. The SEC yield is an attractive (by today's standards) 4.80%. The Vanguard Risk Potential is a moderate 3 rating (the same, for example, as the popular Wellesley Fund).

I'm strongly considering the High Yield Corporate fund for 20% or so of my bond allocation (in tax deferred). All opinions are welcome.

Van

I believe this fund lost almost 20% in late 2008, so the risk is real. I do own a dab of it though, but much, much less than 20% of my fixed income.

Kevin
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Re: Retirees: Where are you going for income?

Post by Trader/Investor » Wed Oct 19, 2016 5:21 pm

Kevin M wrote:
Van wrote:One of two responders have mentioned Vanguard's High Yield Corporate (VWEHX) as a possible way to get income yield without too much risk. The SEC yield is an attractive (by today's standards) 4.80%. The Vanguard Risk Potential is a moderate 3 rating (the same, for example, as the popular Wellesley Fund).

I'm strongly considering the High Yield Corporate fund for 20% or so of my bond allocation (in tax deferred). All opinions are welcome.

Van

I believe this fund lost almost 20% in late 2008, so the risk is real. I do own a dab of it though, but much, much less than 20% of my fixed income.

Kevin


And what did it do prior to 08 and subsequent to 08?? How many down years since inception?

Edit: A 8.52% annualized return since 12/27/78 with much less volatility than the S&P doesn't seem like a "flawed" investment to me.
Last edited by Trader/Investor on Wed Oct 19, 2016 5:31 pm, edited 1 time in total.

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Re: Retirees: Where are you going for income?

Post by dave_k » Wed Oct 19, 2016 5:28 pm

Not sure if the risk is "crazy" in Van's opinion, but my wife and I have some private equity commercial real estate investments that have been reliably paying 7% for several years and are projected to have an IRR in the 8-10+% range when sold over the next few years. Although they provide income, we invested in these for diversification and are mainly concerned with total return for our overall portfolio, most of which is stocks. We are not retired yet, but we may keep up to 10% of our portfolio in that type of investment into retirement if decent deals are available. We expect to draw down the portfolio in retirement, especially before SS kicks in at 70.

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Re: Retirees: Where are you going for income?

Post by Explorer » Wed Oct 19, 2016 5:48 pm

Trader/Investor wrote:
Kevin M wrote:
Van wrote:One of two responders have mentioned Vanguard's High Yield Corporate (VWEHX) as a possible way to get income yield without too much risk. The SEC yield is an attractive (by today's standards) 4.80%. The Vanguard Risk Potential is a moderate 3 rating (the same, for example, as the popular Wellesley Fund).

I'm strongly considering the High Yield Corporate fund for 20% or so of my bond allocation (in tax deferred). All opinions are welcome.

Van

I believe this fund lost almost 20% in late 2008, so the risk is real. I do own a dab of it though, but much, much less than 20% of my fixed income.

Kevin


And what did it do prior to 08 and subsequent to 08?? How many down years since inception?

Edit: A 8.52% annualized return since 12/27/78 with much less volatility than the S&P doesn't seem like a "flawed" investment to me.


I agree that the past performance is in favor of VWEHX compared to S&P or TSM index - no question - with higher yield and lower SD.

But in the next financial crisis, after almost 10 years of cheap credit, is unpredictable. To each his own but allocating a large share of portfolio to junk bonds is risky...

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Re: Retirees: Where are you going for income?

Post by dbr » Wed Oct 19, 2016 5:58 pm

Trader/Investor wrote:
And what did it do prior to 08 and subsequent to 08?? How many down years since inception?


That fund traded at $8.78 on 10/20/1980 and at $5.90 on 10/3/2016. The quarterly dividend was about $.095/month at the beginning and is about $.026 today. Applying approximately 180% inflation over that time the dividend payout has lost 85% of its real value and the principal has lost 63% of its real value after withdrawing and spending the dividends. That sounds like a terrible way to finance a retirement. Notice withdrawing and spending $.095/mo is a withdrawal rate of 13% and of $.026/mo is an inflation indexed 2.0% of the original portfolio value. Those withdrawal rates could not be sustained at those levels, but it is true that this particular trajectory is lasting longer than thirty years but with a withdrawl rate severely depressed below 4% inflation indexed. On the other hand the safe 30 year withdrawal rate for a 50/50 mixture of stocks and bonds for a retirement starting in 1980 would have been an inflation indexed more than 7% of the initial portfolio value. Retirements in 1981, 1982, 1983, and 1984 would have done better than that.

As a component of a real return portfolio one can argue that the risk/return proposition is helpful and may have a diversity benefit, provided one does not think the dividend paid can be withdrawn and spent at will. In general the fund paid out more in dividend than it gained in total return, hence the value and also the payout crashed over time.

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Re: Retirees: Where are you going for income?

Post by Van » Wed Oct 19, 2016 6:06 pm

dbr wrote:
Trader/Investor wrote:
And what did it do prior to 08 and subsequent to 08?? How many down years since inception?


That fund traded at $8.78 on 10/20/1980 and at $5.90 on 10/3/2016. The quarterly dividend was about $.095/month at the beginning and is about $.026 today. Applying approximately 180% inflation over that time the dividend payout has lost 85% of its real value and the principal has lost 63% of its real value after withdrawing and spending the dividends. That sounds like a terrible way to finance a retirement. Notice withdrawing and spending $.095/mo is a withdrawal rate of 13% and of $.026/mo is an inflation indexed 2.0% of the original portfolio value. Those withdrawal rates could not be sustained at those levels, but it is true that this particular trajectory is lasting longer than thirty years but with a withdrawl rate severely depressed below 4% inflation indexed. On the other hand the safe 30 year withdrawal rate for a 50/50 mixture of stocks and bonds for a retirement starting in 1980 would have been an inflation indexed more than 7% of the initial portfolio value. Retirements in 1981, 1982, 1983, and 1984 would have done better than that.

As a component of a real return portfolio one can argue that the risk/return proposition is helpful and may have a diversity benefit, provided one does not think the dividend paid can be withdrawn and spent at will. In general the fund paid out more in dividend than it gained in total return, hence the value and also the payout crashed over time.



Thank you for some interesting analysis. Over the 36 years you looked at, the Vanguard High Yield Corporate fund does not look very good. If, however, you look at the growth of $10,000 dollars over the last 10 years using the Vanguard web site tool, it looks very good, at least to me. If only we could predict the future by looking at the past!

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Re: Retirees: Where are you going for income?

Post by Trader/Investor » Wed Oct 19, 2016 6:18 pm

Thank you for some interesting analysis. Over the 36 years you looked at, the Vanguard High Yield Corporate fund does not look very good. If, however, you look at the growth of $10,000 dollars over the last 10 years using the Vanguard web site tool, it looks very good, at least to me. If only we could predict the future by looking at the past!

I have come to realize discussions on junk bonds here are akin to annuities. You either love em or hate em. Edit: Deleted the rest to keep peace here.

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Re: Retirees: Where are you going for income?

Post by dbr » Wed Oct 19, 2016 7:55 pm

Van wrote:
dbr wrote:
Trader/Investor wrote:
And what did it do prior to 08 and subsequent to 08?? How many down years since inception?


That fund traded at $8.78 on 10/20/1980 and at $5.90 on 10/3/2016. The quarterly dividend was about $.095/month at the beginning and is about $.026 today. Applying approximately 180% inflation over that time the dividend payout has lost 85% of its real value and the principal has lost 63% of its real value after withdrawing and spending the dividends. That sounds like a terrible way to finance a retirement. Notice withdrawing and spending $.095/mo is a withdrawal rate of 13% and of $.026/mo is an inflation indexed 2.0% of the original portfolio value. Those withdrawal rates could not be sustained at those levels, but it is true that this particular trajectory is lasting longer than thirty years but with a withdrawl rate severely depressed below 4% inflation indexed. On the other hand the safe 30 year withdrawal rate for a 50/50 mixture of stocks and bonds for a retirement starting in 1980 would have been an inflation indexed more than 7% of the initial portfolio value. Retirements in 1981, 1982, 1983, and 1984 would have done better than that.

As a component of a real return portfolio one can argue that the risk/return proposition is helpful and may have a diversity benefit, provided one does not think the dividend paid can be withdrawn and spent at will. In general the fund paid out more in dividend than it gained in total return, hence the value and also the payout crashed over time.



Thank you for some interesting analysis. Over the 36 years you looked at, the Vanguard High Yield Corporate fund does not look very good. If, however, you look at the growth of $10,000 dollars over the last 10 years using the Vanguard web site tool, it looks very good, at least to me. If only we could predict the future by looking at the past!


Growth of $10,000 is with dividends reinvested meaning the fund would have provided the investor with zero income during that time. In my data the source of the disaster is spending more than the investment can sustain. The point is that the existence of a dividend means nothing one way or the other regarding the use of an investment for either income or growth.

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Re: Retirees: Where are you going for income?

Post by Kevin M » Wed Oct 19, 2016 7:57 pm

Trader/Investor wrote:
Kevin M wrote:
Van wrote:One of two responders have mentioned Vanguard's High Yield Corporate (VWEHX) as a possible way to get income yield without too much risk.<snip>

I'm strongly considering the High Yield Corporate fund for 20% or so of my bond allocation (in tax deferred).

I believe this fund lost almost 20% in late 2008, so the risk is real. I do own a dab of it though, but much, much less than 20% of my fixed income.

And what did it do prior to 08 and subsequent to 08?? How many down years since inception?

Edit: A 8.52% annualized return since 12/27/78 with much less volatility than the S&P doesn't seem like a "flawed" investment to me.

I didn't say that the risk hasn't been rewarded, I was just giving an example of when the risk showed up. It's up to Van to decide if a 20% drop in value in 2008 is "too much risk". If you look at max drawdown, it was even worse, at about -29%: Backtest Portfolio Asset Allocation.

Looking at the Portfolio Visualizer summary, the stats do look quite good for VWEHX compared to VFINX (Index 500), with a Sharpe ratio of 0.64 compared to 0.53 for VFINX. I think the counterargument from Larry Swedroe would be that you can get a better Sharpe ratio by mixing stocks with safer bonds, but I'm not going to do that analysis right now.

Trader/Investor wrote:I have come to realize discussions on junk bonds here are akin to annuities. You either love em or hate em.

I don't think that's accurate. Did you miss the part where I said I own a bit of the Vanguard high-yield fund? I think there are a number of us that own some of this fund, but probably in moderation, so we neither love it nor hate it.

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Re: Retirees: Where are you going for income?

Post by dbr » Wed Oct 19, 2016 8:00 pm

Trader/Investor wrote:Thank you for some interesting analysis. Over the 36 years you looked at, the Vanguard High Yield Corporate fund does not look very good. If, however, you look at the growth of $10,000 dollars over the last 10 years using the Vanguard web site tool, it looks very good, at least to me. If only we could predict the future by looking at the past!

I have come to realize discussions on junk bonds here are akin to annuities. You either love em or hate em. Edit: Deleted the rest to keep peace here.


I hope you noticed the analysis that taking dividends from junk bonds for income would have been a disaster does not preclude that junk bonds might be a reasonable component of a portfolio with respect to optimizing risk and return. But those are two completely different situations. Also, of course, an example of a bad outcome is not proof the outcome is always bad. I think the discussion in Larry Swedroe's books is very even handed and would probably be where I would come from.

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Re: Retirees: Where are you going for income?

Post by dbr » Wed Oct 19, 2016 8:01 pm

Kevin M wrote:
Trader/Investor wrote:I have come to realize discussions on junk bonds here are akin to annuities. You either love em or hate em.

I don't think that's accurate. Did you miss the part where I said I own a bit of the Vanguard high-yield fund? I think there are a number of us that own some of this fund, but probably in moderation, so we neither love it nor hate it.

Kevin


I don't see loving and hating for either annuities or junk bonds. People are just attempting to apply rational consideration to the possibilities.

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Re: Retirees: Where are you going for income?

Post by traineeinvestor » Wed Oct 19, 2016 9:49 pm

No pension or social security safety net where I live.

With a potential 50 year time horizon, I worry more about long run inflation than I do about market volatility so we put most of our retirement money into real estate and equities in the hope/expectation that we will see some growth in net rents/dividends over time. The cash and bond allocation is very small and is primarily there to cover potential multi-year periods where there is disruption to the cash flows from our main investments and/or large unexpected expenses.

As interest rates on mortgages are lower than both the local inflation rate and the distribution yield on the local equity index fund, we decided to carry mortgages on our home and investment properties into retirement. The interest rates are floating so there is some risk to this strategy if interest rates increase - an increase of (about) 1.5% from present levels would reduce the spread to zero. The mortgages are all P+I so will slowly fall away over time, resulting in increased cash flow.

We are will be either slightly cash flow positive or cash flow negative over the next couple of years but will become strongly cash flow positive about five years from now as some of our mortgages are repaid.

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Re: Retirees: Where are you going for income?

Post by Stormbringer » Sat Oct 22, 2016 1:50 pm

Rental properties. I'm not retired yet, but hope to have them all paid off by then.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Re: Retirees: Where are you going for income?

Post by stemikger » Sat Oct 22, 2016 1:52 pm

More people have lost money chasing for yield then at the point of a gun ~ John Bogle

Stay the course with the tried and true plain vanilla total stock market and total bond market index fund
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: Retirees: Where are you going for income?

Post by Kevin M » Sat Oct 22, 2016 3:29 pm

stemikger wrote:More people have lost money chasing for yield then at the point of a gun ~ John Bogle

Stay the course with the tried and true plain vanilla total stock market and total bond market index fund

"Chasing yield" refers to taking more risk for more yield. With a good direct CD, you are taking less risk for more yield compared to marketable fixed-income securities. I would not call this chasing yield, nor would I consider the chasing-yield quip to be a valid argument to use TBM instead of good CDs. There might be other good reasons (e.g., simplicity, limited 401k/403b choices), but not this.

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Re: Retirees: Where are you going for income?

Post by stemikger » Sat Oct 22, 2016 3:36 pm

Kevin M wrote:
stemikger wrote:More people have lost money chasing for yield then at the point of a gun ~ John Bogle

Stay the course with the tried and true plain vanilla total stock market and total bond market index fund

"Chasing yield" refers to taking more risk for more yield. With a good direct CD, you are taking less risk for more yield compared to marketable fixed-income securities. I would not call this chasing yield, nor would I consider the chasing-yield quip to be a valid argument to use TBM instead of good CDs. There might be other good reasons (e.g., simplicity, limited 401k/403b choices), but not this.

Kevin


Fair enough :beer
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Re: Retirees: Where are you going for income?

Post by Van » Sat Oct 22, 2016 4:26 pm

stemikger wrote:More people have lost money chasing for yield then at the point of a gun ~ John Bogle

Stay the course with the tried and true plain vanilla total stock market and total bond market index fund


Does choosing Intermediate Term Investment Grade, SEC yield = 2.25%, over Total Bond, SEC yield = 1.93%, constitute "chasing yield"?

Where do you draw the line? Is it junk bonds?

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Re: Retirees: Where are you going for income?

Post by Kevin M » Sat Oct 22, 2016 5:18 pm

Van wrote:
stemikger wrote:More people have lost money chasing for yield then at the point of a gun ~ John Bogle

Stay the course with the tried and true plain vanilla total stock market and total bond market index fund


Does choosing Intermediate Term Investment Grade, SEC yield = 2.25%, over Total Bond, SEC yield = 1.93%, constitute "chasing yield"?

Where do you draw the line? Is it junk bonds?

Rather than investing based on quips, I think it's more effective to go back to the fundamentals, and then it's all a matter of degrees. Bonds have two primary risk dimensions: credit/default and term. Short-term Treasuries have no credit risk and almost no term risk. Extending maturity increases term risk, with long-term Treasuries being quite risky just based on term risk. With corporate or muni bonds, you add credit risk to the extent you move down the quality scale.

Federally-insured deposit accounts (savings, CDs) give retail investors a unique opportunity to increase yield, either without increasing risk at all (a 1% savings account vs. a 0.25% 1-month Treasury), or even while decreasing risk (a 2% or 2.5% 5-year CD with an EWP of 180 days of interest vs. a 1.25% 5-year Treasury).

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Re: Retirees: Where are you going for income?

Post by dbr » Sat Oct 22, 2016 6:53 pm

Kevin M wrote:
Van wrote:
stemikger wrote:More people have lost money chasing for yield then at the point of a gun ~ John Bogle

Stay the course with the tried and true plain vanilla total stock market and total bond market index fund


Does choosing Intermediate Term Investment Grade, SEC yield = 2.25%, over Total Bond, SEC yield = 1.93%, constitute "chasing yield"?

Where do you draw the line? Is it junk bonds?

Rather than investing based on quips, I think it's more effective to go back to the fundamentals, and then it's all a matter of degrees. Bonds have two primary risk dimensions: credit/default and term. Short-term Treasuries have no credit risk and almost no term risk. Extending maturity increases term risk, with long-term Treasuries being quite risky just based on term risk. With corporate or muni bonds, you add credit risk to the extent you move down the quality scale.

Federally-insured deposit accounts (savings, CDs) give retail investors a unique opportunity to increase yield, either without increasing risk at all (a 1% savings account vs. a 0.25% 1-month Treasury), or even while decreasing risk (a 2% or 2.5% 5-year CD with an EWP of 180 days of interest vs. a 1.25% 5-year Treasury).

Kevin


In any case, putting the microscope on fixed income properties ignores that fact that the behavior of the entire portfolio is what matters. Of course, if the investor holds only bonds, these discussions become more relevant.

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Re: Retirees: Where are you going for income?

Post by TBillT » Sat Oct 22, 2016 8:54 pm

It's hard to know where to go for income right now. This is a cash holding wait-and-see period for some investors.
There is speculation that the Fed and next Administration will initiate a new gov't spending program to improve the economy, which could shake us out of the current low-interest rate doldrums. Bond values taking minor hit little lately in anticipation of future interest rate hikes, so ugh.
The bank loan funds eg; FFRHX (good in raising interest rate periods), CDs, iBonds sound good right now, I also do some PTIAX, PONDX, RNDLX, FFRHX, DLTNX which as a mixture tends to do well.

iBonds look good for November thru April, I think per the other thread here, paying about 2.8% for the next 6-months. Conjecture, but if a fiscal stimulus package is adopted maybe inflation stays higher. If you're wrong, so what, cash em in after a year. Same with bank CD's. View as a holding pattern.

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Re: Retirees: Where are you going for income?

Post by Trader/Investor » Sat Oct 22, 2016 10:11 pm

TBillT wrote:It's hard to know where to go for income right now. This is a cash holding wait-and-see period for some investors.
There is speculation that the Fed and next Administration will initiate a new gov't spending program to improve the economy, which could shake us out of the current low-interest rate doldrums. Bond values taking minor hit little lately in anticipation of future interest rate hikes, so ugh.
The bank loan funds eg; FFRHX (good in raising interest rate periods), CDs, iBonds sound good right now, I also do some PTIAX, PONDX, RNDLX, FFRHX, DLTNX which as a mixture tends to do well.

iBonds look good for November thru April, I think per the other thread here, paying about 2.8% for the next 6-months. Conjecture, but if a fiscal stimulus package is adopted maybe inflation stays higher. If you're wrong, so what, cash em in after a year. Same with bank CD's. View as a holding pattern.


As mentioned previously I am 100% in bank loan funds. I've seen Fidelity's FFRHX recommended here a few times but it is a bit too pedestrian for my tastes. Not a bad fund just can't compare to OOSIX or my two faves now EIFAX and BHFYX. You can't beat the long term record of the team at Eaton Vance, albeit the long term is a tad different for me. And let's not forget the bang up year junk corporates are having and with its strong seasonality right around the corner. Of course the experts - Fridson and others - have been saying all the way up they are insanely overvalued.

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Re: Retirees: Where are you going for income?

Post by JustAsking » Sun Oct 23, 2016 12:19 am

I'm coming to this rather late, but I addressed the OP's original question a couple of years ago, here.
"In theory, there is no difference between theory and practice, but in practice there is." -- Jan L.A. van de Snepscheut (1953-1994), late of CalTech

TBillT
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Re: Retirees: Where are you going for income?

Post by TBillT » Tue Oct 25, 2016 11:02 am

Trader/Investor wrote:
TBillT wrote:It's hard to know where to go for income right now. This is a cash holding wait-and-see period for some investors.
There is speculation that the Fed and next Administration will initiate a new gov't spending program to improve the economy, which could shake us out of the current low-interest rate doldrums. Bond values taking minor hit little lately in anticipation of future interest rate hikes, so ugh.
The bank loan funds eg; FFRHX (good in raising interest rate periods), CDs, iBonds sound good right now, I also do some PTIAX, PONDX, RNDLX, FFRHX, DLTNX which as a mixture tends to do well.

iBonds look good for November thru April, I think per the other thread here, paying about 2.8% for the next 6-months. Conjecture, but if a fiscal stimulus package is adopted maybe inflation stays higher. If you're wrong, so what, cash em in after a year. Same with bank CD's. View as a holding pattern.


As mentioned previously I am 100% in bank loan funds. I've seen Fidelity's FFRHX recommended here a few times but it is a bit too pedestrian for my tastes. Not a bad fund just can't compare to OOSIX or my two faves now EIFAX and BHFYX. You can't beat the long term record of the team at Eaton Vance, albeit the long term is a tad different for me. And let's not forget the bang up year junk corporates are having and with its strong seasonality right around the corner. Of course the experts - Fridson and others - have been saying all the way up they are insanely overvalued.


I have used the Eaton Vance EIFAX. But OOSIX is not NTF? Cannot find BHFYX.
Enlighten me on junk corporates seasonality - are you expecting up or downswing, and when?

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Re: Retirees: Where are you going for income?

Post by Trader/Investor » Tue Oct 25, 2016 11:41 am

I have used the Eaton Vance EIFAX. But OOSIX is not NTF? Cannot find BHFYX.
Enlighten me on junk corporates seasonality - are you expecting up or downswing, and when?


Regarding BHFYX - sorry, sometimes I get dyslexic on symbols. It's BXFYX. As for junk corporates, much has been written over the years about its January seasonality, among the strongest of any asset class going back to 1980. In more recent years since it has become so widely known and anticipated that seasonality has been pushed into the November-December period. OOSIX is not NTF where I trade or for that matter EIFAX. But EIFAX sister fund (EVFAX) is NTF however I am banned in that one.

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Re: Retirees: Where are you going for income?

Post by honduranhurricane » Sat Nov 05, 2016 5:00 pm

LarryAllen wrote:
honduranhurricane wrote:Bank loan funds. Some are yielding 5+% and loans sit at the top of the capital structure. No duration thanks to the floating rate but there is credit risk. I am ok with that.



I just read in Barons about bank loan funds. Where do you invest in them? Is it easy to diversify among several companies to spread your credit risk?


A few options have been mentioned in related posts, index type of funds, but I go with LSFYX. I use index funds for everything else.

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Re: Retirees: Where are you going for income?

Post by jcar » Sun Nov 06, 2016 10:03 am

I believe so much depends on your risk tolerance. I know many including myself who has committed a minority of the portfolio to income production via CEF funds. You need to investigate throughly and buy when everyone is selling. You need to guard against buying funds that just return your own capital to you. Check out Seeking alpha. Com to learn more.

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Re: Retirees: Where are you going for income?

Post by magneto » Sun Nov 06, 2016 10:41 am

From a UK perspective, if pushed to list in some kind of order, the present most attractive Income Seeking Assets to enable a defensive retiree to live within the portfolio 'natural yield', might list :-

Infrastructure (CEICs)
Renewable Energy (CEICs)
Residential Real Estate direct
REITs (esp Office and Industrial)
High Yield (Junk) Corps
Stocks
Short Term IG Corps
Cash (dry powder only)
Other Bonds esp Sovereign (Gilts) -ve real yields and seemingly an accident waiting to happen, esp with UK Bond Yields even lower than US?.

The list is not an attempt to list in order reasonable AA proportions, which as an entirely different exercise would result in a vastly different sequence.

Very uncertain how some of these assets would translate for a US investor.

As always not a recommendation.
Just some thoughts from a retiree with similar goals :!:
'There is a tide in the affairs of men ...', Brutus (Market Timer)

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Re: Retirees: Where are you going for income?

Post by Ged » Sun Nov 06, 2016 11:23 am

Van wrote:
bengal22 wrote:Not looking for income. I think more about the appreciation of my portfolio.


If you are retired, don't you need some income to live on? I understand you can sell appreciated securities to generate income, but what do you do in a sustained down market? Do you sell assets from your depreciating portfolio? Maybe you have perfected market timing so you never have to sell into a down market.


The idea is that in a sustained down market bond value appreciation offer a counterbalance to decline in equity value.

When I went into retirement I reduced my stock holdings to 40% of my portfolio with the idea that I'd want that percentage to gradually increase over time so to provide the best balance between my need for stability and to leave a good bequest to my children. In a sustained down market I'd sell bond investments to both buy equities and to fill whatever income gap in excess of my SS and pensions I needed.

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Re: Retirees: Where are you going for income?

Post by Nowizard » Sun Nov 06, 2016 11:31 am

A portion of our disposable income in excess of our emergency fund is invested in high-dividend stocks. There is, of course, risk to the stock price, but the chosen stocks are ones with a long history of interrupted dividends, typically with regular increases. Since we are certain we will not need to cash in the stocks purchased except by choice, we feel we can ride any stock market downside while continuing to collect dividends. Not a Boglehead recommendation for sure, but our circumstances are such that we have taken this risk previously with positive results from dividends and profit when eventually selling the underlying stocks. This is not a primary strategy. Also, credit unions offer higher interest rates for larger balances, though ours limits it to 2% on amounts up to 20K.

Tim

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Re: Retirees: Where are you going for income?

Post by laidback_and_relaxed » Mon Nov 07, 2016 3:57 pm

Currently not retired, should be able to work and continue saving/accumulating for 2 or 3 more years. But regardless, I've built and are building out a rolling bond ladder that will provide income (coupon interest and maturities) each year that I've earmarked for living expenses. If not required, I build out the rolling ladder further, matching expected liabilities (expenses) in the future. Can't do that with funds or and most ETFs.

I know it's so un-Boglehead like to own individual bonds, but the ladder is ideal for my purposes and I have enough invested to greatly diversify the investments. Recently acquired positions yield 3% (YTM, my minimum or it's left in cash), historically I'm averaging 4.5% annual YTM (last 5 years). It's not a great return, but satisfactory given the level of risk.

FYI, all of my equity investments (66% of invested assets) are in a very few low cost ETFs and funds, so I consider myself a "Boglehead" and continue to enjoy the postings here.

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Re: Retirees: Where are you going for income?

Post by Abe » Tue Nov 08, 2016 4:02 pm

I invested in owner financed mortgages for many years that produced very good income. I wouldn't recommend it for most people though, especially Bogleheads. I consider it to be a niche investment where one needs to know the market and be knowledgeable in the technicality of discounting mortgages. It's not so good from a tax standpoint but great for income.
Slow and steady wins the race.

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Re: Retirees: Where are you going for income?

Post by Sagenick48 » Tue Nov 08, 2016 4:35 pm

Multi unit Rentals and MLPs
The market goes up, the market goes down.

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Re: Retirees: Where are you going for income?

Post by Explorer » Sun Nov 27, 2016 8:53 am

The idea of bond ladders is interesting. Have any of you considered Guggenheim's BulletShares ETFs which offer both a corp bond and HY bond ladder ETFs?

I am interested in your thoughts on those ETFs.. (understand the ER of about 0.4% eats into the return but you get diversification that is not easy to achieve with individual bonds).

Thanks.

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Re: Retirees: Where are you going for income?

Post by garlandwhizzer » Sun Nov 27, 2016 12:59 pm

This is a bit off topic (sorry) but I'm retired and I prefer a total return approach rather than an income focused approach. Income producing assets are currently richly priced due to their popularity and hence produce paltry levels of income relative to historical standards. REITS produced 9%+ yields in 1999, and 10 yr. Treasuries produced 15% in the early 1980s, about 6%+ as I recall in 1999. These turned out to be great long term investment if purchased at those points when yields were robust, outperforming for decades in an environment of ever decreasing interest rates and inflation. Given todays low yields, currently about the inflation rate, and the expectation/threat of rising interest rates and rising inflation in the future, similar outperformance is unlikely in my view. Erosion of principal value is a real possibility with Income producing assets going forward as we have seen recently in the bond market due not to inflation per se but merely to the expectation of future inflation. Income producing assets are also less tax efficient that periodic use of capital gains harvested as needed in a taxable portfolio. Just my two cents worth.

Garland Whizzer

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Re: Retirees: Where are you going for income?

Post by Van » Sun Nov 27, 2016 2:46 pm

garlandwhizzer wrote:This is a bit off topic (sorry) but I'm retired and I prefer a total return approach rather than an income focused approach. Income producing assets are currently richly priced due to their popularity and hence produce paltry levels of income relative to historical standards. REITS produced 9%+ yields in 1999, and 10 yr. Treasuries produced 15% in the early 1980s, about 6%+ as I recall in 1999. These turned out to be great long term investment if purchased at those points when yields were robust, outperforming for decades in an environment of ever decreasing interest rates and inflation. Given todays low yields, currently about the inflation rate, and the expectation/threat of rising interest rates and rising inflation in the future, similar outperformance is unlikely in my view. Erosion of principal value is a real possibility with Income producing assets going forward as we have seen recently in the bond market due not to inflation per se but merely to the expectation of future inflation. Income producing assets are also less tax efficient that periodic use of capital gains harvested as needed in a taxable portfolio. Just my two cents worth.

Garland Whizzer

To pursue a total return approach, would you mind sharing what investments you use and your asset allocation?

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Re: Retirees: Where are you going for income?

Post by dbr » Sun Nov 27, 2016 4:50 pm

Van wrote:
garlandwhizzer wrote:This is a bit off topic (sorry) but I'm retired and I prefer a total return approach rather than an income focused approach. Income producing assets are currently richly priced due to their popularity and hence produce paltry levels of income relative to historical standards. REITS produced 9%+ yields in 1999, and 10 yr. Treasuries produced 15% in the early 1980s, about 6%+ as I recall in 1999. These turned out to be great long term investment if purchased at those points when yields were robust, outperforming for decades in an environment of ever decreasing interest rates and inflation. Given todays low yields, currently about the inflation rate, and the expectation/threat of rising interest rates and rising inflation in the future, similar outperformance is unlikely in my view. Erosion of principal value is a real possibility with Income producing assets going forward as we have seen recently in the bond market due not to inflation per se but merely to the expectation of future inflation. Income producing assets are also less tax efficient that periodic use of capital gains harvested as needed in a taxable portfolio. Just my two cents worth.

Garland Whizzer

To pursue a total return approach, would you mind sharing what investments you use and your asset allocation?


It should be noted that a total return "approach" has nothing to do with what investments are used. Total return is simply about how one accounts for the performance of investments including the making of contributions and withdrawals. Income investing is somewhat orthogonal (on a different track) from this in that the income investor does select specific investments in order to set up withdrawals in the form of dividends and interest paid. This is an arbitrary and unnecessary condition on one's investment selections that may be relatively harmless or may lead to investment choices that are not very well diversified or may be too risky. Income investing would be superior if one could establish that the investment selection actually results in a combination or greater return and lower risk relative to investment objectives.* It turns out this superiority mostly does not materialize or can be managed more effectively by other means. Of course, one must first consider the total return properties of the portfolio to even know. Some investors may choose "income" investments because they do believe the return is greater and/or the risk is less. On some occasions someone makes the mistake of thinking dividends are free money, but most posters here would be better informed than that.

*Risk relative to investment objectives can be many things. It might mean reducing volatility, or it might mean having a sum of money available to manage a large debt, or it might mean reducing the risk of running out of money in retirement, and so on. To accomplish any of those things one must first understand the return from the investment and the uncertainty of getting that return.

Disclaimer: If anyone wants to know and I am not garlandwhizzer, I invest in essentially a three fund like portfolio, the exception being a good share in TIPS. If I need money I make withdrawals from any dividends and interest that have accumulated or by diverting part of the annual RMD to cash or by selling shares of something. Otherwise I follow a general rebalancing formula which results in every couple of years or more selling something to buy something else.

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