Income Investment Fantasyland: High Dividend Capital ETFs and Mutual Funds

A few years ago, while asking questions at a meeting of the AAII (American Association of Individual Investors) in Northeast NJ, a comparison was made between the professionally managed Portfolio Investment Management (MCIM) portfolio and any of the several High Dividend Selection capitals. was taken. ETFs.

  • My answer was: Which is better to be ready to retire, 8% comes out of your pocket, or 3%? Today’s answer will be 7.85% or 1.85%… and, of course, there is no similarity molecule between MCIM portfolios and ETFs or Mutual Funds.

I just picked up Google in four of the “best” high-dividend ETFs (closer than I’d normally worry about) and the high-dividend Mutual Funds group described in the same way. ETFs are “marked” by an index such as the Dividend Achievers Select Index, and consist of large US companies with a history of regular dividend growth.

Mutual Fund managers have been instructed to maintain a high-dividend investment vehicle and are expected to trade in accordance with market conditions; The ETF always owns every security in the underlying index, regardless of market conditions.

According to their publication numbers:

  • The average dividend income of the four “best of 2018” high-dividend ETFs (i.e. spending money in your checkbook) … a break to catch your breath, 1.75%. Check: DGRW, DGRO, RDVY and VIG.
  • Equally unpredictable income, the “best” Mutual Funds, even after slightly higher management fees, produce a large 2.0%. Take a look at these: LBSAX, FDGFX, VHDYX and FSDIX.

Now, how can anyone really hope to live on this income level with a portfolio of less than five or a million dollars? This cannot be done without selling securities, and if ETFs and funds do not rise to market value each month, the fall in fixed assets should simply occur on a regular basis. What to do if the market goes down for a long time?

The funds described may be the best in terms of “gross income”, but not from the income they produce, and I have yet to determine how either the gross income or the market value can be used to pay your bills. .without selling securities.

As much as I love stocks that produce high-quality dividends (Investment Rate Value Shares are all dividend payers), they are not the answer to “preparation” for retirement income. It is better for “dogs” to produce capital income, focus on income, there is an alternative; and with significantly less financial risk.

  • Note that the “financial” risk (the chance that the issuing company will not make payments) is very different from the “market” risk (the chance that the market value will move below the purchase price).

For apple-apple comparisons, I chose the Closed End Fund (CEF), a four-capital venture from a larger universe that I have been following closely since the 1980s. Their average income (BME, USA, RVT and CSQ) is 7.85% and their payment history is on average 23 years. There are dozens of others that bring in more revenue than the ETFs or Mutual Funds listed in Google’s “best-class” results.

Although I firmly believe in investing only in dividend-paying stocks, high dividend reserves are still “growth-oriented” investments and cannot be expected to generate a reliable type of income from their “income target” relatives. . But capital-based CEFs are very close.

  • When you combine these stock income monsters with similarly managed income-generating CEFs, you have a portfolio that can “prepare you for retirement income” … and that’s about two-thirds of the content of a managed MCIM portfolio.

When it comes to income generation, bonds, preferred stocks, notes, loans, mortgages, income real estate, etc. naturally safer and more profitable than stocks … as intended by the investment gods, if not by the Wall Wizards. Street. ”For nearly a decade, you’ve been told that about two or three percent productivity is the best product they can offer.

They lie through their teeth.

This is an example, as recently reported Forbes magazine Michael Foster’s article “14 funds crushing the vanguard and earning up to 11.9%”

Comparing both revenue and gross income, the article makes it clear that total revenue is meaningless when competition generates 5 or 6 times more annual revenue. Foster compares seven Vanguard investment funds to 14 Closed Last Funds … and underdogs win in each category: Total Stock Market, Small-Cap, Mid-Cap, Lar-Cap, Dividend Valuation, Growth in the United States, and US Value. His conclusion:

  • “When it comes to productivity and annual revenue, None Winner of Vanguard Funds. Despite their popularity, despite the frenzy of passive indexing and the good mood, many want to believe the truth – the avant-garde is left behind. “

Hello! To prepare for retirement, upgrade your income program and don’t worry about changes in total income and market value. It’s time to put your portfolio in a position where you can say it unequivocally, without hesitation and with full confidence:

“Neither stock market volatility nor rising interest rates can have a negative impact on my retirement income; in fact, I’m in a perfect position to take advantage of all market and interest rate movements of any magnitude at any time … without interfering with the manager, except in emergencies.” “

Not yet? Try it.

* Note: No mention of any security in this article should be taken as a recommendation for any particular activity: buy, sell or store.