Ross812 Posted January 28, 2014 Share Posted January 28, 2014 I am not a financial planner or RIA, I only manage money for family members. One of my inlaws recently had a stroke and is not capable of managing their money. He has a Scottrade account and was a daytrader who managed to lag the market the last few years but hasn't lost any money. His wife met with a financial planner who was more than willing to stick them in some low cost bond funds for a nice commission. The inlaw asked me to look over the accounts and put them in income producing assets that need minimal management. The couple wants to be able to cash a check every quarter for $5000 to supplement their SSI and small pension. The couple's SSI+Pension income is ~40k. They have no debt. I have never worked with someone who is aiming for capital preservation and income. My general answer to people who are in 15+ years out and have no inclination to learn how to invest their own money is to buy a low cost index fund and those closer to retirement to start blending in bond funds. Six years ago I would have put my inlaws nest egg (500k) into AAA bonds, Government bonds, and an online money market paying >5%. The extra 25-30k in income without touching the premium in addition to their SSI and pension would have made for a nice retirement. Today, money markets are paying <1% and bonds are yielding next to nothing, which leaves dividend paying stocks, mutual funds, and CEFs as potential candidates. Do you all have any advice on any longterm securities paying a decent yield without going too far down the quality curve? What about allocation between bonds and equities considering the environment we are in right now? So far I'm considering equity: KMI, MKC, PEP, IBM, BP, CHRW, LRE.L, CHRW, BAH, KO, WMT; Bond fund/etf: DODIX, FOCIX, BOND, HYS; Closed end fund: INF, PCEF My goal is a 4% yield with long term capital preservation. Link to comment Share on other sites More sharing options...
watsa_is_a_randian_hero Posted January 28, 2014 Share Posted January 28, 2014 REITs seem like a much better yield/inflation-protected capital preservation option than large-cap stocks or bonds right now. IYR - reit index Also I wouldn't put someone that dependent upon income in a stock portfolio that concentrated. is this a taxable account? If so you need a pre-tax check of maybe 7k/quarter... Link to comment Share on other sites More sharing options...
bz1516 Posted January 28, 2014 Share Posted January 28, 2014 I am not a financial planner or RIA, I only manage money for family members. One of my inlaws recently had a stroke and is not capable of managing their money. He has a Scottrade account and was a daytrader who managed to lag the market the last few years but hasn't lost any money. His wife met with a financial planner who was more than willing to stick them in some low cost bond funds for a nice commission. The inlaw asked me to look over the accounts and put them in income producing assets that need minimal management. The couple wants to be able to cash a check every quarter for $5000 to supplement their SSI and small pension. The couple's SSI+Pension income is ~40k. They have no debt. I have never worked with someone who is aiming for capital preservation and income. My general answer to people who are in 15+ years out and have no inclination to learn how to invest their own money is to buy a low cost index fund and those closer to retirement to start blending in bond funds. Six years ago I would have put my inlaws nest egg (500k) into AAA bonds, Government bonds, and an online money market paying >5%. The extra 25-30k in income without touching the premium in addition to their SSI and pension would have made for a nice retirement. Today, money markets are paying <1% and bonds are yielding next to nothing, which leaves dividend paying stocks, mutual funds, and CEFs as potential candidates. Do you all have any advice on any longterm securities paying a decent yield without going too far down the quality curve? What about allocation between bonds and equities considering the environment we are in right now? So far I'm considering equity: KMI, MKC, PEP, IBM, BP, CHRW, LRE.L, CHRW, BAH, KO, WMT; Bond fund/etf: DODIX, FOCIX, BOND, HYS; Closed end fund: INF, PCEF My goal is a 4% yield with long term capital preservation. I would call that list of stocks at least moderate maintenance. Buying SPY and taking out what is now 4% annually for 15 years would seem to be most appropriate to me. You could take 20% away from the SPY and buy some Asian ETF to get a little more growth, but that would be a close to zero maintenance situation, taking out less than the long term growth rate of the averages thaty would likely cover almost all worst case scenarios over 15 years. Link to comment Share on other sites More sharing options...
Packer16 Posted January 28, 2014 Share Posted January 28, 2014 You may want to look for something like what is described in getting income from an asset discussion: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/developing-an-income-stream-from-an-asset/ This provides a way to income from cap appreciation types of assets. It appears to develop a nice income stream with capital growth. Packer Link to comment Share on other sites More sharing options...
gfp Posted January 28, 2014 Share Posted January 28, 2014 I do this type of client portfolio all the time. Individual corporate bonds can be a real help - The SHLD bond maturing in 2018 that Berkowitz owns is secured by inventory and yields around 9.8% right now. We own a bunch of Radiation Therapy bonds maturing in 2017 that were purchased with yields of 17-19%, currently yielding around 12%. I would probably buy ATAX on this morning's drop for a client like that. We've owned EMES in these types of accounts, still yields 8.7% but used to be a much better value. Lots of KMR ~7.4% yield at current price. KMI like you said is also a good initial yield and dividend grower. BP, Royal Dutch Shell and Lukoil for the high yielding oil portion. TWO harbors below book value for a small portion, maybe a small amount of PSEC. The key is to be very diversified and add opportunistically to the most attractive income securities as they become available. I would put JPM in an income account at todays price as well. In Canada, small positions in the energy income plays and Glacier media, just not too much in any one name. For emerging markets there are many dividend weighted WisdomTree ETFs - DEM is a high yielder with the underlying index yielding something like 5%. There are also some high quality pref. shares worth looking at. DSL pays monthly and might be worth a look on a drop - keep an eye on the NAV discount and try to add on extremes. Link to comment Share on other sites More sharing options...
Ham Hockers Posted January 28, 2014 Share Posted January 28, 2014 RSG Link to comment Share on other sites More sharing options...
LowIQinvestor Posted January 28, 2014 Share Posted January 28, 2014 If you want to invest in a REIT index, I would advise you put it in VNQ (Vanguard REIT Index ETF) vs IYR. VNQ has an expense ratio of 0.10% vs 0.46% for IYR. And the dividend looks to be higher for VNQ as well. Link to comment Share on other sites More sharing options...
bizaro86 Posted January 28, 2014 Share Posted January 28, 2014 I run a portfolio for my father in law with a similar set of goals. A diversified set of well selected income securities is how I've chosen to go about it, outside of ETFs as mentioned above. I pick individual issues, and leave them alone. A couple of choices include TY.P, a pref on a closed end fund. Coverage here is massive, and it trades a 12.5% discount to face value. Current yield is 5.7%. Interest rate risk due to perpetual nature, but if it meets the portfolio goals and you have a long time horizon, it might work. Other choices include UMH.PR.A and ELS.PR.C, both prefs from mobile home park REITs. I also have a number of Canadian income securities in this portfolio, things like INN.DB.G and PMT.DB.E, things where I think the coverage is good and the 7% YTM is attractive. As mentioned above, small positions in higher risk income securities isn't unreasonable, if they're uncorrelated and you like the underlying. I have a small SSRAP position in this portfolio, if you like SHLD. Another position I have in small size is EE.DB in Toronto. 35% yield to maturity, 50% discount to face value. It's a small E&P where the senior lender is looking to reduce exposure, and the debt is nearly due. However, their recent production not yet publicly reported (except through the Alberta gov't system) is decent, and they have reasonable asset/income coverage. I think its highly likely to work out. I own this one myself also (much larger position than in my Father in laws account) as I really like the risk reward here. Link to comment Share on other sites More sharing options...
argonaut Posted January 28, 2014 Share Posted January 28, 2014 What about a small amount in some of the high paying shippers? I have some SFL that yields 9% plus and I think the capital loss risk is not very high and others on this board I think like SSW (which I would buy too if it drops lower :)... Link to comment Share on other sites More sharing options...
EliG Posted January 29, 2014 Share Posted January 29, 2014 In Canada, small positions in the energy income plays and Glacier media, just not too much in any one name. Glacier Media seems highly inappropriate for an income portfolio in the capital preservation mode. Link to comment Share on other sites More sharing options...
CorpRaider Posted January 29, 2014 Share Posted January 29, 2014 Global has got you covered, imop. I was also going to throw out SOR for something to look at, if the discount gets out of whack. It's a closed end fund (the one buffett and munger bought back when they got into a little trouble with the SEC). It is run by first pacific. They distribute ~4% of the current market price per annum, so they kind of take care of managing the distributions for you. They have a pretty good longer term track record. Also there are some munibond CEFs with pretty gigantic discounts and yields out there. Link to comment Share on other sites More sharing options...
twacowfca Posted January 29, 2014 Share Posted January 29, 2014 I am not a financial planner or RIA, I only manage money for family members. One of my inlaws recently had a stroke and is not capable of managing their money. He has a Scottrade account and was a daytrader who managed to lag the market the last few years but hasn't lost any money. His wife met with a financial planner who was more than willing to stick them in some low cost bond funds for a nice commission. The inlaw asked me to look over the accounts and put them in income producing assets that need minimal management. The couple wants to be able to cash a check every quarter for $5000 to supplement their SSI and small pension. The couple's SSI+Pension income is ~40k. They have no debt. I have never worked with someone who is aiming for capital preservation and income. My general answer to people who are in 15+ years out and have no inclination to learn how to invest their own money is to buy a low cost index fund and those closer to retirement to start blending in bond funds. Six years ago I would have put my inlaws nest egg (500k) into AAA bonds, Government bonds, and an online money market paying >5%. The extra 25-30k in income without touching the premium in addition to their SSI and pension would have made for a nice retirement. Today, money markets are paying <1% and bonds are yielding next to nothing, which leaves dividend paying stocks, mutual funds, and CEFs as potential candidates. Do you all have any advice on any longterm securities paying a decent yield without going too far down the quality curve? What about allocation between bonds and equities considering the environment we are in right now? So far I'm considering equity: KMI, MKC, PEP, IBM, BP, CHRW, LRE.L, CHRW, BAH, KO, WMT; Bond fund/etf: DODIX, FOCIX, BOND, HYS; Closed end fund: INF, PCEF My goal is a 4% yield with long term capital preservation. Capital preservation should be the main goal for this retired couple. That means cash that could be available for picking up some high quality, income producing assets at bargain prices if the market sells off. At least wait another six months to see what happens. However, if you are determined to have them fully invested in equities, you might put them 25% in LRE, 10% in Admiral Group because they are great businesses that return almost all their earnings to shareholders. Then , put most of the remainder into high quality Utilities that pay good dividends. Keep at least 10% in cash for emergencies. Link to comment Share on other sites More sharing options...
bizaro86 Posted January 30, 2014 Share Posted January 30, 2014 I think there are two possibilities here, depending on your confidence and the amount of time you have to put into this. You could probably build a reasonable quality portfolio using cheap ETFs, rebalance once a year, and do nothing else. The alternative choice is to replace ETFs with individual securities. This requires much more work, as you'll have to monitor the securities, but offers them the potential for a greater return. I do a mixture for my father-in-law, where the base of the portfolio is ETFs, and I replace with individual securities when I believe there is better value. For example, I sold some of his REIT ETF and bought pure industrial reit aar.un on Toronto. I think its better value than the REIT index, and especially like the long duration of their leases and mortgages. Article below has a more detailed look. http://seekingalpha.com/article/1746802-pure-industrial-reit-safety-at-7-percent-yield Link to comment Share on other sites More sharing options...
petey2720 Posted January 30, 2014 Share Posted January 30, 2014 I agree that Global did a good job. Take a look at: STAG, DOC, ARCT and maybe O. I also own some PSEC (already mentioned). Link to comment Share on other sites More sharing options...
Ross812 Posted January 30, 2014 Author Share Posted January 30, 2014 Thank you for all the advice! So far: CEFs: INF - 7.3% - Brookfield managed global infrastructure [4%] PFL - 9.4% - Pimco managed diversified bond [3%] ETW - 10% - Eaton managed buy/write [4%] Funds: FOCIX - 3.5% - Fairholm managed bonds [8%] DODIX- 3% - Dodge manage bonds [5%] OAKBX - .5% - Oakmark defensive [8%] YACKX - .9% - Yacktman defensive [9%] DEM - 4% - WisdomTree EM [2%] MOAT - .8% - Widemoat ETF [8%] REITs: PSEC - 12% [1%] TWO - 10% [1%] NLY - 11% [1%] VNQ - 4.3% [3%] DRM.TO - 0% [1%] PDRTF - 7% [1%] Equities: BP - 4.8% [3%] LRE.L - 9% [6%] ADM.L - 9% [3%] KMI - 4.6% [5%] KMR - 7% [5%] JPM - 2.7% [2%] MKC - 2.1% [2%] PETM - 1.2% [2%] CHRW - 2.4% [2%] BDVSY - 3.5% [2%] NSRGY - 3.6% [3%] IBM - 2.1% [2%] INTC - 3.6% [2%] AAPL - 2.2% [2%] This portfolio gives a yield of 4.24% It is composed of: REIT - 8% Equity - 54% Utility - 14% Bond - 20% Buy/Write - 4% Any glaring holes? Am I being too aggressive in the allocation? Link to comment Share on other sites More sharing options...
jay21 Posted January 30, 2014 Share Posted January 30, 2014 I think I would prefer something like Double Line to REITs (especially mREITs), but that's just me and I am very unqualified to tell people who are on SSI what to do with their money. Link to comment Share on other sites More sharing options...
Ham Hockers Posted January 31, 2014 Share Posted January 31, 2014 PSEC is not a REIT Link to comment Share on other sites More sharing options...
constructive Posted January 31, 2014 Share Posted January 31, 2014 It seems a little complicated. I don't see the point of positions less than 3%. I would guess most retirees would prefer 10-15 holdings instead of 29, easier to keep track of what you own and what role each one plays. I think it could use more foreign exposure. DEM is a good choice. TDIV would cover IBM, INTC and AAPL pretty well. Link to comment Share on other sites More sharing options...
Kiltacular Posted February 1, 2014 Share Posted February 1, 2014 Thank you for all the advice! So far: CEFs: INF - 7.3% - Brookfield managed global infrastructure [4%] PFL - 9.4% - Pimco managed diversified bond [3%] ETW - 10% - Eaton managed buy/write [4%] Funds: FOCIX - 3.5% - Fairholm managed bonds [8%] DODIX- 3% - Dodge manage bonds [5%] OAKBX - .5% - Oakmark defensive [8%] YACKX - .9% - Yacktman defensive [9%] DEM - 4% - WisdomTree EM [2%] MOAT - .8% - Widemoat ETF [8%] REITs: PSEC - 12% [1%] TWO - 10% [1%] NLY - 11% [1%] VNQ - 4.3% [3%] DRM.TO - 0% [1%] PDRTF - 7% [1%] Equities: BP - 4.8% [3%] LRE.L - 9% [6%] ADM.L - 9% [3%] KMI - 4.6% [5%] KMR - 7% [5%] JPM - 2.7% [2%] MKC - 2.1% [2%] PETM - 1.2% [2%] CHRW - 2.4% [2%] BDVSY - 3.5% [2%] NSRGY - 3.6% [3%] IBM - 2.1% [2%] INTC - 3.6% [2%] AAPL - 2.2% [2%] This portfolio gives a yield of 4.24% It is composed of: REIT - 8% Equity - 54% Utility - 14% Bond - 20% Buy/Write - 4% Any glaring holes? Am I being too aggressive in the allocation? I like it. You're doing a good service. I don't think it is too aggressive given that you'll monitor the portfolio and are conscientious. Plus, cash and bonds rates can stay low for a long, long time -- rehash Japan, et al. Don't forget about the uncallable preferreds from WFC and BAC... WFC-L and BAC-L. They give a nice goose to the bonds / cash given that they're yielding over 6%. Link to comment Share on other sites More sharing options...
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