Closed End Funds

Correction? Not! An Income Investing "Eureka” Moment

Reconsidering ’normal’ portfolios

by Steve Selengut

Mr. Selengut is a private investor and a contributing editor to Advisor Magazine. He is the author of the book ‘The Brainwashing of the American Investor: The book that Wall Street does not want you to read.’ He can be reached at sanserve@aol.com.

It should be noted that 2022 has not been a particularly “good” year for the markets, equity or income. But as you may have heard before, neither market value nor total return numbers have much impact on income production. If you show the following income numbers to your investment friends, they’ll look at you like you’re from another planet:

  • Realized distribution income through August was just over $3.7 million, or 6.34% for the eight month period. This is a 9.5% annualized rate, with the two biggest quarterly distribution months yet to come. Conservatively, realized “base income” for the year is estimated to be between 10% and 11%… of in-the-wallet spending/reinvesting money!

These numbers are eight month results for 115 income focused, six and seven figure portfolios with an average size of $510k. All portfolios differ in many ways, and contain an estimated average of 80 different income producers representing most market sectors, security types, and strategies:

  • 16 portfolios generated more than 7% in “base income” (just distributions, no capital gains) through August, the highest being 7.47%
  • Only 10 portfolios generated less than 6% in base income through August, the lowest being 5.39*. Of the ten, seven contained Tax Free Municipal Bonds. (*One had a large cash infusion in July, forcing the average below 4%.)
  • Total July income was 1.5% higher than total April income; total August income was 2.7% greater than total May income.
  • Total 2nd Quarter income was roughly 4.5% higher than 1st Quarter Income; anticipated 3rd Quarter income could be up to 5.0% higher than 2nd Quarter income.
  • 99.1 % of the portfolios have already generated TWICE the realized spending money needed for the 4% per year universally recognized as a retirement portfolio distribution target. Repeat this a few times, think about it, it’s not BS, you too can get there. Oh yeah, in a year with next to nothing so far in realized capital gains!!!

Normal Portfolios Reconsidered

If you are thinking about “normal” retirement portfolios, those constructed of individual stocks (even “dividend stocks”), ETFs, Mutual Funds, and fixed income securities, get ready to pull the string on your “eureka” light bulb. R U Ready?

  • The typical investment portfolio (self managed, professionally managed, Mutual Fund, ETF portfolio) produces less than 3% annually in realized, spendable, income. In a “good” stock market year, it produces even less, because profit taking is not something that most investors, amateur or professional, are comfortable with.
  • For the past eight months, maybe longer, most retirees have been funding their 4% by selling securities, accelerating the decline in portfolio market value, while at the same time, either reducing “working capital” or creating taxable gains.

The portfolios in this study contain roughly 270 Closed End Funds (CEFs) and 8 ETFs, 4 of which hold only CEFs). 18 portfolios hold tax free CEFs as well; most have at least 35% in the stock market… no individual stocks or bonds.

  • For the past eight months, these portfolios have been generating twice the income needed for their monthly withdrawals… without any selling. They have been growing working capital and future income by reinvesting the excess at between 9% and 10% in either equity or income closed end funds, or at nearly 6% tax free (at September 2nd price levels).
  • In just 8 months, these (real life/real people just like you) CEF investors have produced 50% more spending money than most professionals estimate retirees will be disbursing annually from their investment stash… in perhaps the worst market environment we’ve experienced since “The Great Recession”. Yes, the experience was pretty much the same then.

Isn’t it time to remove the blinders and take control of your retirement investment program? Check it out, do the research, ask the questions: discover the world of Closed End Fund investing.

 

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