After a long holiday, I’m coming back with more updates on this journey. Right now the MIP is about 2% above the S&P 500. With September being a big month for ETF dividend payouts, I will be making some exciting reinvestments! Stay tuned
The MIP portfolio for over the past couple of years (well, a portfolio that was a precursor to the MIP) held the SPDRs High Yield ETF (JNK) for its over 5% yield. As fears of increasing rates continued to mount, I sold out of the position. My reason was I could swap out of that position and expand my positions into other existing positions, such as the Eaton Vance Buy-Write Opportunities Fund (ETV), which has an approx. 8% yield and is arguably less volatility than the S&P 500. So I felt the swap of the two was a better position to be in since I am not particularly of the opinion that the MIP has to have bond exposure to be successful, at least not high yield exposure at this time.
I also used the opportunities to expand the portfolio into some beaten down areas as well. As an example I started positions into the International Select Dividend ETF (IDV), the International Developed Real Estate ETF (IFGL), and lastly the Chinese Real Estate ETF (TAO). Main attraction here was to diversify away from U.S. real estate and increase exposure to international dividend payers. At their beaten down price, I believe I can start building a position at attractive pricing.
The majority of the proceeds from the sale of JNK were allocated to ETV throughout the past couple of months, so the new positions are relatively small at this time. As the MIP continues to generate cash, I will continue increase my holdings where the most opportunity is within the portfolio. The concern I do still have at this time however is that the main underperforming position in the MIP is the energy MLP exposure, which is still down about 1% this year within the portfolio. Very concious to try and not throw good money after bad, however I still view my position here very favorable, especially with the lack of infrastructure needed to transport all of the shale crude that is getting produced. I hold MLPA in this space.
Try Audible and Get Two Free Audiobooks
I’m a huge fan of Ray Dalio and his philosphy. I loved his book (see below) and am eagerly awaiting his second one. I gobble up every video I can find from him explaining his views of the market, on work, and on life.
This video shows Ray talking about his views on gold and that there is always a place for gold in a portfolio as a diversifier. I don’t like gold one bit because I just don’t understand how it has any value to an investor, and I think the typical gold theory that it is a hedge against uncertainty is a bunch of hogwash. HOWEVER, I am not a market expert and thus am trying to figure out if there is a gold income vehicle that would be an important piece of the MIP Portfolio.
The mission of this portfolio is to generate the most income, maintain capital, and have the lowest risk through low correlations possible. With the high level of income being reinvested into the most opportunistic areas at the time, compounded returns are to surpass the market over time. This is what I want to develop here with this blog.
So the question here is can gold play a part. SPDRS Gold ETF (GLD) is the most popular gold ETF, but it doesn’t pay an income. I could hold it and sell covered calls on it, however I would prefer to find a fund that has the scale and expertise to optimize the strategy. So I’ve stumbled across the Credite Suisse X-Link Gold ETN (GLDI) which sells covered calls, however I can’t tell how well it actually correlates to gold price movements over time. So I don’t know if this is a plausible vehile either. If you look at a chart of this… it is ugly. Since inception it has decreased over 50%.
Does any one know of a closed-end fund (CEF) that may be an income producing vehicle on gold? Or should gold just be forgotten completely.
When I first started investing I of course knew of the bellwether General Electric. Industrial conglomerate with a storied history and a great dividend yield. Alas, the market is unforgiving. It was announced today that GE would be pulled out of the Dow Jones Industrial index and be replaced by Walgreens (WBA).
Viewing it’s stock chart you just see a straight slide down over the past year. Before GE cut it’s dividend earlier this year, GE was yielding an about 4.5% dividend yield. Since then, the stock has been about halved and is now yielding about 3.5%. It’s definitely been a rough ride, but what will the future hold?
The MIP Portfolio doesn’t aim to hold individual stocks, unless there is a compelling reason to do so. I have been considering over-weighting some of the better performers within an ETF in the MIP Portfolio, but have not begun to do so. Currently, the only single stock holding I have in this portfolio is Apple (AAPL). I’ve held this one as an income growth story, with the view dividends will continue to increase as Apple transforms from a hardware only company to a more diversified company with greater focus on services. Should this warrant holding it within the portfolio when the mission of the portfolio is to be the best income portfolio ever created? Let’s discuss (please comment below).
I write this post to just ponder whether GE is at a point to start adding to an income focused portfolio, however I think it best for the MIP Portfolio to stay away when there are much better opportunities to deploy capital elsewhere.
Would love to hear your thoughts!
Part of the mission of the MIP Portfolio is to perform in all markets by being diversified and having low correlations amongst the various holdings. Thanks to some feedback regarding the current portfolio from a helpful Facebooker, I am looking into adding the iShares 1 – 3 year Treasury Bond ETF (SHY) to the portfolio to maintain capital and generate income while interest rates are set to rise.
Now I have no idea how high they will rise, just that the general concensus is that interest rates will rise over time back to “normal” levels. Perhaps 3.5% – 4% on the 10 year is a normal range, or so I’ve heard from analysts on CNBC.
Since my portfolio is a yield portfolio, it will be sensitive to interest rate rises as higher yielding, safer investments (U.S. Treasuries) will garner higher demand. To protect against this I will look to start adding a position within SHY.
The wisdom I need from the crowd is to verify that SHY is the best way to protect an income focused portfolio against rising rates and what weighting this vehicle should receive. 10%, 15%, 20%+?
Please share your thoughts in the comment section. Refer here to see what is currently in the MIP Portfolio.
Just checked the futures and WTI is down another percentage point this morning. Really curious to see how the MLPs in the MIP portfolio will perform on Monday. Unfortunately as much as I would like to believe that the MLPs are primarily driven by supply and demand dynamics impacting their pipeline and terminal fees, crude fluctuations will probably drive the price action tomorrow.
The goal of the Millennial Income Project (MIP) is to create a well diversified, low correlation, high income producing portfolio that an average investor can replicate. To create this, I am looking for investments with steady, relatively safe, and growing cash flows. This is important to me because a key pillar of this portfolio is it’s ability to generate cash to be redeployed to the best opportunities within the portfolio for continued growth. Ultimately, the portfolio that gets create by leveraging the wisdom of the crowd, I hope will be able to produce a sustainable income that can help the investor live a better life.
A key pillar of this portfolio I believe will come from the energy sector. The energy industry’s history of paying sizeable dividends, and the favorable tax treatment of MLPs (Master Limited Partnerships), has always made this industry an attractive one from an income investor’s standpoint. From reading one of my latest posts you’ll see that the MIP portfolio currently holds an MLP ETF (Global X MLP ETF MLPA). I believe Energy MLPs are an interesting investment for income investors to consider due to their rateable business, and tax advantaged structure, which can provide income in a portfolio that can be redeployed back into the MLPs or elsewhere, where the risk weighted return is best. MLPA’s mid 8% yield and lower expense ratio (45 bps) is generally why I have held MLPA over AMLP (Alerian MLP ETF). However, when the MLP sector is under pressure and I am in a losing position, I may rotate out of one and into the other to capture tax loss selling.
Thus far in developing the MIP portfolio, I have leaned towards MLP ETFs to access cash flows from the energy industry; but is that best? The energy sector, utilizing the XLE (Spdrs Energy Select Sector) as a proxy for the U.S. industry offers a 3% dividend yield, which I have considered too low to support reaching my target portfolio yield (roughly between 5% to 10%). However, I am looking to the crowd to get perspectives on whether I should:
- Dump Energy altogether as a pillar in the MIP Portfolio
- Reduce the size of the MLPs importance in the portfolio and add more large, diversified energy allocations such as the XLE.
- Consider alternative vehicles to access these cash flows, such as Closed-end Funds or ETNs (Exchange traded notes).
- Consider energy in a completely different context
Something else I have been considering is adding Energy related REITs as an alternative to MLPs; however I am finding it difficult to find companies in this space other than CORR (CorEnergy Infrastructure Trust).
I recognize that MLPA may not be the best vehicle to access energy cashflows, so if there is a better vehicle out there for the average investor, please comment below and let us have a conversation. You aren’t just helping me here, you’re helping any income investor that want’s to have the best possible income portfolio out there.
Dear community, in building the ultimate income portfolio, is it better to use ETFs and CEFs, or to use the top three of a particular industry? For example, the top three healthy, high dividend paying utility stocks, or top three mortgage REIT players, etc.
Let me know what you think.
My mission here is to tap into the wisdom of the crowd, and work with the investment community, to create a high-powered, all environment income producing portfolio. I believe the portfolio should meet the following criteria:
1. Produce consistent invested yields of between 5% – 10%
2. Be well diversified with low correlations
3. Be created with as few securities needed to reach the above two objectives.
Now the above could be completely wrong, so I am reaching out to the community to help optimize. I am attempting to develop this environment with as few constraints as possible, although investments that are not easily accessible should not be considered (i.e. high-net worth investments).
Below are the current holdings I have in the Millennial Income Portfolio (MIP). I have listed them out by their current % of the portfolio, their % of income contribution within the portfolio, and the current dividend yield relative to the cost basis at acquisition. The holding or income weights are by no means target percentages. I am looking towards the community to help me craft the right target weights to meet the objectives of the portfolio.
Currently, the portfolio produces a little over 6% yield on invested capital. In a follow up post I will list some additional tickets I am considering for the portfolio, but would of course love suggestions.
|Ticker||Description||Holding Weight||Income Weight||Yield at Cost|
|VNQ||U.S. Property REITs||15%||10%||3.8%|
|DVY||U.S. Dividend Stocks||14%||8%||3.6%|
|JNK||U.S. Junk Bonds||13%||13%||5.4%|
|PSP||Listed Private Equity||7%||12%||9.8%|
|ETV||S&P 500 Buy-Write||6%||9%||8.8%|
|VYM||U.S. Dividend Stocks||4%||2%||3.1%|
What am I doing here?
For a long time now I have been trying to build the “best” income producing portfolio. Think of it as an “all-weather” portfolio like Ray Dalio’s Bridgewater created but that focuses on income producing assets.
Why is this type of portfolio important to me?
I want to invest my money in a way that will generate frequent, consistent income over time so that I can redeploy that capital best in my portfolio. I have most of my wealth in diversified market etfs through 401k and other retirement vehicles. Therefore my desire in having a supercharged income portfolio is to help me pay bills before retirement.
I hope to build a following on this blog so that together we can design the best income producing portfolio available.