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.