11-23-2014, 08:58 PM
I am in the midst of taking a sizable rollover into a new traditional IRA. As a retiree who depends on investment income for a significant part of my spending needs, and as the instigator of the HYLG discussion, I have been working on an appropriate allocation for my cash. I am writing about it here so that the younger investors who post here, who appear to be in the great majority, can have some insight into what life might bring your way in the future. And who knows, the older folks might get something out of this too; I have had inquiries on SA from retirees on this very subject. So here goes.
To elaborate, I need high income now rather than later; I do not value LYHG nearly as much as HYLG because I need the 'Y' now. At the same time, I do not want to take an unreasonable amount of risk, as I define risk, which for me is a significant loss of current income.
I developed a list of stocks with a range of medium to high incomes that I think could meet my needs for both current income and risk minimization if I own them in the right proportions. The method I chose was to own them in quantities such that each position generates the same amount of income. If, for instance, I own 15 different stocks, then if any one stock stops paying a dividend I will lose at most 1/15th of my income.
This is the portfolio I expect to own. Sorted on symbol.
Two of these are leveraged ETNs: HDLV and MLPL.
HDLV is linked to an index that is heavy on telcos and utilities. MLPL is linked to the Alerian MLP Infrastructure Index, i.e. midstream MLPs. The risks attached to these are (among others) 1) they are ETNs so there is counterparty risk, and 2) they are 2x leveraged. Balancing these risks are the businesses that make up the linked indexes. These businesses are stable, and the midstream MLPs are growing. My portfolio risk is further mitigated by my allocation strategy; they are the two smallest holdings by market value.
To elaborate, I need high income now rather than later; I do not value LYHG nearly as much as HYLG because I need the 'Y' now. At the same time, I do not want to take an unreasonable amount of risk, as I define risk, which for me is a significant loss of current income.
I developed a list of stocks with a range of medium to high incomes that I think could meet my needs for both current income and risk minimization if I own them in the right proportions. The method I chose was to own them in quantities such that each position generates the same amount of income. If, for instance, I own 15 different stocks, then if any one stock stops paying a dividend I will lose at most 1/15th of my income.
This is the portfolio I expect to own. Sorted on symbol.
Two of these are leveraged ETNs: HDLV and MLPL.
HDLV is linked to an index that is heavy on telcos and utilities. MLPL is linked to the Alerian MLP Infrastructure Index, i.e. midstream MLPs. The risks attached to these are (among others) 1) they are ETNs so there is counterparty risk, and 2) they are 2x leveraged. Balancing these risks are the businesses that make up the linked indexes. These businesses are stable, and the midstream MLPs are growing. My portfolio risk is further mitigated by my allocation strategy; they are the two smallest holdings by market value.