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Sunday, September 30, 2012

Ideas for Increasing Portfolio Income

Source: Capital Pixel
The biggest challenge facing many investors today is how to increase portfolio income.  Suppose you determine you want 40% of investment assets  in the fixed income sector. what's next?

If we go back to the good ol' day,s we could just put 40% in AGG, the exchange traded fund (ETF) that tracks the Barclay's Aggregate Index and be done with it.  Back then, AGG offered a decent yield for its duration.  Unless you are an ostrich, you know this is no longer true.  Today, the Aggregate Index is loaded with low-yielding Treasury issues (gee, I wonder how that happened!) and its yield is 1.56% with a duration of 4.36 years - not a real attractive yield/risk tradeoff.

So where can the DIY investor go to find some ideas that might improve this tradeoff?  This, of course, assumes that you are either willing to do some research or obtain a whittled down list of ideas to talk about with your advisor. 

The first place you might want to consider is Seeking Alpha.  Click "Dividends & Income" at the top, and on the right hand side of the page you come to you'll find:

Source: Seeking Alpha
As indicated, these are ETFs; so automatically you get some degree of diversification, and typically they are managed versus an index.  Still, as noted above, you need to do some research.  Go to Yahoo! Finance or Morningstar, put in the ticker symbols (shown in parentheses in the table on the left), and check out their durations, yields, expense ratios, etc.  DO NOT BE SWAYED BY THE 12-MONTH RETURNS SHOWN IN THE RIGHT HAND COLUMN!  Remember, looking in the rear view mirror causes crashes!

In fact, at this juncture, the returns are an indication of which funds will suffer the most when yields rise!

A second place to get ideas is from the list of ETFs people viewed when checking on a particular ETF. For example, if you put "JNK" in the quote box at Yahoo! Finance, you get:

Source: Yahoo
As you can see, this is an easy way to get a short list of candidates to analyze for possible yield-enhancing opportunities. At the risk of sounding like a broken record, I would emphasize that looking for higher yield is going down the pot-filled road of increasing risk where you want diversification and careful management of position size - i.e., I wouldn't invest in any yield fund or security (example - note that NLY is a security not a fund!) more than 5% of the fixed income allocation.

Disclosure:  This post is for educational purposes only.  I own some of the funds mentioned.  Individuals should do their own research or consult with a professional before making investment decisions.


  1. As you rightly point out, chasing higher yields is fraught with risks. Spanish bonds is yet another example!

  2. Replies
    1. Thanks Robert! Been a long break, but I'm glad to be back!

  3. This is interesting. I do find this idea very fresh and useful too.

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