Monday I discussed the core of my strategy to generate income which is high yield stocks.  Today I’m going to discuss the future trend towards more fixed income.

music selection: “Heaven & Hell (live)” — Dio

I have constructed a portfolio where there is “enough” income plus just a little bit more for comfort.  As the stockpile grows, I am shifting away from high yield to fixed income, insurance, and dividend growth.  The fixed income portion is about lowering volatility.  Because I write a lot of options, I am already very exposed to general market volatility.  Some fixed income takes some of the psychological sting out when say for example the Greeks decide to hold a popular referendum on whether or not to default on sovereign debt.

I’m closing in on a target of 20% for fixed income.  That is made up of preferreds (JPS), short duration international bonds (GIM), senior variable debt (JRO), and closed end municipal bond funds (NIO, NEA, [IQI for future purchases]).  These yield a blended 7.5% in distributions.  The munis give a little boost as they are tax exempt.  Since my withdrawal rate is a little over 6%, I could meet my needs with a 100% bond allocation and I will probably go higher than 20% if interest rates rise significantly.  For now, I’m happy to just add new income from options writing to the fixed allocation rather than redeploy high yield.

Together, my high yield and fixed income investments meet my early retirement needs.  I supplement with options income to ensure I can stay ahead of inflation.  As the stockpile continues to grow, I’ll be adding insurance (more Friday) and companies that are growing their total shareholder yield (more Monday).  I’ll bring this all full circle next Wednesday with more about how I select options to grow the stockpile and maybe do a review of how I did things previously when I was still in the accumulation phase prior to early retirement.

Devour your prey raptors!


Portfolio Construction Part two of many

Never miss another opportunity to devour prey!

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2 thoughts on “Portfolio Construction Part two of many

  • July 11, 2015 at 2:46 pm

    Like PCI PFN EFF , among Munis, IQI VKQ VGM NQM BTA, along with NIO NEA. In highest bracket, most Munis on sale, but like to avoid excessive CA IL exposure, of course no Puerto Rico…

    I owe you big time for leading me to MORL, and from there, BDCL CEFL MLPL DVHL REM ,and all the High Yields I am in.

    Also for directing me towards Munis, with your orignal NIO NEA posts.

    And of course for the options education…

    I am beginning to see a theme here…
    Imitation is of course the best form of flattery..

    Love some Uriah Heep, aka July Morning, Lady in Black, Come away Melinda, also King Crimson…


    • July 11, 2015 at 4:03 pm

      It is great to have a fan!

      Uriah for the win!

      I love Pandora radio. I get such an eclectic mix of great music. I just had to start sharing with my audience.


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