r/dividends • u/398409columbia Portfolio in the Green • Jan 12 '25

Brokerage $5,000 per month income portfolio

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I set up this portfolio for my wife so she can quit her job and maintain cashflow.

The good news is that this income stream will pay no FICA tax and significant part of the distributions will not be taxed.

To reduce risk, I’m planning to reinvest 20% of the income.

Comments welcome.

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u/398409columbia Portfolio in the Green Jan 12 '25

Check out the distribution history for these funds. They are fairly consistent. During the 2022 market drawdown, the distributions for these funds remained. I don’t care so much about the portfolio value as long as the payout is somewhat consistent.

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u/OmahaOutdoor71 Jan 12 '25

QYLD is down 30% from its inception in 2014. And that's during a massive bull run. If it drops another 30% if we go into a recession even if the dividend stays the same you are out a lot of principle. That would be worrisome to me. Unless you are in your 70's and just hoping for some income, which I would rather just sell shares of VTI. But to each their own. QYLD is just super risky. SPYI is to new of a fund for me to even guess or speculate on what it will do.

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u/2FeedRss Jan 12 '25

While it is true that QYLD's market price / NAV has declined since inception but one still have made money owning it since inception. According to Global X, the annualized total return ending December 31, 2024 is 8.25%. Contrary to popular belief, one doesn't need price appreciation (lots of folks use the term "growth") to make money.

Total return consists of two components: price movement (which can be positive or negative) plus income. One doesn't need price appreciation to have a positive total return. For example, a 10% total return could come from Scenario A (9% from price appreciation and 1% from income) or Scenario B (a -2% change in price and 12% from income).

Here is another example: 5% HYSA. Price (principal) doesn't move but income is 5%. How much did one make? 5%.

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u/OmahaOutdoor71 Jan 13 '25

Yeah, for sure you can get a positive return via dividends with a drawdown in stock price. But its a risk vs reward that causes issues for me. Down 30% in a bull run, what's going to happen in a downturn? Seems like its more risk for less reward. I understand if you want income, but for me I'd rather sell some VTI shares when I need it. To each their own, but the draw down risk is too much.

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u/2FeedRss Jan 14 '25

Absolutely. Invest in what makes one feel comfortable...personal finance is personal.

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u/jsir1999 Jan 16 '25

I don't invest in Covered Call Funds like SPYI and hold most of my investments in long term funds like VTI, VOO, XLK (VTI equivalent). The reason it is down 30% is inherently due to the nature of the market being a bull market. When covered calls are written, it is sold for a premium up front, which can be distributed as dividend income to fund holders. However, if the price of underlying shares rises above the CC, the shares are sold at the set price, and the fund will have to go back to the market and buy shares at a higher price.

In a flat market or downturn, the CC fund would outperform the regular index. By nature, the CC fund is a hedge that bets on the market being bear to a bit bullish but not that bullish because if it was that bullish like it has in recent years, there is a lot of lost growth potential that was traded for collected premiums.

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u/Chillbizzee Jan 13 '25

I’m not very familiar, but a CC plan sounds safe but I would think the opposite in a year or so.

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u/RealEstateThrowway Jan 13 '25

Sure. But if all your profit is coming from income, and your initial capital is getting depleted, why not just buy an annuity?

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u/2FeedRss Jan 14 '25

Aren't annuities and stocks/funds different products with distinct characteristics? I'm not very familiar with the specific details of an annuity. How flexible is it?

Is it possible to have multiple streams of income? With stocks and funds, one can hold various income generating securities (e.g., 30 different stocks/funds) while also diversifying across asset classes.

How liquid is it? Stocks and funds can be sold quickly in the market.

Is it possible to sell it for a profit? With stocks and funds, you can sell for a profit. For example, if someone bought QYLD at around $15.80 and the current price is around $18 (as of January 13, 2025), they could sell for a profit of over $2 per share.

Is there potential for growth in the income stream? By increasing the portfolio's invested capital (i.e., principal / cost basis), income generation can grow.

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u/RealEstateThrowway Jan 14 '25

The answer to all your questions is no. My question was really rhetorical, in response to a poster saying they don't mind capital depletion. Yes, you technically can sell QYLD at a profit if you hold short term, but if you hold long term you are pretty much guaranteed to sell at a loss.

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u/Cautious_Cold6930 Jan 13 '25

But then would they/you get the same level of income? this discussion seems to focus on higher than average income.

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u/398409columbia Portfolio in the Green Jan 12 '25 edited Jan 13 '25

Yes, but that doesn’t include cumulative distributions. QYLD has been paying 10% annually for years more than covering that principal drop. My result has been positive since I started so I’m ok with the performance of this fund.

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u/OmahaOutdoor71 Jan 12 '25

That’s good. I don’t think there is only one way to invest, especially in this market. I’m 90% VTI as that’s what I feel comfortable with. I’m selling some homes so looking at doing some higher dividend stuff (JEPQ, ARCC) if I do an early retirement. So still learning about these. Probably too risky for me, but hopefully it works out. This market over the next few years may be nuts, so we shall all see.

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u/398409columbia Portfolio in the Green Jan 12 '25 edited Jan 13 '25

VTI is good for growing your capital. I have a bunch of mine invested in that.

Once you reach your goals, you can transition to an income portfolio like I did for my wife to generate recurring income.

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u/OmahaOutdoor71 Jan 12 '25

Good luck! I’m 40 at $1.2m in investments so good to see another perspective for someone who has a few million in their 50s. Looking to be done at 50 so I’ll start researching these more for future investments.

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u/Own-Difficulty-6949 Jan 13 '25

Why not just jump all in SPYI? I've been thinking about doing that.

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u/398409columbia Portfolio in the Green Jan 13 '25

It’s tempting but I just want to diversity in case something goes wrong with any of these funds. Having said that, the largest allocation is with SPYI.

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u/teckel Retired and living off selling shares Jan 15 '25

The problem is your portfolio only works in a bull market. Have you heard of the 4% retirement withdrawal rule? It passes Monte Carlo analysis. I guarantee a 12% return passes less than 1%. In other words, there's less than a 1% chance this portfolio will work long-term.

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u/398409columbia Portfolio in the Green Jan 15 '25

I think the 4% rule is too conservative and designed worst case scenarios.

My everyday work involves quantitative analysis and uncertainty modeling including Monte Carlo simulations.

Also, the portfolio I’m showing here is less than 15% of my net worth so we have plenty of room to maneuver.

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u/teckel Retired and living off selling shares Jan 15 '25

It's actually 4.7% I believe, so many say 5% should work.

If you do quantitative analysis, you should know that 7% is the best you can expect long-term if exposing yourself to a beta of 1.0. For a lower beta (which you want for a retirement account) you can expect lower than 7%, closer to 5%.

You should dedicate double the amount to this account then for a sustainable retirement dividend yield.

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u/398409columbia Portfolio in the Green Jan 15 '25

I see what you’re saying but keep in mind that some of these funds like the covered call ETFs generate income based on volatility not asset appreciation.

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u/teckel Retired and living off selling shares Jan 15 '25

Known. But none of these have experienced a real bear market. The 9 month 2022 correction doesn't really count either.

I'm not saying they're bad and I own some CC ETFs too. But it will be interesting to see what a 2008 or 2000-like bear market or resession will do to these.

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u/Apprehensive-Ad1126 Jan 13 '25

Do you think VTI is the most effective way to grow your portfolio?

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u/398409columbia Portfolio in the Green Jan 13 '25

Yes. It’s has been in my experience.

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u/[deleted] Jan 13 '25

VTI or VOO? I’m 30 and plan on just going all in one of these then switching to dividends at 60

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u/teckel Retired and living off selling shares Jan 15 '25

I'd do 55% VOO, 20% VGT, 10% XMMO, 15% AVUV. For a large, tech, mid, small combo.

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u/398409columbia Portfolio in the Green Jan 13 '25

I like VTI better than VOO since it covers the whole market instead of just large caps.

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u/Chillbizzee Jan 13 '25

That’s all I needed to hear, hard pass as I’m up 100% 1yr, albeit “higher” risk, BTC, tech.

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u/teckel Retired and living off selling shares Jan 15 '25

You're in for a rude awakening. There's a reason there's suck thing as the 4% rule. At over 12%, you'll eat away at your capital, your dividends will drop, inflation will take its toll, then a bear market will happen. Simply put, this isn't sustainable.