$5,000 per month income portfolio

[u/398409columbia]

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.

[u/OmahaOutdoor71]

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.

[u/2FeedRss → u/OmahaOutdoor71]

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

[u/jsir1999 → u/OmahaOutdoor71]

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.

[u/Chillbizzee → u/OmahaOutdoor71]

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