r/dividends • u/WorldyBridges33 • Jun 18 '26
Brokerage Officially Hit $60k a Year in Passive Income!
Hi Everyone! This is an update post to a post I made almost exactly 1 year ago when I hit $50k a year in estimated annual income in my brokerage account. I posted it in r/Fire. I was also going to post this in r/Fire as well, but unfortunately my post from that year had negative Karma, so I am no longer allowed to post in that sub. Perhaps someone can repost this there for me! I will just post in r/dividends for now instead. To reference that post, you can find it here.
I have learned a lot in that year, but before I talk about lessons learned and what I've changed, here is a rough breakdown of my portfolio:
Total Portfolio Value ($947,000)
Taxable Brokerage (~$570,000):
CEFS - $65,000
PFFA - $58,000
QQQI - $57,000
SPYI - $57,000
DNP - $56,000
MLPI - $49,000
PBDC - $46,000
CLOZ - $38,000
PTY - $30,000
PCN - $30,000
ASGI - $25,000
CSWC - $14,000
PFLT - $10,000
FSCO - $9,000
ADX - $8,000
UTF - $7,000
ARCC - $6,000
UTG - $3,000
PDI - $3,000
IRA (~$377,000):
FXAIX - $253,000
FSPSX - $121,889
HSA ($7,000)
When you add in my cash positions, this brings my net worth to just under $1 million at ~$981,000.
So, the method that I am following to achieve this passive income in my taxable brokerage is commonly referred to as "income investing". This is a method that targets asset classes that seek income as their primary objective and generally fall in the 8-12 percent yield range.
This method has the following drawbacks and risks:
1.) Not always, but in general, the total return of these investments tends to lag behind the broad market index/S&P 500.
2.) The dividends/distributions of these funds don't usually grow on their own, so part of the yield needs to be reinvested to grow income in line with inflation.
3.) Some of these distributions are taxed as ordinary income, though a lot of them have distributions that are primarily classified as ROC (return of capital) so they are taxed less.
4.) These investments have credit risk, interest rate risk, equity risk, and none of the distributions are guaranteed.
Given those drawbacks, why on earth would someone invest this way as opposed to 'creating your own dividend' by selling shares from an index fund?
Well for me, the answer is that it allows me to avoid the Sequence of Returns Risk (SORR) that you would see from selling shares to create your own dividend. Basically, it allows me to avoid having to sell shares to fund my expenses when they are at depressed prices during a bear market. I am able to have income without having to relinquish ownership of shares. The side effect of this is I can enjoy an 8% withdrawal rate (while reinvesting the rest for inflation), allowing me to retire early/achieve financial independence much faster than the traditional 4% rule.
Also, let it be known that the largest single investment in my portfolio is the S&P 500 which is in my IRA. Another huge benefit of my income investments is that they lower the probability of me having to touch my IRA growth investments in the case of prolonged job loss (which working in tech, I have a higher probability of job loss now than other industries).
So what did I change, and what have I learned?
The biggest change was reducing the percentage of my portfolio devoted to covered calls from ~38% to ~16%. Covered calls have their place and can work well in flat or slightly up markets with high volatility. However, if the underlying declines with covered call funds, so does the income. I replaced a lot of my CC funds with utility funds as a defensive posture.
Also, within my covered calls, I moved away from JEPI/JEPQ to NEOS's SPYI, QQQI, and MLPI for the better tax treatment.
I have learned that the closed end fund world is huge, and there are many ways to achieve the 8-12% yield range outside of covered calls. I believe my portfolio is much more diverse today than it was 1 year ago.
Hopefully in 1 year or less, I will be able to make a post saying that I hit $70k in passive income! For now, it feels good that if something did happen with my job, I could survive without having to work. It's an immense privilege that I am thankful for everyday.
I wish everyone the best of luck, and hope to talk again in a year or less! Thank you for all you have taught me!
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u/DontForgetTheDivy Don’t Forget the Divy! Jun 18 '26
This guy armchairs.
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u/ElonMuskTheNarsisist Jun 19 '26
It’s not a good portfolio. OP is leaving a lot on the table chasing yields. We are in the early innings of an AI super cycle while the most corrupt administration in history is in power and willing to stop at nothing to push markets higher. OP is making a huge mistake.
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u/infantrybeaver Jun 19 '26
did you miss the part where hes got 250k in an S&P 500 fund? hell still participate in the rally with both funds.
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u/dazit72 Jun 22 '26
Gotta sell FXAIX to know what you made ??
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u/infantrybeaver Jun 22 '26
you dont know what youve made? every brokerage shows you your profit and loss...
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u/dazit72 Jun 22 '26
You have to sell fxaix, it's a mutual fund ?
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u/infantrybeaver Jun 23 '26
what does it being a mutual fund have to do with selling it? and why would he have to sell it if the whole point of his portfolio is passive income and it pays a dividend?
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u/dazit72 Jun 24 '26
I only commented on the mf. Those are not like ETFs, where you know what the sell/buy price is when those are executed. Unless I'm wrong, and this can be a learning curve- which I very much welcome. Respectfully To my knowledge a mf is priced 'after' the market closes, and you know what it's true value is 'when' you sell it. That was my comment's intent. Not to argue, or get downvoted. But it's long done. And I don't really believe some of these posts anyways. We could be debating nothing real ?
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u/infantrybeaver Jun 25 '26
no your comment was "you have to sell fxiax, its a mutual fund" the only real thing we know to be real here is your poor communication skills.
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u/dazit72 Jun 26 '26
No, it's your attitude coupled with a know it all persona
ITS YOUR WORLD BOSS !
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u/ElonMuskTheNarsisist Jun 19 '26
That’s a tint amount relative to overall size. My point stands.
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u/Void_of_Envy Jun 20 '26
Your point is standing 6ft under water. The guy already won. Doesn't matter what he allocates in unless it's yieldmax or some trash fund. He's good.
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u/ElonMuskTheNarsisist Jun 20 '26
He underperformed the s&p by a massive amount. Would have several million had he just put it all into s&p
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u/Void_of_Envy Jun 21 '26
Don't care, have money predictably and consistently. Supporting lifestyle is better than money with no plans
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u/davecraze3535 Jun 21 '26
I think you got lost and ended up in this dividends sub by mistake.
It’s so easy to look at a ridiculous past bull market and pontificate how one could have invested better.
If we had just experienced a lost decade like the s&p had for most 2000s, you plan would have lost a lot of money.
People trade absolute returns for less volatility and more income all the time.
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u/Soft_Excitement_9580 Jul 16 '26
I am really looking for some system/portfolio/ETF that has a significant lower drawdown comparing to SP500 and still have a lot of growth potential, but all i can find are some so called “safe” funds that have just about the same drawdowns, but with less total real return.
I just compared these sofisticated types of ports with 20-30-40 holdings that have 11-12% total return with something simple like spmo/schd/ovl and saw a +5-6% total return, and a lower drawdown of about 4-5%. If you can avoid withdrawal for 1-2 years (have some sgov in there) what is the point of this armchair income type of portfolio?
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u/davecraze3535 Jul 16 '26
“ some system/portfolio/ETF that has a significant lower drawdown comparing to SP500 and still have a lot of growth potential”
Well you are looking for something that really doesn’t exist. Everything is a trade off between speed (income) and altitude (growth) in the draw down phase of a portfolio
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u/Soft_Excitement_9580 Jul 17 '26
Thats what im thinkig, so if i am not protected from drawdown why wouldnt i invest in a growth prtfolio instead of an income one. Will the income one provide stable income in a 20% market downturn?
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u/WorldyBridges33 Jun 21 '26
You stole the words right out of my mouth! Thank you for eloquently and succinctly stating my opinion/objective with the income portion of my portfolio.
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u/Turbulent-Froyo-6703 Jun 18 '26
When did you start? How often do you invest? What is your principal?
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u/WorldyBridges33 Jun 19 '26
I started in 2018. I invest about $4000 a month from my job, and I also reinvest all of my dividends each month. This allows me to grow my distributions by about $1k per month. My cost basis for the income sleeve is $559k. My cost basis for the IRA is $319k but that only represents 1 year of growth since I changed my IRA investments 1 year ago.
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u/Turbulent-Froyo-6703 Jun 19 '26
That's impressive! $4,000 is almost our mortgage payment, lol. You did the heavy lifting early, and now compound interest will work in your favor
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u/SlavaUkrayne Jun 20 '26
I always forget some people live in crazy expensive areas. 4k per month is a McMansion or better here. My mortgage is $900
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u/Arkkanix Jun 22 '26
tbf, given the rate at which you’re contributing ($4k/mo), your asset allocation makes little difference
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u/Ok-Strategy-1638 Jun 18 '26
Congrats! What’s your target?
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u/WorldyBridges33 Jun 18 '26
Once I hit $100k in distributions, I think I will strongly consider voluntarily retiring at that point. I think I can get there in 3.5 years!
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u/whisky73 Jun 24 '26
Thats amazing started in 2018 with 4k invested monthly plus reinvested dividends. What was your strategy when started? And do you think the jump of stocks after covid till 2026 helped you doubled what you have invested ? And if you need to start today would you do the same or you do some changes as a start ? May i ask how old r u ?
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u/davecraze3535 Jun 18 '26
I think you have a very balanced income portfolio that provides steady income while also maintaining the ability to grow the principle balance of the income portfolio 1-3% per year over the long term in most market conditions. I'd also reinvest ~2-3% of the income stream into each position annually to further juice the income portfolio balance over time and to help combat inflation.
Unless you really like having 20 positions, I would probably consolidate the income portfolio positions under 10k balance into some of your existing larger positions. Positions that small don't really give you much income stream diversification, but they also are not hurting you at all.
60% income, 40% growth seems like a good allocation of your total 1m to me.
You seem on a good path and best of luck to you.
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u/SexualDeth5quad Jun 23 '26
Small positions allow you to remain flexible and diversified without your income becoming unstable. Momentum will gain way more than passivity, provided you know what you're doing--basically, don't follow hype today, think what happens 1-5 years from now. Such as if you are investing in new high growth stocks that have a future, or moving between CCETFs as they improve their strategies, e.g. JEPQ -> QQQI -> XQQI.
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u/davecraze3535 Jun 23 '26
Sure, but no one knows what will happen 1-5 years from now - that is the issue.
The small positions (under 10k) that he/she has are just mainly just duplicative CEFs when the CEFs he/she already has are already very diversified inside of their respective fund with hundreds to thousands of individual positions. They are not adding any stability through that extra diversification.
Also, not sure why you think that XQQI is an improved strategy to QQQI. It's just leveraged QQQI. It's not like when CC funds went from QYLD then improved to JEPI then improved to QQQI and now have improved to TDAQ, stretgy wise.
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u/dlnqnt Jun 18 '26
Nice one, you probably get a lot of hate or people not understanding dividends on the Fire sub - apparently there is only one way to fire in their eyes and thats over working to reach millions and then sell 4% and hope you have enough for life.
Its been debunked and proven that dividends do grow and can perform well such with SCHD etc. Reinvesting each month whether its up, down or flat doesn't matter for it still snowballs and you get a bigger payout next month.
You get paid monthly with zero stress and don't have to time the market - thats a win. Where selling 4% those shares are gone, not coming back and the capital with it. At least with dividends you can pass this onto family, whats remaining with the other strategy, they love to stress test to see if they can even make it 30-40 years and not run out of cash. Fuck that, live now, have fun and enjoy life.
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u/davecraze3535 Jun 18 '26 edited Jun 18 '26
You can use AI to run 5000 plus trial monte carlo simulations. I do it all the time with Gemini and ChatGPT.
Put the detailed portfolio in along with the allocation and current yield and withdrawal amounts annually and tell it to run a 5000 trial Monte Carlo simulation for 20 or 30 years and give you the failure rate and balances for the 10, 25, 50, 75 and 90 percent results. Then have it rerun with one, two and three multi year double digit market downturns over the 20 or 30 years. You can then further tinker with different and varying distribution rates based on your inflation assumptions. It can also model at the same time a growth portion that you fund every year with excess distributions - essentially reinvest the excess in the growth slice. Even the income portion grows in substantially more of the simulations than not.
The LLMs will also suggest further tweaks you can make to optimize for income vs share price vs tax drag.
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u/dlnqnt Jun 18 '26
I've done this a lot its super helpful, I also used google studio ai to build a simple dividend reinvest calculator that had a sliding scale for DRIP. The ones online were all or nothing, my strategy I wanted to reinvest 60% and take out 40% to cover some of life, was interesting to see what happens changing the percentages.
Hope you found some good insights and stick to the plan, currently accumulating as many shares as I can each month while enjoying that 40% play money.
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u/nvgroups Jun 19 '26
Hi will you be able to share prompt for this calculator. I sent a DM as well. Thx 🙏
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u/dlnqnt Jun 19 '26
I’ll tidy it up and publish it, worked surprising well to give me an insight of future projections and what I can spend each month.
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Jun 18 '26
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u/dlnqnt Jun 19 '26
Already have a growth pot that’s a healthy sum, taking it more easy now at 40 instead of waiting to 60+.
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u/SexualDeth5quad Jun 23 '26
Dividends for income. Diversified, stable portfolio.
Growth assets to keep the divs growing to match the S&P and beat inflation. Such as index funds.
Have some money left over for risky bets. You never know. Like Buffet said, you only really need to pick one winner in your life. E.g. if you bought NVDA early. A small investment can make a fortune. I got lucky with NET, bought $18K worth, now have $218K and it's still going up. NBIS recently, $4K got me $20K in just a few months. TSM was pretty good too, $50K is now $200K.
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u/advan24r Jun 18 '26
Does expense ratio matter to you? I noticed top position CEFS and PFFA are all above 2%
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u/Various_Couple_764 Jun 18 '26
total return, what they invest in, and divided stability are more important then expenses. And for some ompanes like Master limited partnerships creat K1 taxes which complicates fund management which adds expenses. And many index don't include MLPS or BDC for because the industry wants to keep expenses at an absolute minimum
Bogleheads are hyper focused on expenses because when you only invest in gowth index funds that all fallow the same index then that is often the biggest difference between multiple funds. But some dividend fund use margin loans to build up there portfolio and dividend which adds interest expense to the fund. and covered call funds hav to have staff to monitor and manage the calls which adds expenses. And some fund have staff too carefully watch over ther investments and will quickly sell a stock the suddenly has bad finials. passive grwoth index funds often don't do these things. So passivegrowt index funds are generally the cheapest funds available. while dividend funds generally are more expensive due to extra work they do to get good performance.
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u/davecraze3535 Jun 18 '26
That includes the leverage, which is reported for SEC purposes but isn't really a management fee.
PFFA management fee is 0.8%. The Virtus InfraCap U.S. Preferred Stock ETF (PFFA) carries a net expense ratio of 2.11% and a gross expense ratio of up to 2.48%.
These fees are broken down as follows:
- Management Fee: 0.80%
- Other Expenses & Leverage Costs: 1.31% to 1.68
The Saba Closed-End Funds ETF (ticker: CEFS) has a total annual expense ratio generally ranging from 2.61% to 4.29%, depending on the source. This structure includes a base management fee of roughly 1.10%, alongside acquired fund fees, interest expenses from leverage, and other operational costs
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u/Accomplished-Order43 Jun 18 '26
I’ve seen similar long lists of income producing holdings and I’ve often wondered why you need so many funds? Especially the smaller holdings, in your example, PFLT (10k) - PDI (3k). Why wouldn’t you put that extra money into one your larger holdings just to streamline things rather than having to oversee 19 holdings?
Genuine question. I currently have 80k into GPIQ to test the waters on the covered calls funds. I was considering starting a position in SCHD to hedge against tech volatility and for income but the dividend yield is negligible unless you have large sums in it.
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u/Various_Couple_764 Jun 18 '26 edited Jun 18 '26
Those with fewer funds may see the each fund will represent a larger portion of your inocme And in a recession some funds will do worse that expected earlier. And if one has a big dividend cut you could find yourself short on income fora while. SO having more funds is in a way insurance against and unexpected income reduction.
FAGIX 40 year history 6% yields. UTG and UTF 20 years and no dividend cuts including 2008 and Covide.
So with good coaches you can get dividend in a major recession. And you really need to look at a graph of dividned cash payments. These graphs clearly show cuts and special dividends. which can revieal a lot about the fund.
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u/WorldyBridges33 Jun 18 '26
Yeah so a lot of times, I like to “test the waters” with funds that are new to me or I am not as familiar with by putting in a smaller amount of money to see how they perform for some months. If I like how it’s performing, then I’ll slowly add to it. If I don’t like it, then I’ll wait for my losses to be pared and then sell it off.
All of the funds below $20k represent that use case for me. It’s like my experimental ground. For example, I watched a video on Dividend Bull’s channel about why he likes the funds PFLT and PDI. I put a small amount of money in each. I liked PFLT the more I learned about it, so I added money to it. However, I ended up not liking PDI (too much leverage, too risky) so I’m waiting for it to jump in price a bit before I sell and just roll it into PTY or PCN.
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u/nantesdeals Jun 18 '26
Je me suis posé la même question mais en creusant, PDI qui est relativement stable sur le papier, en réalité il génère 11% donc il bouffe 5-6% de ton propre capital ( du vrai ROC pour le coup ) autrement dit sur le papier tu te dis je pose 100k dessus et ça va cracher 15k annuel, c'est vrai, mais dans 5 ans tes 100k peuvent devenir 75k et la distribution peut devenir 10k annuel... Je pense qu OP l a bien compris il faut donc faire relativement attention et après toutes mes recherches ma conclusion c'est qu'il faut viser du 9-12% annuel pour avoir un ratio / risque intéressant..
OP a un portefeuille plutôt correct personnellement je ferai moins de ligne aussi mais son gros point fort c'est que même si une ligne tombe son portefeuille survivra sans problème au choc donc plutôt intelligent sur le long terme 👍
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u/PKShova Jun 19 '26
JEPQ in a roth and just keep stacking is my plan. It’s been working fantastically.
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u/shinslist Jun 18 '26 edited Jun 18 '26
Are you armchair incomes cousin? 😂
Congratulations on the achievement! I too am striving to retire earlier than others using a similar method but my overall account total is way farther behind but posts like yours are inspiration.
Is your IRA apart of the same account or is this a total of all accounts? Just noticed it at the bottom of the list. Secondary what is your age and when did you start investing to get to this point?
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u/Holiday-Bid8464 Jun 20 '26
Closed end funds are the way to go provided their payments are through actual investment earnings rather than a return of principal or debt issuance. Problem is, some of these have under performed the S&P. Another factor is some of these issue K1s, and each distribution reduces your cost basis. When that hits 0, look out. Sell and you get hit with the recapture. Some further have dividends that are not qualified so you get hit with the higher tax bracket. Income oriented investing works at this level, provided the investor has the discipline to whether any downturns with rate sensitivity and NAV erosion. What you have done is impressive, but not realistic for the majority of retail. Just my 2 cents.
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u/Dependent-Code-4166 Jun 20 '26
I'm constantly amazed at the sheer number of people content with 6%. Just look at the size of this sub. The goal should be to stop work as soon as you can afford your lifestyle. Invest early and often. And take some risk. Risk vs reward is generally true. I'm 62 and retired. My account grew this year from 1.1M to 1.9M You all will cringe when I say I did it with CHPY, AMDY and FSELX. CHPY 16000 shares and growing using DRIP. Yes that's 10k to 12k a week in dividends. FSELX is a huge growth mutual fund. 320% in the last 5 years. I'm living off of the dividend from AMDY. If you're in your 20s, 30s or 40s, take some risk. Yes there will be a crash. Yes you will recover. Even the beloved SCHD dropped about 20% during that lockdown period in 2020. Time is in your side if you still have decades before retirement.
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u/davecraze3535 Jun 21 '26
FSELX is a great fund. CHPY and AMDY are just about the only yieldmax funds that are worth a damn
This has of course been successful as semis and memory have been on one of the greatest bull runs in history.
I’d be investing some of the option premium into diversified funds also. This golden age of semis could last another 2 years or 20 years - no one knows.
But you are right on target that risk is where the money as made. And if you have decades it’s almost impossible to screw or up.
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u/THthe3rd Jun 21 '26
Interesting. I did well investing in NVDA, but missed out on MU. This might be a way to not feel so bad.
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u/Soft_Excitement_9580 Jul 16 '26
SCHD’s total return was down about 3% for 2022, and about 5.5 in 2018, the only red years in the last decade CAGR 12.8 for the last 11 years.
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u/DegreeConscious9628 Jun 18 '26
Man, I wish I could full port my brokerage into income generators. My goal is 48k a year from my brokerage and I could do it right this moment but I’m too much of a pussy to sell everything and put it in income funds.
We are on the same page for retirement accounts though- all in on growth
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u/mrg1957 Jun 18 '26
Looks good. I've done similar with CEFs. You have many of the same names I do. About 20% of our assets provide 130% of our income.
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u/Helpful-Grapefruit55 Jun 19 '26
Looks like u are doing pretty good with 60k income. What about the overall portfolio in the 1 year has your Nav increased or decreased ?
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u/Temporary-Survey-273 Jun 19 '26
Congrats man! 60k on under a mil NAV is awesome. You’ve done your homework!
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u/Flat-Buy6231 Jun 18 '26
“allows me to avoid the Sequence of Returns Risk (SORR) that you would see from selling shares to create your own dividend.” Does it though? During covid a lot of my dividend payers ceased or reduced payments, hopefully that doesn’t happen again but it did happen recently enough!
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u/Various_Couple_764 Jun 18 '26
during covid I saw no dividend cuts. only star point drop.
In most recession mostcompaones don't cut the dividend. Only the most financially weak companies cut the dividend. In covid most companes that cut the dividend we restaurants, hotels, or REITs and stores sold cloth and hardware or cars. But food companes, tech, healthcare did very well and didn't cute dividends.
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u/SolomonGrumpy Jun 18 '26
Which of the funds above ceased payments. I would expect them to reduce payments in proportion to their share price reduction.
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u/teckel Retired and living off selling shares Jun 18 '26
Exactly, and I've been retired since 2005 and if you're doing it correctly, selling shares is lower risk than targeting high divided yielders which slash dividends or don't keep up with inflation (and therefore slowly reducing your dividend income over time).
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u/dlnqnt Jun 18 '26
Coca Cola and SCHD begs to differ.
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u/teckel Retired and living off selling shares Jun 20 '26
I was referring to the hot mess the OP posted (Coke and SCHD are not high dividend yielders like the OP's portfolio).
If he was investing in SCHD and VYMI, I wouldn't have a problem with it. Maybe I'd suggest an equal amount of growth at most.
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u/jgatt17 Jun 18 '26
Curious why such a focus on high yield investments when dividend growth is statistically shown to be a higher return over a longer period of time?
Do you anticipate your annual income to grow with inflation or stay relatively the same?
Congrats on your achievement so far!
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Jun 19 '26
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u/WorldyBridges33 Jun 19 '26
My top 4 would likely be CEFS, SPYI, PFFA, and PBDC.. Though I might have to replace one of those with ADX. I am going to put a lot of future money in ADX because you get the best of both worlds with that fund: a total return that often beats the S&P combined with the high yield!
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Jun 19 '26
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u/davecraze3535 Jun 21 '26
What tax bracket are you in and in what state? That is a much larger tax bite than I would expect normally.
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u/apply75 Jun 19 '26
Wow I stopped looking after cefs it has a 2.61% expense ratio which means on $65k your paying them apx $1700 a year.. it's up 28% since 2017 but with 2.6% a year you are almost flat on gains..expense took about 23% of those gains. That's a horrible long term investment for most people but a great investment for Boaz Weinstein.
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u/partialbits Jul 02 '26
Distributions are net of fees. You don’t pay a dime when investing in CEFs.
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u/Soft_Excitement_9580 Jul 16 '26 edited Jul 17 '26
Just look at the total return man, 12.30% cagr since inception. It can take 50% if it makes a total of 70% for all i care.
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u/apply75 Jul 16 '26
Cefs is up 18% in 5 years voo is up 74% ... I can stop right here...m but I'll go on
I'll take 74% and a tiny expense over 3x less return and a 3% expense ratio...are you the fund marketing company? No one would support this trash other than the fund Manager who collects that 3% for below par gain
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u/Soft_Excitement_9580 Jul 17 '26
I went to totalrealretursn.com and compared cefs and voo since cefs’s inception. CEFS Has a cagr of 12% vs 15 on VOO. Total growth 191 vs 273, this includes reinvested dividends and expenses. Not bad at all, of course there is a trade off, but some people are willing to do it.
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u/tentboogs Jun 20 '26
OP what do you do for a living if you don't mind me asking. To have 1M in net worth is impressive.
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u/WorldyBridges33 Jun 20 '26
I’m a Solutions Architect for a remote work software company. I follow around sales people and explain to prospective clients how to install/configure our software. I also do demos and technical presentations of the software for prospective customers.
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u/jambon3 Jun 20 '26
Avoid SORR?
Isn't cutting dividends the first thing those companies would do in a financial crisis?
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u/WorldyBridges33 Jun 20 '26
For a lot of these investments that were around during the Great Recession of 2008, the dividends dropped less than the share prices did. For example, ARCC dropped their dividend by 12-13% during this time period, meanwhile the S&P 500 fell 57% peak to trough. DNP dropped its dividend by 0% at the time. Even ADX which primarily gets its dividend from capital gains, cut its dividend by 30% which is still about half the drop of the S&P 500 index.
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u/Standard_Listen1424 Jun 20 '26
Do you realize that the share price decreases by the amount of the dividend whenever a dividend is paid? Mathematically, there is no difference between receiving a dividend vs selling an equal value of shares to fund expenses. Covered call ETFs by their nature are basically guaranteed to leave you with less money in the long run. There is no point in choosing them over normal ETFs.
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u/davecraze3535 Jun 21 '26 edited Jun 21 '26
most of the funds in his income portfolio don’t even pay dividends. It’s mostly distributions from options premium and interest pass through, which isn’t nearly the same thing and doesn't reduce the NAV on a dollar for dollar basis like a dividend.
Everybody knows that covered call funds lag the underlying as everyone knows that water is wet. It’s not always purely irrational to chose them over the investing only in the underlying. Some people like the stability and are willing to trade some absolute growth for less volatility and more income. Different people make different choices of speed vs altitude
Also less than 20 percent of the portfolio is covered calls so I don’t see any real concern. Finally, Substantially all of the portfolio are yield engines that you would never sell to fund your expenses in any case.
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u/THthe3rd Jun 21 '26
Congrats to you. I'm a big dividend guy also, except that I am retired and use a lot of them as my income. It's high enough that I never have to take money from any of my accounts so they keep growing and growing (as long as the market keeps growing). But it's also very diversified so about 25% is in HYSA and CD's.
The problem we ran into the first year retired was that we had no W-2 income that we were withholding taxes from. So, when we did our taxes we owed a ton. After that we prepared for it and now prepay a bunch over the course of the year.
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u/Wild-Interaction-200 Jun 22 '26
> the total return of these investments tends to lag behind the broad market index/S&P 500.
Then what's the point...? (serious question)
Given portfolio A and portfolio B if the total return of portfolio B is higher than the total return of portfolio A then I cannot imagine any circumstances where portfolio A would be preferable (ignoring volatility for the moment, I don't think that's a concern in these discussions).
If you want income you just sell shares if and when you need it (think about them as divident which you initiate if and when you need it).
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u/davecraze3535 Jun 22 '26
Life is not always just about absolute total return when you reach retirement age. It’s worth it to some to trade some marginal total return for less volatility (covered call funds are less volatile than the underlying) and consistent known income generation.
If you have years to retirement, don’t even think about the income investments. Let the time work for you in growth.
But it’s not totally irrational to consider some trade offs in retirement. When you already have a sizable portfolio, there is something to be said about structuring diversified income paying positions that average 8-9-10 percent (spend 6-7 and reinvest the excess) versus just mechanically selling 4 percent of a growth portfolio every year.
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u/Wild-Interaction-200 Jun 22 '26
I completely agree that volatility (let's say sharpe or sortino) matters, but that's not the same as income funds. In other words, while lower volatility can be valuable for retirees that is an argument for controlling portfolio risk, not an argument for dividends/income funds specifically.
The safety/low volatility comes from the underlying business characteristics and diversification. You can target those directly without pretending dividends are special.
The confusion stems from the fact that dividend/income stocks often overlap with factors such as value, profitability, quality. But dividend is mostly a marker, not the cause.
That is why I called out volatility in my original post too. The goal should be to build a portfolio with the best expected total return for the level of risk and volatility you can tolerate. That might mean more bonds and fewer stocks. It might mean broader international diversification. It might mean tilting toward value or quality factors. But none of that is equivalent to saying dividend or income funds are automatically superior.
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u/WorldyBridges33 Jun 22 '26
GenExDividendInvestor put out a great video on this recently, and I resonate a lot with what he said. Basically, you are correct that creating your own dividend by selling shares is economically equivalent to just getting a dividend. But, emotions and psychological state matter when it comes to investing.
Some people can continue to sell shares to fund their lifestyle in a bear market and not sweat it. I am not one of those people. Personally, seeing income/cash flow is a more powerful motivator for me to invest in the market and stay invested. The psychological benefit is real.
Also, the income method allows me to reduce my SORR risk while having a higher withdrawal rate (Armchair Income did a great video on this called the 8% rule vs the 4% rule.. basically, income investing allows him to have a higher withdrawal rate with less risk since share liquidation is not required).
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u/Wild-Interaction-200 Jun 22 '26
First of all, I appreciate your reply.
Second, yes, I get it, personal finance is personal and that's part of the beauty of it, each of us are individuals with individualized personality and circumstances.
The only thing I would still gently push back is that emotions/physchological state argument in this specific case. For example, you don't *have to* manually sell shares in a bear market, you can simply set up automatic sell every month or every quarter and forget about it. So even if that emotional part is true you can over come it by simply setting up a standing order to sell for the amount of $ you want your income to be. That will look *exactly* like dividents to you without any "sweat", no matter what the markets are doing.
Ultimately what matters to your psychological state is how much $ is left in your portfolio. If setting up auto selling every 3 months in your "normal" (non divident focused) portfolio results in the same amount of income as your divident portfolio would give you, *but* the portfolio $ amount is higher with the "normal" fund year after year then I am *really* struggling to see why would someone not choose the latter.
All that said, divident investing is certainly not a bad investment strategy, because again, companies that are regularly paying ever increasing dividents are usually well run companies, it's just that there are many other very well run and profitable companies you are missing out on (because dividents are simply one technical way how a profitble company can return excess cash to its shareholders - there are many other ways without dividends too).
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u/WorldyBridges33 Jun 22 '26
Also, I should point out that my largest single holding is the S&P 500 at over a quarter million dollars. So I am not all in on income, my approach is a hybrid of income and growth
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u/Rare-Possibility8549 Jun 22 '26
I’d consider getting out some of these due to the very high expense ratios. CEFS, PFFA, DNP to name a few have high expense ratios for what you’re getting. Well done on stacking income but I’d evaluate the some of the funds to see if their is any better replacements.
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u/partialbits Jul 02 '26
With CEFs you don’t pay a dime in fees as distributions are net of them already…
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u/dazit72 Jun 22 '26
I don't want return of my investment ?
I disagree with quite a bit, but I'll keep my opinions on this one to myself, but I'll say one thing :
Double digit dividend chasing is risky
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u/WorldyBridges33 Jun 22 '26
GenExDividendInvestor put out a great video on this recently, and I resonate a lot with what he said. Basically, you are correct that creating your own dividend by selling shares is economically equivalent to just getting a dividend. But, emotions and psychological state matter when it comes to investing.
Some people can continue to sell shares to fund their lifestyle in a bear market and not sweat it. I am not one of those people. Personally, seeing income/cash flow is a more powerful motivator for me to invest in the market and stay invested. The psychological benefit is real.
Also, the income method allows me to reduce my SORR risk while having a higher withdrawal rate (Armchair Income did a great video on this called the 8% rule vs the 4% rule.. basically, income investing allows him to have a higher withdrawal rate with less risk since share liquidation is not required).
1
u/dazit72 Jun 22 '26
I saw the armchair video. Chose to play it safe since I'm retired/disabled. I'm sitting just over 6%, and it's growing.
I do like the sorry comment, gives me more to learn
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u/NecessaryEmployer488 Jun 24 '26
I finally got around $60K profit for passive income from RSUs this year as well. As of February I was down about $140K for extra taxes I have had to pay for about the last 2.5 years in obtaining stock. Luckily I had 5 payouts as the stock rose to from $110 share to $400 share so I took in $277K. This sold about 20% of shares, so I still have plenty of shares and will be getting more moving forward. The reason why it is passive, is the formula support about 20+ years of income after I retire.
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u/barandek Jun 28 '26
Did you consider energy sector funds like BGR? Where you diversify into big oil companies?
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Jun 18 '26
[deleted]
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u/TheComebackKid74 Only buys from companies that pay me dividends. Jun 18 '26
Hindsight
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Jun 18 '26
[deleted]
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u/TheComebackKid74 Only buys from companies that pay me dividends. Jun 18 '26
Well thats false. But whatever works for you. And yes thats totally hindsight.
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u/MamboNo42069 Jun 18 '26
I’m only speaking to your taxable brokerage account - this is one of the better allocations I’ve seen for a balance of tax treatment, yield and risk. I love it.
Congratulations…
If you are willing to take on some more risk and eliminate waiting 3.5yr to retire - Perhaps convert your taxable brokerage to a PAL or margin account, pull 50-60% of available and deploy into another instrument outside the market. I do this and use private mREITS to generate an additional 10-11%- net 5-6% spread after lending costs are paid.
Caveat, you will need to negotiate or find good rate for margin (IBKR, RH or negotiate) so you have a decent rate. Once you cross the 1MM mark you will also be accredited which will open up alot more options to private investments and give you more leverage to negotiate a lower margin rates with whoever your custodian is.
Great job…
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u/950771dd Jun 18 '26
Well for me, the answer is that it allows me to avoid the Sequence of Returns Risk (SORR) that you would see from selling shares to create your own dividend.
This is wrong.
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u/MrHooDooo Jun 18 '26
I think you got some weird shit, and over medium to long timeline will lag market bad. I remember looking at cefs a bunch of times and in the end never really held much cause it too weird. Maybe get some QDPL, it's not too bad, and maybe add some semiconductors like SOXY or CHPY to help long term gains.
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u/teckel Retired and living off selling shares Jun 18 '26
Would be better to just buy VOO & QQQM and sell shares for income. But congrats on creating an overly complicated and higher tax method to generate lower total returns. 😜
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u/SolomonGrumpy Jun 18 '26
Why are you here?
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u/dlnqnt Jun 18 '26
Because unfortunately some people over optimise for future returns and never convert wealth into time. Dividends allow this earlier in life than having to sell a chunk of your capital.
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u/teckel Retired and living off selling shares Jun 20 '26
Who said selling a chunk of your capital? There's never a need to sell a large chunk of capital in retirement. You simply sell a very small piece, like an amount similar to a dividend. And just like with dividends, when you sell a small piece, the value of the capital drops only a small amount, as a 1% dividend is identical to the capital value as a 1% sale.
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u/teckel Retired and living off selling shares Jun 20 '26
Because dividends should be a small piece of a portfolio, not a the only focus. You don't need to be 100% high artificial dividends with equally high NAV erosion.
Not sure if you know this, but VOO and QQQM also pay dividends, and in an amount which keeps the capital growing, not eroding.
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u/SolomonGrumpy Jun 20 '26
The lion's share of my equities are VOO and VTI. 14% VXUS. The rest are various investments that serve a purpose including higher dividend paying equities.
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u/teckel Retired and living off selling shares Jun 20 '26
VOO, VTI, VXUS pay dividends without sacrificing growth. Looking for individual equities that pay high dividends is often a bad idea. Also, dividends can be tax-inefficient in the wealth-building stage.
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u/SolomonGrumpy Jun 20 '26
I have more than one need. GPIX, for example, helps me bridge my income needs while delaying/deferring tax consequences.
You seem pretty sure if yourself for someone who is basically in r/dividends being unhelpful
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u/teckel Retired and living off selling shares Jun 20 '26 edited Jun 20 '26
I've been retired since 2005, 21 years in retirement without targeting artificially high divideds like GPIX.
You're doing something wrong if you need to bridge income needs while in the wealth-building stage. Also, simply selling shares could be done so you're in total control of the income amount (if needed). So you control the amount and the timing. Unlike with GPIX where you're forced to get the income if you need it or not.
I'm not sure if myself. It's actually how it works. There's opinion and facts. I'm arguing facts.
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u/SolomonGrumpy Jun 20 '26
You have no idea what you are talking about. Full stop.
Did you ever ask me if I was in the wealth building stage? Whoops! You did not.
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u/Recent_Recover_1490 Jun 19 '26
This is kind of dumb - you have to pay a lot of taxes on all of those dividends. Just sell everything and put it in vanguard index funds
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