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Investing can be intimidating, especially for people who have accumulated a substantial amount of money and are looking for ways to grow it further.
One favorite strategy among investors is dividend investing, which focuses on producing a reliable income stream through dividends paid by stocks or ETFs. This approach is particularly charming to those wanting income and long-term growth.
Enter a 51-year-old investor who shared his concerns about his next move in a recent Reddit post. The poster had $125,000 that he invested in ETFs, aiming to generate $12,000 annually in dividends.
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His portfolio includes a combo of high-yield ETFs such as JPMorgan Equity Premium Income ETF (NYSE:JEPI), JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ), and others like PIMCO Dynamic Income Fund (NYSE:PDI) and Petroleo Brasileiro (NYSE:PBR).
The investor says he knows that he is yield chasing but believes his strategy is reasonable. He plans to reinvest the dividends initially, which can help compound over time; however, he is also considering shifting to a cash pool for future investments.
“This is where I stand right now, and looking for something else to add since I have about $25,000 left to buy with. I’ve aimed to not have too much duplication/overlap in these funds and yes, I know JEPI/JEPQ do overlap, but I couldn’t decide between them and decided the answer was both,” he said.
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Still, the investor’s concern is whether his strategy is the right move for long-term growth, especially given his age and the fact that he’s approaching retirement.
Let’s analyze Redditors’ comments to see what they recommend him to do.
Diversify and Evaluate Risk Management
Reddit members emphasized the importance of portfolio diversification in the comments, mainly to mitigate risks linked to high-yield investments.
“If I had your money, here would be my plays: JEPQ, [Reaves Utility Income Fund (NYSE: UTG)], [NEOS S&P 500 High Income ETF (CBOE: SPYI)], [YieldMax AMZN Option Income Strategy ETF (NYSE: AMZY)], [Ares Capital Corporation (NASDAQ: ARCC)], [Cohen & Steers Quality Income Realty Fund (NYSE: RQI)]. $25,000 in each and thank me later,” a comment reads.
Another Redditor suggested the poster add a fund in [collateralized loan obligations (CLO)] to diversify his portfolio enough.
“You might consider adding a fund in the CLO space. There are lots of options focused on different slices of the CLO cake… [Janus Henderson AAA CLO ETF (NYSE: JAAA)], [Janus Henderson BBB CLO ETF (NYSE: JBBB)], [Clough Global Equity Fund (NYSE: CLOZ)], [Eagle Point Income Co. Inc. (NYSE: EIC)], [Eagle Point Credit Co. Inc. (NYSE: ECC)] are examples in order of increasing yield and risk. [Simplify Volatility Premium ETF (NYSE: SVOL)] and [iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (NASDAQ: TLTW)] are two more in my portfolio that yield 12%+ and provide additional diversification.
“For some negative correlation and juicy yield take a peek at SVOL,” another comment recommending SVOL reads.
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Consider Long-Term Planning and Modeling
Several commenters advised the investor to consider long-term planning since it’s essential in achieving financial goals, especially for retirement.
“Have you modeled your portfolio out to your projected retirement age? Recommend you do to help with retirement investment strategy and goals. Helped my whole family picture the rewards of long-term investing and the reason to pay yourself first,” a Redditor said.
Again mentioning diversification, this comment also touches on retirement and says his plan to retire at 55 is diversification.
“I’m 42 with a planned retirement at 55; I hold most of those picks currently on [dividend reinvestment plan] to snowball over the next 10 years…. diversify, this is just one part of my retirement plan,” he says.
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Go Beyond Traditional ETFs and Stocks
Many Reddit community members suggested exploring an alternative investment, namely business development companies.
“Take a look at [Putnam BDC Income ETF (NYSE: PBDC)]. BDCs pay high yields and I listened to a podcast interview with the fund manager. Letting a professional with 20 years of experience decide how to select and weigh the different BDCs sounded alright to me,” a Redditor says.
“ARCC is the largest BDC but there are many… second the other comment is that PBDC is a good way to diversify in this space. The actual fee is 0.75%,” another Redditor supporting BDCs wrote.
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This article Investor With $125,000 In ETFs Aims For $12,000 A Year in Dividends – ‘Is My Yield-Chasing Strategy The Right Move For Long-Term Growth?’ originally appeared on Benzinga.com
