Comments on: A Simple Portfolio for a 4% Yield

By: 2008 Is Almost Here - A Quick Stroll Through My Blogroll

2008 Is Almost Here - A Quick Stroll Through My Blogroll — Thu, 27 Dec 2007 14:22:25 +0000

[...] All Financial Matters – A Simple Portfolio For A 4% Yield [...]

By: MossySF

MossySF — Sat, 22 Dec 2007 03:15:40 +0000

It shouldn’t matter whether you use dividends or sales of shares for your 4% drawdown but I know some people have an aversion to selling shares and feel better with just dividends so it’s an idea core for them. I don’t know about randomly throwing in 10% PGF and 10% VEHX. 10% REITs or 10% MLPs or 10% emerging market bonds or whatever might have produce the same mathematical result of 4% overall but they all feel like arbitrary decisions. You could build a more diversified portfolio by holding more high dividend asset classes like so:

SDY – Domestic Large Dividend
DES – Domestic Small Dividend
IDV – International Large Dividend
DLS – International Small Dividend
DEM – Emerging Market Large Dividend
DGS – Emerging Market Small Dividend
VNQ – Domestic REIT
DRW – International REIT

All of the above are in the 3%-6% dividend range and adding 10% of each would get you close to the 4% mark.That leaves 20% for bonds for a bit of stock downturn protection — something like BND at 4.68% (versus high yield which would drop with stocks).

By: Jim

Jim — Fri, 21 Dec 2007 16:46:41 +0000

Inflation is not an issue. The value of the SDY ETF will go up or down with the rest of the market. Also, most stocks that issue dividends, increase them over time.

By: Weekly Dividend Investing Roundup - December 21, 2007 Edition » The Dividend Guy Blog

Fri, 21 Dec 2007 15:43:51 +0000

[...] JLP wrote about a good artcile from one of my favorite investment writers – Michael Sivy. It talks about building a simple portfolio for achieving a 4% yield, taking into account withdrawals that a retired individual will want to do during retirement. [...]

By: Don

Don — Fri, 21 Dec 2007 14:19:51 +0000

Never mind. I didn’t read close enough.

Mark me down as agreeing with the “not diversified enough” comments.

By: Don

Don — Fri, 21 Dec 2007 14:17:44 +0000

I think the bigger problem with attempting this is that inflation is going to screw you. If you take out all of your yield, you are losing every year because inflation is devaluing the money. You are on a fixed income that is going to feel smaller and smaller every year, because unlike SS (the fixed income we usually think about) there is no COLA.

At least with a reasonable portfolio, you can expect to keep making progress for some time into retirement before your withdrawals overtake your earnings.

By: Paul

Paul — Fri, 21 Dec 2007 01:33:26 +0000

Vanguard Wellesley (VWINX) yields over 4%. It’s ~40% stock and 60% bonds.

Another option might be VG’s Retirement Income (VTINX) which yields around 3.6%. It’s about 30% stock and 70% bonds including TIPS. Add a few percent in equity from some of WisdomTree’s High Yield funds and some more investment grade bonds and you should hit 4% yield.

By: Matthew Paulson

Matthew Paulson — Fri, 21 Dec 2007 01:08:47 +0000

I don’t understand why some financial advisors suggests that you should take on zero risk at all in retirement. By spending 4% of your net a year and earning 4%, your money is doing nothing to grow for your children and grand children when they inherit it. You can easily invest in quality real estate and conservative mutual funds, get all of your money back and get a much better rate than 4% without taking on all that much risk.

By: Kirk

Kirk — Thu, 20 Dec 2007 23:51:19 +0000

The other problem is the S&P Dividend ETF is very heavy in financials (36%) and utilities (22%). This isn’t really a well diversified holding, and I would be nervous about having such a large percentage of my portfolio in financial stocks.

I also don’t like the high yield selection because spreads are still very low relative to Treasuries. This is a risky bet, especially for retirees.

I don’t have a problem with the Powershares preferred other than it is a bit costly for my liking. At 72bps, you could probably do better buying a couple preferreds directly.

By: MFJ

MFJ — Thu, 20 Dec 2007 21:00:49 +0000

Ignore last post – looking at wrong column.