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Old 03-15-2017, 07:03 PM   #1
BBMW
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7% income yield without burning down principle - doable?

I'd like to put together a portfolio that would generate a 7% income yield. I am not risk averse, but I don't want investments that actively expected to go down over the long term (I'm not talking about market volatility.)

Can it be done, and how? Looking at all types of market investments. Not looking at off market private deals.
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Old 03-15-2017, 07:28 PM   #2
smoothcriminal99
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Re: 7% income yield without burning down principle - doable?

With leveraging its incredibly easy. Withou tleverage only reits and very rare companies that usually have deterioting revenue give that much but 5% is probably doable.

Example ohi,sbgl, kss, t, pbi averages like 6% and is fairly diversified but it's arguable whether all those have deteriorating revenue or not

Usually if yield > its industry its growth < industry unless it's miss priced

This was stock based. High yield bonds can of course give this yield

Last edited by smoothcriminal99; 03-15-2017 at 07:38 PM.
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Old 03-15-2017, 07:48 PM   #3
BBMW
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Re: 7% income yield without burning down principle - doable?

Yes, not only stocks, although I would buy them (and stock funds/ETFs) as part of the mix.

For instance, I was looking at floating rate loan ETFs. High yield bonds and/or funds/ETFs are also in play. I looked at, and actually owned agency REITs at one point.
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Old 03-16-2017, 12:49 AM   #4
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Re: 7% income yield without burning down principle - doable?

This is not going to work out.
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Old 03-16-2017, 02:25 AM   #5
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Re: 7% income yield without burning down principle - doable?

JQC is a really great floating rate loan fund. I'd highly recommend it.

Regardless, make sure you buy a closed-end fund, though, not an ETF. You can have big problems in a market panic with instant liquidity for relatively illiquid assets.
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Old 03-16-2017, 11:45 AM   #6
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Re: 7% income yield without burning down principle - doable?

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Originally Posted by ChipsAhoya View Post
JQC is a really great floating rate loan fund. I'd highly recommend it.

Regardless, make sure you buy a closed-end fund, though, not an ETF. You can have big problems in a market panic with instant liquidity for relatively illiquid assets.
This is a good example of why it is hard to achieve 7% income returns. The yield is currently above 7% and it has been high throughout the past ten years. However, the total returns during this timeframe has been only 4.4% due to share price reductions.

That said, maybe this is better to hold if interest rates are rising.
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Old 03-16-2017, 11:57 AM   #7
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Re: 7% income yield without burning down principle - doable?

Not sure how it works in the US and A but here interesting income gets dicked relative to dividend income so after tax yields of high yield / junk bonds makes it not that appealing considering risk.

Anyway I do something similar to what you're going for but it's inside a TFSA so there is no tax on the interest.

What I do is look for mispricing in Canadian convertible debentures ... even when you find things badly priced to get the whole group of debs over 7% you have to be willing to take some iffy companies.

For example I picked up debentures in IBG.TO and FTP.TO in January 2016 when both were trading between 60-70 cents on the dollar (now at par and 95 respectively) so the yield to maturity on those was very high, in the 20% range ..... getting 1 or 2 of those helps goose the overall yield of the folio

The convertible debs seems to be mainly a retail product here so you can pick some good spots. Right now there's not much I see that's compelling other than rolling over some 7-% yielders that are within 1 year of maturity and trading at or above par.
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Old 03-17-2017, 10:07 PM   #8
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Re: 7% income yield without burning down principle - doable?

Not going to find it
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Old 03-17-2017, 11:08 PM   #9
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Re: 7% income yield without burning down principle - doable?

Sp500 fund returns around this rate.

Very high variance tho
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Old 03-19-2017, 12:04 PM   #10
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Re: 7% income yield without burning down principle - doable?

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Originally Posted by maxtower View Post
This is a good example of why it is hard to achieve 7% income returns. The yield is currently above 7% and it has been high throughout the past ten years. However, the total returns during this timeframe has been only 4.4% due to share price reductions.

That said, maybe this is better to hold if interest rates are rising.
Well, interest rates have been zero for much of the last 10 years, so it isn't surprising a floating-rate fund would have underperformed over that time I suppose.
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Old 03-19-2017, 12:42 PM   #11
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Re: 7% income yield without burning down principle - doable?

Have DJIA index funds grown about 6% a year on average in the long-run? And then there's the dividends on top of that?

Guess hoping to rely on it for steady income might be a very different thing ...


Am pretty new to investing, so there's a good chance the above isn't quite right Always enjoy learning more though

Last edited by TrustySam; 03-19-2017 at 01:02 PM.
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Old 03-19-2017, 05:01 PM   #12
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Re: 7% income yield without burning down principle - doable?

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Well, interest rates have been zero for much of the last 10 years, so it isn't surprising a floating-rate fund would have underperformed over that time I suppose.
That's kinda my point. You can't just pick something today that yields 7% and expect to get that return over 10 years. Generally yields that high indicate either the payments will fall or the underlying will fall or both.
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Old 03-19-2017, 05:14 PM   #13
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Re: 7% income yield without burning down principle - doable?

grunching here........... but i would say can't be done.

anything with that kind of yield is very risky. either won't make all the assumed payments or the principal will erode.

what can you actually invest in these days that gives a 7% current yield? can't imagine there's alot but certainly some.
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Old 03-19-2017, 05:15 PM   #14
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Re: 7% income yield without burning down principle - doable?

careful on the canadian convertible bonds that someone talked about........ can't they pay principal - and maybe even interest - in stock, which is really bad
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Old 03-20-2017, 01:39 AM   #15
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Re: 7% income yield without burning down principle - doable?

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Originally Posted by maxtower View Post
That's kinda my point. You can't just pick something today that yields 7% and expect to get that return over 10 years. Generally yields that high indicate either the payments will fall or the underlying will fall or both.
I mean that's not really the case. Plenty of BB-rated bonds out there or bank preferred stocks yield 6%-7%. If he wants 7% he can try to find it or ask others to.
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Old 03-20-2017, 02:16 AM   #16
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Re: 7% income yield without burning down principle - doable?

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Originally Posted by ChipsAhoya View Post
I mean that's not really the case. Plenty of BB-rated bonds out there or bank preferred stocks yield 6%-7%. If he wants 7% he can try to find it or ask others to.
With bonds expiring in ~10 years with a yield to maturity of 7%, you're talking about an investment that will yield 7% the vast majority of the time, but with a small but significant risk of defaulting. Putting all the money in such bonds is going to be a much less efficient investment than a balanced portfolio of bonds and equities.

A balanced equity/fixed income index portfolio is going to be the best bet unless you have very specific risk preferences/requirements.

Since OP can't get 7%/year guaranteed, the best general advice is a balanced index fund/ETF portfolio. He'd need to provide more specifics about the return profile he's aiming for to get better advice.
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Old 03-20-2017, 06:04 PM   #17
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Re: 7% income yield without burning down principle - doable?

Seems like 7% over a long period of time (10 years or more), is really really hard without taking on way too much risk.

I'd be interested in answering the same question, but at 5%. That seems like a more likely possibility.
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