Today we’re going to build ourselves an outsized income stream with just three funds. Buy all of them and you’ll end up with an average yield of 8%+, with payouts rolling your way every month.
Investing doesn’t get much simpler than that!
You’ll also get strong diversification: The three funds we’re about to uncover hold stocks, bonds and real estate. Combined, give you exposure to thousands of assets across the country.
Maximizing Your Savings Potential
Before we go further, let’s put an 8% payout in perspective: If you have $1 million saved, it translates to $80,000 annually, or over $6,600 per month—a substantial amount that could either supplement or even replace your current income.
If you have a million saved and don’t think you can quit working, I wonder if you’ve looked closely at your options. I know many people who have retired on less and are doing great.
Replacing the Average American Income
Consider the average American’s income from a job: about $60,000 yearly. You’d need $750,000 in these three funds to match this solely through dividends.
This calculation underscores the accessibility of income investing: you don’t necessarily need a million dollars to generate a significant income stream, and depending on how much income you need, you might already have enough to tell the boss to shove it.
Now, I realize I’ve made some bold claims here, so let me back them up with a closer look at our three funds—closed-end funds (CEFs), to be precise.
Early-Retirement Pick No. 1: Nuveen S&P Dynamic Overwrite Fund (SPXX)
We’ll start with 8%-yielding SPXX, which trades at an 8.3% discount to net asset value (NAV, or the value of the stocks it holds) as I write. These discounts are only available with CEFs.
SPXX is known for its focus on US stocks, as it closely tracks the S&P 500. That’s helped it provide stable growth and relatively consistent dividends for a long time—although the stock market has hit a bit of a ceiling recently, causing the fund’s total return to plateau somewhat.
Low-Volatility Payouts and a Long-Term Buying Opportunity
So how does SPXX pay that big dividend if it simply holds S&P 500 stocks? One way is by selling call options on its portfolio. That’s smart because SPXX collects fees from option buyers, no matter if they exercise their right to buy the fund’s stocks.
That strategy can cap upside as SPXX’s best stocks are sold, or “called away.” But the benefits are the high dividend and additional stability the fund gets as more of its returns come as cash.
Early-Retirement Pick No. 2: PIMCO Dynamic Income Fund (PDI)
Next, we’re going to pick up the 14.7%-yielding (not a typo!) PDI, which holds over a thousand bonds. That’s a lot of diversification by any measure, but it’s not surprising considering this is a PIMCO fund. The firm is known for its active management, effectively navigating interest-rate changes and seeking out undervalued bonds.
While it trades at a bit of a premium to NAV (around 7%) today, that’s not unusual for PIMCO funds, which often trade at bigger premiums due to PIMCO’s strong record.
Big Income and Profits
As you can see in the top chart, PDI’s dividend has grown since its IPO over a decade ago, with many special dividends along the way. The fund’s portfolio has also grown as it has made many winning moves over the years—as you can see in the lower chart.
Early-Retirement Pick No. 3: Cohen & Steers Quality Income Realty Fund (RQI)
Let’s top off our three-fund portfolio with RQI, which owns shares of over 100 companies that themselves own thousands of properties between them.
A real estate fund investing in high-quality assets, RQI offers real estate exposure, which of course is a source of steady income. The main benefit is its 8.2% yield, its track record of maintaining payouts and the fact that RQI makes you a part-landlord of thousands of properties, but you never have to deal with a single tenant.
Capital Gains and Stable Income from “Hands-Off” Real Estate
The fund also trades at a nice 6.4% discount to NAV, well below its five-year average of 1.7%, suggesting more upside from here.
“Bundling” Our Trio for Income and Growth
Now I need to confess something: I started this article saying I was going to show you how to build an 8%-yielding portfolio of diversified high-quality assets. In reality, I showed you a portfolio that yields even more: 10.3%, to be exact.
That changes the math quite a bit.
If you want to replace the average American’s salary with this portfolio, it doesn’t take $750,000—it only takes $582,524. That’s proof positive that retirement could be closer than you realize.
Go Further With My Top 5 Monthly Dividend Payers to Buy Now (Yielding 9%+)
To really ease the path into retirement, we not only want high payouts, we want monthly payouts, too! This is truly the Holy Grail of retirement planning: dividends that drop into our account automatically, right in line with our monthly bills!
My 5 top monthly dividend payers are the perfect “add on” to the three funds above, giving you 9%+ payouts between them. Plus, these 5 CEFs are deeply discounted now, to the point that I expect 20%+ price upside from each of them.
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