5 Smart Ways to Generate Income from Your Portfolio

If you are retired or almost retired, a portfolio which consistently has money coming in your pocket is desirable.  Many retirees use the income to pay bills and fund their lifestyle.  Consequently, it is important to have a portfolio which is structured in such a way the income is consistent, dependable, and grows over time.  We know the S&P 500 has a dividend yield of 2% and over time has generated a historical return which fluctuates around 10% per year.  Here are five asset types to consider for higher income levels:

1. Targeted index funds-  With the advent of index funds, nearly every sector can be invested in by using specific exchange traded funds which are tied to an industry.  There are some sectors which historically have much higher dividend yields and are considered more mature than many others.  Instead of getting a 2% yield, 4-5% yield is able to be obtained by doing your homework.  
2. Individual Stock Selection-  Instead of buying a broad market index or ETF, go into a specific industry index and consider buying the top two or three companies of that index.  You pick a few different industry ETF’s, do the research on those holdings, and include them in your portfolio.
3. Closed End Bond Funds- There are many closed end bond funds which have significant yields that are much higher than what you can get from the S&P 500.  Factors to consider are what the fund owns, the expense ratio, how long it has been in existence, and the annual return.
4. High Yield Bond Funds/Preferred Stocks-  These asset classes are more volatile and have more risk, but they do bring higher yields for owners.  You own debt instruments of companies, so the important question is how are the companies doing financially to allow them to pay their debt obligations.  This area requires more homework on the bond fund manager or the advisor who picks the preferred stocks.
5. Money Market Funds/ CD’s-  These are traditional asset classes used to create income from large cash positions.  With the 10 yr treasury bond trading at around 4%, you should be able to get yields on money market funds or cd’s which are comparable or better.  

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