Income investments risk reward

P

Pwhit101

New Member
Hi, new to this forum and retired. Looking to generate income and maybe some discussion on possible ways to do that with reasonable risk reward. One investment I’m in is FTSL. Dividend over 7 and relatively stable price over the years. It has taken a few dips, but always back to same and stable within a year or so. What am I missing, risk wise, on this investment? I appreciate your comments and also other ideas!
 

I was curious as a big-time, junk-bond fund investor, so I took a look. You do have a really nice yield which I assume you realize is due to the lower-quality bonds they hold. But, as you state, they have been pretty consistent for several years. You have the 'usual' risks with lower rated bonds. But, I've been in junk bonds for years and have always read dire warnings of the risk, but have received steady 6% (overall) yields with no issues. I assume (?) you realize that inverse relationship of interest rates to share price. If interest rates rise, your share price drops. But it sure doesn't look like anything is going to change much in foreseeable future.
The thing about bond risk is that I got into them because I read, years ago, that at the height of the Great Depression, there was only a 17% default rate. I don't see that as a threat and I can't believe we would ever get anything near that.
So, I would hang on, for what it's worth.
 
Thank you for your reply and have fun on your travels!
 

ftsl lost money in 2022 , almost 3% including all dividends as well as lost money in 2018

it is a very low quality fund and holds mostly non investment grade stuff .

it looks stable , until recession fears rear its ugly head.

95% of the entire portfolio is below investment grade
 
mathjak107 said:
ftsl lost money in 2022 , almost 3% including all dividends as well as lost money in 2018

it is a very low quality fund and holds mostly non investment grade stuff .

it looks stable , until recession fears rear its ugly head.

95% of the entire portfolio is below investment grade
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Correct in your assessments. But lost money 7 years ago. Economy now is no comparison to that timeframe. Actually, you know as well as I that economy keeps changing so you have to keep looking forward and make educated, but guesses, on where we will be next year.
Chance of recession --- 30% depending what stats you believe. We all know it's a crapshoot. But I've been in these junk funds for 15+ years and have read the constant negative warnings and nothing has happened yet except steady income.
 
Thanks you guys. Yeah, I’ve kinda looked at those dips/corrections. I usually ignore 2020 for trying to evaluate anything. In 2018, it did drop 5%, but was back up approx 4 months later. Acceptable for these ‘safer’ returns. Debatable, right?! 2022 was definitely a little different, as interest rates were rising. In Jan of 22, was there a good indicator you guys might use to alert you to liquidate those ‘junk’ bond holdings until the fall is over? For these type of gains over higher quality bonds, I am ok with playing the game a bit!
 
We all see things differently and that’s probably a good thing.

I don’t pay as much attention to the 7% return as I do the difference between a more conservative investment with a return of 4-5%.

If the risk to get that additional 2-3% is worth it, go for it.

It’s less risky for me to reduce my expenses by that same 1, 2, or 3% than it is to increase my income by a similar amount.
 
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Aunt Bea said:
We all see things differently and that’s probably a good thing.

I don’t pay as much attention to the 7% return as I do the difference between a more conservative investment with a return of 4-5%.

If the risk to get that additional 2-3% is worth it, go for it.

It’s less risky for me to reduce my expenses by that same 1, 2, or 3% than it is to increase my income by a similar amount.
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however , cutting expenses only seems like increasing income until there is nothing left to cut and expenses keep rising .

cutting expenses should never be considered the same as increasing income .
it should go along with increasing income , because eventually there is nothing to cut while expenses keep going up
 
my feeling is that at this late stage of the game. it’s time to reduce risk .

just sold off the last of my high yield stuff and now the fixed income side is only treasuries and high grade munis

my taxable account uses

spti. intermediate treasuries

SUB - short term munis

VTEB interm term munis




my retirement account uses

vgsh short term bond

vtip. short term inflation proof bonds

spti. treasury fund
 
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mathjak107 said:
however , cutting expenses only seems like increasing income until there is nothing left to cut and expenses keep rising .

cutting expenses should never be considered the same as increasing income .
it should go along with increasing income , because eventually there is nothing to cut while expenses keep going up
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I don’t disagree.

In my situation, living well below my means allows me to invest conservatively while steadily increasing my income.

The only point that I was trying to make is that taking on additional risk or chasing yields is more dangerous, IMO, than right sizing your expenses to suit your income.

I’m fortunate that I don’t need to take on much risk in order to provide a comfortable life.
 
less time makes investing more risky so living life and investing run opposite each other

while we should never stop investing , we do not want to keep the pedal to the metal like we did in our accumulation stage
 
As I've gotten older I've become more conservative with investing, my thinking is I have enough (hopefully) to last my lifetime. My goal now is to protect principal and stay ahead of inflation. I've also been able to live on my SS benefits so only need other money for large expenditures.

Here's how I'm set up right now.

46% (401k converted to IRA) locked in @ 5% for four years.
30% in mid risk mutual funds.
12% in high yield savings (FDIC insured)
12% in basic savings/checking (earning about nothing)

I think anyone looking would say I'm sacrificing potential reward to avoid risk but I'm OK with that.
 
i use two very diversified. portfolios, a 40/60 in the taxable account and 60/40 in the retirement account…

they run almost the same etfs but the fixed income side is different in the taxable
 
C50 said:
As I've gotten older I've become more conservative with investing, my thinking is I have enough (hopefully) to last my lifetime. My goal now is to protect principal and stay ahead of inflation. I've also been able to live on my SS benefits so only need other money for large expenditures.

Here's how I'm set up right now.

46% (401k converted to IRA) locked in @ 5% for four years.
30% in mid risk mutual funds.
12% in high yield savings (FDIC insured)
12% in basic savings/checking (earning about nothing)

I think anyone looking would say I'm sacrificing potential reward to avoid risk but I'm OK with that.
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I might be considered moderately aggressive. I have not and will not reduce my equity holdings as I age. We Muslims are strongly advised not to deal in interest (neither pay, receive or charge it), so bond funds are out for me. But more progressive guidelines say we can have up to 5% of our holdings in interest bearing investments. We can earn dividends and capital gains, however. I do have a high yield checking account with my brokerage company.

My retirement portfolio:
46% in Roths
31% in non IRA accounts
5% in a traditional IRA, which is tax free because I use it for qualified charitable contributions. .
Total one year return on brokerage accounts 14.28%

18% of the portfolio is in checking a savings accounts and like yours C50, are basically earning next to nothing. I'm satisfied with the returns my investments generate, sometimes higher...sometimes lower of course. So I don't worry about not earning interest on those accounts
 
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I retired at 62. I'm 67 now. I am invested as follows. Some of the equities pay dividends.

67.37%Equities
1.44%Real Assets
18.82%Fixed Income
4.21%Cash Alternatives
8.16%Specialty Assets

I have an IRA, a Roth IRA, a Brokerage IRA (my deceased mother's) and a non-IRA equities account. I socked everything I could away into my IRA when I was working.

I did contact my financial advisor in October and asked what he would do in the case of a new Administration. Each brings its own risks/rewards. He has made some adjustments due to the new Administration.

I pretty much balance Social Security with taking the minimum out of my investments each month. If I have an extraordinary expense like property taxes I withdraw a little more. Thanks to the past momentum in the market, my investments pretty much equal what they did in 2020, even with the withdrawals.

I received stock grants from my former company, separate from my other investments, and I recently cashed out so I have almost a year's cash at hand in case anything goes crazy in the markets. I'm in it for the long term.
 
seadoug said:
I retired at 62. I'm 67 now. I am invested as follows. Some of the equities pay dividends.

67.37%Equities
1.44%Real Assets
18.82%Fixed Income
4.21%Cash Alternatives
8.16%Specialty Assets

I have an IRA, a Roth IRA, a Brokerage IRA (my deceased mother's) and a non-IRA equities account. I socked everything I could away into my IRA when I was working.

I did contact my financial advisor in October and asked what he would do in the case of a new Administration. Each brings its own risks/rewards. He has made some adjustments due to the new Administration.

I pretty much balance Social Security with taking the minimum out of my investments each month. If I have an extraordinary expense like property taxes I withdraw a little more. Thanks to the past momentum in the market, my investments pretty much equal what they did in 2020, even with the withdrawals.

I received stock grants from my former company, separate from my other investments, and I recently cashed out so I have almost a year's cash at hand in case anything goes crazy in the markets. I'm in it for the long term.
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I prefer dividend paying investments as well. My ETFs pay good dividends, but not capital gains. My mutual funds pay both.
 
dividends are a withdrawal method , not a gain by themselves .

without appreciation dividends are a wash .

you get a dollar in dividends and the price of your investment falls by the same dollar .

so dividends are not on top of gains , they are no different than drawing money out of any portfolio

it still takes share appreciation to drive all your gains .

your cash flow doesn’t care if you withdraw via dividends , via selling off appreciation or a combo of the two .

at the end of the day all gains must come from share appreciation

keep in mind though dividends as a withdrawal method are also very tax inefficient

you pay tax on the entire dividend , yet if the same amount is taken from a portfolio of non div payers you are only taxed on the gain portion

now that i started taking rmds this year i am very careful about creating more taxable income . i want as little in dividend payers in my taxable account as i can .

own a lot of berkshire and vti which spin off nothing in berkshires case and a little in vti since most large caps pay dividends. so avoiding them isn’t possible but i do want them as low as possible
 
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for 2025 i went with the portfolio models recommended by financial guru paul merriman .

paul has spent decades since retiring teaching and writing books about investing .

he is very very big on diversification and has all different portfolios made up with the best in class etfs using his criteria for selecting them .

he has models that go from just 4 funds all the way to what he calls the merriman ultimate portfolios which are diversified both by asset class and by geography .

he has one for retirement accounts and one for tax deferred accounts .

i have both models

this is the tax deferred model

deferred ETFSymbolAggressiveModerateConservative
Avantis U.S. Equity ETFAVUS10%6%4%
Invesco S&P 500® Pure ValueRPV10%6%4%
iShares Core S&P Small-CapIJR10%6%4%
Avantis U.S. Small Cap Value ETFAVUV10%6%4%
Vanguard REIT IndexVNQ10%6%4%
Avantis International Equity ETFAVDE10%6%4%
DFA International Value ETFDFIV10%6%4%
Schwab Fundamental Intl Sm CoFNDC10%6%4%
Avantis International Small Cap Value ETFAVDV10%6%4%
Avantis Emerging Markets ETFAVEM10%6%4%
Vanguard Short-Term Government BondVGSH0%12%18%
SPDR® Blmbg Barclays Interm Term TrsSPTI0%20%30%
Vanguard Short-Term Infl. Prot. SecuritiesVTIP0%8%12%
 
this is the taxable account model

ETFSymbolAggressiveModerateConservative
Invesco S&P 500® Pure ValueRPV25%15%10%
Avantis U.S. Small Cap Value ETFAVUV25%15%10%
DFA International Value ETFDFIV20%12%8%
Avantis International Small Cap Value ETFAVDV20%12%8%
Avantis Emerging Markets Value ETFAVES10%6%4%
SPDR® Blmbg Barclays Interm Term TrsSPTI0%6%9%
SPDR® Nvn Barclays Short Term Muni BndSHM0%16%24%
VanEck Vectors AMT-Free Inter. Muni BndITM0%18%27%
for 2025 shm is now replaced with sub and itm with vteb
 
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retiredtraveler said:
Correct in your assessments. But lost money 7 years ago. Economy now is no comparison to that timeframe. Actually, you know as well as I that economy keeps changing so you have to keep looking forward and make educated, but guesses, on where we will be next year.
Chance of recession --- 30% depending what stats you believe. We all know it's a crapshoot. But I've been in these junk funds for 15+ years and have read the constant negative warnings and nothing has happened yet except steady income.
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well 2 months later , now has rates rising and earnings estimates being slashed left and right has seen most junk bond funds returning less than a money market year to date.

i show FTSL has returned a mere .74% ytd with all dividends.

that is less than a money market so it’s a reminder that everything has risk to it no matter how constant we think returns were .

remmber markets work on fear , greed and perception of the future .

that means things don’t have to actually play out to effect a fund , etf or stock .

mere market sentiment makes it happen
 

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