Let’s face it.¬†Maybe you weren’t cut out for volatility. And the stock market isn’t about to let you garner remarkable rewards in 2012… at least not without monstrous price swings.
Can you turn to U.S. treasuries next year? Even if record-low yields didn’t rise, your return may not even keep up with inflation. It doesn’t look much better for savings accounts either.
Granted, a case can be made for the return OF one’s capital rather than the return ON¬†one’s capital.¬†Then again, financial freedom seekers won’t get near retirement¬†goals¬†by fleeing¬†investment risk entirely.
It follows that conservative-oriented folks need to revisit the risk spectrum — from investment-grade munis to high-yield corporates to master-limited partnerships to dividend-producing equities to real estate investment trusts. In essence, an exchange-traded enthusiast may be able to count on cash flow with less concern for price movement, no matter where Europe takes its debt crisis.
Here, then, is a hypothetical, 8-fund portfolio for 2012. The approximate annual yield can be found at most financial web portals. The anticipated capital appreciation is based upon a variety of price-to-fair-value analyst estimates, including those by Morningstar analysts.
|An Attractive Yield-Intensive Portfolio For 2012||¬†||¬†||¬†|
|¬†||¬†||¬†||¬†||¬†||Approx Yield||¬†||Anticipated Cap App|
|PowerShares Insured National Muni Bond (PZA)||4.7%||¬†||0.7%|
|iShares JP Morgan Emerging Market Bond (EMB)||5.0%||¬†||2.8%|
|SPDR Barclays Capital High Yield Bond (JNK)||7.4%||¬†||5.1%|
|JP Morgan Alerian MLP (AMJ)||¬†||¬†||5.2%||¬†||5.5%|
|PowerShares S&P 500 Low Volatility (SPLV)||¬†||3.5%||¬†||7.6%|
|First Trust Dividend Leaders (FDL)||¬†||3.6%||¬†||9.9%|
|Vanguard REIT Index (VNQ)||¬†||¬†||3.6%||¬†||-2.8%|
|Eaton Vance Tax-Managed Global Dividend (EXG)||14.0%||¬†||12.5%|
|Anticipated Portfolio Return||¬†||¬†||¬†||¬†||11.1%|
It’s true that capital appreciation estimates based on price-to-fair-value ratios or historical price-to-earnings¬†ratios¬†are notoriously suspect. They could be much higher, much lower or right on the money. On the other hand,¬†we can count on dividend and interest.¬†Even in the systemic financial collapse of 2008, diversified funds absorbed individual “failures” and served up¬†the¬†expected payments.
There is one closed-end fund in the bunch, the Eaton Vance¬†Tax Managed Global Dividend Fund (EXG). And some closed-end funds do have a less-than-glorious history when in comes to maintaining their monthly or quarterly cash payouts.¬†However, this one¬†shouldn’t let anyone down. Its¬†price is 17%¬†below its net asset value, which gives it¬†the cushion to continue paying its¬†yield via covered call option income. Moreover,¬†if stocks¬†stay range-bound rather than bull-market crazed, there would be less chance of¬†the stocks¬†in the fund being¬†“called” away.
Once more, the portfolio is a hypothetical possibility for those investors¬†who crave less “beta risk” than the S&P 500. It represents an opportunity to pursue¬†a double-digit¬†percentage gain for 2012, with 1/2 the return coming from a reliable income stream.
Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.