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How to Retire on $300,000 (and bag 12% gains every year)


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By Michael Foster

Today IaEURtmm going to show you how to get a livable income stream from a $300,000 nest eggaEUR"while growing your savings at the same time.

Sounds impossible, right?

Wrong.

WhataEURtms more, weaEURtmre going to pull it off using just 6 funds. When weaEURtmre done, weaEURtmll end up with a simple, diversified portfolio that throws off a nice, steady 7.9% dividend yieldaEUR"more than 4 times the S&P 500 average!

And if youaEURtmre worried that this outsized yield could come at the cost of a weak total return, donaEURtmt be, because these funds have delivered 12% per year over the past decade.

Before I get into these 6 funds, let me show you what numbers like these can mean for you: if we start with an upfront investment of $305,000 in this portfolio and leave it alone for 10 years, we can expect our capital to explode to nearly $1 million in a decade.

History tells the tale: if you had invested $305,000 in these funds 10 years ago, you would have done just that.

Now IaEURtmm not saying history is going to repeat exactly here, but remember that weaEURtmre talking total returns, and much of that gain came in the form of dividends.

And we can expect those hefty payouts to continue. As I said off the top, this portfolio has a 7.9% yield, meaning our $305,000 initial investment is going to give us $24,000 in annual incomeaEUR"thataEURtms $2,000 per month!

Granted, many Americans make more than that in a year, so you may not be able to completely replace your income with this cash stream. But some folks could. In some parts of the country, average incomes do go down to $24,000, and with rents for one-bedroom apartments falling below $600 in some cities (like Wichita, Cleveland, Tucson, El Paso and Albuquerque), it is possible to live entirely on this income stream.

But even if you canaEURtmt live on $2,000 a month, this portfolio could hand you a nice, reliable supplementary income stream, leaving you much less reliant on the 9-to-5 grind.

So how does the portfolio work?

Connecting the Pieces

The 6 funds IaEURtmm talking about come from 5 management firms with impressive track records: PIMCO, John Hancock, Nuveen, Guggenheim and Macquarie.


Together, they hand you exposure to over a thousand firms through stocks and bonds. On top of that, the Nuveen NASDAQ 100 Dynamic Overwrite Fund uses an insurance strategy that helps protect you from a bear market by selling call options on its equity portfolio. (My colleague Brett Owens explained how this worksaEUR"and why it cuts your riskaEUR" in an article you can read here .)

And of course, by throwing $305,000 into this group of 6 funds, we can earn a monthly income a smidgen over $2,000 on this portfolio:


Surely with such high yields, youaEURtmre going to sacrifice capital gains, right? In many cases, this is a tradeoff investors need to make, but these funds have performed tremendously, with annualized gains of 12% over the last decade:

Income and Growth in 6 Buys


Those gains are what allowed your $305,000 to balloon to almost $1 million if you chose to keep these funds and save the cash they yielded in dividends.

With numbers like these, you might be asking yourself why hardly anyone is talking about these funds.

The answer: these 6 funds are known as closed-end funds, which are an obscure corner of the market (I explain exactly how CEFs work in a quick primer you can read here .)

Why are these funds so obscure? Because their massively popular cousins, passive exchange-traded funds, have stolen the spotlight, even though many ETFs yield less than 3% (and many yield less than 2%). ThataEURtms not going to cut it if youaEURtmre yearning for an income stream that puts you on the road to financial freedom.

Then thereaEURtms the other cousin of CEFs, mutual funds, which have kept their stranglehold on the American financial industry thanks to regulation. Since 401ks canaEURtmt invest in anything other than mutual funds, many Americans have little choice but to invest in these funds when it comes to retirement planning.

But savvier investors who use IRAs and brokerage accounts can choose the 6 CEFs above, and others like them, and get a stronger cash stream.

And there are plenty of other CEFs to pick from. There are about 500 on the market now, and dozens of them are beating their benchmarks.

As a result, more people are learning that CEFs are a great tool for building a reliable income stream while also helping their portfolios grow. If you havenaEURtmt checked them out yet, now is the time to do so, starting withaEUR

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Options
Referenced Symbols: QQQX , PDT , PCN , GOF , PTY



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