This levitating stock market is terrible news for anyone who wants to actually retire. That’s because it’s keeping S&P 500 dividend yields in the dumpster, at a hair under 1.9% now.
But there’s a better way—an 8% retirement-survival strategy, to be specific—that’ll earn you $40,000 annually on a $500,000 portfolio. With capital gains upside, to boot.
You read that right.
Most “first-level” investors have no clue the investments I’m going to tell you about even exist. That’s why most folks pile into blue chips, wrongly thinking they’re the ones at fault for not having saved the massive nest egg they need to get a livable income stream.
And when I say massive, I’m not kidding.
At 1.9%, you’d need more than two million dollars just to bring in $40,000 in dividend payouts—the bare minimum many folks would need to retire. And as I’ve written before, retiring on dividends alone is something you need to aim for if you want to safeguard your golden years from market meltdowns.
Your Retirement Rescue Plan
This is where that strategy I just mentioned comes in.
It may surprise you to hear that there are plenty of safe investments out there that will hand us an 8% yield—enough to get us our $40,000 in income on just a $500,000 nest egg.
The trick is to go beyond the S&P 500 and dip into quieter corners of the market—places where the big institutional players don’t bother looking, but are still plenty liquid for you and me.
That’s exactly what my “8% No-Withdrawal” portfolio (which you can read about here) does. And today we’re going to zero in on one of the three asset classes that make it up: closed-end funds—including one CEF that’s a smart buy now.
One Stop for a 9% Yield and Upside
Not familiar with closed-end funds? There are really only three things you need to know about them:
- There are only about 500 CEFs out there, so they’re off the herd’s (and the big guys’) radar … but that’s starting to change.
- You can often swap your “regular” stocks for CEFs holding the exact same names but with one crucial difference: you’ll get an outsized yield—that’s right: I’m talking 8%, 9% and even higher!
- Unlike mutual funds and ETFs, CEFs can’t issue new shares after their IPOs. This means that many of these funds trade at big discounts to their net asset values (NAV; or the value of their underlying holdings).The upshot? Our upside is virtually locked in as those discounts snap back to “normal” levels.
A terrific example: the Liberty All-Star Equity Fund (NYSE:USA), which throws off a gaudy 9.0% dividend yield as I write, or more than 4.5 times what your average S&P 500 stock pays.
How? By using a carefully crafted strategy of buying top-notch stocks when they’re cheap, selling when they’re overvalued and sending the gains out to investors as dividends.
My colleague, CEF expert Michael Foster, pounded the table on USA on May 1, and the fund has gone on to deliver a solid 6.7% total return since then.
Performance Fit for a Patriot
This is why I love CEFs: despite that jump, USA still trades at a 12% discount to NAV. This is basically free money: we’re getting the fund’s top-quality holdings at $0.88 on the dollar!
Granted, that’s less than the 17% markdown you’d have gotten in November, but it isn’t far above the 14.9% average over the last year, so we’re getting an extra layer of price stability as we collect USA’s hefty dividend.
Plus, the fund has traded at discounts as narrow as 1% in the past 10 years, so there’s still plenty of upside here, too.
As the ticker suggests, USA’s holdings are domestic stocks many folks own anyway, making switching over to the fund easy. Check out USA’s top 20 picks: