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Investing in dividends and balancing them with high-yield stocks is a popular strategy many investors use to grow their money and receive consistent revenue.
While some investors prioritize stability and slow growth, others may seek higher yields to meet certain income targets, even if it means taking higher risks.
This is also the case for an investor looking to restructure his IRA to generate $4,000 per month in dividend income. Currently, he has $150,000 allocated to income-focused ETFs, generating approximately $1,800 monthly, $21,600 per year.
“I still have 75% of my IRA funds in growth-oriented ETFs. I have $150,000 in income ETFs producing $1,800/month. I would like to increase that to $4,000 to retire in 3 years although I can work an additional 2 years if necessary. I would basically use 25% of my IRA for living expenses and let the other 75% continue to grow only dipping into when necessary,” the investor said in his Reddit post.
His concerns, however, involve the risk associated with high-yield investments, but he’s willing to explore this option to bridge the gap between his current income and his target.
The r/Dividends Reddit community has offered a mix of conservative and risky asset options. Below, we’ll analyze the comments and highlight the most relevant advice.
Investor with $1,800 Dividend Income/Month Needs $2,200 More–Should He Go For High-Yield Stocks? Reddit Debates
Conservative, Diversified ETF Investments
One of the most detailed and relevant pieces of advice suggests the investor balance yield with risk management.
“I’d highly recommend meeting your goals with ETFs that have primarily high total returns, then secondarily, as high of yield as possible without outsized risk. To mitigate risk, I would remove individual companies from your plan and pick ETFs that have low volatility (if possible). I would also have a hedge to your equity positions, including some form of fixed income,” he explained.
Furthermore, the commenter mentioned several asset options he would invest in if he were in the poster’s situation.
“Personally, for an income-producing segment of my portfolio, I’d probably have something like [Amplify CWP Enhanced Dividend Income ETF (NYSE: DIVO)] for domestic stocks, [Invesco International Dividend Achievers ETF (NYSE: IDVO)] for international stocks, and various bond funds like [iShares 7-10 Year Treasury Bond ETF (NYSE: IEF)], [iShares 1-3 Year Treasury Bond ETF (NYSE: SGOV)], [Vanguard Total Bond Market ETF (NYSE: BND)], [iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE: LQD)], etc. This is below your desired yield, but it gives an idea of portfolio construction,” the Redditor wrote.
Several comments mentioned specific covered call ETFs, real estate investment trusts and securities that would, according to the Redditors who wrote them, help the investor reach his income goal.
“Consider a position in [NEOS S&P 500 High Income ETF (NYSE: SPYI)] and/or [Global X NASDAQ 100 Covered Call ETF (NYSE: QQQI)]. Both are covered call ETFs that pay 11% or more each year,” a Redditor suggested.
A Reddit user advised the investor to diversify across several asset classes, including covered-call ETFs, individual dividend stocks and more.
“If you like covered call funds you could look at QQQI, SPYI, etc. Individual stocks: [Verizon Communications Inc. (NYSE: VZ)], [Pfizer Inc. (NYSE: PFE)], [Altria Group Inc. (NYSE: MO)], [PepsiCo Inc. (NASDAQ: PEP)]. Throw in some [business development companies] like [Ares Capital Corporation (NASDAQ: ARCC)] and [real estate investment trusts] like [Realty Income Corporation (NYSE: O)]/[Main Street Capital Corporation [NYSE: MAIN)] for diversity,” he wrote.
This comment suggests other covered call ETFs with both low-yield and high yields but advised the investor to do his own research before putting his money in the game.
“These are some I would consider but do some research [JPMorgan Nasdaq Equity Premium Income ETF (NYSE: JEPQ)], [Global X S&P 500 Covered Call ETF (NYSE: XYLD)], SPYI, [Alerian MLP ETF (NYSE: AMLP)], [YieldMax Innovation Option Income Strategy ETF (NYSE: GPIQ)], [WisdomTree CBOE S&P 500 PutWrite Strategy Fund (NYSE: PUTW)], QQQI, [Global X MLP ETF (NYSE: MLPA)],” it says.
Interest Rates Are Falling, But These Yields Aren't Going Anywhere
Lower interest rates mean some investments won't yield what they did in months past, but you don't have to lose those gains. Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities.
