I have a real portfolio that I would love for you to pick apart. Let's call it the YMBC (You Must Be Crazy) High Yield Portfolio.
Some background: This is a small beneficiary IRA received from my father when he passed. So it's tax protected but it has a required minimum withdraw (RMD) of about 3% annually. The crazy beneficiary (me) has a significantly greater risk tolerance than average (e.g. he actually increased portfolio risk in late 2008 and again at the beginning of 2009). At the beginning of this year, nutty guy I am, I chose to invest this portfolio as follows:
This currently throws off >5% in income each quarter (>20% / year). In the first three quarters I will reinvest this income in whichever category I feel is cheapest. Generally this will be whichever category has declined the most from original purchase (e.g. the poorest performer). Yep, I'll double down on the biggest loser.
Trading fee's and bid/ask spreads should be relatively inconsequential at about 1/2% combined (.5% * 20% reinvestment = .1% of portfolio) but management fee's at .85% annually are not. My overall annual operating cost is expected to be just under 1%. In the fourth quarter, most of that quarters income will be withdrawn due to the RMD. As an example the income from Q1 was just reinvested in BDCL, the ETN which had the greatest fall since initial investment.
I see the portfolio as 45% risky with relatively high correlation to the S&P (SDYL, BDCL, CEFL), 50% risky with low correlation to the S&P (MORL, DVHL), and 5% with lower risk, lower return and benefiting from higher rates (NYSE:EFF). Overall I would consider this portfolio a success if it maintains about market risk and return but with much higher yield. It is my hope that the increased risk of 2x leverage will be largely offset by the increased diversification provided by asset mix.
Note this portfolio is as much a real money test as anything else since it represents less than 3% of my overall portfolio. I welcome feedback including negative feedback. All I ask is you give specific backup data justifying why you think I'm such an idiot. If there is sufficient ongoing interest, I will try to write a quarterly update so you all can see and comment on just what a fool I am.
Disclosure: The author is long MORL, CEFL, DVHL, SDYL, EFF.
Additional disclosure: As I am not aware of your personal financial situation, this is not a recommendation for purchase or sale of any security. Please do your own due diligence.