My Superyield Retirement Strategy

by: Brandon Baunach

Over the past several months, I've been inspired by Seeking Alpha to develop a strategy with a portion of my portfolio that I could share with readers in hopes that this strategy would spark a reaction from readers. In turn, I hope the readers will follow this journey to help hone my portfolio into something more thoughtful than the original thesis.

And what is the thesis? Superyield. More specifically, I intend to create a long term portfolio that consistently yields 9% per year. I'm planning for a much more modest growth on equity of 2% for a total annual growth rate of 11%. These yields will come from ETFs and individual stocks that consistently produce high yields and are as stable and diversified as can be practicable at these insane levels.

I have a 25 year time horizon on this portfolio. I'm 39 now, and I hope to retire at 65. Based on an 11% total annual return compounded over a 25 year period I should make a return on the original investment of 1,358% or almost 14 times my original investment before taxes and fees. In my example portfolio for instance, I'm starting with a sum of $36,000 or about 15% of my current total portfolio (the rest is managed by professionals). $36K should be $489K when I retire according to this high yield methodology.

Now for the specifics. There are a number of rules that I've decided to already break, but it goes like this.

  1. Choose a pool of stocks and ETFs that yield between 6% and 14%.
  2. Review each stock and ETF for its relative strength, beta, and so on.
  3. Analyze future pitfalls and market sentiments which might adversely affect each investment in the pool.
  4. Hone the pool down to eight investments and give each investment equal weight along with an initial pool of cash. For instance, in my portfolio I've decided to start with $36K. So, each investment gets $4K and $4K stays in cash (or possibly gold).
  5. Each quarter, I will review the investments and rebalance to get the investments to equal weight. I will also want to review if certain investments get added or pulled from the pool of eight as better opportunities arise.

My portfolio: I spent an enormous amount of time deciding what goes in this portfolio, and ultimately to meet the 11% annual return over 25 years I felt like I have to "go for broke," as they say.

The portfolio is:

  • BP Prudhoe Bay Trust (NYSE:BPT) Yield: 9.8%
  • WisdomTree Global ex-US Real Estate ETF (NYSEARCA:DRW) Yield 15.1%
  • France Telecom (FTE) Yield 8.7%
  • SPDR Barclays Capital High Yield Bond ETF (NYSEARCA:JNK) Yield 7.8%
  • UBS E-TRACS 2x Leveraged Long Alerian MLP Infrastructure Index ETN (NYSEARCA:MLPL) Yield 13.1%
  • Navios Maritime Partners L.P. (NYSE:NMM) Yield 14.4%
  • iShares S&P U.S. Preferred Stock Index ETF (NYSEARCA:PFF) Yield 6.9%
  • iShares FTSE NAREIT Mortgage REITs Index ETF (NYSEARCA:REM) Yield 10.7%

These were all purchased on Friday August 5, 2011 (on sale, in my estimation) with each investment given an equal weight of approximately $4,000. Quite frankly, there may be some boneheaded moves such as including a leveraged investment as a long term vehicle. But think, "rebalancing" and "long term" and any temporary losses seem reasonable over a 25 year investment horizon.

What happens next? I'd love to get feedback from SA readers letting me know how crazy and naive an investor I am, and more importantly, how I can adjust the portfolio strategy to make the perfect superyield engine.

Disclosure: I am long BPT, DRW, FTE, JNK, MLPL, NMM, PFF, REM.

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