Please note the stocks included in the 50/50 portfolio are not a recommendation. They were personally selected by the author and contain a great deal of investment risk. This is a live active portfolio I believe will withstand the markets up/down movements based on my own research. The progress will be updated and tracked for feasibility of this investment method over the years. The previous article titled 50/50 Portfolio (BDCs And mREITs) Baseline, 2014 explains my investment method and how I constructed this portfolio.
50/50 portfolio update Q1-2015
During the past three months November 2014, December 2014 and January 2015 one stock was removed and a replacement was added. I removed Resource Capital Corp (RSO) because of a possible cut of its dividend and I'm not comfortable with stock prices below $5 for any length of time. I replaced this stock with Arlington Asset Inv Corp (NYSE:AI) because of their variable rate investments that are better suited for future interest rate increases. All dividends from the last three months were invested back into stocks that need their dividend allocation to be increased.
CHART-1, shows a detailed look at the income allocation method. Notice the 100% level is the minimum income I have chosen for all investments. Whatever that level is $1000 (giving a total income of 30K/Yr.) or $2000 (giving a total income of 60K/Yr.) sets a bottom limit of income that should be maintained to have a functioning portfolio that will withstand a market downturn. This level is independent of investment yield. The higher the yield the less capital is at risk, the lower the yield the more stable the investment becomes. This is based on the theory that high yielding investments contain more risk than lower yielding investments. Notice the two light red bars to the left of the chart. The replacement stock is already generating over 100% of my dividend income allocation. The dividends received during the quarter were reinvested back into Apollo Investment Corp (OTC:AINV). This brought AINV's income allocation up to the 100% level. During the next quarter I'm going to start adding to Capstead Mtg Corp (NYSE:CMO) and get its dividend to at least 100%.
CHART-2, this chart displays the bottom line to the 50/50 Portfolio made up of 50% BDCs and 50% of mREITs. The blue-bar (2015 Q1), 21.7% return is the accumulative dividend income received from the initial starting portfolio balance. This will increase each year because all dividends are reinvested back into the portfolio. The green-bar (2015 Q1), 10.6% is the yield on cost of the portfolio. This level of YOC >10% is my goal based on the amount of retirement income required. I'm in the accumulation phase before retirement and all dividends are reinvested back into the portfolio.
The AWIP utility that predicts future liabilities
A major part to any portfolio is the ability to project into the future and see if your retirement planning can withstand Taxes both federal and state, Inflation and RMD (Required Minimum Distribution) consequences. During the last month I designed and built a special AWIP (Accumulation Withdraw Investment Portfolio) calculator to predict the 50/50 portfolio outcome well into the future. The utility incorporates Savings, Withdraw, FED tax brackets, Standard Deduction, Personal Exemption, State tax, Inflation and RMD. All parameters are adjustable so I can run multiple simulations to get the desired results. According to my portfolio balance the years until retirement and 22 years in the withdraw phase I can stay within the 15% tax bracket and not be worried about RMD. Knowing this fact in advance gives me the confidence I'm on the right path to secure my retirement with the investments I have selected.
- The first quarter of 2015 is still on track with my goal of YOC > 10%.
- Adjustments have been made to the portfolio to remove a questionable investment and replace it with one that might be more aligned with increasing interest rates.
- A newly designed method to take into consideration tax, inflation and RMD to predict future the accumulation and withdraw phase of any portfolio gives me the peace of mind I will not run out of money in retirement.
Disclosure: The author is long SLRC, GBDC, ARCC, TCPC, SCM, FSC, NMFC, TCRD, AINV, HTGC, HRZN, MCC, BDCL, STWD, TWO, HTS, NLY, AGNC, ARI, MFA, CMO, DX, MITT, CYS, RSO, NYMT, WMC, MORL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.