Since the beginning of November last year, the market has rallied quite a bit, and that streak continues in the new year. The S&P 500 has been making new all-time highs almost on a regular basis. The most recent moves have been occurring in the hopes of even more stimulus. Besides, since the coronavirus vaccine already is being made available to the most vulnerable groups and soon to be available to the general public, the market is hoping that the pandemic will finally be behind us by the summer of 2021.
The income-centric funds like CEFs, which had generally lagged the market during the summer recovery, have now joined the broader rally and have ended up much higher compared to just a couple of months ago.
All that said, the future always is hazy, even in the best of times. So, it's always prudent to ignore the short-term gyrations of the market and focus on the long term. In that spirit, we keep looking for good investment opportunities and keep our wish list ready and buy when the time is right.
Why Invest in CEFs?
For income investors, closed-end funds remain an attractive investment class that offers high income (generally in the range of 6%-10%, often 8% plus), broad diversification (in terms of variety of asset classes), and market matching total returns in the long term if selected carefully and acquired at reasonable price points. A $500K CEF portfolio can generate nearly $40,000 a year, compared to a paltry under $10,000 from the S&P 500. Now, if you were a retiree and needed to use all of that income, the portfolio would not grow much, but it may still grow enough to beat the rate of inflation. That certainly beats investment vehicles like annuities. With CEFs, you have to think in terms of income rather than capital growth.
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