My Income Compounder (Schwab) Portfolio: A Mid-Year Update

ridvan_celik/E+ via Getty Images Happy Father’s Day to any of you Dads reading this! According to Schwab, my IRA, with 15 individual holdings that together have a current market value of about $145,000, has returned just about the same performance as the S&P 500 since its inception a year ago. And that is despite my taking significant withdrawals from the account over the past year. This is not an attempt to boast or say I told you so. It is not my goal to “beat” the market or brag about my successes. I have had some misses too. I bought a bunch of TSLY stock, collected a couple of big dividends, then sold my investment for a small loss before it turned into a big loss. I have had several readers ask me to share my actual portfolio holdings. My goal for this portfolio is to generate passive income that can be compounded by reinvesting monthly (or more frequently when possible). As I am now retired from my 40-year career in information technology, I do not own any tech stocks and I invest solely for income in this portfolio. I do have a small growth-oriented taxable portfolio that is not part of my Income Compounder strategy. In addition, I also have a separate IRA with Fidelity that holds about 30 additional positions in high yielding stocks, CEFs that DRIP at a discount, and some ETFs. This review is only for my Schwab account that I manage differently. In this account, I take all dividends as cash (except for Chevron that I have set to reinvest and plan to hold for 20 years or more and then pass on to my daughter). I then reinvest that cash based on whatever opportunities arise at the time. According to Schwab, my YTD performance shows a rate of return of 13%, compared to SPY which has me beat so far this year with a 14.6% YTD return. Schwab As you will see, I did add several of the YieldMax and other ultra-high yield dividend ETFs this year, which skews my average yield on cost to over 25%. Of course, that number must be taken with a big grain of salt because the dividend payouts for CONY, AMZY, JEPY, and BITO are variable and are not likely to continue to pay out 80%+ for very long. Also, Schwab calculated all the numbers in my spreadsheet including Yield, gain/loss, etc. I am not sure if the Yield shown is correct for all of them, or if it includes special or supplemental dividends. My Schwab IRA Account Positions author spreadsheet You may notice that my total account cost basis is slightly negative at -$486. If you look closely, you will see that it just became negative on Friday, May 17, 2024, when the total Day Change was -$596. Several holdings went ex-div on Friday or in the case of AMZY, CONY, BITO and JEPY they just paid out the dividend and the NAV of that fund is reduced by the dividend amount that was paid. For example, AMZY shows a loss of about $-480 on the cost basis, however, on June 7, it paid me a $477 dividend. AMZY is a new position for me, started in May and I recently wrote about it: AMZY: Make Hay While The Sun Shines I currently have no cash in this account because I am fully invested as of today. I may adjust my position sizes, which I do by selling some holdings that have a higher gain like CION and SRV. I have previously trimmed my SRV position and that is part of the reason why the cost basis is so low (and it shows a gain of 11.7%). Retirement Income Plus Future Growth My goal for this portfolio is to generate income that I can take as cash withdrawals to help fund my retirement in lieu of a paycheck. However, it is not my only or even my biggest income source. I did receive a lump sum pension payout last year that helped to fund this account. I had targeted about $50k of that payout amount to take out as cash last year to pay off some debt and support my cash flow before starting to take Social Security (which I just started taking now that I am 65 and on Medicare). You will notice that I took out substantial withdrawals over the past year (over $90k total) yet still have a portfolio balance that is keeping pace with my withdrawals so far this year due to reinvesting and capturing some capital gains. In fact, so far this year, I have taken out just about $22,000 in withdrawals (net negative contributions) and my investment changes have amounted to $18,500. Schwab My account balance halfway through the year is just about where it was at the start of the year, even though I have withdrawn almost $22k. That is in part due to my aggressive buying while the market has been making new highs. At some point relatively soon, I expect that there will be a market correction and my portfolio value may drop. However, the income continues to grow and even if the total value of my holdings declines by 5%, 10% or whatever, my income remains about the same (except for possibly the YieldMax funds, which may pay out less). Estimated Income is Growing Another nice feature that Schwab offers in their user interface is the ability to see Investment Income, both actual and estimated. My estimated annual income from this $145k portfolio is over $30,000. You can see how the monthly income has been growing since the start of the year (with the exception of February). Schwab screenshot Part of the reason for that is my addition of the 4 high yield funds that I added (or added to) in the first half of this year: JEPY, BITO, CONY, and AMZY. All 4 of those positions are very high yielding (30% to 80%) and very risky. Each is 7% to 8% of the total value, so about a third of the total value of this portfolio when all four are combined. This approach is very aggressive, and I do not recommend it for everyone. Even my lower yielding, but still very high yield holdings like USOI, IVR, NXG, and AGNC are somewhat risky and may not meet the investment goals of more conservative investors. My goal with this portfolio is to generate high yield income, most of which is paid monthly, and reinvest opportunistically depending on what is on sale at that particular time. My most recent additions to this portfolio include IDE, which I added after they substantially increased the distribution (and which SA never reported for some reason), and JRI, which I just wrote about a week ago: Get Real Assets at a Big Discount and Collect 14% Yield. Next Steps for This Portfolio and NXG Rights Offering For the most part, I am now comfortable with the positions in this portfolio and may add or trim based on price changes. While I previously sold off some shares of NXG NextGen Infrastructure Income Fund (NXG) to capture some gains, I plan to hold the remaining shares and decide whether I wish to participate in the upcoming rights offering. The distribution for NXG was doubled last year when it was announced in September that the fund would be paying out $0.54 per share monthly, versus $0.27 previously. It had the intended effect of closing the discount on the share price, however, even after the higher price it still yields over 15%. Some fear that the distribution is not covered and may be cut soon. I need to do more detailed research before I decide whether to buy more shares by exercising my rights, or just sell what I have and wait for a better price after the RO is completed. Here are the offering terms: The record date for the Offer is currently expected to be June 20, 2024 (the “Record Date”). The Fund will distribute to Common Shareholders on the Record Date (“Record Date Common Shareholders”) one Right for each Common Share held on the Record Date. Common Shareholders will be entitled to purchase one new Common Share for every three Rights held (1 for 3); however, any Record Date Common Shareholder who owns fewer than three Common Shares as of the Record Date will be entitled to subscribe for one Common Share. Fractional Common Shares will not be issued. The proposed subscription period will commence on the Record Date and is currently anticipated to expire on July 17, 2024, unless extended by the Fund (the “Expiration Date”). Rights may be exercised at any time during the subscription period. The Rights are transferable and are expected to be admitted for trading on the New York Stock Exchange LLC (the “NYSE”) under the symbol “NXG RT” during the course of the Offer. The subscription price per Common Share (the “Subscription Price”) will be determined on the Expiration Date, and will be equal to 92.5% of the average of the last reported sales price of a Common Share of the Fund on the NYSE on the Expiration Date and each of the four (4) immediately preceding trading days (the “Formula Price”). If, however, the Formula Price is less than 92.5% of the Fund’s net asset value per Common Share at the close of trading on the NYSE on the Expiration Date, the Subscription Price will be 86% of the Fund’s net asset value per Common Share at the close of trading on the NYSE on that day. The estimated Subscription Price has not yet been determined by the Fund. The RO also includes an oversubscription option, meaning that shareholders can opt to purchase additional shares in the RO beyond their allotted rights if such additional shares are available. In addition, NXG changed the record date of the July distribution to avoid a conflict with the RO record date. The Fund has previously declared a monthly distribution of $0.54 per common share payable on July 31, 2024, to Common Shareholders of record as of July 16, 2024. The Board has changed the record date for such July distribution to July 8, 2024. Whether to participate in the RO or not is always a tricky decision because it is difficult to predict what the price will do in the future. Normally, an RO is most effective when the market price is at a premium to NAV and then the additional shares purchased are accretive to NAV. Currently, in the case of NXG the fund is trading at a slight discount of about -4%, although that discount has been closing ever since the dividend raise was announced as you can see on this chart from CEFConnect. CEFconnect While this is not a deep dive into NXG (and I do not want to turn it into one), I do think it is worth watching the price action over the next several days as we get closer to the RO record date of June 20. There could be a buying opportunity then, or possibly an even better one after July 17 when the RO is completed, and we know what the subscription price will be. Tha Tha That’s All Folks! As my former namesake Elmer Fudd (kids can be so cruel) used to say, “I will never give up the hunt, no matter how many times I fail!” My hunt for income is ongoing and constantly adapting, just like those wascally wabbits. Hopefully, you enjoyed my update and maybe even learned something new. Thanks for reading, and please leave your constructive, kind, or even insensitive comments below.

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