131 - If We Started Investing Over… This Is EXACTLY The Portfolio We’d Build

Ready to build a portfolio that actually works in today’s market — not 1985’s?
In this episode, we break down a complete modern starter portfolio for new investors AND experienced investors who want a reset for 2026.

We take the outdated 60/40 model, call it the trash panda it is, and replace it with a diversified, income-strong, resilience-focused allocation built for real market conditions — inflation, rate cuts, volatility, and all.

We cover:

🔥 The 7-Category Modern Portfolio Blueprint

• 15% MLPs
• 15% REITs
• 10% BDCs
• 20% Dividend Growth Stocks
• 10% Muni Bonds
• 15% CEFs
• 15% Covered Call ETFs (“your paycheck bucket”)

📊 What You’ll Learn:

• Our new and improved 60/40 strategy
• How to avoid redundancy between ETFs, CEFs, and individual stocks
• The best tickers and examples inside each category
• How these pieces work together to create income streams from multiple directions
• How a $10,000 portfolio using this model could generate 11.7% yield
• How to deploy dividends, DRIP strategically, and accelerate compounding
• How to adjust allocations based on your personal risk profile

If you want a simple, diversified, income-driven blueprint to start investing — or rebuild your portfolio the right way — this episode is your roadmap.

Want FREE weekly market updates, Tim's top 10 dividend picks, and our portfolio updates delivered right to your inbox? Subscribe to our email list.

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**DISCLAIMER**
Ticker metrics change as markets and companies change, so always do your own research. The content in this podcast is based on personal experience and is for educational purposes, not financial advice. See full disclaimer here.

Episode music was created using Loudly.

Transcript

Welcome to roaming returns a podcast about generating a passive income with dividend stocks so you can secure your finances and liberate your life. 

Today we’re building the ultimate starter portfolio — the one we wish someone had handed us when we began investing. Not that 60/40 fossil they still teach… that thing belongs in a museum next to dial-up internet.

We’re breaking down a modern, income-focused, diversified portfolio across multiple asset classes and we’re showing you exactly why each category matters, how much we’d allocate, and real tickers you can research today.

If you’re new to investing or you want to rebuild your portfolio for 2026, this is your blueprint. 

What's up? Are we recording? We are recording. Oh. I don't even know.
What is this episode about again? I can't remember. After doing like the last month or so where we've just been all over the fucking place, I said, maybe we should do a starter thing again. Oh, a starter portfolio, okay.
So like what I was doing, I went through like back through some of the podcasts, so like I'm doing the work for you people that don't want to listen to the 140 episodes, wherever there are. I said, well, the starter one. So I think to me, I'm going to revise it just a smidgen.
It's still going to be like within the 60-40 framework of 60% equities, 40% closing the funds preferred. Yeah, the new 60-40. But because we are taught that from like birth basically that it's 60 stocks, 40 bonds, 60 stocks, 40 bonds, 60 stocks, 40 bonds.
To me, that method is trash panda. I don't like it. Trash panda.
So we literally created a podcast that outlined why it's trash panda. You can see it. Don't you have a link to it somewhere that pops up on the thing? I could, but I'm not going to do that.
So ignore that last part too. Awesome. So to me, that strategy doesn't work and so now how would I recommend a person that literally because we just encountered this in the last couple of weeks, someone that's never invested before she decided to go the high yield route.
So how would a newbie do it like if they wanted to do the more conservative portfolio and I came up with a list of how I would do it. Not saying it's right or wrong because I'm not a financial advisor. Funny story though, I took the financial advisor exam and I passed it my first try.
So apparently those … With no studying. They're not that difficult. So I could be a financial advisor if need be, but … I don't know if you want those freaking chains, man.
Whatever. Sidebar over. So basically the new portfolio for a newbie would be 15% MLPs, 15% REITs, 10% BDCs, 20% dividend growth stocks, 10% municipal bonds.
The reason I recommend those, we'll get to, 15% closeted funds and 15% cover call ETFs. So you literally could have a seven holding portfolio if you literally just dumped your entire allocation into those. So which part of these are the ETFs? Those are the closeted funds, the ETFs.
Closeted funds and the ETFs and the bonds can be 40%. So 15, 15, and 10 would be 40%. Okay.
And BDCs, REITs, and MLPs technically count as stocks? Unless you take the MLP, which we did with SRV, which is a closeted fund, then you would actually then have to cut these down. So like however you construct it. So this is a generalization.
Generalization. Random outliers fall into other subcategories, yes? Yes. Okay.
So with a setup like this, you would have diversification against most market conditions. Obviously you can't have production against all market conditions. Your objective is to mitigate risk as much as you can, but knowing that you never can mitigate risk 100%.
Even if you put cash in the bank, you're not mitigating risk. So there's never a 100% guarantee against risk when it comes to money. Period.
And then you need to make sure your MLPs and closeted funds or ETFs don't overlap. So like I was just mentioning, SRV is a closeted fund that deals with MLPs. So if you used SRV as your MLP thing, then you would have to diversify further down the chain.
You'd actually have to, instead of using closeted funds on your municipal bonds, you'd have to buy municipal bonds, or you'd have to actually adjust the percentages. Now the percentages aren't set in stone, but that's how I would try to break it up along those lines. Like the pirate code.
Then you also need to make sure that your MLPs and closeted funds and ETFs don't overlap for a second reason. So if you invest in EPD, which is a midstream oil MLP, you would also want to invest in SRV and or USOY, which SRV is an oil MLP closeted fund and USOY is an oil-based ETF. So you need more diversification.
So you don't want to triple loop stuff. You want to actually get rid of the redundancies. Yeah, you don't want to have too much oversaturation or overexposure to one, what are they called? Sector? Sector oil? The goal is basically to create a portfolio that has multiple sources of independent income so that no single event or a couple of events can wreck your entire portfolio.
And then we should probably here talk about the highlight reel of why you don't do that, which you will see at the end of the year are oopsie daisies, but every year going back, the big three are- Oopsie daisies. Oh my, well Coney should be another example to be honest. Icon.
Icon. Campy World. Campy World.
MPW. MPW, Meta Property. And QRTEP.
 QRTEP now, yeah. QVC. QVCGP. It's not  QRTEP anymore.
It's so yesterday. But it's so much funner to say. I love QTIPs.
But then again, whatever, so if you actually do, we actually had another episode that talked about your risk profile. So if your risk profile is risky and you don't mind redundancies, then that's up to you. Risk isn't too much of an issue for me.
As long as you do it intentionally, because again, the macro climate could justify over saturation. So that's why whenever you look at the two portfolios, we have the retirement portfolio and we have the Vanna portfolio, the reason there's such a vast difference in them is because her mother, risk is a huge issue. She wants to make sure that there's money there and there's income being generated when she retires in a couple of years, whereas opposed to us, we just want income now.
We don't care what happens to the principal as long as the income keeps churning. Now, that is so true because if you look at the markets right now, it has just been getting pummeled and pummeled and pummeled and pummeled. And our portfolio went down again and down again and down again.
So now there are some caveats that we'll go over before we get into the different areas that we've highlighted. 10% BDC basically means 10% of the portfolio in financials. You can use banks or insurance companies or investment firms or BDCs.
Investment? Investment. I just prefer BDCs because they actually generate the highest yield. And some of them are the best ones out there, like Main Street Capital is one of the best stocks out there.
It's just overvalued now. But there's other options. There are.
For REITs, they can be diversified as well with the healthcare REITs, cannabis REITs, office REITs, industrial REITs, et cetera, whichever, wherever the macro trends are pointing for your REIT diversification is how you should follow. We do our best to actually maintain what the macro trends are like, what the sales are like pointing towards. But like obviously I can't do everything.
I do my best. I'm going over like the 2025 projections right now and it's pretty like. Well, you are a little pigeonholed based on the macro climates and then like the value components.
So it's like sometimes you might not be able to get into the ideal like setup you want when you add those other variables into play for your specific strategy. You can choose to disregard them. We do not.
So it's like it's the perfect combination of storm for when we get into things. But if you have your strategy in place like beforehand, you can jump on something as soon as it comes into your buy range. I mean, I can't stress this enough.
Like if you invest in banks or insurance companies, make sure that you're closing the funds. Don't overlap your investments. It's so easy to happen because you'll just like say, oh, that USA looks nice.
You'll pick it up. But like some of the core holdings of USA might actually be in a sector that you already have covered with an individual stock. So just be careful about that.
For me personally, I treat closing the funds for the most part like a index fund. Like two prime examples are USA. We keep bringing up SRV.
Another one that we actually hold is NLR. They hold companies from different sectors like USA is like large cap American companies. SRV is like all the best MLPs and NLR is like all the best nuclear stocks.
So to me, I use my closing the funds as others do index funds. That's just me. Other people.
And finally, the cover call ETFs. Personally I think because there's a 20% leeway, I would do 10% in something that's steady and reliable like JEPQ or XYLD. And then 10% would be in YieldMAX or Roundhills, meaning 10% of your portfolio then become your paycheck.
10%? 10%. Are we going to hit that number with what we're planning to set up? Oh no, ours is way worse. Way worse? Way worse.
This is for newbies. Oh, okay. I see what you're saying.
So lower risk for when you're starting new, whereas we're going cray-cray mode. What percent is that going to be? It's going to be like a quarter, right? It's probably going to be 25. Woo! Well, the reason I suggest that is what she literally just said, what Carm just said is like as a newbie, you want to see wins before you like start piling on like a different riskier strategies.
And if you just dump it into say YieldMAX or Roundhill, you're going to see a lot of losses, which may actually hurt your psyche and your emotions to the point where you don't want to invest at all because you got burnt. So like you basically, as a newbie, your attempt here is you want to make sure that 90% of your portfolio is actually going to be generating good stuff and good returns so that you're not like anxious. So you understand what matters and what doesn't.
You don't want to be anxious. Like if there's any anxiety when it comes to investing, you got to figure out how to get over that because like the only way that people like us and I'm assuming a lot of listeners can become wealthy is through investing. There's no like there's no rich uncles.
There's no lottery weddings that's literally you have to work, save, invest, use your investments to become wealthy. Yep. Learning it from the ground up.
So the first area is MLPs. What is it? It's a publicly traded partnership structure that combines the tax advantages of a private partnership with liquidity of a stock. What that basically is saying is it's a stock, but it's not a stock.
These are the ones that come with the K1s, right? Yeah. K1s. They have a different tax structure where like it's.
And despite what you've heard. But a lot of people do shit talk. I'm the same.
Oh, they're bad because of the K1. But the K1 actually gives you a lot more incentives. Way more incentives.
You get more tax write offs. Actually, you can do depreciation of assets. It's a little more cumbersome on the tax return, but it's honestly not that bad of a deal.
Your accountant won't like you, but who cares? Who likes their accountant? It's not even that hard. It's like a couple extra boxes. What do you do? You got to do math.
I'm just saying the accountant won't like you. And honestly, even if you do it on the Fed's website like I did for yours last year, it adds it up for you. And most MLPs are in the energy sector, such as oil and gas, aren't involved in activities like production, transportation and storage.
Now you will see some MLPs that actually are in the mineral area as well. But for the most part, the majority of them are in the oil and energy sector. Oh, I was going to say.
Now the tax advantages that we were just talking about. Profits are often passed through, meaning they avoid corporate tax and they're taxed at the investor's level. Meaning they have more to pay out.
So it's a huge like... So the K1 is actually an advantage. And they fall into that 90% because of the MLP labeling system and the way the tax code works. They have to pay out at least 90% of their earnings, which again, more money than you pay to you, which is nice.
The experts will say they do. Sure, they do offer high yields, but they are complex, have limited diversification. Blah, blah, blah, blah.
And they always... And the K1, like they just don't like the K1. So they always... They always find reasons to argue or to shit talk something else. But like MLPs are awesome.
They're a misunderstood creature, which we love. You're awesome. Mainly me.
Some prime examples are EPD, which is like one of our better oil holdings. ET, which is another one that everyone liked when like years back, I had to make the decision between EPD and ET. Whenever I was like, look, investing for her mother's portfolio, I went with EPT, which is EPED, which is better.
ET kind of sucked since then. But anyway. ET phone home.
AB, which is an investment firm, is awesome. And MPLX are their four examples. We actually... I was going to say, don't talk about ICON.
Oh wait, Icahn. We actually invested in EPD, which is about a 7% yield. BSM, which is a 9% yield.
BSM is a mineral one. ICON, which is a 25% yield. Caveat.
We lost a lot of money in that, but it's stabilized since then. So if you want a 25% yield with like an $8 stock, you might want to look at it. Yeah.
So the question, even though we've been burned, still being burned with this current thing because we were over allocated into this stock. Would you buy into it now? Oh, I would. Anytime in the last 24 months, I would have bought into it.
So there's the thought process. So even if we were starting a fresh, clean slate, like the metrics, everything... You just have to understand what they got. They have their hands in everything.
Think of Berkshire Hathaway, how they have their hands in everything. That's what IEP has there. They have automotives, food, chemicals, plastics, like fucking everything.
They're in everything. And AB, which has an almost a 9% yield. To me, the best one is EPD.
It's 27 years of dividend growth streak. It has 11% profit margin. With a 20% return on equity.
And a 7% return on capital. It has a very reasonable 11.83 priced earnings. And an 11.73 forward priced earnings.
Which are both... Forward PE. Yeah, forward PE. Which are both well below EPD's 10-year average of 14.19. The industry average is 20.68. And that's one of the things that we were kind of hitting at before when we were talking about the PE ratios.
In Schwab, it's super easy. You just click on compare to peers, basically. And it'll tell you what the average of the sector that the particular stock falls into.
But if you can find a way where you can actually get the 5 and 10-year average of the stock that you're investing in. That's even more information. Because you'll see that's a pretty big difference between 14.19 and 20.68. If you look at this and say, oh, it has 11.73, but the industry average is 20.68. It has a lot of room to run.
But if you actually compare it to itself, 14.19. Not as much room to run. Just saying. So if you look at both, click on one of them.
Revenue for EPD has increased 107% in the past five years. And that income has increased 57% over the past five years. This one is a juggernaut.
Juggernaut? That a lot of people don't talk about. Oh my god, my brain just flashed to X-Men in the freaking van that they're transporting the criminals in. Juggernaut.
A juggernaut to me, a juggernaut is 13 ghosts. He's like the last one. He's like the boss ghost.
What is 13 ghosts? It's where the guy from Screen, Matthew Willard, he like can see ghosts. And like the one guy is collecting spirits so he can create like a way to live forever. And the last spirit is juggernaut.
And he's a mean motherfucker. We should probably watch that. I don't think I've seen it.
It's pretty awesome. So anyway, EPD is a juggernaut. If you don't have it, you should.
If you don't have it, we've been talking about it for like a year or so. What you doing? What are you doing? The second sector that we talked about was REITs. REITs are companies that own or finance income generating real estate.
They provide a way for investors to earn a portion. Way better than renting your own house. A portion of their income produced by commercial real estate without the need to directly own the property.
Ready for the headache. Residential real estate, industrial real estate, it doesn't matter. To qualify though, a company must distribute at least 90% of its taxable income to shareholders.
Now I was literally just having a discussion with GPT about this today. It was time to tell me. I was saying, what about this? Spoiler, one of the macro trends going forward, I think, is REITs are not going to be giving out as much in income as they have previously.
Because they're going to be using that income to invest in AI. And it's like, well, they can't do that because they have to report 90% of their taxable income. But what if they purchase a company or they invest in research? That actually is an AI, right? Or they spend money in research and development.
It's like, well, that's not taxable income. I said, well, then what are you talking about? So I had a discussion about this today. So 90% of its taxable income.
So you still think they're going to go that route? 90% of their taxable income. Taxable income is one of those gray areas when it comes to accounting. Because like I said, if they invest in companies, if they start acquiring companies or they invest in research and development, that's not actually taxable income.
It becomes a liability. So ergo, if they're going to reduce their taxable income because they're going to be investing into technology, AI, whatever the hell they're doing, they're going to be paying out less. That was the gist of what Tim was trying to get at.
And that is valid if you understand tax code. Anyway, when you evaluate REITs, you have to look at a couple of different metrics that you normally do that are different. Like vastly different from what you normally look at.
First is funds from operation or adjusted funds from operation. That are like the key measures of a REIT. AFFO.
A key measure of a REIT's operating performance and cash flow as they adjust net income for non-cash items like depreciation and AFFO. If you can find AFFO, that's probably the best way to assess if a REIT actually can afford its dividend. Anyway, there's a podcast that talks about how you actually calculate the AFFO.
I think it was evaluating REITs in general. Okay. So there's an episode somewhere on that.
The second thing you have to look at when you evaluate REITs is strong margins, e.g. debt-to-equity ratio below six and payout ratio under 80% of cash flow and low leverage as well. Because if they have numbers that exceed those, then they don't have long-term stability. You're getting into risky territory, which means it's just a matter of time before bottom falls out.
Normally when we think debt-to-equity, we like to see it between one and a half and three because that's a normal stock. But REITs, of the nature, they're always above. So it's going to be like 500% compared to their debt-to-equity.
And their payout ratio, if you can find it under 80% of cash flow, again, that's a weird way to try to... Because normally you can just look at payout ratio and it'll tell you like 90%, but that's not actually taking into account the actual cash flow from the AFFO we just mentioned. Because if you go into Schwab and you just look at like payout ratio, it'll say like 80%. But then you actually look at the AFFO and like the payout ratio is closer to like 104%.
So if you can find the cash flow and you're evaluating the REITs, awesome. Examples here of some of the better REITs are FRT, NNN, O, IIPR, AGNC, MPW, and ABR. You really put O on that list.
Does that have their matches come back into good? They're decent. One of the shockers to me was MPW. It's actually looking really good.
Even though that FRT fucker crushed our assets. And ABR, you just said that that one's got some sketchy stuff going on. In our portfolio, we hold IIPR, it yields 15%.
We hold AGNC, it yields 14.4%. We hold MPW, which yields a little over 6%. And we hold ABR, which has 12%, more on that in a second. We hold DX, which yields 15.28%. We hold LTC, which yields 6.5%. We hold STWD, which yields 10.5%. Again, that's over two portfolios.
Side note on ABR. We cut our position in half on that one. If you subscribed to email, you would have known.
You would have found out last week. The earnings came out and the earnings were straight trash. The only way they afforded their dividend in quarter two and probably in quarter three, and most likely in quarter four, is they actually sold some of their properties to get a bunch of money that they used for a dividend.
Anytime a REIT starts liquidating its assets to pay its dividend, that's a huge red flag. Red flag. We should have a red flag.
Quick note on that one. We didn't get out of it completely, but we cut it in half, so we have a lot less exposure. It used to be like 4.5% of our portfolio, and I think 3.5% in the retirement.
Now it's like 1%. What did you do? Take our actual initial investment off the table? Was that the gist? For as much as I could, I cut it in half. Pretty close.
Minimizing risk. We replaced ABR with DX in the retirement portfolio. That's why DX is on there.
They're literally the same thing. They're both mortgage REITs. If you're not familiar, a mortgage REIT is, they don't actually hold properties.
They just hold paper to properties. Here I would pick at least two REITs from different areas to build my portfolio. The winner to me would be FRT, because it has 58 years of dividend growth streak.
It had a record FFO of $6.77 a share in 2024. 2025, as projections are right now, at $7.05 to $7.11. They're going to smash that record from last year. Wow.
They have a net margin of 28%, a PE of 24.79, and a forward PE of 25.67, which are well below their 10-year average of 35.69 and the industry's average of 34.67. Revenue has increased each of the past five years and is 40% higher than it was five years ago. And FFO has increased each of the past five years. Five years from $4.94 to $6.77 or 37% so FRT is pretty bangin. Sounds it. Why don't we have that one? Because it doesn't yield a lot.
We might get into it in your mom's account. But you said it's a dividend grower? Yeah, so it might be in your mom's account. That's one of those ones that's like worthwhile but it takes longer for it to actually pay to fruition for it to be worth it.
No, the one that we own is AG&C and it's basically, like I just said, it's actually had five years without a dividend cut, which is showing some consistency since from 2015 to 2020, the dividend was cut four times in five years. Holy shit. No way to sugarcoat it.
AG&C is volatile. AF. But here you are using the macro trends to your advantage.
mREITs suck in rising interest rate periods but perform nicely in falling or stable rate periods. Since we are now in a stable slash falling period, I suspect AG&C will do just fine. Profit margins are fine at 22% and revenue is up 679% over the past five years.
Wow. Net income is also up 315% over the past five years. Those seem like huge numbers but you have to remember what happened five years ago.
There wasn't a lot of- We're talking COVID. Has it been five years? Five years ago, we came out of COVID and there wasn't a lot of mortgage out there for the  mREITs to buy. So their funds, their revenue- Everybody was on a roll.
Everything got smacked around. Those increases make sense. Core earnings have gone up 200% since interest rates have been cut.
So that's important because interest rates were cut two years ago and the core earnings have gone up 200% since then. But prior to that, coming out of COVID, they were down 200% in a high rate environment. So again, this is one of those macro trends to your advantage.
 mREITs do not do well in high rate environments. Noted. Basically, what you want to know from a 14% yielder is can the dividend be affordable? The answer is yes.
$0.35 is what they made during the last quarter. The dividend is $0.36 and they have over $7 billion of capital available to cover that additional $0.01. So that's how we do risk mitigation when it comes to these ridiculous high yields we have. It's what they're making enough to cover the dividend.
If it's not, do they have the capability to afford the dividend without liquidating assets? In this case, A, G, and C does. So I'm 100% confident in this one. Even if you got it now and it literally traded like this three years from now, you'd still be making 15% a year.
It's a very good yield. The honorable mention in this one is one that we hold in both portfolios, which is IIPR. It is the marijuana REIT.
It has an FFO of $8.11, which covers the $7.60 dividend. FFO has grown 78% over the past five years and has increased each year during that time. 46% profit margin and revenue has increased each year over the past five years as well.
So the dividend is just covered, but a cut may be needed in the next two to three years. So just remember that. IIPR has an eight-year dividend growth streak.
So they may not want to cut it, but they're going to have to because they have tenants that have been defaulting. Their last earnings report there was a cut. I think 8% of their total portfolio was with tenants that are behind on their rent payments.
So that's why it had a price. It was in the $120s in 2024, and it's currently in the $50s because people are starting to see that there may be a problem with the tenants down the road. So just remember that.
But if you can get into this at $50, even with that problem, it should be worth more than $100. Why are they having issues with tenants? The tenants, they're not getting the client, the consumers to come in and pay for their weed. Is that because of the legality component? Some of it's legality components.
Some of it is economic components. If you read the news or you listen to podcasts, we're under the impression that the economy is sparkling, and it's not. There is a threshold where the economy is good, and it's like $100,000.
If you make over $100,000, the economy is great. If you make under $100,000, the economy is shit, and it's just getting worse. Which is the majority of people.
That's why they say there's a K. A K? There's a K going on. Because if you're over $100,000, the economy is great, and you have a great perception of the economy. If you make under $100,000, the economy is shit, and you have a negative perception of the economy.
That's why it's a K shape. Makes sense. I'm just saying, if I had to choose between my weed and my fucking meat, I'd probably buy meat to eat.
My meat to eat. The third sector is BDCs. We've covered these ad nauseum through the years.
They're some of my favorite investments. Yeah, I love BDCs. They are a type of closed-ended investment company that invests in small and medium-sized private U.S. companies.
The reason they do that is because most of those companies cannot obtain financing from traditional banks. There's a limit to what a bank can lend, and if you have a company that, say, needs $5 million, a bank will look at your revenue, your number of employees, and shit like that. If you have fewer than 100 employees, the bank's like, we can't lend you.
You're not cool enough for us. You're not good enough. Go elsewhere.
There are requirements for the banks to follow. What they did, there was an act of Congress in the 90s that actually created BDCs to fund small businesses. Contrary to what you think, small businesses was how America was built and prospered for 100 years.
Even though it doesn't seem like it now. BDCs generate returns primarily through interest and fees from debt investments and potential capital appreciation from equity states. What that literally means is they do the interest rate arbitrage.
They borrow money at 7%. They're going to charge the people that they lend to 10%, so they have that interest rate spread. Then the capital appreciation from equity stocks, a lot of times what they will do is we'll lend you the money at 3% higher than what the current rate is, but we want a stake in the company or we want collateral for it.
We're going to take your stock. I don't mean stock like company stock. I mean your stock, your inventory.
If they default, they will have to liquidate the inventory. That's how they actually ... What normally happens that doesn't come to that, but that's just a risk mitigation on them. What happens is if they take an equity stake in the company as well, so we get 10% of your profits or whatever.
It's like having a first deed mortgage or first claim for deed or mortgage. Same thing happens with Worthy. Worthy has that, I think it's like 75%.
They won't lend above the 75% to assets or intellectual property or whatever they have going on. Yeah. Much like REITs, BDCs have to distribute 90% of their taxable income to shareholders.
Like REITs, the yields are bananas. REITs and BDCs have just the most ludicrous yields. B-A-N-A-N-A-S.
Bananas. The risk that you have to think about whenever you're thinking about investing in BDCs is they invest in smaller, riskier private companies. This exposes you as the investor to higher credit and default risk, especially during economic downturns.
The other thing that you have to keep in mind is interest rates. Many BDC investments involve floating rate loans, meaning that rising interest rates actually increase a BDC's primary income potential. The borrowing cost for the BDC also rises.
What I found in my time with this, and we've been investing in these pretty much from the get-go, is that the interest rate doesn't matter as much for the company's income potential. What matters most is the lowering of the interest rate because they do have floating rate loans. I think those floating rate loans generally are BDC company friendly.
The interest rate drops half a percent. They'll pretty much keep the company paying 10% instead of 9.5%. That's just how I feel. I may be wrong, but that's what my interpretation is.
It seems like whenever the interest rates are cut, BDCs make a shit ton more money than they would when interest rates are rising. Third thing is BDC distributions are generally taxed as ordinary income, not qualified dividends. They're basically best held in a tax-advantaged retirement account, if you can.
We don't. We don't. That's not detrimental.
In ordinary income, again, there's caveats to that. As an individual, you can make up to $48,000 before it even affects your tax. Isn't that right? $48,000 for an individual? It does change.
I think it's $48,000. You're staying in the 12% tax bracket. If you're married, I think it's $96,000.
If you're making more than $100,000. 12% tax bracket versus the $25,000 or $23,000 or whatever the hell it is. I said $22,000.
But again, not detrimental because it is what it is. 12% is still, if you're making... It's still better than W-2 earnings because you have to pay your freaking Social Security and all that other crap. Passive income, still tax-advantaged.
And like the REITs above, I would actually split my money into two different BDCs or slash financial area. In the portfolios, we hold ARCC, which is the largest BDC by market volume. We used to hold Main Street Capital, but it got too pricey.
But as soon as it falls to a certain level, I'm totally getting back into it. We hold HTGC. We've held HTGC since the beginning for the most part.
We hold the Trinity Capital. We've held that one pretty much from the beginning as well. That one just is like the gift that keeps giving in a good way.
ARCC is a 9.5% yield. Main Street's only a 5% yield. Hercules Capital is almost 11%.
Trinity's almost 14%. In the retirement account, we hold the Bank of Ozark at 4%. And until recently, we held AFG, which is an insurance company that had 2.5% yield.
They all fall into this area. And currently, we hold ARCC, HTGC, Trinity, and Ozark. I always have trouble saying HTGC.
The winners to me, ARCC. I love it. I wish we were in the Van Life portfolio, but when I had the money available to invest in a BDC last, the price was wrong.
We have it in the retirement account. It has 16 years of dividend growth with a 5-year dividend growth rate of 5% per year. The most recent report, the NAV price was $15.85. And that's one of the areas I should probably mention.
How BDCs generally are measured is their net asset values, the NAV. What that is is if you tabulate everything they own together and you divide it by the total number of shares, it gives you a price. If that price is going up, that's awesome.
If that price is going down, you might have to do more research. I'm just saying. So 10 years ago, the NAV in ARCC was $15.85. And currently, the NAV is 20.20. So it's actually appreciated 27.4% over the last 10 years, which is obviously 2.74%. That's exceptional for a BDC.
I understand that doesn't seem like a lot, but the more often you dabble in the financial sector and BDCs in general, you'll find that the fact that it's growing almost 3% a year and its NAV is exceptional. Good to know. I did not.
I wouldn't have thought that. Another area that where this is just like one of the best things that you like. ARCC has actually outperformed S&P since it IPO-ed in 2004.
Now, I want you to think about that. We had the Great Recession. We had COVID.
We had a 2022 recession. We had the tariff tantrums. We've had high interest rates.
We've had wars. All this other shit. And this risky asset has actually outperformed the S&P, and it's not even close.
I think it's outperformed the S&P by like 30% or 40%. That's hardcore. This is a really good investment.
The management team- That sucks we're not in this. You're right. The management team really knows what they're doing.
Second one that I would think about would be the Bank of Ozark. It has 16 years of dividend growth as well, with a five-year dividend growth of 11% per year. Currently, it has a P.E. of 7.16 and a forward P.E. of 7.27, which are well below the 10-year average for Ozark, which is an average P.E. of 12.26. That's really low.
It's extremely undervalued. Its EPS has grown from $2.26 in 2020 to $6.14 in 2025, which is an increase of 172%. That's insanity for a bank.
Think about that. Revenue has grown 90% over the past five years, and the revenue has grown substantially in four of the last five years. The profit margins currently for Ozark are hovering around 50%, again, which is ridiculous for a bank.
This is a really good company that I don't see anyone talk about. All the people I subscribe to, they don't talk about Bank of Ozark. All the people that I listen to, they don't talk about Bank of Ozark.
This is a really, really good bank. They should be in the high end of the freaking dividend growers, because that's why that yield is so low. It's because it's a dividend grower.
And an honorable mention here, if you didn't want a 4% yielder, you could actually do Hercules Capital. It has six years of dividend growth streak. It's had seven dividend increases in the past five years, with an average dividend growth rate of 6.35% per year, which is ridiculous.
72% revenue growth over the past five years, which is ridiculous for a BDC. 16% increase in net income growth over the past five years, which again is absurd. 172% EPS growth over the past five years.
HTGC is like, choosing between ARCC and HTGC was like, which kid do I like best? Which kid do I like best? Well, that one's overvalued, so we got to go with the HTGC, right? Yeah, well, that's why we went with HTGC initially. Well, that's what I'm saying, when we bought in. Whenever I put money, like a lot of money into the BDCs, and I split the money between HTGC and ARCC in your mom's account, that's what happened.
Which kid is your favorite? Which kid's your favorite? Oh, man. The next area is dividend growth stocks. Do I really even need to? Okay.
Dividend growth stocks. Even though a couple of the previous ones were dividend growth stocks, this is the whole other category, too. But you see how you can start to have overlap, because ARCC has so many years of dividend growth, so you actually could be in this area here, but then you'd have to worry about the financial component.
So you actually have to find dividend growth stocks that don't actually cover financials or REITs or shit like that. Yeah. So it becomes like a puzzle that you're putting together, but once you put it together, it's like, I can't even- Fantonomous.
It's fantonomous. I can't even express to you how much better her mom's portfolio is performing than ours because of the puzzle that we've actually put together for her mom. And it was because of the extra challenge factor, because we were like, we just want money now.
And he's like, okay, well, how do we do the security thing with this, with that? And it's just like, yeah. It's funny how sometimes the more challenging something is, the more creative you have to get. Basically, dividend growth stocks are companies that have a history and the financial capacity to consistently increase their dividends over time.
Coke, Pepsi. You have dividend aristocrats, which is they've increased their dividend more than 25 years straight. And you have dividend kings, which they've increased it over 50 years.
There's other categories, but those are the two main ones. Those are the two you're looking for for dividend growth stocks. They do have a track record of increases.
Basically, I guess the only factor is that they have a history of annual dividend increases. I feel like there's other criteria because aristocrats and champions are the same numbers, but there's some other qualification thing. I can't remember.
There's an episode that we did. Go back and watch it. Sometimes spanning decades.
But the sad part was we were a triple M, which had, I believe it was 66 years of dividend growth, and then some shit happened with the lawsuit and they had to actually cut their dividend. I can't imagine the management of a company saying, you know, we've been doing this since before I was born, but we're going to go ahead and cut this now, you fuck. Well, that's what happened with triple M. They were a king and they were like, yeah, we got to cut our dividend.
I was like, are you kidding me right now? Can you imagine talking to the board there? Another thing that you're going to look for when it comes to dividend growth stocks is a sustainable payout ratio. They typically have a payout ratio below 75%. And if you're doing dividend growth stocks and you're not worried about the BDC or the REIT thing, you can actually look, I actually would prefer something around the 50% mark because that gives them a lot of wiggle room for future growth and safety against downturns.
But that's me. 75% may work for you. I don't know.
And they usually exhibit stable earnings, strong balance sheets, and competitive advantages or moats that allows them to basically just control whatever the hell they're controlling. Examples. Coke, Procter & Gamble, Chevron, ADP, Verizon, Alteria, UPS.
All examples of dividend growth stocks, Coke has a pretty big moat. It shares with Pepsi, but Coke apparently is better than Pepsi. Procter & Gamble, pretty big moat, pretty good fundamentals.
You'll see that they don't have an absolute moat, but they have a pretty big fucking moat. Or they had a moat in the past that allowed them to get ahead of the freaking competitors. What they'll do is they'll say, hey, we have these advantages, but we're starting to lose stuff in this area.
So what Coke do, they bought like- They branched. They bought out companies. Vitamin Water, some shit like that.
Pepsi, what they did is they said, oh- Chip companies or something. They bought like snack foods. Chevron bought, oh, we have midstream.
So they bought like people that transport and store their- They buy their competitors off of them. Anything that erodes their profit share margins and shit. So we currently have Verizon, which has 19 years of growth and a 7% yield.
Altria, which has- Which is outstanding for dividend growers. Altria, which has 56 years of dividend growth and a 7.5% yield. Also outstanding.
Target, which has 54 years of dividend growth and a 5% yield. UPS, which has 26 years of dividend growth and a 7% yield. Bristol-Myers Squibb BMI, which has 16 years of dividend growth and a 5.5% yield.
Black Hills Electric, BKH, 55 years of dividend growth and a 4% yield. Pepsi, 54 years of dividend growth and a 4% yield. ADM, 51 years of dividend growth and a 3.5% yield.
LYB, which is a chemical company, 15 years of dividend growth and 11.81% yield. Wow, that's really big. KMB, which is one of- If you were subscribed to email, we literally just got into this in the retirement account.
58 years of dividend growth and 4.2% yield. Holy shit, 58? We hold some bangers. I'm older than you.
Tim always jokes that he's the oldest person in the room. We hold some bangers in the dividend growth. Since this area is 20% of your portfolio, you can pick and choose from that list how you want.
If you want to do two at 10%, you want to do it four at 5%, whatever. However you want to do it. I can just tell you that currently Target, TGT, Pepsi, PEP, UPS.
UPS, obviously. LYB, LYB, obviously. And Verizon and Kimberly Morgan Brown or something like that, KMB.
They're ridiculously cheap compared to their own historical PEs and dividend yields. And the winners, anytime you get a dividend growth stock at a discount, you got a winner. Yeah, and we did that episode not too many ago where we picked the dividend growers and just what $10,000 would have got you 30 years later.
Insane. If you haven't watched that, $10,000 into millions. Alterior would have made you millions.
Millions. Walmart would have made you almost $3 million. Insane.
So if you haven't watched that, go blow your mind over on that episode. Holy hell. All right.
Next area is munibonds. The reason I suggest this, if you do 10% in municipal bonds, you're actually going to have the 10% that's a ridiculously stable, non-volatile portion of your portfolio. And as a newbie, you're probably going to like the fact that these don't move at all.
Like if it moves like 20 cents in a year, that's a ridiculous like, whoa, what happened this year with that one? Yeah. And because if you're focused on income like we are, you likely will not have this in a tax advantage account. So there is a tax exemption aspect of these, which makes their yields actually higher than they look because of the tax crap.
Oh, look at you go. Yeah. You do listen.
I listen to everything. Holy shit. So basically what they are is they are bonds that are debt securities issued by state and local governments or like- It's government lending versus the freaky- There's some aspect I'm forgetting.
But what they do is they offer stable tax exempt income, making them attractive for investors and higher tax brackets, which is not us. They generally offer high credit quality and portfolio diversification. So tax advantages.
The main benefit is that the interest income from most community bonds is exempt from federal income tax. For investors who buy bonds issued with their own state, the interest may also be exempt from state and local taxes. For example, we live in Pennsylvania- Right now.
Right now. So if we wanted to, we could invest in Pennsylvania issued municipal bonds and we actually wouldn't be paying federal tax and we wouldn't be paying state tax. Which is pretty big.
And if we actually got it from the Cumberland County where we're located, we bought county bonds, we actually wouldn't be paying local taxes on that either. Would you do that? No. So it's a triple tax free investment.
If you do it right, you literally will not pay any tax on this at all. So if you're in a state that actually has good options available, take advantage of it. Or you could move to a state like South Dakota.
Like we're about to change our residency once this condo sells. So we have no state income tax. Yeah.
Yeah. They have high credit quality. Muni bonds are generally backed by the stable revenue sources and taxes of the state.
So like generally you're looking at seven out of 10 muni bonds are AAA or AA. Which are the high- Which is ridiculous because AAA is the highest. AA is the second highest.
A is the third highest. So they're like super- 70% of them are like the best of the best. Super low risk compared to other bonds.
Defaults on municipal bonds are rare, especially for the ones that are in the AAA and AA categories. Between 1970 and 2022, the 10-year cumulative default rate for municipal bonds was just 0.15%. Less than a freaking half a percent. That's insane.
That's crazy. I wonder what the default rate on mortgages is. Well, that's on the rise actually.
I feel like you know this number off the top of your head. It's like 4.7%. That's it? Yeah. It's got to be higher.
What was it during 2008? Like 11.2 or something like that. And the last aspect of these that's awesome is you can pick and choose where you want them to go. So let's say you want a transportation one and then you want like an infrastructure one.
You can actually create diversification in your portfolio just by picking and choosing where your money is going in the municipal bonds. And if you ever pull this up and look at it, they're fucking everywhere. There's like airports.
There's like schools. There's like police funding and shit like that. It's crazy.
There's libraries. So you can basically pick and choose where your money is going to that you're invested in. So you can create a portfolio that's diversified even inside the municipal bonds itself.
It's pretty sick. For me, I just don't like to do the research. So I just use ETFs or closeted funds to do this.
But that's just me. Other people might get a kick out of creating a portfolio that has like different things. I don't know.
What? You don't like to do the research for something? I do so much other research that I don't care about this. I found NAD, which is a 7.5% yield. And I found NZF, which is a 7.5% yield.
They both hold Municipal bonds, they're both tax-exempt, so I'll just take my 7.5% yield and let them do all the work for me. Right, that's actually higher than most of those other ones would pay anyway, so that's our sneaky, sneaky workaround. That's my workaround.
There's other options as well. There's BYM, there's PML, there's CXE, there's CMU, and there's NEA. They're all closing the funds that specialize in municipal bonds.
There are a couple ETFs, SUB, JMUB, and JMST, which are ETFs that specialize in mini-bonds as well. And if you actually go the route where you don't use the closing fund or ETFs, mini-bonds are bought like normal bonds. Valuation is super easy to know.
Par is 100. Anything below 100 is undervalued. Anything above 100 is overvalued.
Do these do the same thing as bonds do with payouts by yearly? Mm-hmm. So that's a negative. They'll either do yearly or twice a year.
So you can do that laddering thing. The problem with that, though, is you have to get in and get out to get rid of these, whereas the ETFs and the close-ended funds, you can get in and out pretty much at your leisure. Correct, then? And I imagine they probably pay more frequently.
Yeah, it's monthly. Okay, so monthly on that. So there's those two trade-offs.
But since we use close-ended funds here, you'll need to dig deeper. But most brokerages, we've actually showed you in Schwab how you can identify if a close-ended fund is overvalued or undervalued based on its own metrics. Or you can go to cefconnect.com, which actually has a similar thing where you can actually screen based on valuations.
And if you pull up an individual close-ended fund, it'll tell you whether its discount to NAB is overvalued or undervalued. The key point here that you need to know is that valuation is the key point. Because the yields are, like we're talking between five and 8% yields, because the yields are so small, you can't afford to overpay 10% or something, or you're gonna be losing money for a couple years.
So the valuations and the municipal bonds expense. And these also have that risk of a callback, do they not? But yeah, the risk. That's why you like, it's much like bonds.
If you say you found a really good one that you were super stoked about, it was 102, you're overpaid by 2%, there is always a risk with bonds that the company, in the case of corporate bonds or the municipality or state or local government, could call it back and then you actually lose that 2%. And they more than likely will be incentivized to do that if they have a higher interest rate and interest rates go down, they'll call in their debts and then get new debts at a lower interest rate. So there's always that risk, extra things that's keeping the conversion.
If I were at places, I probably would be the prick that did that, like, oh, our bonds are trading at 100, they're trading at 105, we might as well call them all back and make 5% on all that debt. Right, that's what I would do too. And reissue it.
That's what I would do too. That's me. Closing the funds is the next area.
Closing the fund is an investment vehicle that raises a fixed amount of capital through an initial public offering. IPO. Unlike open-ended funds, which most mutual funds and ETFs are, closing the fund does not issue or redeem new shares after the IPO.
Instead, its shares are traded on an exchange to the day, just like individual stocks. That's a big- That's actually a good thing. A big thing.
So if you were looking at a closing the fund and it has 14 million shares, generally it's always going to have 14 million shares. Now there's work- There's extenuating circumstances. There's workarounds, but what they'll do is they'll actually put, if they want to issue new shares, they'll actually put something up to their shareholder saying, hey, we were thinking about issuing two million new shares.
Is that cool? And the shareholders vote yes or no. And then if the shareholders vote yes, then the first rights go to the shareholder. So if they're going to issue a million new shares, they'll say, okay, well, all you people that own stock in the company, we're going to issue- You get first dibs.
You guys voted on this, and we're going to offer a million new shares. Do you want them? And then that's called a rights offering. And generally, there's not a lot of shares beyond the set number from the IPO that the public can actually buy.
It's pretty interesting. But the close-ended aspect of these make them easier to evaluate, which is something we love a lot. So if we discuss the fixed shares, that's super important, because it's one of the reasons that Bitcoin is so enticing to people is because it has a set- Fixed number of shares.
Number of coins. Number of coins, number of tokens, whatever you call it. What happens is that they do trade on the secondary market, though.
Generally, after the IPO, they will buy- The close-ended fund shares are bought and sold on an exchange, and then you can actually pick up those. They are a market-driven price. The price of a close-ended fund is determined by supply and demand, not its net asset value, its NAV.
This means the close-ended fund can trade at premium above NAV, or more commonly, at discount below NAV. That's that valuation I was talking about. Much easier.
They are generally actively managed. Most close-ended funds are actively managed by a professional fund manager who oversees the portfolio. Much like stocks, bonds, or real estate, they have a fund manager who oversees all that.
One of the areas where they deviate a lot from most things you invest in is to enhance returns. Close-ended funds often use leverage or borrow money. This actually amplifies both the gains and the losses.
And because close-ended funds don't have to worry about daily redemptions, managers have greater flexibility to invest in less liquid or longer-term assets, so there's no redemption pressure like there are in other investment things. They'll pick up bonds for like 30-year bonds because there's no pressure. So they have actually more ability to actually get good deals.
I like that. Okay, we actually hold four close-ended funds currently. We have SRV, which yields 12.5%, which is one of my favorites.
We hold NBXG, which yields about 10%. Again, another one of my favorites. We hold BME, which yields 8%.
And we hold YYY, which yields 12%. It's one of my favorites. I actually had to make the decision.
We cut that. Did we get it back into it? No, we cut PDI and we cut PHT. I thought we got out of YYY, too.
We did in the van life portfolio, but I kept it in the retirement portfolio. I was like, I absolutely love YYY. Speaking of all those, you said it might be prime to start getting back in or considering those? Yeah, the bond funds, you might want to start getting.
I don't know how long it's been since we got out of them, but we'll address that when we get to that point. The best close-ended funds based on one and three-year returns are NBXG, which has returned 29.4% one year and 24.39% over three years. CRF, which is trash, don't get into it, which has returned 24.22% over one year and 23.73% over three years.
The reason I say that- Why is that on the list? Because it has the best return rate. The reason I say CRF is trash is we were in that for years. They did their rights offering three times and they cut the dividend three times.
Every year, they are trying to offer more shares and then every year, they cut the dividend. So they're going share dilution crap. So it's trash.
So it defeats the whole purpose of the freaking label of these things. SRV is the third best one, which is a 13.52% one year and 17.52 three year. IDE, which is a 19.51 year and a 16.93 year.
And GLQ, which is 25.66 for one year and 16.36 for three year. Again, the best resource to use when screening close-ended funds for me is close-ended cefconnect.com. You can use this to basically create a list, which you can run through your broker screener to verify that it fits your investing profile. Quick note, NBXG just raised their dividend from 10 cents a month to 12 cents a month.
So they must be swimming in cash. And we're up over 100% in NBXG. We've held that one from probably the second year that we've invested, so.
Now, this is the last one, is the cover call ETFs. The way we use them is generally pretty new, but the way that people have used them in the past has been around for like 20 or 30 years. A cover call ETF is an exchange traded fund that generates income by holding a portfolio of assets, like stocks, and selling call options on those assets.
They generate income from the option premiums. If you've ever sold options, you know, like, you get, like, if you have, you get. Options are all the freaking range right now.
If you put an option out there and someone wants it, they have to pay you a premium. And then whatever happens happens from that point, whether you have to, like, sell them your shares or not. So, like, what these.
There's a whole thing, there's courses, there's also people who specialize in this. What this does is they actually generate income from selling option premiums, and it often results in super ridiculously high yields. But the big negative for closing cover call ETFs is that generally the upside is limited.
That's a huge thing you have to remember. That's why we use them in the van life portfolio more than the retirement portfolio, because we want income. The upside is, eh.
But in the retirement portfolio, we want, like, capital appreciation plus the income. So if you're income focused and you don't really care about the value of these things, they're great. If you do the right strategy.
Prime example, PLTW. It's the round hill version of a cover call strategy on the Palantir one. Palantir has jumped off the charts this year, but PLTW, it's probably 70% lower than the Palantir.
If you just sell the individual Palantir stock. The Palantir doesn't pay dividends. But you would have gotten no income from Palantir.
You would have to sell that, but then you'd have to worry about capital gains, whereas we just do the Palantir cover call one, and we just get dividends every month. But you're still taxed a regular tax, which is technically capital gains, but go ahead. Cover call ETFs are often used by income focused investors, us.
But it's important to understand their trade offs, as they may underperform in strong blow markets and they can still lose value if the underlying assets decline. Like Cony. Cony's a perfect example of what sucks super bad.
So how it works. The ETF buy and holds a basket of assets, such as a collection of large cap stocks. Or a single.
They actually have a sheet that they tell you what their objective is. They'll say, we're gonna generate income of 20% per year. We're gonna have a basket of 80% large cap, 10% medium cap, whatever.
They actually basically will outline exactly what the ETF's going to do. Or if it's a single stock and they're holding the rest of it in bonds or something like that. It simultaneously writes or sells call options on all or a portion of these assets.
A call option gives the buyer the right to purchase the underlying asset at a specific price, the strike price, before a certain date. In exchange for selling the call option, the ETF receives a premium, which is passed on to investors as income. That basically creates a steady stream of income, especially during volatile or sideways markets where option premiums are higher.
Like I said, I love sideways markets. I don't hear a lot of people talk about loving sideways markets. Not as much as we do.
I love them. We're great for dividend investors. The benefit, it generates a shit ton of income.
The primary benefit is generating income through option premiums, which can provide a higher yield than traditional. Passively is the key here. Because if you traded options yourself, you would literally be having to do all the work yourself.
Now some people would argue that it's worth it because you don't have to pay the freaking fees for these guys that manage this stuff and you'd be saving your money. But I've seen so many circumstances where you've gotten into something and it didn't go the way you expected it and you had to hold it to manage that risk or the loss. So sometimes the market sentiment can totally screw you in the ass.
So I prefer these. The second benefit is, in theory, reduced volatility. The strategy can help reduce volatility and provide some downside protection, though it does not eliminate risk.
And the third is accessibility. It provides a simple way for average investors to access the covered call strategy without needing to manage options themselves. Not only that, most of the freaking options trade stuff means you have to buy blocks of 100 of these things and the stocks that really do do the payouts.
You need a lot of capital to be able to- Yeah. Do do. To be able to actually take advantage of those.
So it's like there's so much saturation in the market, there's so much competition. It's like the new side gig hustle and I'm not all about that. I'm all about decoupling time for money.
This is, in my opinion, the much better strategy. So we hold a butt ton, we hold an ass ton of these. Some of our best are XYLD, which has about a 10% yield.
JEPQ, which has a 10.5% yield. AIPI, which has a 36% yield around there. FEPI, which is about a 25% yield.
And PLTW, which has a 50% yield. Now, if you wanted to extrapolate further, some of the best covered call ETFs out there are AMZA, which has a 45.83% three-year return. PFFA, which has a 48.38% three-year return.
BITO, which is a 431.68% three-year return. XYLD, which is a 38.14% three-year return. And JEPI, which is 33.38 three-year return.
And there's more in the yield max and there's more in the round hill. The risks go up. Round hill is definitely better than yield max, which we've proven in the Cony experiment.
There's different flavors to this. As a newbie, I would invest in XYLD because it literally is, what they do is they buy every stock in the S&P 500. The more secure ones.
The S&P 500, and they write options on the S&P 500. And you see this actually generate 38% over three years. So it's averaging, what is that, 12% a year? That's pretty sick.
For me, as a newbie, I would actually do the AIPI. It's only been around for a year, so it doesn't have a three-year return. But a 36% yield on a basket of, they basically invest in all the AI companies and then they write covered, or write options on the AI companies.
And JEPQ, I'm sorry, I did a comparison between JEPQ and JEPI. Everybody always says JEPI, JEPI, JEPI. JEPI pays you 1.5% less than JEPQ, and I think the three-year return for JEPQ is 32.8, and the three-year return for JEPI is 33.3. So I'm willing to make 1.5% more per year, which would be, what is that, 4.5%, and only be down 0.5% on the three-year return for something that yields more.
That's my tangent on that. Generally, if you employ our strategy, these CoverCall ETFs are going to be your weekly or monthly paychecks, meaning you'll get cash from these to dump into other investments to live off of. Or live off of, yeah.
Or live off of, whatever you choose. So, tie it all together. Okay, I will do that.
$10,000 split up would look like this. In the MLP section, you'd have 15%, which would give you 47 shares of EPD, which would generate you $103 per year. Well, I'm not accounting for the drip, so you'd just make $103 in EPD for the year if you put 1,500 into it.
15% in the REIT, which I would say A, G, and C, because I like where the macro trends are currently at. It would get you 148 shares of A, G, and C, and that would give you $213 per year. 10% in the BDC, I would personally, as a newbie, take ARCC, which would give you, what, $1,000, would give you 49 shares, which would generate you $94 per year.
20% in the dividend growth stocks, I just chose two of the, I liked best. Verizon, which is a 7% yield, would give you 25 shares, and that would generate you $69 for the year. And Altria, MO, would give you 17 shares, which would generate you $72 for the year.
10% in the immunity bonds, I chose NZF, because it yielded a little bit more. $1,000 in that would give you 79 shares, which would be $75.84 per year. And the 15% in the closing the funds, I chose NBXG, $750 in that gives you 52 shares, which generates you $75 per year.
And SRV, which $750 in SRV gets you 17 shares, which would generate you about $92 per year. 15% in the covered calls, your paychecks, $750 in the XYLD would get you 19 shares, which would generate you $107 per year. And $750 in the AIPI would get you 18 shares, which would generate you $274 per year.
So, your $10,000 portfolio spread out amongst some of the best in each category, obviously you can do your own research and find if there's better ones, would generate you about $1,176 around there. 11.76% yield for the year, and if you take that, we'd be making you about $100 per month. Now, that all assumes that you do not drip the cash.
If you drip the portfolio, then you would actually be growing it pretty quickly, since you would have about $32 each month from your paychecks, AIPI, and XYLD, that you could dump back into any of the other eight investments, depending on the valuation price at the time that you get your dividend. And you could compound your other stuff with the same shares. Now, you always do have the options once XYLD and AIPI have paid back the $1,000.
Taking the risk off the table. Taking the risk off the table, you can turn the drip on and just let those accumulate, or you can keep using the money to actually do whatever you want with the other stuff. But that's one of the fundamental differences between the way we invest and other people's is I'm not all about drip.
Sometimes I'm about having drip off and collecting cash and doing stuff with the cash. We like to turn stuff over for the value, and that's the thing. As soon as the value goes up, it is not worth reinvesting that drip into a higher price value because you get less shares, which means your dividends increase slower and less.
If you then take that money as cash and you dump it into lower valued assets, you're getting a lot more shares, and then that number of shares allows you to actually get more dividends, and it's like a churn factor. It does take more effort and energy, but when you're starting small like this, it helps you churn and actually flywheel your money way, way, way faster. It's a compound factor.
So I'm just saying, just think about it. You're making about $100 a month on a very well diversified portfolio that should be able to stand up to most economic downturn in a pretty reliable way. So you're making about 12% yield.
So that whole horseshit that you shouldn't look for yields above like 5% because that's the best yields are between like three and 5%. Those are the high yielders. That's a pure tactic.
It's garbage. This is a very well, if you go back up to what we, that's a very well diversified portfolio with AIPI, XYLD, SRV, NBXG, NZF, MO, VZ, ARCC, AGNC, and EPD. Like you have one that's a dividend aristocrat.
That one, eh, that one there, you almost have another. That's almost a second dividend aristocrat. That's a dividend king.
That's a dividend king. These don't really raise their dividends. But they don't.
Municipal bonds are freaking low risk as all hell. So this is a very low risk portfolio for a newbie that would be generating you a lot of money because you'd see win after win after win after win and you'd be like, oh my god, I want to dump more than $10,000 in this because I'm generating so much money and my price depreciation is not happening. Like to me, this is perfect for a new person to invest in.
And that 11.76% yield for the full portfolio is above the average 10 year index for the full total market. Because even though you have some years that are a lot higher, you have some years that are a lot lower. And it's a 10 year average.
But yields, dividends, they stay pretty consistent. Pretty consistent every year. And then you have the compound factor on top of that, which is how money grows faster.
So that's that. The only thing I would say is you have to adhere to, like if you believe in what I'm saying about the new 60-40, you'd have to adhere to this. So if you were getting $32, you couldn't be dumping $32 into your ETFs or you're closing the funds without dumping $32 the next month into your equities.
You want to keep that 60-40. Yeah, and that's the hard part. It's like you do need to try to keep your allocation percentages where they need to be.
And that's where like end of your portfolio rebalancing or you could incrementally do that throughout the year as you get those dividend payouts. It depends on how you want to do it. And some of this stuff's going to flux out, flux down, depending on macro trends.
And like we would dump heavier into certain sectors just because of the way things are, because it's justified per the economic climate. So you can get super into the weeds or you can keep this really, really simplistic and just try to stick to those numbers. Or if you're fucking ballsy, you can go back and say, I'm going to take the highest one that he mentioned in every category.
It's up to you. So choose your own adventure. Choose your own adventure.
But it's just an illustration of how like that, I actually like that breakdown. Go back up to the top real quick, please. I really like that breakdown of 15% in MLPs, 15% in REITs, 10% in BDCs or financial, 20% in dividend growth stocks, 10% in immunity bonds, 15% in closing the funds, and 15% in cover call ETFs.
I like that breakdown a lot, actually. And if I was starting over myself, I probably would adhere to that. Yeah.
It would have saved us a lot of losses. And this is after years of trial and error and figuring things out and tweaking. And so this is Tim's ideal if he was starting today back over.
There you have it. That's that. All right, so next week is going to be? Next week, I'm going to look back.
In December, I made a bunch of predictions and gave a little- For 2025. Gave a pretty big list of stocks. So I'm going to go back and look at how everything worked out.
Oh, and one more update, guys. So condo's under contract. We had some kid come out of left field.
We actually got two offers on the same day. First, people were being a little sketchy, and we waited for the next showing to happen, and we got an offer. Kid loves it.
We have an appraisal gap, so we're waiting for the appraisal, I think, in a couple of days. Friday. That's going to be the contingency factor whether we're going to actually get our 150,000 sweat equity out of this thing or if it's going to be a little bit less than that.
Even if it's a little bit less than that, we'll figure it out. So that means closing as of right now is scheduled for December 15th, I believe. 12-15.
So once we have that cash, you guys will see what? Christmas episode bonus where we're just investing? Although we may wait till after the first year crap that happens. It'll probably be the first year because the tax harvesting occurred the last couple weeks of the year, so prices are much more volatile. So we might do that the very first episode.
But we might do the covered call investments before that, right? Maybe. We might. We'll keep you posted on that whole thing.
Hopefully we get through the appraisal. Fingers crossed, guys. Give us some freaking good luck.
Kudos thingies. Fingers crossed. All right, see you guys next episode.