Most of my money is in long-term investments in the form of high-interest closed-end funds (CEF’s) in which I reinvest the dividend payouts. These are considered a riskier form of investment. I have had no issue with them and have alerts set up on my brokerage account if / when I need to re-balance my account. I make sure that I read every inch of the prospectus and get to know what I am investing in.

These funds are not that popular at the moment and have plenty of room to take off like Mutual Funds and ETF’s have.

Source: 2018 Investment Company Fact book as of 12/31/2017

Here is a couple of decent sites that explain Closed-End Funds. The first site is a good overview.

A Guide to Investing in Closed-end Funds (CEFs)

The second site is from Fidelity Investments and does a great job of providing articles with in-depth explanations and calculations.

Learn About Closed-End Funds

My Portfolio of Closed-End Funds

I currently have 5 funds in my retirement account. I like to choose funds that are diversified with successful fund managers. I set it and forget it for the most part, unless something drastic happens with the fund. There is a lot of misinformation about these funds on the internet and most folks seem afraid of these funds. You are only afraid of what you do not know.

Typically, I do not invest in new funds. If I do, I watch them closely because they tend to lose serious value in the first few years, just like many stock IPO’s do. For the most part, every fund I have is at least 5 years old or better with a proven track record and having a diversified portfolio. Most ETF’s, Mutual Funds, and CEF’s never fully recovered from the 2008 crash. Looking at charts you will see the steep crash in 2008 on almost every fund and how the funds, over the past 10 years, and how those funds have not gone back up to those levels pre 2008.

CEF’s trade like stocks, therefore, will fluctuate in price just like stocks. You have to have a set it and forget it attitude with these as you should with any long-term investment. In this day and age, most brokers have tools to email you when stock prices hit your thresholds or there is news regarding your stock.

I try to find CEF’s that trade within a price range over their life. The goal of these investments, for me, is to be able to live off of the dividend income when I decide to draw from my retirement account.

The beauty of these funds is that that can be very diversified and they do not usually get hit as quickly as the Dow Jones or other indexes when the market tanks. Some of my funds trade world markets and stocks that you and I are not privy to as retail investors.

My current dividend income is running around 10.5% and is compounded over time by reinvesting the dividends. I am up 253% on my portfolio at 10 years. No bank savings account can even come close to that.

Keeping your money in the bank is a losing proposition due to inflation. The current yearly inflation rate in the US at the time I am writing this is 1.9%. I think my local bank branch pays 1.5% a year interest. Even if my CEF’s have a destructive return on capital, they still beat what any bank has paid out.

I re-balance my account when I need to. This is usually when a fund loses a manager that I think has done well, a decrease in the dividend payout, or destructive return on capital is taking its toll on the stock price.

Categories: Ramble