Hello again everyone, I hope you’re enjoying your Sunday. When I opened my Bible app today the verse of the day was from Colossians 3:2, “Think about the things of Heaven, not the things of earth”. As I contemplated that verse it was obvious, I spend an inordinate amount of time thinking about this world, I think we all do. So, as you prepare for another week, I hope you and I both can put down the things of this world and instead focus on Jesus. It isn’t easy, we all have problems and troubles or even aspirations. Therefore, my prayer today is that the Lord will free our minds from those worries and we can truly leave them at the foot of the cross.
With that, I wanted to write another post this week about an idea that I’m eh…kinda already doing, but not really. That idea was to leverage the absolute highest yielding assets currently available to fund different investment accounts. What I mean is, if you’re not already familiar, there are some assets out there that yield up to 200% per year! That is just astounding and truthfully I still can’t quite understand.
However, there is a big downfall to just investing into those funds alone. We’re almost certain to lose the principal investment over time. That ordinarily wouldn’t be good investment, but if over the life of the investment we’d received twice the principal in dividends, well, that’s something to consider.
So, in today’s post, I want to discuss a strategy for utilizing these highly risky yield first assets to build a less risky portfolio. Thus the title, “If I were starting today with $1,000; I might do this.”
Disclaimer: As we look at this strategy I’ll be using some assets I might use. This is NOT a recommendation. Please do your own research prior to investing.
Post Agenda
- High Yield Strategy Overview
- Hypothetical High Yield Portfolio
- Benefits & Drawbacks
- Back of the Napkin Backtest
High Yield Strategy Overview
Let’ me start by saying this is 100% hypothetical. I am not doing this strategy as I’ll describe it here but with all the new assets coming to market, If I were starting today with $1,000; I might do this.
That said, I don’t want to be long winded in this post so I’ll do my best to share my findings as quickly as possible.
Yesterday evening, I took a few minutes and ran a scan on Finviz.com for any asset yielding greater than 10%. That of course returned hundreds of assets which I then sifted through manually to find those that had the following characteristics. I didn’t run any calculations, I just did a quick eye test.
- Greater than 30% Yield
- Didn’t decline by more than 50% in the past year
- Paid Monthly or weekly dividends
Once I’d determined these assets, I then wanted to find some assets that were both high yield but also experienced price appreciation. Essentially creating a second set of assets and I’ll share them with you in just a second.
Finally, I wanted to curate an even smaller list of assets that were less about yield and hopefully higher in quality. To do that, I just looked at my own investments, which you can view inside the new InvestmentLocker page. This resulted in a list of about 25 different assets that spanned from highest yield to outright growth. Here’s what I came up with.
Hypothetical High Yield Portfolio
Basically, the idea I’m bouncing around here is, invest money into the highest possible yield assets. Invest those dividends into other high yield assets that may not erode over time. Then finally, invest the dividends from those into the highest percentage returners from my own portfolio.
Highest Yield Assets
- ICOI – 264.5% yield
- COII – 157.36% yield
- HOOY – 126.84% yield
- COIW – 122.59% yield
- IMRA – 120.67% yield
- XBTY – 105.09% yield
- NVYY – 100.12% yield
- ULTY – 87.21% yield
- MST – 81.28% yield
- NVDW – 80.51% yield
High Yield with Potential Price Appreciation
- SPYI – 12.24% yield
- QQQI – 14.19% yield
- JEPQ – 10.63% yield
- GOOP – 16.85% yield
- MSFY – 14.60% yield
- NFLP – 21.32% yield
- FTHI – 8.89% yield
Highest Potential Growth
- VUG
- SCHG
- QQQM
- VGT
Potential Benefits or Drawbacks
Well, to state it plainly the drawbacks may outweigh the benefits. Truthfully, the most prudent course of action may be to just skip the yield and go straight to the higher quality assets. However, the benefit of such high levels of yield could mean even more investment capital. Indicating, that $1,000 initial investment may grow much faster.
Still, the risk on that high yield basket can’t be ignored. It seems most of those assets are relatively new and some are already showing considerable decline. Just for the sake of argument let’s assume they lose 30% of their value each year. That is just an arbitrary made up number. Some assets may actually gain value but I wouldn’t ever count on that. This assumption will help me in the next section highlight what may be possible using this strategy.
Finally, I also can’t ignore the fact that many of the assets in my high yield basket only look attractive because their underlying is performing very well in this market. For example, bitcoin has been in an epic bull market and ICOI may just look attractive right now. When bitcoin turns over, ICOI could start to look very scary. Sure that 200%+ yield looks great but if the principal is wiped out in a few months, what’s the point?
Back of the Napkin Backtest
I put very little effort into performing this backtest. I took about 10 minutes to cook up a spreadsheet to run some rough numbers but the results were fairly remarkable. Moreover, in the end, I would finish with capable growth compounders that I would more than likely actually want to own. Here is some of the data I uncovered.
Highest Yield Stats
- Average Yearly Yield – 124.61%
- Average Monthly Yield – 10.38%
- Total Initial Investment – $1,000
- Monthly Contribution – $100
- 1 Year Ending Balance – $4,269.56
This assumes a negative growth rate of (2.5%) per month and all dividends reinvested. However, this doesn’t account for the fact I wanted to invest the dividends down stream into other assets. To do that, I simply adjusted the calculations to withdraw all the dividends and only keep the additional $100 monthly contribution.
When making that adjustment and accounting for the (2.5%) negative growth the balance only grew to, $1,759.80. The total dividends withdrawn for the year were, $1,250.36. Having said that, I didn’t want to wait for the year to end before I built the high yield moderate growth portfolio. I did that as the dividends were received and I’ll share those results next.
High Yield Moderate Growth Stats
- Average Yearly Yield – 12.85%
- Average Monthly Yield – 1.07%
- Total Initial Investment – $0
- Monthly Contribution – Dividends Received from High Yield Holdings
- 1 Year Ending Balance – $1,415.67
This assumes a positive monthly growth rate of 1% which is pretty aggressive and reinvesting all dividends. Again though, I wanted to use this income to build a higher quality portfolio. I decided to adjust the calculations so that 20% of the ending balance each month was withdrawn and 80% remained to grow.
With that adjustment the portfolio grew from $0 to $466.23 and I withdrew a total of $872.61. Again, I began building the next portfolio each month as able instead of waiting until the year ended. As I look at it now though there may need to be a period here where I just let it grow before building the next portfolio. Additionally, as I look closer, the numbers seem a little off with the balance falling from $1,415 to $466. I don’t have time to re-run the calculation but just know something here doesn’t look quite right. In any case, here are the results from the growth portfolio.
Edit – I re-ran the calculation again and unless I’m just not seeing something everything above is accurate. Just goes to show the power of compounding and time in the market.
Growth Portfolio Stats
- Average Yearly Growth – 21.99%
- Average Monthly Growth – 1.83%
- Average Monthly Yield – 0.04%
- Total Initial Investment – $0
- Monthly Contribution – Dividends Received from High Yield Moderate Growth Holdings
- 1 Year Ending Balance – $959.25
This assumes no capital withdrawn and growth was stable each month. Of course that will never be the case but for the sake of the test I didn’t alter the 1.83% monthly growth.
In the end, my $1,000 dollar portfolio grew to a grand total of $3,185.29 when accounting for withdrawing dividends to move them into the next portfolio. The only “new” capital that was allocated each month was inside the high yield portfolio where I added $100 each month. That brought my total out of pocket cost to $2,200.
Final thoughts
Now, before I close I need to point out that had I just maintained the capital within the high yield portfolio I would have returned even more at $4,269. Of course, that assumed the negative (2.5%) growth held true. That’s really a shot in the dark at how much NAV erosion will exist with these high yield assets. Still, it’s worth pointing out the extra steps may not be useful outside of the fact that I’d be working to build a portfolio I might prefer holding.
That said, I may only “prefer holding” them because I’m stuck in an outdated way of thinking. Sure, the “safer” holdings may be around longer or remain more consistent but I’m giving up way more right now. In that light, I guess it depends on the specific goal or expectation for the portfolio. If I’d just skipped the extra legwork I’d have about $1,100 of additional cash in my pocket even quicker. So it’s certainly some food for thought.
Regardless, for me (at least in my outdated brain) I like the idea of getting cash out of the high yield investments and into something I feel will last. I could easily be right or wrong, but if I were starting today with $1,000; I might do this.
Until the next post.
God bless,
Jeff
