Two Picks for a Retirement Paycheck

07/15/2016 9:00 am EST


Robert Carlson

Editor, Retirement Watch

Our "Retirement Paycheck" portfolio continues to deliver above-average income and capital gains, explains Bob Carlson, industry-leading income expert and editor of Retirement Watch.

This is our portfolio for those who want primarily income from their investments and know they need to preserve purchasing power by increasing income and earning some capital gains over time.

We venture outside the traditional income investments. We don’t buy and hold in this portfolio, because these investments can have high volatility. We buy when they are relatively low in price and sell or reduce our holdings when prices seem too high.

I recommend Eaton Vance Municipal Bond II (EIV). The yield is 4.48%, most of which should be in come tax free. All the distributions have been from income.

Our preference is to own tax-exempt bonds through a closed-end fund. That strategy allows us to purchase the bonds at a discount to net asset value and gives us a fund that uses leverage to increase yield and returns.

The discount to net asset value on the fund has shrunk from almost 11% in mid-2015 to a little over 4% recently.

Another advantage of the fund is that it doesn’t try to increase its yield by purchasing low-quality bonds.

It concentrates on those with high credit ratings and that are backed by specific sources of revenue, such as airports, water authorities, parking garages, toll roads, hospitals and the like.

DoubleLine Income Solutions (DSL), another closed-end fund in our Retirement Paycheck, is co-managed by the DoubleLine team of Jeffrey Gundlach, Bonnie Baha and Luz Padilla.

It has a broad mandate, allowing management to invest in any income investment in the global markets. The primary goal is to generate a high level of current income, and the secondary goal is to increase the fund’s value.

The fund currently is allocated about 44% to emerging markets, 18% to high-yield corporate bonds and 11% to mortgage-backed securities. Most of the emerging market positions are in corporate bonds.

The fund is relatively new, beginning only in April 2013. The discount to net asset value went to almost 13.5% in late 2015, and more recently it was just over 5%.

Recently, the leverage ratio was about 27%. The yield was 9.71%, with all distributions being paid from income. The fund is up 3.59% in the last four weeks and 19.21% for the year to date.

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By Bob Carlson, Editor of Retirement Watch

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