I recently wrote an article on constructing a High Income Sleep Soundly Portfolio using Closed-End Funds (CEFs). The portfolio was designed to be widely diversified, with 50% invested in bonds funds and 50% in equity-related funds. My objective was to structure a portfolio that would allow me to "sleep soundly" through most market fluctuations. It is important to note that this was not a "buy and forget" portfolios, and bear markets similar to 2008 or "black swan" events would still give me nightmares. However, for most scenarios, the portfolio held up well when compared to the S&P 500.
Realizing that some readers are more attuned to Exchange Traded Funds (ETFs), this article constructs a similar Sleep Soundly Portfolio using ETFs, and then compares the risks and rewards associated with the two portfolios.
To quick recap my previous article, the CEFs that I chose for the equity portion of the portfolio
Risk conscious investors are finding few attractive opportunities in this market. The U.S. stock market is at an all-time high and is looking fully valued. Bond yields are low and there is wide concern that interest rates will rise, as the Federal Reserve ends its quantitative easing program. Cash is yielding 0.01% and is losing its value after the effects of inflation are considered. Investors looking for places to hold money should consider the Western Asset Variable Rate Strategic Fund (NYSE:GFY). GFY is a relatively low risk, closed end fund that invests in variable rate bonds, high yield debt, and senior loans of both domestic and foreign issuers. The portfolio has an effective duration of 0.61 so it should be insulated from changes in interest rates. The portfolio distribution could increase if interest rates rise. GFY charges a reasonable fee and uses leverage sparingly helping to reduce risk. GFY