Tariffs. Inflation. Soaring interest rates. The financial press, of course, blares about all of them—day in and day out.
Truth is, they have to do this to get your attention. But it’s also unhealthy to your portfolio, as investing based on the headlines leads to traps like trading too much, selling at the bottom and buying at the top.
(This, as CEF Insider members know, is why we focus on high-yield closed-end funds and aim to hold long term. This lets us tune out the headlines and “automatically” reinvest our 8%+ average payouts in corners of our portfolio that are on sale at any given time. We’ll see this strategy in action below.)
If you ever need to remind yourself of just how short-term the media’s focus can be, I recommend two things:
- Turn off CNBC. Go outside, and …
- Look at the long-term arc of the US stock market.
A Long Ride Higher
Over the last 32 years, which is the furthest back my charting software goes, stocks have risen about 10.7% annualized. Going back a century doesn’t move that figure much, cutting it slightly to 10.4% annualized. In other words, ignoring the headlines and diligently saving and investing pretty much guarantees a strong return if you hold long enough.
But What About Downturns?
Of course, stocks can, and do, fall in the short term—and “short term” can sometimes be quite a while. Note in the chart above that the S&P 500 was actually higher in 2000 than it was in 2010. This was the so-called “lost decade”—the worst 10-year span for US stocks in nearly 100 years.
This points to the importance of going beyond stocks, to assets like real estate investment trusts (REITs) and corporate bonds, which can trade opposite stocks and help smooth out some of those down periods.
To see what I’m getting at here, consider a 7.9%-paying REIT CEF, the Cohen and Steers Total Return Realty Fund (RFI), during that “lost decade.”
No “Lost Decade” for RFI
We hold RFI (in orange above) in CEF Insider because of its strong track record and ability to sustain our income (and portfolio) when stocks fall. As you can see above, it returned triple digits during that lost decade we just talked about.
Also, note that this happened even with the 2008 subprime-mortgage crisis, which of course hit real estate hard. In part, that’s due to RFI’s strong management. It’s also partly due to the fund’s high yield, which let shareholders “cash out” some of their investment in the form of regular payouts they could then invest elsewhere.
This part is key to our strategy and another valuable benefit of diversification: We can periodically take profits (and in the case of CEFs, high dividends) from one investment and put them in another. If both have strong long-term prospects—like US stocks and REITs—we put ourselves in a very good long-term position by doing so.
RFI Leads the REIT Pack
Strong management and that high yield are why RFI (in orange above) has crushed the popular REIT index fund (in purple) over the long haul.
Now, the natural move here is to buy RFI and then combine it with stocks. Many people would do this by mixing RFI with something like the SPDR S&P 500 ETF Trust (SPY)—the popular S&P 500 index fund.
It’s not a bad strategy. But it only gets you a 4.6% average yield between these two funds, since SPY pays so little. That’s why we CEF investors look to options like the 8.5%-yielding Adams Diversified Equity Fund (ADX) and the 7.3%-yielding Liberty All-Star Growth Fund (ASG) instead.
This duo gives us exposure to plenty of S&P 500 names, like Microsoft (MSFT), JPMorgan Chase & Co. (JPM) and Visa (V). And, when matched with RFI, we get a 7.9% average dividend yield across all three funds, in addition to REIT diversification.
Now let’s look at the long-term histories of ADX (in blue below) and ASG (in orange) compared to the popular S&P 500 index fund (SPY, in purple):
ADX and ASG Get Us Close to the S&P 500 (With MUCH Bigger Payouts) …
Over the last 25 years these three funds have had similar performance, with ADX closely tracking SPY and ASG significantly outperforming until recently (and bear in mind that with these two CEFs, we’re getting much of our return as dividends).
ASG’s late dip is largely because part of the fund’s portfolio is devoted to tech-focused smaller-cap stocks, and those are still recovering from a sharp selloff in 2021.
So, over the long term, we can consider both of these CEFs to be good replacements for the S&P 500, with the added bonus of ASG being a bit underpriced now, due to that small-cap tech lag.
Over the last 25 years, ADX and ASG have returned 7.2% yearly on average, in the ballpark of the S&P 500’s 7.9% (since we’re starting in 2000, at the peak of the dot-com bubble, our compounded annualized growth rate is lower than the 10.4% average stocks have had over the last century).
Now let’s add RFI (in green below) into the mix:
… And RFI Gets Us the Rest of the Way
RFI’s 10.3% annualized return in that time has meant strong outperformance and an offset that both secures our three-fund portfolio’s income stream and its total return.
This is why our CEF Insider portfolio holds stocks, bonds, REITs, municipal bonds and funds from other sectors and asset classes. By doing so, we can transfer profits and dividends from one to the other when one group is oversold (and there’s usually at least one that is at any given time!).
That’s much better than we’re likely to do by putting all of our eggs in one basket with something like SPY. An added bonus? We get to ignore the headlines, too.
5 “Hidden” CEFs Yielding 9% (That Crush a Stocks-Only Strategy)
To get you off to a strong start with this strategy, I’ve put together 5 of the very best CEFs from CEF Insider’s portfolio. All 5 are bargains now, hold everything from stocks to bonds to REITs—and yield an incredible 9% between them.
Buy these 5 funds now and you’re instantly diversified. And thanks to their bargain valuations, they’re set to hold their own in a pullback, too, giving us peace of mind as we collect their big payouts.
Then you can reinvest your dividends in other CEFs, building up your income (and upside potential) further. Or you can use them to pay your bills—it’s all up to you.
The longer you wait to get started, the more dividends (and upside potential) you’re leaving on the table. Don’t wait. Click here to get full details on all 5 of these powerhouse 9%-paying CEFs, plus a free Special Report revealing my complete research on each one.