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Post by steelpony10 on Oct 31, 2022 14:34:55 GMT
Chahta , CEF’s comprise about 45% of our investable assets now. Most were picked up on sale with 10%+ distributions like now. In normal or up markets they trade in the 8-10% range with very slight cap gains. The rest of our portfolio is held in reserve and is comprised of equities yielding about 1.5% now, a muni fund approaching a 3% yield and a building cash position, since we’re more or less done investing, yielding squat. The reserve and cash would be for any possible future unknowns. That all combined with decreased values at this time results in about a 6.5% yield, estimated total income/present portfolio value. I did forget to mention pertaining to the OP we have no real target yield as you know but instead we chose to generate excess income to needs and auto invest it into the 3 reserve areas. This requires a lot less oversight and 8-10% distributing CEF’s have only gone to 10%+ for the third time since the bank crisis when we started our first CEF section. A surviving or senile spouse will hopefully have a boatload of cash in the future requiring much less investing knowledge for themselves or caretakers and delay any actual market decisions further barring unknowns.
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Post by Deleted on Oct 31, 2022 15:02:19 GMT
So the Treasury changed their calculation model at the end of 2021. The new model is based on "indicative secondary market quotations obtained by the Federal Reserve Bank of New York." Using that basis provides curve smoothing. Based on this and other information, I would only buy on the fixed portion of TIPS, not the adjustable (inflation) component.
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Post by bobfl on Oct 31, 2022 15:57:51 GMT
bobfl , Since we’re primarily buy and hold income investors with any capital gains secondary or “extra money”, in this market lull our yield is about 6.5%. In better markets it is usually in the 5-5.5% area but with added supplementary capital gains. Every month or quarter under any market conditions all excess income to needs is reinvested and compounded which results in increased incremental income each year. Why so low? I would think 8-9% would be your target with so many CEFs. I started with stocks, then CEFs and preferreds, and options. I have seen a lot. (Like Microsoft at $17, Apple in the teens and Amazon at $30.) I finally just stuck with preferreds. Once I really figured out preferreds it became the easiest, most predictable, most transparent investment for me. Regarding CEFs, after 2008, I left CEFs for good. I could not see inside them to understand why some got destroyed, others not. For example, look at PTY now yielding 11.78%. It made about $325 million last year and looks to lose over $250 million this year according to Yahoo charts. I know they mark to market, but things happen that I cannot quickly and easily explain.
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Post by Chahta on Oct 31, 2022 16:40:14 GMT
bobfl , I think all bond funds are "mark to market". That is how the fluctuations occur in NAV. CEFs I assume move much more due to leverage. Looking at PDI, it looks worse than PTY for 2022.
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Post by ECE Prof on Oct 31, 2022 16:53:47 GMT
"Regarding CEFs, after 2008, I left CEFs for good."
Loss aversion, I assume. It might have been the best time. I did not know anything about CEFs then. Now, I have PDI + ECC = 40%, and UTG + CLM = 5%. I cashed IVV and cash rich today. I am waiting for opportunities in HDV, UTG, PDI, and ECC. Unfortunately, RCC and PDI have run up more than 5% recently for my taste. I am not selling any of these. So, I have no idea what I will be doing now. Both ECC and PDI are going at 7% premium, and I do not want to pay too much in premium. PDI must be worse, and that is why many people are paying 6-month equivalent of income as premium. PTY is going at 12% premium – almost 1-year worth of income as premium.
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Post by retiredat48 on Oct 31, 2022 17:02:48 GMT
R48, good to know, thanks. I wished I had known to sell bonds last year or even early 2022 in my IRA's a/c. Now, I lost so much money. At marquay ,...HI...glad my post enlightened in this regard. Couple points: -- bobfl , is correct, there is no loss until you sell in fixed income. In fact there is a "bond rule of thumb" in play that states: Hold for the duration and you will get your initial rate, regardless of the direction of interest rates. Two problems here: Going back a year your bonds may have only yielded 2%...so that is what you would get. Second problem is the bond decline in Q1 of 2022 was the most severe in history. So you have to wait for the duration to capture improved returns. So, a fund of 7 years duration means you capture 2% if held this time period. But you would avert a "loss." --Also realize that rising rates in the long run is good for bond holders. You will be rolling money into higher yielding stuff...and the same bond rule of thumb applies. --In this regard, I disagree somewhat with bobfl's post about interest rates declining back down once inflation killed. The fed taking interest rates to zero for so long, is not a place they want to return to. Many economists stating fed will likely keep rates right where they are...about 3-4% on the short side. And longer term at the historical 4-5% range. That is, not much decline ahead. BTW I consider the fed should do this...not move rates much lower. Get back to normal conditions. But that means you do not get back much NAV price improvement on older issues/bond funds. Best wishes. R48
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Post by habsui on Oct 31, 2022 18:28:41 GMT
So the Treasury changed their calculation model at the end of 2021. The new model is based on "indicative secondary market quotations obtained by the Federal Reserve Bank of New York." Using that basis provides curve smoothing. Based on this and other information, I would only buy on the fixed portion of TIPS, not the adjustable (inflation) component. Not sure I understand the last comment. Question is whether you expect inflation to average more than 2.6% over the next five years. If so (I do), 5yr TIPS would be better than regular treasury bonds.
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Post by Deleted on Oct 31, 2022 19:04:20 GMT
A recession next year may change the picture for 5 yr tips. Yield in that case would drop. One reason for hesitancy.
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Post by habsui on Oct 31, 2022 19:18:30 GMT
A recession next year may change the picture for 5 yr tips. Yield in that case would drop. One reason for hesitancy. The yield of 5yr TIPS that you buy now will not be affected. The only thing that matters is inflation adjustments of the principal value. As long as inflation does not fall below about 2.6%, I'm good. Even the downside risk seems small. What are the chances that inflation average over the next 5 yrs falls below 2.5% or even 2%?
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Post by Deleted on Oct 31, 2022 19:39:10 GMT
Boglehead Taylor Latimore said, "Don't try to predict interest rates". CC has not been good at that this year, and if he hasn't I don't know who can. Besides the Treasury can once again change the formula for calculating inflation. In my opinion, determine whether the fixed component is acceptable.
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Post by ECE Prof on Oct 31, 2022 20:14:08 GMT
I am minting money and making more than inflation, a lot more, right now with PDI and ECC. Who needs Tips? The FED and government(s) can change their rules anytime.
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Post by steelpony10 on Oct 31, 2022 22:01:07 GMT
I am minting money and making more than inflation, a lot more, right now with PDI and ECC. Who needs Tips? The FED and government(s) can change their rules anytime. ECE Prof , Congress can also change the rules for CEF’s. Maybe a herd of cash cows is more prudent. I’m along on the same ride as you though.
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Post by ECE Prof on Oct 31, 2022 22:13:36 GMT
"Congress can also change the rules for CEF’s."
So can the PIMCO guys and make more money. I had an additional 2-months equivalent of distributions from ECC. Fido has posted, but Vanguard will provide all the reinvestment/cash stuff tomorrow morning. However, Vanguard gives the cash details of PDI on Nov. 2. It takes another day to post the amounts on PDI. FIDO posts a day earlier sometimes.
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Post by FD1000 on Oct 31, 2022 22:35:38 GMT
I am minting money and making more than inflation, a lot more, right now with PDI and ECC. Who needs Tips? The FED and government(s) can change their rules anytime. mmm...I prefer to be up every day in 2022 than to "mint" money. Observation: I had a quick thought today. I have been listening to investment TV shows for 3+ decades, that's a lot of hours and many experts. I don't think I ever heard anyone mentioning CEFs, wow, I guess all the experts don't have a clue except of dozens of posters and CEFs "gurus" at seeking alpha. BTW, generic comment, why would you have a target yield?
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Post by Deleted on Oct 31, 2022 22:36:27 GMT
Ironic that people who invest in leveraged black boxes of bonds have a problem with TIPS...because of a future risk that may never show up and would never be as large as the risk that they are already taking.
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Post by Deleted on Oct 31, 2022 23:01:03 GMT
The common advice given on M* was to construct a retirement portfolio based on the yield a retiree needed beyond other sources of income, SS, pensions, etc. Sounds like good advice today. That was just as the growth stock mania began. Value fell out of favor with its dividend income. But the retirement advice as before remained. So investors searched for other sources of yield.
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Post by ECE Prof on Oct 31, 2022 23:17:57 GMT
FD Listen buddy. Income can also grow your portfolio as much as growth with reinvestment. ECC shot up today and I must have recovered losses, probably around 98-99%. I wanted to tell you this earlier today, but it will be like a broken record.
There is a difference between income and CG in the tax world. Income is 100% taxable, just like annuity and retirement income like mine. CG is taxed only when you realize it. However, this aspect can be mitigated with the backdoor ROTH conversion, as I did from 2008-2015. So, most of my income grows untaxable. Indeed, during the pandemic time, the condo was empty with no income from the rent for 11 months. Besides, our expenses also went up when my son moved with his family to our home in Cookeville. We cannot ask him to pay when my wife buys the groceries. Guess, who helped in spite of the price drop? PCI. Even now (We are in IL), my wife buys the groceries and other stuff. We cannot ask him to pay my credit cards.
So, in essence, we are not going to agree on this one thing. By the way, I took the 3.46% gain in IVV and cashed all of it. I tried to buy HDV with 1/3 of that cash in each account, but the trades did not go through. I am not in a hurry because VMFXX pays 2.82%, more than the dividend of 1.79% by IVV. I will have more income, which means minting money.
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Post by FD1000 on Oct 31, 2022 23:28:41 GMT
prof, sorry to tell, you are a broken record. The only thing that matters is total performance. I don't dislike income, all I care is total returns which includes everything. If PDI TR in the next 5 years will be higher than SPY, then it's the winner, if it's not, it will be a loser. It's a pretty simple concept.
Since CEFs volatility is similar to stocks, they must be compared to stocks. Your story maybe interesting but it's unique to you, I'm discussing generic investing concept.
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Post by Deleted on Nov 1, 2022 0:36:41 GMT
It is nice to see that everyone has figured out a strategy to meet their income needs - presumably til no longer needed! It doesn't matter whether it is taken as dividends, interest, return of capital or capital gains. It matters that you meet your goal to live comfortably for decades and not be impatient and panic when the ride isn't smooth. At the end of the day, it doesn't matter to me what ECE, FD, Haven, YBB, Norbert, habsui, django, bob, chang, steelpony do to get their income requirements. What does matter to me is if a strategy fails - you can't get your income or run out of money. I want to avoid that one! Holding one instance out to shoot down a strategy is not valid in my opinion. Yes - dividends get cut - but most don't. Yes, MLPs got taken to the woodshed. Better now and not a portfolio killer. Total return - we all know the LONG TERM projected returns - Short Term? Not so much. Not a deal killer, but could cause problems. I don't know how CEFS get killed, but just like with all of these, diversification should help a lot.
We all know the dangers of high yield and leverage. Risk and return. The relationship holds. You take more risk - you get more return. It doesn't get more generic than that. Everything we do is just different shades of that. So if someone wants to accept more risk and get more return - all the power to them. They are the ones who have to sleep well. Sounds to me like we all sleep well.
I don't like the thought of a lot of CEFs or of depending on total return. The first because I just think there are things that could go wrong - I don't know what though. Total return - well that can go wrong if you have to draw down too much. Dividend growth strategy - always can have a cut. Moving in and out of the market - we all know the potential pitfalls there.
So getting back to the OP and target yield. Has anyone discussed whether we are talking real yield or nominal yield? This is another reason I look at dollar amount. I am looking for a yield that gives me income that keeps up with future inflation, which I am thinking will average 3% to 4% going forward.
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Post by ECE Prof on Nov 1, 2022 0:37:45 GMT
prof, sorry to tell, you are a broken record. The only thing that matters is total performance. I don't dislike income, all I care is total returns which includes everything. If PDI TR in the next 5 years will be higher than SPY, then it's the winner, if it's not, it will be a loser. It's a pretty simple concept. Since CEFs volatility is similar to stocks, they must be compared to stocks. Your story maybe interesting but it's unique to you, I'm discussing generic investing concept. No, I don't. It is a different class providing steady income. PDI (PCI until last November) is like a goose that lays golden eggs every month, like my TCRS payment or TIAA annuity payout, except that I did not have to surrender a lot more cash to those guys. I still have 85% of this year's starting money. Again, I do not consider this as a loss because these shares came from my PCI money, which I bought at big discounts before. I have recovered at the least 50% of investments back. However, I made a big mistake in my life by investing these distributions in QQQ and VGT. I lost almost 35% of this part, and that is my biggest loss and my regret. Oh, well, things happen in life.
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Post by FD1000 on Nov 1, 2022 3:54:57 GMT
Sara: So getting back to the OP and target yield. Has anyone discussed whether we are talking real yield or nominal yield? This is another reason I look at dollar amount. I am looking for a yield that gives me income that keeps up with future inflation, which I am thinking will average 3% to 4% going forward. FD: I don't care if the income covers my inflation, because I don't look for income as my first choice. BTW, since I invest mostly in bond OEFs, many times they have distributions of 3-6% but I always invest based on TR. =========== Prof, again, I discuss things based on investment generic concepts. Question for you: I have 10% in cash and want to invest tomorrow to get the best performance, should I buy PDI or SCHD? If you think PDI will have better results, please explain why.Remember, best TR = the winner because I can take out the same distributions. I proved it 100+ times. Investing 1 million in PDI vs SPY in the last 5 years and taking out 5% annually was much better using SPY, the result below shows that SPY made about $400K more, after paying 5% annually Attachments:
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Post by retiredat48 on Nov 1, 2022 4:28:58 GMT
...all I care is total returns which includes everything. If PDI TR in the next 5 years will be higher than SPY, then it's the winner, if it's not, it will be a loser. It's a pretty simple concept. Since CEFs volatility is similar to stocks, they must be compared to stocks. Your story maybe interesting but it's unique to you, I'm discussing generic investing concept. Well, FD, I have $25 to bet that in the next five years, starting tomorrow, PDI will beat SPY(proxy for S&P500), total return, in the next five years.
Are we on?
R48
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Post by Deleted on Nov 1, 2022 5:14:03 GMT
If PDI maintains current price then just by current yield of 13.34% it would likely beat SPY.
I know nothing about PDI but it is close to its 10 year bottom. Though more Fed interest interest rate hike may lower its price.
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Post by habsui on Nov 1, 2022 7:04:05 GMT
It is nice to see that everyone has figured out a strategy to meet their income needs - presumably til no longer needed! It doesn't matter whether it is taken as dividends, interest, return of capital or capital gains. It matters that you meet your goal to live comfortably for decades and not be impatient and panic when the ride isn't smooth. At the end of the day, it doesn't matter to me what ECE, FD, Haven, YBB, Norbert, habsui, django, bob, chang, steelpony do to get their income requirements. What does matter to me is if a strategy fails - you can't get your income or run out of money. I want to avoid that one! Holding one instance out to shoot down a strategy is not valid in my opinion. Yes - dividends get cut - but most don't. Yes, MLPs got taken to the woodshed. Better now and not a portfolio killer. Total return - we all know the LONG TERM projected returns - Short Term? Not so much. Not a deal killer, but could cause problems. I don't know how CEFS get killed, but just like with all of these, diversification should help a lot. We all know the dangers of high yield and leverage. Risk and return. The relationship holds. You take more risk - you get more return. It doesn't get more generic than that. Everything we do is just different shades of that. So if someone wants to accept more risk and get more return - all the power to them. They are the ones who have to sleep well. Sounds to me like we all sleep well. I don't like the thought of a lot of CEFs or of depending on total return. The first because I just think there are things that could go wrong - I don't know what though. Total return - well that can go wrong if you have to draw down too much. Dividend growth strategy - always can have a cut. Moving in and out of the market - we all know the potential pitfalls there. So getting back to the OP and target yield. Has anyone discussed whether we are talking real yield or nominal yield? This is another reason I look at dollar amount. I am looking for a yield that gives me income that keeps up with future inflation, which I am thinking will average 3% to 4% going forward. I am looking for real yield. As stated before, 2% real yield would suffice. At my age, 64, 3-3.25% WD, I will be fine as long as I don't run out of rows in my spreadsheet..
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Post by chang on Nov 1, 2022 8:24:14 GMT
If PDI maintains current price then just by current yield of 13.34% it would likely beat SPY. I know nothing about PDI but it is close to its 10 year bottom. Though more Fed interest interest rate hike may lower its price. PDI and PDO have been setting *all-time* lows, with PTY close behind. I just do not understand why people are gushing over the yield (I guess I’m in the minority, but a 13% yield looks like a red flag to me), and talking about “minting money”. This is obviously some usage of the word “minting” that I’m not acquainted with. These funds all lost 25-35% in the last year. It might be a terrific investment starting today, but if you’ve been buying it all year long, I think you should have the honesty to admit that you’ve been paying Pimco 2.64% to shred your money. And it’s still trading at a 7% premium(!). I would be interested if it went to a 10%+ discount like PTY did during 08/09. At the risk of stating the obvious, discounts inflate yield while premia compress yield. This can be masked by these funds’ huge (and expensive) leverage, but the premium is just pushing your yield *down*. If these CEFs are geese laying golden eggs, I’m just not seeing it. With many blue chip stocks down 50% from their highs, I find opportunities in equity far more compelling - at 0% ER (or perhaps 0.05% in the case of some ETFs), and investments that I can consider or expect to hold forever (unlike CEFs, which are widely considered as trading vehicles, while the newer generation have planned liquidation dates). I know, many roads to Dublin. Coincidentally, I am waiting at this very moment to board a flight to Dublin. Edit: sorry this is OT and has been discussed on other threads about CEFs. Didn’t mean to divert the OP.
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Post by Deleted on Nov 1, 2022 10:45:10 GMT
Chang - I don't understand the appeal of CEFs myself, particularly at a premium, but I do understand risk/reward and think everyone on these boards does as well. I don't believe anyone here invests blindly, and that IF things looked like they would turn south for CEFs, we would all do our best to discuss. As suggested to Prof - it might make sense to sit down with a financial advisor if taking large losses on a portfolio. His choice and I am glad he has the honesty to share with us. FD makes a good point that you don't hear a discussion about these on the business networks. I think that might be a liability issue though as these are risky assets with hidden dangers. My guess is that plenty of professional investors personally and professionally use them. If properly understood and utilized, it seems they could play a role in a portfolio. I don't understand them, but if you tell me they don't reflect the risk/reward relationship, I call BS. So if one is aware and able to manage the risk, why not? If you want to trade them, so be it. So, if CEFs get an investor their yield, I think that is great. It's not for me. Nor is holding an index fund for 30 years that I have to sell off each year. Or trading in and out of the market. I am sure they can all work for an individual. The old time honored investing concepts are old and honored for a reason - they work. How one chooses to proportion the risk/reward ratio is up to them, as is how to get the yield they need. habsui , makes sense. I just look at dollars, so was curious how nominal vs real yield was targeted. I target yield on individual stocks and probably need to increase a base dividend yield to 3.5% from 3%, with a dgr of 5% to 6%. Need to look at that.
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Post by steelpony10 on Nov 1, 2022 12:01:11 GMT
Unless you’re loaded when/if your monthly income requirements suddenly double or triple given time all retirement schemes can/will fail long term even ours.
The speed of that failure increases if a spouse (or you) ever has different living requirements. So you play the odds against an unknown. It’s obvious to me what the worst case scenario from personal experience could be and if I’m concerned about that the solution is to get as far ahead of that situation as possible. It’s the trade off I chose.
So lets pick apart what I view as lesser solutions. What about sitting in cash, having large equity allocations or holding bonds and any investments yielding less then the current inflation rate like now. You’re sorta stuck in the mud waiting for something out of your control to change that. Any forward progress has ceased for an indefinite time.
If you wanted to spend money now for optional items you may hesitate. If you’re forced to spend depleted retirement funds now your doing a lot of long term damage, if you have a long term. In that regard if you don’t have a long term you’re wasting the time you have left. Whose going to manage your investment scheme as you slowly lose it? Which income positions to eliminate if necessary? On and on. These other schemes seem to me to have more flaws.
So if you ever get in a situation where you need a lot of income quickly I’ll loan you some at 8-10%+. Lol.
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Post by Deleted on Nov 1, 2022 14:49:01 GMT
Unless you’re loaded when/if your monthly income requirements suddenly double or triple given time all retirement schemes can/will fail long term even ours. The speed of that failure increases if a spouse (or you) ever has different living requirements. So you play the odds against an unknown. It’s obvious to me what the worst case scenario from personal experience could be and if I’m concerned about that the solution is to get as far ahead of that situation as possible. It’s the trade off I chose. So lets pick apart what I view as lesser solutions. What about sitting in cash, having large equity allocations or holding bonds and any investments yielding less then the current inflation rate like now. You’re sorta stuck in the mud waiting for something out of your control to change that. Any forward progress has ceased for an indefinite time. If you wanted to spend money now for optional items you may hesitate. If you’re forced to spend depleted retirement funds now your doing a lot of long term damage, if you have a long term. In that regard if you don’t have a long term you’re wasting the time you have left. Whose going to manage your investment scheme as you slowly lose it? Which income positions to eliminate if necessary? On and on. These other schemes seem to me to have more flaws. So if you ever get in a situation where you need a lot of income quickly I’ll loan you some at 8-10%+. Lol. I just haven't seen this to be an issue for the retirees I know or any family members. Even the ones that needed LTC. I also really don't know anyone hesitating on spending at this point. For those in that position, I don't think they have the luxury of being invested in CEFs or equities. Really bad luck can happen, but it seems like an outlier to me. If one's family history makes it more possible, then it might be a more viable option.
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Post by steelpony10 on Nov 1, 2022 15:16:05 GMT
@slooow ,
Your correct it probably is an outlier issue for some. Leaving an outside spouse in good health is more common in my experience. With longer lifespans some will dispute the commonality.
I may be overreacting and financing the afterlife. But while making money so easily to date in my opinion no matter the market conditions I may have the best sleep of all and be putting off uninformed ill advised addled brained decisions with less time to correct errors or adapt further into our future. An ounce of prevention was my point. This also looked easier to explain and maintain for the less experienced like my wife and kids.
Of course this is only a suggestion. If I pass first their financial advisor will advise a different course having better credentials then me. They will be free to allocate, diversify, spend down or go into skinflint mode. I would like to see my kids faces when/if up to 150k+ starts flying out the window yearly though.
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Post by ECE Prof on Nov 1, 2022 16:19:35 GMT
Here are the top 20 investors in PDI, some with billions in stake. I am not smarter than these big banks. Of course, they must know something about the CEFs. I can cite more examples. Enough for now.
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