58-Year-Old With $3M Portfolio Makes Bold Retirement Move – 'I Want To Test It Out Before I Actually Retire' With $1M In Dividend Stocks

Retirement planning often asks for bold moves, especially when transitioning from wealth accumulation to income generation, and for many investors, this shift is pivotal.

This transition is not always straightforward, requiring a massive shift in mindset and approach. Growth-focused investments are excellent for building wealth but can be volatile and unpredictable. In retirement, you need stability and predictability, which is where dividend-paying stocks and ETFs come into play.

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One Reddit user, a 58-year-old investor with a $3 million portfolio, is making a bold move like this. He is considering reallocating $1 million to dividend-focused investments to test the waters before retiring. His goal is to generate $55,000 annually in dividends while making sure his portfolio remains steady enough to support his lifestyle in retirement.

“I have about a $3 million portfolio mostly spread between mutual funds and individual stocks but I have never focused on dividends. I am now 58 and thinking about putting 1/3 or $1 million into dividend ETFs and stocks in preparation for retirement,” the investor wrote.

His proposed allocation includes a combo of ETFs and stocks, such as Schwab U.S. Dividend Equity ETF SCHD, Realty Income Corporation O, Ares Capital Corporation ARCC, Utilities Select Sector SPDR Fund XLU, JPMorgan Equity Premium Income ETF JEPI, and JPMorgan Nasdaq Equity Premium Income ETF JEPQ, aiming for a 5.5% yield.

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Still, the poster is unsure whether his allocation is optimal, especially when it comes to stocks like O and ARCC, and whether the ETFs he selected offer enough diversification and yield. The Reddit community has offered the investor plenty of advice and insights, so let’s see these.

$1 Million Reallocation For Retirement–Reddit Analyzes the Stock and ETF Selection

Diversify and Consider Risk Management

Many community members mentioned how important diversification in investing is, especially when it comes to a retirement portfolio, so they suggested replacing individual stocks with ETFs for risk reduction and simplification.

“I'd avoid individual stocks in a retirement account, like O and ARCC. I'd go with the ETF [Putnam BDC Income ETF PBDC] for more diversification. I’d have you investing $1 million into: SCHD 27%, JEPI 11%, [Vanguard International High Dividend Yield ETF VYMI] 11%, JEPQ 10.5%, [NEOS Nasdaq 100 High Income ETF QQQI] 9.7%, [NEOS S&P 500 High Income ETF SPYI] 9.5%, PBDC 6.6%, [Arbor Realty Trust, Inc. ABR] 6%, [STAG Industrial, Inc. STAG] 3.55%, [Reaves Utility Income Fund UTG] 3.5%, and your yield would be over 8% with $6,800 per month dividend income on average,” a comment reads.

“Switch XLU with more SCHD. I like [VICI Properties Inc. VICI] more than O; VICI is literally recession-proof. Also, I would get rid of JEPI for more JEPQ or SPYI,” a Redditor suggested.

A user pointed out that the investor has no global diversification, which can offer stability for a portfolio.

“You’ve got no international positions either. Legendary investors like Warren Buffett and Peter Lynch have both said that you should invest in companies that any idiot can run because sooner or later, one will. The same is true of countries,” he said.

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Think About Yield Optimization and Tax Efficiency

Commenters also focused on how the investor can maximize yield while maintaining tax efficiency, particularly since he is planning for retirement.

“I would personally put the bulk of money in high-yield funds like [iShares Preferred and Income Securities ETF PFF] with a 6% yield, PBDC 9%, and JEPQ. ARCC is a [business development company] and they are required to pay out most of their earnings so the dividends are high for many BDCs. PBDC invests in the best BDCs they can find, including ARCC. This adds diversification. You could also have some money in [Schwab High Yield Bond ETF SCYB], a corporate bond fund with a yield of 7%, and the rest in SCHD and XLU. I don’t see a reason to keep JEPI,” a Redditor suggested.

“We are retired early and in the process of migrating from dividend growth to dividend income in our taxable account. SPYI and [NEOS Nasdaq 100 High Income ETF QQQI] use return of capital in their distributions so they work well in taxable accounts. I also like some [closed-end funds] such as [Eaton Vance Enhanced Equity Income Fund EOI] and [Eaton Vance Enhanced Equity Income Fund II EOS] that use long-term capital gains and/or return of capital in their distributions,” a retiree in the comments recommended.

A Redditor considered the poster’s strategy way too conservative and advised him to go more aggressive to boost income and overall returns.

“In my opinion, you are short-changing yourself with such a conservative dividend income portfolio. I hold JEPQ and other high dividend funds and ETFs and am getting a yield of 12%+ with 26% total return in 2024,” he said.

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