An IVY Buy & Hold Portfolio for the Skeptical & Emotional Investor

One of the keys to successful long term investing is finding a portfolio strategy that works for you, that lets you be at peace and sleep at night. Historical and theoretical returns don’t mean a thing if you have little chance of sticking with a certain strategy. And herein lies the biggest problem with the commonly recommended buy and hold strategies – most investors can’t stick with them over the long term as is shown every year by the Dalbar studies or any studies that look at actual investor returns. For many investors this is where an automatic approach like the IVY Timing model that I discus often here can be the best approach, particularly for retirees. But, I realize that many investors remain skeptical to the IVY timing approach, that even it requires too much effort, and that it will not continue to work in the future. Those are definitely valid concerns. So what option remains?

Income/dividend investing can be a great alternative. Many investors love the concept of living off dividend and bond income as I think the last few years have shown. In theory it sounds great. Pick a portfolio of individual dividend payers that consistently raise dividends year after year, balance that out with a good bond portfolio, and simply live off the income stream. And maybe even enhance it with some option selling for income. I’ve talked about such an approach in the past. Its a big part of my investment approach. But I’ve come to realize that this type of income strategy is also not implementable by most investors. I mean if there is a large set of investors who can’t stick with the simplest buy and hold how are these investors going to implement this much more complex strategy. One potential solution to this problem is to choose a broadly diversified portfolio and tilt the portfolio to income generating sectors of the equity and bond market, enough to provide the income necessary to meet living expenses. The stability of having enough income to meet living expenses allows the investor to ride out swings in the market and stick with their investment strategy. That’s the theory anyway. Thus, my latest little research project that I decided to make public and seek reader input.

This is just a research project at this point, not a recommended portfolio strategy. Also, please chime in with your inputs on ETF or sector recommendations. My goal was to have an overall allocation of 70% stocks and 30% bonds because that’s the allocation that has the highest SWR historically. I also used the IVY 13 portfolio as a basic model which I’ve discussed previously. For stocks I looked for dividend ETFs in particular sectors; large cap, small cap, international, and real estate. For bonds, I looked for duration and credit risk to increase long term returns. For increased income I left out commodity investments and instead turned to TIPS and real estate for inflation protection. So here is my initial take on this IVY buy and hold income portfolio.

You can see the detailed spreadsheet here. The overall portfolio current yields 4.14% and would have annual fees of 0.36%. Of course, there are a myriad of options to this portfolio. Higher yields can be attained by adding some higher income ETFs from sectors such as MLPs, mortgage REITs, or simply adding a higher bond component like a 60/40 allocation.

That’s the proposal. A IVY based buy and hold income portfolio for the skeptical and emotional investor. Let me know what you think.