Case Study: Income

Case Summary

Ed and Mary are retired and depend on their portfolio to yield around 5% to supplement their retirement income.  They want to maximize their investment income while not putting their nest egg at too much risk.


Investors seeking income from ETFs can choose from both fixed income and equity products.  For taxable accounts, Municipal Bond ETFs are attractive due to their high relative yield and tax-exempt status.  High Yield bond ETFs may also be appropriate for part of the portfolio.

On the equity side, Dividend focused ETFs can generate substantial income.

Alternative asset classes such as REIT ETFs and Private Equity ETFs are also potential sources of income.

Portfolio Recommendations

Ed and Mary should consider adding the iShares S&P National Municipal Bond Fund (MUB) which is the largest of the municipal bond ETFs. The $600 million fund tracks an index that measures the performance of the investment grade segment of the U.S. municipal bond market.

Another option for the couple is State Street’s SPDR Barclays Capital High Yield Bond ETF (JNK) tracks the Barclays Capital High Yield Very Liquid Index of non-investment grade, fixed-rate, taxable corporate bonds and currently yields 9.3%.

Ed and Mary should also look at the PowerShares High Yield Equity Dividend Achievers Portfolio (PEY) tracks an index of the fifty highest yielding companies with at least ten years of consecutive dividend increases and currently yields over 6%.

Finally, the retirees can also consider the PowerShares International Listed Private Equity Portfolio (PFP) which tracks an index that includes a diversified mix of more than 30 internationally listed companies with direct investments in more than 1,000 private global businesses.