AN INCOME SIG FRAMEWORK:
REBALANCING TO A TARGET GROWTH RATE
Attention: In these periodic Income Sig installments, I explore ideas with you and share my research. I am not announcing a new plan. No changes to the letter are imminent. If and when I come up with an Income Sig plan and/or decide to make changes to our established Sig plans, I will announce it clearly. Please don’t change the way you run your Sig plans based on these Income Sig explorations.
One possible way to structure an Income Sig plan is to run a three-fund portfolio that includes a growth portion that could be dialed down over time to emphasize income. For example:
AGG — general bond ETF for stability and low yield
QYLD — covered call ETF for low volatility and high yield
TQQQ — leveraged equity ETF for high volatility and growth
On our usual quarterly schedule, both QYLD and TQQQ could be rebalanced to separate quarterly growth targets, such as 2% for QYLD and our tried-and-true 9% for TQQQ. As usual, proceeds from resulting sell signals would go into AGG; buying power for resulting buy signals would come from AGG.
Today, I’ll go through how such a plan would have proceeded over the past two years. In a subsequent installment, I’ll go through a rote rebalancing approach, such as resetting the funds to a 34/33/33 AGG/QYLD/TQQQ allocation, for comparison.
Let’s say that you retired at the end of Q319 with $1,000,000, and allocated it as follows:
34% AGG
33% QYLD
33% TQQQ
This set you up as follows:
3,004 shares of AGG @ 113.17 = $339,963
14,602 shares of QYLD @ 22.60 = $330,005
10,707 shares of TQQQ @ 30.82 = $329,990
AGG and QYLD paid the following quarterly distributions over the next two years (each pays more often than once per quarter, but for this study I tallied their quarterly distributions):