High-Yield Investment Strategy Fails

Published Tue, 03 Jul 2018 09:48:58 -0400 on Seeking Alpha

A few years ago I became intrigued by a spate of articles and comments by authors and readers about high-yield investment strategy as an alternative to dividend growth (DGI) investing or other approaches to portfolio design - particularly for retirees and those approaching retirement. The thesis of the high-yield proponents was that although the value and dividends of high-yielding securities - largely mREITs, BDCs, MLPs and CEFs - were unlikely to increase over time, the additional cash paid out now could be reinvested to grow the portfolio over time while providing more income on a current basis than other approaches.
It looked good. If it worked, I wanted in. But the writings, while long on excitement and philosophical rumination, were short on testable data. I never saw an article which reported the complete performance of suggested investments over time. I couldn't find an easy way to see if the approach, well... actually worked.
Three years ago I designed a back study to assess the performance since 2010 of twenty high-yielding investments. Ten were proposed by SA contributor High Yield Investor, ten by frequent commenter WmHilger. The suggested investments were listed in separate postings by the two investors during 2014, in which they each argued that high-yield securities are appropriate for a retirement portfolio. I wrote up the results in July 2015 in "Can High-Yield Investment Portfolios Support Higher Income In Retirement?" My study was criticized by... Read more