I need help building a long term income generating portfolio

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Topic Author
Fesal1984
Posts: 4
Joined: Wed Jul 28, 2021 5:42 pm

I need help building a long term income generating portfolio

Post by Fesal1984 »

Hi guys I'm new to investing. I'm 37 years old living in Kuwait. I just opened an Interactive Brokers account and I bought with it a few shares of VWRA and VUAA Vanguard ETFs approximately worth 1150 USD and I realized that I made a mistake. Because I wanted a distributing EFTs not accumulating. But I'm not selling them right now.

I want to build an income-generating portfolio through dividends from stocks and bonds, my primary goal is to supplement my income with dividends and increase the dividends over time and just keep buying more shares and not selling. I've been researching these ETFs for the past few days:

1st portfolio:

1- Vanguard VUSD (26.6%)
2- Vanguard VHYD (26.6%)
3- Vanguard VWRD (26.6%)
4- iShares Global Govt Bond UCITS ETF (IGLO) 20%

2nd portfolio:

1- Vanguard VUSD (26.6%)
2- Vanguard VHYD (26.6%)
3- Vanguard VWRD (26.6%)
6- iShares Core Global Aggregate Bond UCITS ETF (AGUG) (20%) (I couldn't find this in my broker software)

any suggestions to improve these ? or do you guys have better portfolio suggestions?

Thanks a lot.

Fesal
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David Jay
Posts: 14569
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: I need help building a long term income generating portfolio

Post by David Jay »

Welcome to the forum!

It seems like you have two conflicting processes going on here:

1. Supplement your income
2. Keep buying shares

The money you use to buy shares cannot be used to supplement your income (and vice-versa).
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
Topic Author
Fesal1984
Posts: 4
Joined: Wed Jul 28, 2021 5:42 pm

Re: I need help building a long term income generating portfolio

Post by Fesal1984 »

Thank you David for the reply. dividends reinvesting till I use it later :oops: . Any portfolio suggestions?
User avatar
rh00p
Posts: 176
Joined: Fri Jan 11, 2019 12:21 am

Re: I need help building a long term income generating portfolio

Post by rh00p »

Fesal1984 wrote: Wed Jul 28, 2021 9:25 pm Thank you David for the reply. dividends reinvesting till I use it later :oops: . Any portfolio suggestions?
I suggest you read the Bogleheads Wiki. You're in an accumulation phase of your life and dividends can be a heck of a tax drag. But then you say you're in Kuwait.
Preparing for the worst. Hoping for the best.
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: I need help building a long term income generating portfolio

Post by TedSwippet »

Welcome. I have assumed below that you are not a US citizen or US green card holder.
Fesal1984 wrote: Wed Jul 28, 2021 6:29 pm I just opened an Interactive Brokers account and I bought with it a few shares of VWRA and VUAA Vanguard ETFs approximately worth 1150 USD and I realized that I made a mistake.
Kuwait has no personal income tax, so this is not really a mistake, in that it will not cost you any money or returns. Accumulating and distributing funds that hold the same underlying assets perform equivalently. So you could at some point sell these and purchase distributing equivalents, or you could sell a few shares later and periodically as and when you want to take their income. No local (or other) tax issues either way.
Fesal1984 wrote: Wed Jul 28, 2021 6:29 pm I want to build an income-generating portfolio through dividends from stocks and bonds, my primary goal is to supplement my income with dividends and increase the dividends over time and just keep buying more shares and not selling. I've been researching these ETFs for the past few days: ...
Both your suggested portfolios have a noticeable US bias. US stocks are more than half of VWRD, nearly half of VHYD, and all of VUSD. 66% or so US stocks (market cap is around 55%). And your value/dividend tilt with VHYD might crimp future capital gains; in particular, selecting for value stocks excludes the big US internet companies (FAANGs).

On bonds, AGUG is hedged to the USD. If the Kuwaiti Dinar were pegged to USD then hedging might make sense, but it is not (as far as I know). In that case, unhedged AGGG is probably a better choice.

More ETF suggestions in this wiki page: Building a non-US Boglehead portfolio - Bogleheads
Topic Author
Fesal1984
Posts: 4
Joined: Wed Jul 28, 2021 5:42 pm

Re: I need help building a long term income generating portfolio

Post by Fesal1984 »

TedSwippet wrote: Thu Jul 29, 2021 3:06 am Welcome. I have assumed below that you are not a US citizen or US green card holder.
Fesal1984 wrote: Wed Jul 28, 2021 6:29 pm I just opened an Interactive Brokers account and I bought with it a few shares of VWRA and VUAA Vanguard ETFs approximately worth 1150 USD and I realized that I made a mistake.
Kuwait has no personal income tax, so this is not really a mistake, in that it will not cost you any money or returns. Accumulating and distributing funds that hold the same underlying assets perform equivalently. So you could at some point sell these and purchase distributing equivalents, or you could sell a few shares later and periodically as and when you want to take their income. No local (or other) tax issues either way.
Fesal1984 wrote: Wed Jul 28, 2021 6:29 pm I want to build an income-generating portfolio through dividends from stocks and bonds, my primary goal is to supplement my income with dividends and increase the dividends over time and just keep buying more shares and not selling. I've been researching these ETFs for the past few days: ...
Both your suggested portfolios have a noticeable US bias. US stocks are more than half of VWRD, nearly half of VHYD, and all of VUSD. 66% or so US stocks (market cap is around 55%). And your value/dividend tilt with VHYD might crimp future capital gains; in particular, selecting for value stocks excludes the big US internet companies (FAANGs).

On bonds, AGUG is hedged to the USD. If the Kuwaiti Dinar were pegged to USD then hedging might make sense, but it is not (as far as I know). In that case, unhedged AGGG is probably a better choice.

More ETF suggestions in this wiki page: Building a non-US Boglehead portfolio - Bogleheads
You are right it's too heavy on US stocks, I think the portfolio should be a 3 fund portfolio.
-VHYD
-VWRD
-ishare IGLO
what do you think of this portfolio?


what do you think of all global government bond ETF like IGLO vs Global Aggregate bond ETF AGGG that contains corporate bonds?
which is less risky?
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: I need help building a long term income generating portfolio

Post by TedSwippet »

Fesal1984 wrote: Sun Aug 01, 2021 11:00 am -VHYD
-VWRD
Okay, though be aware that selecting value (income) shares filters out growth shares that can contribute a lot to total returns. Explored in this recent paper from Vanguard (written for a US audience, so ignore the parts about tax):

Total-return investing: A smart response to shrinking yields
Fesal1984 wrote: Sun Aug 01, 2021 11:00 am What do you think of all global government bond ETF like IGLO vs Global Aggregate bond ETF AGGG that contains corporate bonds?
Overall, corporate bonds are riskier than government bonds, because unlike (most!) governments, companies can go bust. However, this means that they theoretically pay higher yields, which would at least make this compensated risk. That said, there are arguments that corporate bonds perform more or less the same as government bonds, so no gain for the added risk. Or, perhaps this only applies in the US.

My own personal preference is for mostly government bonds, but also some corporate bonds (accepting the slightly higher risk). I would probably pick AGGG, but perhaps more out of a desire for better diversification than any other reason; that is, two types of bond, rather than just one. Which will be best can only be known with hindsight. Efficient market hypothesis, again.

For what it's worth, I have personally not bought any bonds for some years now -- instead I use local 'certificates of deposit' for an interest rate that, while depressingly low, is not really any lower than I might get from a bond fund, but with guaranteed return of principal. That might or might not be an option for you, depending on your preferences and goals for your investments.
Topic Author
Fesal1984
Posts: 4
Joined: Wed Jul 28, 2021 5:42 pm

Re: I need help building a long term income generating portfolio

Post by Fesal1984 »

TedSwippet wrote: Sun Aug 01, 2021 12:20 pm
Fesal1984 wrote: Sun Aug 01, 2021 11:00 am -VHYD
-VWRD
Okay, though be aware that selecting value (income) shares filters out growth shares that can contribute a lot to total returns. Explored in this recent paper from Vanguard (written for a US audience, so ignore the parts about tax):

Total-return investing: A smart response to shrinking yields
Fesal1984 wrote: Sun Aug 01, 2021 11:00 am What do you think of all global government bond ETF like IGLO vs Global Aggregate bond ETF AGGG that contains corporate bonds?
Overall, corporate bonds are riskier than government bonds, because unlike (most!) governments, companies can go bust. However, this means that they theoretically pay higher yields, which would at least make this compensated risk. That said, there are arguments that corporate bonds perform more or less the same as government bonds, so no gain for the added risk. Or, perhaps this only applies in the US.

My own personal preference is for mostly government bonds, but also some corporate bonds (accepting the slightly higher risk). I would probably pick AGGG, but perhaps more out of a desire for better diversification than any other reason; that is, two types of bond, rather than just one. Which will be best can only be known with hindsight. Efficient market hypothesis, again.

For what it's worth, I have personally not bought any bonds for some years now -- instead I use local 'certificates of deposit' for an interest rate that, while depressingly low, is not really any lower than I might get from a bond fund, but with guaranteed return of principal. That might or might not be an option for you, depending on your preferences and goals for your investments.
I went with this portfolio:
1) VWRD 70%
2) AGGG 30%

Thank you TedSwippet.

Fesal
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