$1 Million To Invest, $100,000 In Dividends Needed

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Investing is often viewed as a delicate balance between risk and reward. For those aiming to earn passive income, dividend-focused stocks can be very attractive, offering the potential for steady cash flow without needing to sell assets.

Still, not all dividend strategies are created equal. Some promise high yields but come with risks, while others focus on stability and long-term goals. ETFs have become a popular tool for investors looking to diversify their portfolios and earn income, but even within the ETF world, the choices can be difficult to make.

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The question then arises: How can one build a sustainable, low-risk dividend portfolio that meets their financial goals without exposing them to needless volatility?

This question has also put one Reddit member at a crossroads. The individual, with $1 million cash to invest and goals of generating $100,000 in annual dividends, is considering a three-ETF strategy to achieve this objective.

The investor is nearing retirement in five years and is looking to supplement his living expenses–which are about $60,000 per year–while also hedging against inflation.

His proposed portfolio includes [JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ)], [SPDR S&P 500 High Dividend ETF (NYSE: SPYI)], [The Simplify Volatility Premium ETF (NYSE: SVOL)], each allocated at 33% and dollar-cost averaged over the next few years.

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Let’s see what Reddit investors in the r/Dividends community recommended the poster do.

Chasing High Yield Comes with Significant Risks

One of the most consistent themes in the comments is the warning against chasing high yields without considering the fundamental risks.

“The way dividends go aiming for a 10% yield from the word go is highly unrealistic. With dividends, you are supposed to chase quality, not yield, and quality is not going to give you that yield,” a Redditor said.

One Reddit member said that a dividend-focused portfolio with a 10% yield is not a risk-free move, but if the markets are doing good, the goal can be accomplished.

“Chasing 10% on a dividend portfolio doesn’t come without a fair amount of risk… but if the markets are strong, you [dividend investment plan] until you need it & have some luck and consistency on your side, you could enjoy some nice dividends,” he said.

Another comment provided a more realistic target for the investor, balancing yield and risk.

“A 6% yield on investment in 5 years could be accomplished without an ungodly amount of risk. Basically a 4.5% current yield growing at a 7.5% clip every year would net you 6% yearly return on invested by year 5, and hopefully keep growing at that clip outpacing inflation,” the comment reads.

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Diversify and Consider Alternative Investments

Several commenters suggested the poster diversifies his portfolio beyond ETFs to include other income-generating assets, such as individual dividend-focused stocks and real estate investment trusts.

“I’m retired on 50% [Vanguard S&P 500 ETF (NYSE: VOO)], 33% JEPQ, 15% [JPMorgan Equity Premium Income ETF (NYSE: JEPI)], 2% [YieldMax TSLA Option Income Strategy ETF (NYSE: TSLY)]. Selling some [Everest Re Group (NYSE: RE)] this week and plan on being 33% VOO, JEPI, JEPQ with 1% TSLY. If TSLY bumps up a bit I might sell. Not seeing [net asset value] erosion over the past year. Just lots of green and solid dividends,” a Redditor said.

A comment highlighted the potential benefits of mixing ETFs with individual stocks to achieve balance.

“I’ve been able to pull 9.88%-15.45% in dividends using a portfolio mix of 56% high dividend ETFs + 44% dividend single stocks. The focus is cash flow with some growth just to fight decay,” the comment reads.

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This article $1 Million To Invest, $100,000 In Dividends Needed–Is This 3-ETF Strategy The Ultimate Passive Income Plan Or A Risky Bet? originally appeared on Benzinga.com

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