Q. How to turn my lifetime savings into income?
A. For people who are approaching retirement, they often need a source of steady income as they transition from wealth accumulation to distribution. Closed-end funds (CEFs) are an option worth considering for the following 3 reasons.
1. Nearly all CEFs seek to generate income
Most CEFs are designed with the goal of providing a reliable stream of income—a result of actively managing a fund’s portfolio as well as its distributions. CEFs seek to deliver smooth, regular and often tax-efficient distributions. Those that utilize leverage—roughly 70% of all CEFs—do so to further enhance the fund’s income and return potential.
2. Stable asset base fosters efficient portfolio management
Unlike open-end mutual funds that sell an unlimited number of shares to investors, CEFs issue a set number of shares at the fund’s launch. Those shares then trade throughout the day on the stock exchange at values that reflect supply and demand. With no need to accommodate cash inflows or outflows daily, this structure provides broad investment flexibility and enables managers to commit to an investment thesis over the long term. In addition, a CEF portfolio can remain fully invested, without the need to retain excess cash that can dilute performance.
3. Help increase portfolio diversification while still offering attractive income
Another benefit of a relatively stable asset base is the enhanced ability to include less liquid investments and alternative strategies with a long-term focus—enabling investors to access sectors they may not readily reach through other means. What’s more, many CEFs invest in asset classes not typically associated with income, such as equities. For these reasons, CEFs can help diversify portfolios, potentially boost returns from non-traditional investments, and still offer reliable income potential.
In our next blogpost, we will discuss risks associated with CEFs.
A. For people who are approaching retirement, they often need a source of steady income as they transition from wealth accumulation to distribution. Closed-end funds (CEFs) are an option worth considering for the following 3 reasons.
1. Nearly all CEFs seek to generate income
Most CEFs are designed with the goal of providing a reliable stream of income—a result of actively managing a fund’s portfolio as well as its distributions. CEFs seek to deliver smooth, regular and often tax-efficient distributions. Those that utilize leverage—roughly 70% of all CEFs—do so to further enhance the fund’s income and return potential.
2. Stable asset base fosters efficient portfolio management
Unlike open-end mutual funds that sell an unlimited number of shares to investors, CEFs issue a set number of shares at the fund’s launch. Those shares then trade throughout the day on the stock exchange at values that reflect supply and demand. With no need to accommodate cash inflows or outflows daily, this structure provides broad investment flexibility and enables managers to commit to an investment thesis over the long term. In addition, a CEF portfolio can remain fully invested, without the need to retain excess cash that can dilute performance.
3. Help increase portfolio diversification while still offering attractive income
Another benefit of a relatively stable asset base is the enhanced ability to include less liquid investments and alternative strategies with a long-term focus—enabling investors to access sectors they may not readily reach through other means. What’s more, many CEFs invest in asset classes not typically associated with income, such as equities. For these reasons, CEFs can help diversify portfolios, potentially boost returns from non-traditional investments, and still offer reliable income potential.
In our next blogpost, we will discuss risks associated with CEFs.
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