With income inequality issues and economic protests dominating
the headlines as of late, the so-called ‘one percent’ have been in
focus. These wealthy individuals—in case you have been living under
a rock the past few months—consist of the richest 1% of the
populace in the country and control a disproportionate amount of
the nation’s wealth.
In fact, some reports suggest that this small group of people
possesses more than 40% of all financial assets in the country
including half of all stocks, bonds, and funds. Furthermore, they
only have just 5% of the debt and are taking home more of the
national pay than any time in the past 90 years.
Yet despite these trends and the growing backlash against these
ultra-wealthy, little seems likely to be done in order to change
the status quo. The major political parties seem unwilling and
unable to compromise on any economic issues, especially in an
election year, so it looks as though these trends will continue at
least into the foreseeable future (see more in the Zacks
ETF Center).
While this certainly isn’t good news for those in any of the
protest ‘movements’ across the country, there are definitely ways
for investors to play the scenario. After all, many of the
techniques and strategies being used by the 1% are well known and
easy to employ in a personal portfolio and could be great choices
for investors seeking to make a similar play with their assets.
This is especially true given the vast proliferation of ETFs
over the past few years and all the strategies that these products
have opened up to regular investors. Now, mom and pop investors can
use many of the techniques that were once reserved for the ultra
rich of the country that have millions in liquid assets (One
Percenters should also read the Complete Guide to Preferred Stock
ETF Investing).
Below, we have highlighted three ETFs in order to help people
invest like the one percent. These products look to target many of
the methods that ultra-high net worth investors have been using for
years in their own portfolios, but in a way that is accessible and
cheap to buy for the ’99%’ of investors out there.
iShares S&P National Municipal Bond Fund (MUB)
Municipal bonds are securities that are issued by local and
state governments in order to build or finance any number of
projects ranging from infrastructure improvements to general budget
uses as well. Often times, in order to encourage investment, these
securities are exempt from federal income tax and are often free
from inclusion in AMT calculations as well.
Since regular taxable bonds are taxed at 35% for the top
bracket, this can be a huge selling point for rich investors who
are seeking to keep their tax liabilities low while still
participating in the fixed income world. Luckily for investors
looking to apply this strategy with funds, there are a number of
muni bond ETFs available.
One of the most popular is iShares’ MUB, a $3 billion dollar
fund that has over 2,000 securities in its basket and has an
investment grade debt focus. Additionally, the product charges a
modest 25 basis points a year in fees while tilting exposure to
bonds from California, New York, and Texas (see The Forgotten
Municipal Bond ETFs).
In terms of yield, the fund pays out a taxable equivalent yield
of about 3% in 30 Day SEC Yield terms while possessing a modest
effective duration. While the yield may not sound that impressive,
investors should consider that comparable Treasury bond ETFs pay
out just 1.5% in comparison, and that is without the tax
benefit.
Clearly, for those in the top tax brackets, muni bond funds can
provide a decent low risk yield that is far in excess of Treasury
bills. With these benefits, investors who are looking to a make a
bond investment like the 1% could be well served by looking at the
muni space.
Vanguard Dividend Appreciation ETF (SDY)
For high income individuals who find themselves in the top
income brackets, dividend investing is another popular avenue. That
is because dividends are currently taxed at a favorable rate of 15%
for high income earners, far less than other types of income.
Thanks to this, it can be beneficial to steer assets towards
dividend paying stocks, keep the investment in there for the long
haul, and live off the dividend income taxed at the favorable rate.
Luckily for investors looking to do this in ETF form, there are a
number of quality choices (see 11 Great Dividend ETFs).
One of the more popular is SDY, a fund that tracks the S&P
High Yield Dividend Aristocrats Index. This benchmark measures the
performance of the 60 highest dividend yielding S&P Composite
15000 constituents that have consistently increased dividends every
year for at least the past quarter century.
In a way, this fund represents the ‘one percent’ of dividend
stocks, focusing on the top securities in the space that have been
among the most consistent dividend growers. Furthermore, the very
name of the benchmark—with the focus on ‘Aristocrats’—screams ‘1%’
to many.
In terms of its portfolio, consumer, financials, and industrials
comprise the top three sectors, while energy, technology, and
telecom are the bottom three. While the yield isn’t enormous, only
3.2% at this point, it is likely to give investors a stable yield
at a relatively cheap cost (0.35%), making it an interesting pick
for investors looking to mimic the strategies of those in the top
income brackets.
iShares FTSE NAREIT Mortgage REIT ETF (REM)
In another strong dividend play, investors can consider REM. Not
only is its payout impressive, but the fund focuses on real estate,
a hallmark of one percenter investing. While it is true that
regular investors can miss out on certain tax benefits that
can come with outright real estate purchases, there are also a
number of headaches—tenants, repairs, etc.—that can be avoided with
an ETF/REIT approach.
Furthermore, REM’s dividend will be extremely tough to beat as
the product currently has a 30 Day SEC Yield of 13.4%. While the
fees are a little high at 48 basis points, this still means that
after fees, the payout on the product will be approaching 13% a
year.
Add in the tax benefits that are afforded to dividend income,
and investors could have a solid choice on their hands with this 28
security fund. Furthermore, the product has a very reasonable PE
ratio—below 14.25—while the beta is less than 0.7 (read Top Three
High Yield Real Estate ETFs).
This suggests that the product will be relatively stable,
allowing investors to sit back and watch the dividends roll in,
just like the real members of the one percent!
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30
Days. Click to get this free report >>
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days. Click
to get this free report
SPDR S&P Dividend (AMEX:SDY)
Historical Stock Chart
From Jul 2024 to Aug 2024
SPDR S&P Dividend (AMEX:SDY)
Historical Stock Chart
From Aug 2023 to Aug 2024