Should You Buy the 8 Percent Closed-End Fund a 68-Year-Old Couple Has Held for 12 Years and Most Advisors Will Not Touch?
Quick Read – Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG) yields 9.1% at market price with a 19% one-year total return, while Cohen & Steers Quality Income Realty Fund (RQI) yields 9% with monthly distributions of $0.09 plus periodic year-end specials
Both are closed-end funds generating the $16,000 annual income a retired couple needs, but require purchasing at meaningful discounts to NAV to justify the strategy. – Conservative yield strategies at 3.5% require $457,000 in capital to generate $16,000 annually but deliver growing income over two decades, while aggressive 8% CEFs like EXG and RQI deliver immediate income on just $200,000 but risk staying flat in real terms as inflation erodes purchasing power. – A retired couple, both 68, has owned the same closed-end fund for 12 years, collecting an 8% yield the entire time. Their fee-based advisor refuses to recommend it. Their tax preparer groans every spring when the complicated 1099-DIV arrives.
Yet the numbers are difficult to ignore. On a $200,000 purchase made in 2014 at a 12% discount to net asset value, the fund has generated roughly $16,000 a year in income, or about $192,000 in cumulative distributions over 12 years, while the fund’s net asset value has remained relatively stable. That $16,000 annual income stream is the real benchmark.