Portfolio favoring cap gains instead of interest/dividends

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Lucky C
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Portfolio favoring cap gains instead of interest/dividends

Post by Lucky C » Mon Nov 18, 2019 4:16 pm

Suppose I want to build a portfolio that has a lower yield than most bond funds and stock indices (say < 1.5%), and I want low correlation with the broad equities market and the broad bond market (don't want to buy low yielding Euro bonds), but I'm OK with taking some capital gains (both long and short term). This would be for about 1/3rd of all my assets, so everything else could be a more typical portfolio/strategy. What would be some good options to achieve these requirements?

I was thinking the first step would be to put precious metals ETFs and/or miners stocks (0% or low yield) in this allocation, but I would not want that to be a full 1/3 of my money. So some other portion could be a combo of cash, stocks, and bonds, so that the total yield is still < 1.5% while not correlating too strongly with equities or bonds.

But are there other strategies that eschew dividends/interest in favor of a fairly reliable harvesting of capital gains? I believe there are options strategies that could accomplish this but I am ignorant of the details and risks. Also interested in reading about trading strategies that could work well in theory but are dismissed by the masses because they would not work well after capital gains taxes.

Mister Imperceptible
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Re: Portfolio favoring cap gains instead of interest/dividends

Post by Mister Imperceptible » Mon Nov 18, 2019 7:27 pm

The premium for physical precious metals is recouped by not having to pay the continuous fees associated with precious metals ETFs, never mind the fact that the fine print in those ETF prospectuses say they can cash settle you when the unallocated fractional reserve blows up.

On the other end of the barbell is far OTM call options on miners and mining ETFs, if you size your position right and are cognizant of the time decay.

Another option is to buy puts on traditional stock indices when the VIX is under 13......

Tyler9000
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Re: Portfolio favoring cap gains instead of interest/dividends

Post by Tyler9000 » Mon Nov 18, 2019 7:32 pm

Along the lines of your first idea, you might consider something like the Permanent Portfolio. Especially at low interest rates, the bonds and cash will be more oriented towards capital gains than interest. The gold is pure capital gains. And the total stock portion is less dividend oriented than many other stock approaches. I believe the total yield of 25% VTI/TLT/IAU/SHV is currently right near your 1.5% target. I haven't checked a Euro version but I imagine it's similar.

And if you want to tweak that even more towards capital gains, you might consider a zero coupon bonds in lieu of standard long-term bonds and a basket of non-dividend-paying stocks instead of a broad market fund.

Lucky C
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Re: Portfolio favoring cap gains instead of interest/dividends

Post by Lucky C » Tue Nov 19, 2019 10:48 am

Mister Imperceptible wrote:
Mon Nov 18, 2019 7:27 pm
Another option is to buy puts on traditional stock indices when the VIX is under 13......
This is about 1% of my assets except VIX was more like 14 - guess I should have waited a couple more days!

Another thought is that beyond gold, oil and other commodities may be good to hold at the moment. Oil especially to hedge my heating bills. Too bad physical oil is not as easy to trade as gold.

I also realized that I can simply time certain stock purchases to wait for the ex-dividend date / sell before the next one. I could swap between different stocks or funds that are similar but have different dividend dates. I don't think I want to bother with this but it could potentially work with only a few trades over the year.

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Re: Portfolio favoring cap gains instead of interest/dividends

Post by jacob » Tue Nov 19, 2019 1:03 pm

Lucky C wrote:
Tue Nov 19, 2019 10:48 am
Too bad physical oil is not as easy to trade as gold.
USO

Lucky C
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Re: Portfolio favoring cap gains instead of interest/dividends

Post by Lucky C » Tue Nov 19, 2019 3:27 pm

I just meant to avoid to avoid ETF fees I can't easily stash away physical oil beyond what my tank in the basement holds :)

Also due to having to fill out a painful Schedule K-1 for holding a Limited Partnership in the past, I now want to avoid anything with LP in its name. DBC or similar is much more appealing!

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