Retiring in 3 Years And Need $5,000 A Month, What Portfolio Works Best?

By Vandita Jadeja Published Aug 27, 2:32PM EDT

Key Points

You can create an investment portfolio that generates $5,000 per month at low risk.
Invest in two high-yield ETFs and four single-stock focused ETFs for steady monthly income.

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Retiring in 3 Years And Need $5,000 A Month, What Portfolio Works Best? — © Yulia Nemenova / Shutterstock.com

Is your retirement close? There’s nothing to fear. There are ways to make your retirement financially secure and comfortable. Even if you have only 3 years before retirement, it is possible to build a passive income stream. You can achieve the monthly goal of earning $5,000 in dividends if you invest right. The first step is to start with high-yield exchange-traded funds (ETFs).

You’ll need to build an investment portfolio of dividend ETFs and single-stock focused funds to generate $5,000 per month or $60,000 per year. I’m assuming you’ll have $500,000 saved up for retirement, which means you’ll need to achieve 12% average annual yield to generate $5,000 each month.

You can allocate about 80% of the capital towards diversified ETFs with an annual yield ranging between 12% to 15% and put 20% of the retirement funds into ETFs that focus on single stocks. Let’s understand how the strategy works.

Diversified ETFs With High Yields

You need to plan the allocation of 80% of your retirement savings. Invest them in two high-yield and well-diversified ETFs. You can allocate 40% each in NEOS NASDAQ-100 High Income ETF (NASDAQ:QQQI) and NEOS S&P 500 High Income ETF (BATS:SPYI).

Say you invest 80% of $500,000, which is $200,000 each in the ETFs. In order to retire in 3 years, you need at least a 12% average annual yield on your investment. QQQI exceeds your 12% objective with a yield of 14.56% . It has an expense ratio of 0.68% and holds 100 stocks.

The fund invests in the top technology companies based on the NASDAQ 100 index and includes the Magnificent Seven like NVIDIA (NASDAQ:NVDA | NVDA Price Prediction), Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), and Meta Platforms (NASDAQ:META). Additionally, it pays out cash distributions each month, which means you can maximize the compounding effect through dividend reinvestment.

Next, the NEOS S&P 500 High Income ETF tracks the S&P 500 stocks and includes about 500 stocks in its holdings. In this ETF, you’ll see many familiar names such as Bank of America (NYSE:BAC), Coca-Cola (NYSE:KO), and Home Depot (NYSE:HD). Since both the funds are highly diversified and hold elite names, they’re fairly low risk, and the dividend is sustainable. SPYI also pays monthly dividends and has a yield of 12.05% and an expense ratio of 0.68%.

By investing equally in QQQI and SPYI, you should average a 12% yield or more with only 80% of the retirement savings. Now onto the remaining 20%.

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Enjoy a Higher Yield With Single-Stock Funds

To make sure you achieve at least $5000 from your retirement fund, you can consider investing the balance 20% into a few single-stock funds. While they do carry slightly higher risk because they’re not diversified, their annual yield is impressive. However, YieldMax funds carry significant risks due to the complex call strategy on single stocks. High-yield distributions could lead to NAV erosion in the long term, meaning you could only be getting your money back. Since they focus on single stocks, they’re more volatile and could see extreme price swings.

There are four single-stock focused ETFs that pay monthly dividends.

The YieldMax AAPL Option Income Strategy ETF (NYSEARCA:APLY) focuses on Apple stock and has an annual distribution rate of 39.95% with an expense ratio of 0.99%. After deducting the expenses, you’ll still have a net yield of 38.96%.
The YieldMax GOOGL Option Income Strategy ETF (GOOY) is based on the Google parent company, Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL). It has an annual distribution rate of 44.30% and operating expenses of 0.99%, which leaves you with a net yield of 43.31%.
The YieldMax AMZN Option Income Strategy ETF (NYSEARCA:AMZY) is based on Amazon.com Inc. (NASDAQ: AMZN) stock and has an annual distribution rate of 53.46%. The gross expense ratio is 0.99%, which leaves you with an impressive net yield of 52.47%.
The YieldMax NVDA Option Income Strategy ETF (NYSEARCA:NVDY) is based on NVIDIA stock with an annual distribution rate of 65.09%, gross expense ratio worth 0.99% and the expected net yield of 64.1%.

Striking The Right Balance

Investing in single stock-focused ETFs involves more risk, which means you do not want to invest a lot of your retirement money in AMZY, APLY, NVDY, or GOOY. You can allocate 5% to each ETF and the remaining to the highly diversified, low risk funds. The yield will outpace the average 12%. Ultimately, it is all about striking the right balance between risk and reward. You do not want to take more risk than you can handle.

Even if you start today, you can build a well-balanced portfolio generating $5,000 or more per month.

About the Author Vandita Jadeja →

Vandita Jadeja is a financial copywriter who loves to read and write about stocks. She believes in buying and holding for long term gains. Her knowledge of words and numbers helps her write clear stock analysis. She has contributed to several publications, including the Joy Wallet, Benzinga, The Motley Fool and InvestorPlace.