November 2023 Investing Update

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For the month of November, the DOW gained 2898 points. That was an 8% gain in one month. Interest and dividend income was $2070 for the month. Overall account value increased by $33,018. That may seem like a big gain, but my account had lost $47,942 in the previous three months. Withdrawals for living expenses came to $1023. The only investment changes were moving another $2000 into a money market fund and moving all stock account core holdings into a money market fund. About 40% of holdings are now in money market funds with a 5% interest rate. Getting 5% on your money is above the current US Inflation Rate which is at 3.24%, compared to 3.70% last month and 7.75% last year. With diversification, my overall rate of return is only slightly higher than 5%. Bond funds have been one of the worst investments for the year. It will take a drop in interest rates before bonds start to recover.

I have a position in three closed end funds that hold bonds. They pay a monthly dividend of between10% and 13%. In November, these funds started to recover, but they are still down an average of 19% each. I also hold a tax-free municipal bond fund with a yield of 5% that is down by 12%. The reason for investing in these funds is to get the monthly income. But when interest rates started to go up funds that hold bonds disproportionately declined in value. Also, several of these closed-end funds are distributing principal to make up for a short fall in dividends. They pay the same amount each month, but as much as 60% of the payout is from principal. They are more like an annuity than a stock investment that can grow in value. Because of this it is common to see a chart that shows a steady decline over time.

I have another closed-end fund that is invested in stocks which has increased in value. But the fund that has gained the most value is a dividend growth fund. The growth fund has helped reduce the loss in value from the closed-end funds. That got me thinking about selling the closed-end funds and replacing them with dividend growth funds. The fund would need to pay a monthly dividend and include only US large cap growth stocks. A mutual fund screen of funds paying over 3% returns a lot of real estate and short-term bond funds. I’m not in a hurry to sell the closed-end funds just yet. I plan on holding them until interest rates start going down to see how that impacts the fund and hopefully recover some of the lost value. My advice would be to avoid any fund that pays a portion of its dividend out of principal. There are also ETF’s like SCHD, DGRW, and COWZ that hold dividend stocks. The thing to watch there is that you are not making investments that duplicate your holdings.

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