Blog | CB Investment Management

Income Portfolio. Higher Yield AND Lower Volatility Than S&P 500


A complete analysis of the Income Portfolio is hard to achieve as not many portfolio management tools can combine stocks, bonds, and individual corporate bonds, but 90% of the Income Portfolio can be analyzed in the Tradestops software, as only 10% of the allocation is in corporate bonds, and they are unlikely to materially change any conclusions.


The S&P 500 Index has a 2% yield and a Volatility Quotient of 10.4%.


If an investor would prefer more yield and less volatility then the Income Portfolio could be an attractive alternative with a yield of 5.5%, and a Portfolio Volatility Quotient (PVQ) of 7.17%.


2.5 times the yield, but with less than 70% of the volatility, at least on a historical basis. Also, the Income Portfolio is far from a set it and forget it portfolio with no risk management. Each position has a risk adjusted trailing stop with daily signals, and rebalancing is done every month.


This combination of increasing yield while reducing volatility can be achieved through portfolio analysis by risk sizing positions, and selecting a broad range of income securities which have relatively low correlations. As you can see the Income Portfolio is widely diversified.


Naturally neither volatility nor correlations are fixed, but to a reasonable approximation current behavior is the best approximation in the short term. As the whole portfolio is risk managed daily and rebalanced every month, the problems that plague Modern Portfolio Theory become minor issues.


Important Disclosure


No method, software, or advisory services guarantee any return or could ever be regarded as risk free or in any way perfect as a risk management system. No returns should ever be guaranteed, and all methodologies carry risks as well as benefits. 


The information and charts are provided to illustrate how they can help construction of portfolios, and be a useful guide for decision making and for testing methodologies and illustrating how portfolio construction could change the dynamic of risk management.  Analysis provided by any investment services, whether Tradestops or Stansberry Research has it’s limitations and may result in the loss of capital.


The purpose of providing the information contained in this note is as an illustration only to help investors understand some aspects of the investment process. The statistics mentioned are accurate to my best knowledge but only a snapshot at the time of writing and should also be regarded as illustrative only.


Best Practice is a matter of your Best Interest.

Education and a Commitment to Informed Consent is an Obligation.

Chris Belchamber is an IRMAA Certified Planner

Medicare’s IRMAA impacts every retirement plan. Learning how to mitigate it is available via IRMAA Certified Planners designation.

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