How Can I Build a Low-Cost Portfolio Generating $10,000 Per Month In Dividends Without High Anxiety?

Building a relatively defensive dividend portfolio that yields $10,000 per month doesn’t have to be difficult. But those seeking such a colossal monthly income stream are going to need a massive amount of capital. And overreaching for yield (let’s say beyond the 4% rule) isn’t advisable, especially for those investors who seek less anxiety, rather than more worry about volatility and the potential for dividend cuts.

In any case, aiming to minimize costs (management fees) while finding the perfect mix of investments (stocks and ETFs) is a great first start for a self-guided dividend investor looking to live off monthly income without having to ever hit that sell button. Let’s check in on a few ways one can score a jumbo income stream while steering clear of the alluring traps that may catch others unexpectedly as they pursue higher yields without realizing the added risks they’ll need to shoulder.

A $10,000 per month income stream is hefty, but it is possible for those with enough in the bank

First up, let’s get a ballpark estimate of how much you’ll need in the retirement account before even thinking about achieving a $10,000 per month ($120,000 per year) passive income stream. Undoubtedly, the “4% rule” is just a rule of thumb. But I do think it’s far better not to deviate too much from the trail, especially since higher yields carry a higher chance of a dividend or distribution reduction if cash flows can’t keep up.

While it’s okay for some investors to adhere to a “6% rule,” provided they can withstand a potentially rockier ride, someone looking to reduce their anxiety should stick with a lower portfolio yield, perhaps even one that’s slightly less than 4%. Indeed, if there’s enough saved up, a “3% rule” or even a “2% rule” could be far less anxiety-inducing, especially for a relatively new investor who’s not quite used to stock market volatility quite yet.

In any case, let’s stick with the 4% rule. Based on it, you’d need a cool $3 million nest egg to achieve a $10,000 monthly income stream. And that’s not even accounting for taxes.

Of course, retirees should also factor in Social Security benefits, pension payments, and other sources of income. On that front, a financial advisor could offer a more personalized touch as one picks and chooses the securities needed to achieve a fairly defensive dividend portfolio.

What about doubling down on yield with covered call ETFs?

For those who don’t have $3 million, shooting for a higher yield could prove wise. After all, why settle for 4% when a covered call ETF like the JPMorgan Nasdaq Premium Income ETF (NASDAQ:JEPQ) offers 11.52%?

Indeed, the JEPQ is a yield beast that’s captured the attention of many passive income investors. With a yield of around 11%, you’d need a figure just north of $1 million, rather than $3 million, to achieve that $120,000 annual (or $10,000 monthly) income figure.

And while I’ve praised it as a yield booster in prior pieces (provided the rest of one’s portfolio was well-diversified), I do think that owning the ETF on its own with other sky-high-yielders could lead to more anxiety as premiums on call options stand to shrink. Indeed, call option premiums are not static. And with that, a covered call ETF’s yield carries a fairly wide degree of variance.

In any case, I think diversifying into a broad range of ETFs, such as the Global X SuperDividend U.S. ETF (NYSEARCA:DIV) and Vanguard Real Estate Index Fund ETF (NYSEARCA:VNQ), which yield 7.19% and 3.54%, respectively, at the time of this writing, alongside premium income ETFs, like the JEPQ, could make a lot of sense. In any case, there’s more than one way to build an income stream that yields $10,000 monthly.

If your nest egg entails a yield that’s far greater than 5%, though, perhaps it may be a better move to go for a “4-5% annual withdrawal rate” on a more balanced growth-oriented portfolio than going down the dividend route, at least in my opinion.