Americans have a Retirement advantage Europeans Don’t: Choice – and These funds Unlock It
Unlock a stream of income and potential growth with closed-end funds (CEFs), offering yields of 8% or higher and the adaptability to retire on your own terms.
The freedom to chart your own retirement course is a uniquely American advantage. While many nations offer robust social safety nets, they frequently enough come at the cost of individual control. Investors in closed-end funds (CEFs) are uniquely positioned to capitalize on this freedom, accessing high yields – averaging over 8% – and potential for stock-like growth.
The contrast is stark. One investor recalls being told during their PhD studies in Europe that contributions to the national pension fund wouldn’t be accessible until age 62 – a prospect that felt decades away and financially crippling at the time. “It seemed absurd-nearly 40 years for me…to get back money I desperately needed today,” they noted.
That situation is becoming increasingly common across Europe.Retirement ages are rising, with Denmark now at 67 and planning to increase to 70, and Germany considering a jump from 66 to 73.The ability to choose when and how to access retirement funds is increasingly challenging for individual investors.This is where CEFs come into play.
CEFs offer a compelling solution, focusing on assets from well-established companies and delivering high yields that function like a “mini-pension,” providing income self-reliant of government programs. “This is the way I viewed CEFs in my late 20s, when I began using their high dividends to get the income I needed to make the choices I wanted,” one investor explained. “I still view them this way.”
Beyond their ample dividends, CEFs often generate strong returns due to their discounts to net asset value (NAV) – the value of their underlying portfolios.As these discounts narrow, they drive up the fund’s price.Crucially, CEFs are easily accessible, trading on public markets like stocks.
Consider the Adams Diversified Equity Fund (NYSE:ADX), one of the oldest funds globally, with roots stretching back to the 19th century and a current holding within the CEF Insider portfolio. ADX boasts a blue-chip portfolio including stocks like Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN), and JPMorgan chase (NYSE:JPM).
Currently, ADX trades at an 8.3% discount to NAV – a sweet spot representing value and momentum. ADX has consistently paid dividends since before the Great Depression,and its 8.3% yield is fully supported by a 13.3% total NAV return over the past decade. As the late 1980s, ADX has delivered a remarkable 5,340% return to shareholders with reinvested dividends, coinciding with the meaningful rise in US household wealth.
This combination of performance, discount, and an 8.3% dividend makes ADX an ideal “mini-pension” option.
Though, ADX isn’t the only US-stock-focused CEF offering substantial income and a proven track record.The General American Investors Company (NYSE:GAM), launched in 1927, yielded an remarkable 9.4% in 2024. GAM’s holdings also lean towards large-cap companies, including Alphabet (NASDAQ:GOOGL), Berkshire hathaway (NYSE:BRK.B), and Apple (NASDAQ:AAPL).
GAM has demonstrated strong market-price-based returns over the last decade, with an annualized return of 14.4%, though slightly less than ADX. While GAM’s 9.3% discount appears attractive, its near its past low, making immediate purchase less compelling, but worth monitoring for a potential dip into double digits.
Ultimately, high-yielding CEFs like ADX and GAM empower investors to generate a meaningful income stream, providing the freedom to use those funds as they choose. With these options,a comfortable and independent retirement is within reach.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, “7 Great Dividend Growth Stocks for a Secure Retirement.”
