Meet the “Ultimate Side Hustle” … And It’s Not What You Think
My friend Keith and I had breakfast Sunday. He’s one of my two oldest friends – dating back to my sophomore year in high school.
He married a lovely woman – a talented artist and art professor. He has three kids – each of them grown and holding good jobs. He works as an architect ... in fact, he’s a heavy-hitter in the firm he works for.
And, like so many Americans, he’s fed up.
“You know, Bill, you watch the State of the Union … you listen to the politicians in Washington … or read [the work of economist] Paul Krugman … and want to ask: ‘Have you actually ever been inside a grocery store? Do you fill your own gas tank?’” Keith said. “Because they’re not in touch with the real world.”
Take the U.S. Federal Reserve. During his two days of testimony on Capitol Hill last week, central bank Chair Jerome Powell said that inflation has “eased notably” over the past year – but remains higher than the Fed’s 2% target rate.
Trouble is, most folks don’t feel better. While it’s true the inflation rate is down now, prices today are about 20% higher than they were at the start of 2021.
And that’s an average. If you break out individual categories, the picture (and that “feeling”) is much worse.
We’re spending 10% more for airfare, 15% more for frozen vegetables and 25% more for streaming services. Car insurance is up 44% (including 20% in the last year alone). Gasoline has soared nearly 35%. Electricity has zoomed 28%.
Food’s the real killer: It’s been more than 30 years since food chewed up this much of our paychecks. Whether we’re eating at home or dining out, a full 11% of our income now goes to food – the most since 1991.
Advil Won’t Ease Your Inflation Pain
And that’s the problem: Folks remember what those same prices “used to be” – and are rankled by what they’re paying now.
Want a real-world example? I remember myself what a good deal McDonald’s Corp. MCD 0.00%↑ breakfasts used to be. Two weeks ago, I did “breakfast to go” for my son Joey and me – with no drinks – and admit I was a bit staggered by the $38 tab.
The inflation “rate” may ease. But these higher prices are here to stay.
And Americans are running faster to keep up.
The Labor Department itself acknowledged this after a recent study said the number of folks working a second job reached a post-pandemic high of 8.4 million. That’s 6% of all women in the workforce and 4.7% of all men.
Some folks work a second job because they can’t find the full-time spot they really want. Others see that layoffs are surging – and want to protect themselves. But most just need to make extra money.
That need for extra cash is borne out by the surging Internet searches for “side hustles,” “side jobs” and “second jobs.”
As you can see here (with “0” meaning no search and “100” signifying peak search), Google searches for “side hustle” have tripled since March 2019:
And searches for the more traditional “side job” and “second job” have exploded – with “second job” closing in on that “peak” search:
Side Job & Second Job Searches
We’re hitting this all today for four reasons:
Folks need a “gap bridger,” and they pursue second jobs and side hustles – but they also pursue “passive income.”
Folks don’t understand what “passive income” really means.
As is always true when folks are needy, scam artists move in.
And because consumers are venturing beyond their areas of comfort and expertise – and especially because they don’t understand “passive income,” they are vulnerable to their own mistakes and scam-artist gambits.
In today’s issue of Stock Picker’s Corner (SPC), we’ll show you a better way …
The “Ultimate” Side Hustle
Side hustles can be great – even rewarding. Especially if you’re building on an expertise you’ve built professionally – or if you’ve figured out a way to turn a hobby you love into a money spigot.
A side hustle can also turn into a full-time business.
But in my years working as a reporter, investing columnist and analyst, I’ve seen that there’s a disconnect.
Folks think they’re looking for a “side hustle.”
But what they really want is passive income – a predictable cash stream that comes their way from a source other than another job.
That’s why a passive income strategy is the ultimate side hustle.
Although passive income is “passive” because you’re not working an extra job, it doesn’t mean you’re getting “something for nothing.” You’re putting cash to work – putting it “at risk” – preferably apportioned across a portfolio of investments that throw off cash.
Cash that you can invest in “growth” oriented investments like stocks. Cash that you can use to supplement your work income. Cash that you can use to enjoy your life since – as we know – money is a means to an end, and not the “end” itself.
That’s’ the power of great income investments.
But even as you’re putting a passive-income strategy in place, there’s a checklist to run through.
It’s short, consisting of three short assessments.
They are:
Understand when income investing is right — and when it’s not: As Simple Wealth, Inevitable Wealth author Nick Murray writes: “People greatly overestimate the long-term risk of owning stocks [and] seriously underestimate the long-term risk of not owning stocks.” Sometimes stocks trump income. But income cash flows can be used to buy stocks. (Want proof? Just look at some of the strategies Warren Buffett used to build the juggernaut we know as Berkshire Hathaway Inc. (BRK.A, BRK.B.)
Understand the “full picture” with your income plays: Factors like time frames, market rates, inflation rates and taxes need to be part of your “income-investing math,” meaning you need to think in terms of “real return,” “cash flow,” “sustainability” and “yield on cost.” That full picture will give you a full understanding of the income investments you make.
Know thyself: It’s a mantra of mine – one I share with you. Don’t get into “income” plays that aren’t what they seem, that you don’t understand, or that sit far outside your personal comfort zone.
I’ve given you a full overview. Now we’ll put those insights to work.
A Passive Income Candidate to Research
If you’re researching income investments, one starting point is a company like Ares Capital Corp. (ARCC).
The Los Angeles-based Ares is a “business-development company,” or BDC. BDCs are a type of closed-end investment firm that provides debt-and-equity financing to small- and mid-market companies. In fact, BDCs operate a lot like private-equity (PE) or venture-capital (VC) firms. But while PE and VC firms mostly accept investments only from wealthy folks, BDC shares are publicly traded, meaning anyone can invest if they want to.
BDCs are required by law to invest at least 70% of their assets in private U.S. companies with market values of less than $250 million. And they’re required to pay at least 90% of their income out to shareholders as dividends.
The yield, liquidity offered by publicly traded shares, availability to all investors and diversified asset base are the strengths of a BDC firm. The weaknesses are that you must monitor the credit quality of what they hold (especially in a slowing or stalling economy), and you want to be cautious when interest rates spike.
Ares specializes in lending to mid-market companies. Its current market value is $11.7 billion. As of December 31, it was the largest BDC by market cap.
Ares’ current yield is 9.35%. Over the last five years, it’s had a minimum yield of 7.17% and a median yield of 9.22%, according to YCharts.
That track record as a high-yielding opportunity is why Ares is worth putting on your personal list of income investments to consider. Remember what I said about risk? The high yield — and the business model that drives it — makes for higher risk. So do your homework: Make sure this fits within your “know thyself” parameters.
For other passive-income candidates, check out “Dividend Kings” – companies that have boosted their payouts for at least 50 years in a row. Once a company earns that mantle, you can bet it’ll do all it can to maintain it. We’ll cover that in a future issue of SPC.
Income investing in general is one of the “Wealth-Building Storylines” I’m following for you folks in our little corner of the market.
We detailed the Artificial Intelligence (AI) storyline in our introductory SPC report. Over the next few weeks, I’ll be sharing another – a fascinating investing storyline I refer to as “The New Cold War.”
See you then …
This story is great. I liked the way you used a personal anecdote to pull your audience members into the meat of the article. Deftly done.