SPC Premium Dossier: Our"Income Playbook"
Two stocks with real yield ...
Editor’s Note: This Dossier is a part of the coverage of companies and assets that are in the SPC Premium Model Portfolio. You can learn more about becoming a SPC Premium member by clicking here to unlock this full report.
When it comes to “income,” most folks set themselves up to lose — before the game even starts.
They reach for yield, especially during stretches like this one, where market rates are viewed as “high” — and have edged higher.
They don’t understand the basics — and get caught in the “income-investing trap.”
And with interest rates still high (but expected to fall in 2024 and to keep falling in 2025) … consumer pessimism still rampant … a boatload of uncertainty fueling that funk … and a record $6.4 trillion sitting on the sidelines in money market funds (MMFs) … you’ve got the ingredients for an investing mess.
An income-investing mess.
Some of the more common income-investing mistakes include:
Grabbing a big block of a super-high-yielding dividend stock — without first making sure that payout is sustainable … and safe.
Chasing the high returns promised by “income products” — or “income strategies” like options — without understanding how they work … or the higher risks that accompany those higher advertised flows of cash.
Or getting suckered into “passive-income” alternatives and “side hustles” that are increasingly being “pitched” (marketed) everywhere — schemes that demand lots of extra effort … meaning, despite the claim, they aren’t “passive” at all.
Mistakes like these share some basic root causes. Folks don’t understand:
Basic “Income-Investing Math:” You need to think differently about income. You need to consider the full picture. You need to think in terms of what’s left over after taxes, inflation and general market rates are factored in. Think in terms of “real return,” “cash flow,” “sustainability” and “yield on cost.” You do that and you’ll have a true understanding of how much cash your income investments are really delivering. That’s critical.
Their Game Plan: Bill’s Wealth Rule No. 1 is “Know Thyself.” Have an overall game plan, complete with financial goals, time frames and have an answer to the “how much risk can I tolerate” question. 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. That full picture will give you a full understanding of the income investments you can (and should) make — and those to avoid.
When Income Investing Is Right — And When It’s Not: I like this one a lot. 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.)
Income-investing miscues will lead to something I’m referring to as “Money Market Fallout.”
A massive mistake (you put too much money in a bad investment) is like a direct nuclear strike to your money— it kills it outright.
The good news here is you can avoid that scenario.
And I’ll help you with two truly passive income investments you can research for your portfolio …