Give The Gift Of Dividends

Co-produced with Treading Softly

The older I get, the more often I am told that I am hard to buy a gift for. I don’t want for much, and I find that in my current life situation, I’m exceptionally content with the physical possessions I have around me. I don’t see that as an issue for myself, I view gifts as one route to express appreciation and affection – the size or dollar value is unimportant to me.

We all love getting gifts, don’t we? I also love giving them as an expression of my care for others. I’ve learned to embrace the “better to give than receive” mindset. Gift-giving is one of the major ways I routinely express appreciation to my spouse throughout the year.

I have to admit, it is hard to match the enthusiasm of children. There isn’t much that is more enjoyable than watching young children, filled with curiosity, checking out their Christmas gifts, inspecting, shaking, and holding their brightly colored, delicately wrapped Christmas gifts — just dying to know what is inside!

The most important gifts are those that change and impact the recipient’s life forever. These gifts are rarer than the trinkets and toys that overflow under the Christmas tree, but they are the kind of gifts that the recipient will remember for a lifetime.

They can come in many forms, a family heirloom passed down from one generation to the next, the secret formula to turn lead into gold, or a philosophy that sets life in the right direction.

Today, I have the joy of sharing a gift with anyone who will listen. Much like a voice crying in the wilderness, I often try to share my perspective with any who will listen. I want to share with you the gift of The Income Method. It’s a blend of immediate income investing and value investing, all combined into one holistic investment philosophy. It focuses on high-yield securities such as dividend stocks, preferred stocks, bonds, and baby bonds. The Income Method harnesses the power of compounding and applies it to your personal income stream.

I use it to help myself, personally, and High Dividend Opportunities members succeed in the market throughout its highs and lows. A seasoned captain sails his ship through the strongest storms at sea, they are calm and strong, guiding their ship through it all. Likewise, the Income Method helps guide you through the market. Let’s take a look at three major benefits of the Income Method.

1. The Benefit Of Reduced Stress

Let’s be honest for a moment. Almost everyone is looking to reduce their stress levels. We all feel the pressure and stress of the holiday season weighing down on us.

Adding to this scenario, most people hate talking about or thinking about money. It’s one of the most common reasons marriages end in divorce and relationships crumble. A lack of money can bring countless other stressors along with it. Even those with plenty of money can be stressed out from the feeling or thought of running out of cash.

$1 million sounds like a lot of money in the abstract – and it is. However, when you are faced with living off of a lump sum for the rest of your life (how many decades?), and the market is swinging 20-30% in a single year “losing” $200,000 – $300,000 in value, many retirees who are in the enviable position of having $1+ million don’t feel secure.

Imagine if you could push a button, and your portfolio would start flooding income into your bank account. Wouldn’t that be nice?

If you’ve set up your portfolio following traditional guidelines, you have a portfolio that produces next to no dividends. You are expecting to slowly dismantle it to meet your required drawdowns in your IRA or fund your retirement budget. The 4% rule is your ruler. It was designed to give a measure of comfort trying to keep your portfolio providing for you for 30 years, but in many regards, it simply adds another stressor to your life: timing. When should you sell your shares to satisfy your daily needs or to meet your RMD requirements?

Using 2020 as our example, if you sold out in March due to fear and panic, you likely did damage to your portfolio that may take years to repair, if you could repair it at all. On the other hand, if you sold in February, you look like an investment genius.

Stop. Stop selling. Instant stress relief. In the blink of an eye, you never have to sell another share again. For many of you, it sounds almost too good to be true. Yet countless retirees are invested for income in their portfolios and don’t even think about selling. Holders of baby bonds, bonds, and preferred stocks never have to consider when to sell or if to sell at all. They aim to hold until maturity or the company calls it. Their daily lives carry on, knowing that next month they will get $X in interest and dividends. Their choices in how they designed their portfolio mean they never had to give their positions a second thought. They get paid and don’t stress about it.

Consider that for a moment. The ability to walk away from the market, get recurring income pouring in, and not have to stress about it. An income portfolio yielding 8% and even 9% can earn you a lot of peace of mind. Kiss that stress goodbye and say hello to income investing.

To do this, you’ll have to put in some leg work, especially if you currently have an income-less portfolio. Take some time and consider the benefits of changing. When you’re done thinking, it’s time to get to the doing part.

2. The Benefit Of Less Trading

Trading can be an absolute blast! The thrill of the chase and the joy of success leads many to trade too frequently. Mix in commission-free trading and snazzy apps, which make it super easy to trade frequently. Brokerages have gamified trading to entice you to do more of it, this is how brokerages, hedge funds, and high-frequency trading firms take advantage of the average person. They have developed tools or have access to ones to benefit from your slower execution speeds and limited market tools.

Data-powered smartphones and attractive apps have made it easy to trade. During COVID, many working from home had excess time to glance at the market frequently without their supervisor possibly catching them!

Your portfolio is like a bar of soap in the shower. The more you expose that bar of soap to the water of the shower and your hands, the smaller it gets. Each drip of water hitting your soap erodes your bar little by little, washing it away. Likewise, each trade you make exposes your money to forces beyond your control who are not looking out for your good. They are looking to extract value from your money for their profit.

So you must take steps to ensure your portfolio value isn’t slowly washed down the drain to benefit someone else!

Income investing reduces the frequency you need to trade. Do you still want or need the thrill of trading? Set some “fun” money aside and go to town! This way, you keep the majority of your portfolio doing the heavy lifting and staying on point.

Buying a baby bond that matures in four years and yields 6%-7% or preferred stock that yields +8% means you only need to make the purchase. Just one trade. One transaction. Afterward, you can sit back and enjoy your income for years and years to come, this means more time to perfect your pickleball game and less time in the pressure cooker of the market.

3. The Benefit Of Never Being Too Late

This one is probably the single greatest benefit out of the three we’ll look at today. Is it ever too late to get your portfolio into income-generating securities? Never. While there are clear benefits to starting early, you can never start too late. Often retirees only look at the 4% withdrawal rule when they’re only 5 to 10 years from retirement and realize that it’ll leave them hungry and struggling to survive.

When I discuss their situation with them, I can show them how much of a difference the Income Method can make to their retirement. They didn’t know their retirement was destined to be an endless battle. While CD yields and money market rates have been climbing, the cost of living has been climbing even swifter.

The 4% rule continues not to be able to sustain the average retiree, and if you adjust your withdrawals for inflation, your stockpile of cash will dwindle even faster. Staring down the barrel of a retirement riddled with financial stress and potential disaster, many stumble upon one of my articles and read about the Income Method for the first time. They find encouragement, perhaps even hope, and wonder to themselves if they are late in the game for The Income Method to help them.

The answer is a resounding no. Almost anyone I have interacted with has seen tangible benefits from switching away from the plan of selling off assets in the hope that the remaining assets go up in value to collecting regular dividend income. You may be sitting at home, struggling to balance your checkbook after your holiday spending, and mournfully wondering to yourself how come retirement isn’t anything like you pictured. If that’s you, it’s time for a change – one is clearly needed!

On the other hand, if you’re 20 and considering your retirement decades from now, a lifetime spent income investing will leave you with an unparalleled income stream pouring into your retirement accounts for you to enjoy for years to come. Is 100% returns in one month continually repeatable? Logic would slap you across the face and say no. Don’t fall for the flashy ads saying every pick is a 500% return. No matter where you see them, they don’t tell the whole story. Will the market be up or down in 30 or 40 years when you retire? There is no way to know. Apply the power of compounding, reinvesting your dividends to buy more income-producing investments and you will find that whether the market is up or down doesn’t matter anymore. Your income will grow, compound, and be ready for you when you choose to retire.

Getting dividend payments for a lifetime from a carefully managed portfolio of high-quality securities is entirely realistic and possible.

Conclusion

On Christmas Day, my family will open the gifts that I have carefully and lovingly selected and wrapped for them. There will be a mixture of possessions and experiences that they will enjoy for years to come. You can give your spouse, yourself, or anyone you choose the gift of the Income Method by sharing it with them. It’s a gift in so many different ways, but three simple ones are the benefit of reduced stress, less trading, and never being too late.

2022 can be that year for you. It can be the time you decided to revolutionize your portfolio and your retirement outlook. Take a moment, and picture the benefits of reducing your stress and maximizing your income. If you know someone who is struggling, do something to help them see how different their life can be. I look forward to the exciting year 2023 filled with new possibilities and opportunities. Let’s ensure we have the means to explore them together.