Kiawah Golf Investment Seminars

Trading Your Way To A Secure Retirement Income

Submitted by Investment Shadow | RSS Feed | Add Comment | Bookmark Me!

Part One of an article in an upcoming issue of Trader's World Magazine

There's nothing like a credit crunch, a meltdown in IRA and 401(k) market values, and an unprecedented mess in the mortgage market to make the point: income investing is something that even the most dedicated equity trader needs to deal with... eventually.

Unfortunately, most investors are less than familiar with the complicated nature of income producing securities and, more importantly, the availability of income producers in "tradeable", professionally managed, form.

Attention traders! You can bring your well honed equity skills to the most conservative securities on the planet and absolutely grow a secure retirement income at the very same time. Managed Closed End Funds (CEFs) trade in the same way as common stocks, and on the same exchanges.
 
From the (unaudited) chart that you can access here, you can see that the safest of income-only-portfolios grew roughly 80% in a time frame in which the S & P 500 was up less than 3%... Yes, I know this is apples vs. oranges, but eventually you will realize:

  •  that proper Asset Allocation is an exceptionally tasty fruit salad, and
  •  that retirement requires more than just the hope of endless profitable equity  trades

Please refer to the disclaimers on this webpage and the footnotes on the chart, but briefly: The time frame is 12/31/06 through 9/30/12; the black line tracks the price of 5 fixed income index ETFs; the yellow line tracks the prices of ten managed tax free income CEFs; the hot pink line reports the market value of two tax-free-CEF-only portfolios with no deposits or withdrawals other than management fees.

So it's a fact, we can, as actively as we care to, trade both asset allocation "buckets"* using nothing but the highest quality possible securities we can get our hands on. OK, so you aren't quite ready for the boredom of Investment Grade Value Stocks --- too expensive and stable for day-to-day trading.

But you do need to get your cash flow growing now; whether you are 22 or 52, right now; developing a stream of dependable spending money is even more important than you think. I started my tax free income portfolio in 1970, with the proceeds from my very first equity trade (Royal Dutch Shell).

Many traders like to operate within a zero "portfolio" environment --- establishing and closing positions daily. Little thought, time, or effort is given to long range planning for the future wealth that is being created. Let's step back for a moment, and consider that last proposition.

What is the long run purpose of this "trading" regimen we subscribe to if not wealth creation? What is the function of wealth if not to provide the income you need to sustain the life style you aspire to?

When push comes to shove, it's your income that pays the bills, so why not be sure that you are growing it while along the way to when and where it is needed.... today, my tax free and tax deferred portfolios generate an estimated four times my monthly Social Security payment... and I'm still trading equities.

My suggestion is that you balance your "portfolio" with at least 30% of the "Working Capital"* committed to income production, all of the time. In other words, invest a portion of your trading capital in tradeable income Closed End Funds (CEFs), using Quality, Diversification, and safe Income production as your selection criteria (the QDI*).

The objective is to create a less risky, trading friendly, compound income factory that will become your own personal "Eveready" income bunny --- with or without any additional contributions from your equity trading activities.

My recommendation, however, is that you transfer at least 30% of every equity trading profit to the "My Retirement Income Fund" asset allocation "bucket". Before we get into the "how" of this creative endeavor, we need to talk about risk and experience.

As good as you are at short term equity trading, you certainly are aware of the risks involved; you know that losses can and will occur for a myriad of reasons. The risks involved with trading income CEFs can be much lower and much easier to control, but if it really is an investment, risk is part of its DNA.

The reason people assume the risks of investing in the first place is the prospect of achieving a higher rate of return than is attainable in a risk free environment... i.e., an FDIC insured bank account. Risk comes in various forms, but the average investor's primary concerns are "credit" and "market" risk... particularly when it comes to investing for income.

Credit risk involves the ability of corporations, government entities, and even individuals, to make good on their financial commitments to the folk who lend them money. Market risk refers to the absolute certainty that there will be changes in the market value of the selected securities.

All marketable securities --- including T-Bills, Bonds, and Notes will fluctuate in market value. And these three, intrinsically the safest of all, pay the least income and react the most violently to rising interest rates. Can interest rates stay as low as they are now forever?

We can minimize credit risk by selecting only high quality (investment grade) securities and market value risk by:

  •  diversifying properly,
  •  understanding that market value changes are generally benign events, and
  •  by having an action plan for dealing with market price fluctuations.

For more information about income CEF investing, contact John Dohn.

Next Income Investing Webinar:

NOTES:

Asset Allocation Buckets, Smart Cash, Base Income, Working Capital & the QDI are terms used with unique, specialized, meanings within the Market Cycle Investment Management Methodology. They are explained in: "The Brainwashing of the American Investor: The Book That Wall Street Does Not Want YOU to Read" 


 
Kiawah Golf Investment Seminars
3912 Betsy Kerrison Pkwy
Johns Island, SC 29455
Phone (800) 245-0494 • Fax (843) 243-8509
Contact Steve directly for additional information: 800-245-0494
Please join the private article mailing list

Please read this disclaimer:
Steve Selengut is registered as an investment adviser representative. His assessments and opinions are purely his own. None of the information presented here should be construed as an endorsement of any business entity; the information is only intended to be educational and thought provoking.

Please join the private article mailing list or Call 800-245-0494 for additional information

Risk Management: Income, 401k, and IRA Programs

Take a free tour of a professional investment managers' private SEP IRA program during ten years surrounding the financial crisis:

CLICK HERE

In developing the investment plan, personal financial goals, objectives, time frames, and future income requirements should all be considered. A first step would be to assure that small portfolios (under $50,000) are at least 50% income focused.

At the $100,000 level, between 30% and 40% income focused is fine, but above age 50, the income focus allocation needs to be no less than 40%... and it could increase in 10% increments every five years.

The "Income Bucket" of the Asset Allocation is itself a portfolio risk minimization tool, and when combined with an "Equity Bucket" that includes only IGVSI companies, it becomes a very powerful risk regulator over the life of the portfolio.

Other Risk Minimizers include: "Working Capital Model" based Asset Allocation, fundamental quality based selection criteria, diversification and income production rules, and profit taking guidelines for all securities,

Dealing with changes in the Investment Environment productively involves a market/interest rate/economic cycle appreciation, as has evolved in the Market Cycle Investment Management (MCIM) methodology. Investors must formulate realistic expectations about investment securities--- by class and by type. This will help them deal more effectively with short term events, disruptions and dislocations.

Over the past twenty years, the market has transitioned into a "passive", more products than ever before, environment on the equity side...  while income purpose investing has actually become much easier in the right vehicles. MCIM relies on income closed end funds to power our programs.

To illustrate just how powerful the combination of highest quality equities plus long term closed end funds has been during this time... we have provided an audio PowerPoint that illustrates the development of a Self Directed IRA portfolio from 2004 through 2014.

Throughout the years surrounding the "Financial Crisis", Annual income nearly tripled from $8,400 to $23,400 and Working Capital grew 80% $198,000 to $356,000.

Total income is 6.5% of capital and more than covers the RMD.

https://www.dropbox.com/s/b4i8b5nnq3hafaq/2015-02-24%2011.30%20Income%20Investing_%20The%206_%20Solution.wmv?dl=0

Managing income purpose securities requires price volatility understanding and disciplined income reinvestment protocals. "Total realized return" (emphasis on the realized) and compound earnings growth are the key elements. All forms of income secuities are liquid when dealt with in Closed End Funds. 



Associated Content:
Interest Rates Are Rising - The Sky Is NOT Falling - Income investing facts of life: When higher rates are expected, existing security prices fall. lower...
Experienced (old?) Investors Love Higher Interest Rates... Say What! - Rising Interest Rate Expectations, regardless of their impact on Closed End Fund pricing, have absol...
Investment Fruitcake - Portfolio design, in its simplest form, is a fruitcake of apples, oranges, and dough. The recipe (as...
The Pure Logic of Income Investing - Income Investing is sane, necessary, logical, intellectually pure, purposeful, manageable, predictab...
The Greatest Investment Story Never Told - An excellent strategy even in today's investing environment. The current buzz on the street is that ...
Who's Afraid of Higher Interest Rates? - A rising interest rate environment is super good news for investors. When we loan money to someone, ...
Investment Grade Value Stocks - Quality Is Job One - How much financial bloodshed is necessary before we realize that there is no safe and easy shortcut ...
Risk Management: Income, 401k, and IRA Programs - Sooner or later, every investment program (particularly your IRA and 401k) becomes a Retirement Inco...
What Investors Want & How To Get It: - What Investors Want and How To Get It... the between the lines content of The Brainwashing of the Am...
Create Reliable Income: 6% Tax Free; 7% to 8% Taxable - This program explains the process within Market Cycle Investment Management retirement income portfo...

Please read this disclaimer:
Steve Selengut is registered as an investment advisor representative. His assessments and opinions are purely his own and do not represent the views of any other entity. None of his commentary is or should be considered either investment advice or a solicitation of business. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be or should be construed as an endorsement of any entity or organization. The reader should not assume that any strategies, or investments mentioned are any more than illustrations --- they are never recommendations, and others will most certainly disagree with the thoughts presented in the article.