Summary
Rules help keep things in order and focused.
Children need rules as much as we do with our portfolios!
Looking into three rules to help keep your portfolio on track.
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ALENA DZIHILEVICH/iStock via Getty Images Co-produced with Treading Softly
Those who have raised children or are raising children likely have created rules for our households that those without children have never had to make.
I honestly never thought I’d have to instruct another human being that they cannot take off their wet diaper and hit their sibling with it. Nor did I think that trying to pass a glass of water would be complicated by trying to slide it down the side of our table using only our chest. Children push the boundaries of what adults think is logical or straightforward. Yet, we need to remember that everything is new to a child. They are trying to make sense of a completely new world. Their experiments can be amusing, exasperating, and as parents, our job is to try to limit the dangers.
Likewise, many new investors or soon-to-be retirees who are taking the reigns of their portfolio for the first time find themselves caught in a totally new world of concepts and ideas. Investors have to choose between investing and trading, growth and value, holding, selling and buying, or even how many stocks to hold. The learning curve can be steep, and missteps can be extremely costly.
Seeking Alpha is a place where we can come to learn from others. Investors of all stripes and levels of experience can be found here, sharing their thoughts, ideas, and plans. It is a wonderful tool to help new investors learn and to help seasoned investors hone their strategies. There is no one “right way” to invest, but over time, most will find one way that works for them. Any seasoned investor will have a list of “rules” that they follow.
My investment style is governed by a set of guidelines or rules that compose The Income Method. It’s a methodology of investing and portfolio management I have created over the years from my experience. It’s been fine-tuned by my team and me through various market cycles. It also contains a perspective on retirement and life in general. We don’t want to be forever tied to the market watching green and red bars form. We want income to enable us to live enriched and fulfilled lives!
So today, I want to provide you with three rules for income investors regarding portfolio management to help you get on a solid footing or to help challenge your thought process and allow you to refine and strengthen your perspective! The Rule of Income – Get Paid or Get Gone
This rule sets the stage for the Income Method; we invest for income, period.
We invest in high-quality companies, and we want them to reward us for doing so – giving us our cut of their success. Companies can do this in various ways, like through share buybacks or dividends. The risk with buybacks is that the company can always decide to issue more shares in the future. While some companies are habitual buy-backers and have produced excellent total returns, they do not meet our criteria of paying a dividend. We demand to be paid for our ownership.
Furthermore, we usually do not like to include yields of less than 6% in our Model Portfolio. We are looking for sustainable, quality dividends yielding 6% or more. This rate of dividends means our yield is a livable yield producing enough income to meet life’s needs head-on.
I can’t pay my power bill in shares of Amazon ( AMZN ) or Tesla ( TSLA ). I pay it in U.S. Dollars. While you can go through the process of selling shares to pay your power bill and either holding the excess cash or reinvesting it, that’s a lot more work than simply paying your bill in cash received as dividends. Unless you have a power bill over $3,000, your AMZN share seems better left in the market!
Many types of securities are designed to pass along high levels of income to their shareholders through tax laws. Real Estate Investment Trusts, Master Limited Partnerships, Yieldcos, and Closed-End Funds, all have tax rules/incentives to payout a large portion of their earnings. Income investors’ portfolios often have exposure to many or all of these […]
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