Month: April 2023

Mountain climbing, like investing, inherently involves risk. Packing a survival blanket to withstand hypothermia, and a second pair of goggles to prevent the blindness of frozen eyelids, and establishing multiple camps on big mountain adventures, to which you may flee and recover from injury, all offer the dividend of living to climb another day. The financial benefits associative to income investing, or owning investments which pay a present stream of income (‘Income’), as opposed to none, are commensurate with such critical climbing principles, and include:

• ‘Income’ provides a margin of risk reduction with your investment. ‘Income’ paid today replaces a pure reliance on growth, which is often speculative and risky.

• ‘Income’ accelerates the compounding of investment returns (over reinvesting capital gains alone) and increases share ownership.

• It is our opinion ‘income’ fights inflation more effectively than growth because inflation places a premium on ‘income’, and discounts its absence.

• ‘Income’ can give you a raise without depleting the principle of your investment, even when growth is elusive.

• A portfolio containing ‘income’ investments likely equates to less overall risk and higher average portfolio quality, and it is our opinion only established, competitive companies can meet the promise of a consistent dividend through periods of recession and bear markets.

• ‘Income’ investments simplify the investment process and potentially decrease portfolio expenses because the average hold time far exceeds that of non-‘income’ investments.

Doc Eifrig, a successful and well-known ‘income’-focused investor at Stansberry Research, suggests we are in a ripe period for ‘income’ investing today, following the Fed’s aggressive rate hike campaign in 2022, and lays out three simple principles for successful ‘income’ investing:

• Buying dividend stocks alone isn’t enough. To consistently maximize both income and returns, investors must a) utilize bonds, REIT’s, MLP’s, ETF’s, annuities, and Treasury bonds, b) understand the environment in which each ‘income’ investment thrives, and c) act at the appropriate time. It won’t help a climber who responds to frozen hands by putting their helmet on!

• Always be a value investor when purchasing ‘income’ investments. Have strict ‘buy’ parameters, and stick to them like a tick on a dog. Never overpay for an ‘income’ investment. Never chase prices.

• Never accept less interest on cash savings than the market will safely give you, even on your emergency fund, especially in a high inflation environment.¹

An elite winter climbing day above tree-line, and ‘income’ investing in today’s pristine rate environment both come with three charges; the former: pack carefully, fuel up, and enjoy the adventure!; the latter: recognize the benefits, apply the means, and enjoy the financial blessing.

Think about it, Shaun.

“Our favorite holding period is forever”. ~Warren Buffet

“Price is what you pay. Value is what you get”. ~Warren Buffet

“Never depend on a single income. Make an investment to create a second source”. ~Warren Buffet

“Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”  ~Proverbs 13:11

1 Stansberry Research, Daily Wealth, “We’re in a Rare Age for Income Investors”, by Dr. David Eifrig, April 12, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

It has been the practice of our two-man winter climbing team for 15 years to hire guides on glaciated adventures, and to go-it-alone on snow. We’ve paid guide teams to endanger us, and we’ve paid guide teams to save our lives. On one particular 5 day climb in 2011, the guiding policies were so irrational, we may have saved their lives! They were good people, and strong young men, practicing unsound principles. The investment tenets driving your investment decisions, or those of your wealth manager, are equally critical to your financial survival and success! Here are two fundamental principles to investing that are upheld by many of the most experienced investors in America:

• Negative principle; something to avoid: Never allow your geopolitical or macro-economic views to impact investment decisions. Investors who do so consistently produce among the worst returns in the marketplace. Allow your perceptions of the broad picture to impact financial planning decisions, but never decisions aimed at growing capital. There are no exceptions to this rule.

• Example: many friends and clients have recently expressed intense concern about the likelihood the U.S. dollar loses its world-reserve currency status, to the effect it should be impacting investment decisions. Not so! As Ian Bremmer keenly noted, “you can’t replace something with nothing”, and there is no viable alternative on the horizon today.¹ Investments made on the faulty premise the inevitable death of the global dollar must occur in the next few years  will eventually turn woefully sour, even as disciplined investors continue to consistently make wise decisions and profit!

• Positive principle: something to practice: Always be a buyer of a highly profitable business at a reasonable price. Warren Buffet, to express this point, suggests investors think of themselves as business owners, not stock pickers. Doc Eifrig, the top performing investor at Stansberry Research during his long tenure, often recommends the purchase of companies that a) show several years of consistent revenue growth, b) have return on assets (ROA) of 10% or more, c) have 10 consecutive years of dividend growth, d) have a net debt-to-earnings before interest, taxes, depreciation, and amortization (“EBITDA”) ratio of less than 4, and e) have a price to earnings ratio (P/E) under 25.² What matters is that you have parameters that are tested and reliable, and that you follow them.

• Example: retail investors are notoriously the worst investors on earth. They never buy into the stock market until very late in a raging bull market, and are the credited catalyst which ‘pushes’ stock prices to their peak and warns elite investors to protect their long-standing, massive gains. Later they methodically capitulate near the bottom of the following bear market, and resolve never to own stocks again. They are a group of highly emotional investors without a plan, trying to compete in a highly counter-intuitive marketplace designed to ultimately inflict the maximum amount of pain on the maximum number of investors. Track the retail investor, but make this powerful investing principle your guide.

May these two sound principles be a blessing to your investing efforts! Think about it, Shaun.

“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.” ~Warren Buffet

“Where there is no guidance, a people falls, but in an abundance of counselors there is safety.” ~Proverbs 11:14 ESV

1 Mauldin Economics, Over My Shoulder, “Ian Bremmer: The Dollar is Dead, Long Live the Dollar”, April 10, 2023

2 Doc Eifrig’s Health & Wealth Review, “Five Traits of Any Good Investment”, April 8, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Engaging an activity without an understanding of the associative principles and rules is generally a consequential endeavor. This winter alone a good number of outdoor enthusiasts ventured into the White Mountains of New Hampshire absent both knowledge and attire, and quickly met their Maker. Ed Viesturs, the greatest mountaineer America ever produced, never put his crampons on before reading, “Freedom of the Hills”, a 575 page manual on the sport, also known as “The Bible of Mountaineering”, two times word for word! His success is not a mystery, but the result of his commitment to education. Finance needlessly claims far more financial lives than all the mountains on earth. Burn the following rules into your thinking, allow them to incinerate your financial fallacies, practice them devotedly, and enjoy the blessings they will bring.

Establish a net positive cash flow (‘NPCF’: net income exceeds gross expenses) with hard work, career specialization, and strict budgeting.

• Most consumers make excuses for their overspending, but this rule requires unfunded, voluntary expenses to be eradicated, including, but not limited to pets, cell phones, cable TV, eating out, needless driving, vacationing, hobbying, and even excess giving.

• Most Americans accumulate debt faster than equity for failing to obey this simple rule. Don’t be one of them! Do no further financial planning until accomplishing a ‘NPCF’ in your household, which would equate to fertilizing a grub-infested lawn.

Appropriate your monthly excess (NPCF) productively.

• Establish an ample emergency fund equal to at least six months household expenses, accelerate debt repayment dutifully, and buy enough term life insurance to protect your loved-ones.

• Understand real wealth building requires investment returns equal to, or greater than inflation, which necessitates the ownership of great businesses. Diversify holdings, dollar cost average your purchases, own index funds, minimize expenses, and avoid taxes.

Become a judicious risk assessor of your investment portfolio.

• A 1,500 lb. brown bear won’t engage a 45 lb. wolverine because it understands injury results in death. Most great investors insist the avoidance of catastrophic loss is the single most important aspect of investing. Embrace this truth.

• Keep individual positions to 5% or less of the whole. Establish stop-loss orders on all non-forever stock holdings at the time of purchase, and follow them militantly. Buy primarily boring businesses which earn consistent profits and pay dividends. Follow purchase parameters to avoid overpayment.¹

These rules are few and simple, but sufficiently powerful to transform wealth consumers into methodical wealth producers. Think about it, Shaun.

“Rule number one is never lose money. Rule number two is never forget rule number one.”  ~Warren Buffet

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.”  ~Ecclesiastes 11:2

“Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”  ~Proverbs 13:11

1 Stansberry Research, “The Stansberry Digest”, April 10, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.