Roaming Returns

002 - Why Income Investing Beats Growth Stock Chasing

• Tim & Carmela • Episode 2

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Learn about how income investing works and why it beats the pants off the typical growth chasing mode of operation. 

This income generation strategy is perfect for people who want to utilize their savings sooner than later or for anyone who wants to avoid selling off their assets when it comes time to retire. 

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Tickers mentioned in this episode.

  • IEP
  • CWH
  • UAN


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Welcome to the second episode of roaming returns a podcast about generating passive income through investments. To the you can fund your travel dreams. Join our hosts, Carmela and Tim, in this episode where we're going to discuss what is income investing, how does it work? And we're gonna go over all the reasons why we absolutely love it and why we think you will too. Moving on to the meat and potatoes Alright, so for today we're going to talk about what income investing is, how it works, and why we decided to choose income investing for our investments.

What is income investing?

I don't know I'm not entirely sure what the technical definition is. But to me income investing is where you look to accrue funds from your investments every month, whether it be dividends, interest, or partner like distributed distributions, partnership payoffs, or even if you're getting like interest from something outside the stock market. So the basic definition is that assets pay you for holding them. It doesn't matter if they're in the stock market. It doesn't matter if they're outside the stock market. They can be high interest savings accounts. It can be a multitude of different things like I think they even consider owning physical real estate a form of income investing. But the goal behind the whole thing is to create a consistent cash flow over growth. Well,

that's a huge deal like that's like a it's a big difference than what most people were trained or taught when it comes to investing. Most people they want to get into say Amazon when it was like $1 or $2 and just ride it up for like 30 years whereas income investing is you want to get into something and just accrue money for 30 years. I don't care

about flatline price now.

Price so much put me in there. Every now and then you'll find like a unicorn where you can actually get into a high yield income pain stock actually does a rose like 1320 30% Whatever it is. I know there's a lot of publications out there that actually they don't invest into income investments unless they grow their dividend by 10% for 10 years. So those are interesting ones, but they're like those are usually over priced.

Well that's that's the issue with the growth stocks is that because of the hype and the growth orientation that they tend to be over priced, so it's really hard to get into them and then like if you look at Amazon, for example, like like people are like wait for the dip, wait for the dip. When is the dip, I want to tie

up on the more apt illustration we look at Chipotle, okay, because that's a better I think that has actually in the last five or six years has better growth than Amazon but it's prices, even with bad news that just barely dipped below 2000 And already went back up. Like it's crazy this like in there. They always say well Chipotle is a great stock isn't off your portfolio. So I'm not spending $2,000 For one share of a company. I don't care how good it is. $2,000 I could get 10 shares some that pays 12 or 13%

How much does Chipotle go up every year?

I don't know. I don't have the chart in front of me, but it's probably some years 5% Some years 10% Some years 1% It depends on

and that's the thing. If you're doing these dividend dividend investments, it's consistent yields year to year like that's the goal. All right. So

so long as they don't cut the dividend, which happened What do you actually

just happened with two different ones this week, but that's the whole reason diversification super important. Anyway, so how income investing works is that it basically focuses on the income generating assets and we'll go into a lot more detail about these but the general ones that most people know are bonds, CDs, and dividend paying stocks. But as Tim will tell you that there's a bunch of other ones that you don't often hear talked about, like,

oh, like there's, like, they're called high interest savings. Accounts, like worthy, worthy for me were the financial and there's also a compound compound bank, spelled with a C or a Q or something like that. I forget exactly how school spelled but and Fundrise is another one where you give them X amount of dollars and they give you X amount of quote shares or bonds or whatever back so they kind of are similar to stocks but they generally yield between five and 14% depending on which investment vehicle you use. They are good for if you want liquidity except for Fundrise Fundrise you can only pull out four times a year whereas compound bank and worthy and I'm sure there's a couple others, I'm missing you can pull out at any point it just takes like five business days to get your money back. So to me, they're a better holder of your money than actually just leaving it in your savings account.

And I like the fact that they like worthy for specific example they invest or help fund or give I guess loans to small businesses so that they actually can grow and do what they're going to do. I like being able to support that as like a conjunction versus leaving in the bank and allowing the bank to make more money off me, at least with the things like where are they you're actually helping a good cause.

We're currently I think they pay 5.5% And it's actually real estate bonds are actually a Korean real estate now for small businesses, so they're really cool. I like those and another one's yieldstreet Yo streets are really really cool concept. I haven't dumped a lot of money into that. Yeah, but yieldstreet they invest in alternative investments like art and cheese and wine and all sorts of different shit that like you wouldn't think to invest in. And

speaking of that, if you're gonna go the whole real estate route, there's the physical asset, but you can also do Rei T's which are like a trust REIT learn more stock like their Yeah, their stock. Well, I'm not saying that these aren't stocks but like there's there's opportunities within the stock market that aren't just stocks, bonds, CDs, mutual funds, like what do you hear MLPs on occasion? MLP

are nice usually, but like the majority of the drawback on those is a lot of times they use a 1k tax thing, which is if you don't have an account and as a nightmare if you have an account and then it shouldn't really be that big a deal. We

hear a lot of people complaining about the k one the tax thing. Now if you want something similar to MLPs, you can do the BDCs which tends to be

like my favorite layer, they're like worthy like they invest in smaller businesses. Like I guess there's a niche in in for legislation where if you have under I think $200 million in total assets you can borrow from regular banks. So that's where BDCs come in. They're called business to business development companies. And they like they fill that void that's left over where banks can't lend to people. So they lend it and they actually they pay a really good amount of money. They normally are like eight to 12% that they pay out every every year

because they can charge higher interest but to mitigate that risk they all they make the companies put up like physical assets, tangible assets as collateral. So they mitigate their risks that way so they're not as risky as they appear on surface as long as you're getting into a deal most

of time they're first lien or they actually have product collateral, which is nice. So like say like they lend to like I know her right HRC and it's horizon technology, they actually will lend money to tech startups. So the tech startup would then put like, their collateral up being there like their software, their algorithms, their computers, I don't know what they put up but like so if the if the company they invest in goes under than horizons able to recoup some of their money by selling whatever they put up. The technology probably or at least like my favorite thing, like outside the stock market. I just love it the you literally can link your bank account bank account up with it, so that anytime you have like $100 laying around, you can just buy 1010 shares, 10 bonds, wherever they call them, and then you can also link up your spare change. So like if you go to like the grocery store and you spend 850 to like they'll just round up to $9 and take the 4048 cents and put it in the hole until you accrue $10 and loose change for the month and you'll just get another bond. So it's really it's a really cool concept that I like, I mean, I don't like to donate to the charities they always, always prompt you when you're checking out. I'm not like greedy and selfish.

We just don't know if they're actually going to the cause that they say so I don't feel comfortable. I'd rather literally

just find a good cause I'll donate X amount of dollars, not like 40 cents at a time Come on.

So if you can't tell we're super huge fans of for the that's actually where we have our emergency fund located for

for engineering our band, if it ever goes out. We have the money sitting aside and it's accruing 5.5% And

it's also nice because like if the market does go down and you were planning to withdrawal, say your dividend payouts, you could actually forego that tap in your emergency fund a little bit to allow your compound and reinvestment to buy up more shares at lower prices. So there's a whole bunch of different strategies. We'll get into those later on. The second thing about how income investing works is that it really prioritizes diversification to reduce your risk of having consistent payouts. We actually just had one of our two of our horrible week. It's been a bad week, but it is what it is. Stuff happens and he knew the one was coming. We had dividend cuts in two of our portfolio assets. We kind of are in a bad position with the one because we had a higher allocation than probably would be advisable but

could never actually blew because it was like a I don't know how to say it. I can like man, whatever

I like man, I think it's I can I turn up I've

had money in it for like three years now. And everything was fine up until it went down at the beginning of the year. And then once it went down, I was like I can't possibly pull the money out to make it 10% of my portfolio. I like to have no more than 10% in any investment. And I couldn't pull it out at that point because I'd be taking a huge loss. And I'm contemplating this week whether or not to do that. After they just cut the dividend which I called in my email. I said they would cut it in half from $2 to $1 and I don't know how I'm gonna pull it out or if I'm just gonna take a loss I haven't decided yet but that that one went that one that one was bad but the one that shocked me was camping world like I didn't because they're such a good company that I'm sorry CW H Camping World just cut their dividend from 6.625 2.1 to five, but that's one of those growth growth growth dividend stocks that we were mentioned earlier. Like that the company keeps growing its EPs and as revenue keeps going up, and their dividend actually follows it usually, but I guess they took on too much debt because this year they just went on a buying spree and they were really really a bunch of us RV dealers this year

we're shipping expansion and then I guess their problem was the fact that they they didn't I guess factor in the fact that they were are now selling a lot more used RV so their profit margin is smaller so they're not able to pay back on their debt as fast as they would have they been selling new vehicles. So what they did in compensation was to cut the dividend we think it's going to be temporary, but they cut it so significantly,

but the shares should the bed like pretty bad. That's TB.

And then Eichmann I chan I seriously don't understand. We're just gonna call it Eichmann IEP. That whole thing started with a short seller that said it was overvalued and that kind of like drug things down

to those. The major two points where there was overvalued, which I guess in hindsight, it probably was and the way that the debt was tied to Carl Icahn Eichmann, I can already say his name. He leveraged his shares in the company as collateral for the debt. And that caused a huge concern that he restructured that so that's no longer the case, but it's still

so that had like a spike up but then I guess because of the price change, they realized that the dividend percent payout was way too high. So that's why

reading their their earnings report, I think one of the biggest things that they underestimated was the factor that higher interest rates would play in their business margins

more than they thought, yeah, that's a big thing. Interest rates, do you make an impact? We are going to probably do an episode on that because they can work in some insidious ways that you wouldn't even expect point in case. So those are the two that we had for the whatever still

yields 80% And I do believe it's a buy because I do believe that fair value of that is between 40 and 45. And it's like 25 or 23 whatever it is right now, I haven't looked. Now

this would actually probably be a really good example of utilizing the dollar cost averaging strategy where you don't you have like say $10,000 set aside to put into into one stock but you don't buy it all at once because Tim really does suspect that because of this earnings report and some other stuff that the stock price may go down another 20% You really can't 100% predict the future. Tim has that spidey sense, but that doesn't mean it will actually happen. So if you do the dollar dollar cost averaging, you'll be able to get in a little bit now and then if it does go down, you actually reap the benefits of that over over a period of time to average out your buying price. I fully

expect actually the dividend to be back up to $2 within probably five years. So that's one that

again, it's still an 18% yield right now. Like that's kind of insane for a dividend stock. It's not a bad company at all. It's just that very odd like circumstances with the whole short sale and then the whole interest rate thing with the earnings report. So it was a combination factor, but it happens happens all the time. So you just have to be prepared for the things and then again, don't panic don't make crazy decisions. I

was so furious when it came out that I just took a day and didn't do it I didn't do anything and think of anything and then I have a rational her the next morning I was like well okay, as well do

ya never make decisions when you're emotional. That is like key number one with trading. That's how you make bad decisions, how you make decisions that create losses, like

any aspect of any

exasperated whenever I actually love that a lot of the concepts in investing really do trans transcend all a lot of areas of life. So he's still contemplating we're still waiting to see how things go because again, people react different and it's going to take a little bit of time to really see

and another aspect that I think that's overlooked here I know a lot of authors who talk about income thing they always put a stop loss in their stuff they had they had a stop loss with this they would have lost a lot more than the 25% or 15% whatever the trailing stop they have

that is a huge thing for risk mitigation. So in theory, when you read about what a stoploss is, it sounds extremely incentivizing so that basically it prevents you from losing money. There's like an automatic sell price on there. However, in practicality, what usually happens is that when those bottoms get like hit or when those thresholds get hit, it triggers a bunch of cells. When cells get triggered, it pushes the stock price down further. So what will actually happen is if you have too many people having their stop losses triggered all at the same time. It pushes the stock price down super, super, super far and then the market makers have to actually match it to a buy. So a lot of times so stop losses during very volatile and very high volume situations. You can actually sell that price 1020 3040 50% lower than you actually have that stop limit set in there. And then the sharks come out and they realize this stuff is super super undervalued. So they'll buy it up and the price will go back up. So you're out that huge difference. It's not cool.

I know this week, for example, we had a stop loss on Ikemen. We would have the stop loss with like we would have the stop loss around 31 ish and it would have sold at like two I think 21 By the time it opened up and like the dust had settled between the first people in to sell it would have been at least 21 So you would right now right now it's at 25

stop losses are definitely not advisable. It's better to to like react after the case. So anyway, stop losses. Again, risky business but one of the biggest things we we always talk about is like well that your time horizon like if you're not planning to take money out for like 1020 years in the future, and you zoom out the entire stock market and even that stock in general. You'll see that over time things always trend upwards so it's like even those panic pullbacks don't get caught up in the emotion of that because you just joined up gone down with the ship and what is it 99% of people who invest or trade, that's technically a trading tactic lose money. So don't be part of that 99% You have to act differently, think differently. So to avoid that falling into that pitfall. The other way that income investing works is that it diversifies risk in your portfolio. And everything that we just talked about as a prime example of that, like don't have more than say 356 percent of one.

It's a tricky balance because you don't want to have too much of one of your holdings take up too much of your total portfolio size. But you also don't want to have too many holdings where you're not getting any.

It's a very, very delicate, like art balance and you'll start to like learn it as you start doing things. But like for example, Eichmann I EP that we just had that dividend cut. I think that took us down $200 a month and our payout it's more for the reduction of payout risk than it necessarily is for portfolio decline. Maslow was pissed about it wasn't really upset about it and again, had the price just gone down without the dividend cut. We would have actually been sitting pretty because we would have been buying more shares at a discounted price and actually increasing our payout but because it was a 50% dividend cut like that kind of made a huge, huge dent Nara and he's so magazine just rearranged the entire portfolio like a couple weeks ago to have more payout. The other aspect of how income investing works is really really prioritizing, compounding and reinvesting a lot of brokerages will have a drip automatic or is it called direct reinvestment. So

it basically means when I could give you the dividend and rather than going into cash in your brokerage account, you'd automatically pick up shares at the close of business the day it posts

and that'll do that every time your dividends pass which is nice. You don't really have to think about it. It doesn't automatically you're automatically a drawback

to drip is a lot of times the day after it post is two days after the dividend occurred and the price is already appreciated, appreciated back to where it was prior to the extra day or even higher than it so you're actually when you go in beforehand and do that layman's terms. So let's say on August 1 X stock went ex dividend. You won't receive your payout to August 4 at the earliest. And by that time on on August 1 When it went ex dividend it dropped by the dividend amount. So like that'd be a good time to pick stuff up because it's down 1015 18% Whatever down and then because that I think they set the drip up on purpose like so that you

so I have a question could you be like Sneaky sneaky and like not have drips add on for anything and then actually take one that pays before another ex dividend date and invested in the one that you know is gonna go down when it goes down because of the dividend payout. And like staggered things, I mean, that's I guess if you're up your portfolios, but

like that, as you literally like that defeats the purpose of income investing where you don't have to be in your portfolio every day. But yeah, that's absolutely an option where you

literally I would think that that would behoove people who have smaller amounts and they really need to like put implement as many taxes as possible to try to grow their their monthly payouts as fast as possible. They could

every every brokerage account, you can actually go into your individual investments and click on whether you want trip on or off. So you literally could just uncheck that. Have it go into cash and then hold it for 30 days for a lot of the monthly like for a lot of a lot of the things I recommend are multiplayer, sort of hold it for 30 days, and then take that cash and buy whatever you want on the ex ex dividend day. That way you're picking up stuff at a discount whenever the discount is you're not getting paid that month, obviously but you're actually picking up more shares so that when it does pay the following month, you're making more than you would have had you just a drip, but it is a lot more tedious and time consuming.

I mean, we'll actually do that for in something that's overvalued at the current time we'll turn the drip off. I

just did that to three different stocks this week. I turned the drip off and it's going into cash because it's like right now if if I got that, if I get the dividend, it's gonna buy it too high. I don't like worth that. So I turned the drip off so it's gonna into cash. So I can either invest in other dividend stocks or I can just buy a brand new one that is not in the portfolio yet that's better

undervalue and has good payouts. So it's like your again, we really focus on number of shares to try to maximize that monthly payout. And that really incentivizes people to because if you were just focused on growth stocks, you would have to actually sell an asset or a part of an asset to then free up cash or invest in new cash in your account. To be able to like diversify into something else. So the cool thing was the compounds and the payouts from your dividends, you have the ability to actually diversify without selling off assets, and then maybe potentially accruing capital gains and yada yada yada.

I mean, it's twofold like it saves time. And it saves money. So,

so I did some math calculations where if you took if you had a dividend stock that was paying you 10 10% yield for the year, over a 10 year period, you would actually more than two times your monthly payout by allowing the reinvestment to go back into that actual investment. So that's, that's huge. So if you look at the market as a whole, the market would actually have to go up 159% over that 10 year period for you to get the exact same benefit out of a growth stock. And on average in the stock market only goes up about 7.6%. So that's it, we'd have to go double what it averages over a 10 year, even

even a bull market it doesn't go up that much and like a mean, but

it consistent over a 10 year period. Like that doesn't happen. That's why it's like 7.6% is the average. So like you can really see the power of the dividends

like you guys pull the same numbers out the average average gain of a market is 7.6 or 7.9. And you get a dividend payer that's 10% Even with no appreciation which probably would not occur if the markets going up that much. You're getting you're getting game making 2.1% More without even dripping, you could literally just take the cash and go live. So

I just did that as a quick example to see but like, if you really want to be able to maximize your monthly payout if you let it re invest in compound you're gonna make say you only start with like making $1,000 a month but if you do that, over that 10 year period and allow that to compound without putting any extra money in you could potentially grow that to $2,000 a month and in a 10 year period over $2,000 a month in a 10 year period. Yes. Well,

I always tell people like whenever we start talking about this, I always ask the question of how long is your timeframe? The reason that timeframe is so important, is not what they're thinking. It's so that I know how many years that has to compound before they start withdrawing. Like if you're literally going into this with I have $100,000 but I'm going to start withdrawing right away. Every every year I'm going to take out whatever I can. That's a completely different strategy and mentality than if you have 10 years of of growth and compounding before you start pulling out it's a different it'll be a completely different portfolio with a completely different setup.

But that is still potentially possible if you're willing to live off less a month. So it's like could potentially create retirement now with $100,000 If you're willing to live on what would that be? 12,000 probably around there. It's doable. I mean, there are people that live out on BLM land for $500 a month so that's why

I would like if you recall the previous podcast and if you read the website and there's like that's one of the things is like your quality, your expectations for your life are so important. One

of the things we were just talking about is like we follow a lot of Van lifers or we were watching a whole lot of Van lifers before we decided to go van life mode and like Tim has been really watching a lot of videos on budgets, and

it's amazing to me like what they spend money on it. I'm not disparaging them in any way if that's what makes them happy then cool. I mean I kind of disparaging but I don't I don't mean it that like super negatively but like if you need to spend say $500 a month on coffee at coffee shops. That to me seems illogical because you literally can buy a can of coffee from Amazon that should supply you your coffee for the entire month for like 20 bucks. So you're wasting $480 That could be going to other stuff or just be reinvested. So when

I was looking at the perspective of like people who go to coffee shops in the van Life Community tend to need the internet or potentially the interaction. But if you're doing the interaction thing, like go to a park parks are free. I don't know. They have street fairs like I don't quite get that one personally. But if you're looking at it for the Internet perspective, like now that Starlink got launched, I'm pretty sure that whole thing is is out the Alpha window because my brother was living overseas he was deployed for a military contractor and they were like Boonie Boone boonies over there with no internet no nothing and now that Starlink like they have the most ridiculous like internet access like he was just just blew me away with what he was explaining. Now. Yes Starlink is expensive to buy up front. It is something we're actually planning to buy here in the next couple of months. But monthly costs I believe it still equates to your phone hotspot thing but it has so much better reliable service anywhere including like deep National Park type situations, which is where we would prefer to frequent.

So this is what I'm doing. I'm gonna probably get rid of my cell phone grab a walkie talkie, so I can contact Carmela when I need to and then use the money from my phone to pay for sariling just darling.

And then like he was saying like we don't drink coffee. So I can see why Tim's like anti coffee or snooty

coffee because I have a lot of vices that are I was gonna

say but he had the soda thing and now he was like

Papa, can we people understand it? Pop?

I'd like the rest of the country other than the East Coast.

I like I liked pop up until I went on my no sugar binge I'm on currently

but now he drinks spa bellow and Bob Ella does cost so what he does is he buys it in bulk so that the price per drink I guess is a lot cheaper. It's the same concept for

combiner boxes 14 for like $17 or you can wait till they have a special and buy like a box of 40 for like 30 bucks. so you're saving to seven so you're saving $12 for the same amount.

So we're just pointing out with like the whole dividend reinvestment thing like

it's the same concept. it's just extrapolate out to other addictions.

so So our point basically was that like you can set it up so that you're taking your compounded interest or your interest out. Now, if you, if you need it, but. if you allow it to compound and wait and pick up odd jobs even just to like not take it all out every month so that it can compound and reinvest, you'll definitely be a lot better off for it by allowing that peace. I

was reading somewhere that they said the What did I tell you what since 1900 90% of the stock market growth is from dividend stocks, I mean kind of insane. So if you extrapolate that out like the reason that 90% of it is the value of dividend stocks is because they're letting it compound before they pull it out. So let 90% of your portfolio compound and just take out 10% Or do 25 and 75 I mean set up the sweet spot however you set the sweet spot but don't ever take out all you like your your monthly earnings

unless it's a one off month or you have like an expense that is necessary. But that's kind of the reason for the emergency fund is to avoid that but some situations could have a couple things back to back, just just whatever. So then we wanted to go over why income investing over other kinds of investing for us personally. So the consistent cash flow at regular intervals is a huge we had been looking at passive income for a while and like the fact that a retirement account should in theory be giving you a monthly stipend while you're creating a monthly stipend without having to wait until retirement and not having penalties to actually withdrawal like my IRA.

My biggest bit about retirement accounts I think we touched on previously is you contribute money to your own future which is fine and dandy. That's the same the same concept as you're building your and you're penalized what they take your money that you provide them and they make a lot more than you're actually getting.

And you get penalized if you need to. Why

would you not just omit that entire process and do it yourself.

So you can tell where we favor on that one.

I can't like that bothers me so much. We

are going to do an episode that is talking about the differences between like just having a brokerage account outside of a retirement account and then the different retirement accounts so that you can choose for yourself which applies to your situation, but like there are incentives

what she's saying about the consistent payout is like you will know exactly what you're getting per month or per quarter depending on when they pay their dividends out. Because every brokerage has a like an income investing Type tab on it where you can see exactly what you made in quarter one or what you're going to make a quarter two

and the nice thing about that is like normal retirement strategies that have a principle that that you then break down into payments, so you're striving for this like astronomical number whereas with income investing, you're making your monthly income and you can see exactly what you're making and know exactly what you need. So it's a lot it's a lot more like apples to apples type situation for you to be able to know when you've hit your goal and your your threshold that you need to hit. So we really like that aspect of things because we do everything on a cost monthly basis. Not some crazy some division and like let's I like to keep the equations simple. If I can. I'm

assuming one of the aspects in there. I don't know if she has a checklist. I'm just babbling. I'm assuming one of the aspects would have to be a smaller principle.

Yeah, well, that's kind of what I just said. So I think for example it was if you needed want to say $4,000 a month, you in a normal situation, you would need over $700,000 But with income investing, you'd only need like 300 and maybe like 350,000 at 10% and that's at 10% yield. So you need about half that's that's pretty substantial. Especially when you're getting up into the million dollar mark. Just

think about half of your actually like, and that's $4,000 a month. If you further that out like 750,000 that means you'd be working at a pretty decent jobs, but even at 350,000 would be another probably 12 to 15 years at the minimum. Yeah, have to work. No one wants to do that. So

then you could again downsize your lifestyle like well actually get into getting intentional with like, what how you want to live and you can make tweaks and changes to be able to achieve that much faster than waiting for retirement when you might not physically be able to do the things that you're trying to do in retirement. I think a bunch of articles that I read talked about how dividends are more consistent than stock prices. And I think we talked about that it is a consistent unless there's a dividend cut, which we just talked

about, but even then it's just I know what I'm getting if they cut it I know what I'm getting still for the upcoming 12 months. Yep.

Whereas with stock prices, it's like you never know you never know when news is gonna drop. You never know when governments are gonna change interest rates. You never know when a war is gonna break. Our only

exception to that would be variable dividends, which is like some MLPs and some other dividend stocks like variable interest basically, what they do in that case is they take their gross profits and they say we're going to give X percent of our gross profits every time we pay a dividend out and if the profit they had a good year, the dividends awesome. Like we have one now it's called UA n where the good year the dividend was $10.53 Mediocre year which is what we're going through now they just said the dividends going to be 450. But even then I can see like with my income and income investment tab in the Schwab account, I can see that what the 450 would generate me for the upcoming 12 months, but it's still like the variable ones are more difficult but they actually generally the variable ones have the best payoffs. I've

read so many articles and all of them point to the fact that dividend stocks tend to outperform outperform growth stocks, and the stock market as a whole. So that's actually really interesting because it's like I think people get wrapped up into these like growth spikes for growth stocks and they just think that this is a consistent thing if they're not really paying attention or they get like caught up in the the emotional aspect. It's I guess that tortoise and the hare concept. dividend stocks tend to glow grow slower and steadier over time, which actually gives you more growth plus then you have that compound factor. So you're actually getting instead of that that way as well. Whereas growth stocks have these like pushes up and then they take on debt and then they go down and then they push up and then they fall out of favor because some other company like I guess came out with better technology or something. So it's like this roller coaster ride on their way up if they're if they're going up

so Robin I have with dividend growth stocks that we've already touched on. Well, those

are the hybrids where they pay like 1% and 2%. Like it's

like Coca Cola for prime example is considered a dividend growth stock and like right now it's okay to actually reinvest the dividends but like, like last year, like two years ago, it wasn't like in like, you have to actually be more attentive to data and stuff like that whenever you're well

and that's why we really do hybridized income investment with value investing like we are always looking for, like how many shares can we get with X number of dollars, we want more shares. We want more bang for your buck. So I

mean, that's like a misconception. I don't maybe I'm doing something wrong, but like to me $10,000 in $100 stock is completely different than $10,000 in a $10 stock.

My other issue with the dividend growth stocks or the hybrid is that like when you're focusing on multiple things you're not really excelling at either one of them. Like you have to actually split your split your attention. So you're doing a little bit of this and a little bit of that and to me that means you underperform I think in both areas where it's like I'd rather pick one or the other and that's where we would rather have the dividend aspect over growth. And then again, we do have some dividend slash growth stocks, but for the most part like we're very very picky about which ones we oh and

let me finish my thought $10,000 and $100 stock is quite different than $10,000 and $110 stock, but to further blow people's minds $10,000 In a monthly dividend paying stock is completely different than $10,000 in a quarterly or semiannual dividend paying stock. And that I actually have data on the other one is just a personal preference. But like if you get paid monthly with dividends, it grows like one or 2% more per year than a normal quarterly or semi annually. Dividend paying stock for whatever reason I guess the math in it, cuz you're reinvesting 12 times instead of four or two.

Yeah. So the the number of compounds per year, really skyrocket in

our portfolio see a lot of monthly dividend payers. dividend paying stocks is because I firmly believe that they grow faster like

they do compounding it literally is the law of compounding homeboys than the other ones. And we did already talked about how diversification the seed money that you get from stuff allows you to diversify without having to put new money in and without having to sell assets like that's a huge diversification

is a two edged sword I guess you can over diversify. You already said that. It's a normal number of stocks. You can over diversify. You literally can have a stock in every quadrant of the stock market and be over to over diversify,

and we'll have to do an episode that specifically goes into like Tim's specific strategy. Do

I think there's what eight, six or eight I forget, if you had an outline, there would be six or eight like main points and then underneath those is like three or four different ones like why not just take the the main point there rather than investing in six other other points. Like for example, commercial goods, why not? Just find a closed ended fund that actually encompasses all of commercial goods as opposed to having like eight different ones that cover the different aspects of commercial goods? Yeah,

and when we talk about assets, Tim will talk about when to use funds because funds are really great for diversification. And that was actually part of the reason when we did Eichmann IEP, it was so tantalizing because they own how many different companies in different sectors, like twine, so they're like diversified within owning that asset. Like they

have insurance they have healthcare, they have vitamins, they have automotive, they have food like grocery stores, they have like their hands and everything. They're a lot like Berkshire Hathaway in that regard. And

we've really like the CEOs are the owners, the way he works, his mind his investment strategies, like he's a really good business owner, in our opinion, kind of in a hole, which I kind of feel like you need to be to be good at that. That type of stock. If

he buys a company, he just says you guys are all out. I put my own peeps in and that's why a lot of people don't like him, but I kind of dig it my

opinion. He trims the fat so he's efficient, effective. I don't know. I personally like him. It kind of sucks what's happening to his stuff, but it is what it is. I'm

just reading he lost like $2.7 billion this week. And like his his net worth is holy crap. Yeah,

but if he has that much to lose, how much does he have anyway? I was pissed

about $3,000 Oh my God $3,000 This poor guy well point 2 billion Yeah, two perspective and holy crap. There's

technically a lower risk using dividend stocks because you're able to recoup your investment over time, even if the price goes down.

I was trying to explain that to one of the people that I I helped her with her portfolio. She's like, I'm down like 18,000 I'm like, Are you though, are you really she's like, well, I don't understand. I'm like you might think you're down 18,000 But you're really not down 18,000 Because you only put in like X amount like what happens a lot of people when they will they'll just like automatically assume the cost basis that's listed in their portfolio is accurate. It's not and to me that's not because I put $10,000 into some that's all I put into a $10,000 bit reinvested reinvest. That's not I didn't actually put money into it. But

there's the brokerage accounts tend to incorporate that into your value evaluation every

time so I say you got to say you have a monthly dividend your 12 times they'll read real readjust your cost basis and that's not accurate. You put whatever you put into it. And yeah,

so we look at the ROI of value, not the actual, like anything that's reinvested into medical terms. I just have babble terms of wow, you're probably more accurate for the people watching. So

like I tried to explain that to her and she finally I think finally understood it like she made like 20 some $1,000 in dividends last year. I was like, well, you actually didn't put 20 Some $1,000 into your account. It's

free money. It's like literally when you have one of the one of the times I really do recommend having a retirement account is when your employer is matching 100% Like that's 100% free money. It's not money you had to put in there so even if you lose 50% of your freaking account, like you're still actually at breakeven, is where people like need to.

Like in our Schwab account, we put in, I think a little under 80,000. And even through all the bullshit that's been going on with the stock this week with the 2020 2022 like the recession depression, whatever they want to call it, even with the pandemic, we're still well above what we put into the account so we're actually not down at all, whereas that's just dividends. I literally literally put new and no new money in and

my mom is a really good example of this because like she actually has her retirement account and she's in at retirement age and a lot of her friends when the when COVID happened. They lost like 40 50% of their their actual like accounts and I was like she was freaking out panicking I was like we don't have your setup that way. I was like you are still generating $3,000 A month regardless of what is happening. I was like in your value actually pretty much broke. Even I think she was only down maybe like 12% when everybody else was down significant amounts. And obviously that's like a snapshot in time. I don't know what she's

like you let you have to look at what you put into something. Yeah. So

be very careful about paying like taking what's your brokerage account is showing you at face value because it's not accurate. I actually want to create some kind of spreadsheet where you can plug numbers in because I am a nerd when it comes to math. And when they do stuff wrong like that, like I just I don't understand. It's almost

like I don't even know how to like illustrate it to people like it's like if you bought a house for $100,000 you put $100,000 into the house doesn't matter like if the house I mean like if it's currently listed on Zillow at 98,000 Well you put 100,000 into it and you haven't sold but let's say you sold it for 98,000 Well, then you lost 2000 But if it's like if still saying it's 170,000 Well you're you still only put 100,000 into it.

I think it's the valuation misconception like people get so hyped up or like focused on the dollar for dollar of the value but it doesn't really matter. Like I like to use the cow example. Like if you buy a cow and a cow is worth like, say $100 I don't know how much a cow is actually worth probably a lot more than that. But if you buy a cow for $100 Even if the value of your cow goes down 50% And it's only worth $50 You wouldn't sell that cow if it's still producing milk and you're saving over $100 A month or whatever on milk purchases. Like you're still going to get that milk regardless of how much the value of that cow is. So like that's equivalent to what income investing is. It doesn't matter how much your assets are worth at a snapshot in time.

It would be if the cat died

which which will be like a dividend cut. But

again, going under like completely.

But that's actually pretty rare. And that was one of the things I was actually just gonna cover is like, generally when a company is paying consistent historical dividends, they can support those dividends. They have good fundamentals. They're very selective about what they actually spend money on from a growth and development standpoint. Because they have higher risks for their shareholders if they do not. So they have to be a lot more choosy about where they choose to invest their money outside of paying dividends.

And there's two ways you can get the information. You either can read our stuff because I go into detail about all that stuff or you can do it yourself. You literally can look at every earnings report will tell you how much they made per quarter and how much they paid out in dividends per quarter. If they made say 50 cents and they were paying out 65 cents. Well that's a huge red flag that you may not want to do business with that company anymore. But generally speaking if they made 50 cents, their dividends less than 50 cents, like probably 99% of the time, like

I said, generally dividend paying companies are good companies if you just do the fundamental analysis, right. So we like that, that component that again, the last risk, they're good companies, and that's what we want. We want good companies that pay good dividends.

And another reason that I do that reading for the that is because generally speaking if they're paying out less than they're paying out less than dividends and they're making per quarter, they're not going to cut the dividend because the dividend cut to me is like the absolute worst thing that could ever possibly happen because it hurts my monthly income. So

Tim puts a lot of emphasis on the fundamental analysis because it essentially helps us hedge risk or invest appropriately based on what we see.

And we did have two stocks this last week that reported that actually went up and dividend they raised the dividends but like but you're hyper focus on the ones they don't get any low because who cares

and then the other thing I think we kind of touched upon it in an earlier thing is that you're less likely to overpay when it comes to dividend stocks versus growth stocks because again, growth stocks get hyped up they get pushed up in value. And that doesn't necessarily mean that their earnings, their earnings there all that other stuff justifies that price point. Tim talks about is a naff price,

closed ended funds, CDs and bonds and preferred shares and even like funds that cover preferred shares, you will know exactly what you're what you're paying as opposed to

what it's worth. And he really likes those because there's no guessing, like the Nath price

is basically if the the theme pool, they pulled all their assets together and put a price on it. That's when the nav price is it's like someone's I don't know, personal worth, like you know exactly what you have to close in funds in particular. We'll tell you right now, any page you pull up, they'll tell you that if it's been selling at a premium or sign at a discount, if you buy at a premium, I wouldn't recommend it unless it's a company that's been consistently say like the last 20 years but selling for over the naff price you can then you can actually even then you can ascertain Well, if it's generally sells at 20% premium and it's only at 5% Premium right now. There's a good chance I'm gonna make 15% and appreciation, but I generally just find stuff that's under the naff price. You

basically figure out where the datum point is, and often it's the naff price

that's for those and then CDs they actually have one hundreds, the bonds are the same right? Bonds are the same. Yeah, I remember you talking about that. So you can go into like you can go into any brokerage account and you can like basically go into the screener type portion and say I want something that's under 100 and it'll pull up all sorts of bonds and CDs that are selling for discount. So basically

with income investing another one of our why's is because you it's a lot easier to get an undervalued asset than it is larger portions

of the population is like control freaks too. And like you actually have more control. Yeah, based on data, you have a

lot more control, a lot more control, a lot more control with a monthly income, a lot more control with the price that you get in it a lot more control of like turning your drip on. And off like there is a lot more control in general with income investing.

This Yes, you have no control zero. It's all up to the masses and their whims of the

day and I actually think it's emotionally more you could even have companies that

have a really good balance sheet with a really good product, but because there's hysteria in the masses that they'll actually go down or sometimes even fold.

I was just gonna say that that there's a lot less emotional stuff in the dividend paying stocks that we get into because they're not really popular, which is good because then the general public isn't infusing their emotional roller coasters into the stuff that we invest in. We

call that effing up where I'm from, effing up wrapping it up, the public can't eff it up.

So those would be our lists. So in this in this episode, we basically talked about the what income investing is how it works through focusing on income generating assets, prioritizing diversification and reinvesting compound reinvesting dividend payouts to allow compounding to take effect and then our wise for why we we picked income investing over any other kind of investing. It's the

best I'd recommend it to everyone. That's why I'm doing this because I don't know if we'll ever make a lot of money from it. I don't like that. I don't care. I just think everybody should know that you literally control your own future and

make your nomadic existence and experience focus a reality much sooner than retirement age. So we'll catch you guys next time. On the next episode. That's everything for today.