To make the leap of faith required, it is helpful to spell out and understand how growth actually occurs in a traditional investment portfolio.įirst, we should note that the goal of most long-term investors (including me), regardless of what investment strategy we follow, is to earn an "equity return" averaging about 8% to 10% per year. Growth Without Growth Stocksįor those of us who grew up in an investing environment where market appreciation was the be-all and end-all, embracing our income strategy's "growth without growth stocks" philosophy can be a big step, mentally and even emotionally.
The portfolio will, of course, grow in value over time, not because the individual securities rise in price, but because there are more of them, as we use the cash we receive monthly or quarterly to buy more income-producing assets to add to our factory. It is the re-investment and compounding that provides the growth in the income stream, not any required growth in the market value of the assets in the portfolio.
And long term it is the cash income our investments produce that creates and determines its real "economic value." the cash it produces, that is constantly re-invested to produce more cash, etc.) does not depend very much, if at all, on the growth rate of its individual securities. That's because our portfolio's output (i.e. Notice we haven't said anything about our securities' market prices going up (or down). An 8% yielding portfolio doubles every 9 years, a 7% yielding portfolio every 10 years, etc. A 10% yielding portfolio doubles and re-doubles about every 7.2 years. The cash output from our "factory" will double, and then re-double, and then re-double again continuously over the course of one's lifetime. Through re-investment and compounding, the cash build-up will increase year after year at a fairly predictable rate, depending on the percentage yield our securities are paying us. As that new income is re-invested and begins producing even more income, my river of cash continually grows. income - in the form of dividends and cash distributions, that can then be re-invested in new securities, whose job in turn is to provide additional income in the future. That job is to produce a constant "river of cash" - i.e. I know, because over the past 40 years that I have been actively investing for my own retirement I have developed an alternative way to think about investing, an approach that (1) emphasizes things that we as investors have more personal control over, and (2) does not require as "heroic" an achievement in terms of earnings or stock performance as typical growth-oriented strategies.Ībout ten years ago here on Seeking Alpha I began to call my strategy the "Income Factory" in order to focus attention on the actual job I expect my investment portfolio to do. While investing can indeed be all of that for many people, it doesn't have to be. No wonder so many average investors are stressed out and confused, or throw up their hands and buy overpriced annuities and other heavily-promoted products and services that promise to relieve them of the angst and insecurity of investing for their own futures. Then we have to follow their progress 24/7, always being alert to signs of trouble that may require us to bail out or change course at a moment's notice. Despite her talent she never's seem to actually star in a music video or recording.The message most investors receive constantly from their brokers, advisors, cable channels and other business media is that success depends mostly on placing "winning bets" on the right securities. She is even sometimes the victims of mistakes by her friends or even her own family. The storyline portrays a girl named Dionne (Who is played by grime artist Shystie) who tries to make it to the top and be a successful rap artist but also has to deal with the seemingly never ending dilemmas and dramas that always seem to come her way or get sucked into.
Well I think that is a excellent idea of thought.
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