- Retirement saving needs to be viewed as a marathon, not a sprint.
- Don't lose focus of your goals and your needs.
- Many will fail, you can succeed.
- I do much more than just articles at High Dividend Opportunities: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »
Co-produced with Treading Softly
Marathons are a pretty unique spectacle. It's not often you can convince so many people to trudge such a long distance. They do it for various reasons: Bragging rights, the cool shirt, personal confidence or the shiny medals.
Over the course of many miles, some runners give up, other runners lose hope, and some will persevere to the end. Did you know that every marathon has a winner? Often it seems we forget this fact because anyone who has completed a marathon treats it as a badge of honor regardless of placement. It's the completion of the marathon that matters to the runners, not the placement.
As humans, we have a built-in drive to want to succeed. Some of you may argue this is not the case for specific individuals, but your need to be right is proof that you have a need to succeed in proving others wrong. It only takes a few minutes of reading through the comment section on Seeking Alpha to see that some people simply love to criticize. They read a detailed analysis, decide ahead of time that they don't like it, and comment accordingly. We get our fair share of critics too. It's just part of offering analysis for free, yet still, we get many happy readers. Our big motivator is helping those who really want to be helped. And this is exactly what we continue to strive to do.
Perspective on Retirement
Your journey to retirement is less of a 100-meter dash and more of a life-long marathon. Many people prepare for years to be financially stable in their later years. Others don't think about it until it's fast coming on the horizon.
Everyone has an opinion on how best to prepare. We use our unique Income Method and have personally seen thousands of investors turn into retirees who enjoy a comfortable retirement.
In our highly competitive culture, you need to forgo the idea of winning or "placing first" in retirement. Why? Because Jeff Bezos of Amazon (AMZN) or Bill Gates of Microsoft (MSFT) have long beaten most investors already. Instead, as "income investors," we strive to adopt the mindset of a marathon runner. Finishing and reaching retirement in a state that will best meet our goals is a "success." We have seen many investors burn out and toss in the towel on their personal marathons because they can't "win."
As an investor, your portfolio doesn't have to beat every nameless, faceless Joe on the Internet who claims to be an investment God with no proof to back it up. Your portfolio simply needs to meet your goals or exceed them so you can relax in retirement. The need to "be the best" is often the ultimate flaw in most investment methodologies. It causes you to be drawn to get rich quick schemes of investing and gambling on no-name growth penny stocks with the hopes of a quick turnaround win.
We take a long-term view by investing in immediate income securities (or high-dividend stocks). We are "value investors" targeting cheap dividend stocks or value opportunities that sometimes take a long time to fulfill their capital potential. In the meantime, if you throw in the towel, you will feel the sting of defeat. You'll be tempted to go to greener grass only to find it's not really any better to meet your goals.
But if you are a "value income investor" and a patient one, you get to achieve both, the high income you need and the potential for large capital gains. As we have seen over the past six months, value has been trumping growth, and this trend is set to continue.
This is how the market works. It's cyclical, and sectors outperform or underperform in cycles. What's not cyclical is the income in the pocket of investors. This is why we are income investors, and in particular value investors in solid companies that have the ability to pay us dividends regardless of the cycle.
Understand Your Goals
Investing is only a means to an end. It should not be an end in itself. What I mean by this is that you invest in the market to enable you to do something and achieve your goals.
Answer this question: "If I had $5 million, I would spend my time doing..."
Most likely, if you honestly answered the question, you choose something meaningful to you. Like a hobby, traveling, working for a charity, or something along those lines. Your retirement investing methods must line up with enabling that goal.
Often we get distracted in the process and focus solely on the running and not on the finish line. When this occurs, three months suddenly becomes your "long-term view" and you get frustrated at short-term movements in the long-term game of chess. I always like to remind investors:
Investing is a tool. How you invest is a method. Where you invest is determined by the other two.
So, determine your goal, how much income do you need to meet your goal. Can you live comfortably off of $50,000 annually or do you need $100,000? Knowing this will help make realistic goalposts to work towards.
Get a Better Understanding of Wealth
In my years of investing and running High Dividend Opportunities I have consistently seen a misunderstanding of wealth. People want to "be rich" or get "wealthy" but never seem to have a solid idea of what that means.
Do you determine being rich or wealthy by the assets and cash that you own?
- So if you have a net worth of $5 million, are you wealthy?
- Or is it by income? Having an annual salary of $100,000 that makes you wealthy?
Some of you answered yes to both or no to one of the two options. How you answered will often determine how you invest.
I like to divide my view of wealth into two subsets.
- Static Wealth is the value of assets and cash. Essentially your personal liquidation value. If you were to sell everything and just have cash. This is your Static Wealth.
- The second is Functional Wealth. It's the income that you personally generate and that your assets create.
I do not consider someone with a high Static Wealth to be wealthy. Why? Because life does not often have static expenses. You don't eat once and never hunger again. You don't pay your electric bill once. Expenses are recurring, often monthly, and don't stop. So having a large pile of cash that does not see inflow and only outflow means you must be very frugal and strict on how much flows out. Otherwise, you'll run out of cash before you run out of air.
Instead, I see the individual who has a large cash flow coming in as wealthy. If you have more money coming in than going out, your cash pile is growing. So over a length of time, you will be growing your Static Wealth, and if you keep putting it to work, your Functional Wealth will continue to grow as well.
Historically, we viewed wealth through a Functional lens, but in the past number of years and with the help of banks and brokerages that benefit from you having a large idle pile of cash, the focus has shifted.
Imagine the relaxation of only needing to finish the race. I mean not having to worry about placing your investments in stocks that are hot today but not tomorrow. Year after year before retirement you can reinvest your dividends and keep your portfolio growing rapidly without worrying about finding the next Netflix (NFLX) or Facebook (FB). We often see high-flying stocks lose a lot of their value during a market correction due to high speculation. This is why we avoid speculative stocks.
So Where Do You Start?
It's a valid question we must ask. With our Income Method you start by building a portfolio that produces high immediate income. It will be designed to get dividends in the door so you can use them.
We also currently emphasize moving higher into the capital stack as that creates additional safety. Our investment community enjoys weekly top picks and a Model portfolio targeting 9%-10% yields.
Start by getting some solid monthly payers. Choices like PIMCO Dynamic Credit Income Fund (PCI) and PIMCO Corporate & Income Opportunity Fund (PTY), yielding 9.2% and 8.4%, respectively. These two funds have long been part of our income portfolio and give excellent monthly payments.
Looking towards REITs, consider using Aberdeen Global Premier Properties Fund (AWP) which yields 8.0% and which also is a monthly payer.
With an average yield of 8.5%, these three choices could generate $708 per month (or $8,500 annually) from a portfolio of $100,000. While we're not suggesting only holding three securities in your portfolio, they clearly highlight the strong possibilities out there to do so. Our members have access to our entire model portfolio of great picks to create a large income-producing portfolio.
"Retirement preparation" is the marathon you will have spent most of your life running, or you will be spending most of your time occasionally sprinting and wearing yourself out trying to make quick gains. Some of you need to readjust how you view your race so you can find reduced stress and find more happiness in the process.
Studies show that 90% of those who trade frequently suffer large losses during unexpected downturns. Don't let these downturns hit you with losses. Instead, buy dividend stocks that you will profit from in both upturns and downturns by cashing in on dividends. Every dividend you receive will help you put one foot in front of another as you run the course of your marathon. You run yours and let others run theirs. No need to compare. That's stress relieving.
By investing in income-producing securities, you can create the Functional Wealth needed to sustain your lifestyle in retirement. Determine how much annual income you think you'll need and make it a goalpost to work towards. You'll be amazed and surprised at how quickly your portfolio helps you get there when it starts throwing off large amounts of Functional Wealth from your investments.
Lastly, considering sharpening your tools. Keep reading, researching, and growing as an investor. We use our Income Method and routinely release reports on how we view different aspects of the market and current trends through our lens of investing.
For those who wish to keep chasing after high flyers, they can keep doing so. From our side, we'll keep helping you focus on your monthly cash flow stream to make it to the finish line.
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This article was written by
Rida Morwa is a former investment and commercial Banker, with over 35 years of experience. He has been advising individual and institutional clients on high-yield investment strategies since 1991.Rida Morwa leads the investing group High Dividend Opportunities where he teams up with some of Seeking Alpha's top income investing analysts. The service focuses on sustainable income through a variety of high yield investments with a targeted safe +9% yield. Features include: model portfolio with buy/sell alerts, preferred and baby bond portfolios for more conservative investors, vibrant and active chat with access to the service’s leaders, dividend and portfolio trackers, and regular market updates. The service philosophy focuses on community, education, and the belief that nobody should invest alone. Lean More.
Analyst’s Disclosure: I am/we are long AWP, PCI, AND PTY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Treading Softly, Beyond Saving, PendragonY, and Preferred Stock Trader all are supporting contributors for High Dividend Opportunities. Any recommendation posted in this article is not indefinite. We closely monitor all of our positions. We issue Buy and Sell alerts on our recommendations, which are exclusive to our members.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.