Speaker 1: You don't want to go into ventures that where you
can lose everything. You want to broaden your diversification, so
you want to have high quality types of investments which
themselves are diversified and well managed, actively managed and so on.
A diversified portfolio, let's say, of diversified portfolios. So it's
a fund type environment.
Speaker 2: You are listening to Carrie Let's's Financial Survival Network where
you get valuable information you just can't find anywhere else
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Speaker 3: Ever, and welcome.
Speaker 4: You are listening to and watching the Financial Survival Network.
I'm your host, Carrie Let's. Well a investing in the
he's perilous times, definitely risky or it can be. You
need a focus strategy that will keep you safe and
keep the money flowing. And that's why we have a
special guest for you today. He is known as the
Income Coach. He's been doing this for forty years. His
name is Steve sellingut State. It's great to have you
on the show. So how did you become the income coach?
Speaker 1: Well, Carrie, it's a I guess it's a long story.
I actually became a private portfolio manager back in nineteen
seventy nine when I started a business where I was
managing portfolios for other people in addition to my own.
And then that kind of grew up for forty years
until I finally sold that business in May of twenty
twenty three, almost two years already, and wrote the book
called Retirement Money Secrets, And with that I developed an
income coaching business, and I actually going, you know, income
independence coaching, or I try, I try to bring people
to a point where it doesn't really matter which way
the market goes or which way interest goes, their income
will keep right on growing regardless. And uh, it's what
I call income independence.
Speaker 3: Interesting.
Speaker 4: Interesting, And so how do you achieve this income independence?
Speaker 3: Here?
Speaker 4: It sounds great, but if it isn't practical, then what
good is it?
Speaker 3: Right?
Speaker 1: Exactly exactly, it's it's it's simple and maybe a little
complicated at the same time. The simple principle.
Speaker 3: Are four.
Speaker 1: I mean, basically, what you want to do is, particularly
as you get older, you want to try to minimize
your financial risk as much as possible. You don't want
to go into ventures that where you can lose everything.
You want to broaden your diversification, so you want to
have high quality types of investments which themselves are diversified
and well managed, actively managed and so on. A diversified portfolio,
let's say, of diverse fied portfolios. So it's a fund
type environment, but not your normal fund type of environment.
I don't use mutual funds, and I only use a
select a few ETFs, and then only for very large
client portfolios do I recommend them. So, and then there
are two other items. The third item that you want
to make sure of is that you have significant income
and a growing amount of income coming into portfolio. And
the fourth and final thing is that you don't just
sit back and set it and forget it, like perhaps
phaps your advisor wants you to, but you take profits
when they appear. The stock market doesn't always it goes up. Yes,
it has gone up, yes over the over the decades,
but it hasn't been a straight line and it will
probably never be a straight line. And when a price
of a security goes up, I take my profits and
I move on to another one. It might be a
quite similar one. It might even be the same one
within a reasonable number of days. But I constantly take
my profits, thus adding to the capital that I have
that produces the income that I'm trying to grow.
Speaker 4: Okay, So, like you said, the market always goes up,
but enough of the tree does not grow to the sky.
Speaker 1: Right depends right now, it's right about the sky in
the stock market, but not the bond market.
Speaker 4: But anyway where you can only go so far, so
far exactly, so forty years of experience, knowing what you
know now, if you could go back to your your
fifteen year old self when you started in the business,
and tell yourself what you've learned, what to avoid, give
yourself one piece of advice.
Speaker 3: What would it be? What would it be?
Speaker 1: The main thing I wish I had done sooner in
my career, and that would go back to when I was, yeah,
thirty four or so or twenty five when he actually
started investing, would have been to discovered closed end funds sooner.
If I had done that, I would be worth multiples
of what I am today.
Speaker 4: Okay, which I'm sure is not insubstantial. So you'd be
worth even more, all right, Closed end funds. I know,
there's something about them. Sometimes they trade, you know, there
were funds that were set up on like mutual funds,
where there's a fixed number of ship nothing else gets issued,
and then they go out and they buy securities whatever
it might be, whatever the name of the fund was,
that's what they would buy. And oftentimes these closed end
funds sold the discounts to the underlying stock portfolio that
they owned, which was like if they were a Dow
s and P five hundred closed end fund, you could
buy the SNP at sometimes a ten to twenty percent discount.
I don't think that happens so much anymore, right, So,
like that's obvious, right, So how did people miss this?
Speaker 1: Okay, Well, there's a couple other things about closed end
funds that are important to appreciate. They're different from the
other funds out there, and you just pointed out one
significant one that they don't have. The their price isn't
manipulated to equal their net asset value every day like
they are with ETFs and.
Speaker 3: Mutual funds.
Speaker 1: But the other significant difference is that they are required
as passed through trusts, which is what they are created as,
to give ninety five percent of their net earnings to
their shareholders. So they're a different breed of animal. They're
not designed to grow in market value, not designed to
grow in price. They're designed to produce income for their shareholders.
It's in an ideal world, this is the way stocks
and the stock market would behave a little bit more
closely to this, where they would pay their shareholders at
a rate that somehow relates to what they pay their
chief executive.
Speaker 3: Those questions for you, Steve, how do you pay that out?
Speaker 4: Did they pay it out and it's a stock divin end,
they pay it out as cash?
Speaker 3: Can you reinvest that? And we're talking just how do they.
Speaker 4: Pass along these profit But so are they trading profits
or dividends?
Speaker 3: How does that work?
Speaker 1: They're both. They're trade they're trading profits, they're they're premiums
on options, trading in some instances, their dividends, their interests
and principle on mortgages for example, and so forth, all
kinds of different securities inside. They typically pay monthly distributions
and the current the current rates right now, at today's
prices are a little over ten percent for income focused
ones and nine percent or better in the stock market.
Speaker 4: So I like that ten percent, So you're basically maybe
you're keeping up with the true rate of inflation, not
the stuff that they're telling us.
Speaker 1: But right, except for good restaurants, I think you probably are.
So yeah, so close. Influence are different in in in
those ways and the and their biggest difference, of course
is they throw off a lot more income. So there's
a lot of chances, uh, to reinvest it. You can
read it, you reinvest it automatically. But I'm not a
big believer in automatic reinvestment. I like to do it selectively.
I don't like to buy. I don't like to buy
into a security at a price higher than my cost
basis for that security. I like to particularly with these,
if you reinvest selectively, you can you can pick to
add to ones that are down in price, so you
can actually increase your yield while reducing the cost basis overall.
And one of the strategies I use.
Speaker 4: Okay, we're not asking you for advice here, even though
I know you're licensed and all that. But Well says
a few examples of of such funds.
Speaker 3: Okay, recommending, Yeah, I'm not.
Speaker 1: I'm not recommending. There there are I'm gonna give you out,
I like, I'm gonna give you some numbers here, okay,
on I call these, I call my the spreadsheet I
use to choose my you know, the ones I've selected
from a website called cef connect, which lists and analyzes
all four or five hundred of them. I've selected one
hundred and one hundred and five or so that are
income focused, that invest in things preferred stocks, bonds, mortgages,
et sea, and I And there's over one hundred of them.
For example, black Rock a black Rock Floating rate fund,
black Rock Blackstone Long and Short fund, and then there's
calamos and the symbols on those which well, these are
not recommendations. I'm being forced to tell you these names.
But there are over one hundred of them, and these
are just samples. The black Rock fund called BGT that
you could look up at cf connect, the Cowa Moost
Fund CHI you could look it up at seef connect
and see what you think about it. I would not
buy anything unless you do complete amount of researcher on it.
Speaker 4: Hey, so that's a quick question for you. Because these
things kind of came up in the twenties. I think
they started.
Speaker 1: The eighteen twenties.
Speaker 3: Eight.
Speaker 4: Yeah, they've been around, so I know they've been around
for a long long time. Where are they still making
any new ones?
Speaker 3: Here?
Speaker 4: They are doing it? What may get a higher fee
for these these companies? The fund managers? They get a
hire yes, sure right.
Speaker 1: The managers charges that they put on the website, and
each one which we never pay. You know, all the
all the yields I mentioned are net of all expenses. Right,
they do charge you know, two and a half three
four percent, sometimes too much to be included the government.
Uh like they're not going to be in your four
to one k. Of course, the government won't let anything
in there over two.
Speaker 4: Percent really, So so I'm just looking at one here
that I just popped up at random, the new Vene
Real Estate Income Fund. It's total market value two hundred
and twenty one million, distribution rate eight point nine percent,
which means if you put in one hundred bucks, you
get eight dollars and ninety cents back, And it's trading
at a discount to net asset value of ten point
two percent. It's expense ratio they're really high, three point
sixty four percent. Is this something I should think about?
Speaker 1: Absolutely?
Speaker 4: What's the the symbol or why'd you ask me that?
Hold on a second, let me find it. Ah, let's see.
Of course it's a sponsored company. I'm just looking at Kiplinger.
Let's see what we got here. Let's do a little
Google search here, and uh darn it, give me one
second here, really pretty good at this, stupid sorry, I'm
doing this like real time here, so yeah.
Speaker 1: Me me too, And I'm gonna look at it and
see if connected.
Speaker 3: Tell me. Here we go J j R S j
R s Y S j R S.
Speaker 1: Yeah, j R S is is as you might have guessed,
it's on my list. Oh okay, and I've traded it
for many, many years. But if you look at it,
you just you just mentioned a couple of the basics,
but you can click on. If you look at the distributions,
you'll see that it's paying a regular quarterly distribution since
at least two thousand and two.
Speaker 4: Yeah, and that's a good thing, right, Yeah, it's twenty
three years.
Speaker 3: Yeah.
Speaker 1: So when you look at it and you're doing your
research on any of these funds, which you must do,
you want to look at the distribution history over time. Okay,
you want to look at what's inside this particular one.
It's in real estate, so it owns stocks of some
companies and preferred stocks of other real estate companies. It
has only eighty five positions in it, which I'm saying
only that's a lot of different companies, you know, so
your diversification, your investment is pretty safe. And you can
also find that's fifteen nineteen twenty five thirty about thirty
five percent of the portfolio is invested in the top
ten companies, so thirty five in ut and sixty five
which with less than two percent invest of the assets.
So it would be comfortable. It would certainly be. In
addition to most of my portfolios. This one happens to
be since it's mostly stock, I consider it in equity fund,
not an income fund. Okay, but still at that yield,
it's a nice nice thing.
Speaker 4: To be in investing in reates and stuff like that. Yes,
so these fund's been around, a lot of them, you're
investing in a long time. Do you only buy them
at a discount or you buy them at par or
will you pay a premium for them?
Speaker 1: Okay, I you have to understand that these let me
ask you, let me put it in another way. Do
you care what the intrinsic value of a share of
Microsoft is.
Speaker 3: Well, it seems for changeable, do.
Speaker 1: You think, But but do you think it trades it?
It's about its book value. There isn't There isn't a
stock out there that trades the book value. Those infos
business those in funds are exactly the same. They are
a function of supply and demand. For let's say a
real estate investment that paygy eight percent, you know there's
more supply than demand. It's it's going to trade at premium.
Otherwise it's going to play a discount. But let's talk
another thing. The securities that make up all the all
the shares of these companies, that make up the net
asset value. Some of them are interest rates sensitive, particularly
in the income sector. So you could have a fund
which has a thousand different treasury in it, you know,
guaranteed by the federal government. If interest rates go up
substantially or even a little bit from what they were
issued at, they're going to trade on the markets. They're
going to trade below they're.
Speaker 3: A face valor.
Speaker 1: So the net asset value is going to go down,
and it could go down substantially, and at that point
you'd say Okay, if if more, if there's more demand
for that fund now that it's paying eight percent at
this discount, you know, this internal discount, that demand might
actually pull the price of this stock above that asked
value when all the securities inside of it are trading
at a discount.
Speaker 3: Okay.
Speaker 4: So, but like you've been studying these things for forty
years now, when you see them at a discount, is
that an alarm bell or red flag? Or is that
a good thing? Or it's irrelevant?
Speaker 1: I consider it irrelevant, okay, because it's the natural state
of affairs. It depends on the prices of all the
securities inside that fund, and everything from the situation in
the Middle East to you know, planes flying into buildings.
Two problems at the border are going to impact the
prices of the securities out there being bought and sold
every day in the financial markets. So I and I
don't buy securities to keep them. I consider securities differently
than most people. I have, Like I said, in my
own portfolios and in the portfolios that I manage for
people for all those years, I had a lot of
positions in each of them, and I treated those positions
just as I would if I were running a department store,
and I had all these goods and services on my
shelves people would want, and I'd have I'd had a
markup on them of where I would take my profit.
I would sell these things. And that's how I operated
an investment portfolio. So if we if I have that
JRS in my my portfolio and I assign that I
have a five percent markup on it, and I can
sell it at a five percent profit, I'm going to
do that sale immediately, and I'm going to buy another
closed end fund that has similar securities or maybe even not,
and put it into my portfolio, onto my shelves of
my department store, and put a markup of that five
percent on that one, and hold it only until it
goes up in that price, and then I'm gonna sell it.
So some of these things I might be I might
be holding these things a matter of days or.
Speaker 4: A matter of my So I like in the system here,
So what kind of returns have you realized over time
using this?
Speaker 1: I you know, I my my standard thing is that
ten percent a year in actual realize gains in my
working capital are reasonable expectation Because I know I'm I
typically don't I don't. I won't even buy a closed
in fund is plus it's pay an over six percent,
and that's under any market conditions, even when interest rates
are in the zero area like they were recently. So
I know I'm going to do that, and I know
I'm going to trade. For example, this year, I have
seven months income the equivalent of seven month income just
in capital gains this year.
Speaker 4: Yeah, so you're not even though you're an income coach,
you're not really holding on to it for the income,
are you.
Speaker 1: I'm doing both. I mean there's two stream There are
two streams of income. Stream. One is the distributions. And
let's say we go into a twenty twenty two or
worse and the market goes down for eighteen twenty four months,
the income from the distributions is going to pretty much
remain the same. The profit taking opportunities are going to
be few and far between. So you may have years
where you're relying strictly on the income from the distributions
and without the bonus of the capital gains that you
can either spend or reinvest. So it's not always as
good or as easy as it was this year.
Speaker 3: Yeah.
Speaker 4: Well, so twenty twenty one was he figure out you're opportunistic, Right.
Speaker 1: Yeah, how many times have you seen let's say you
invest in the stock market and you hold them, you know,
the even the fang stocks or the Dow forty or
wherever it is you own them, how many times have
you seen them being a great big ego building profit
or ego building profit position and then it disappears like
it did in nineteen eighty seven and two thousand, two
thousand and eight, March of twenty twenty. It happens all
the time. There are always corrections, and my goal is to,
you know, to leave as little as possible on the table.
Speaker 4: So you figure you're shooting for ten percent return on
your portfolio annually, I.
Speaker 1: Expect to make a ten I don't use the word
return in the industry. Return means the change, you know,
the growth in the market value.
Speaker 3: Right, you're saying total return.
Speaker 1: And that's total return market gaining market value plus any
income you received. I'm saying gain in working capital mean
an amount of amount of money I have invested in
the securities in my portfolio, and that that grows by income, production, deposits,
and profits.
Speaker 4: So is this something you want to put like into
a retirement account.
Speaker 3: You're not paying taxes on it.
Speaker 1: Oh, it's perfect, particularly in a roth ira. I mean,
if you can put ten income producing securities in a
roth ira, even if you don't take the profits, it's
going to double every seven seven and a half years.
Speaker 3: Right, great, if you get added even two.
Speaker 1: Or three percent in profits each year, it's a virtual
gold mine. Much put it in a rawira. Exactly have
money machine?
Speaker 3: All right? Well, I like it.
Speaker 4: Steve, tell us where we find you, how we connect
with you on the interwebs.
Speaker 1: The interweps. The best place to do it is to
pay the cheap price of ten dollars or twenty dollars
for the Retirement Money Secrets Book, and it'll tell you
where you can go, how you should approach it, where
you can go to find these types of security and
research them, and also how to contact me if you
want help. And my website is the Incomecoach dot net.
Speaker 4: All right, excellent, Well, we really appreciate you coming on here.
Got any questions for Steve or myself? Shooting me an
email klatcarrieluts dot com and the link is in the
show notes to his book. And while you're there on
financial survival network dot com. Please sign up for your
free newsletter. Steve been a real pleasure. Thank you so
much for coming by.
Speaker 1: Thank you, Carrie, good talking to you.
Speaker 2: Thanks for listening to Carrie Letz's Financial Survival Network, your
solution to today's trying times. For the latest, go to
Financial Survivalnetwork dot com. Financial Survival Network
Speaker 1: Now more than ever,