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Market Value Builds Egos; Income Pays the Bills

Beware the ‘bull-market geniuses’

by Steve Selengut

Mr. Selengut is a private investor and a contributing editor to LIFE&Health Advisor. He is the author of the book ‘The Brainwashing of the American Investor: The book that Wall Street does not want you to read.’ He can be reached at sanserve@aol.com

Crash! The 2007 thru 2008 financial crisis halved all-time high 401k, IRA, and Mutual Fund values in a matter of months.

For many, retirement dates had to be pushed back; for others, new jobs had to be found.

The tragic flaw? No income allocation in the investment program. Market value builds egos; income pays the bills.

Few employers cautioned 401k Investment Plan participants that there was no “income (or market value) guarantee” in those inflated 2007 values . Few mutual fund distributors suggested to benefit departments that their programs were missing something of critical importance. ETFs were yet to become a force in the market place.

On a more personal level, few investment advisor/product salespersons designed portfolios where the income was pretty much immune to a major market meltdown. For whatever reason, the financial community (from Washington to Wherever) is quite simply hypnotized by “market value” and “total return” numbers.

Income is boring, less of a fee generator, and never, ever mentioned as an investment plan objective in market commentary.Throughout the meltdown, all investment securities fell in market value. But the vast majority of income securities, including closed end income funds (CEFs), continued to pay interest and dividends.

Market value builds over-confidence; income pays the bills

While most retirees and soon-to-be’s were lamenting their misfortune; IGVSI/CEF investors saw their income continue unabated. Market values shrunk much less than non-MCIM portfolios, total returns were not nearly as negative, and absolutely nothing was sold just to produce a stable retirement income.

The planned balance between income producers and growth providers (equities) must be maintained throughout the process, even though there may be no immediate need for the income

By early 2010, market values were back above 2007 levels, and realized income has continued to grow from the 2007 bottom to the present day… and just because the portfolios were designed with only high quality securities (equity and income) and a “grow the income” focus.

My message to “all y’all” is simple, do yourself a favor and read any of the hundreds of other articles you’ll find with “Bull Market Geniuses” in the title…

  • When you run a comprehensive system of portfolio development that focuses on dependable cash flow regardless of market conditions, you are simply devastated when friends, family, or other acquaintances become “mesmatized” (mesmerized and hypnotized) by the “Wizards”… and their representatives.
  • If your retirement program is not generating at least 5% in realized spendable income (after expenses), you could and should be doing some shopping around.
  • If you don’t understand “realized spendable income”… call the retirement 9-1-1 hotline.

Every portfolio holding must generate regular income and each security must have profit potential. The planned balance between income producers and growth providers (equities) must be maintained throughout the process, even though there may be no immediate need for the income.

Income produces instant capital growth; unrealized gains do not

If any of you are within five years of retirement, and you do not have at least 60% invested specifically for income (and the other 40% producing at least some income) you could be headed for serious adversity… markets do not go up forever, and this one is no exception.

But, if you are in retirement, your portfolio should be producing more than the additional (above pensions and social security) spending money you need… without touching your principal.

Total Return, or Market Value Growth has absolutely nothing to do with spending money… unless you sell securities.

So what happened to the “Bull Market Geniuses” of 1987, the dot-com kings of 2000, or the derivative superstars of 2007? They were all crushed like bugs while diversified, high quality growth and income portfolios survived without a meaningful scratch.

They’re Back… make sure they are not managing your portfolio.

Income Pays The Bills….