Starting From Scratch (Income)

June 5, 2024

This week we’re talking about Starting From Scratch with stocks.

In our last email, I gave out the simple ETF combination I like. If I had to set-and-forget and didn’t care about research or trading systems, that’s what I would do for long-term growth.

But what if I need income?

Maybe I got an inheritance. Maybe I sold my company. Maybe I sold my house.

Whatever the windfall, what if I want that money to bring me income so I could use that for monthly expenses?

Then here’s what I would do: I’d go for high-yield.

Yikes.

Much like “negative” reward-to-risk ratios, high-yield stocks get a bad rap. The truth is there’s nothing wrong with either of them.

People love to preach from ivory towers that dividend growth is the only way to go. The principle grows and the dividend grows, they say. Woohoo.

And forty years from now, that would potentially produce a highly profitable snowball of money.

But do you know what dividend growth will produce 5-10 years from now?

A lot less money.

Remember, if we have a portfolio with an 8% yield and no dividend growth, in ten years our yield will still be 8%.

If we have a dividend growth portfolio with a 3% yield and a magical dividend growth rate of 7%, in ten years our yield will be 5.9%.

The dividend snowball failed miserably.

We needed money and we didn’t get it–all because we bought into dividend growth.

Granted, in fifty years, growth wins out. But who’s investing for the next fifty years?

Most people are investing for the next five to ten years.

And if that was the case for me, I’d use a high-yield portfolio.

Here’s one I like:

ADX, USA, and GAM. The overall yield is over 7%.

As you can see from above, this combination is beating the market in the last month or so.

And it also matches the market over the past decade:

I’d get high-yield and my principle wouldn’t stop growing, at least it hasn’t over the past decade.

And I’d never have to worry about selling shares or the fallibility of the infamous 4% rule.

Again, not a recommendation.

Just what I would do if I was in my shoes.

We’ll look at another scenario in the next Newsletter.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.