Co-written by Treading Softly.
Every time we approach a new year, many people start making New Year’s resolutions. These are goals they set for themselves and potentially share with others to improve themselves in many ways . I I remember an old joke my friends shared that for the New Year we were going to decide to start smoking – that way we could decide to quit the following year.
For many of us, however, New Year’s revolutions usually fizzle out within the first few weeks of their inception, because as much as we desire to see the new year as a “blank slate,” in reality, so many things bother us. teach that this is not the case. Your bills keep coming, and the stressors and relationships from last year continue to linger. Unless you interrupt everyone and walk away, you’ll never really get a clean slate. because you and your personal story continue with you. I’ll be honest with you; I don’t believe in the idea that humans can’t change. I’ve seen enough people change their lives and radically become better people to know that people can change. It’s just extremely difficult.
When it comes to the market, many of us have been forged with a specific way of thinking and specific expectations, so we fail to understand that the market is as vast in outlook and outlook as it is vast in tickers that we could list. I want to help you develop some resolutions or help you with some ideas on how you can make resolutions to include these concepts for your long term benefit.
Decide to negotiate less
There is a common saying that when you go to the casino, the house always wins. The reason for this axiom is that people understand that casinos generally focus in their favor to make profits. Even if you win big at a poker table, roulette table, or slot machine, so many other people have lost that the casino walks away with a profit. Everything from the oxygen level in the casino air to the carpet on the floor to the lighting in the rooms is designed to put you in a state of euphoria to encourage you to gamble irrationally. We know this, and yet we still participate.
When we talk about our brokerage, we often seem to think that they are on our side, as if they are an ally in fighting the market, but that the brokerage is profiting from your patronage. They profit when you trade. They profit when you invest. They profit when you put money into the account. The entire brokerage experience is designed to encourage you to deposit more money and potentially trade more in the market. Apps like Robinhood (HOOD) or programs like Schwab’s Think or Swim (Software) are all designed to encourage you to feel like an efficient, competent trader capable of conquering the market, and they make trading stocks as easy as possible with your money. The more you trade, the more the machinations of the market can take advantage of you.
When I developed the income method, I wanted it to be as simple and repeatable as possible. The more levers and switches you have to pull to succeed in the market, the more potential losses you expose yourself to. So I adopt a very simple buy and hold methodology. I buy something and plan to keep it for 2-3 years. Sometimes I have to sell earlier than that for various reasons; I recognize that. But these are exceptions and not rules. I encourage you to do this to be more successful in the market: trade less and invest more. Recognize that your brokerage is not designed to be your friend but to take advantage of you.
Decide to reduce stress
Studies have shown that being forced to participate in activities you don’t feel comfortable in is exceptionally more stressful than doing nothing.
This makes sense if you think about it. If you don’t feel comfortable doing something and yet are forced to do it, it’s going to be a stressful experience. Being able to work around this completely removes the potential for this stress.
The overwhelming majority of retirees and novice investors are uncomfortable with having to choose what to sell in the market, and this is another key reason why individual investors generally fail to outperform the market as a whole. This resolution to reduce your stress is directly linked to the resolution to trade less. As a professional investor, I simply buy high quality companies that pay me to own, and I sit back and let them pay me a steady income month after month, quarter after quarter. I don’t have to decide what to sell to buy my next piece of bread, because the companies are already paying me.
Many investors and retirees wonder when to sell securities to lock in profits or to lock in losses in order to meet the required minimum distributions for their IRA accounts. This can be stressful, because if you sell at the wrong time, those losses are locked in and recovering them is exponentially harder with what’s left in your portfolio. I like to take the path of least resistance. In this case, I am being paid by the company simply for holding its stock. I don’t have to do anything more.
Ironically, taking this path of least resistance in the marketplace can lead to maximum resistance from educated and dogmatically educated people to take an entirely different approach. They will regularly tell you that you are accepting fewer returns and fewer gains by not following their mindset. Yet these are often the same people who worry about what to sell and when to sell and who themselves underperform the market. Being an income investor is extremely peaceful because you know your income is flowing in and you don’t need to worry about what’s happening in the market on a daily basis. You can walk away from the market and still enjoy the fruits of your labor without having to look at your wallet every minute of the day.
I expect 2024 to be a very exciting year.
Looking ahead, we have the potential for a massive recession or soft landing if the Federal Reserve can do this effectively. Both of these outcomes can dramatically change the performance of your portfolio, depending on what you invest in. Yet none of these results will impact the ability of my personal portfolio or the High Dividend Opportunities Model Portfolio to provide exceptional income when we need it.
For investors looking for income but still want significant exposure to the broader market, I would recommend Royce Value Trust (RVT), which offers a yield of 7.3%, and Freedom All-Star Stock Fund (UNITED STATES), which currently offers a yield of 9.7%. Both give you market-wide exposure to tons of high-quality names and also give you great variable income quarter over quarter. If the market goes up, dividends will also go up. If the market contracts, dividends will decrease accordingly. This way you can get significant income and exposure to market movements. A true income portfolio is made up of at least 42 different individual securities. We call this our Rule of 42and it offers a high level of diversification and also offers a high level of security in your income.
When it comes to retirement, you may not always have the same desire to make New Year’s resolutions as you used to – that’s okay! But if you’re not an income investor, I strongly encourage you to make some income-based resolutions for your portfolio this year and see throughout the year how well you’re able to stick to those resolutions to significantly improve your retirement. More income in retirement means more opportunities to explore. I want you to be able to explore them all.
That’s the beauty of my income method. That’s the beauty of income investing.