Income investing intimidates some investors.
Despite what folks think, income investing is actually easier than picking growth stocks or trading options, once you know how to do it... due to the stability and long-term focus of income investments.
I worked on Wall Street for a decade helping investors manage risk. I was on one of the elite trading desks at Goldman Sachs. After that, I went to medical school and became a board-eligible eye surgeon. All the while, I've been semi-retired and using my savings to produce income to live and invest.
But in 2008, I launched my first newsletter with my publisher, Stansberry Research, which let me share my investing ideas and help my readers live a healthy and wealthy retirement.
That's because I love helping readers of various backgrounds generate wealth and be healthy. Learning finance and medicine from the inside showed me how easily I could help empower people.
During the past few years, I've figured out what keeps people from proper income investing. It requires initiative and effort to take control of your financial future.
But even once you understand that, investors – and income investors in particular – still tend to get sidetracked.
Most new investors learn the basics of how stocks work. For income investing, that's not enough.
To be a complete income investor, you can't limit yourself to just dividend-paying stocks. You need to diversify your portfolio with bonds, real estate investment trusts ("REITs"), master limited partnerships ("MLPs"), exchange-traded funds ("ETFs"), annuities, and certificates of deposit ("CDs"), to name a few.
But no matter what you're buying, if there's one thing income investors should constantly remember, it's to buy value. By that, I mean you should always pay a fair price for what something is worth.
It seems simple... But it's the first thing investors forget. The latest hot stock tip or brand-new technology story can quickly push a stock's valuation into the atmosphere.
Value investing is one of the greatest investing strategies of all time. The father of modern investing analysis, Benjamin Graham, first published his book Security Analysis back in 1934. The book discussed buying stocks with low price-to-earnings (P/E) ratios and low price-to-book (P/B) ratios. Graham's ideas have been tested and proven to be profitable by dozens of academic studies. They even helped to make superinvestor Warren Buffett his fortune.
In 1949, Graham published The Intelligent Investor. In it, he explained why you should only buy stocks when their P/E ratios are less than 15 and their P/B ratios are less than 1.5. That strategy has also been proven successful over the years.
But I don't subscribe to any hard-and-fast rule. P/E ratios don't always apply to exactly what we're investing in. And markets change... so we can't count on one single number for the rest of time.
The one rule you should follow for every investment you make is to write down a compelling argument for why it's undervalued. Maybe the stock is cheaper than its competitors... or the market as a whole. Maybe it has a better product than its competitors. But whatever your reasoning is, you should force yourself to do this exercise every time. That will keep you away from investing in popular, overvalued stocks.
If you've ever thought of becoming an income investor, now is the time to start.
My team and I believe we are approaching a new enlightenment for income investors.
Yields are up across the board. There is a lot of safe income to be made, and we want a piece of it.
But here's the key thing: If you don't understand how to make this market work for you... you're going to get badly burned.
Last week, I shared what I think is the market's "best-kept secret" – a simple way for you to take the worry out of your investing and get paid.
It's a way to collect a nearly 8% yield today, plus capital upside. Not bad in a down market.
If you've never understood interest rates... inflation... or the Federal Reserve... and why they all matter – you will after you watch my critical retirement update in plain, simple English.
If you missed it, catch up on all the details here.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
April 17, 2023