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Paychecks, Not Portfolios: Why Income is the Key to Financial Success
Thank you, @Mark One may buy 'cheaply' the book, 'The Millionaire Next Door'. Yes, income is very important, but so are spending habits. I will admit this book and its methods, don't help the ultra poor.
Income investing is a myth that has been promoted for years. In many cases, the writer wants to sell you something. Income investing as someone's main/first criterion has no legs in reality because TR=total return (performance) is the ultimate indicator. TR includes everything and all distributions are part of it. Risk-adjusted performance is the first thing you look for, after that, you can look for high distributions. I have been discussing HIGH INCOME since 2010. First came ATT,VZ,IBM as a must vs SPY,QQQ. A simple chart can prove how pathetic ATT,VZ,IBM were since 2010. Then came MLP which lost more than half. Then came fixed income CEFs where they made a total of 6-7% in the last 5 years while SPY made over 70%. Lastly, I'm not against high distributions, I'm against using it as someone's main criterion.
In today's world, I would argue that income after rent is a better measure than income alone. I have numerous college educated young relatives still trying in their 30s to save a down payment on a home. The only successes I see are in Mississippi where my relatives, young adults, are educated and earn enough for a home purchase. Really nice suburban 3-4 bedroom homes in the $200,000 range. Also, lower prices mean lower down payments and families can afford to help out. In the Pacific NW, where I live, young adults face $500,000-$600,000 for just a two-bedroom, one bath home. 20% down is a lot of excess income for saving. So rent, also high, is the leading political issue around young families here. And salaries aren't high enough to compensate for the higher cost of living. I know I didn't have it this hard.
@FD1000 - I think you missed the point of the article if you even read it at all. He was saying that if you have limited income (i.e. from your paycheck or earnings) it's difficult to construct or build a portfolio. That is the situation for millions of potential savers. If one is living from paycheck to paycheck just in order to make it through the day/month/year then where do you find money to save? Where does the income come from to stash away for a rainy day, an unexpected medical bill, an appliance or vehicle that needs replacement/repair and so on and so forth. From personal experience it's a struggle to get to that point or stage in one's life.
The author in this article is most definitely NOT saying to invest for income. He's saying that folks need income to invest.
@Anna - what you said is quite true. The cost of shelter, living in general and the salaries to afford it all play a critical part. It pains me to see that companies and even states (I'm talking about you Texas) don't even want to give their workers water breaks much less reasonable pay for their labor.
We know that compounding on investments made early in one’s lifetime makes a huge difference in one’s financial success. Even though I was a very low earner when I started my career in 1970, we still were able to buy a house in 1973 based on my income alone. Interest rates were around 4%. I borrowed the 5% down payment from my father. My employer, despite paying me a pittance, paid 10% into my retirement account at TIAA. With one kid, one starter home, one car, and a frugality drummed into us by our Depression-era parents, we eventually realized quite amazing gains on what we honestly did not know would become our sources of “wealth.”
In today’s economy, as @Anna aptly points out, the young couple setting out on a path similar to ours, face overwhelming obstacles. The price of a starter home, in almost any part of the country, now presents the biggest barrier, to say nothing of the huge down payment. What employer these days would be paying 10% of base salary into retirement? It seems trite to say that our kids won’t do as well as their parents, a complete reversal of what had been accepted wisdom about the American economy. The American Dream, for a great many of our brethren, is nothing more than a chimera. The participants on MFO, IMHO, have a whole lot to be grateful for. I’m not sure that my kids, who are between 25 and 43, will be able to feel secure in their retirements.
Income investing is a myth that has been promoted for years. In many cases, the writer wants to sell you something. Income investing as someone's main/first criterion has no legs in reality because TR=total return (performance) is the ultimate indicator. TR includes everything and all distributions are part of it. Risk-adjusted performance is the first thing you look for, after that, you can look for high distributions. I have been discussing HIGH INCOME since 2010. First came ATT,VZ,IBM as a must vs SPY,QQQ. A simple chart can prove how pathetic ATT,VZ,IBM were since 2010. Then came MLP which lost more than half. Then came fixed income CEFs where they made a total of 6-7% in the last 5 years while SPY made over 70%. Lastly, I'm not against high distributions, I'm against using it as someone's main criterion.
At times like this, the young people say:
"Sir, this is a Wendys."
Older folks might remember what Emily Litella used to say.
”Income investing is a myth that has been promoted for years “
That’s a bit harsh. Such companies often have certain other characteristics making them desirable additions to a portfolio. Everybody has their own approach & comfort level. I can see where a diversified portfolio might include a category devoted to high income payers. And (perhaps balance that out) another sleeve dedicated to aggressive growth companies. Not my style. But makes sense. BTW Utilities, typically high dividend payers, are favored by David Giroux, not a ”light-weight”. You might want to get a note off to him.
Thank you, @Mark One may buy 'cheaply' the book, 'The Millionaire Next Door'. Yes, income is very important, but so are spending habits. I will admit this book and its methods, don't help the ultra poor.
Quite right. You could have eighteen bazillion dollars and be foolish with it, and lose it all. That happens to celebrities often enough. I knew a guy who trusted his accountant TOO much. Never checked the 1040 for himself. He was beholden to the IRS for a helluva lot of money, over a period of years and years.
And if you're very poor, the savings and investment techniques which require the use of MONEY YOU DON'T HAVE are useless. But the school systems truly ought to be teaching financial literacy. Not in order to make students all excellent and talented capitalists. Yet, capitalism is the only game in town--- apart from a hybrid economic arrangement like they have in Scandinavia. (Where poverty and homelessness are not such a scourge, as in the States?) And people DO invest in Scandinavian countries, eh?
What bothers me most is seeing people with low wage jobs spend gobs of money on overpriced trucks, cars and even coffee.
One of our desk clerks drove a custom painted Ford F-150. Even back then with low interest rates, I cannot imagine how she afforded the payments. She could have gotten to work in a $1000 junker
My other example is eating out daily, or just buying a "latte". $5 a day, five days a week every week is $1300 a year. Won't send your kid to Harvard, but even today is is not small change. This was before tattoos and nail salons, but they are other examples
What bothers me most is seeing people with low wage jobs spend gobs of money on overpriced trucks, cars and even coffee. One of our desk clerks drove a custom painted Ford F-150. Even back then with low interest rates, I cannot imagine how she afforded the payments. She could have gotten to work in a $1000 junker …
Good points. A terrific fella I knew growing up in the 60s held a higher level engineering job at Ford in Dearborn. Smart cookie. Knew his stuff. The most memorable thing I can remember him ever saying to me: “A new vehicle is a terrible investment.” I doubt many would quarrel with that. But it struck me as especially poignant coming from someone in the industry who could well afford to drive anything he wanted.
On the other hand … I do enjoy driving a newer vehicle with all the latest bells & whistles. The things many don’t consider adequately when contemplating a purchase are the financing costs and insurance costs, which typically increase with car value.
+1. I notice a lot of the same stuff. I was glad to buy a new vehicle, however, when we got here. Peace of mind, for a few years, anyhow. Yes, there are recalls all the time. We took ours into the dealer and the work was done for free. With our down-payment and a discount through a nephew who works at the place, we did good. Payments under $280/month at 1.99%. Nissan Sentra. 4cbe8441-9fdb-4aac-91f7-f82e0b589036(1).png (That stupid link does not work. Copy a file and try to share it? A major stupid undertaking I'm unwilling to spend time on.) I notice the daily take-out here everywhere I turn. Crazy fancy nails, too. Etc. Etc.
Comments
Was I right ?
It comes off as everyone talking about the weather, but no one does anything about it.
I have been discussing HIGH INCOME since 2010.
First came ATT,VZ,IBM as a must vs SPY,QQQ. A simple chart can prove how pathetic ATT,VZ,IBM were since 2010.
Then came MLP which lost more than half.
Then came fixed income CEFs where they made a total of 6-7% in the last 5 years while SPY made over 70%.
Lastly, I'm not against high distributions, I'm against using it as someone's main criterion.
The author in this article is most definitely NOT saying to invest for income. He's saying that folks need income to invest.
@Anna - what you said is quite true. The cost of shelter, living in general and the salaries to afford it all play a critical part. It pains me to see that companies and even states (I'm talking about you Texas) don't even want to give their workers water breaks much less reasonable pay for their labor.
@Mark- You be readin' my mind. Stop that.
In today’s economy, as @Anna aptly points out, the young couple setting out on a path similar to ours, face overwhelming obstacles. The price of a starter home, in almost any part of the country, now presents the biggest barrier, to say nothing of the huge down payment. What employer these days would be paying 10% of base salary into retirement? It seems trite to say that our kids won’t do as well as their parents, a complete reversal of what had been accepted wisdom about the American economy. The American Dream, for a great many of our brethren, is nothing more than a chimera. The participants on MFO, IMHO, have a whole lot to be grateful for. I’m not sure that my kids, who are between 25 and 43, will be able to feel secure in their retirements.
"Sir, this is a Wendys."
Older folks might remember what Emily Litella used to say.
That’s a bit harsh. Such companies often have certain other characteristics making them desirable additions to a portfolio. Everybody has their own approach & comfort level. I can see where a diversified portfolio might include a category devoted to high income payers. And (perhaps balance that out) another sleeve dedicated to aggressive growth companies. Not my style. But makes sense. BTW Utilities, typically high dividend payers, are favored by David Giroux, not a ”light-weight”. You might want to get a note off to him.
Well, that actually works pretty well. Until it doesn't.
The thing is, until someone actually is forced to live through the "it doesn't" part of life they really have no concept of reality.
And if you're very poor, the savings and investment techniques which require the use of MONEY YOU DON'T HAVE are useless. But the school systems truly ought to be teaching financial literacy. Not in order to make students all excellent and talented capitalists. Yet, capitalism is the only game in town--- apart from a hybrid economic arrangement like they have in Scandinavia. (Where poverty and homelessness are not such a scourge, as in the States?) And people DO invest in Scandinavian countries, eh?
One of our desk clerks drove a custom painted Ford F-150. Even back then with low interest rates, I cannot imagine how she afforded the payments. She could have gotten to work in a $1000 junker
My other example is eating out daily, or just buying a "latte". $5 a day, five days a week every week is $1300 a year. Won't send your kid to Harvard, but even today is is not small change. This was before tattoos and nail salons, but they are other examples
Good points. A terrific fella I knew growing up in the 60s held a higher level engineering job at Ford in Dearborn. Smart cookie. Knew his stuff. The most memorable thing I can remember him ever saying to me: “A new vehicle is a terrible investment.” I doubt many would quarrel with that. But it struck me as especially poignant coming from someone in the industry who could well afford to drive anything he wanted.
On the other hand … I do enjoy driving a newer vehicle with all the latest bells & whistles.
The things many don’t consider adequately when contemplating a purchase are the financing costs and insurance costs, which typically increase with car value.
I notice a lot of the same stuff. I was glad to buy a new vehicle, however, when we got here. Peace of mind, for a few years, anyhow. Yes, there are recalls all the time. We took ours into the dealer and the work was done for free. With our down-payment and a discount through a nephew who works at the place, we did good. Payments under $280/month at 1.99%. Nissan Sentra.
4cbe8441-9fdb-4aac-91f7-f82e0b589036(1).png
(That stupid link does not work. Copy a file and try to share it? A major stupid undertaking I'm unwilling to spend time on.)
I notice the daily take-out here everywhere I turn. Crazy fancy nails, too. Etc. Etc.
That's not even a link.
.png is a graphics format file.