USA - New Year New Income Resolutions

2024-01-01 09:45:00 ET

Summary

• It's a new year, start it off with great income resolutions.
• We give two great ideas to get your portfolio started.
• Two unique resolutions to change how you invest your money forever.

Co-authored by Treading Softly.

Every time we approach a new year, so many people start out making New Year's resolutions. These are goals that they make and potentially even share with others to improve themselves in any number of ways. I can remember an old joke that my friends would share that for New Year's, we were going to resolve to take up smoking - that way, we could resolve the next year to stop.

For many of us, though, New Year's Revolutions typically fizzle out within the first few weeks after making them because while we have the desire to see the New Year as a "blank slate" - in reality, so much teaches us that it's not. Your bills continue to come, and last year's stressors and relationships continue to persist. Unless you cut everyone off and move away, you're never truly getting a clean slate because you and your personal history carry forward with you. I'll be honest with you; I'm not a believer in the idea that humans can't change. I've seen enough people turn around their lives and change drastically into better people to know that people can change. It's just extremely difficult.

When it comes to the market, so many of us have been drilled with a specific way of thinking and a specific expectation that we fail to understand that the market is as vast in perspectives and outlooks as it is wide with tickers that we could list. I want to help you craft a few resolutions or help you with some ideas of ways you can make resolutions to include these concepts to benefit yourself in the long run.

Let's dive in!

Resolve To Trade Less

There's a common saying that when you go to a casino, the house always wins. The reason for this axiom is that people understand that the casinos are generally stacked in favor of themselves to make a profit. Even if you win big at a poker table, a roulette table, or a slot machine, so many other people have lost, that the casino still walks away with a profit. Everything from the casino's oxygen level in the air to the carpet on the floor, to the lighting in the rooms, is designed to put you in a euphoric state to encourage you to gamble irrationally. We know this going in, and yet we still participate.

When we come to our brokerage, we often seem to think that the brokerage is on our side, like it's an ally in the fight against the market, yet the brokerage profits 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 Think or Swim from Schwab ( SCHW ) are all designed to encourage you to feel like you're an effective and skilled trader able to take on the market, and they make things as easy as possible to trade your money in and out of securities. The more you trade, the more the machinations in the market can profit from you.

When I developed the Income Method, I wanted it to be as simple and repeatable as possible. The more levers you have to pull and switches you have to flip to make yourself successful in the market, the more you expose yourself to potential losses. So, I espouse a very simple buy-and-hold methodology. I buy something and I expect to hold it for 2 to 3 years. At times, I do have to sell earlier than that for various reasons; I accept that. But those are the exceptions, not the rules. I'll encourage you that, to find more success in the market: trade less and invest more. Recognize that your brokerage is not designed to be your friend but designed to profit off of you.

Resolve To Reduce Stress

Studies have shown that it is exceptionally more stressful to be forced to engage in activities you don't feel comfortable in than to do nothing.

This makes logical sense if you think about it. If you don't feel comfortable doing something, yet you're forced to do it, it's going to be a stressful experience. Being able to bypass that entirely removes the potential of that stress.

Overwhelmingly, retirees and novice investors are not comfortable with having to pick what to sell in the market, and this is another key reason why individual investors routinely fail to outperform the general market as a whole. This resolution to reduce your stress is tied directly to the resolution to trade less. As a professional income investor, I simply buy high-quality companies that pay me to be an owner, and I sit back and let them pay me 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 paying me already.

Many investors and retirees stress about when to sell securities to lock in profits or to lock in losses to meet the required minimum distributions for their IRA accounts. It can be stressful because if you sell at the wrong time, those losses are locked in, and their recovery is exponentially harder with what's left in your portfolio. I like to take the path of least resistance. In this instance, I get paid by the company simply to hold their shares. I don't have to do anything extra.

Ironically, taking this path of the least resistance in the market can lead to maximum resistance from people who are educated and dogmatically taught to take an entirely different approach. They'll routinely tell you that you are accepting fewer returns and fewer gains by not following their mindset. Yet those are often the same people who are stressing about what to sell and when to sell and underperforming the market themselves. Being an income investor is extremely peaceful because you know that your income is flowing in, and you don't need to stress about what's going on day to day in the market. You can walk away from the market and still enjoy the fruits of your labor without having to stare at your portfolio every minute of the day.

Conclusion

I expect 2024 to be a very exciting year.

Looking forward, we have the potential of a massive recession or a soft landing if the Federal Reserve can pull it off effectively. Both outcomes can drastically change how your portfolio performs, depending on what you're invested in. Yet neither outcome will impact the ability of my personal portfolio or the High Dividend Opportunities Model Portfolio to provide outstanding income when we need it.

For investors looking for income but still wanting a large market-wide exposure, I would recommend Royce Value Trust ( RVT ), which provides a 7.3% yield, and Liberty All-Star Equity Fund ( USA ), which provides a 9.7% yield currently. Both provide you market-wide exposure to tons of high-quality names and also provide you with great variable income quarter after quarter. If the market climbs, the dividends will climb. If the market shrinks, the dividends will shrink accordingly. So you can get great income and exposure to the market's movements. A true income portfolio is composed of at least 42 different individual securities. We call this our Rule of 42 , and it provides a high level of diversification and also provides a high level of security in your income.

When it comes to retirement, you might not always have the same drive to make New Year's resolutions as you used to - that's okay! But if you are not an income investor, I strongly encourage you to set up some income-based resolutions this year for your portfolio and see all year long how well you're able to meet those resolutions to improve your retirement drastically. 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.

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