INCOME: This is one of the few ‘free lunches’ in finance
From Dr. David Eifrig, MD, MBA, Editor, Retirement Millionaire:
I love collecting checks…
A few months ago, a restaurant on the Atlantic Coast sent me a check for several thousand dollars. I know food and wine, but I’m no restaurateur. I know just enough about restaurants to know that they’re usually bad investments…
But three years ago, I funded a restaurant with a man I trusted who made delicious food. The place became a local success, and we’ve just broken ground on our third location.
From my end, I put in no work and collect thousands a year. It’s about 10% a year on my investment.
I have to admit, though, I enjoy the fact there’s a check coming in… I enjoy the knowledge that I made a good, income-producing investment nearly as much as I enjoy the amount of money.
In fact, I started this letter for similar reasons. I have a long history of earning income from investments…
In the 1980s, I lent my student loan money to the U.S. government and earned nearly 20% a year. On Wall Street, while my peers chased the next big winner from exciting but unpredictable investments, I always preferred the feeling of receiving cash payments. More recently, I’ve invested in private deals for consumer products. And my winery started producing income this year.
With Income Intelligence, my goal is to teach you to do the same…
We can all use a little more money coming in the door, whether to pay the bills or to spend on luxuries.
And while my “Main Street” restaurant investment and winery venture are fun to talk about, the income they pay me is dwarfed by the money that I’ve collected from investments in stocks, bonds, and other public securities.
If you have some cash that you want to turn into consistent incoming checks or deposits to your brokerage account, you need a specific plan that maximizes yield and minimizes risk.
To build this perfect portfolio, start with the best income investments available and use some simple portfolio theory to boost your yield without taking on excessive risk.
But don’t get caught up in the “reach for yield.”
Few investments today offer substantial yields.
It’s hard to earn much from your savings today in the typical “safe” investments…
In Income Intelligence, we have found a few high-yielding assets that are less known to investors… A few of our model portfolio positions deliver income of more than 7% a year. But with these few exceptions, reaching for yield often comes with more risk.
If you can collect 8%, your investment will be volatile. If you can collect 10%, you’ve taken a speculative position. And if anyone says they can return a “risk free” 10%, you may be getting a pitch from a con man.
We want to build a portfolio that works in all markets with minimal risk to capital. To do so, we must set reasonable goals so we keep our risk tolerable. We can put together a diversified portfolio that returns a consistent 5% per year. And that payout doesn’t keep us from collecting capital gains as asset prices rise.
The key to finding the right mix comes from thinking a bit about diversification and portfolio theory. You can design a portfolio by maximizing the return you can generate per unit of risk… The easy way to do this is to add assets that aren’t correlated.
Think about this scenario… Take an asset that returns 5% a year but may vary widely in price in any given month.
By adding an asset that returns the same 5% yield but moves opposite the original asset, you can combine them in a portfolio. Now you can get the same 5%, with less risk…
This is the power of diversification… and why it’s called one of the few “free lunches” in finance. By combining uncorrelated assets, you can get safer returns without sacrificing anything.
Here’s to our health, wealth, and a great retirement,
Dr. David Eifrig
Crux note: This idea of combining the right mix of assets to cut your risk to the bone (while keeping as much upside as possible) is the basis of the new Stansberry Portfolio Solutions product. It’s a simple ‘paint-by-numbers’ portfolio made up of Stansberry’s best recommendations.
You can watch a free replay of this month’s educational webinar featuring Doc, Dr. Steve Sjuggerud, and Porter Stansberry right here.