As we have seen, the whole concept of rising asset prices and stock investments constantly increasing in value is an economic illusion. What we are really seeing is our currency being devalued by the addition of new currency issued by the central bank. The prices of stocks, houses, gold, etc., do not really rise; they merely do better at keeping their value than do paper bills and digital checking accounts, since their supply is not increasing as fast as are paper bills and digital checking accounts.
"An improving economy neither consists of an increasing GDP nor does it cause the overall stock market to rise."
The fact that we have to save for the future is, in fact, an outrage. Were no money printed by the government and the banks, things would get cheaper through time, and we would not need much money for retirement, because it would cost much less to live each day then than it does now. But we are forced to invest in today's government-manipulated inflation-creation world in order to try to keep our purchasing power constant.
To the extent that some of us even come close to succeeding, we are still pushed further behind by having our "gains" taxed. The whole system of inflation is solely for the purpose of theft and wealth redistribution.
In a world absent of government printing presses and wealth taxes, the armies of investment advisors, pension-fund administrators, estate planners, lawyers, and accountants associated with helping us plan for the future would mostly not exist. These people would instead be employed in other industries producing goods and services that would truly increase our standards of living.
Showing posts with label Passive Income. Show all posts
Showing posts with label Passive Income. Show all posts
Saturday, September 11, 2010
Saturday, July 31, 2010
iShares That Pay Monthly Distributions
IShares that Pay Monthly Distributions
www.investingforincome.com
As an income investor I prefer investments that pay monthly distributions. For those that like exchange traded funds that trade on the TSX I suggest iShares.
Cash distributions for the eleven iShares funds listed on the Toronto Stock Exchange which pay on a monthly basis. Unitholders of record on the second to last business day of the month will receive cash distributions payable on last business day of the month. Details of the "per unit" distribution amounts are as follows:
----------------------------------------------------------------------------
Cash
Fund Distribution
Fund Name Ticker Per Unit ($)
----------------------------------------------------------------------------
iShares DEX Universe Bond Index Fund XBB 0.09828
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iShares DEX All Corporate Bond Index Fund XCB 0.08879
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iShares Dow Jones Canada Select Dividend Index Fund XDV 0.09638
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iShares S&P/TSX Capped Financials Index Fund XFN 0.07515
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iShares DEX All Government Bond Index Fund XGB 0.06154
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iShares U.S. High Yield Bond Index Fund (CAD-Hedged) XHY 0.13200
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iShares U.S. IG Corporate Bond Index Fund XIG 0.07016
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iShares DEX Long Term Bond Index Fund XLB 0.07347
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iShares S&P/TSX Capped REIT Index Fund XRE 0.05900
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iShares DEX Short Term Bond Index Fund XSB 0.08410
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iShares S&P/TSX Income Trust Index Fund XTR 0.06625
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www.investingforincome.com
As an income investor I prefer investments that pay monthly distributions. For those that like exchange traded funds that trade on the TSX I suggest iShares.
Cash distributions for the eleven iShares funds listed on the Toronto Stock Exchange which pay on a monthly basis. Unitholders of record on the second to last business day of the month will receive cash distributions payable on last business day of the month. Details of the "per unit" distribution amounts are as follows:
----------------------------------------------------------------------------
Cash
Fund Distribution
Fund Name Ticker Per Unit ($)
----------------------------------------------------------------------------
iShares DEX Universe Bond Index Fund XBB 0.09828
----------------------------------------------------------------------------
iShares DEX All Corporate Bond Index Fund XCB 0.08879
----------------------------------------------------------------------------
iShares Dow Jones Canada Select Dividend Index Fund XDV 0.09638
----------------------------------------------------------------------------
iShares S&P/TSX Capped Financials Index Fund XFN 0.07515
----------------------------------------------------------------------------
iShares DEX All Government Bond Index Fund XGB 0.06154
----------------------------------------------------------------------------
iShares U.S. High Yield Bond Index Fund (CAD-Hedged) XHY 0.13200
----------------------------------------------------------------------------
iShares U.S. IG Corporate Bond Index Fund XIG 0.07016
----------------------------------------------------------------------------
iShares DEX Long Term Bond Index Fund XLB 0.07347
----------------------------------------------------------------------------
iShares S&P/TSX Capped REIT Index Fund XRE 0.05900
----------------------------------------------------------------------------
iShares DEX Short Term Bond Index Fund XSB 0.08410
----------------------------------------------------------------------------
iShares S&P/TSX Income Trust Index Fund XTR 0.06625
----------------------------------------------------------------------------
Sunday, February 28, 2010
Investing for Income is Still Your Best Strategy
The big driver of investment returns over time is not figuring which sector is going to be best, or which country is going to be best, or which style is going to be best over the next year or three – the big driver is income and the reinvestment of income.
The baby boom generation is now retiring (or attempting to retire) and will begin to take a closer look at their investments ability to generate income without liquidating their portfolio.
I still maintain that you must begin building a income portfolio as early as possible. My retirement account presently generates over $3,000 a month in income and I am still in my early fifties.
Every asset in my account generates an income.
I started this strategy in my mid forties. I wish I would have started earlier.
The baby boom generation is now retiring (or attempting to retire) and will begin to take a closer look at their investments ability to generate income without liquidating their portfolio.
I still maintain that you must begin building a income portfolio as early as possible. My retirement account presently generates over $3,000 a month in income and I am still in my early fifties.
Every asset in my account generates an income.
I started this strategy in my mid forties. I wish I would have started earlier.
Saturday, September 27, 2008
Money is the Most Egalitarian Force in the World Bestowing Power on Whoever Holds It
Novelist Joyce Carol Oates once wrote, "The only people who claim that money is not important are people who have enough money so that they are relieved of the ugly burden of thinking about it."
French existential writer Albert Camus agreed. He said, "It is a kind of spiritual snobbery that makes people think they can be happy without money."
In many ways, they're right. How can you feel genuine contentment if you are harassed by bill collectors, living paycheck-to-paycheck, or worried whether you have enough to retire?
Don't get me wrong. Money doesn't buy true love or friendship. It won't solve all your problems, fix your marriage, turn you into "a success," or make you charitable if you're not already charitably inclined.
But money is the most egalitarian force in the world, bestowing power on whoever holds it.
It gives you the freedom to make important choices in your life. No one is free who is a slave to his job, his creditors, his circumstances, or his overhead.
Money allows you to support worthy causes and help those in need. It allows you to do what you want, where you want, with whom you want. It's called financial independence. And it's a great feeling.
As author Tom Robbins once remarked, "There's a certain Buddhistic calm that comes from having money in the bank."
As my regular readers know, I think more about money than most.
I've given the portfolio a light-hearted name. But securing your financial independence is serious business. The money that you will retire on - or are already retired on - should not be treated like chips in a poker game.
The Gone Fishin' Portfolio is risk-averse by design. Yet it has compounded at 17.3% annually since inception.
I don't want to suggest that you can eliminate investment risk entirely. That's not possible. But investing for income is a realistic approach. No other investment system comes closer to guaranteeing you long-term investment success.
My goal is to allow you to redirect your time from worries about money to high value activities, whether that's work you enjoy, time spent pursuing your favorite activities, or just relaxing with your friends and family.
In "The Pleasures of Life," Sir John Lubbock writes, "All other good gifts depend on time for their value. What are friends, books, or health, the interest of travel or the delights of home, if we have not time for their enjoyment? Time is often said to be money, but it is more - it is life; and yet many who would cling desperately to life, think nothing of wasting time."
French existential writer Albert Camus agreed. He said, "It is a kind of spiritual snobbery that makes people think they can be happy without money."
In many ways, they're right. How can you feel genuine contentment if you are harassed by bill collectors, living paycheck-to-paycheck, or worried whether you have enough to retire?
Don't get me wrong. Money doesn't buy true love or friendship. It won't solve all your problems, fix your marriage, turn you into "a success," or make you charitable if you're not already charitably inclined.
But money is the most egalitarian force in the world, bestowing power on whoever holds it.
It gives you the freedom to make important choices in your life. No one is free who is a slave to his job, his creditors, his circumstances, or his overhead.
Money allows you to support worthy causes and help those in need. It allows you to do what you want, where you want, with whom you want. It's called financial independence. And it's a great feeling.
As author Tom Robbins once remarked, "There's a certain Buddhistic calm that comes from having money in the bank."
As my regular readers know, I think more about money than most.
I've given the portfolio a light-hearted name. But securing your financial independence is serious business. The money that you will retire on - or are already retired on - should not be treated like chips in a poker game.
The Gone Fishin' Portfolio is risk-averse by design. Yet it has compounded at 17.3% annually since inception.
I don't want to suggest that you can eliminate investment risk entirely. That's not possible. But investing for income is a realistic approach. No other investment system comes closer to guaranteeing you long-term investment success.
My goal is to allow you to redirect your time from worries about money to high value activities, whether that's work you enjoy, time spent pursuing your favorite activities, or just relaxing with your friends and family.
In "The Pleasures of Life," Sir John Lubbock writes, "All other good gifts depend on time for their value. What are friends, books, or health, the interest of travel or the delights of home, if we have not time for their enjoyment? Time is often said to be money, but it is more - it is life; and yet many who would cling desperately to life, think nothing of wasting time."
Sunday, March 23, 2008
If You Are Investing Less Than 25% of Your Income Then You Aren’t Serious About Becoming Wealthy
If you are investing less than 25% of your income then you aren’t serious about becoming wealthy. But how do you afford to do this without suffering? The answer is here.
You can do this by eliminating waste and impulse spending from your spending habits. Studies have shown that the average person blows around 25% of their income in these two totally unnecessary areas; waste spend and impulse spending. Let’s see what these two types of unnecessary spending are and how to eliminate them.
First I will define waste spending. There are two main types of waste. Firstly waste is when you spend more money than you need to in order to get the result that you want. Secondly waste is when you buy more than you need in order to get the result that you want.
Here are two examples around food.
An example of Type 1 Waste would be buying a sandwich for lunch for $5 when you could have made the same sandwich at home, and brought it with you, for only 50 cents. You are paying ten times the true value of that sandwich by buying it ready made. You probably also spent more time standing in line to be served than the time you would have required to make the sandwich at home.
An example of Type 2 Waste is when you buy more food than you need and then have to throw it away. Because you couldn’t be bothered taking the time to calculate the amount that you really needed you overspent on your food bill.
The facts are that people are regularly guilty of both type 1 and type 2 waste on a regular basis, and not just with food. They tend to buy without asking for discounts and they over buy in all areas of their life.
Now let’s define impulse spending. Impulse spending is when you buy something that you had no intention of buying until you saw it by chance. It is no coincidence that supermarkets put chocolate bars and magazines next to the checkouts. They are there because the supermarket is well aware of the profit potential for them from impulse spending.
Impulse spending does not enhance your lifestyle. You are simply buying something just because you saw it and quite often you don’t even really want nor need these items. I was amazed to discover that most books purchased are never read. In fact the statistics are that 80% of books purchased are never even started and half of those that are started are never finished, People buy books on impulse, usually because they are attracted to the title and the cover design.
The main areas of impulse spending are sweets and magazines and anything that is “on sale”. People also tend to impulse spend in their areas of interest or hobbies. Young women will impulse spend on clothes, shoes and makeup. Musicians will impulse spend in the music shop, and so on.
If you can eliminate waste spending and impulse spending then, if you are like the typical American, you will free up around 25% of your income that you can put to investing. But how do you cure yourself of these costly habits? You can do this easily by developing two new habits.
New Habit Number 1:
The self-made rich decide in advance where and how they are going to spend their money. The average person spends their money randomly as the urge seizes them. Deciding where you money is going to go, while you are still at home, eliminates impulse spending. Making a conscious decision as to the value you will receive for each dollar spent will help eliminate waste spending.
Develop the habit of deciding, on pay day, where your money is going to go, write this down and then read over it and ask yourself if any of that planned expenditure is in the waste spending category.
When you are going shopping take a list and stick to the list. This will help remove the impulse spending habit. Developing the habit of deciding in advance where your money will go is a great way to ensure that you still maintain your quality of life in the present, but you free up money for investing so that you can become rich and enjoy a much greater quality of life in the future,
New Habit Number 2:
The self made rich have the habit of writing down every cent that they spend, as they spend it, so that they are fully aware of where their money is going. The average person is surprised when their money runs out because they were not fully aware of how much they where spending. As a result, bad money managers find that they have too much month at the end of the money whereas good money managers find that they have too much money at the end of the month.
Develop the habit of recording your expenditure as you spend it. Become fully aware of where your money is going and always ask yourself if this particular transaction is going to truly enhance your life or not. If the answer is no then don’t go through with that transaction.
Developing these two simple habits will free up a surprising amount of money for you to put to investing. So how should you invest that money in order to maximize your profits? Unfortunately this article is long enough already so that secret will have to be revealed on another day.
You can do this by eliminating waste and impulse spending from your spending habits. Studies have shown that the average person blows around 25% of their income in these two totally unnecessary areas; waste spend and impulse spending. Let’s see what these two types of unnecessary spending are and how to eliminate them.
First I will define waste spending. There are two main types of waste. Firstly waste is when you spend more money than you need to in order to get the result that you want. Secondly waste is when you buy more than you need in order to get the result that you want.
Here are two examples around food.
An example of Type 1 Waste would be buying a sandwich for lunch for $5 when you could have made the same sandwich at home, and brought it with you, for only 50 cents. You are paying ten times the true value of that sandwich by buying it ready made. You probably also spent more time standing in line to be served than the time you would have required to make the sandwich at home.
An example of Type 2 Waste is when you buy more food than you need and then have to throw it away. Because you couldn’t be bothered taking the time to calculate the amount that you really needed you overspent on your food bill.
The facts are that people are regularly guilty of both type 1 and type 2 waste on a regular basis, and not just with food. They tend to buy without asking for discounts and they over buy in all areas of their life.
Now let’s define impulse spending. Impulse spending is when you buy something that you had no intention of buying until you saw it by chance. It is no coincidence that supermarkets put chocolate bars and magazines next to the checkouts. They are there because the supermarket is well aware of the profit potential for them from impulse spending.
Impulse spending does not enhance your lifestyle. You are simply buying something just because you saw it and quite often you don’t even really want nor need these items. I was amazed to discover that most books purchased are never read. In fact the statistics are that 80% of books purchased are never even started and half of those that are started are never finished, People buy books on impulse, usually because they are attracted to the title and the cover design.
The main areas of impulse spending are sweets and magazines and anything that is “on sale”. People also tend to impulse spend in their areas of interest or hobbies. Young women will impulse spend on clothes, shoes and makeup. Musicians will impulse spend in the music shop, and so on.
If you can eliminate waste spending and impulse spending then, if you are like the typical American, you will free up around 25% of your income that you can put to investing. But how do you cure yourself of these costly habits? You can do this easily by developing two new habits.
New Habit Number 1:
The self-made rich decide in advance where and how they are going to spend their money. The average person spends their money randomly as the urge seizes them. Deciding where you money is going to go, while you are still at home, eliminates impulse spending. Making a conscious decision as to the value you will receive for each dollar spent will help eliminate waste spending.
Develop the habit of deciding, on pay day, where your money is going to go, write this down and then read over it and ask yourself if any of that planned expenditure is in the waste spending category.
When you are going shopping take a list and stick to the list. This will help remove the impulse spending habit. Developing the habit of deciding in advance where your money will go is a great way to ensure that you still maintain your quality of life in the present, but you free up money for investing so that you can become rich and enjoy a much greater quality of life in the future,
New Habit Number 2:
The self made rich have the habit of writing down every cent that they spend, as they spend it, so that they are fully aware of where their money is going. The average person is surprised when their money runs out because they were not fully aware of how much they where spending. As a result, bad money managers find that they have too much month at the end of the money whereas good money managers find that they have too much money at the end of the month.
Develop the habit of recording your expenditure as you spend it. Become fully aware of where your money is going and always ask yourself if this particular transaction is going to truly enhance your life or not. If the answer is no then don’t go through with that transaction.
Developing these two simple habits will free up a surprising amount of money for you to put to investing. So how should you invest that money in order to maximize your profits? Unfortunately this article is long enough already so that secret will have to be revealed on another day.
Friday, January 18, 2008
Finacial Sense Newshour Transcript on Investing for Income
Investing for Income
Partial Transcript of Finacial Sense Newshour with Jim Puplava and John Loeffler on January 12, 2008
JOHN: Maybe the hallmark of the next few years is actually going to be the word “uncertainty” like we've been using here on the program today. A lot of people, baby boomers, a huge block of population moving into retirement, and if they are moving into retirement in a time of uncertainty, especially given the fact that the Social Security trust fund is bust, there is nothing in it, nor can it be sustained at these levels except by devaluating the currency (which means everybody will get their Social Security check, but it's not going to be worth very much), what does that mean for people who are trying to plan economically in these times?
JIM: Well, you know, we used to have these standard formulas. I started out as a certified financial planner –and you know, you retire, you put 50, 60% of your portfolio in fixed income because now you need income to live on because you no longer have a paycheck or money coming in from a business. But, John, that assumes that you're in a period where you have low inflation as we did throughout much of the 80s and 90s.
But what do you do in a period where you have high inflation? You know, it's very tempting, right now, to say, “okay, I'm going to retire, I'm going to turn my portfolio into fixed income, I'll get 4 or 5% income.” The problem that investors have today is if you look at where the yields are, you've got less than 2.6% on a two year Treasury note, a 10 year treasury note is less than 4% (it's actually less than 3.8) and it's probably going lower here in the short term. I sure in heck would not want to be investing long term given the levels of inflation that we see today. And so, you know, that's why we've always stressed about, you know, about blue chip dividend-paying stocks.
And over the long run, the rate of return is going to be much, much higher to an investor or somebody that is retiring today than, let's say, somebody who is going to be in a fixed income. I mean if I go out and buy a 10 year Treasury note today, let's say I invest $10,000. I can get right now 3.8%.
And every six months I'm going to get my check. I'll make $380 dollars a year every single year. The question is what is going to be the cost of living in the year 2018or 10 years from now, you know, because 10 years from now, I will get my $10,000 back, and I will have gotten $380 dollars a year. But that $380 dollars a year that I'm getting from that Treasury note is not going to buy the same goods and services 10 years from now that it will buy today.
And for that matter, the $10,000 that will mature 10 years from now is not going to have the same purchasing power. And if you just think about anything you're buying today, what does it cost to buy a house today compared to 10 years ago? My kids can only afford to buy a condo for the price that I bought a large house 10 years ago. And that's what's happened. I mean think of what a car costs today compared to 10 years ago.
Think of what it costs to send your kid to a four year college to get a degree compared to 10 years ago. Compare that to what you're paying to visit your doctor, compare that to what you're paying to just go out and take a vacation. It's just absolutely remarkable in terms of what we've seen and the cost of living in basic goods.
JOHN: Well, does that mean, then, that some people aren't going to retire? The day of Sun City Arizona and retirement places like that may be over, per se. People are going to have to work.
JIM: Yeah. I think that is probably more in the retirement formula today for a lot of boomers, which is going to be that you're going to retire, but during retirement, you'll be doing some sort of part-time work. And actually, you can look at it quite positively, John. They find people that keep themselves active in retirement, actually live longer, their minds are more alert.
And, you know, maybe you don't do what you did for a living during your working career. Maybe you do something that you enjoy doing. I had a client that retired many years ago who was in the publishing industry and he ended up being a tour guide at the Hearst Castle. Just absolutely loved it. I have another client that retired six, seven years ago and because he was a history professor he serves as a tour guide for one of the travel companies.
So let's say you're, I don't know, you're taking a trip to Europe, Italy or something like that, he's sort of a tour guide. So I mean he's having the time of his life. And actually, he gets to go free. So working during retirement is going to be part of the retirement picture for a lot of boomers, but I think more importantly investors or retirees are going to have to think differently about their portfolio in an age of low interest rates and higher rates of inflation.
I mean if you take a look at the yield on a two year Treasury note or one year Treasury bill or 10 year Treasury note, the yield on a 10 year Treasury note is less than the headline inflation number, and even though we know that headline inflation number is actually basically a sort of a fictitious number.
JOHN: Okay. Every year you put together, usually around this time of the year, a portfolio of 10 stocks. And say you had bought these stocks, what, 10 years ago?
JIM: Yeah.
JOHN: What would your income have been?
JIM: Well, what we do, and I use this as an exercise and I don't -- anybody listening to this, this is not an endorsement or recommendation. It is done for illustration purposes.
But mainly we take a look at the Dow 30 stocks. And we pick sort of a wide variety of stocks, some financial stocks, consumer stocks, industrial stocks, medical stocks, energy stocks. And we've been using this formula for these stocks mainly over the last couple of years to illustrate this point. But what we assume is you had a portfolio.
You had $100,000 and you put $10,000 into each one of these stocks and then you just held on to them for 10 years. And just once again, I'm going to mention the companies and this is not an endorsement. This is done strictly for illustration. But we had a financial stock, an insurance company AIG, a consumer retail McDonalds, Disney Entertainment, Johnson & Johnson (on the medical side), Honeywell, Exxon, American Express (financial company), 3M (manufacturing), GE (manufacturing) and Coca Cola (consumer products company). And so in 1998, had you invested in these stocks – remember, we were going through a stock market boom during that period of time, and stocks were expensive –but let's say you put $10,000 into each one of these stocks, you would have received in dividends at the end of 1998 holding them for a whole year roughly about $1700 in dividends.
Five years later in 2003, the 1700 in dividends grew to 2400 in dividends. So basically, we saw a 700 dollar increase in the value of those dividends. And finally 10 years later in the year 2007, dividends would have grown to a little over $4100. But what's really remarkable about this, assuming that you spent all of the dividend income, your $100,000 would have grown – and remember, that would have meant buying stock in 1998, and remember the terrible bear market that we went through for three years in 2000, 2001 and 2002 – during that period of time, you would have gotten over $81,000 of capital appreciation; you would have gotten almost $33,000 in income.
And so basically, without dividends, your return was 181,000. Final investment with dividends was 214,000. If you want to take a look at that, it was a simple return of 81% or 8.1% a year. If you want to look at total return, which was income –the dividends – plus capital appreciation, it was 114% return, or an annualized return of 11.4%, easily increasing what you would have gotten in fixed income.
What was even more remarkable, the top performing stocks, Exxon, McDonalds, 3M and J&J had the highest total dividend payments. So companies that had good business models, that had good cash flow and consistent earnings are able to increase their dividends at a much higher rate than companies that don't.
So the top performing of the 10 stocks were the stocks that had the highest total dividends payment. The worse performing stocks, AIG and Disney had the lowest dividend payments. And here's something that's even more remarkable. The average total return for the top two dividend players was 219%, an annualized return of 21.9% a year, while the total return for the two lowest paying dividend stocks was only 33.5%, or a return of a little over 3%.
The highest dividend paying stock out of the group was Exxon Mobil that had a total return of 282%; and even if Exxon stock price went nowhere, the dividend alone would have given you a return of 76%, an annualized return of 7.6% just on the dividends. And Jeremy Siegel in his book The Future For Investors did a comparison. I'm not going to repeat it here because we talked about it last year on the show where he took, from 1950 to the year, I think -- I think it was 2004, he took two stocks: and if one would have thought of the ideal growth stock in the year 1950, it would have been IBM (the computer industry was coming into itself and changing the way we work today with computers); and then Exxon, which is basically an oil stock. And the total returns from Exxon versus IBM were far superior. And here, John, is just the study that we do each year confirms this very same thing because the best performing out of those 10 stocks were the stocks that produced a consistent higher stream of dividends.
JOHN: And that would seem, you know, in this environment we're in right now of really high inflation, which threatens to stay that way for some time to have things in your portfolio that are going up which offset that, so you're keeping pace with it.
JIM: Absolutely. I mean if you look at Exxon in the last five years, Exxon has increased its dividends at an annual rate of 8.3% a year. Imagine getting an 8.3% pay raise every single year. If you look at Johnson & Johnson, another one of the top four performing dividend stocks, Johnson & Johnson has increased its dividends 15.3% a year over the last five years. Here's one that will blow your mind: McDonald’s. I mean we're talking about basically hamburgers here. McDonald’s has increased its dividend roughly 45% a year.
Think of that number. 45% a year over the last five years. How many of us would love to get a 45% pay increase every single year with the kind of inflation rates. And even 3M, a manufacturing company has increased its dividend roughly about 9.2% a year over the last five years. And this is why, John, I think that as you get into retirement, having blue chip companies, and that's why I like to look at the Dow stocks. They are the biggest, the most stable, sound financially. And you don't get to be a blue chip in the Dow without having a successful business model and being a very stable company. I mean Johnson & Johnson (medical), 3M (manufacturing), Exxon (oil), McDonald’s (food franchises and now they are getting into adding coffee bars to compete with Starbucks).
And whether you're looking at a book written by three authors Dimson and Marsh wrote a book called Triumph of the Optimists. They talked about dividend studies going back over the last 100 years. Not only just in the US but 16 other markets. Study after study after study, it's confirmed dividend investing is a far superior approach and a more stable approach. And especially for somebody entering into retirement that wants to be a little bit more conservative in thinking about what they are going to be doing when they retire: maybe they have 401(k) program or a pension that they are going to have to rely on. That's why I think in an age of inflation, you've got to think about the dividend approach for income with high stable companies because that's what's going to keep you even with inflation. A Treasury bond today, yes, it may allow you to sleep at night the first six months of the first year.
But with the levels of inflation that we're seeing today, it's not going to keep you even with inflation five years from now and you're going to be struggling 10 years from now if you're on a fixed income because what are you going to have that's going to increase and compensate you and allow you to buy the same goods and services that you buy today. It's absolutely amazing, but year after year, the study continue to improve itself.
Partial Transcript of Finacial Sense Newshour with Jim Puplava and John Loeffler on January 12, 2008
JOHN: Maybe the hallmark of the next few years is actually going to be the word “uncertainty” like we've been using here on the program today. A lot of people, baby boomers, a huge block of population moving into retirement, and if they are moving into retirement in a time of uncertainty, especially given the fact that the Social Security trust fund is bust, there is nothing in it, nor can it be sustained at these levels except by devaluating the currency (which means everybody will get their Social Security check, but it's not going to be worth very much), what does that mean for people who are trying to plan economically in these times?
JIM: Well, you know, we used to have these standard formulas. I started out as a certified financial planner –and you know, you retire, you put 50, 60% of your portfolio in fixed income because now you need income to live on because you no longer have a paycheck or money coming in from a business. But, John, that assumes that you're in a period where you have low inflation as we did throughout much of the 80s and 90s.
But what do you do in a period where you have high inflation? You know, it's very tempting, right now, to say, “okay, I'm going to retire, I'm going to turn my portfolio into fixed income, I'll get 4 or 5% income.” The problem that investors have today is if you look at where the yields are, you've got less than 2.6% on a two year Treasury note, a 10 year treasury note is less than 4% (it's actually less than 3.8) and it's probably going lower here in the short term. I sure in heck would not want to be investing long term given the levels of inflation that we see today. And so, you know, that's why we've always stressed about, you know, about blue chip dividend-paying stocks.
And over the long run, the rate of return is going to be much, much higher to an investor or somebody that is retiring today than, let's say, somebody who is going to be in a fixed income. I mean if I go out and buy a 10 year Treasury note today, let's say I invest $10,000. I can get right now 3.8%.
And every six months I'm going to get my check. I'll make $380 dollars a year every single year. The question is what is going to be the cost of living in the year 2018or 10 years from now, you know, because 10 years from now, I will get my $10,000 back, and I will have gotten $380 dollars a year. But that $380 dollars a year that I'm getting from that Treasury note is not going to buy the same goods and services 10 years from now that it will buy today.
And for that matter, the $10,000 that will mature 10 years from now is not going to have the same purchasing power. And if you just think about anything you're buying today, what does it cost to buy a house today compared to 10 years ago? My kids can only afford to buy a condo for the price that I bought a large house 10 years ago. And that's what's happened. I mean think of what a car costs today compared to 10 years ago.
Think of what it costs to send your kid to a four year college to get a degree compared to 10 years ago. Compare that to what you're paying to visit your doctor, compare that to what you're paying to just go out and take a vacation. It's just absolutely remarkable in terms of what we've seen and the cost of living in basic goods.
JOHN: Well, does that mean, then, that some people aren't going to retire? The day of Sun City Arizona and retirement places like that may be over, per se. People are going to have to work.
JIM: Yeah. I think that is probably more in the retirement formula today for a lot of boomers, which is going to be that you're going to retire, but during retirement, you'll be doing some sort of part-time work. And actually, you can look at it quite positively, John. They find people that keep themselves active in retirement, actually live longer, their minds are more alert.
And, you know, maybe you don't do what you did for a living during your working career. Maybe you do something that you enjoy doing. I had a client that retired many years ago who was in the publishing industry and he ended up being a tour guide at the Hearst Castle. Just absolutely loved it. I have another client that retired six, seven years ago and because he was a history professor he serves as a tour guide for one of the travel companies.
So let's say you're, I don't know, you're taking a trip to Europe, Italy or something like that, he's sort of a tour guide. So I mean he's having the time of his life. And actually, he gets to go free. So working during retirement is going to be part of the retirement picture for a lot of boomers, but I think more importantly investors or retirees are going to have to think differently about their portfolio in an age of low interest rates and higher rates of inflation.
I mean if you take a look at the yield on a two year Treasury note or one year Treasury bill or 10 year Treasury note, the yield on a 10 year Treasury note is less than the headline inflation number, and even though we know that headline inflation number is actually basically a sort of a fictitious number.
JOHN: Okay. Every year you put together, usually around this time of the year, a portfolio of 10 stocks. And say you had bought these stocks, what, 10 years ago?
JIM: Yeah.
JOHN: What would your income have been?
JIM: Well, what we do, and I use this as an exercise and I don't -- anybody listening to this, this is not an endorsement or recommendation. It is done for illustration purposes.
But mainly we take a look at the Dow 30 stocks. And we pick sort of a wide variety of stocks, some financial stocks, consumer stocks, industrial stocks, medical stocks, energy stocks. And we've been using this formula for these stocks mainly over the last couple of years to illustrate this point. But what we assume is you had a portfolio.
You had $100,000 and you put $10,000 into each one of these stocks and then you just held on to them for 10 years. And just once again, I'm going to mention the companies and this is not an endorsement. This is done strictly for illustration. But we had a financial stock, an insurance company AIG, a consumer retail McDonalds, Disney Entertainment, Johnson & Johnson (on the medical side), Honeywell, Exxon, American Express (financial company), 3M (manufacturing), GE (manufacturing) and Coca Cola (consumer products company). And so in 1998, had you invested in these stocks – remember, we were going through a stock market boom during that period of time, and stocks were expensive –but let's say you put $10,000 into each one of these stocks, you would have received in dividends at the end of 1998 holding them for a whole year roughly about $1700 in dividends.
Five years later in 2003, the 1700 in dividends grew to 2400 in dividends. So basically, we saw a 700 dollar increase in the value of those dividends. And finally 10 years later in the year 2007, dividends would have grown to a little over $4100. But what's really remarkable about this, assuming that you spent all of the dividend income, your $100,000 would have grown – and remember, that would have meant buying stock in 1998, and remember the terrible bear market that we went through for three years in 2000, 2001 and 2002 – during that period of time, you would have gotten over $81,000 of capital appreciation; you would have gotten almost $33,000 in income.
And so basically, without dividends, your return was 181,000. Final investment with dividends was 214,000. If you want to take a look at that, it was a simple return of 81% or 8.1% a year. If you want to look at total return, which was income –the dividends – plus capital appreciation, it was 114% return, or an annualized return of 11.4%, easily increasing what you would have gotten in fixed income.
What was even more remarkable, the top performing stocks, Exxon, McDonalds, 3M and J&J had the highest total dividend payments. So companies that had good business models, that had good cash flow and consistent earnings are able to increase their dividends at a much higher rate than companies that don't.
So the top performing of the 10 stocks were the stocks that had the highest total dividends payment. The worse performing stocks, AIG and Disney had the lowest dividend payments. And here's something that's even more remarkable. The average total return for the top two dividend players was 219%, an annualized return of 21.9% a year, while the total return for the two lowest paying dividend stocks was only 33.5%, or a return of a little over 3%.
The highest dividend paying stock out of the group was Exxon Mobil that had a total return of 282%; and even if Exxon stock price went nowhere, the dividend alone would have given you a return of 76%, an annualized return of 7.6% just on the dividends. And Jeremy Siegel in his book The Future For Investors did a comparison. I'm not going to repeat it here because we talked about it last year on the show where he took, from 1950 to the year, I think -- I think it was 2004, he took two stocks: and if one would have thought of the ideal growth stock in the year 1950, it would have been IBM (the computer industry was coming into itself and changing the way we work today with computers); and then Exxon, which is basically an oil stock. And the total returns from Exxon versus IBM were far superior. And here, John, is just the study that we do each year confirms this very same thing because the best performing out of those 10 stocks were the stocks that produced a consistent higher stream of dividends.
JOHN: And that would seem, you know, in this environment we're in right now of really high inflation, which threatens to stay that way for some time to have things in your portfolio that are going up which offset that, so you're keeping pace with it.
JIM: Absolutely. I mean if you look at Exxon in the last five years, Exxon has increased its dividends at an annual rate of 8.3% a year. Imagine getting an 8.3% pay raise every single year. If you look at Johnson & Johnson, another one of the top four performing dividend stocks, Johnson & Johnson has increased its dividends 15.3% a year over the last five years. Here's one that will blow your mind: McDonald’s. I mean we're talking about basically hamburgers here. McDonald’s has increased its dividend roughly 45% a year.
Think of that number. 45% a year over the last five years. How many of us would love to get a 45% pay increase every single year with the kind of inflation rates. And even 3M, a manufacturing company has increased its dividend roughly about 9.2% a year over the last five years. And this is why, John, I think that as you get into retirement, having blue chip companies, and that's why I like to look at the Dow stocks. They are the biggest, the most stable, sound financially. And you don't get to be a blue chip in the Dow without having a successful business model and being a very stable company. I mean Johnson & Johnson (medical), 3M (manufacturing), Exxon (oil), McDonald’s (food franchises and now they are getting into adding coffee bars to compete with Starbucks).
And whether you're looking at a book written by three authors Dimson and Marsh wrote a book called Triumph of the Optimists. They talked about dividend studies going back over the last 100 years. Not only just in the US but 16 other markets. Study after study after study, it's confirmed dividend investing is a far superior approach and a more stable approach. And especially for somebody entering into retirement that wants to be a little bit more conservative in thinking about what they are going to be doing when they retire: maybe they have 401(k) program or a pension that they are going to have to rely on. That's why I think in an age of inflation, you've got to think about the dividend approach for income with high stable companies because that's what's going to keep you even with inflation. A Treasury bond today, yes, it may allow you to sleep at night the first six months of the first year.
But with the levels of inflation that we're seeing today, it's not going to keep you even with inflation five years from now and you're going to be struggling 10 years from now if you're on a fixed income because what are you going to have that's going to increase and compensate you and allow you to buy the same goods and services that you buy today. It's absolutely amazing, but year after year, the study continue to improve itself.
Tuesday, February 6, 2007
Passive Income
I want you to take a step back and just think about this question; Why do you invest for retirement?
The answer that you have been bombarded with is something like this;
One must invest and have there money grow so that once they retire they can live off the income from no risk interest paying investments. Your planner probably came up with a fancy work sheet and questionnaire and at the end they tell you based on X% interest you will need $Y when you retire so that you can have an income of $Z per month when you retire. This income is called passive income. If you think about it, that is what we are all in the end trying to achieve.
Passive income is when you work once but continue to get paid over and over again from work you're no longer doing. Passive income, in most cases is income earned from real estate investments or true businesses owned and operated independent of your personal involvement. Investing in or creating true assets that provide passive income for you is your ticket to wealth. To gain financial freedom you need this cash flow from Passive Income. So far so good.
This is the thought pattern I went through back in early 2001. However, this seemed impossible. The market had crashed. I had no Idea how I could save enough from my earned income to eventually build up a nest egg. So, like everyone else we keep chasing the big score on a real estate deals, stock market or even a lottery.
There is no such thing as something for nothing. That is why most of will fail at achieving the big score.
The problem is that Wall Street has it backwards. Instead of focusing on investing for capital gains, you should focus on income invest immediately. That's right forget about capital gains-no matter how old you are. I decided that when I retire I need so much a month to live on. So at 45 years old I sold all my stocks and mutual funds in my RRSP (IRA) and focused on income producing securities. This is when I discovered Canadian Income Trusts. I had less than $70,000 in the RRSP at the time and today that account alone is producing over $1,000 per month income. Because of compounding this account will probably be producing about $14,000 per month income when I turn 65 years old. Now that's passive income! This does not include my other portfolios.
To put it simply, passive income is income that continues to generate money for you even when you have stopped working. Passive Income is financial freedom with real financial security.
For example, your rental income is a good source of passive income. Rental income includes payments made by an occupant for the use of property, payments to cancel a lease, advance rent, and any security deposit used as a final payment of rent. If you own a house and you rent it out, you will continue to receive your rental income for as long as you have a tenant, regardless of whether you work or not. Similarly, if you invest in unit trusts and it generates dividends for you, the dividends are your passive income. There are many ways to create passive income.
Financial freedom is not having to rely on a paycheck for your standard of living. If you are sick, or want to take a vacation, you will still have money coming to you from your investments. This is Passive Income. Passive Income is Freedom. Passive Income is Security.
The earlier you start planning and building your passive income, the earlier you can achieve being financially free. It takes time and effort, especially in the beginning, just like building anything worthwhile does. You build a foundation and gradually build up your passive income from there.
There are many types of passive income such as
· Private business income
· Real estate income
· Residuals on mutual fund sales (This is what financial planners, brokers and the entire financial industry runs on)
· Welfare Income
· Unemployment Insurance Income
· Workers Compensation Income
· Disability Income
· Government Pension Income
· Employer Pension Income
· Registered retirement plan income
· Interest Income
· Royalty Income
· Dividend Income
· Income Trust Income (Our favorite)
When you look at the list above you can see why government social programs are so popular. By the way if you plan your future around passive income from Government you will become bitter and disappointed. By the time you figured out that you have been fleeced it will be too late. Why? Because the passive income they give you will be less in real purchasing power than you think. The problem is that it is so gradual that the unsuspecting public does not see it happen.
As a matter of fact the real reason Mutual Funds are so popular is because they generate billions of dollars of passive income for the financial industry. Not for investors (suckers?) like you. This is why they advertise so much. This is why they tell you to buy and hold. Do not fall for the line that your planner gives you that he invests in the same thing because he is not relying on his investments for his passive income. He is relying on yours.
How can you build your Passive Income?
The cornerstone of all wealth is understanding the difference between assets and liabilities. The difference is this: Assets put money IN your pocket. Liabilities take money OUT of your pocket.
A liability is something that takes money out of your pocket." (Monthly and continuously) Most people think their home, car, and other possessions are assets. But, the truth is that in most cases those things take money out of your pocket. They cost you money. They don't make you money. Those things are liabilities. They take money OUT of your pocket each month.
Here comes a shocker----Equity in your home is dead capital. You must convert that equity into passive income.
An asset is something that puts money in your pocket monthly and continuously. When you have more money coming IN from real assets than you have going OUT to pay for liabilities, you will be financially free. This is really all you need to know. If you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities. It's not knowing the difference that causes most of the financial struggle in the real world.
Our liabilities are someone else's (usually the bank's) assets. Most people mistakenly think of their home as their biggest asset. It is an asset - the bank's asset. Our home is usually our biggest liability in that it takes money out of our pocket month after month.
The rich buy assets. The poor only have expenses. The middle class buy liabilities they think are assets.
Real assets fall into several different categories:
1) Businesses that do not require your presence;
2) Dividend paying stocks;
3) Bonds;
4) Income Trusts;
5) Income-generating real estate; 6) Notes (IOUs); and 7) Royalties from intellectual property (books, music, patents?).
Most people use their money to buy liabilities whereas the rich use their money to buy assets that pay for their liabilities.
Start to plant seeds inside your asset column. Start small and plant seeds. Some grow; some don't.
There are three different types of income: Earned Income; Passive Income; and Portfolio Income. You must know what kind of income to work hard for, how to keep it and how to protect it from loss. This is the key to great wealth.
Earned income is income derived from your job. It is linear in nature. You work for an hour and get paid only one time for that one-hour's work, and that's it. Your income stops when you stop working.
The rich don't work for money; they have their money work for them. This is achieved through portfolio income and passive income.
Portfolio income is the income you receive from interest, dividends, royalties and gains you get from investments in paper assets.
Passive income is when you work once but continue to get paid over and over again from work you're no longer doing. Passive income, in most cases is income earned from real estate investments or true businesses owned and operated independent of your personal involvement. Investing in or creating true assets that provide passive income for you is your ticket to wealth. To gain financial freedom you need this cash flow from Passive Income.
But note the definition of a business!
Owning a business that provides passive income means the business works without you having to be there. You have a business if you can leave it for a year or more and then return to find it more profitable and running better than when you left. But if your business would falter without you then it's more like a 'job' than a business.
So you can think of earned income as coming from something you do. Passive income comes from businesses or real estate that work for you. And portfolio income comes from paper assets that work for you.
Everyone has income, but not everyone maximizes the use of that income. Of the four income patterns, the one to shoot for is that of the rich. And one myth you can dispose of is "It takes money to make money." Regardless of your income you can begin to acquire assets that return an income every year -- passive income that comes in, rain or shine, whether you work or not. This is money working for you, not you working for money.
Unlike passive income, earned income or linear income requires that you work for your money. You are basically exchanging your time and effort for money. You get paid when you work. The moment you stop working, you don't get paid.
The key to becoming wealthy is the ability to convert earned income into passive income and/or portfolio income as quickly as possible. The taxes are highest on earned income. The least taxed income is passive income. That is another reason why you want your money working hard for you. The government taxes the income you work hard for more than the income your money works hard for.
The rich incorporate their assets and are able to: Earn, Spend and Pay Taxes on what is left.
The poor and middle class work at a job and must: Earn, Pay Taxes and then Spend what is left.
This is so powerful that we predict that if our governments do not make some attempt to reduce corporate taxes and prevent the double taxation of dividends; that the market capitalization of income trusts in Canada will exceed the market capitalization of the TSX/S&P 300 index.
Wealth and freedom can, and should, be yours. You have the right to acquire it. The family that is jet setting around the world, teaching their children about art in Paris and about science on the Amazon, eating out whenever they want to, cruising on yachts, hot-air ballooning over wine country, relaxing on tropical beaches, has no more right to all of that than you. We believe you can have, should have, and will have all your dreams. All of them.
Only 4% will actually achieve freedom of choice or financial freedom, and a mere one per cent actually achieve his dream for true wealth. This means that only 5% of people are able to provide for themselves when they retire. Are you currently positioned to become one of the 5%?
Statistic further shows that of this one per cent, 74% made their money from running their own business, 10% are professionals, 10% are CEOs of large companies, and the rest achieve wealth from other sources.
The main reason people struggle financially is because they have spent years in school but learned nothing about money. The result is that people learn to work for money but never learn to have money work for them. The rich don't work for money; they have their money work for them.
This can be achieved through passive income.
We at investingforincome.com are focusing on passive income using Canadian Income Trusts. We think it's the easiest way to achieve passive income. One can start with as little as $1,000. We can all be little Warren Buffets.
You see before World War II investors invested in stocks for income. But after the war this started to change slowly. By the end of the millennium the stock market became a huge capital gains generating machine with little or no income.
We speculate that the trend to capital gains was due to favorable taxation of capital gains over dividends. However, we believe we are on a long term secular trend where we will see the stock market convert from a capital gains machine to an income generating machine. This has all ready started with the BUSH tax plan that tried to make dividends tax-free. This is only the beginning. The USA will lead the way for all nations. I bet you that in 20 years from now most stock market returns will be from dividends/income and not capital gains. Buy the time the experts figure this out and tell you they will have deprived you of billions of dollars of income.
We strongly recommend that on a long-term perspective you get out of stocks and mutual funds that do not pay income.
We have given you a lot to think about. Remember, we have nothing to sell you here. Instead of listening to the media and all the experts just think about this on your own. Your gut will tell you that we are right.
Remember, as Warren Buffet said if you are a poker game and you cannot figure out who is the patsy then guess what...your the patsy.
The answer that you have been bombarded with is something like this;
One must invest and have there money grow so that once they retire they can live off the income from no risk interest paying investments. Your planner probably came up with a fancy work sheet and questionnaire and at the end they tell you based on X% interest you will need $Y when you retire so that you can have an income of $Z per month when you retire. This income is called passive income. If you think about it, that is what we are all in the end trying to achieve.
Passive income is when you work once but continue to get paid over and over again from work you're no longer doing. Passive income, in most cases is income earned from real estate investments or true businesses owned and operated independent of your personal involvement. Investing in or creating true assets that provide passive income for you is your ticket to wealth. To gain financial freedom you need this cash flow from Passive Income. So far so good.
This is the thought pattern I went through back in early 2001. However, this seemed impossible. The market had crashed. I had no Idea how I could save enough from my earned income to eventually build up a nest egg. So, like everyone else we keep chasing the big score on a real estate deals, stock market or even a lottery.
There is no such thing as something for nothing. That is why most of will fail at achieving the big score.
The problem is that Wall Street has it backwards. Instead of focusing on investing for capital gains, you should focus on income invest immediately. That's right forget about capital gains-no matter how old you are. I decided that when I retire I need so much a month to live on. So at 45 years old I sold all my stocks and mutual funds in my RRSP (IRA) and focused on income producing securities. This is when I discovered Canadian Income Trusts. I had less than $70,000 in the RRSP at the time and today that account alone is producing over $1,000 per month income. Because of compounding this account will probably be producing about $14,000 per month income when I turn 65 years old. Now that's passive income! This does not include my other portfolios.
To put it simply, passive income is income that continues to generate money for you even when you have stopped working. Passive Income is financial freedom with real financial security.
For example, your rental income is a good source of passive income. Rental income includes payments made by an occupant for the use of property, payments to cancel a lease, advance rent, and any security deposit used as a final payment of rent. If you own a house and you rent it out, you will continue to receive your rental income for as long as you have a tenant, regardless of whether you work or not. Similarly, if you invest in unit trusts and it generates dividends for you, the dividends are your passive income. There are many ways to create passive income.
Financial freedom is not having to rely on a paycheck for your standard of living. If you are sick, or want to take a vacation, you will still have money coming to you from your investments. This is Passive Income. Passive Income is Freedom. Passive Income is Security.
The earlier you start planning and building your passive income, the earlier you can achieve being financially free. It takes time and effort, especially in the beginning, just like building anything worthwhile does. You build a foundation and gradually build up your passive income from there.
There are many types of passive income such as
· Private business income
· Real estate income
· Residuals on mutual fund sales (This is what financial planners, brokers and the entire financial industry runs on)
· Welfare Income
· Unemployment Insurance Income
· Workers Compensation Income
· Disability Income
· Government Pension Income
· Employer Pension Income
· Registered retirement plan income
· Interest Income
· Royalty Income
· Dividend Income
· Income Trust Income (Our favorite)
When you look at the list above you can see why government social programs are so popular. By the way if you plan your future around passive income from Government you will become bitter and disappointed. By the time you figured out that you have been fleeced it will be too late. Why? Because the passive income they give you will be less in real purchasing power than you think. The problem is that it is so gradual that the unsuspecting public does not see it happen.
As a matter of fact the real reason Mutual Funds are so popular is because they generate billions of dollars of passive income for the financial industry. Not for investors (suckers?) like you. This is why they advertise so much. This is why they tell you to buy and hold. Do not fall for the line that your planner gives you that he invests in the same thing because he is not relying on his investments for his passive income. He is relying on yours.
How can you build your Passive Income?
The cornerstone of all wealth is understanding the difference between assets and liabilities. The difference is this: Assets put money IN your pocket. Liabilities take money OUT of your pocket.
A liability is something that takes money out of your pocket." (Monthly and continuously) Most people think their home, car, and other possessions are assets. But, the truth is that in most cases those things take money out of your pocket. They cost you money. They don't make you money. Those things are liabilities. They take money OUT of your pocket each month.
Here comes a shocker----Equity in your home is dead capital. You must convert that equity into passive income.
An asset is something that puts money in your pocket monthly and continuously. When you have more money coming IN from real assets than you have going OUT to pay for liabilities, you will be financially free. This is really all you need to know. If you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities. It's not knowing the difference that causes most of the financial struggle in the real world.
Our liabilities are someone else's (usually the bank's) assets. Most people mistakenly think of their home as their biggest asset. It is an asset - the bank's asset. Our home is usually our biggest liability in that it takes money out of our pocket month after month.
The rich buy assets. The poor only have expenses. The middle class buy liabilities they think are assets.
Real assets fall into several different categories:
1) Businesses that do not require your presence;
2) Dividend paying stocks;
3) Bonds;
4) Income Trusts;
5) Income-generating real estate; 6) Notes (IOUs); and 7) Royalties from intellectual property (books, music, patents?).
Most people use their money to buy liabilities whereas the rich use their money to buy assets that pay for their liabilities.
Start to plant seeds inside your asset column. Start small and plant seeds. Some grow; some don't.
There are three different types of income: Earned Income; Passive Income; and Portfolio Income. You must know what kind of income to work hard for, how to keep it and how to protect it from loss. This is the key to great wealth.
Earned income is income derived from your job. It is linear in nature. You work for an hour and get paid only one time for that one-hour's work, and that's it. Your income stops when you stop working.
The rich don't work for money; they have their money work for them. This is achieved through portfolio income and passive income.
Portfolio income is the income you receive from interest, dividends, royalties and gains you get from investments in paper assets.
Passive income is when you work once but continue to get paid over and over again from work you're no longer doing. Passive income, in most cases is income earned from real estate investments or true businesses owned and operated independent of your personal involvement. Investing in or creating true assets that provide passive income for you is your ticket to wealth. To gain financial freedom you need this cash flow from Passive Income.
But note the definition of a business!
Owning a business that provides passive income means the business works without you having to be there. You have a business if you can leave it for a year or more and then return to find it more profitable and running better than when you left. But if your business would falter without you then it's more like a 'job' than a business.
So you can think of earned income as coming from something you do. Passive income comes from businesses or real estate that work for you. And portfolio income comes from paper assets that work for you.
Everyone has income, but not everyone maximizes the use of that income. Of the four income patterns, the one to shoot for is that of the rich. And one myth you can dispose of is "It takes money to make money." Regardless of your income you can begin to acquire assets that return an income every year -- passive income that comes in, rain or shine, whether you work or not. This is money working for you, not you working for money.
Unlike passive income, earned income or linear income requires that you work for your money. You are basically exchanging your time and effort for money. You get paid when you work. The moment you stop working, you don't get paid.
The key to becoming wealthy is the ability to convert earned income into passive income and/or portfolio income as quickly as possible. The taxes are highest on earned income. The least taxed income is passive income. That is another reason why you want your money working hard for you. The government taxes the income you work hard for more than the income your money works hard for.
The rich incorporate their assets and are able to: Earn, Spend and Pay Taxes on what is left.
The poor and middle class work at a job and must: Earn, Pay Taxes and then Spend what is left.
This is so powerful that we predict that if our governments do not make some attempt to reduce corporate taxes and prevent the double taxation of dividends; that the market capitalization of income trusts in Canada will exceed the market capitalization of the TSX/S&P 300 index.
Wealth and freedom can, and should, be yours. You have the right to acquire it. The family that is jet setting around the world, teaching their children about art in Paris and about science on the Amazon, eating out whenever they want to, cruising on yachts, hot-air ballooning over wine country, relaxing on tropical beaches, has no more right to all of that than you. We believe you can have, should have, and will have all your dreams. All of them.
Only 4% will actually achieve freedom of choice or financial freedom, and a mere one per cent actually achieve his dream for true wealth. This means that only 5% of people are able to provide for themselves when they retire. Are you currently positioned to become one of the 5%?
Statistic further shows that of this one per cent, 74% made their money from running their own business, 10% are professionals, 10% are CEOs of large companies, and the rest achieve wealth from other sources.
The main reason people struggle financially is because they have spent years in school but learned nothing about money. The result is that people learn to work for money but never learn to have money work for them. The rich don't work for money; they have their money work for them.
This can be achieved through passive income.
We at investingforincome.com are focusing on passive income using Canadian Income Trusts. We think it's the easiest way to achieve passive income. One can start with as little as $1,000. We can all be little Warren Buffets.
You see before World War II investors invested in stocks for income. But after the war this started to change slowly. By the end of the millennium the stock market became a huge capital gains generating machine with little or no income.
We speculate that the trend to capital gains was due to favorable taxation of capital gains over dividends. However, we believe we are on a long term secular trend where we will see the stock market convert from a capital gains machine to an income generating machine. This has all ready started with the BUSH tax plan that tried to make dividends tax-free. This is only the beginning. The USA will lead the way for all nations. I bet you that in 20 years from now most stock market returns will be from dividends/income and not capital gains. Buy the time the experts figure this out and tell you they will have deprived you of billions of dollars of income.
We strongly recommend that on a long-term perspective you get out of stocks and mutual funds that do not pay income.
We have given you a lot to think about. Remember, we have nothing to sell you here. Instead of listening to the media and all the experts just think about this on your own. Your gut will tell you that we are right.
Remember, as Warren Buffet said if you are a poker game and you cannot figure out who is the patsy then guess what...your the patsy.
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