The Matt Chambers Show
Welcome to The Matt Chambers Show, where we explore the world of traveling, living and doing business internationally. Hosted by Matt Chambers, this podcast connects people, places, and ideas, offering inspiring stories and practical insights to help you design a life beyond borders. Whether you're seeking adventure, remote work tips, retirement ideas, or entrepreneurial guidance, each episode brings you closer to turning your global dreams into reality.
The Matt Chambers Show
Become Income Independent: Live Anywhere
In this conversation, Matt Chambers interviews Steve Selengut, an investment management veteran, about achieving income independence in retirement. Selengut shares his method of using closed-end funds to generate consistent income and avoid drawing down on the principal.
He explains the six principles of investing, which include quality, diversification, income production, profit taking, market cycle investment management, and income reinvestment. Selengut also discusses the advantages of closed-end funds, such as instant diversification and higher yields compared to other investment options.
They discuss the importance of generating monthly income through closed-end funds and the power of compounding interest. He emphasizes the need to reinvest a portion of the income to continue growing it and using the rest for living expenses.
They highlight the lack of knowledge about compound interest among many people and the potential for even small investments to grow into significant wealth over time. Steve also explains the active management approach he takes with his own portfolio, but notes that it is not necessary for everyone.
They discuss the role of closed-end funds in providing income and the importance of selecting reputable financial institutions to manage them. He addresses the misconception that set-it-and-forget-it strategies are ideal and emphasizes the need for income-focused investing. They also cover the availability of safer closed-end funds and other investment options for those with limited knowledge of investing.
KEY TAKEAWAYS:
- Income independence in retirement can be achieved by focusing on income production rather than market value growth.
- Closed-end funds offer instant diversification and higher yields compared to other investment options.
- The six principles of investing include quality, diversification, income production, profit taking, market cycle investment management, and income reinvestment.
- Understanding market cycles and adjusting investment strategies accordingly can help maximize returns.
- Reinvesting income can accelerate portfolio growth and increase income over time. Generating monthly income through closed-end funds is crucial for financial stability and growth.
- Reinvesting a portion of the income allows for continued growth and compounding interest.
- Many people are unaware of the power of compound interest and the potential for small investments to grow into significant wealth over time.
- Active management of a portfolio is not necessary for everyone, but it can lead to faster growth and increased income.
- Selecting reputable financial institutions to manage closed-end funds is important for ensuring income generation and portfolio growth.
- The misconception that set-it-and-forget-it strategies are ideal can hinder income-focused investing.
Hello and welcome to Matt Chambers Connects, a podcast hosted by Matt Chambers. This is the podcast that transcends boundaries, empowers cross-cultural connections and fosters a more connected world. I'm your host, matt Chambers, and I invite you to join us on this quest to expand our understanding and build bridges between my two favorite places on the planet Latin America and the United States. I've been traveling, living and doing business in Latin America for nearly two decades.
Speaker 2:Steve. So you're a veteran in investment management, to say the least, with more than 40, 50 years of experience managing portfolios for clients in the US and abroad. You've built a heck of a reputation for helping people achieve what you call income independence. But in my mind, you're not just another financial expert. Personally managed hundreds of individual portfolios and, with your own skin in the game, you've authored the book Retirement Money Secrets. It's a guide that breaks down the six core principles for navigating retirement without dipping into the principle, and you're here with me to share with my audience and future audience how people can grow their income year after year regardless of market corrections or rising interest rates. So anyone who's listening to the show now or in the future, that has ever wanted to know how to truly build wealth that works for you, even in retirement, then this conversation is absolutely for you. So, steve, welcome to the show. I'm glad you're here.
Speaker 3:Matt, it's a pleasure to be with you. So, steve, welcome to the show. I'm glad you're here. Matt, it's a pleasure to be with you and, like you said, we can talk about achieving income independence. And most people get to a point where, all of a sudden, the light bulb goes off and they say, hey, wait a minute, I need some income here, and that's where I come in.
Speaker 2:Yeah, I mean, and you say this in your book and people are used to investing in things such as 4K and IRAs and, depending on you know, making them completely dependent on value, whatever the value of that's going to be whenever they retire. And so when they decide to start drawing that down, they're drawing down value and, in your method, they're going to continue to make income to where they're not constantly drawing that value down, right, exactly?
Speaker 3:Exactly that's the key element of the process that Retirement Money Secrets talks about. It's different from financial independence figure portfolio. You feel pretty good about yourself and you know that if you really needed to do something, or if there's an emergency or you needed a new car in the spot, you could make things happen so that you'd have the money to take care of it. Income independence is different. It means that wealth that you had is working as hard as you used to work when you were employed the way you got to that point where you had that nest egg all developed, and it's working just as hard as you were to provide income. In my case, for example, it's now providing a bit this year. It's providing more than any year I ever had that I made in income. Why?
Speaker 2:do you think?
Speaker 3:that is Well. I've had a very good year of trading. I've added about five months of income Portfolio statements. Give you some information that tells you your expected income. Your projected income for the next 12 months is X, you know. So I divide that. I divide that by 12 to see what I'm going to be making each month, and then I look at my capital gains total and I see how much I've made so far in capital gains by taking profits on that income. And right now my income is between four and five months additional income. So this year I will absolutely do better than I did just managing other people's money.
Speaker 2:So with your method you not only had built up an incredible amount of overall and had an incredible increase in value, but with your method you're not drawing down that value at all, Kind of like we said in the beginning.
Speaker 3:Yeah, the value is, the stock market is not something that just goes up and a lot of people are taught that, oh yeah, if you put all your money in and just sit there and wait and wait and wait, it'll be this high, much higher, by the time you retire. But what if you retire in 2022? And it's just gone down a bunch? Or if you happen to be in March or April of 2020 when you retire and the market's just crashed 30%? It's one of those things Developing that portfolio. Your portfolio will grow just as rapidly, or nearly as rapidly, by reinvesting a large amount of income and continually growing your capital. And continually growing your capital. It'll grow just as quickly as market value will, but it will be a market value that produces income. That's the distinction.
Speaker 2:You're doing all of that pretty much exclusively with closed-end funds. I am now, yeah, which?
Speaker 3:most people don't even know what that is right. I mean, if you're not a sophisticated investor. It's not something you hear about. It's a trust vehicle. Actually, they're called pass-through trusts.
Speaker 3:They were developed back in the early 1800s, even before mutual funds were developed, and the idea is that the investment manager runs the portfolio and he doesn't the company, that that entity doesn't pay the taxes on the earnings. He passes 95 of the profits onto the shareholders and they pay the taxes. That's the pass-through type of trust vehicle. So, consequently, if this guy's focus was growth, he'd be he'd be hard, hard pressed to do anything right, because he's only got 5% of the profits left to buy another business location or invest in more property or whatever he wanted to do. He's not going to grow entity, but he is going to be able to produce a lot of income, and that's the reason I use them. Their focus is the same as mine. They want to of income, and that's the reason I use them. Their focus is the same as mine. They want to produce income. In order to do that, they're going to invest in securities, both stocks and bonds. They're going to take profits when they have them, and I'm going to get a benefit of that.
Speaker 2:Essentially what these closed-end funds are. From my understanding, they're similar to an ETF in that it's a conglomerate of funds, right? I mean you're investing in your book, you? You suggest that a closed-end fund have at least 50 securities in there, right?
Speaker 3:exactly before I'll look at it.
Speaker 2:Plus, yeah, the average is more like 200 uh securities and the s&p 500 is like 500, obviously, and then like the investco qqq would be like 100, 100 top tech stocks, I believe. So it's it's similar in that you're investing in multiple right, it's exactly right.
Speaker 3:It's a. It's a fund, which the reason mutual funds became so popular after the great depression actually is that it was that it was less risky if you owned a variety of securities in different sectors and so on. That's less risky than going out and say, ok, I'm going to buy this one in AI. I'm going to buy this one in health care. I'm going to buy this one in it and buy this one in energy. It's trying to pick a winner.
Speaker 2:It's too hard to invest like that, especially for a guy that may be a W2 employee that doesn't have the time to sit around and study the market, because even the guys on Wall Street that are doing this 24-7, they're not beating the market. So you, as a regular investor, you're better off putting your money in an ETF if you don't know what you know.
Speaker 3:Well, it's safer, it's a diversified portfolio. So that's one of the big ways. One of the six principles of investing is to minimize your risk and diversifying with a fund of securities or even a fund of funds. Like I, I have 200 different closed-end funds that I'm using, so I've got diversification.
Speaker 2:You know, not nuts you know, yeah, and all different sectors are real estate and everything, everything, you, Everything.
Speaker 3:You name it AI, energy, healthcare, service industries and they're diversified globally as well, so it's full diversification. So any economic impact anywhere. You get the benefit of it if it's up and you get the opportunity that it creates if it goes down.
Speaker 2:Just to break this down for people who may be listening maybe don't know anything about investing at all. Yeah, I would assume most people don't know anywhere near what you know about it. What you're saying is you know, if you look at the S&P 500, Apple is an individual stock in the S&P 500. Disney's an offering in the S&P 500, Apple is an individual stock in the S&P 500. Disney's an offering in the S&P 500. If you were to buy only Apple as an individual stock, you're only buying Apple and if Apple crashes, you're losing everything. You're losing all the money you had in there if you sell it, Same thing with Disney. But if you buy the ETF as a whole, which would be like the SPY, you're buying 500 of those types of blue chip stocks and banking on the entire fund, and that's what you're doing with the closed end funds in that the average closed-end fund in my selection universe right now and that includes both equity and fixed income is the average income is about 9.5%.
Speaker 2:Well, on closed-end funds as a whole, right.
Speaker 3:Right on the 200, let's say 200. Spi pays less than 2%, and then, when you get to retirement, the advisory industry tells you that you're going to need 4% of your market value each year. You're going to take out 4% for your living expenses and to pay them their fees, of course, which becomes part of your expenses.
Speaker 2:How often do these closed-end funds pay out distributions?
Speaker 3:Most of them, the vast majority, particularly on the income side, pay out monthly. On the equity side, about a third of them pay quarterly.
Speaker 2:So you're getting a monthly income. Your yields are around 12% annually, right.
Speaker 3:Well, my overall yields are because I use profit taking as well. So right now, in today's environment, where I can, I can develop a portfolio of these closed-end funds yielding over 10 percent. It might even be as much as 12, but I also am able to take profits on these things and, like I was saying earlier, earlier, that adds to my overall income. So if I have four, let's say I'm having four months worth of income from capital gains. That's like adding another 30%, another 4% to my portfolio income that year.
Speaker 2:How are you taxed on those? Are they taxed similarly to uh, an spf or a sorry?
Speaker 3:they're. They're taxed. When you take money out of an ira, it's taxed. If you have, uh, closed-end funds in your personal account, it's taxed just like dividends are, except that sometimes the closed-end fund will be dispersing you long-term capital gains.
Speaker 2:So you're paying 10%, 15%, less.
Speaker 3:The income may be taxed less. Sometimes you get returns of capital in there because it comes from things like option premiums that you might have, or literally return capital. There's no tax on that at all.
Speaker 2:So you're taxed just like you would be as an employee, based on what your income is that year that you're taking from. Exactly, and if you're short-term caps, which is less than a year, you might be facing 25% and up, whereas if you're long-term, Short-term is the same as ordinary income.
Speaker 3:So, whatever your tax bracket is's, what would it be? But it's just like you know. If your boss comes up to you and says, hey, I'm going to give you a hundred thousand dollar bonus, you know you're not going to say oh no, no, no, you're not, I don't want to pay those taxes. Profit taking is you never are paying a dollar. Profit is a dollar you didn't have before and which can disappear right before your eyes. If you take it, you may have to give back $0.30 or $0.40, but you're still ahead of the game.
Speaker 2:So are you paying yourself out on those? Can you pay yourself out on those distributions, like as a 1099 contractor, and then you could potentially reinvest it in real estate or something else and have write-offs from that 99 contractor and then you have, you could potentially reinvest it in real estate or something else and have write-offs from that or it's, it's more than 10 99.
Speaker 3:It's the same as dividend.
Speaker 2:You can, you could reinvest it any way you want to and so you would get, if I, if I pulled out, let's say, 100 grand, I pull out 100 grand and I don't do anything other than spend it on myself, then I'm going to pay, you know, 25, 35, whatever the taxes are on whatever your tax practice, but if I took, you know, 50 of that and put it into real estate, then I'm going to get credit for that real estate purchase and maybe only pay taxes on the 50.
Speaker 3:No, no, you're not. You're going to, you're going to pay it on the whole thing, okay.
Speaker 2:Okay.
Speaker 3:Realize, realize gains. Realize income is income. You know you income is income. You get paid by your employer and you reinvest it in real estate. That doesn't mean you're not going to pay income taxes on your salary. In a previous book I used to refer to taxes and commissions as tails that wag the income dog. You can't focus on that part of it. The more money you make, the better. I mean, if you want to pay no taxes at all, fine, you're not going to have any income, not in our society. So yes, you should try to put it into an IRA so you don't pay taxes until you're an old man, or you can try to get it into a Roth IRA.
Speaker 2:so you never pay taxes on it. But in a Roth you could only invest a certain amount. Right, exactly, it's a small amount $8,000 a year or something like that.
Speaker 3:Yeah, but a lot of people roll over parts of their IRA into it too, and there are raw 401ks now. So yeah, the raw, if you only could put a little bit in. But then it's tax-free forever and that's a pretty big thing.
Speaker 2:But the 401k the traditional 401k and ira in my mind is such a scam.
Speaker 3:It's just really you think so?
Speaker 2:I mean, I don't know, you know, I just think there are better ways to make money than an old, traditional 401k where you, you know, the government's holding your money for 40 years and then they're taxing okay is not the government's not holding the 401k.
Speaker 3:Your employer is Okay and in most 401ks your employer is also matching your contribution.
Speaker 2:Oh, that's right, so you're getting free money.
Speaker 3:My daughter is putting 3% of her salary into her 401k and then the employer's adding another 3% To you. In effect, you're getting 100% on your money by investing in the 401k, and then the employers add in another 3% to you.
Speaker 3:In effect of getting 100% on your money by investing in a 401k, then, depending on how you choose the investments, you dictate how well that's going to quote perform until the time that either you leave them and you can take it out and put it into an IRA and run it yourself, or or until you finally retire from them and they, they, they give it to you to take care of.
Speaker 2:Ideally, you want that to be a self-directed IRA, right? If you know what you're doing in any way, so you can control what's invested.
Speaker 3:Yeah, well, all IRAs really are self-directed. You choose whether you want to direct it yourself or give it to some professional to do it for you Some professional like me, like I used to be, to do it for you. But yeah, when you have it in an IRA and you can self-direct it, then you can choose whether you want to focus on income or not, whether you want to play the market. I mean, there's all kinds of things you can do. There's some restrictions you can't do margin trading. I'm not sure you can do option trading in an IRA, but I don't know that for certain. But I do know that within an IRA, certainly profit taking should never be one of those things that you worry about taxes on because you're not going to pay those taxes for such a long time in the future time in the future?
Speaker 2:Yeah, so I also noticed in your book you outlined the six principles for making these types of investments. Do you mind going through those?
Speaker 3:Yeah, there are really six principles of investing. I use closed-end funds because of their income focus, the instant diversification and the ease with which I can trade them and the ease with which I can trade them. But the six basic principles four of them are really things you do to minimize your risk, and those are. I'll give you the four of them then we'll go over them Quality, diversification, income production and profit taking. Quality is getting together a set of requirements you have of the securities you buy. Like you mentioned earlier, I don't buy any closed-end funds that don't have at least 50 securities inside. The average in my equity portfolios right now is 251 different stocks in every equity closed-end fund and 464 different pieces of paper bonds, notes, mortgages, whatever in the income side. So that's pretty good diversification.
Speaker 2:I noticed in your book you're promoting REITs too. I mean, reits is a closed-end fund, you like?
Speaker 3:Reits are closed-end funds contain REITs. Reits function a lot like closed-end funds, but they're not literally closed-end. They could well be considered closed-end funds, but I don't use REITs individually anymore. I buy closed-end funds that contain REITs rather than own them individually, Because it's one manager. You know what I mean. With the REIT, it's one guy running this real estate development, that type of thing, and that's a little different for me.
Speaker 2:It's a little scary, huh.
Speaker 3:It's to me. I like them, I'm more concerned. So, quality you do. How long has the thing been in business? Is it profitable? How many different types of products does it have? Is it just manufacturing buggy whips? You know it's that type of thing.
Speaker 2:Was real estate, was physical real estate, never an interest to you.
Speaker 3:I wouldn't be here if it wasn't for physical real estate. My father was a real estate developer in North Jersey.
Speaker 3:He had a development where he had rental properties. He had properties for sale, raw land as well as homes that he would build, and he was vertically integrated, meaning that he did everything. He would loan them the money so he'd have a income stream from the interest on that. He would insure their property, so he didn't come from that. He had rentals coming in so he had income from that Hell. He even had a lumber yard so that his, the people who built the homes, his subcontractors, could buy it there and he'd make money on that too, you know so so yeah, real, I've been close to real estate, Funny enough. Ironically, I guess, I chose not to go into real estate because I didn't want to be working eight days a week and go into planning board meetings and doing all that other stuff that you had to do and a lot of lawyers involved. You had closings. I didn't want to do that. Then I've gotten a business of my own and I wound up working six days a week anyway.
Speaker 2:You wanted to be. From what I'm understanding, you and your wife do a lot of traveling with what you do now. Right, you can kind of be anywhere in the world and do this.
Speaker 3:I can and I have been. I've placed. Even when I was managing for other people, I placed orders from all over the world. I remember we'd get home from dinner in Hong Kong and I'd call my broker and place my orders.
Speaker 2:So cool, you know, and you turned this into a remote business before. Working remotely was cool.
Speaker 3:Yeah, before it was done. Like you and I are talking right now, then it would be old fashioned telephone.
Speaker 2:Exactly, and you know now you can be a secretary and be wherever you want at this point. Right, absolutely, absolutely so. Another thing that I remember from the book was market cycle investment management. That's right. You're helping investors grow their income, yeah.
Speaker 3:The market cycle.
Speaker 3:A lot of people go through life thinking again that the stock market is something that just goes up and hopefully you're in there at the right time, you wait there long enough and it's going to make you wealthy. But when you look at the actual charts of the stock market, you see that that's not the case. The trend is upward because the world economy is growing, but it's not a sure thing or anything like that. It goes up and it goes down and what market cycle investment management is is the ability to take advantage of that cyclical nature. And if you really study it, you'll see that it's not just the overall P, dow and NASDAQ that have these cycles, but the healthcare industry will have its little unique cycle within that, pretty much even globally.
Speaker 3:The Chinese-based securities may not be as good sometimes as others, but all those cycles are running at the same time. And if you understand what you're invested in and the market itself and the interest rate cycle, which is a little bit slower and not as high and low but very impactful on my types of securities, if you can see where you are and it's not that difficult by looking at a chart we know today, for example, the Dow is at its highest level ever right now. If it's still up today, it's at an all-time high.
Speaker 2:Yeah, I didn't look at it today, right now.
Speaker 3:If it's still up today, it's at an all-time high. Yeah, I didn't look at it today. Neither the S&P or the NASDAQ are quite there. They're still in July and June territory, but they're higher. But by looking at that chart and you look at the stock market, you say to yourself okay, stocks are near an all-time high.
Speaker 3:If I'm going to buy stocks today, if I'm going to buy a closed-end fund containing stocks, I'm going to buy less of it because it's more likely that it's going to go down sooner rather than later, because it's now at an all-time high.
Speaker 3:So, instead of putting in $10,000 in this closed-end fund, I'll start off with six. Or, if it's a smaller portfolio, if you normally start at five, you start at three. On the other hand, interest rates had the biggest rise in history, starting two years ago, as they went up 5% from almost zero, and even though the expectations of reductions have made those prices go back up, they're still well, way, way below where they were five years ago. So on that side, when I'm buying closed-end funds that are in the income focused sector, I'm buying just about my maximum. You know, I say, okay, if I start with 6,000, I'm going for 6,000 now because my yields are around 10% and there's a lot of upward possibility. Just from past experience, not because I know the future, but they are talking about lowering interest rates and when they lower interest rate, interest sensitive stocks like preferred stocks, bonds, mortgages and things like that go up in price.
Speaker 2:So most of what you do. Really, what are you doing now in terms of work? I mean, I think I understood you're not really actively managing other people's funds at this point, but you're more consulting at this point.
Speaker 3:I'm actively managing my own and I'm actively coaching other people on how to manage theirs, and it's really how to get them to transition from this mindset of chasing market value to a different mindset that focuses more on income production, on beating inflation by growing your income. Growing your market value doesn't, although they say you beat inflation with it, it doesn't do a thing because inflation is a measure of your buying power and buying power requires income. So that's what I'm coaching people on doing yeah.
Speaker 2:So if you can't, if you can't get the income out for another 30 years to buy something you've been buying power for 30 years right, right.
Speaker 3:So what you want? You want that monthly like the close-in food. You want that monthly income coming in so that you can consciously reinvest a portion of it, so that you continue to grow the income and you, and the rest of it you can use for your living expenses if you're still employed. While you're building up this portfolio, you can reinvest it all and then you all everybody knows the compounding of interest, sure that's what it's like.
Speaker 2:Well, surprising, surprisingly, steve.
Speaker 2:Everybody doesn't know that not everybody, that's true, it's uh, you're just used to talking to business people today that that that do understand it. Everybody in your circle does. But you wouldn't believe how many people that I've talked to you know my young age that are significantly older than me that that I've simply sent a link to a compound interest calculator and said, hey, just put some numbers in there and play around. And they had no clue that if you're 20 years old and you had before in my head, I can't remember what it is, but if you're 20 years old and you start putting, it's a relatively small amount of money. But if you put a small amount of money into you know something like you know even a 401k, uh, sp500, something like that, you're going to be a millionaire with a small amount of money before you're 60. Um, and I know that's not. That's going back to the old. That's the opposite of what you're.
Speaker 3:That's going back to the idea that the market value is good growth, but it's the same principle. If you can get 10%, like you can right now, and you invest it seven and a half years, you double your money.
Speaker 2:And that's in the closed-end.
Speaker 3:That's in anything, anything that's paying you 10% and you don't have to add it.
Speaker 3:You don't have to add to that. But just think if you add more money to it, how much faster it'll be. If you only can get seven and a half interest like we could five years ago, then it takes you 10 years to double. But that's the compound interest table. So then let's say you take, you have another stream of income and you add a few bucks to that every month. It's going to take that much less. So if you let's say you add by taking profits, you add the equivalent of another couple of months income to that. Instead of it taking you seven and a half years to double your money, you're going to probably double your money in five you seven and a half years to double your money.
Speaker 2:You're gonna probably double your money in five, the um correct. Correct me if I'm wrong here, but what you're doing is not a set it and forget it strategy. Right, you have to be in there actively yeah, you can it.
Speaker 3:It is the way I do it, yeah, and the way I recommend it and the way I write about it. It's a definitely an active pursuit, but you don't have to go whole hog. I mean, if you've got, if the distribution income itself is enough to allow you to reinvest let's say 30% while you're spending the other 70% that's that you're in a good position. You don't have to add, you know, you don't have to go in there and take every available profit that you have.
Speaker 2:Hey, Steve, you're a little bit off the camera. Will you scoot a little bit to your right? You're right in on that.
Speaker 3:I was trying to get out of the way.
Speaker 2:You didn't want to be on the internet, did you?
Speaker 3:I don't.
Speaker 2:She's been in it the whole time. But, we'll tell anyone who she is. It's all right.
Speaker 3:So what were we saying? Yeah, so you don't have to do it as actively as I do. I mean, that's all I've got to do, you know, is I do podcast, coaching and I manage my money. So those are my three things coaching and I manage my money. So those are my three things. But anybody can can enjoy that money coming in and reinvest it each month when all the income comes in, just selectively reinvest that and if you, you see, holy smokes, I got seven percent profit on this, I'm going to take that and reinvest it. You don't have to be there looking at it every day. I mean, I am so profit-oriented that I want to take at least one profit in each of my accounts every day.
Speaker 2:Wow.
Speaker 3:That's my goal and it's pretty easy. I mean, you go on your Fidelity account, you plug in your account.
Speaker 2:You back off camera on me, man, you really don't want to be in that camera. Right there is perfect. Right there is perfect, right there is perfect.
Speaker 3:I'm trying to keep my best side in there.
Speaker 2:Don't move right now, we're good.
Speaker 3:I won't move, okay, okay. So you know I wanted to take those profits, but you know you don't have to do it every day like that. You can look at go to fidelio, I'm gonna go see what's going on. You put it in order by the the most gain. You put that column up. You see you got a 10 gain there or an eight percent gain there. Okay, steve says I ought to take that profit. Take that profit and then I'm going to reinvest it in something else or add to something I already own. If you do that, even a little bit, you're gonna you're gonna grow your income even faster so when you said that, even a little bit, you're going to grow your income even faster.
Speaker 2:So when you said that managing closed-end funds can be attributed to running a department store or a retail store, is this what you meant? That you're actually in there making it go every day?
Speaker 3:That's part of it, the management part of it, is a lot like that where you're the salesperson that's down there on the floor and the people are trying on the clothes and you try to encourage them to buy this one, this one and this one. Yeah, I look at it exactly that way, that all these companies, all these entities are merchandise on my shelves and I set a target profit level for them, just like a retailer would. My target profit on closed-end funds is sometimes it's almost anything if the market is down. When the market's up, like right now, my profit level is four and five percent, and so I'm going to take two or three profits, if I can, at that level in every portfolio that I have every day. So that's what I do. So people come into the store. They want to pay my markup. I sell it to them. I have another thing in my universe here I pick that stock and I put it back into the department store. So I just keep turning my inventory over Any business in a capitalistic society, from a hamburger joint to a department store.
Speaker 3:The last thing they want to do is see the value of their inventory rise. They want to see their profits rise. Only in the stock market. Have we grown into the idea that set it and forget it is a good idea. Talk of it as a marketplace. What is a marketplace? People there, they have merchandise and they want to sell it.
Speaker 2:Sell it for a profit For a profit.
Speaker 3:They don't want to go there and say, hey, look, how valuable my stuff is. It's sitting here, don't you just love it? Look at all this great stuff I've got here. No, I'm not going to sell it to you. They don't do that. They say, yeah, it's good stuff, buy it. And then I'll come back and sell you more stuff next week when they open the market. It's a market, it's a market, it's a market.
Speaker 2:It's not the ego trip of a value't have anywhere near the level of education on this stuff as you. A lot of people just want to sit and forget it, right? They? Just because they don't know and what you're doing. If I'm a guy that knows absolutely nothing about the stock market and someone tells me about again S&P 500 or QQQ or something like that, and I can just put my money in there and the value is going to go up while I'm doing nothing really studying it, that's pretty attractive. But what I, what I've read, and I think you would probably agree, the majority of these people who have this set it and forget it mentality, it could arguably be better, but because those guys don't have any education on the market, for them it would be a matter of having to go and re-educate themselves completely in order to manage these closed-end funds. Right, or are you saying closed-end funds have similar….
Speaker 3:Well, they are managed funds, they are managers running these portfolios and you know that their purpose is to give you income. So, setting it and forgetting it, sure, why not? But somebody has to select them, somebody has to look into their quality and make those decisions. That's why we have a financial services industry. We have, you know, millions of people out can say okay, here's my money, you can manage it. I want you to generate in profits more profits than you charge me in fees every year, no exception. I want you since you tell me I have to take out 4% every year from my market value in order to live properly I want you to generate for me more than 4% in income every year. Then I'll set it and forget it. You can do your job.
Speaker 2:So you can pay the money manager and do it all for you you can pay the money manager.
Speaker 3:You can pay him a buck and a half percent 1.5%, whatever they're getting, say on two conditions Every year, I want to see a line here on my statement that says I've had 1.5% or more in profits, and I want this other line to show that I've earned more than 4% in income. Got it? If you do that for me, I'll be happy to pay you.
Speaker 3:And so do— Sorry, go ahead, keep going I said, the problem is you're not going to find a whole lot of managers who are interested in providing you with income on that type of a portfolio. And I'm sure you know why because managers get paid on the amount of market value, value that they manage. Income is not a factor, and that's the rub. That's the problem with our financial services industry right now. Income is not a concern of the people who run those companies.
Speaker 3:They're concerned about their income, but they're not concerned about our income All right.
Speaker 2:I'm sure you've read the book I think it was Charlie Munger called when they're concerned about their income but they're not concerned about our income. I'm sure you've read the book I think it was Charlie Munger called when Are the Customer's Yachts? And it was about the same topic, where he was saying the money manager's job is to get his company in the quarterly magazine saying that their bank made their clients the most money.
Speaker 3:Right, and that's a big dilemma, because here they are advertising themselves as fiduciary and we're only doing things in your interest and the interest of the client. The problem is that they are determining what the interest of the client is instead of letting the client determine what his interests are.
Speaker 2:Another thing seems to be with those big Wall Street money managers. Again going back to what I just said, they're more interested in getting their name in the paper for the quarter that they were the firm that gained their clients the most money, and so it kind of forces them to do a whole lot more buying and selling than you would probably do as a self-managed investor, right.
Speaker 3:They do Actually I think they do less selling.
Speaker 3:Oh they do they do less selling? They want to hold on to that. They want to hold on to Microsoft. They want to hold on to NVIDIA because it's the superstar of the day. It's worth trillions of dollars now, and has it turned a profit yet? I mean, really, has it made a penny in profits? I don't think so. But here it is worth $3 trillion some such ridiculous number. That's what they want, because their value of $3 trillion translates into take 1.5% of that in fees to the industry. No, they're not taking profits. When you see a portfolio and I've seen literally hundreds of portfolios since I started just being a coach and thousands before that as a manager of portfolios that have come to me I see positions where 30% of the portfolio is in one stock and 40% in another, where they'll have a $3 million portfolio and only own 15 different securities. There's no diversification and there's no income None, it's crazy.
Speaker 2:Because they're focused solely on increased value.
Speaker 3:All they want to do is keep that market value growing and they never take the profits. I looked at a portfolio statement the other day from a guy, from a guy, and they, as one of their highlights, their, their selling points on their portfolio was we do the tax loss harvesting for you, okay, and this is an? And not only was it's that stupid, I mean they excuse me when that they take tax losses to offset profits, okay, which is full, which we talked about before you, you lose a thousand000 in capital in order to not pay taxes, not pay $300 in taxes.
Speaker 3:It doesn't make sense. But this is not only that, but this was in an IRA portfolio. There are no tax losses, but they emphasize that we're doing this for you. So what they generally do and you can see it very clearly they rarely take profits. But there's another reason why they don't take profits. They don't pay profits. They sell their losers and let their profits run. One of the famous managers has coined that phrase. My phrase is market value fuels the ego and income fuels the yacht. The exact opposite. Take your profits, baby. But one of the reasons they can't and that's part of our litigious society that we have If you own Microsoft, if you own NVIDIA, and your broker comes to you and say, hey, you've got 100% profit, you've doubled your money, you really should sell this and let's put it away in some nice income, tax-free municipal bonds.
Speaker 3:So for the next 30 years you get 6% tax-free income. Wouldn't that be great? Sure, you say okay, but then the market value of Microsoft continues to go up and it doubles again, and actually Microsoft's probably doubled three or four times. So you get there. My God, that stupid so-and-so. He made me sell that. And just because I'm making all this money tax-free over here. That doesn't matter. Microsoft doubled again. I'm going to sue him and he'd win, he'd win.
Speaker 2:The client would win.
Speaker 3:The client would win.
Speaker 2:I mean he's the one that signed off on selling it.
Speaker 3:No, he signed it, but the guy told him to. So you won't get. Your professionals will not tell you to take profits, they'll tell you to take losses but not profits. It just doesn't happen and that's why you wind up why I wind up seeing all these portfolios full of unrealized profits in the portfolio. And when they take their fees, they also make you reinvest all your dividends automatically. So when it comes time to pay you your monthly stipend, they have to sell something to get it for you and they'll take the ones that are down the most and sell them. So they're constantly losing capital. So they're constantly losing capital.
Speaker 2:So for someone, going back to the person who really doesn't know much about investing other than a company that he worked for for 30 years, telling him to maximize his 401k and then they'll match it Back to that guy right, he's about to retire, considering retirement or maybe already retired, but he knows nothing other than put in a 401k, let it sit there and draw down the value and hope you have enough to get to the finish line is kind of the mentality that guy. How much studying and effort is he going to have to put in to learn how to manage these closed-end funds? One and secondly, are there some safer closed-end funds, such as SPYQ?
Speaker 3:I don't know why he keeps saying that those index funds are safer.
Speaker 2:Let me rephrase Not safer If that's all he knows. Right, If it's the set it and forget it strategy? They're easy for a guy that doesn't know anything about investing. That's where I'm going. They're easy. Are the closed-end funds that are going to pay him his monthly income that are easier for someone who knows nothing?
Speaker 3:Closing funds have been around since the early 1800s. They've been around longer than any other form of investment more than 100 years, longer than SPY or QQQ.
Speaker 2:QQQ is really new. It's only what, 20 years old or something.
Speaker 3:Yeah, that's what I'm saying. These have been around for a couple hundred years and there are certainly ones that have been around 20 or 30 or 40 years that you can invest in and trust their safety. I mean, these are you've heard of John Hancock, you've heard of BlackRock, you've heard of Gabelli, you've heard of Nuveen, you've heard of many. There are 40 or 50 different financial institutions that provide these things. They're professionals. They do know what they're doing. They're not going to risk their reputation by producing these things.
Speaker 3:If you look at the history of dividend payments, there are lots of websites you can go to, like cef connect, for example, where you can look at the history of the payments from these things. The only thing you have to wrap your head around is to have just they're not going to spike in market value. They can't. It's just like saying to a company like Amazon you now have to pay out 95% of your profits to your shareholders. Much as the shareholders would love it, they wouldn't be able to grow nearly as fast without that money to reinvest in doing things.
Speaker 2:They're not increasing in market value. But as long as the only thing you're taking out of them is profit, then the market value ideally stays constant it.
Speaker 3:It stays constant relative to what's going on with interest rates because the people who do buy them are buying them for the yields and when the yields go down, the prices go up. When the yields go up, the prices go down because the income itself is relatively fixed. That's how that works. But yes, in answer to your question, yeah, I mean. There are literally hundreds of them and they can easily for much less money. The average price on these things is only $15, $20 a share, so for much less money you can have a diversified portfolio of everything you've ever wanted to own in the stock market. You could own by owning three different closed-end funds, so it's not nearly as risky. It's paying you 9.5%, 10% right now and you have a nice diversified portfolio and you wouldn't have to know a thing. Wow, that's awesome.
Speaker 2:And you wouldn't have to know a thing. Wow, that's awesome. Yeah, that's what I was going for, because I think that the majority of people out there aren't going to have even a basic knowledge, I think, of this type of investing in general.
Speaker 3:But, if they read that book back there.
Speaker 2:I agree with that.
Speaker 3:I agree with that. And then they talk to their financial advisor and say what I said before Look, pal, I love you. I want you to continue to manage my money, but these are my new requirements. I got to have more than 4% income and you got to take profits for me every year. I don't want to see these losses anymore.
Speaker 3:You got to take profits for me. Every year, my net profits are going to be higher than your fees. Those are the only two things. Other than that, do what you want. And then he doesn't have to trust closed-end funds to get that accomplished. There are ETFs that pay 10%. There are a few mutual funds that pay over 7%. There even are some stocks that pay as much as 6%.
Speaker 2:Yeah, no, I learned a ton from your book, by the way. Actually, to be fair, I'm about 75%, 77% into it, something like that. I haven't completely finished it. I'm going to finish that before the end of the weekend, You're just getting to the charts. Yeah, that's exactly right around where I am.
Speaker 3:And there's a chart that compares a portfolio of 10 closed-end funds with SPY.
Speaker 2:Yeah, I haven't got there yet. So I think I'm 75% or 77% in. I think the reason I know that it's 75% to 77% is because I'm in a Kindle.
Speaker 3:I was thinking exactly that. That's how he knows.
Speaker 2:You're like, how does this guy calculate 75%? But the Kindle tells me exactly where I am, which is nice. But hey, I've learned a ton about this. I've read a lot of investment books over the years and for a regular guy that isn't in the investment world on a daily basis, I feel like I have pretty good education on overall investing. But I learned so much new stuff from this book and for me for sure, I'm going to take a very, very deep dive into this and it's an easy read. The book's an easy read. I think you did a good job of writing it to where anyone can understand it. It's witch's list.
Speaker 2:Yeah, it was a conversation, know, and that that made it that way, because a newbie investor basically is what we're looking at and, uh, you know, do it in a conversational tone, it gets all the questions get answered on the way yeah, and I think the beauty of this a lot of the people that I talk to on a daily basis and what this podcast is ideally geared for, are those people who are already living as expats or seriously considering maybe a move out of the Western world into some other place for retirement, and this is a beautiful way of, you know, giving them another option of how they can make their money last until the finish line and still live a really nice life. So, yeah, if we can get this out to people, I think it's going to be incredible value for a lot of people. And is there anything here today that I missed maybe with these questions that you think we would be important to get out there?
Speaker 3:You got most of it. We talked about quality. We talked about diversification, a lot Income. We focused on Profit taking, the idea that, yes, it's important, it's a second stream of income. It can be a very big stream of income, particularly in a strong market. Some years it's not as good as others. We talked about the market cycle market. Some years it's not as good as others. We talked about the market cycle and the key issue to the whole thing is the mindset of starting to think in terms of the income your portfolio is generating Versus the increased value.
Speaker 3:How it's working for you and producing income just like your job used to, Just like your job used to. I think we've covered it all. Yeah, we've covered enough of it that they still want to read it.
Speaker 2:Yeah, no, absolutely. I definitely recommend it. I thought it was going to be more technical jargon than it is, and it is not. It's very much on the level of a novice investor, like you said. So that said, I mean, I think we have a heck of a lot of value here to get out to people and I'm going to try to do my best to make that happen. How do people get in touch with you if they're interested in learning more?
Speaker 3:Through the book. I have my contact information in it, of course, but I have a website called theincomecoachnet and I have two Facebook groups. That it's pretty much a support, a support entity, you know, where people can chat with one another who read the book and do all that stuff. One of them is called the retirement income independence coach and the other one's closed end funds for for retirement income and equity trading. So they're easy to find. You just look me up and you'll find them.
Speaker 1:Thank you so much for joining me on this episode of Matt Chambers Connects. Stay tuned for upcoming episodes where we'll dive deeper into these two fascinating worlds. If you enjoyed today's episode, please subscribe to our YouTube channel, Matt Chambers Connects. You can also find us on Spotify, Apple Podcasts, YouTube Music and many other major podcast platforms, so you don't miss a show. Also, please join us on our social media channels so you can connect with other listeners and ask your most pressing questions and also tell us what types of guests you'd like to see on the show. Thanks again, and I'll see you next time.