You don't want to go into ventures that where you can lose everything. You want to broaden your diversification. So you want to have high quality types of investments, which themselves are diversified and well managed, actively managed, and so on. A diversified portfolio, let's say, of diversified portfolios. So it's a fund type environment. You're listening to Carrie Lutz's financial survival network, where you get valuable information you just can't find anywhere else. To thrive in today's trying times, you need the financial survival network now more than ever. Go to financialsurvivalnetwork.com and get your free newsletter and gift. Financial survival network now more than ever. And welcome. You are listening to and watching the financial survival network on your host, Carrie Lutz. Well, investing in these perilous times, definitely risky or it can be. You need a focus strategy that will keep you safe and keep the money flowing. And that's why we have a special guest for you today. He is known as the income coach. He's been doing this for 40 years. His name is Steve Selengut. State, it's great to have you on the show. So how did you become the income coach? Well, Carrie, I guess it's a long story. I actually became a private portfolio manager back in 1979 when I started a business where I was managing portfolios for other people, in addition to my own. And then that kind of grew up for 40 years until I finally sold that business in May of 2023. Almost two years already and wrote the book called retirement money secrets. And with that, I developed an income coaching business and I actually go out and income independence coaching or I try to bring people to a point where it doesn't really matter which way the market goes or which way interest goes. Their income will keep right on growing regardless. And it's what I call income independence. Interesting. Interesting. And so how do you achieve this income independence here? It sounds great, but if it isn't practical, then what good is it, right? Exactly, exactly. It's simple and maybe a little complicated at the same time. The simple principle are four. I mean, basically what you want to do is particularly as you get older, you want to try to minimize your financial risk as much as possible. You don't want to go into ventures that where you can lose everything. You want to broaden your diversification. So you want to have high quality types of investments, which themselves are diversified and well managed, actively managed and so on, a diversified portfolio, let's say of diversified portfolios. So it's a fund type environment, but not your normal fund type environment. I don't use mutual funds and I only use a select few ETFs and then only for very large client portfolios. Do I recommend them? So and then there are two other items. The third item that you want to make sure of is that you have significant income and a growing amount of income coming into the portfolio. And the fourth and final thing is that you don't just sit back and set it and forget it. Like perhaps your advisor wants you to, but you take profits when they appear. The stock market doesn't always. It goes up, yes, it has gone up, yes, over the over the decades, but it hasn't been a straight line. And it will probably never be a straight line. And when a price of a security goes up, I take my profits and I move on to another one. It might be a quite similar one. It might even be the same one with any reasonable number of days. But I constantly take my profits, thus adding to the capital that I have that produces the income that I'm trying to grow. OK, so like you said, the market always goes up, but the tree does not grow to the sky, right? Depends. Right now it's right about the sky in the stock market, but not the bond market. But anyway, you can only go so far. So far, exactly. So 40 years of experience, knowing what you know now, if you could go back to your your 15 year old self when you started in the business and tell yourself what you've learned, what to avoid, give yourself one piece of advice. What would it be? What would it be? The main thing I wish I had done sooner in my career, that would go back to when I was, you know, 34 or so, or 25 when I actually started investing would have been to discover closed and funds sooner. If I had done that, I would be worth multiples of what I am today. OK, which I'm sure is not in substantial. So you'd be worth even more. All right. Closed and funds, I know the sampling about them. Sometimes they trade, you know, there, there were funds that were set up on like mutual funds, where there's a fixed number of shares, nothing else gets issued. And then they go out and they buy securities, whatever it might be, whatever the name of the fund was, that's what they would buy. And oftentimes these closed and funds sold at discounts to the underlying stock portfolio that they owned, which was like, if they were a Dow S&P 500 closed and fund, you could buy the S&P at sometimes a 10 to 20% discount. I don't think that happens so much anymore. Right. So like, that's obvious, right? So how did people miss this? OK, well, there's a couple other things about closed and funds that are important to appreciate. They're different from the other funds out there. And you just pointed out one significant one that they, they don't have the price isn't manipulated to equal their net asset value every day, like they are with ETFs and and mutual fund. But the other significant difference is that they are required as passed through trusts, which is what they are created as to to give 95% of their net earnings to their shareholders. So they're a different breed of animal. They're not designed to grow in market value, not designed to grow in price. They're designed to produce income for their shareholders. It's in an ideal world. This is the way stocks in the stock market would behave a little bit more closely to this, where they would, they would pay their shareholders at a rate that somehow relates to what they pay their chief executive orders. Question for you, Steve, how did you pay that out? Do they pay it out of this stock dividend? They pay it out as cash. Can you reinvest that? And we're talking just, how do they pass along with profits? Are they trading profits or dividends? How does that work? They're both. They're trading profits. They're premiums on options trading in some instances. They're dividends, they're interest and principal on mortgages, for example, and so forth. All kinds of different securities inside. They typically pay monthly distributions and the current rates right now at today's prices are a little over 10% for income-focused ones and 9% or better in the stock market. So, I like that 10% so you're basically, maybe you're keeping up with the true rate of inflation, not the stuff that they're telling us, but right? Except for good restaurants, I think you probably are. So closing funds are different in those ways. And their biggest difference, of course, is they throw off a lot more income. So there's a lot of chances to reinvest it. You can reinvest it automatically, but I'm not a big believer in automatic reinvestment. I like to do it selectively. I don't like to buy into a security and a price higher than my cost basis for that security. I like to, particularly with these, if you reinvest selectively, you can pick to add to ones that are down in price. So you can actually increase their yield while reducing the cost basis overall. And that is one of the strategies I use. OK, we're not asking you for advice here, even though I know you're licensed and all that. But a few examples of such funds. OK, recommending. Yeah, I'm not recommending. There are I'm going to give you some numbers here. OK, I call these. I call my the spreadsheet I use to choose my, you know, the ones I've selected from a website called CEF Connect, which lists and analyzes all four or five hundred of them. I've selected a hundred and 105 or so that are income focus that invest in things, preferred stocks, bonds, mortgages, etc. And there's over a hundred of them, for example, a black rock, a black rock floating rate fund, a black rock, a black stone long and short fund. And then there's Kalamos and the symbols on those, which these are not recommendations I'm being forced to tell you these names, but there are over a hundred of them. And these are just samples. The black rock, a black rock fund called BGT that you could look up at. See, see if connect a Kalamos fund, CHI, you could look it up and see if connect and see what you think about it. I would not buy anything unless you do complete amount of research on it. OK, so I'm so quick question for you, because these things kind of came up in the 20s. I think they started the 18 20s. Yeah, they'd been around. So I know they'd been around for a long, long time. Where they are, are they still making any new ones here? They they are doing it. What they get a higher fee for these, these companies, the fund managers, they get a higher. Yes, right. The managers, the chart, the charges that they put on the website and each one, which we never pay. You know, all the, all the yields I mentioned are net of all expenses, right? They do charge, you know, two and a half, three, four percent. Sometimes too much to be included, the government, like they're not going to be in your 401k because the government won't let anything in there over two percent. Really? So, so I'm just looking at one here that I just popped up at random, the new Veen Real Estate income fund. It's total market value, 221 million distribution rate, 8.9%, which means if you put in a hundred bucks, you get eight dollars and 90 cents back. And it's trading at a discount to net asset value of 10.2%, a six expense ratio. They're really high, 3.64%. Is this something I should think about? Absolutely. What's the symbol? The symbol, why'd you ask me that? Hold on a second. Let me find it. Uh, uh, let's see, of course, it's a sponsored company. I'm just looking at Kiplinger. Um, let's see what we got here. Let's do a little Google search here. Um, uh, darn it. I mean, one second here, really pretty good at this, Steve. But I'm doing this like real time here. Yeah, me too. And I'm going to look at it and see if connected. So tell me here we go J, J-R-S, J-R-S, yes, J-R-S. Yeah, J-R-S is, is, as you might have guessed, it's on my list. Oh, okay. And, uh, I've traded it for many, many years. But if you look at it, you just, you just mentioned a couple of the basics. But you can click on, if you looked at the distributions, you'll see that it's been paying a regular quarterly distribution since, uh, at least 2002. Yeah. And that's a, that's a good thing, right? Yeah, it's 22 years. Yeah. So you, when you look at it and you're doing your research on any of these funds, which you must do, you want to look at the distribution history over time. Okay. You want to look at what's inside this particular one. It's, it's, it's in real estate. So it owns stocks of some companies and preferred stocks of other real estate companies. It has only 85 positions in it, which I'm saying only that's, that's a lot of different companies, you know, so you have diversification. Your investment is pretty safe, uh, and you can also find out that 15, 19, 25, 30, about 35% of the portfolio is invested in the top 10 companies. So 35 and it's like 10 and 65, which with less than 2% invested of the assets. Okay. So it's, it would be comfortable, it would certainly be an addition, uh, to most of my portfolios. This one happens to be, uh, since it's mostly stock, I consider it an equity fund, not an income fund. Okay. So it's still at, at that yield is a nice, nice thing to be in. Yeah. And investing in REITs and stuff like that. Uh, yes. So these funds been around a lot of them you're investing in a long time. Do you only buy them at a discount or you buy them at par? Will you pay a premium for them? Okay. I, um, you have to understand that these, let me ask you, let me put it another way. Um, do you care what the intrinsic value of a share of Microsoft is? Well, it seems for change, but, but do you think it trades that it's bad? It's book value. No, there isn't, there isn't a stock out there that trades in a book value. But let's suppose in funds, those in funds are exactly the same. Yeah. They are a function of supply and demand for, let's say, a real estate investment that pays you eight percent, you know, if there's more supply than demand, it's, it's going to trade a to premium otherwise it's going to play at a discount. But let's talk another thing. The securities that make up all this, all the shares of these companies that make up the net asset value, um, some of them are interest rate sensitive, particularly in the income sector. So you could have a, a fund with has a thousand different treasury bonds in it, you know, guaranteed by the federal government. If interest rates go up substantially or even a little bit from what they were issued at, they're going to trade on the markets. They're going to trade below their face. So the net asset value is going to go down and it could go down substantially. And at that point, you'd say, okay, if, if more, if there's more demand for that fund now that it's paying eight percent at this discount, you know, this internal discount, that demand might actually pull the price of this stock above net asset value when all the securities inside of it are trading at a discount. Okay. So, but like you've been studying these things for 40 years now. When you see them at a discount, is that an alarm bell or red flag? Or is that a good thing or it's irrelevant? I consider it irrelevant because it's the natural state of affairs. It depends on the prices of all the securities inside that fund. And everything from the situation in the Middle East to, you know, planes flying into buildings to problems at the border are going to impact the prices of the securities out there being bought and sold every day in the, in the financial markets. So I, and I don't buy securities to keep them. Right. I consider securities differently than most people. I have, like I said, in my own portfolios and in the portfolios that I managed for people for all those years, I had a lot of positions in each of them. And I treated those positions just as I would have, I were running a department store and I had all these goods and services on my shelves that people would want and I'd have, I'd had a markup on them of where I would take my profit. I would sell these things. And that's how I operated an investment portfolio. So if we, if I have that JRS in my, my portfolio and I assign that I have a 5% markup on it and I can sell it at a 5% profit, I'm going to do that sale immediately. And I'm going to buy another closed end fund that has similar securities or maybe even not and put it into my portfolio onto my shelves of my, my department store and put a markup of that 5% on that one and hold it only until it goes up in that price and then I'm going to sell it. So, so some of these things I might be, I might be holding these things a matter of days or a matter of my soul. I like in the system here. Uh, so what kind of returns have you realized over time using this? I, you know, I, my, uh, my standard thing is that 10% a year in actual realized gains in, in my working capital are reasonable expectation. Cause I know them. I typically, I don't, I don't even buy a closed end fund as plus it's paying over 6% and that's under any market conditions. Even when interest rates are in the zero area like they were recently. So I know I'm going to do that and I know I'm going to trade. For example, this year, um, I have a seven months income, the equivalent of seven month income just in capital gains this year. Yeah. So you're not, even though you're an income coach, you're not really holding onto it for the income, are you? I'm doing both. I mean, there's two stream, there are two streams of income. Stream one is the distributions and let's say we go into a 2022 or worse. And the market goes down for 18, 24 months. The income from the distributions is going to pretty much remain the same. The profit taking opportunities are going to be few and four between. So you may have years where you're relying strictly on the income from the distributions and without the bonus of, of the capital gains that you can either spend or reinvest. So it's not always as good or as easy as it was this year. Yeah. Well, this. So 2021, was it for your upper, your opportunistic, right? Yeah. How many times have you seen, um, let's say you invest in the stock market and you hold them, you know, the, the, even the fang stocks or the, or the Dow 40 or wherever it is, you own them. How many times have you seen them being a great, big ego building profit or a ego building profit position? And then it disappears like the didn't in 1987 and 2000, 2008, um, March of 2020. It happens all the time. There are always corrections and, uh, my, my goal is to, you know, to leave as little past as possible on the table. So you figure you're shooting for a 10% return on your portfolio annually. I, I expect to make a 10. I don't use the word return in the, in the industry return means the change. Uh, you know, the growth in the market value. Right. You're saying total return. Um, and that's total return market gain in market value plus any income you receive. I'm saying gain in working capital, I mean, the amount of set amount of money I have invested in the securities in my portfolio. And that, that grows by income production, just deposits and profits. So is this something you want to put like into a retirement account? It's like you're not paying taxes on it. Oh, it's perfect, particularly in a Roth IRA. Man, if you can put 10% income producing securities and a Roth IRA, even if you don't take the profits, it's gone. It's gone to a double every seven, seven and a half years, right? It's great. If you can add even two or three percent in profits each year, it's, it's a virtual goldmine, put it in a Roth IRA. Exactly. Have money machine. All right. Oh, I like it, Steve, tell us where we find you, how we connect with you on the interwebs. The interwebs, the, um, the best place to do it is to pay the cheap price of $10 or $20 for the retirement money secrets book. And it'll tell you where you can go, how you should approach it, where you can go to find these types of securities and research them. And also how to contact me if you want help. And, um, and my website is the income coach.net. All right. Excellent. Well, we really appreciate you coming on here. Got any questions for Steve or myself, shoot me an email kl@carryluts.com. And the link is in the show notes to his book. And while you're there on financial survival network.com, please sign up for your free newsletter, Steve, been a real pleasure. Thank you so much for coming by. Thank you, Kerry, good talk to you. Thanks for listening to Kerry Lutz's financial survival network, your solution to today's trying times for the latest. Go to financial survival network.com financial survival network now more than ever. [inaudible] (upbeat music) (gentle music)
