I will retire this year after 24 years of faithful service in the US Marine Corps. I will walk away with a good-sized retirement check, but I will have something else.
I will still have $1,600 per month in dividends flowing into my accounts. I can do whatever I want with this money because it’s mine.
I built a dividend portfolio while working in the Marine Corps. Instead of buying fancy cars and furniture, my wife and I invested diligently.
The Fast Track to Wealth
Why income investing? Why now? I decided to focus on income investing as our investment method of choice.
There are many ways to capture the markets, including day trading, growth stocks, index funds, dividend growth investing, and buying bonds.
Why did I focus on income investing over these other types? I love income. Cash flow is the heart of any household and business.
Without cash flow, you will suffocate in an ocean of bills, emergencies, and expenses. Cash flow is the key to escaping the rat race.
Financial Independence 102: Important Terms
Your primary focus as an income investing is buying income. Once you receive your dividends, it is prudent to reinvest 25-50% to keep growing your money pile.
What is income investing? Income investing is a type of investing that focuses on income over growth. It is like high-yield fixed-income (bonds) investing.
For my needs, I focus on six types of products on the stock market, including closed-end funds, business development companies, preferred shares, dividend ETFs, mortgage REITs, and high-yield blue-chip stocks.
There are more ways to capture income, but these six are my bread and butter. But how did I become a hardcore income investor?
Financial Independence 103: 15 Years of Marriage
Walking into the light of income investing. I started my investing career in June 2019 as a dividend growth investor.
My first stocks were McDonald’s (MCD), Papa John’s (PAPA), Starbucks (SBUX), and Abbvie (ABBV). I bought these fantastic companies and waited… and waited.
Dividend growth investing is about time. I still have a couple of DGI portfolios I dollar-cost average into every month, but…
I love math, interest rates, housing markets, bonds markets, and the rule of 72. Income investing is a “hands-on, always-more” type of investing.
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You must read and comprehend to make decent choices. There is room for error, but you don’t need to bet big; you only need to understand certain tactics.
The bond’s order of operation. One of the things you should understand as an income investor is the bond’s order of operation.
The order of precedent for bonds goes by safety compared to another. It starts with the Federal Funds rate, then Treasuries, Mortgages, Municipals, Corporates, and High Yield Corporates (or junk).
Understanding bonds is vital to income investing because all risk competes with the safety of bonds. For example, if I can get a 5-Year Treasury Note at 4%, a riskier preferred share will need to yield 5% to attract me.
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This game of cat and mouse is prevalent across the world of income, but it is predictable. Many people jump into investing by buying growth stocks purely on speculation (say, DraftKings DKNG).
The rule of 72. I like a more predictable form of investing. The rule of 72 tells you how long it will take to get your invested money back.
You divide 72 by the interest rate (or yield) to get how many years to return your money. For example, a 10% yielding CEF will take 7.2 years to return my money (72/10).
Once you have your money back, you keep your CEFs, which still produce income. We call this feedback loop an infinite return.
Passive Income Ideas: $7,027 from $1,000
The magic of reinvesting. As I bring in $1,600 in income every month, I can reinvest into more high-yielding products. I have five brokerage accounts, and each handles reinvestment differently.
M1 Finance sprinkles my dividends across the entire portfolio. STASH and Charles Schwab reinvest directly back into the same securities.
Wells Fargo puts the money into one big pot, and the Cash app pays me my dividends directly to my Dividend Debit Card.
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I love receiving income. All this is to say that I love choice, and I love income. And my income is portable.
What is portable income? The entire purpose of working a job and creating a business is to grow your money system. Your money system is the root of your cash flow.
The bigger your money system, the more freedom you exercise. But you must understand your money system must produce income.
Many people grow their 401Ks into massive nest eggs. However, it’s not a portable money system because it doesn’t produce recurring paychecks or generate cash flow.
The Magic of an Infinite Return
If I were retiring with my entire money system in my 401K, I wouldn’t have my $1,600/month in cash flow to use today.
I am 42, so I would have to wait 18 years to use my 401K money. Plus, I couldn’t reinvest into those same 401K funds; I would need to create another system external to my 401K.
Or I could build my money system now and keep growing it until I leave this planet. That sounds much more fun to me than waiting and praying.
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Conclusion. I heart income investing because I am in complete control. If I see preferred shares on sale, I make a purchase.
If I want to reinvest into my municipal bond CEF automatically, I set that up from my control panel. If Altria (MO) stocks have a bad day, I am there to back up the truck (buy more).
My only goal is to build the biggest paycheck possible with the least risk. However, income investing is far less emotional than growth stocks or day trading.
2021: The Year of Dividends
If you love math, drawing conclusions, free-thinking, and using logic, perhaps income investing is for you. Warning, it is not for 97% of people.
However, wealthy people focus on income. If you would buy a home for rental income, or a business for residual income, income investing is right up your alley.
Today is February 28, 2023. I logged into my Wells Fargo to find a fresh $35 in my account. That is why I heart income investing. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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