Chasing Financial Freedom
Chasing Financial Freedom
Ep 283 | How to Unlock High-Yield Investments for Lifelong Financial Freedom
What if chasing market values is the wrong approach to financial freedom? On this episode of the Chasing Financial Freedom Podcast, we sit down with Steve Selengut, an income independence coach and semi-retired professional investment manager, to uncover his remarkable journey from a job he disliked to managing $110 million for clients in his 30s. Discover how Steve’s unique investment strategy focuses on consistent income generation, offering practical advice for those looking to take control of their portfolios. Drawing from his father's valuable lessons and extensive experience, Steve emphasizes the importance of income production and reinvestment over market value growth.
Are you holding non-dividend-paying stocks like Berkshire Hathaway or NVIDIA? Steve unpacks why shifting your focus from market value to generating higher income returns is crucial, especially for those planning for retirement or major lifestyle changes. This episode explores a variety of high-yield investment vehicles such as pass-through trusts, REITs, closed-end funds, BDCs, and master limited partnerships. Steve also sheds light on the tax implications associated with these investments and provides actionable insights for optimizing your current portfolio to achieve better income generation.
Get ready to delve into essential investment concepts with Steve, from understanding the fundamental differences between stocks and bonds to the risks and rewards of owning stocks. Steve uses historical examples, like the Enron scandal, to illustrate his points and guide listeners through various income-oriented securities. Wrapping up the episode, we discuss Steve’s book, "Retirement Money Secrets," and highlight the expansive potential of the market. This episode is a treasure trove of insights and practical advice aimed at helping you achieve financial independence and master your income generation strategies.
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Hey guys, ryan DeMint from Chasing Financial Freedom Podcast. Hope you guys are having a great day. Today on the podcast we have Steve Selingut and I actually got that right. He's the income independence coach and I think we're going to have some great conversations around money, but also I think there's going to be some valuable conversations to be had because we're on two opposite sides of the spectrum in baseball. I'm a Red Sox fan, he's a Yankees fan.
Speaker 2:Steve, welcome to the show. Thank you, ryan, good to be with you.
Speaker 1:You're more than welcome. So before we get into what you're doing, can you give the listeners some background on who you are?
Speaker 2:Okay, Background is I'm a semi-retired professional investment manager. I started doing that kind of work back in 1979, believe it or not when I was just into my 30s. During that period I managed up to $110 million or 135 different client families, mostly in the United States, but some overseas client families mostly in the United States, but some overseas. My focus was quite a bit different from the normal investment management approach. My approach was to build a client's income production and reinvest the majority of it so that it would continue to grow and to grow that income to the point where, when they retired, it was making a whole lot more than what they needed to run their normal day-to-day lives.
Speaker 2:Now, of course, as you said, I call myself a retirement income independence coach, because now I'm mentoring people who have read my book and who want to overcome that barrier that they have, that they constantly have to sell securities to take that vacation or to help their kids go to school or grandkids go to school and stuff like that. My approach generates income, doesn't chase the market value around and consequently it doesn't really matter to me or to the people I convinced to try this approach. It doesn't matter whether the market goes up and down, or it doesn't matter whether interest rates go left or right. The income pretty much stays the same and continues to grow in all circumstances.
Speaker 1:So you're specifically working with advisors that are licensed.
Speaker 2:I'd like to help them, but they don't seem to want my assistance. I'm mostly working with individuals. Individuals who have read the book like I said, it's called Retirement Money Secrets and are curious how they can do what I've done and what my clients have done. Advisors get paid on amount under management and their bosses don't smile at them unless they continue to grow the amount under management. They don't care about whether all your clients are smiling. They want to smile. So it's a little different so where do we start?
Speaker 1:I guess that my question is why this space? And why? Let's just start from the beginning? You said you started in your 30s. What got you there?
Speaker 2:what, oh, I guess one of the first lessons you learn is that you have to choose your parents well and so that you don't come out of college with a lot of debt or anything like that and you actually get some opportunities early. On some of those I guess almost an aha moment, I you'd call it I was very fortunate when I was 25, having pretty much given my father a large percentage of all the money I made as a kid. Some of it I was working in his lumber yard like that, so I would give that much money to him and he would invest it and I guess he was investing it for helping my college or whatever and other things. But when I was 25, I got a big lump sum of a big lump of stock certificates dumped on my desk and he said now it's your responsibility. Kid, kiddo, he used to call me that. So I started.
Speaker 2:I had all this paper in front of me and value and stuff. I really didn't understand all that. I was a business major but we never really got into discussing the stock market and stuff. I really didn't understand all that. I was a business major but we never really got into discussing the stock market and stuff like that. So I had to learn all that and I studied it and I studied the charts. I was fortunate in having an agent that didn't try to sell me stuff oh, sell all your stuff and we'll put you in this fund or whatever.
Speaker 2:Of course there weren't that many mutual funds back then anyway. But no, we looked at it. We realized all those stocks paid dividends. They were all well-respected, s&p rated B-plus and better, and they all had very similar patterns up and down. You went back 20 years and you saw the same up and down patterns, higher lows and higher highs, of course, but the patterns were the same. And you looked at it. You said, geez, if I can buy something when it's down in this pattern and I can sell it when it goes up 10% and keep doing that. Because if you looked at a hundred different securities, they all pretty much had that same pattern the high-quality dividend payers.
Speaker 2:So that's what I did and within nine years I was making four or five times more from my investment portfolios, both in the dividends and the profit-taking, than my job, and I didn't really like my job. I had to commute to New York. I had to commute to New York every day. I never knew when or if I was going to get home in the winter at night. I was happy to say at that point I've got a story here that I can talk to this guy or this guy people I knew who were successful professionals and stuff like that I can show them that I can do this for them. I'll start a business doing that. And that's what I did. I left that job and started a business.
Speaker 1:So if we are somebody that's looking to start doing this for ourselves, where do we start?
Speaker 2:I guess what anybody who's hearing this should say to themselves is let me have a look at my portfolio. Geez, I've been hearing about my total return and some years that's good and some years it's not so good. And wow, the market's up and look how much I've grown and then all of a sudden, it's not there anymore because of COVID. Let me look at it closely. Let me see if it generates any income. Now, if you were to do that, you'd probably find that it generates less than 3% income real income, regardless of what it grows in market value from here to there or whatever. Then the actual income that you could spend if you wanted to, is only about will be that in that, at or around that amount. If you have a managed portfolio, you're giving almost half of that to the investment advisor at least a third of it and if he's not making any capital gains, you're really running at a 1.5, 1.6 pace after expenses, which isn't going to pay for a whole lot of vacation time when you retire. So you need to get build out. You need to talk to the guy and say, hey, there are securities out there that pay a whole lot more income than this model portfolio you have me in right now? Yeah, I've got 1.67 shares of Berkshire Hathaway and I have 13 shares of NVIDIA and 27 shares of Microsoft Wow, but they don't pay any income. What am I going to do when I have to say goodbye to my job, my employer and I want to go see the world. So that's the first step. Take a look at what you've got now and then figure out what you can do to make more income. Now again, there are securities out there that pay significantly more income than your average mutual fund or ETF, while owning the same securities inside the fund as those other entities do, and just as ETFs and mutual funds are a lower risk because they own so many securities inside. That's why they're popular. They own so many securities inside. That's why they're popular. It's much less risky than going out and trying to figure out which one is going to be the next Google or Microsoft.
Speaker 2:These funds, these ones that I'm talking about, own the same securities, but they're pass-through trusts. They're trust vehicles like you would set up for your kids in your will, and stuff like that. They're pass-through trusts and, as a pass-through trust, they are required to give 95% of their income, whatever the source of that income is, be it distributions, dividends, interest profits, whatever to their shareholders. So wouldn't that be nice if the FANG stocks all gave 95% of their profits to their sharehold instead of most of it to their senior executives? So that's the type of thing.
Speaker 2:They're a different type of product. They aren't expected to go up in price, so the AUM cannot be an objective there, because look, just like those companies I just mentioned if they had given away 95% of their income, they would have not grown to where they are today. They reinvest that income. That's their magic, that's how they reproduce. So they're not expected.
Speaker 2:Their goal is not to grow in market value. Their goal is to continue to produce good income for their shareholders, and so it's a totally different frame of mind. You got to get your set your mind on hey, I have to look at how good they're doing at giving me this income, instead of whether they're growing their market value, because most people don't take their profits when the market value goes up anyway. They just sit on it a lot. They love it. On the cover of the book it says market value fuels the ego, income fuels the yacht. That's the concept. That's where I try to get the people who I talk to now. I try to get them to change that mindset, to start looking at growing their income instead of growing their market value. Eventually, if they can reinvest enough of the income and create more capital, their market value is going to go up as well. When the entire market goes up, or when interest rates go down or the other up or when interest rates go down.
Speaker 1:one or the other. So two questions. First is and then I'm going to circle back to the second is you didn't talk about taxes, so that's got to play in a role in some of this.
Speaker 2:Okay. So, yes, this is in a personal account. You will pay more taxes. But if you're let's say you're employed, it's the same principle. If you're employed and your boss comes into your office and he says, hey, we've had a really good year and you played a big part in this, I'm going to give you a hundred thousand dollar bonus this year, you're not going to say, oh no, you're not. I don't want that money because I'll have to pay taxes on it. You don't do that. You don't walk by that $100 bill that's lying on the sidewalk and hope that it's more tomorrow. It's the same thing.
Speaker 2:None of us live in a country where they take as much as 50% of your income. It's less than that. So if you have to and I say the same thing to people Shouldn't we sell things to offset the profits? I said, yeah, you can take a thousand dollars in losses to save yourself $300. It doesn't make sense to me. If it's still a good product, it's still a stock or a bond fund or something that's paying you 7%, 8%. So that's that. I just said 7% or 8%. And most people are saying wait a minute. Banks don't even pay 5%. There really are at least seven different types of securities I can name that pay as much as double digits in income. Some are safer than others, but they're out there and you're not going to find them in your average portfolio unless you track them down, unless you discover REITs, unless you discover closed-end funds or business development corporations or master limited partnerships. Did I say REITs? I did yes you did Okay.
Speaker 2:So there are those, and then there are even some ETFs that pay high numbers. I call my collections, I call them universes. I have a universe of ETFs that pay between 10 and 11% that I use for some of my wealthier clients Because I think ETFs are more risky than closed-end funds and some of the others.
Speaker 1:And what does the typical person? Let's say they're starting from scratch. What do they need to start with?
Speaker 2:The magic about the closed-end funds that I mentioned is that their prices remain pretty low because they're the ones that are the pass-through trusts. So just as their prices don't go up, even though their yields are high, and particularly when interest rates have just gone up rapidly, their prices go down. So there are I have literally hundreds of ETFs that are paying on average, between 9% and 10% right now, and some of their prices are below $10 a share share. So you can go out for $750,. You can buy a hundred shares of a fund that's full of all of those equities that you'd like to chase on the NASDAQ exchange or the S&P and it owns them in there and it's paying you 9%. So even if you're a very small startup amount, you can do these diversified portfolios. So not be taking an extreme amount of risk. If you're really a newbie investor, I'd suggest you buy income purpose securities rather than equities, because they're even less risky, even in these closed end funds. But yeah, you can start with any small amount of money to begin your portfolio to do this.
Speaker 1:I guess my next question is because I'm trying to think of the individuals that are out there. So, if you're starting from the beginning, you're saying you could start with a small amount. I get that. How do you go about it?
Speaker 2:Where do you find them, how do you do your due diligence, research and so forth. Many times in the book, as my source of many of the graphics in the book come directly from making up a chart or looking at the past of some of these things in CDF Connect. So there's all kinds of places for that. There's all kinds of books that have been written about closed-end funds. I think mine is the most recent one, but there are others. One's called the Income Factory by a guy named Steve Bavaria. He's more of a traditional investor. He buy and hold and reinvest the dividends automatically.
Speaker 2:I'm opposed to both buy and hold and reinvesting. I like to make my decisions personally and individually and I like to take profits as frequently as I can. So I don't buy and hold everything. In the world of income investing there's two types of income. There's the dividends you receive and there's the capital gains that you produce from the securities you own. And if you've done enough homework and research to develop a universe of almost 250 securities or more, like I have, then you can easily say if I sell any one of these, I can replace it immediately or as soon as possible with any others that I've researched just as well.
Speaker 2:You don't have to reinvent the wheel Every time you take a profit. Oh my God, what am I going to invest in? And since you're setting a target profit, a reasonable profit, instead of holding out oh, I got to make 50% on this, or else why bother? That's the speculative nature of how a lot of people approach the stock market. When I was investing just in stocks, I was looking at a 10% profit as plenty, because I knew of all these other B plus or better rated companies that I could buy. And now I have the same number of closed-end funds that are paying around 10% that I can buy if I take as little as a 5% profit in them. And that's what my target is in those.
Speaker 1:So I trade Is that 10% annually?
Speaker 2:The profit is today right in your hands. That's when you sell it today. The yield 10% is an annual yield. Yeah, the annual yield of one of these things is around 10% right now. They range from 6% to above 12%. Obviously, for the average, and just like anything else, the higher yield, the more likely it is to be a little bit more risky, even if it's in bonds. There are global bond closed-end funds that are probably paying 15% right now, but most of that's because of that. In the history of the financial world I don't think you'll find any other, except maybe back in the 80s when interest rates went up above 12% that you won't find any other period since then where interest rates went up five percentage points from almost zero to where they are now in such a short period of time and with interest rate sensitive securities, that knocks the prices down pretty steeply, which is why the yields are as high as they are right now. The average yield typically is between 6% and 9%, I think something like that.
Speaker 1:So if I have zero experience in doing this, where would I start? Read your book? And I'm not trying to pick your book, but I'm just saying it's a tool.
Speaker 2:So I want to make sure, yeah it's just like a tool I would also read. If you haven't ever been anywhere near the financial market, you should be reading a couple basic books. What's a stock? You need to know what a stock is. When you buy 100 shares of a company, what does that actually mean? Most people don't know that. It depends on whether that company even survives. It depends on whether that company even survives.
Speaker 2:If somebody asks you to help him open a pizza parlor and you can have half of the business, just 50% of the stock in the business, big deal. He's got to sell a lot of pizzas before you're going to get any money and he could go out of business just like that. So do stocks, so do companies. Look at Enron, for God's sake, if you remember back to that. But yeah, a lot of people don't know that a stock is literally an ownership interest in that company and a bond is the debt of that company or of some government somewhere, and debt always gets repaid by a company before the shareholders get repaid.
Speaker 2:Just those basic, little, simple things. You should know that before you ever go out and buy any kind of security, you got to know what you're doing. So I would say a little Investments 101. There's got to be an old textbook in the library somewhere that you could read before you do any investing. And then if you're looking for income investing, that's a whole nother category and you could probably go on Google and get a lot of information on that as well. But then if you want to specialize in securities that pay higher income safely, then you can start looking at the ETFs, the BDCs, the REITs and the closed-end funds, and I think the closed-end funds is the safest of the three I mentioned.
Speaker 2:The reason why I don't think REITs and BDCs are as safe is because they're usually single-entity type things. So you've got one company that's investing in lots of little things in a BDC or a REIT, and also Master Limit Partnerships and a couple of them have really strange tax rules and you don't get the paperwork until pretty much after you're supposed to be filing your return. So it's very inconvenient for an investor. And you can buy these closed-end funds with all those other things inside them, so you're just dealing with a liquid investment. It's amazing you can buy municipal bonds in the form of a closed-end fund and you own 300 or 400 different bonds and you trade it just like a stock and it pays. Right now it averages about 5.5%, which isn't too shabby for some of your wealthier listeners if they need tax-free income.
Speaker 1:Nice, that's good, the name of your book again.
Speaker 2:Retirement Money Secrets.
Speaker 1:Is it on Amazon?
Speaker 2:Big on Amazon and it's also out everywhere else too. Okay On Amazon. Big on Amazon, and it's also out everywhere else too. Okay, and it's available in all the three normal forms, and an audio book should be out this month, by the end of the month.
Speaker 1:Okay, are you going to do and I ask this because this is how I read are you going to do WhisperSync to where the audio book will tie into the digital version?
Speaker 2:I don't know what that is. I know I've been asked to provide a PDF because it has a lot of charts inside and graphics and it's got a glossary of terms of investment terminology that I use in the back. So I put that in a PDF and I think when somebody buys the audio book they get that automatically.
Speaker 1:Okay, I will put a link in the show notes to your book so we can make sure that gets out there. And then we're getting close here to wrapping up, but a couple other questions. So one and I'm back to this because I know the listeners and they're going to be asking some of these crazy things is they know what a stock is, they have 401k, they have some basic knowledge. Before jumping into what you're doing, would you suggest working with somebody like yourself, or what would be some directions that they could do to familiarize themselves?
Speaker 2:before they actually jump head first I don't know if a coach like myself would be particularly a conversation. A 15-minute conversation for free, yeah, but a coach for a very small amount of money can be pretty expensive, and I'm not even expensive. $365 an hour for coaching, it's still up there.
Speaker 1:That adds up it adds up.
Speaker 2:It adds up and really what you want is somebody that can look at what you have to see how much risk you have and to show you how to eliminate some of that risk. To see how your income production is and to show you how to improve it. To look and see if you've got a lot of people hang on to companies and have huge profits in them and never take their profits and hope that's just going to go up until they have to retire or something like that, things like of that nature. Find somebody to talk about, like that. But I think reading the book and just starting doing some research, like at CF Connect, you can find you can start a nice, safe, diversified portfolio with a small sum of money without paying any extra money for coaching or anything like that.
Speaker 1:That's great. And then, if they do have a portfolio already, what size would work for you as a coach? What would be beneficial for them?
Speaker 2:them. I've coached people with small six-figure portfolios and some with big seven-figure portfolios and double digits there. But you can always start with something like just to get your questions answered. I think when you start investing, particularly with a new product like closed-end funds or even ETS, you got to have a hundred questions in your mind and I'll do just pure Q&A with somebody for not that much money, for an hour Q&A, and just talk about investing in general and anything they want to know I'll be happy to share. And then with also, if they've got, let's say, they have a rollover situation of a 401k or something like that they have a past employer and they want to take it over and roll it into an IRA, yeah, we can look at what's in it. Or we can do that same Q&A type thing get them started. Yeah, that's no problem doing anything like that. Sure.
Speaker 1:And the best place to get a hold of you if they actually have a portfolio that is that size that they want to reach out to you.
Speaker 2:Well, all my contact information is in the book and I'd really I'd appreciate it if they read the book before they cause. It gives them a lot of answers to a lot of these questions and save us both some time, and all my contact information is there. I have a website called theincomecoachnet and they can also start there.
Speaker 1:Okay, I will also put that in the show notes, sir. Thank you very much for coming on. Love what you're doing. I think there's just so much more to be had. We could have probably have a two-hour conversation on this and still not scratch the surface but I've had some of those. Yeah, I truly. I'm going to go take a look at your book and I'm I love reading, so learning something new is always, uh, top of mind, but also knowing that there's another aspect of the market out there that I know of that stuff, but not enough I'd love to be able to learn about it definitely will be picking your book up okay great, thank you.
Speaker 1:Thank you, sir, for coming on and have a great day you too.
