Income Investing

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Episode Transcript

(00:00):
All topics and securities mentioned on straightTalk from the House or for informational purposes
only, and should not be usedas investment advice. Tanton Investment House does
not offer tax or legal advice.Investments or investment strategies covered are not a
recommendation or solicitation to buy or sell. The security's past performance is not a
guarantee of future performance. This isstraight talk from the House. List certified

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financial planner Tracyanton right here on thirteenten wi b A. Tracy comes to
us from Tanton Investment House, afee only fiduciary with offices right in Middleton.
The website for t Anton Investment House, it's Tanton Investment House dot com.
That's t A N t O Ninvestment House dot com. Been looking
for money management portfolio management traycould loveto gets noise, love to talk with

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you. When you stop on bythe website, you can actually schedule appointment
at a time and a date thatis convenient to you. How nice is
that? Again the website Tanton InvestmentHouse dot com. Or pick a phone
call the office again right in Middletonat six oh eight five zero one fifteen
forty nine. That's six eight fivezero one, fifteen forty nine and joining
us this morning is certified financial plannerTracy and Ton. Tracy, how you

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doing today? I'm doing great,Sean? How about you? I'm doing
very well myself. And we aregoing to be talking having a very important
conversation specifically about income investing. Andlet's kind of start off with kind of
a definition about one. What isit and why are we talking about income
investing this week? Well, typicallywhen we think about investing, we think

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about how do we accumulate wealth?And typically we start in our early twenties,
right, and we invest, andoftentimes it's more with a growth orientation.
Right, we want to invest ingrowth stocks and maybe some value,
but we want to invest in mostlyin stocks, and we want to take
advantage of four one K plans oriras or wroth irays. But then when

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we want to retire, we wantto know, well, how do we
use these assets? So income investingreally is focusing on how do you shift
toward converting your savings or your portfoliointo assets that are capable of generating a
consistent income over an extended period oftime. So basically, some of the
main forms of income portfolios that we'regoing to talk about, you know,

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are more like dividend paying stocks andinterest bearing bonds. Fascinating stuff. So
when we talk about kind of theoverall objective, that primary objective then when
it comes to income investment is whatis that for in retirement? What's pretty
simple, chance, Really, theprimary objective of income investing is to secure
a consistent stream of income to liveoff of. So, you know,

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that's why portfolios and retirement usually havean income component to them, but typically
they also have a growth component aswell, because you want to grow your
capital or at least to preserve itto a degree in retirement that you don't
downscale your life, your lifestyle andretirement. So you know, it's it's
not just good enough to have anincome producing portfolio. You know, you

(02:58):
want to make sure that that incomecome also keeps up with inflation, so
it has to have a growth componentto it. So achieving all these goals
requires you to kind of balance thevarious types of investments that you put in
your portfolio and to change that allocationalso over time is important. So one
of the articles that had come acrossBrent Weiss, who is a founding advisor.

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He said from facet. I thinkthey're on a Baltimore. But he
said stocks are growth are your growthengine, and it's true. I mean
most people have growth stocks in theirportfolio. And he says being too conservative,
for example, owning only bonds couldbe the riskiest thing you do,
especially if you're losing purchasing power toinflation. So I agree with Brent.

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If you have income of say,you know, forty thousand from a pension,
but it doesn't have a cost ofliving writer on it. In twenty
years, you know, with abasic inflation rate of about three percent on
average, you're going to have abouttwenty eight thousand and purchasing power and in
twenty years, so you're really lookingat half of the purchasing power. So
that's why you know, you haveto think about how does your portfolio create

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an income and then how does thatincome increase over time to keep up with
inflation. And you want your assetsto grow, so it's not just about
how do I retire and then youknow, put my money under a mattress
or put it in something fixed that'snot going to grow. That's why you
have to be careful when you signup for creating a pension and I'm not

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talking about the state of Wisconsin tension. I'm talking about you know, sometimes
companies will allow you to create apension by basically annuitizing buying an annuity.
That's what they do. They buyan annuity and they give you a certain
amount. But if that dollar amountdoesn't change over time, then you are
losing purchasing power and it's significant overtime. That is amazing. I hadn't

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thought about that before, and thatis really important stuff to keep in mind
as we this morning with certified financialplanner Tracyanton. Tracy would love to get
stow you. She'd love to talkwith you, and she makes it super
easy to do. All I getto do is head on over to the
website tantoninvestment House dot com. That'st A N t O N investment House
dot com. From the website,you can get to know Tracy and the
team at Tanton Investment House and ofcourse you can also schedule appointment again the

(05:20):
website Tantoninvestment House dot com. Ofcourse as well, you can always pick
a phone give them a call.They'd love to talk with you. Telephone
number six O eight five zero onefifteen forty nine. That's six oh eight
five zero one fifteen forty nine.And Tracy, you mentioned that you'll likely
need to change your allocation the stocksand bonds and retirement. Can you talk
a little bit about some of thoseguide points and some of the things we

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need to be aware of there.Yeah. Sure. So typically investors have
mostly stocks when they're in their workingyears, right, and then a few
years from retirement they start thinking,you know, maybe I'm too aggressive.
So the idea here is to reallocatesome of the dollars to bonds. So
for most people, I think thisis kind of a guessing game, or
they go to their new you know, like their magazine, their their money

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magazines or whatever and ask their brotherin law or whoever, and say,
you know, what should I be? And so, you know, some
of the information that you find online, like the rules of thumb. One
of them is if you take yourage minus one hundred, that's how much
stocks that you should have. Thosethat information I think is just inappropriate or

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wrong because let's say you retired atage sixty five, that would mean you
would have only thirty five percent instocks. So I don't agree with that
conventional rule of thumb, and Ithink most advisors don't. I think it's
typically way off. And even thearticle I was reading for today's show talked
about someone who is seventy five havinga mix of thirty percent stocks, fifty

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percent bonds, and twenty percent realestate investment trusts. And again, I
don't think most folks need to bethat conservative. So you know, if
you're a few years away from retirement, Sean, and you're still working and
you're thinking, you know, I'mgoing to retire in three or four years,
what about an acid allocation of eightypercent stocks and twenty percent bonds.
That to me would be a typicalallocation. And now, let's say you

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retire and you're only taking out abouttwo to three percent income. In most
cases you can stay at an acidallocation of eighty twenty. But now,
if let's say you are planning ahigher distribution rate, like say five percent,
then your appropriate allocation might be seventypercent stocks and thirty percent bonds.
So that's kind of how I wouldgauge it. And I know, you

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know, it's hard because really anacid allocation is super personal. Like I
have talked to people who you know, who are in their eighties and they're
like, you know what, thismoney really isn't for me. We live
off of our pension and soul security. We really don't need it for the
kids and grandkids. Okay, well, then they're eighty percent stocks because I
mean they clearly want to be moreaggressive. And most of the time those

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people really know they've experienced down markets. But then every once in a while
I'll come across somebody who's not experienced, and so then we have to have
a really hard to heart conversation aboutwhat it looks like and how what is
the what is stocksman stocks fall?How do we live through that? And
how do we look at the incomecomponent in the portfolio to help you get

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through it. So, like Isaid, I would use those as just
you know, benchmarks, but reallytalking to somebody is the best way to
know just thing we talk about kindof that personalization as a as a guy
that works in radio and loves radio. You can buy a radio that can
tune in a radio station. Thoseof us radio nerds have another knob on
there that's for fine tuning, andit gets down to just the very very

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finest. It's like that just agood point. Yeah, yeah, and
that ability to fine tune that andit all comes down, of course to
working with the financial advisor, workingwith someone Tracy and their team would love
to get to know, you'd loveto find tune with you. And for
money management or portfolio management, itall starts with the stop at Tantoninvestment House
dot com. It's schedule appointment rightonline or pick up phone. Give them

(09:07):
a call six soh eight five zeroone fifteen forty nine. That's six so
eight five zero one fifteen forty nine, holl ring up the word annuity.
Do you need one? Traces?Do you need one to create a return?
No, well let's talk about thatreal quick then. Yeah, thanks.

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Somehow, somehow there's still those youknow, Ruth Chris Dinners out there
and people are getting sold these products. So no, you do not need
an annuity in retirement to create anincome. You know. The reason I
typically see people buy these annuities,I think is because advisors have promoted the
guaranteed lifetime income benefit rider, whichagain you're paying for, you know,

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and nothing is free. It mightseem like a simplistic approach by you know,
buying an annuity, but they comewith very high costs and they also
you know, The thing that peopledon't realize is they might not yield the
same long term returns as like aregular diversified income portfolio which I'm talking about,
which is stocks and bond portfolio.So you know, it might seem

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appealing, but if you just getexperience in living through ups and downs and
markets while you're retired, you know, it's easier to do it when you're
working, because you're like, youknow what, I'm not worried about it.
I'm working. But once you stopworking, how to create that so
called paycheck and looking at it froma different perspective, and how to live

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through the ups and downs. It'svery, very doable. And so I
would just try to really encourage youthat anybody who's talking to you about putting
money in something because it's guaranteed andthen you don't have to worry about it,
that doesn't even sound right to me. So I would just again encourage
you not to look not to buyan annuity for most people, I'd say

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ninety five percent of the people outthere, because again it's the steep surrender
charges. I have seen people inmy office recently that have been sold these
products by you know, somebody herein Madisine and it's like they had a
fifteen year surrender charge. I almostfell off my chair. I mean,
fifteen years. Come on, people, Like the average annuity is seven years,

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So this product is not good.So you know, I would again
say, you do not need this. A typical person does not need this
in my opinion. So can Isay that again? Say it louder,
I say it. I don't know, but I just feel bad for them
because it's like they're locked into this. You know, they give you a

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ten days surrender a free look periodtypically, but then after that you're stuck
owning this for fifteen years. Otherwiseyou have, like I mean, this
surrender charge was like fifteen percent forthe first year and then fourteen and then
fourteen again, thirteen and twelve.You know, it was horrendous, and

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so I'm just trying to warn people, like, be careful, be careful.
That is shocking and one of thethings that that I think people need
to be aware of. I thinkthat sometimes when we hear about stuff like
this, we think it's like likesome late night television program or something where
right, and it's it's there's actualpeople in town that are doing something.
So be very very careful as wetalk this morning with certified and there's a

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lot of great advisers out there thatyou know would just like shake their head
in agreement with me and say,yeah, I've seen it too, you
know. So it's only a coupleof people, but they always spoil it
for everybody. Be very very cautiousbefore you sign anything. And of course
we talked this morning with certified financialplanner Tracy Anton talking about the importance of

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income investing, what it is,how it works, and really what you
need to know about it. Andwe talked to about you know, income
and different types of equity income investments. Tracy, there is a few things
I know, I know you talkabout that are really important for folks to
understand in those different types and whattheir role is in a portfolio. Yeah,

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so I think, you know,dividend stacks are one area, Sean
that I think are again a reallygreat way to help create an income and
a portfolio. So basically, dividendstacks represent ownership and companies that distribute a
portion of their profits to shareholders asdividends, and companies with strong financial health
and history of consistent dividend payments.Not only offer a dependable income stream,

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but frequently they raise their dividends overtime, thereby potentially safeguarding your portfolio against
inflation. Now you can't ever sayguarantee, but in general it's keeping up
with inflation. Again, while dividendstocks offer the growth potential that all stocks
do, they also historically have beenless volatile than non dividend paying stacks,

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and owning them can help reduce therisk in the portfolio. And I'll just
give you a little example here,Sean in twenty and twenty two. Now
I won't say the name of thefund because I don't want people to go
I got to invest in that fund, because that's not what I'm saying.
The point is is that one ofthe bigger fund companies had a blend fund

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and it fell twenty percent. Thinkof the biggest company you probably know,
okay, and then one of theirvalue felt funds felt only twelve percent.
So you're looking at you know,if you say all stocks are the same,
or all stock funds are the same, they're clearly not. One is
a blend strategy here, which isvalue and growth. It fell twenty and

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then the other strategy was all valuestocks, and that fell twelve, So
it's a lot easier to come backfrom a twelve percent decline than a twenty
percent decline. That is fascinating.As always, we talked with certified financial
planner Tracy Enton right here. I'mthirteen ten WI. Yeah, we talked
about dividend stocks. We haven't talkedabout bonds. We're going to get into
those. We talk about that.We'll also talk about some of the other

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things as far as taxation when itcomes to income investm We'll find out from
Tracy what you need to know insome of the other strategies as well that
can be employed. As we talkwith certified financial planner Tracy Anton right here
on thirteen ten WI b A thewebsite Tanton Investmenthouse dot com. That's t
A N t O N investment Housedot com. From the website, you

(15:16):
can get to know Tracy in theteam. You can also schedule an appointment
or at if you're looking for moneymanagement portfolio management, at a time and
a date that's convenient to you.Again, the website Tanton Investmenthouse dot com
at the telephone number six SO eightfive zero one fifteen forty nine. That's
six SOH eight five zero one,fifteen forty nine. More of straight talk
from the houses next right here onthirteen ten WIB This is straight talk from

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the House with certified financial planner Tracyantonright here on thirteen ten wi B.
A hope you had a chance tohead on over to the website Tanton Investment
House dot com. If you haven'tdone it yet, now is the time
to check it out. Really greatwebsite, great information about Tracy the team.
Listen back to this previous shows podcast. Also, if you're looking for
money management or folio management that's availableto you at a time and a date,

(16:02):
sign up right at the website TantoninvestmentHouse dot com. Again, at
time and a date that's convening toyou the website, it's helphon number six
oh eight five zero one, fifteenforty nine. That's six oh eight five
zero one, fifteen fortnite. Talkingabout income investing this week left off the
last segment. We're talking about dividendstocks. What about some fixed type investment?
What's kind of the primary fixed typeincome investment Stracy Well bonds basically serve

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as a fundamental component of income portfoliobasically due to their provision of interest payments
which are typically distributed semi annually,also featuring fixed maturity dates and predetermined rates
of return. Bonds are typically perceivedas less volatile compared to the stocks.
Thus that helps mitigate overall portfolio riskand contributes to capital preservation. What's interesting

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to know is bond's worst performance inthe past quarter century, measured by the
Bloomberg US Aggregate bonded next, waslike negative thirteen percent in twenty twenty two.
But that's so much better than theworst year in two thousand and eight,
when the S and P five hundredfoul thirty seven percent. So as
you can see, you know,bonds fallen, can fall in value,

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and you can have stocks and bondsfall together in value, but typically bonds
will never fall like a stock.Or hasn't they haven't quite a contrast?
Or is it a good time that'stracy be to be owning bonds? Well,
I think so. I mean,bonds recently failed to offer basically that
diversification because we had stocks and bondsthat fell in unison in twenty twenty two,

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and basically that was the first timein forty five years seans that that
bonds had declined alongside stocks for ourfull calendar year. But when you think
about, you know, bonds andtheir mark, they have been volatile in
twenty twenty three for most of twentytwenty three. However, they did improve
at the end, so the FederalReserve obviously indicated it is don raising interest

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rates, which triggered a fourth quarterrally across the bond market. And again,
historically, you know, it's neverfor sure, but historically the end
of a tightening cycle has been agood time to own bonds in your portfolio.
And also you're looking at yields haverisen noticeably across credit sectors, so
any slow down economy could trigger ratecuts. Hence bonds could have a really

(18:22):
good comeback story in twenty twenty four. I have seen bonds do double digits
in my history of being, youknow, an investor, so I wouldn't
be surprised if bonds have a reallygood year in twenty twenty four. No
guarantee, but that's my opinion,and we'll of course be talking about it
right here on Straight Talk from theHouse with certified financial planner Tracy Anton.
The website Tanton Investment House dot com. Delv number six SOH eight five zero

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one fifteen forty nine. So,Tracy, how can income and growth investing
be effectively then combined? Well,transitioning an investment portfolio from growth focused on
accumulation phase to a basically a moregrowth and income port should ideally begin a
few years before retirement. You know, one article said five to ten years

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before retirement. I don't think ithas to be that dramatic personally, but
you know, a few years beforeretirement you should consider, okay, do
I need to pull back? Youknow from a one hundred percent stock portfolio?
And again this approach, you know, why is it good? Well,
it aids in tax management for thosedollars that are really held in a
brokerage account. Now if it's inan I ray, it doesn't matter as

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much. You can move later.But a major risk to any investment portfolio
arises when needing to liquidate assets duringan unfavorable market condition, such as a
bear market. Right, so duringthese downturns, well stock prices may be
depressed, it's reasonable to anticipate arebound in the subsequent ball market. So
conversely, bonds offer stability but lackthat same growth potential as stocks, therefore

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selling stocks during market lows and reallocatingto bonds could it in lack and losses
for an extended period of time.So you're basically looking to transition your portfolio
from all stocks to a stock andbond portfolio and not get too far in
one direction where you're putting too muchof bond. Sometimes people will say,
well, should I be more aggressive? And I'm like, well, let's

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take a look at your distribution rate. How much are you actually going to
need from the portfolio? You know, on average, and we look at
averages of how long do markets fall, how long does it take for a
market to a stock market to fall, and how long does it take to
recover. You know, it's notforever that it takes to recover. So
if as long as you have enoughtime period based on your distribution rate that

(20:41):
you're taking, you know you're likelygoing to be okay with an eighty twenty
seventy thirty depending on your distribution rateand obviously your temperament. Talk this morning
was sort of five financial planner TracyAnton here on thirteen to ten, WIBA,
we can't get around the tax word. How are these the income investments
then to well, apart from taxesowed upon selling your growth portfolio. It's

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important to recognize that income investments aresubject to different taxation compared to the stock
market gains benefiting from capital gains.So, for instance, interest earned on
corporate bonds is typically taxed at higherincome tax rates, which are ordinary tax
rates, and they're also tax atfederal and state and local levels unless you
reside in a lower no state taxtreasure bonds, on the other hand,

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interest is subject to federal income taxonly and they're exempt from state and local
taxes. But what's nifty again aboutthose qualified stock dividends. They are from
dividend paying stocks. They are taxedat long term capital gains rates, which
are lower than your ordinary tax payer'sincome tax bracket. So again, why
do I like diffiden paying stocks.It's because they're taxed at lower rates.

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We like hearing that stuff. Andthen as we talk about strategies, Tracy
other strategies that can be used tominimize kind of an annual time impact.
Well, strategically placing assets shown acrossdifferent types of accounts, known as asset
location, can significantly impact taxation.So one advisor, he said Weiss,
He says, it's not only whatyou own it's where you own it.

(22:15):
And I again, I agree completely. So a common approach involves housing investments
with high taxable income like the bonds, in things that are pre tax like
I rays and for one case,and again this differs taxes on earned interest
until withdrawals are made, so youdon't have to worry about, oh,
my bonds are creating an income andthey're taxable at ordinary income because they're in

(22:38):
the IRA and four one K andyou're not taking a distribution. Again,
the dividends paying stocks taxed at lowercapital gains rate now and municipal bonds typically
exempt from federal tax, are moresuitable perhaps in taxable accounts. So again
that brokerage account keep those kinds ofinvestments there obviously growth stocks good place to

(22:59):
keep them is a a brokerage accountinstead of your pre tax amount. So
basically, properly planning your income investingstrategy can alleviate concerns about future income streams
during retirement. And again, whatI really encourage you is, and I
say this a lot, when wehave down markets, we're not in one,
but when we do have down markets, you know, looking at the
income component of that portfolio, Seanis just crucial. It really helps you

(23:23):
stay the course. And so it'sit's something that we don't talk about a
lot because you talk about typically youlook at well, what's the market value,
what's the data return, That's howwe talk about it. But that
income component is huge and you cansimply create it. You don't need an
annuity. You can create it witha stock and bond portfolio. Real vital
information this week, really great stuff. As always. Don't forget if you

(23:45):
missed any partner today's program, youwant to listen back, or if you
want to share the podcast. AllI got to do is head on over
to Tanton Investment House dot com.That's t A N t O N investment
House dot com. From there againyou can access the pod podcast. You
could also get no tracing the teamas well as schedule and appointment at a
time and a date that's convenient toyou. If you're looking for money management

(24:07):
or portfolio management tracing the team loveto get to know you again. All
you gotta do is head on overto Tanton Investment House dot com or pick
up phone give me a call rightat the office in Middleton six oh eight
five zero one fifteen forty nine.That's six so eight five zero one fifteen
forty nine. Tracy, it's alwaysgreat seeing you, always great chatting you
enjoy this beautiful day. Thanks somuch, John, you too,