Growth And Income Investments – Episode 289

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[00:01] Welcome to the Prosperity Podcast. Hello, listeners, and welcome to another episode of the Prosperity Podcast. Today, we’re going to be speaking about growth and income investments. Now, there is a difference between the two, and we’re actually going to share a third one, but you’re going to have to listen to find the third one in this episode. So Kim, are you ready to take this away with me? Absolutely. It’s funny that you’re causing the listeners for some curiosity because a lot of financial advisors would say that there’s like 20 or 30 different types of investments, and I completely disagree. I think it boils down to three very, very simple ones, only two of which we deal with. That’s true. So let’s start out and will you explain to

[00:53] the listeners what those primary two investments are? Absolutely. And I want to say that this came over time because I too used to subscribe, is the word that I want. I too used to subscribe to the idea that there were all these different types of investments. And clearly we could argue that there are maybe different types, but in terms of categories, the bigger picture, it just boils down to two specific things that we want our money to do. And so to me, that boils it down to two specific types of investments that we should be looking at. And typically I find that people either want their money to grow or they want it to create a monthly income. And so of course, we’re not talking about savings here. We want to make

[01:38] that distinction from the beginning. So as I talk to clients over years and years and years, it just dawned on me that, you know, there’s really only two things investments need to do. They either need to grow or they need to create income. Don’t you think that simplifies it a little bit? That absolutely simplifies. And I wish that they would have taught that to me when I was younger. Yeah, that’s really good point. So if we identify those two, we can elaborate a little bit. Well, okay. What does grow mean? Well, to me, when you’re looking for something, you want to be as specific as possible. And so I have a definition for growth. Now that does not mean that I can hit it all the time, but if I’m not specific and what I’m

[02:23] looking for, I’m not going to be as likely to find it. Whereas if I’ll give my brain something very specific to look for, then it will be more likely to find it. And so my definition of growth is double digits, no loss of principal. And I want to reiterate again, that doesn’t mean that all of our investments do that. It doesn’t mean that that’s what we always find. It doesn’t mean that that’s what is always happening. And yet that’s our goal. Our goal is to have money that needs to grow, be earning low double digits with no loss of principal, with the protections in place where principal cannot be eroded. And believe me, I have not hit this area all the time. And yet I love having that as the goal

[03:09] because it really eliminates a lot of investments very, very quickly, especially the no loss of principal part. But even the low double digit part, even in this today’s fairly low interest rate environment, you can absolutely positively find deals that are earning low double digits. So in my mind, that’s what we should be looking for. Okay. Now I know we’re going to get to the second category, but I want to dive down the growth piece of the double digits. Now, does that mean you have to be an accredited investor or help us understand that? Yes, that is a great question. So most of these investments are for accredited investors only. There are definitely some exceptions. And just in case people don’t know what

[03:52] accredited is, it’s a million dollar net worth excluding your primary residence or two to 300 of income, depending on whether you’re married or not. And it’s amazing to me. I mean, there’s thousands of accredited investors that I talk to, and many of them don’t know that there is actually a definition that they are actually accredited. So it’s a good thing to have out there. And then going forward, for those that are not accredited, don’t give up. Like still look for that type of investment, still work towards that goal of having a growth oriented investment that can earn those low double digits and is protected from loss of principal. Okay. So it sounds like you don’t have to be an accredited investor. So that works

[04:40] for everyone as long as they know the rules of the playbook. So what is the other category? It is income. So now we’re talking about a place that you would put a lump sum and investment. In other words, again, not savings that creates either monthly or quarterly income on a consistent basis. Some people like to use the term mailbox money. Of course, you know, it’s a little old school, but to have money come into your checking account on a consistent monthly or quarterly basis is very, very critical and not just a retirement. It amazes me people spend typically their whole lives focused on growth oriented investments. And then all of a sudden at 70 or 80, they’re supposed to magically switch gears and be experienced with income oriented

[05:31] investments. And that doesn’t seem very smart to me. No, it seems like they’d be lost. And I think in many cases, don’t they tend to sabotage themselves without even realizing it? Absolutely. Plus it’s scary. Now you have this huge 401k rollover or some other liquidity event that has caused you to need to invest a large lump sum in order to create income. And you have no experience creating income with your investments. And I will also say that that is one of the hardest things to do is to find investments that create regular, consistent, safe monthly income. So again, of course, our goal is to have no loss of principle. Again, we are not perfect in this category. We mess up, we make mistakes, we’ve lost principle, and I’m always just so saddened

[06:20] when that happens. And yet the fact is there are investments that are typically collateralized that create monthly income. And what the collateral does, of course, is verify or support the principle so that in theory, and again, we’ve made mistakes, but the theory is that principle cannot be lost because of that. And so typically, just so that people are aware, the income producing investments, like I said, monthly or quarterly income, which can be available, again, some of them are for accredited only, but they can be available any time in your life. And it’s so important that people get practiced in the area of creating income. And I tend to find that right now, as we’re recording this in late 2018, early 2019, that the interest rates for income producing

[07:15] investments are in the 7% range, maybe seven and a half, eight. And yet, if you go talk to somebody that sells annuities or somebody that sells bonds or the other typical methods of creating income, the 7% to 8% is going to sound pretty good when in actuality, I think it’s just kind of a nice medium number, which is where it should be. You don’t want to risk your principle, you want to create income, you want to do it safely, and you can do all of that at the 7% to 8% range, often interest only. So that’s a really important distinction. You put your principle in, your income is interest only, which then has your principle being protected and returned to you at some point in time. Okay. Now, I know in a moment, we’re going to get to the third category,

[08:04] but I want to just take a second and talk about income. Can you give us a couple of examples of what those types of income investments would be? Absolutely. And I’m happy to just cover the growth category real quick too, because I don’t know that we gave examples there. So for me, my favorite growth category investments are either the life settlements arena or oil and gas direct participation environment. So that’s for growth. And then on the income side, it’s bridge loans, which are typically real estate based or land leases, also real estate based that enable us to again, create that monthly or quarterly income. Those are my faves. Okay. So now we’ve done enough teasing in the episode. We’ll go to the third category

[08:52] and that third category is momentum investing, or some could call it gambling investing or whatever. So help us understand that. Well, there’s all kinds of things out there. And believe me, I get tempted by them on occasion too, that people would generally call momentum investing or you could even call it luck. You could call it gambling. You could call it anything that indicates, and this is the important part, indicates the risk that is attached. In other words, when you get involved in those types of investments, you absolutely can lose principle. And it’s not that it’s wrong to get involved in those kinds of investments. I prefer not to personally, most of my clients, it seems prefer not to.

[09:37] And yet one of the things that I really encourage is if somebody really likes to play that game, maybe they perceive themselves as a stock picker or they want to do options trading or they want to throw a little bit of money into Bitcoin or one of the cryptocurrencies or whatever, have at it. Please take 5% of your principle or take a little bit of income every month and go do that momentum slash gambling oriented investment so that you’ll stop thinking about it and being obsessed about it and you can have fun with it. And maybe you learn a little bit and maybe you earn a little bit and maybe you don’t. And yet I think it’s really critical. I just met with somebody the other day. They had 20 grand in an online trading account.

[10:24] And I said, awesome. What are you doing with that? He said, just playing with it. I said, are you prepared to lose it? Absolutely. Perfect. Then leave it there. That’s a great way to look at it. You have to take it from that perspective because you get too wrapped up emotionally. And then I’ve seen people just bank at all and then lose everything. Yep. And it’s super tempting to do. And I’ve seen people do it. And I kind of, you know, big breath when I realized after the fact what they had done, because a lot of times I wasn’t aware of it. And sometimes I’ve seen it work out and way too many times I’ve not. And that’s just too sad and disruptive. So if you find something like that that you want to go after, go slow and start small. And that’s my mantra for all things,

[11:12] even the just basic boring growth and income oriented investments that we talked about earlier, the life settlements, the bridge loans, the oil and gas and the land leases, go slow and start small. It’s so much better of a way to invest. What a great way to summarize this episode. So Kim, thank you for taking the time to explain to us the different income growth and gambling, we’ll call it, categories. And it’s wonderful for us to understand where we can keep the focus so that we can get the best return on our attention, on our emotion, and on our capital investment. Do you have any parting advice or call to action for our listeners today? Well, so well said on the end there with the return on our attention and our emotion,

[12:04] as well as our dollars. And my call to action would be, let’s learn. Like if you’re curious about these areas, please send me an email. Hello at partners number four, prosperity.com. And that is a place that you can get just some generic information. We don’t even need to know if you’re accredited. Now, of course, if you want specific information, we’re going to need to find that out. And yet, I love to share our generic information that we have on all four of the categories that we talked about today, because for many people, they are new and they’re not familiar with them. And so with a learner or with a beginner’s mind, I guess, and a learner’s heart, dig in, let’s learn about it. And then you’ll decide

[12:47] if those are appropriate steps for you to take. Wonderful. Well, thank you. And we will get you another episode really quick. Thanks listeners. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.