Unlocking Retirement Wealth: Steve Selengut's Secrets to Income Independence
Steve Selengut, a seasoned investment manager with over 40 years of experience, shares his insights on achieving income independence through strategic investing. He emphasizes the importance of focusing on income generation rather than just market value growth, a perspective he elaborates in his book, "Retirement Money Secrets." Steve discusses common mistakes investors make, such as poor diversification and neglecting profit-taking, which can hinder long-term growth. He encourages listeners to seek financial advisors who prioritize income-focused strategies and to actively engage in discussions about their investment goals. With a wealth of knowledge and practical advice, Steve aims to empower individuals to take control of their financial futures and secure a more stable income stream.
In a compelling discussion, Steve Selengut, a highly respected investment manager and author, delves into the nuances of retirement planning and the importance of income generation in investing. His extensive background, including managing over 2,300 portfolios, provides a rich context for the insights he shares. Sulangut discusses his new book, "Retirement Money Secrets," which aims to enlighten investors about the advantages of focusing on income rather than mere capital appreciation. He reflects on a transformative experience from his early career, when he recognized that building relationships within his workplace was crucial for career advancement—an insight that parallels the need for investors to cultivate a proactive relationship with their portfolios and advisors.
The conversation shifts toward addressing the fundamental flaws in traditional investment approaches, particularly the tendency to prioritize growth over income. Sulangut emphasizes that many financial advisors overlook the potential of income-generating investments, which can provide retirees with the financial stability they need to enjoy their retirement years. He encourages listeners to seek out investment opportunities that yield dividends, such as BDCs and closed-end funds, arguing that these instruments not only offer higher returns but also reduce risk through diversification. He also calls attention to the common mistakes investors make, such as failing to take profits and becoming overly attached to underperforming securities, which can jeopardize their financial health.
Throughout the episode, Selengut stresses the need for investors to redefine their expectations and demands from their financial advisors. He advocates for a shift in focus that aligns with the realities of retirement needs, where income becomes the primary objective. Selengut’s desire to leave a legacy of income-focused investing reflects his commitment to changing the narrative around retirement planning, making this episode a significant resource for listeners looking to enhance their financial literacy and secure their futures. By emphasizing the importance of smart investing strategies and the necessity of proactive financial management, Selengut inspires a paradigm shift that could profoundly impact how individuals approach their investments.
Takeaways:
- Investing with a focus on income rather than market value can lead to greater financial independence.
- Taking profits regularly and diversifying investments are crucial for long-term financial stability.
- Many investors overlook the importance of dividends and focus solely on growth, which can be detrimental.
- Closed-end funds and ETFs can provide significantly higher income than traditional stocks.
- Seek an advisor who prioritizes income generation and is willing to take profits.
- Establish a system for assessing the quality of investments to avoid common pitfalls.
Transcript
My guest today, Steve sulangut, is a 40 year professional investment manager advisor whose current adventure in coaching both individuals and other advisors is creating home income independence for themselves and their clients.
Keith:He's also promoting his second book, Retirement Money Secrets.
Keith:He was a private investment manager 44 years, personally managing over 2, 325 individual portfolios in the US and abroad.
Keith:One of his very favorite investment book authors who have directly managed other people's money.
Keith:One of a very few investment bank authors who have directly managed or invested other people's money.
Keith:We welcome him to the podcast.
Keith:Well, Steve, welcome to the podcast.
Keith:How you doing today, my friend?
Steve:I'm fine, Keith.
Steve:I'm, I'm doing well for.
Steve:What is this?
Steve:Wednesday?
Steve:Days just seem to run together when you get old.
Keith:I, I know that and I feel that.
Steve:Yeah.
Steve:What, what month is it?
Steve:You sure it's going to be February next?
Steve:No kidding.
Steve:How does that, how does that happen so fast?
Keith:Exactly.
Keith:Time flies.
Keith:We were having fun, right?
Keith:Someone said, right, right, right.
Keith:So I'm gonna ask you my favorite question.
Keith:What's the best piece of advice you've ever received?
Steve: hat choice Sometime in around: Steve: Started investing in: Steve:Well, I guess it was a semi.
Steve:Whoops.
Steve:It was a semi management.
Steve:Semi management situation.
Steve:But we were, we were coming home from a party that we had had with my group, the group that I was in.
Steve:And she was saying, she said, you know, look, you know, I had a good time, you had a good time at the party, but you, you weren't doing what some of your, your co workers were, some of your peers level people were doing.
Steve:And I said, oh yeah, what's that?
Steve:Well, did you notice how they were really kind of, you know, sucking up to the higher level people and getting their attention and spending all day going to get them a drink and doing lots of.
Steve:And you weren't doing that.
Steve:You were just having friendly conversations with, with people, whoever happened to be there, you know, you.
Steve:So I said, you know, pretty much.
Steve:And your point?
Steve:And, and the point was that if I didn't start sucking up to these people, that I wasn't going anywhere in that company.
Steve:That that's the way you get ahead in this particular company.
Steve:It was very clear to her, very clear to her.
Steve:It was.
Steve:Now it wasn't that clear to me.
Steve:And so, you know, it was One of those aha moments.
Steve:And she was pretty much telling me, so from that point on, I started looking at my investments and what I was doing there differently from what my employer was doing in their pension investment department, which was where I was working.
Steve:And I just said, well, I actually think I can do this better than they do.
Steve:And I started, I continued to structure my program so I did two primary things differently than they did.
Steve:I took profits on my securities.
Steve:When they went up a target, I said, target, that I'm going to get rid of.
Steve:And there were reasons why I did that.
Steve:And the other thing was I never bought anything that wouldn't be, wasn't paying me a distribution, a dividend of some kind.
Steve:Because I always felt that it.
Steve:Technically, I'm an owner of this company.
Steve:You know, I'm a shareholder.
Steve:I own this company.
Steve:I don't own a lot of it, but I own a little.
Steve:And as an owner of the company, I, I deserve to be compensated in some way.
Steve:And, and I figured that that was the dividend.
Steve:And the second reason that developed a little later maybe when I, my understanding was even better, was that big companies that are paying dividends don't ever want to cut their dividend because it's a clear signal that there's trouble somehow there's trouble involved.
Steve:They want to be known as dividend stocks, dividend kings or dividends.
Steve:You know, whatever the different.
Steve:There are three different terminologies that dividend investors use, stock dividend investors use.
Steve:But they want to be recognized like that.
Steve:And if they cut their dividend, they know it's going to cause their stock price, which is their most important thing to go down.
Steve:I saw it as an indicator that there was trouble.
Steve:So if you buy it, if you were to buy a new issue, an IPO or NASDAQ company, typically they don't pay any dividends.
Steve:So the only signals you get are, are the signals in the press, you know, basically.
Steve:So that's, that's why I always, always did that way.
Steve:But anyway, within I, I was making a lot of money outside my employment from the dividends.
Steve:And I was a trader.
Steve:I would, I had set these targets.
Steve:My broker and I had developed a universe of maybe 225 stocks that were B plus rated by Standard and Poor's dividend paying, traded on New York Stock Exchange and multiple products, multiple product lines.
Steve:So any one of them met our quality requirements.
Steve:So we took, we take a profit on one.
Steve:We, you know, we take a, we take a profit on Coca Cola, we buy some Pepsi we take a profit on Exxon, we'd buy one ice.
Steve:Michelle.
Steve:You know, every, every industry, every sector we were in, it worked like crazy.
Steve: mean it worked like I, I, in: Steve:I'd started to get the information ready to get my, my ria and I, I, and I left the company and I was making my income from my investing program was five times what my salary was.
Keith:Wow.
Steve:So, so I was able, I was ready to start a new business and I, I started an investment management business which I ran for over 40 years.
Keith:That's impressive.
Keith:So what inspired you to write your book Retirement Money Secrets?
Steve:The, the legacy.
Steve:I guess it's the legacy factor when you get in your 70s and I guess I was what, 78 when I wrote the book.
Steve:Yeah.
Steve:And, and you know what, you've been doing all, you've been doing this all your life and you've got, I could probably when, when we went through to get rid of all the old corporate records and, and shred it all, get a shredding company to get rid of all my client records because it was sensitive information.
Steve:I mean there are literally hundreds of names, hundreds of different families over the years that I had brought to what I call income independence where they had enough money generated by their securities to take care of their expenses and they only had to go into principal when they wanted to take that round the world trip or something like that, you know, and then they could do it if they timed it right and they waited for the, the income that come in.
Steve:You know, most of the things you have to program a year in advance so you get plenty of time to catch up.
Steve:Anyway.
Steve:There are so many of them and I just think that this idea of investing with a focus toward income as opposed to the focus in most cases, most professional investors, most professional advisors are focused on market value growth.
Steve:They couldn't care less about the income being generated by the portfolio.
Steve:And I think that's a major flaw in the way the invest, the investment industry is being run today.
Steve:So I, I want to, wanted to get that out there.
Steve:I wanted to lay it down.
Steve:These are the things you need.
Steve:This is the way to keep your portfolio from being susceptible to, to be, be hurt with, with declines in the market.
Steve:These are the way to, this is the way to generate safe income.
Steve:This is a way to diversify.
Steve:These are the profit taking targets.
Steve:You should discipline yourself to put into your methodology this and this is the way you should vet an investment advisor.
Steve:He should do this, he should do this.
Steve:You can, you tell him you want him to do this, this, this and that.
Steve:And if he doesn't, isn't able to do that, then you find somebody else who will.
Steve:And so that's what I want to get out there.
Steve:That's the message.
Steve:I want to get to people to say, hey, you don't have to, you don't, you don't have to lose sleep about the stock market going down.
Steve:You know, you don't have to worry about higher interest rates.
Steve:You can, you can build a portfolio that's going to fulfill all your income needs and grow that income.
Steve:And every quarter, every year, you can do that.
Steve:So that's what the book is all about.
Keith:So let's talk, let's dig deeper into that.
Keith:So when you're looking for someone who can help you, your portfolio, grow your income, what are some questions you want to ask as a potential investor?
Steve:Okay, there's, there's a, there's a pretty good, it's, it's not a long list.
Steve:The first list is, and I think most people can say this, I don't even have looked at portfolios.
Steve:And I can say, you go into your guy, you say, my portfolio is only generating 3% income, maybe less.
Steve:I know there are securities out there, even common stocks that pay more than that in dividends.
Steve:There are REITs, there are BDCs, there are ETFs, there are mutual funds, and then there's these wonderful things called closed end funds.
Steve:They all can be just, they all, they can, they include every security you could possibly think of buying from me in my account, but they pay significantly more income.
Steve:I want my portfolio to generate at least 6% income.
Steve:And he may look at you like you're crazy, but he could do that if his bosses would allow it.
Steve:And it's usually not your guy, it's usually not your young woman or your person who is doing your investing for you, who's in control of what she can sell you or what she can recommend to you.
Steve:We're a litigious society, and it's very important that the financial community designs products that it could be said they're, you know, they're, well, they're secure, they're okay, they're safe for people at certain levels of their existence.
Steve:And they, they, they get experts to say, yeah, it's true.
Steve:So they may say to you, those other types of securities you mentioned may not be as safe, but it's really kind Of, Yeah, any bond, any bond of any kind, any income focused investment is safer than the common stocks of that same entity.
Steve:If, if a company goes out of business, some of the bondholders are going to get paid some of their money, but none of the shareholders are.
Steve:So don't tell me that closed end funds or high yield ETFs or even a mutual fund that is paying 6% is less safe than a bunch of NASDAQ stocks that aren't paying anything.
Steve:It's just not true.
Steve:So that's the first thing.
Steve:How much is how I want.
Steve:Tell them how much income you want.
Steve:Their portfolio.
Steve:My portfolio personally generate over 10% in just income.
Steve:Okay.
Steve:Anyone today can develop in today's interest rate environment.
Steve:Anyone can develop a portfolio closed in funds, ETFs and some mutual funds that generate close to a 10% level of income.
Steve:It's not difficult and the safety level is in my mind better than it is in individual securities.
Steve:Next, I'm paying you to your advisor.
Steve:I know I'm going to be paying you 1.5% and I know you deserve it, but I want you to take at least 1.5% in profits each year to cover what I'm paying for you.
Steve:Another thing, you know, they're reluctant to do is take profits.
Steve:But if you tell them in writing that you want them to take profits and you specifically want them to take a certain amount of profits, they will do it again if their, their bosses let them.
Steve:So those are the two things.
Steve:I, I used to say that if I'm gonna, let's say I'm a, I have a seven figure portfolio and I'm higher and I'm a busy, a busy entrepreneur or busy employee and I don't have time to manage my own money.
Steve:And I go to an advisor and I call up and they give me, you know, to the advisor today that's getting leads.
Steve:I, I don't, I want to make sure that that guy can handle a portfolio of my size.
Steve:So I want to see what he did with his portfolio.
Steve:You know, when I was managing money for other people, I would always show them my portfolio as an example.
Steve:What I was, I was going to do.
Steve:And I also would tell them this, I would tell them, I will never buy for you a security that I don't own myself.
Steve:And that's another thing you can talk to your advice about.
Steve:I don't want something that you wouldn't own yourself.
Keith:That makes sense.
Steve:You know, so I mean I even do that now with my, in my coaching in My coaching business, I, I have these universes, I call them their lists of all the tax tax free closed end funds, taxable closed end funds, equity based closed end funds and a, another a little small universe, about 20, it's going up to 22 this month I think.
Steve:ETFs that I use in my own portfolios.
Steve:And I, and in this, I had this thing called the RMS in income investing community and all the members of the community have access to those universes.
Steve:And, and I'm, I've done a Q A and I'm going to do another one of how to what everything I say in the universe is the different colors I use and symbols and so on, what it all means and how to use them in their research to find things that meet their requirements.
Steve:So, so those, those are the, the main things you got to talk about to your advisor.
Steve:The level of income, the willingness to take profits.
Steve:The willingness to take profits.
Steve:And is he as experienced investing as you want him to be to take care of your portfolio?
Keith:So let's go back and define a term.
Keith:You mentioned a term, ETFs for those who aren't an investment.
Keith:What does that mean for.
Steve:Okay.
Steve:An ETF is an exchange traded fund.
Steve:They're actually a very, very new security.
Steve: s,: Steve:The big attraction of them, they came in almost like in competition to mutual funds.
Steve:Mutual funds were managed programs and they had some problems.
Steve:They weren't traded instantaneously on the market.
Steve:In the market like stocks were.
Steve:ETFs were traded immediately and their claim to fame and they were very cheap.
Steve:The expense ratios on them was very cheap.
Steve:And their claim to fame was they were unmanaged.
Steve:So there were these, these are the index funds that you, that you hear of and these are the kinds of funds that are now included in a lot of 401ks along with mutual funds.
Steve:So that's what ETFs are.
Steve:There's interesting things about them.
Steve:Their, their main purpose in life is to grow in market value.
Steve:And they're unlike stocks which their price is not tied to anything.
Steve:It's not tied to the book value of the company.
Steve:It's a matter of supply and demand, right?
Steve:I mean just because the Stock goes up 10 points in a day, it doesn't mean that the actual assets of that corporation have changed in one, one bit.
Steve:It's just a matter of supply and demand.
Steve:ETFs trade during the day by supply and demand, but at the End of each day the fund either adds more shares or takes shares away to make the existing shares equal to the market value.
Steve:Net asset value equal, the number of shares equal price.
Steve:They balance, they balance out.
Steve:They, they manipulate the number of shares that are out there so that the price and, and the net asset value are identical.
Steve:Closed end funds are different.
Steve:They are totally managed all the time.
Steve:Okay, that's unlike an etf.
Steve:They are trust vehicles.
Steve:Again, totally different than anything else.
Steve:Trust vehicles.
Steve:They're, they're pass through trusts that must disperse 95% of their net income to their shareholders, which is totally unique.
Steve:I mean think about if Amazon were to give out 95% of an income, it, sure, of course it wouldn't have grown to be the size it is now either, you know, but still, it's a whole different mindset.
Steve:Their purpose is to generate income.
Steve:That's why I find them so attractive.
Steve:And there's no manipulation.
Steve:Their price changes by supply and demand.
Steve:Just like the stocks on the New York Stock Exchange.
Steve:There's no manipulation to make the stock price on the outstanding shares equal the net asset value.
Steve:Okay, so that's, that's the big difference between, between those two types of vehicles.
Keith:No, it's very helpful, thanks.
Keith:As, as we talk about just investing in things you've done over your time, over your course in your life, what are some common mistakes investors make when, when it, when they hinder long term growth?
Keith:You talked about a couple of them, but what are some others we may have missed?
Steve:Okay, the.
Steve:Well, I guess they don't focus as much on, they don't come up with a, a special system of their own to determine the quality of what it is they're buying.
Steve:They'll go in and buy IPOs because they think it's a great idea.
Steve:90 of IPOs fail.
Steve:You know, they're not, they don't all become Google.
Steve:You know, it's not like it's not that easy, you know, so, and they don't, they don't, they don't dig in to see if they have a diversified product line.
Steve:They're obviously not already profitable, right, because they're just starting.
Steve:So my, my vetting for quality is, oh, profit, profitable.
Steve:Diversified products mix.
Steve:They've been in business for a long time, stuff like that.
Steve:They always pay, they paid a dividend for a long period of time, things like that.
Steve:So that's one thing.
Steve:They don't worry about quality.
Steve:I find another mistake is that because they fall in love because they do what their broker tells them and automatically Drip any dividends that come in, they wind up with a very poorly diversified portfolio.
Steve:They have too much money and too few securities.
Steve:I've literally seen people who have millions of dollars in maybe two or three securities, not each, but you know, like one security will be 40 of a person's portfolio.
Steve:So you know, one chief executive officer, you know, has an unexpected fall over cliff on a ski vacation and the stock plummets 40%.
Steve:And this guy is in a situation where most of his portfolio is gone overnight and he doesn't know whether it's ever going to come back.
Steve:So he's going to panic and sell some of them.
Steve:Yeah.
Steve:So things like that income, like I said before, I have never been for the first time visit, have seen a portfolio that yields more than three, three and a half percent.
Steve:They may have a couple big ones in there, but they'll have dozens that don't pay any dividends at all.
Steve:And of course what we just talked about, the profit taking, people don't take profits.
Steve:They fall in love.
Steve:And, and you know, it's funny because our whole system of, of business, our economy, our capitalist program is that the object of the exercise is to have a product, sell it, make a profit and grow the capital in the business.
Steve:And the investment community tells their shareholder or their clients, we're going to just buy this company.
Steve:Let it be the capitalist.
Steve:We're just going to sit here, we're going to buy it and hold it.
Steve:We're not going to worry about cash flow, we're not going to worry about profit taking.
Steve:We're just going to sit here and watch.
Steve:That's not.
Steve:You got to, you got to apply the same capitalistic principles to your investment portfolio.
Steve:This is your business.
Steve:This is your business.
Steve:The last thing you want to see is the value of the inventory rising.
Steve:That means you're not taking any profits, you're not making any money.
Steve:So that's that.
Steve:Those are the key areas that people make.
Keith:We've talked about a lot of things so far.
Keith:Is there specific tools or resources you recommend for those looking to shift their investment focus?
Steve:Well, I frankly like, like I said, you know, the brainwashing book is, that's not the brainwashing book, but that was my first book in it.
Steve:It did not pass the test.
Steve:It was, it was written like a textbook and it didn't get across.
Steve:But this one, the Secrets Return Money Secrets is written to get people into this mindset, this mindset of, of income versus market value.
Steve:Market value fuels the ego, income fuels the yacht.
Steve:You can't go to a store and spend your market value.
Steve:You got to have the cash.
Steve:So, you know, that's, that's really what it's all about.
Steve:It's getting to that income focus.
Keith:I love that.
Keith:Are there any success stories you'd like to share from people you've worked with and how you've impacted their life by the processes you use?
Steve:Geez, you know, you almost could look at the, the, the on Amazon, the book reviews.
Steve:Some of the book reviews talk.
Steve:People talk about how their life has changed, how they've been able to retire on more money than they were making in their employment and stuff like that.
Steve:But in my case, I have hundreds of success stories where we, where people have gone into retirement early because they've got enough money, where people who have done what I did, they changed professions and left a corporate position and went and started their own enterprise because they, they had enough money being generated by their portfolio that they could do all the building that you need to get a successful company running.
Steve:Yeah, I mean there are, there are so many, so many stories and, but it happens all the time.
Steve:And it's just a matter of getting a taste for it, of, of saying I, you know, you could have a good friend, it could be a lifelong friend.
Steve:That's your investment advisor.
Steve:And you just tell them, hey, I don't, I, I want you to start making me 6% income instead of a 6% growth in market value.
Steve:That's what I want.
Keith:That makes sense.
Keith:So I'm curious, Steve, you have, you're reaching that point in your life where you're thinking back over your career.
Keith:What do you want your legacy to be?
Steve:If I could, if I could somehow get enough people interested talking about an income focused way of managing their assets, enough of them that somebody out there on Wall street would pay attention and say, okay, we're going to be market focused like we are now, but we're going to have a piece of the action here where if a, if a retired retiree comes in and says that they want an income focused portfolio managed like this selling gut character says in, in his book where we're going to take profits, we're going to reinvest those profits and so on, we're going to grow his income and we're going to pay him out 50, 60% of the income so they can live like kings, we're going to have a segment of our business that takes care of those people.
Steve:That's what I, I'm looking for so that you don't.
Steve:We don't all have to be in this basket of just throwing money at 20 or 30 hot stocks on the New York Stock Exchange or the Nasdaq, and everybody owns them and they're all throwing their money at them.
Steve:And those people are not those people, but the executives of those companies are getting wealthy on it, and these guys aren't getting any income from it.
Steve:That's, that's where I want to see this go.
Steve:That's where.
Steve:That's what my legacy would be a bit.
Steve:I think that's probably three, three generations away.
Keith:That's awesome.
Keith:So as we wrap this conversation up, Steve, are there any key takeaways you want to leave with the audience from our conversation today?
Steve:Yes, they should go to Amazon and take away one of those books, Retirement Money Secrets.
Steve:No, no, the takeaway really is, is that look at, look at what you've got.
Steve:Look at the income being generated and listen to people like me who are telling you that you can make twice or more income than that at less risk than what you are doing today.
Steve:And find out how.
Steve:Go and find out how and tell your, tell your person, your advisor that you want him to help you in that search.
Keith:That's great.
Keith:Is there anything I haven't asked you, Steve, that I should have asked you?
Steve:I don't think so.
Steve:I think you've got it done really well.
Keith:Thank you, Steve.
Keith:I'm so glad you came on and you shared some of your secrets with my audience, and I pray that they will take the time to go and do that because there's so much potential out there if they just look at the practices they're involved in.
Keith:Because like you said, there's.
Keith:We, we miss so many things we just don't know.
Keith:So I hope this is a, a good, informative discussion for those who are looking to invest.
Steve:Right.
Steve:And that's, you know, that's.
Steve:And that's what this community is all about, is the education.
Steve:You know, we have like a.
Steve:It's literally a college educational level series of Q and A's about all aspects of investing, particularly closed end fund investing.
Keith:Well, Steve, thanks so much for taking the time to be on the podcast and to share your wealth of experience with my audience and knowledge.
Keith:So thank you for what you do.
Steve:Okay, my pleasure.
Steve:Thank you.
