For people who are interested in income investing, Steven Bavaria is one of the longer-running public voices in the space. He has been writing about income investing on Seeking Alpha for years and is the author of The Income Factory. This is from a recent interview he did where he explained the basic idea behind the strategy. The Income Factory theory, if you want to call it that, is actually pretty simple. Total return can be achieved just as much through cash income as it can through capital gains. If an investment earns a 10% total return, theoretically that return could come from a 10% yield and 0% capital appreciation, a 0% yield and 10% capital appreciation. When he was asked, “How do you measure the results of an Income Factory?” he answered the same way you should measure almost any investment strategy: total return. Total return is the most important statistic when you are trying to determine how the investment itself has actually performed. A fund can distribute 14% or 15% a year, but that does not necessarily mean the investor earned 14% or 15%. Bavaria explained it this way: “So, not to make it too complicated, but the key thing is if you collect 14% or 15%, which is great, don't assume that you're going to keep it all. You know, make sure you check the total return of that fund. And just look at it over time to make sure that the total return, what you've got after the erosion of price, is sufficient.” “And you'd say to yourself, okay, I collected 12%, but I gave back 4% in the erosion of the price or the net asset value, so my net return is 8%. Now, that would be step one. And you might then say, well, 8%, that's still a decent total return. If my overall portfolio over many years earned 8% to 9%, that'd be fine. But you'd have to then make sure that if you got 12% but really were only earning 8% because four of it was being eroded away in the price, in the NAV, you'd want to make sure that at the very least you reinvested 4% of that 12%. And that would only just keep you even.” You can watch the whole interview below The Income Factory | Generating Monthly Cash Flow With 9%+ Yields (Steven Bavaria) https://www.youtube.com/watch?v=-cC91dSmiJQ
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Churchaaaa @Churchaaaa · 1mo
RH shows me "today's return" and "total return" for each of my positions. I feel like I now need to know some arcane formula to test the numbers and see if they're accurate!
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