Interests and Dividends   

Male voice 1: I just want to say one word to you. Just one word.

Male voice 2: Yes, sir.

Male voice 1: Are you listening?

Male voice 2: Yes, sir I am.

Male voice 1: Plastics.

David Scranton: Now, most of us probably remember the first bit of financial guidance or investment advice that we ever received. We are probably just as confused or just as skeptical as Dustin Hoffman was in that famous scene from The Graduate. But you know you learn a few things as you get older, hopefully enough to recognize when the guidance and advice you’re getting sounds sensible versus when it doesn’t. Please keep in mind today as we focus on dividends and interest, the cornerstones of most income based investment strategies. There’s a lot to know and more than one way to go about it as you learn from our two special guests first Joseph Hogue Hoke, author of Step by Step Dividend Investing. And second, Daniel Thompson author of The Banking Effect, I’ll also talk about how a strategy designed to generate income through interest and dividends helps ensure that you’re aligned with your retirement goals. As opposed to actually working against each other now, that’s a much more common situation than you might think this concept of working against each other. So stay tuned, it’s time to tune out the hype and focus on the facts, facts that matter to you the Income Generation. Let’s get started, get ready to separate reality from myth.

Male voice 3: Well it’s David Scranton.

Male voice 7: But David Scranton says hey, not so fast.

David Scranton: How does it affect the market? How does it affect the economy? Thanks to efficiencies and new technology and a staff of veteran analysts and portfolio managers sound income strategy try to set new standard and bring institutional style investing your portfolio. Now, when I personally speak about generating income through interest and dividends I’m talking about two very different things. You see interest is what you earn on your money by lending it for example to a company when you’re buying a bond or to a bank when you buy a CD, in these examples the income that you receive in the form of interest is actually guaranteed through a contract that you have with the borrower. The agreement usually says that as long as you keep your loan in place for a certain period of time you receive regular fixed interest rate payments at a certain percentage of the total. And again those payments are guaranteed by the borrower, dividends on the other hand, from common stocks or stock mutual funds represent a discretionary payment which can change over time. Typically their share of the profits as your an essence part owner of the company when you buy their stock, they’re based upon the company’s earnings provided that it’s making money. With dividends from these types of instruments there is no contract and no guarantee, that makes having a sound strategy for using dividends as well as the right balance between interest and dividends crucial in an income based portfolio. These strategies depend upon your situation and any number of factors. So let’s talk about one easy example that has to do with the differences between common stocks and stock mutual funds for example versus preferred stocks. It’s a distinction that many investors don’t really understand, it’s also one that a lot of advisors won’t explain if it happens to run counter to their mutual fund based or common stock based investment model. You see technically preferred represent a different class of stock, however, I actually like to think of preferred as being much more bond like than stock like for many reasons. For example, they do pay a stated consistent dividend rate much like bonds, in addition, they tend to fluctuate in value more with the corporate bond market then they do with the overall stock market. The dividend rate on preferred is also typically higher than the interest rate in a comparable corporate bond, even though preferred like bonds have a par value or a face value. That extra interest payment or dividend payment is actually to compensate investors for the additional risk, that dividend rate in many cases is guaranteed by the issuer and the price of preferred tends to stay sticky around the par value. A company will drop dividend rates on common stock but typically not on preferred except as a last resort. Now, in a case where a company defaults on debt which truly would be the last resort, bondholders would have an opportunity for partial repayment ahead of preferred stock holders. So, bonds still in that respect have less risk than preferreds, so does it mean that preferred are right for everyone nearing retirement with an income based portfolio? Does it mean they’re a necessary strategy for generating dividends for every investor over the age of fifty? Well, of course not, they simply offer one example of a strategic approach and advisor who specializes in income might recommend depending on their client’s individual situation and goals. That’s why identifying your retirement goals is so incredibly essential, ideally the specific strategies that an advisor ends up recommending will be designed to serve your specific goals. Now, everyone knows the old saying a bird in the hand is worth two in the bush and it’s a simple way of saying that the thing that you know you have is often times better than the thing that you might have. And that can even be true even if the thing that you might have could possibly be potentially bigger or potentially worth more, you see the might factor mitigates a lot of that. Especially if you’re talking about a thing that you need, for the past few weeks we’ve been talking a lot on the show about the financial markets. We’ve discussed about the growing uncertainty and nervousness among big investors and what some experts see as increasing potential for another major stock market crash. That makes today’s topic timely, why? Because when we’re talking about dividends generally speaking for common stocks or stock mutual funds we’re talking in general terms about the part of an income based investment strategy that’s more vulnerable to market turmoil. So then the question becomes what is it that you need when you retire? What will it take for you to be able to achieve your retirement goals? In order to answer that you obviously need to identify just what those goals are and in my experience most people share fairly similar goals when it comes to retirement. For example, they often don’t want to a fleet of yachts or a fancy house in the Bahamas but what they do want is to be able to visit their grandchildren often whenever they want. They want to be able to travel and dine out whenever they feel like it, they want to be able to pursue their passions whether it’s golf or fishing or painting or horseback riding whatever it might be. Now, when I ask new clients of mine with whom I work to think and talk about their retirement goals nine times out of ten those are the types of things that I hear. So, that’s when I asked them to answer the following question. How do you typically pay for these types of activities by liquidating investments or do you pay for them out of income? The answer of course, is through income so then my follow on question for them is simple. Since that’s the case then doesn’t it make sense to maximize your investment returns in the form of income instead of growth or capital appreciation? You know it’s interesting because sometimes when I ask that question it’s almost like a light bulb goes off in a person’s head, they realize of course, that makes sense but they just never thought about their investment strategy in relation to their goals before. Which is why this topic today is so incredibly important, you see simply speaking everyone wants the same thing from investments, in an ideal world although people know it’s not really achievable. Everyone wants maximum return with minimum risk, but as you near retirement especially it’s important to ask yourself maximum return for what purpose? Is it for a future lump sum purchase like perhaps a vacation home? Is it to leave a legacy for your children because you’re absolutely certain you won’t need the money? Or is it to maximize your income, the income that you’re going to need to pursue your retirement goals? People who don’t take the time to identify their goals sometimes end up using financial strategies that actually jeopardize those goals. And that’s why watching the show and educating yourself is so incredibly important, which brings us back to my bird in the hand analogy and why I call investing for income the bird in hand approach. It may not offer the potential for those major gains and the huge returns, but ultimately, it is more valuable in terms of saving and serving the needs of many retirees and near retirees. Needs based upon their goals, it’s main priority is to protect your money and to generate income, income that you’re going to need or want to achieve these retirement goals. Plus it also gives you the option and opportunity to grow your portfolio organically by reinvesting the interest and dividends to buy more shares, if of course you do not have the need for all the income. In other words, investing for income through interest and dividends is a genuine and ongoing financial strategy, it is not a roll of the dice that might serve your needs and then some. Or might cost you dearly, now, I’m happy to welcome back to the show Joseph Hogue, Hogue who was here just recently to talk about his book, Step by Step Bond Investing. Well, it just so happens that Joe has another book entitled Step by Step Dividend investing a beginner’s guide to the best dividend stocks and income investments. As we mentioned last time, in addition to his book series on investing Joe provides research and analysis for firms in the investment management industry. And manages his own consulting firm focusing on emerging in front tier markets, Joe welcome back.

Joseph Hogue: Thanks David. Thanks for having me.

David Scranton: You know Joe, I just was… just… I think it was last week or the week before. I was thinking you know if you’re really in the mood if you, like if you write a new book every week we can actually have you back as a guest on the show every single week. I don’t know if you have time for that or not but I thought I’d run it by you.

Joseph Hogue: I’ll look into it, I’ll let you… I’ll have to let you know on that one.

David Scranton: You know your people get back to my people, sounds fair enough. So talk a little about the origins of this particular book you know last week you talked about the bond side and now you’re talking about Step by Step, Dividend Investing. What motivated you to write this book?

Joseph Hogue: Well, this book was really a work of passion and you know dividends investing is one of my favorite strategies and it’s one of the most favorite among investors. As you talked about that bird in the hand effect of dividends there’s a lot of great reasons to be in dividends. They do a lot of good things for your portfolio you know and one thing has been consistent throughout stock history that dividends are provided a positive return one hundred percent of the time. Even when stocks fall that dividend you receive is a positive return, the stock price on the company that pays that dividend may go down but that dividend is a positive return without fail.

David Scranton: So tell our income generation members for a moment what kinds of dividend rate do you tell investors that they can reasonably achieved today by investing for dividends?

Joseph Hogue: Well, I like to target between thirty and six percent in dividend yield.

David Scranton: And that’s what you’re talking about common stock correct?

Joseph Hogue: Sure, just common stock. Now that said stocks in the S&P five hundred pay about a two percent yield, small cap stocks are a little bit lower so if you’re really targeting dividend stocks you should aim for at least thirty percent and up to around six percent or so. Higher than six percent you start getting into a lot of stocks that maybe the price has fallen and the dividend just hasn’t been cut yet and you start getting into companies that aren’t really keeping enough cash back to grow their business. So maybe the future dividend yield might be in jeopardy, but a three to six percent return plus any appreciation that you get from the stock price it’s usually a good target to look for.

David Scranton: Tell us in twenty seconds or so if you can. Does this include in most cases REIT’s or business development corporations or master limited partnerships? Or is this just traditional common stock?

Joseph Hogue: I’d say that that range would be more appropriate for a traditional common stock. I do love MLP’s and REIT’s but you’re going to be looking for a little bit higher return target on those just because of where they stand.

David Scranton: That’s great, Joseph Hogue do me a favor. Please stick around we need to take a commercial break and as soon as we come back, you stay with us also we have a lot more from income expert Joseph Hogue. We’ll be right back. Welcome back, now let’s bring back Joseph Hogue. A friend and charter financial analyst and fellow income lover. Joseph Hogue, those are some great returns you know I tell people with dividend stock strategies three to four is the range so when I hear you say three to six. I’m impressed you know what are the most important keys that our viewers need to know if they’re going to try to find dividend paying common stocks of five or six percent.

Joseph Hogue: Sure, well there’s a few fundamental things you need to look for. The price to earnings ratio or the valuation in a stock and check that not against the current market but against historical evaluations for the stock. Just to see you know where… how pricey it might be right now, you want to look at the dividend yield and again that’s against where it’s been in the past. Has the dividend yield kept up with the stock price? What we’ve seen in a lot of stocks right now especially consumer staples that the stock prices surge so much that the dividend yield has actually come down because management hasn’t been able to keep up with that stock price. So the dividend yield is falling, you also want to check the price performance on a stock if the dividend yield is exceptionally high is it just a function of a falling stock price and the dividend hasn’t yet. And we see that in a lot of companies that get into trouble, the dividend yield spikes investors pour in after that yield and then are ultimately disappointed by a falling dividend.

David Scranton: Now Joseph, how do you approach it when a dividend payout is actually greater than the earnings per share? Cases where the dividend payout is literally greater than one hundred percent, to you is that an absolute no go or is there a formula there where if there’s a reason why Cap Ex expenditure or something maybe you’re okay. But you watch it, talk to us about that because that’s happening more and more these days with a lot of big companies.

Joseph Hogue: It is, it is. And it’s because the stock prices have run so far so fast that companies are trying to sustain that dividend yield so they’re increasing their dividend. And it takes a lot more analysis, getting a lot deeper into the financial statements, you have to look in on the cash flow statements to see where that cash flow is coming from. If not from income to pay those dividends and to make sure it’s sustainable, so you really have to look at you know how long they’ve been paying these exceptional dividends? And is management really committed to keeping that return.

David Scranton: Though it’s not necessarily a deal breaker but it can be a deal breaker if some of the facts don’t line up.

Joseph Hogue: Definitely.

David Scranton: Now how about the other side of it? You know when the stock market drops like it did during the technology bubble, when technology bubble had burst and there in the financial crisis. Sometimes a dividend yield of four percent turns into an eight percent yield because you know the stock price gets cut in half and those scenarios you know you have to be worried about companies cutting dividends. It does happen, so how do you tell people to manage against that for example?

Joseph Hogue: Sure, well if it’s the individual stock that is seeing those effects that’s really dropping its price then that’s something to be concerned about. You really need to go in and do that fundamental analysis to make sure you’re still (unclear 16:58) the company. If it’s the overall market like we saw in two thousand and eight and two thousand nine that’s falling then that’s really a great opportunity usually because you know even the best companies are going to get dragged down with it. That’s when you stop looking quite as much as the dividend yield and just start picking up great companies that have a history of paying dividends.

David Scranton: Now, do you have any statistics per say of what percentage the S&P five hundred companies actually decreased their dividend during the financial crisis? Do you happen to have anything like that by any chance? Hate to put you on the spot, I’m sorry but…

Joseph Hogue: No, I don’t have that just right now I do know that the S&P historically pays about a two percent dividend yield. Stocks that pay dividend over the last ten and twenty years have outperformed by between a percent and three percent over stocks that do not pay dividend yields.

David Scranton: I’ve heard that statistic also and that’s why I’m a big fan of dividend yield if you’re going to be in common stocks. So it sounds like you think this is really an evergreen strategy, this isn’t a strategy just for a good market time when the markets are low or maybe normally adequately priced as opposed to overpriced. Do you think it’s evergreen? Even though some might say now the markets a little high, don’t worry about if you’re picking good companies.

Joseph Hogue: No. No absolutely, in fact, dividend investing is only going to become a larger part of your portfolio as you age and as your risk tolerance and your need for income shifts. It can really take a lot of… a lot of the risk out of your stock investing and increase your yields from the portion of your bonds portfolio.

David Scranton: Interesting, well and I can’t argue with you and I tend to be at a Q sometimes of being overly conservative especially being a pilot and all. People will often say well you’re the guy who wears the belt and the suspenders at the same time. But what you’re saying is for most people just having either the belt or the suspenders is sufficient because the dividends tend to be sticky even on common stock, so that’s good advice. So, I guess my last question for you then before we have to go because all good things do have to come to an end eventually is you know with your experience…Now you’re a C.F.A., I’m a C.F.A. we’ve gone through a lot of advanced studies on how to research stocks and investments but do you think this is something that your average Joe could do on his own? Or do you advise that most people utilize the help of a financial advisor to do this? What are your thoughts on this?

Joseph Hogue: I think anybody can do their own investing with the help of some resources like your own. You know it gives you more ownership of your returns and it’s one of the most important decisions in your life so why not manage your own investments? It can be very simple to put together a good portfolio based on your goals and your return needs.

David Scranton: Yeah, I always tell people it’s not rocket science and at the end of the day as much as I care about my clients you know nobody cares more about their money than they do. And at bare minimum need to have an active role, so I think that’s good advice and you know it’s… you know you’ve seen people who are retired who just love… They love investing like a hobby and they’ll sit in front of the computer a few hours a day and they’ll enjoy it maybe that’s more fun to them than golf. But luckily for people in our fields that’s not always the case, most people retire and enjoy golf and visiting grandchildren more than they enjoy investment. So I guess they let us keep our jobs for another day doesn’t it?

Joseph Hogue: Does (unclear 20:29), that’s right.

David Scranton: Joseph, thank you so much for being with us it’s been great and I’ll be looking to hear from your publisher when that next book comes out, let’s say next Wednesday or Thursday or so alright.

Joseph Hogue: I’ll put it on my calendar. Thanks David.

David Scranton: Sounds good, Joseph Hogue thank you very much. Our next guest today is Dan Thompson, an author and investment analyst who’s received national recognition for his innovative financial strategies. Now, after years in the business Dan kind of shares my background in a way that he became frustrated with financial markets. Frustrated with financial buzzwords and he started doing his own research sounds familiar? His goal was to find new ways to help investors without the same level of risk normally associated with traditional types of financial planning, a good example of that can be found in his book The banking Effect, Acquiring wealth through your own private banking system. He’s also the author of Discovering Hidden Treasures, Dan welcome to the show.

Dan Thompson: Thank you, good to be here.

David Scranton: So you know we’re talking today a lot about strategies designed really around interest and dividends and ways to get income without common stocks or stock funds. But you’re talking about something that’s even a step more conservative, you know our previous guest was talking about dividend paying common stocks. I talk about corporate bonds a lot, you’re even a step down on the risk scale from there, so you know what motivated you to take a strategy that’s really that ultimately conservative?

Dan Thompson: Well, it’s kind of stems back from going through the ninety’s where you could just about throw a dart and make money and then all of a sudden the dot com explosion happened. I’d been through the down turn of eighty-seven the recession of ninety-four then the dot coms and it just got so frustrating because even though we were trying to do it the way you know quote unquote the Wall Street way. It just wasn’t working, so it was time to either find a better way or maybe even a new career path.

David Scranton: Yes, so you went from the Wall Street way one spectrum all the way to the other side the most conservative side which is…which you know I’m not going to argue with believe me. But Dan can I give you some advice first of all please?

Dan Thompson: Absolutely.

David Scranton: Next time you’re on our show as a guess, can you please have a larger microphone to use because our viewers are having a tough time seeing your microphone on television today. I’m just kidding obviously, Dan will you please stay with us we have to take a quick commercial break and we come back we have a lot more for Dan Thompson and how he can get you income. I don’t want to say guaranteed but that’s about as close to guaranteed as you can get, stay with us we’ll be right back with Dan. If you’re near or in retirement head over to the Income Generation dot com and download your special report written specifically for the needs of the Income Generation. Again, those born before nineteen sixty-six. I’m David Scranton and you’ve been watching the Income Generation.

Miranda Khan: Welcome back to the Income Generation, I’m Miranda Khan. This is your Newsmax finance update a quick recap of the stories that move the markets this week. Economist Mark Zandi appears to be changing his mind after warning that the economy would suffer if Donald Trump was elected president.

Mark Zandi: The job market feels really, really good to me and with a four point five percent unemployment rate a you six underemployed rate that’s now below nine you know we’re at full employment. So this job market is good.

Miranda Khan: Last June, Zandi and his Moody’s analytics team predicted that Trumps policy would result in millions of fewer jobs and a seven percent unemployment rate. That being said, if you’re looking for relief under President Trump’s proposed tax reform you might have to wait a little longer, treasury secretary Stephen Mnuchin says that reform could be delayed after the GOP’s health care bill failed in the House last month. And Mnuchin also says Trump was absolutely not trying to talk down the strength of the dollar, this comes after the President told the Wall Street Journal last week that he thought the dollar was getting too strong. He also backed away from labeling China as a currency manipulator. Gold prices could top thirteen-fifty per ounce by the end of the year according to metal price forecasters. The higher price projection is spurred by faster inflation and political tensions in Russia, Syria and North Korea. The streaming service Netflix, projects that it will surpass one hundred million global subscribers. About half of the company’s customers live in the U.S. Netflix reports that of nearly five million during the first three months of this year. For much more on these stories please visit Newsmax dot com slash finance, I’m Miranda Khan. Now back to David Scranton and the Income Generation.

David Scranton: Thanks, Miranda. And now that you’re all up to date let’s bring back Dan Thompson author of the book, The Banking Effect, Acquiring wealth through your own private banking system. Dan, thanks for sticking around during the break.

Dan Thompson: Oh, you bet.

David Scranton: You know as… it’s the risk of sounding like our esteemed President I have to tell you that. You may not realize this or not but that microphone actually makes your hands look small.

Dan Thompson: Oh, good.

David Scranton: So tell us about the banking effect, tell us you know explain for our Income Generation members you know what it’s all about and why you call it the banking effect?

Dan Thompson: It kind of came out of this infinite banking concept. We just kind of thought we could explain it a little bit better and maybe in ways that were more useful if you will. And it’s essentially over funding and really maximizing the tax benefits inside of really the last place you can get tax benefits and that’s within insurance companies. So…

David Scranton: Remember what was it? Ten, twelve, fifteen years ago the Wall Street Journal came out with an article and called that particular type of program like the raw fire a for the wealthy or something like that. Wasn’t that about ten-fifteen years ago?

Dan Thompson: I think that’s about right.

David Scranton: Yeah?

Dan Thompson: Yeah. Well it really is, it’s the last place you can put money and really if you handle it right avoid taxes you know generation after generation.

David Scranton: Sure.

Dan Thompson: So it’s designed differently. It’s not you know a typical or a we’ll call a vanilla out of the box traditional policy, it’s designed for cash value and it’s designed to maximize those tax advantages.

David Scranton: That’s great, it’s and like I said it’s because as an insurance company it’s really more conservative than even the corporate bonds and things that I often talk about on the show. So you’re, now the banking system is more than that though. The banking system has to do with the ability I know and you know more about this than me you’re the one who wrote the book but it has to do with the ability to put money in and borrow money out. And from my understanding the reason it’s called banking is because you know especially for entrepreneurial you can borrow money from yourself and not have to go to a bank. I mean isn’t that the famous old story about what Walt Disney did when starting the concept of this Disney?

Dan Thompson: Yeah, that’s exactly right. Walt Disney, Ray Kroc, J.C. Penny many of the old first time entrepreneurs out there in the United States used their cash value to help supplement and fund their businesses. But yeah, that’s exactly what this does, you know everybody needs access to cash and capital at some point in their life. It may be for something as small as you know buying a car or remodeling your house. What we’re finding a lot of people are using it for is more for business opportunities, investment opportunities. I know there were a lot of people in the crash of 08, they were able to use their cash value to go and purchase real state some got back into some stocks that they liked.

David Scranton: Good.

Dan Thompson: You know just about anything you want to do, you can do. The benefit being is that you become the source of capital rather than your local bank.

David Scranton: And I’ve heard people say that before, people say you know well why? I don’t want to do that I don’t want to borrow my own money, it’s my money why do I want to borrow it? So when you get that question how do you answer that?

Dan Thompson: Well what’s really interesting is you never really borrow your own money, in fact, what you’re doing is you’re using your policy as collateral you’re actually borrowing money from the insurance company. But obviously their guarantee is you’ve got a policy with cash value there, what’s nice about it is when you borrow from yourself, from the insurance company. Your cash value continues to grow and get dividends as if the money had never left which technically it really hasn’t left. But it’s like using the same dollar twice, your dollar is still growing and compounding inside your insurance policy yet you have access to it to go out and invest or use it for purchases.

David Scranton: So do you find typically that the net interest between what you pay the insurance company and what their credit and your money that that interest is two percent, one percent, zero, if you buy the right types of programs?

Dan Thompson: Yeah, if you get into the right types of programs some companies are you know the term arbitrage is often used where you can borrow money at say four or five percent. But you’re getting credited you know six or seven percent.

David Scranton: So it’s really a negative interest rate in essence, you’re getting paid to borrow the money. So, that’s great and I always use that type of strategy in my own life even, when it comes to business opportunities, stock market opportunities, and real estate opportunities and so on. Where I get a little bit nervous though, is the concept of being able to take tax free perpetual loans to get tax free retirement cash flow if you will. And my concern is always that gosh, what if somebody one of my clients is still alive and I am retired and they take too much of a loan, too big of a loan and the policy self-destructs. How do you tell people to get around that concern to make sure they do in a safe way?

Dan Thompson: Good, good question and certainly one that you’ve got to be you know very cognizant of and make sure you do correctly. First off, typically when you start taking income from your insurance policy you’re going to be retired. So you know we’ll just say you’re sixty-five, sixty-eight,  seventy years old well, what’s nice about it is the first income that you can take can actually be cost basis. So you’re not even taking a loan up to cost basis that might take as much as ten or twelve years just to get through your cost basis. Assuming you’re not taking huge distributions, I think somewhere in that four to six percent range is pretty doable, so if you’re taking four to six percent out of your cash value. Most of that’s going to be a dividend paid that year and that’s going to take again, a good ten to twelve years just to get through your cost basis. Now…

David Scranton: So real quick answer me this last question Dan, please because we’re almost out of time. You know that if you have a goal two, three, four years from now this strategy might not be the best so what’s the minimum time horizon you tell people their goal needs to be a way? Is it ten, fifteen, twenty years for the strategy to work?

Dan Thompson: Yeah, well the longer this strategy can go the better so that being said you know the IRS kind of put a seven year mark and I kind of like using that seven years as a minimum.

David Scranton: Seven years is the minimum, okay. I’m sorry to rush you it’s been great having you on the show and you know all good things do come to an end and can I tell you a secret?

Dan Thompson: Yes, sir.

David Scranton: I actually have microphone envy right now I actually love your microphone Dan. Dan, thanks so much for being with us today.

Dan Thompson: Good to be with you, thank you.

David Scranton: Now, just before we go let me introduce our round table guests we have Dee Carter, president Carter of Carter financial group in Midland, Texas. He has more than forty-five years of experience in insurance and financial services. Dee opened up his own firm independently in two thousand and one, specifically for the purpose of specializing in conservative money management. Today we also have another repeat guest Matthew Johnson, owner and president of Johnson Wealth and Income Management in Humboldt, Iowa he’s been an advisor for more than eighteen years. But his company goes back three generations in Iowa. He’s been an advisor for more than eighteen years but his company goes back three generations in Iowa. Good to have you both here, today.

Dee Carter: Good to be here.

Mathew Johnson: Thank you.

David Scranton: Gentlemen, we’re going to start in just a few minutes so please stick around we’re going to be right back. Dee, MJ thanks for sticking around as you know today we’ve been focusing on interest and dividend based investing. Now, Dee I know you, you’ve been in business forty-five years I think you dropped out of the sixth grade and went right into the business. Because you know you don’t look like you’ve been able to be in the business for forty-five years, so the last time we wasted a lot of time. A lot of your knowledge and brain power Dee talking about all the memorabilia you have behind you, all the Elvis memorabilia. Today’s, topic is far too important so I want to get right to the matter at hand and that is why is it you know you guys like myself are there every day. You’re seeing clients your meeting with people, why is it that what we talked about makes sense when people watch television? But it’s so tempting to get pulled right back into that stock market that growth based capital appreciation based model, Dee why do you think it’s so difficult for people to make that paradigm shift?

Dee Carter: They’ve been hearing it all a lot, it’s the one thing that they hear constantly with the news media, with the financial media whatever it might be they hear about the stock market. They hear about how much money people have made in the market over their lifetime and they hear about all these interest that they can make. You know the money they can make and what they don’t stop to realize is that while the market may be going well now and they’re getting ready to retire are… is a lot of  my clients David (unclear 34:43) retired and they’re taking that four to five percent out of their principal each month in order to do it. If their principal drops by fifty percent their incomes going to drop by fifty percent or they’re going to take twice as much out, they’re just not listening to what the opportunities are with income because they’ve been so brainwashed about what growth can do for them.

David Scranton: So MJ, why is that the case you know why is it that there’s all this hype about from the media and from advisors and Wall Street about growth and capital appreciation strategies, in your opinion?

Mathew Johnson: Well, we have to understand first and foremost that money…Wall Street can’t make money on our money unless our money’s in Wall Street and Wall Street is truly a business, right?

David Scranton: Sure.

Mathew Johnson: So, they’re going to do everything that they can to try to get us invested and number two to keep us invested. So the bottom line is I think Dee hit it on the head, there is a lot of conditioning, there’s a lot of you know he called the brainwashing. There is just this expectation that we are to have money in the market but I also think that there is a side of us where we somehow don’t want to be left behind. We don’t want to do something different than what the rest of our friends are doing, so there’s kind of a follow the herd mentality and that can really lead to dangerous, dangerous things.

David Scranton: So you know, I have to tell you if I can share with you I’m a little concerned, Matthew?

Mathew Johnson: Are you?

David Scranton: You know Dee gets a pass because Dee’s been in the business forty-five years. Last time you came on the show you had a tie and a jacket and everything else and now you lost the tie, you’re down to the jacket I’m just afraid if I get you on three or four more times you might show up in a speedo. So, just so you know, you’re now at the minimum official dress code for being a guest on the Income Generation, okay.

Mathew Johnson: I’m starting to flush now, I’m starting to flush. So Dee, what do you tell your clients when they come in and they’re addicted to this? It’s they don’t want to be left out maybe it’s the sexier more exciting part of the business model. Dee what do you tell your clients to try to get them to get away from that Wall Street brainwashing if you will? And get them to understand why if their goals retirement income that they should invest for retirement income.

Dee Carter: You know one of the things that we try to do is to make a common sense. We are a pickup driving economy out here in West Texas, and I use that analogy with my clients. Simple you ask them if were going in to buy a new truck and a lot of them do that pretty regularly, if you’re going in to buy a new truck and you go to the dealer. And you say I want a four wheel drive or something that’ll take six people and drive through the mud or whatever and they bring out a Ferrari convertible. And you say whoa, whoa, whoa that’s not exactly what I had in mind and they say wait I got one more and then they are going to bring out a yellow Ferrari coop. And you say wait, wait, wait that’s not it at all, but then you walk out the door and you realize you’re at a Ferrari dealership and instead of trying to get what you want. You were getting what someone was trying to sell you and what is right for you, you know if one in six, in ten, eight, sixty-five people are going to live to be ninety-five David. And that’s what we’ve just learned, one out of every ten people age sixty-five are going to be ninety-five before they pass away, you’re talking about thirty years of required income. How much are you willing to waste the opportunity of having that income by putting it into growth and seeing the market collapse as it has done so many times? In my history, just in my career it’s done it three times drastically so when it (unclear 38:16) analogies to them and show them what they have to look at.

David Scranton: I guess that makes sense to put it simply you know there’s a reason stockbrokers are called stock brokers. They typically sell stocks right?

Dee Carter: Absolutely.

David Scranton: So, yeah and what a lot of people I think don’t realize is that it’s not just stock brokers per say, there’s a lot of financial advisors even independent financial advisors that aren’t independent investment advisors like you are and you also are MJ. They’re basically, they’re reform stockbrokers so they might work for an independent brokerage firm and because it’s not one of the big Wall Street names that you’re used to seeing. People don’t realize that their model is still stock brokers and really the brokerage side, the equity side so gentlemen stick around we need to take a quick commercial break. We’ll be right back with a lot more words of wisdom from both Dee, forty-five years and yes MJ, three generations in the financial advisor. Welcome back to the Income Generation MJ, Dee thanks for sticking around. Now MJ will you do me just one favor?

Mathew Johnson: Sure.

David Scranton: One favor before we get started, just pretend that there’s a police officer behind you and he says put your hands up. Go ahead and put your hands up for our audience, please go ahead. There you go, so clearly the small hand efficiency that our current President has suffers from based upon his own admission. You my friend did not inherit, actually we’re… during the commercial break we were teasing MJ just a little bit about what Skype does as a visual illusion. But you know in all seriousness MJ you know Dee had a great analogy he talked about buying a Ferrari. You know do you have a story like that analogy that you use when talking to your clients to get them to make that paradigm shift to break that Wall Street addiction?

Mathew Johnson: I do, there’s actually a couple of different analogies that I use you know Dee talked about the fact that he has gone through in his lifetime at least three major corrections. And you know that’s probably true because he’s older than (unclear 40:20 ) you know he was around back when (unclear 40:24 ) was soft and dirt was new. But all joking aside you know I live in the midst of probably some of the best farm ground in America and one of the analogies that a lot of my clients receive for me is this. You see every farmer has two different numbers that he has to pay attention to, he pays attention to the value of his farm ground per acre, you know maybe his ground is worth ten thousand dollars per acre. But then he’s got another number that he has to pay attention to and that’s the yield that he gets off from this ground. Oftentimes, what people are so very addicted to just because of years and years of experience and doing this is you know they get their statement at the end of the month or the beginning of the next month. And they pull it out and the first number that they look at is what their account is worth.

David Scranton: Sure. They’re programmed to do that for whatever reason.

Mathew Johnson: But… Yeah, I help. I try to get people to understand that’s like looking at how much your farm ground is worth per acre, it really doesn’t mean anything unless you’re willing to sell that farm ground or sell those shares. What really becomes important is the amount of yield, you’re looking at how much income or how much harvest is coming from this farm ground. And we all know this, we’ve… thrown years and years of being in the financial services we kind of been fed a little bit of a lie that when you retire it’s all about how much money you have. But as most retirees would probably agree with me, it’s not about how much money you have it’s about how much income you have to live off from. From month to month, it’s about the harvest, it’s about the yield.

David Scranton: Yeah and I’m sure Dee, if M.J. had not soaked up all the time available for this particular segment you’d probably have a similar analogy from Midland about oil. You know it’s all about how much oil a well can produce, not the value of the well itself but gentlemen we do need to take a commercial break stay with us for one more segment. We’ll be right back with more words of wisdom from both Dee and M.J… Gentlemen, thanks for staying through the break you know it’s kind of funny but you can tell we have repeat guests on, everybody gets to know each other better and better. And you know before you know we have ages joke flying all over the place here but it’s funny you know you could use an oil analogy in Texas. M.J. and you can use farming analogies, I use a real estate analogy any real estate investor knows it’s all about cash flow, and so fifteen seconds we have left for each of you. Dee bottom line, what do our viewers need to know?

Dee Carter: They really need to know that they’re going to probably outlive their income if they’re not really careful. I already stressed that very hard, make sure you know where your money is and it will be there as long as you are needing it and by fixed income (crosstalk 43:13).

David Scranton: Many baby boomers say they fear financial death more than physical death. MJ, what are your final words for our viewers today?

Mathew Johnson: First and foremost, ascertain your goals for retirement. What do you want to do in retirement? And number two, realize that there is one principle that’s going to help you accomplish those goals and that’s income, so that means that you’re working capital, your principle has to be making you income.

David Scranton: Yep, invest for your goals. I love it, Dee, M.J. thanks so much for your insight on investing for interest and dividends I look forward to seeing both of you again. Now before we go, I’d like to thank all of my guests as well as you our new and returning viewers. Now if you’ve never done it before, I highly recommend that you take some time in the coming week before our next episode of the Income Generation to sit down and identify your retirement goals. Be specific, what is it that you really want to do after you punched that clock for the last time. Jot down anywhere from five to ten things and then ask yourself, how do you want to be able to pay for those goals? You want to draw money from a savings account knowing that it’s not going to be replenished anytime soon? Especially if the interest rates near one percent or do you want to sell part of an investment and cross your fingers and toes hoping that that strategy doesn’t come back to bite you. As our previous guest Matthew Johnson might say in the cheek me or do you want to pay for your retirement goals with reliable income? If that’s the answer and I suspect it will be then ask yourself, doesn’t it then make sense to invest for income through interest and dividends? Doesn’t it make sense to have a strategy that protects your assets and puts them to work in precisely the way that you need based upon your goals instead of a strategy that’s in conflict with your goals? After all, we are talking about a strategy that lets you know that the bird is already in your hand. Thanks for watching. I’d also like to remind you of the special report entitled, The Income Generation. Head over to the Income Generation dot com and download your special report written specifically for the needs of the Income Generation. Again, those born before nineteen sixty-six. I’m David Scranton and you’ve been watching the Income Generation. We’ll see you all next Sunday.


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