PDF Summary:Retirement Money Secrets, by Steve Selengut

Contrary to traditional investment strategies that prioritize building wealth over generating income, Steve Selengut's Retirement Money Secrets emphasizes a radically different approach. With the IFRI (Income Fund Recovery Initiative) method outlined in this guide, retirees focus on assembling a portfolio of closed-end funds to produce a steady stream of income.

The author presents an actionable six-phase plan to maximize current earnings instead of future growth. You'll learn to strategically lock in gains, embrace market cycles, and achieve incremental income increases—all supported by real-world case studies validating this shift from capital appreciation to income generation. The guide also weighs the pros and cons of self-managing your IFRI portfolio versus seeking professional assistance.

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Practical Tips

• Explore cashback apps and credit cards that offer rewards for purchases you already make. By signing up for apps like Rakuten or using a cashback credit card for your regular expenses, you can accumulate rewards that translate into actual money, effectively boosting your operational funds without altering your spending habits.
• Develop a simple spreadsheet that calculates the 5% gain for each of your investments based on the purchase price. Use this to plan your sell orders in advance, so you can place them quickly once the target is reached. In the spreadsheet, include columns for the purchase price, the target sell price (purchase price plus 5%), and the current price, which you can update periodically to see how close you are to your goal.

Grasping the inherent characteristics of market fluctuations: Tailor your investment strategy to be in harmony with the current market cycle phase.

The author emphasizes the significance of tailoring investment approaches to align with the discernible cyclical trends in market dynamics. This involves modifying and setting investment approaches to align with current market trends and projections.

Maximize gains when the market trends upward and focus on generating revenue when it trends downward.

He advises taking advantage of the periods when the market is on the rise to lock in profits that exceed the usual target of 5%. During downturns in the market, the approach should shift to enhancing revenue by acquiring top-tier investment funds with a fixed number of shares at reduced prices, leading to higher returns and strengthening both the core income and the worth of the portfolio.

Practical Tips

• Develop a habit of conducting weekly portfolio reviews to assess which assets are trending upwards. During these reviews, look for patterns or indicators that suggest a continued upward trend and consider adjusting your profit targets accordingly. This could involve setting new goals for specific stocks or sectors that are outperforming the general market.
• Create a market downturn alert system using a free stock market app to notify you when the market drops by a certain percentage. By setting up custom alerts, you can be informed immediately when the market hits predefined downturn thresholds. For example, you might set an alert for when the S&P 500 falls by 5% from its peak, signaling a potential opportunity to buy shares at a lower price.

Consistently assess the rise in profits, the expansion of operational resources, and the enhancement of market valuation.

Selengut underscores the importance of meticulously monitoring the performance of one's financial investments using key metrics and advocates for a systematic assessment technique. He contends that for a precise evaluation of performance, attention should be shifted from the traditional emphasis on market valuation to factors that directly influence an individual's financial stability during retirement.

Strive for consistent growth in both your foundational earnings and your operational funds.

The author advises investors to meticulously monitor the growth of their core earnings, such as dividends and interest, in addition to the total value of their assets, which encompasses cash reserves. He underscores the significance of a sustained increase in both metrics over a period of time. If they aren't growing, it may indicate a problem with the investment strategy or withdrawal rate.

Other Perspectives

• Some investments, particularly growth stocks, may not pay dividends at all, yet they can be valuable for their potential for capital appreciation.
• It assumes that growth is always a positive indicator of financial health, which may not be the case if the growth is driven by unsustainable practices or market bubbles.
• External factors such as changes in tax laws, interest rates, or unforeseen global events can impact growth and may not be a reflection of the investment strategy or withdrawal rate.

Employing Closed-End Funds (CEFs) can be advantageous when implementing a strategy aimed at income generation.

This section explores the benefits of using closed-end funds as the core component for a retirement strategy focused on generating steady income. Selengut highlights that these often-overlooked financial vehicles provide retirees with a stream of income that is steadier and more significant than the usual returns from traditional options like pooled investment funds and exchange-traded funds.

Closed-end funds primarily aim to generate revenue instead of appreciating in market value.

Selengut underscores the unique structure of Closed-End Funds, which are inherently crafted for the generation of income. This marks a significant departure from the usual emphasis on market value growth that is often the main concern of mutual funds and ETFs.

Closed-End Funds must distribute at least ninety-five percent of their realized income to the shareholders.

The author explains that Closed-End Funds (CEFs) are legally obligated to allocate at least 95% of their net income from investments to those who hold shares, setting them apart from mutual funds and Exchange-Traded Funds (ETFs). This financial instrument is structured to ensure a steady flow of income, thereby making it an appropriate choice for maintaining a dependable source of funds throughout retirement.

Other Perspectives

• The focus on income distribution might lead to a misunderstanding of the total return perspective, which includes both income and capital gains as measures of a fund's performance.
• The distribution policy might lead to a tax burden for shareholders, as frequent distributions can result in taxable events.
• Closed-End Funds (CEFs), mutual funds, and ETFs all have distribution requirements, but the specific percentages and rules can vary, and not all CEFs are required to distribute exactly 95% of their income.
• The steady flow of income from Closed-End Funds may be impacted by the fund's management decisions, such as the choice to retain income for future investments or operational needs.
• Dependable income in retirement might also be achieved through other investment vehicles that offer more liquidity or lower fees than Closed-End Funds.

Closed-end funds provide increased opportunities for income and more flexibility than both mutual funds and exchange-traded funds.

Selengut underscores the benefits of Closed-End Funds, particularly their increased flexibility, the opportunity for more tailored investment choices, and their capacity for generating greater income compared to traditional mutual funds and exchange-traded funds. He emphasizes the distinctive characteristics of Closed-End Funds that support an adaptable investment approach centered on generating income.

CEF trading occurs continuously during the day, enabling strategic realization of gains.

The author highlights the intrinsic benefits linked to the investment strategy involving Closed-End Funds (CEFs). Throughout the day, these financial instruments provide investors with the flexibility to strategically carry out transactions for the purchase or disposal of assets, capitalizing on fluctuations in pricing to produce earnings and redistribute them. Mutual funds are distinct in that they are only appraised at the end of the trading day, whereas this method diminishes the potential for tactical profits.

Other Perspectives

• While CEF trading does occur continuously, this does not guarantee liquidity, as some CEFs may have low trading volumes, making it difficult to execute trades at desired prices.
• Continuous trading can also lead to overtrading, which might erode gains through increased transaction costs and taxes.
• Emotional and psychological factors can impede an investor's ability to make strategic decisions, leading to suboptimal buying or selling that is reactive rather than strategic.
• The strategy of capitalizing on pricing fluctuations assumes that markets are somewhat inefficient and that investors can consistently identify and exploit mispricings, which is challenged by the efficient market hypothesis that suggests prices already reflect all available information.
• The statement does not account for the fees and expenses associated with CEFs, which can erode earnings.
• The end-of-day appraisal for mutual funds can be seen as a stabilizing factor, reducing the potential for knee-jerk reactions to intraday market noise.
• Mutual funds offer a different kind of value that doesn't necessarily focus on short-term tactical profits, such as providing a more stable investment by pooling resources and spreading risk across a variety of assets.

Historically, closed-end funds have been known to offer yields that surpass those of other equity investments by a factor of three to four.

Selengut demonstrates with real-world examples and visual statistics that the returns from Closed-End Funds (CEFs) are significantly higher, often generating returns that are three to four times greater than those commonly associated with conventional equity investments like mutual funds and ETFs. Investors focused on income generation may consider closed-end funds appropriate because their intrinsic design, employment of borrowing, and active management contribute to their ability to produce elevated returns.

Other Perspectives

• The use of leverage by closed-end funds to boost yields can also amplify losses in declining markets, which could erode capital and reduce long-term returns compared to other equity investments.
• The higher returns from CEFs might be associated with a less diversified portfolio, which could lead to greater volatility and risk compared to mutual funds and ETFs that typically hold a broader range of assets.
• The comparison may not take into account the different investment objectives, strategies, and risk profiles of closed-end funds versus mutual funds and ETFs, which can affect the suitability of these investments for individual investors.

Examples and case studies of implementing IFRI

This part offers real-world examples demonstrating how portfolios have consistently grown in terms of income and overall value through the successful application of the IFRI strategies. Selengut makes a compelling case for the resilience of the IFRI strategy, even amidst challenging economic conditions.

The guide demonstrates that a beginner investor can double their starting capital and returns in less than a decade through strategic investments in closed-end funds.

In 2013, the individual whose journey Steve Selengut's book documents transitioned their investment strategy to concentrate on Closed-End Funds, starting with an initial investment sum of $300,000. The studies indicate that adhering to the IFRI guidelines can lead to significant financial expansion, regardless of the initial investment's size.

The growth of the investment collection is driven by reinvesting dividends and the earnings from realized gains, instead of relying on further contributions.

The author emphasizes that the remarkable expansion occurred through the sole reliance on the continuous reinvestment of earnings and realized profits, without the need for additional contributions. This illustration emphasizes the strength of compounding and the dynamic handling of assets within the framework of the Investment Fund Recovery Initiative.

Context

• This approach aligns with a long-term investment strategy, focusing on maximizing returns through internal growth rather than external contributions.
• Reinvesting dividends and gains is typically part of a long-term investment strategy, as the benefits of compounding become more pronounced over extended periods.
• The approach can help manage risk by continuously reallocating gains into the investment pool, potentially smoothing out returns over time.
• Many successful investors, such as Warren Buffett, have attributed their wealth accumulation to the power of compounding, emphasizing the importance of time in the market rather than timing the market.
• Refers to the current state of the financial markets, which can influence investment decisions and strategies, including the timing of buying or selling assets.

A retired couple's illustration of sustaining income and nurturing the growth of their working capital throughout various market cycles.

Selengut describes how a retired couple manages their Individual Retirement Accounts, collectively valued at over $700,000, using the IFRI method for oversight. The case study demonstrates the robustness of their financial assets, which maintained a steady stream of revenue even amidst the economic downturn of 2022.

The book illustrates that, despite fluctuations in market values, there was a steady increase in income and operational funds.

The author discloses that over a span of five years, the couple saw their working capital and earnings increase, despite the variable market valuations of their investments. This demonstrates the resilience and consistency of an IFRI strategy, emphasizing its ability to withstand market volatility while maintaining a steady stream of earnings.

Practical Tips

• Set up a monthly 'finance date' with yourself to review and plan your budget. Dedicate an hour each month to sit down with your financial records. Use this time to assess your spending habits, compare them with the previous month, and plan for the upcoming month. This regular check-in keeps you accountable and focused on your financial goals.
• Automate your savings to increase your working capital consistently. Set up automatic transfers from your checking account to a savings or investment account every month. This way, you're consistently setting aside money, which can grow over time and provide a financial cushion that can help you weather market downturns.

Guidance on independently supervising portfolios of closed-end funds or doing so with professional support.

In this section, Selengut addresses a common dilemma that beginners encounter: deciding whether to handle their investment funds on their own or to seek the assistance of an expert. The author offers an objective framework to help readers choose the path best suited to their abilities and preferences.

When deciding on the management of your retirement savings, consider if you should handle them independently, consult for advice, or hire a professional in finance; taking into account various considerations is crucial.

Selengut recommends that individuals considering investment should carefully assess the different aspects involved in managing a portfolio of closed-end funds. He advises individuals to conduct an in-depth self-evaluation to identify the most suitable method for adopting an approach centered on generating income.

When evaluating your choices, consider the amount of time available to you, your comfort level with monitoring market trends, and your ability to handle potential financial downturns.

The author highlights three essential factors: the duration investors are prepared to dedicate to hands-on investment management, their comfort with regular market monitoring and making investment decisions, and their ability to withstand potential economic uncertainties and risks. He emphasizes the necessity of honesty in such self-examination, as managing a collection of Closed-End Funds requires the willingness to make buying and selling decisions swiftly.

Other Perspectives

• The assumption that more time leads to better investment management is flawed; quality of decisions often trumps quantity of time spent.
• Monitoring market trends can be time-consuming and stressful, which might lead to burnout or decision fatigue, potentially impacting the quality of investment decisions.
• Assessing one's ability to handle potential financial downturns is subjective and may not accurately predict actual behavior in a crisis.
• Self-examination can be inherently biased, as individuals may overestimate their abilities or fail to recognize their own psychological biases.
• Automation and the use of robo-advisors can mitigate the need for investors to make quick decisions themselves.

Resources available for DIY investors, including coaching, model portfolios, and selection universes

Selengut emphasizes that those who oversee their own retirement funds can utilize a range of tools and resources, emphasizing that the implementation of the IFRI strategy can be a joint endeavor rather than a solitary one.

Steve Selengut provides access to a Facebook group, consulting services, and selected investment research as well.

He invites readers to become members of his exclusive social media circle, known as The Income Coach. The community offers a supportive atmosphere where individuals can exchange ideas, narrate their experiences with investing, and obtain advice from experienced experts in the area of investment funds that are traded on an exchange with a fixed number of shares. The author offers customized guidance for those seeking help in defining parameters for selecting investment funds that are defined by a specific share count, making informed decisions about investments, and evaluating the performance of their financial assets. Lastly, he underscores the straightforward availability of his meticulously curated spreadsheets, which offer an array of options for acquiring and provide regular updates on thoroughly evaluated, high-caliber financial vehicles known as Closed-End Funds.

Practical Tips

• Engage in virtual stock market simulations to practice investment strategies without financial risk. Use online platforms that simulate real market conditions to test your investment ideas and strategies. This hands-on approach allows you to gain experience and confidence in your investment decisions in a controlled, risk-free environment.
• Partner with a local university to create a mentorship program pairing community members with finance students. Reach out to the finance or business department of a nearby college and propose a partnership where students can gain real-world experience and community members can benefit from fresh perspectives. This collaboration could involve joint research projects, investment simulations, or one-on-one mentorship sessions, providing practical learning opportunities for both parties.
• Develop a habit of attending webinars and online courses offered by financial institutions on ETFs. Many of these are free and can provide you with expert advice and insights into how ETFs work, how to analyze them, and what to consider before investing. This self-education can help you make more informed investment decisions.
• Develop a spreadsheet tool to track and analyze the performance of funds with varying share counts. Input data such as fund name, share count, price, and historical performance to identify patterns and make informed decisions. This tool can help you visualize the potential growth of your investments and compare different funds more effectively.
• Develop a personal investment checklist that includes non-financial factors, such as company ethics, sustainability practices, and social impact. Before making any investment, go through your checklist to ensure the investment aligns with your personal values and long-term goals. For instance, if you're passionate about environmental conservation, you might include criteria related to a company's carbon footprint or renewable energy initiatives.
• Use a mobile app that rounds up your daily purchases to the nearest dollar and invests the spare change into a diversified portfolio. This hands-off approach allows you to invest without needing to actively manage or evaluate your assets constantly. Over time, you can monitor the app's performance and adjust your investment preferences as you become more comfortable with the process.
• Partner with a peer who has a similar interest in Closed-End Funds to create a mini-investment club. Share insights and strategies on a bi-weekly basis through a shared online document or a virtual meeting. This collaboration can provide diverse perspectives and encourage accountability in maintaining and updating your investment tracking methods.