The Income Factory and an Uncertain Future
"Had I known with a crystal ball what equities were going to do for the last 10 years, I'd have never started the Income Factory." Steven Bavaria
“When I retired in 2017 I didn’t know the market was going to run like a bull for 8 and a half years. Nobody knew that, obviously. With hindsight, if I just held the S&P500, I would have more money now than if I’d done income investing.” the Armchair Income investor
If you just snipped these statements from their interviews you could make it sound like they were suggesting they had somehow made the wrong decision by going down the income investing path.
But neither one of these investors is making that suggestion. Instead they are both saying the same thing. If you knew what was going to happen in the future you would just pick the option with the higher future return. But since the future is unknown you build a system that lets you achieve your goal in any potential market condition.
They aren’t claiming that income investing is going to produce superior returns, they are instead saying that income investing can change how you capture your total return.
The way Bavaria explained it, he said:
"It's important to be humble about the Income Factory as well. On paper, you know, the math is obvious that whether you make 10% yields and 0% capital gains or 0% yields and 10% capital gains, it's the same 10% total return. And that's great if one can average that over time. I'm admitting that had I known with a crystal ball that equity was going to do what it did for the last 10 years, I'd have never started the Income Factory. But I'd had experience in years past, you know, sitting there watching equity not do that. So, yeah, I'm looking at what's the best approach for literally over 30 or 40 years."
Income investing might not produce the highest return, but the strategy isn’t trying to outperform. It is a strategy to achieve your income needs and grow them over time. In nearly all things in life there is a give and take. You might have a higher return on investment using a growth investing strategy, over using an income focused strategy.
That trade off might make sense to some investors. The thing is that neither strategy will eliminate risk or uncertainty of the markets; they just change how the investor is exposed to the risks. In the end there is no perfect investment strategy that works for everyone. So you have to follow a path that makes the most sense to you.
