Total Return = Income + Growth
When investing for Income, “Total Return” stems from two components: Income PLUS Growth (Total Return = Income + Growth). It’s important to understand that the “Income” portion of Total Return comes in the form of both interest and dividends, while growth is simply measured in terms of capital appreciation. Many investors believe that increasing income requires taking on more risk, and here’s why that’s wrong. When you invest for Income (I) instead of Growth (G), you’re typically investing your money in investment vehicles designed to significantly reduce volatility. Let’s face it, the G (Growth) can quickly turn into an L (Loss) when the stock market suffers a major downturn like the ones that began in 2000 and again in 2007. This isn’t to say you must sacrifice growth when you shift your focus to income, you can continue to grow your portfolio organically, by strategically reinvesting the income you don’t need into other conservative vehicles.
Many people are also under the wrong impression that they can only get a 3% return from their fixed-income portfolios and are often quite shocked when they find out that they can earn much more than that.
Actually, from 2000 through the end of 2017, the S&P 500 provided investors an average annualized return of 5.26%. Meanwhile, investors holding investment-grade corporate bonds during that period could have yielded 5% or more just from the income component alone1. Any growth on top of that was simply icing on the cake. All this with much less stress and volatility than the stock market alternative.
With many economists fearing that the stock market is currently overvalued and that another major correction could be around the corner, income-based investors, whose portfolios have been properly managed, can take comfort in knowing that they can earn much more than 3% income from their retirement savings on an annual basis. More importantly, they can do it without enduring the stress and uncertainty that a pending stock market correction could bring.
Visit the Retirement Income Store to find a local Income Specialist, registered with Sound Income Strategies, who can help lower your exposure to stock market risk and help you establish renewable streams income you can count on well into retirement.
Sources: 1. Bloomberg data
5 Things That Set Our Income Specialists Apart from Typical Stock Market Based Financial AdvisorsHave you ever met anyone who’s both an orthopedic surgeon and a chiropractor? Probably not, they’re either one or the other. It’s the same in the financial services industry, advisors typically specialize in either the stock market or the bond market, but seldom both.
The reason, most financial advisors today got into the business during the 1980’s and 90’s, during what was the best stock market in U.S. history. So, their so-called area of “expertise” became the stock market, not the bond market. And frankly, if they do fixed income, it’s usually an afterthought and most will simply use Bond Mutual Funds.
The problem with bond mutual funds is that they have risks and tax implications that can be reduced by simply investing in a diversified portfolio of individual bonds, or other fixed income securities.
1. True Income Specialists Invest Their Clients’ Money in Individual Bonds and Bond Like Instruments, Rather Than Bond Mutual FundsAt Sound Income Strategies, we don’t take shortcuts. Our team possess the specialized training required to avoid costly mistakes, and effectively create customized portfolios of actively managed individual fixed-income securities on behalf of our clients.
When you buy an individual bond, you have a contract with a borrower. Naturally, that contract is only as good as the credit worthiness of the borrower. It states you’ll get a fixed rate of interest for the life of the bond, and when the bond matures, you have a guarantee from the borrower to repay your principal at maturity. But when you buy a bond mutual fund, neither such guarantee exists.
2. True Income Specialists Look Beyond the Moody’s and Standard & Poor’s Ratings and Actually Conduct Their Own ResearchIf advisors are smart enough to invest in individual bonds instead of bond funds, the next question is do they look beyond the Moody’s and Standard & Poor’s rating of the bond?
We learned during the Financial Crisis of 2007-2009, that all those AAA rated Mortgage bonds that were about to default had ratings attached to them from these ratings agencies that were far too generous. Advisors who specialize in individual fixed income securities know they need to look beyond those ratings and research the actual financials and management of the issuers themselves.
3. True Income Specialists Use Limit Orders to Purchase Income Generating SecuritiesLet’s say an advisor passes the first two tests: they don’t use bond funds and they look beyond the ratings. The next question becomes, is the advisor following a stock broker mentality and simply buying these securities at current market prices without the use of Limit Orders? Most advisors don’t use Limit Orders, they purchase at current market prices, which means if the prices of the income generating securities in question are up that day, their clients could be overpaying.
4. True Income Specialists Spend The Time and Resources to Go Directly to Buyers And Sellers to Negotiate The Best Prices for Their ClientsFurthermore, to buy individual fixed income securities, every broker or investment advisor must have a clearing house such as Charles Schwab, TD Ameritrade, or Fidelity. When you’re buying stocks and stock mutual funds, the commissions and/or trading fees are required to be 100% transparent. The underlying issue with bonds, is that the clearing houses don’t have to disclose to the client, broker, or investment advisor how much extra they’re tacking on to the price of the bonds their retail clients are buying.
Advisors that specialize in individual fixed income securities know this and invest heavily in technology and research to find out who is buying and selling various fixed income securities at any given time. This knowledge then gives the advisor the ability to go directly to the buyer or seller, and negotiate a better price, almost on a wholesale basis, for their clients.
5. True Income Specialists Actively Managing Their Clients’ Portfolios of Fixed Income SecuritiesIn the rare case an advisor passes the first four tests, It’s almost inevitable they’ll fail the final test, which is whether they are actively managing their clients’ fixed income securities. The few advisors who buy individual bonds and bond like instruments, typically make the mistake of taking a “buy and hold approach”.
Between the years of 1981 through 2014, interest rates were generally decreasing, which meant bonds had a tailwind that pushed their prices up, so “buy and hold” worked fine. But, in 2015, this downward trend reversed for the first time in 33 years1. Those tailwinds officially turned into headwinds, and the best way to manage fixed income securities in a rising interest rate environment, is to constantly strive to be in the highest yielding fixed income security in any given class.
True fixed income specialists know this, and they proactively swap their clients’ bonds to get higher yields. Now, they might be swapping these bonds to get a higher current yield today, or they might be swapping these bonds to get a higher yield in the future by getting a better purchase price today. Or, they could be swapping these bonds defensively to get a more secure bond with a higher rating, or a shorter-term bond.
While most Registered Investment Advisory firms take shortcuts to simplify their efforts, our management team is diligent in their research, and we seek to build customized portfolios that fit the needs of our clients through the use of actively managed fixed income securities. We concentrate our efforts on helping Baby Boomers look forward to retirement with excitement, feeling a sense of security, and most importantly, reliable income.
Dividend Stock Portfolio
In addition to our income investing strategies and methods, our investment management team offers common stock strategies for those with the willingness and ability to endure some level of stock market volatility.
We can create a portfolio of equities consisting of high-yield dividend paying, value-oriented stocks. The equities that make the cut will tend to have low price to earnings (PE) ratios and high dividend yields. Dividend stocks offer the benefit of current income as well as the potential for growth. In theory, if the market does experience a bad year or two, your downside should be somewhat less since you are buying stocks that theoretically are undervalued. The higher yielding dividends will help take the sting out of any potential drops.
Our strategy is based upon an investment strategy known as the “Dogs of the Dow”, which is a stock market anomaly that historically has outperformed a lot of other buy and hold strategies over time. From 2012 through the end of 2016, the Dogs of the Dow strategy provided a total return of 8.6%, outperforming the DJIA which returned 6.9%, the S&P 500 which returned 6.2%, and the Fidelity Magellan fund which returned 5.3% during that same time period, as reported on dogsofthedow.com. 1 Going back even further, from 1992 to 2011, the Dogs of the Dow matched the average total return of the DJIA (10.8%) and outperformed the S&P 500 (9.6%), as reported on dogsofthedow.com.
The Dogs of the Dow strategy uses a straightforward formula that has investors invest in the 10-highest dividend-yielding blue-chip stocks in the Dow Jones Industrial Average. These are held for a year before they are liquidated and replaced with the then 10-highest dividend-yielding blue-chip stocks in the DJIA the following year.
Our strategy differs from the “Dogs of the Dow” in a few ways. First, our approach is less formulaic and much more hands-on. Our investment management team filters the 500 stocks that make up the S&P 500, instead of just the 30 stocks that make up the Dow, to identify and select those with lower PE ratios that have higher dividend yields.
Second, since lower PE ratio stocks that offer a high dividend yield often do so because the stock of that company is “out of favor”, our Investment Management team conducts their due diligence to research why those stocks are out of favor. We look beyond the high dividend yield to find out if a stock is out of favor for a good reason and should be avoided, or if it’s out of favor temporarily due to conditions that are improving or expected to change, like being oversold.
The third, and perhaps most important, thing we do different is that we re-evaluate your positions more often than just once a year. The active management approach that we take with each client’s portfolio ensures that we are regularly on the lookout for undervalued Blue-Chip type companies that offer the best mix of current income and potential for growth.
After the Stock Market plunged by nearly 50% in 2000-2003, and then again by nearly 60% from 2007-2009, many investors, particularly Baby Boomers, realized they needed a new approach to saving and investing for retirement. Unfortunately, despite these dramatic drops, many financial advisors and stock brokers were still advocating old stock market-based investment strategies, or they would just take the easy way out and invest their clients’ hard-earned money in bond funds.
Investing in individual fixed-income securities was merely an afterthought for most advisors because they lacked the specialized training required to effectively implement and manage individual fixed-income strategies.
Sound Income Strategies, founded by David Scranton, is a Fort Lauderdale based Registered Investment Advisory (RIA) firm that differs from most other RIAs due to our fundamental experience in the “universe” of income-generating savings and investment strategies. Sought out to share his insights on CNBC, Bloomberg, Fox Business and other financial outlets, David recognized the need to “stop following the crowd” and changed his business model to one he felt would better serve his clients and help protect their portfolios in the decades ahead.
David Scranton, and his team of Income Specialists, registered with Sound Income Strategies, who specialize in income-generating strategies, help our clients build more secure and dependable retirement plans through the active management of individual bonds, preferred stocks, and other bond like investments.
With the potential for another major stock market correction in the coming years being a concern for many economists and investors, Baby Boomers need to understand that the onus is on them, more than ever before, to better protect their assets and prepare financially for retirement.
For most, traditional, employer-based pensions no longer exist, and in the wake of two major stock market drops since the year 2000, many have learned that the responsibility falls on them to help protect their assets and prepare financially for retirement.
With that in mind, we work with all clients to make sure they have the best possible investment strategies that are tailored to meet their goals—placing a priority on financial self-defense and generating ongoing income for retirement.
We understand that no investment option is without some degree of risk. But, the amount of risk you can afford to take with your investments differs drastically depending on numerous factors, including your age, cumulative assets, income needs, and retirement goals.
And, as you know, too much risk can be especially costly in the 10 years immediately before and after retirement, as many unfortunate investors learned when the stock market plunged by nearly 50% from January of 2000 to March of 2003 and by more than 50% from October of 2007 to March of 2009. In each instance, it took six or seven years for the stock market to rebound to its previous peak, forcing many retirees and near-retirees who got caught in the downdraft to either postpone retirement or return to work.
Sound Income Strategies works with each client to conduct a thorough portfolio risk analysis. We help our clients avoid unnecessary risk and incorporate “defensive” financial strategies that help protect their retirement savings against damaging losses. At the same time, our active-management approach can help you maximize income and growth opportunities to better ensure the achievement of your long-term financial goals.
Click here to find a local Income Specialist, registered with Sound Income Strategies, who can help lower your exposure to stock market risk and help you establish renewable streams income you can count on well into retirement.
After selling his computer hardware business in the late 1990s, Steve entered the financial industry in 2002, working together with his longtime friend, David Scranton, as an independent Insurance Agent.
In 2007, Dave and Steve launched Advisors’ Academy (AA), coaching, marketing, and business development company dedicated to helping other Advisors improve their Fixed Annuity and Life Insurance practices, while maintaining the highest standards of client care. In 2011, Steve became President of Advisors’ Academy.
In 2014, Dave and Steve worked together to create Sound Income Strategies (SIS), an SEC-registered Investment Advisory Firm specializing in Fixed Income investing. Within 5 short years (2019), SIS has grown from zero to over $1 billion in Assets Under Management.
In 2018, Advisors’ Academy officially moved its HQ to Ft. Lauderdale, FL, where SIS was already headquartered. Steve decided that, in order to ensure that both companies kept up their standards of excellence as they grew, he needed to be “hands on”, so he moved from his home state of Connecticut to Florida and took on the role of Chief Operating Officer for Sound Income Strategies.
Steve is constantly striving to streamline operations and improve the experience their customers have at both companies. Steve brings his 30 years of business experience, combined with his familiarity of the Income Model that both AA and SIS subscribe to, in his efforts to achieve these goals.
In his free time, Steve enjoys golfing, scuba diving, kayaking, fishing at his cabin in Maine, and spending time with his wife, Sandy.
Eric began his career trading equity options on the floor of the Chicago Board Options Exchange in 1997 where he learned the power and protective attributes of derivative instruments.
Shortly after leaving the Chicago trading pits for a trading floor at Conseco Capital, Eric worked with fixed-income veterans managing over $35 billion on behalf of institutional investors. After plenty of cold winters in the Midwest, Eric accepted an offer and moved to South Florida. Here, he worked for a boutique RIA firm, Levitt Capital Management, as an Equity and Fixed-Income Analyst.
He was later offered the role of Portfolio Manager/Analyst for Gibraltar Private Bank & Trust. During this time, Eric obtained a Chartered Financial Analyst designation from the CFA Institute. After many years on the “buy side” of the financial industry, Eric had the opportunity to work on the “sell side” at JVB Financial covering institutional and RIA clients for fixed-income securities.
Eric helps lead the investment strategy at Sound Income Strategies and works closely with David to ensure that our clients are meeting their investment goals while minimizing market turmoil and gyrations. His many years of experience in portfolio management and analysis help the Sound Income Strategies team determine what securities best meet the client’s risk tolerance and return expectations.
Charles first ventured into the Financial Services industry in 1997 when he worked as a Financial Advisor for Dean Witter. Charles enjoyed almost 2 decades of success on the retail side of the business with Dean Witter, as well as a few other firms, even while he transitioned to Compliance in 2010.
Charles’ years of experience as an Advisor, coupled with his years of experience on the compliance side, have prepared him well for his current role of Chief Compliance Officer. In his spare time, Charles enjoys traveling, the mountains, and spending time with family and friends.
Eric Beyrich joined Sound Income Strategies as an Equity Portfolio Manager in 2020.
Prior to joining SIS, Eric spent over 30 years as a fundamental value investor: 17 as an Analyst, 11 as a Portfolio Manager, and 3 as a Corporate Strategist. During that span, he was also a partner and Head of Marketing at KR Capital Advisors. Additionally, for the 8 years that he was Head of Equities at Loews Corporation, Eric’s portfolios consistently outperformed the S&P 500.
Eric holds a BA in Economics from Rutgers College, an MBA in Finance and International Business from NYU, and a Graduate Diploma in Financial Strategy from Oxford. He also holds the CFA and CFP designations.
Barry C. Wheeles
With more than 25 years of experience in the financial services industry, Barry C. Wheeles has a unique and diverse background that includes roles in the retail financial advisory side of the business, as well as the business development side, through his work expanding national territories and multi-state branch offices.
Barry has held several sales leadership roles within H&R Block, Morgan Stanley, Zacks Investment Management, and Waddell and Reed. Barry has also helped develop the new financial services practices of career-changing professionals and has contributed to substantial growth of existing practices for several Barron’s Top 100 Advisors.
Barry possesses a strong background in financial analysis and growing national branch office footprints, with an emphasis in leadership, driving sales, recruiting, developing and launching top tier talent, as well as creating and exceeding daily/weekly/annual branch revenue goals.
Barry holds a bachelor’s degree in Business Administration with an emphasis in Finance and Banking from the University of Missouri in Columbia, and a Master’s of Business Administration from Baker University. Barry has also completed the Certified Financial Planner curriculum through the College of Financial Planning.
Barry has historically been a guest speaker on radio, television, podcasts, retail client seminars, and industry conferences. When he is not at work, Barry enjoys spending time with his family, sailing, and touring new locations on his sport bike.
Keely joined Sound Income Strategies in January of 2017. Continuously influenced and inspired by her older brother, who works in finance, she decided that the financial field was the most realistic place for her to utilize her sales and communication abilities. Past experience as a Junior Analyst in the fashion industry and managerial responsibilities in sports medicine have afforded Keely the skills needed to become a valued team member and resource for our advisors.
She is currently studying Business and Finance at Palm Beach State College. Keely supports Eric with any operational issues. She also handles any questions Investment Advisor Representatives or clients might have regarding client services.
After obtaining a Bachelor’s in Finance and Economics from Florida State University, Steven began his professional career as a plan administrator with a 401(k)-retirement planning company in Jacksonville, FL. As a plan admin, he provided administrative services including plan design, compliance oversight and testing, and government filing.
Steven also spent 2 years with The Newport Group as an investment analyst on the Asset and Liability Management team. He played a key role in the execution of asset management strategies for corporate and institutional clients.
As a Portfolio Analyst for Sound Income Strategies, Delsy’s responsibilities include processing trade allocations, liquidations, and portfolio rebalancing. Delsy began her career trading federal funds for Banco Mercantil in the Interbank Market.
After leaving Banco Mercantil in 1994, Delsy traded fixed income securities and equities for Lloyds TSB through 2004. Following that, she continued to trade fixed income securities and equities for Gibraltar Private Bank, where she managed the compliance system and was Chairperson of their Compliance Review Committee.
Wen graduated from Mississippi State University with a Bachelor of Business Administration in Finance in 2016 and a Master of Science in Finance at Florida State University in 2020. While he was doing both his undergrad and graduate studies, Wen was actively participating in the management of a half million and four million dollar student investment fund, respectively.
Wen began his career at Bank of America/Merrill Lynch as an Account Specialist. He then moved forward to become a Merrill Lynch support trader, aiding those with post-trade issues. After Merrill Lynch, Wen decided to take a role at Fidelity Investment as a licensed professional engaging with clients on a daily basis with various operational and investment-related issues.
Sound Income Strategies is a Registered Investment Advisory firm specializing in the active management of income-generating portfolios. With our years of industry experience, we focus on maximizing the value of your income portfolio and help you build a retirement plan that delivers dependable income, growth potential, and, most importantly, defense against damaging losses. As a Registered Investment Advisory firm, we honor our fiduciary responsibility. As spelled out in the U.S. Investment Advisers Act of 1940, our goal is to always act and serve in the best interest of our clients.