Do you want to feel financially secure? 

What investment strategy will deliver a financially secure life?  

My Strategy is based on a simple fact; to be financially secure you need income.   When you need income, you should buy investments that pay income.    I have tested this theory over time and I know that investments that create income should be the major portion of every income investors' portfolio.   There is more to this strategy. 

Will you still feel financially secure in ten years?  

Income from your investments must increase over time in order to keep up with inflation.   Do not listen to inflation statistics.  Think back to the cost of your first car or the rent on your first apartment and you will agree that to pay for your next car and your future housing, your income must constantly increase.  Even when you own your own home free and clear the cost of maintenance, taxes, etc will go up over time.  The point of The Money Madam's  strategy is to invest in stocks that increase your income over time.  Is it that simple?  There is more.

You must beat the yield on the 10 year U.S. Treasury. 

If you could put all your money in a portfolio of laddered, government guaranteed bonds and have enough money to live on, you would own the perfect low risk income investments.

In today’s market, that is not feasible unless you can live on about a two percent yield.  Therefore, if you are taking on more risk by investing in dividend stocks, the dividend has to beat the yield of the 10 year U.S. treasury and that dividend needs to be very safe.

The same is true for corporate bonds.   If you take the risk of lending your money to a company,  that company has to pay you interest well above the rate you could get from lending your money to the government in the form of  a 10 year U.S. treasury bond.  Plus, I do not buy bonds at a premium.   I will brook no challenge on this issue.   Buy bonds at par or less.

Buy Dividend Machines. 

The stock market has delivered about a 10 percent per year average gain.   Do you know that dividends are responsible for about one half of that gain?    If you are unlucky enough to be in stocks during the times when the market did not achieve its average gain, you will be very glad to have the dividends creating income.  You will be very happy that you did your research and you own a solid stock with very little risk of default.

Use bonds sparingly until the yield on the 10 year U.S. Treasury is at least 7% 

Bonds have been part of most investor’s fixed income strategy forever.  However, today bonds are so expensive that few meet our needs.    I know I can live on a seven percent yield but I cannot get that from U.S. Treasuries like I could 25 years ago.  Therefore, my philosophy includes using corporate bonds provided the company’s fundamentals support the ability to pay interest and this is called interest coverage.  

When investing in bonds, my philosophy is to ladder the maturities even if you have to pay a little more for the bonds you buy because you buy fewer.   Laddering will reduce the risk that interest rates go up (inflation.)  As your bonds mature you can replace them with higher yielding issues.

Another principle of fixed income investing is to never buy at a premium even if the effective yield looks enticing.   Always buy at par or discount.   Like stocks, I do not worry about the price of a bond unless I can sell it at such a profit and replace the bond with an investment that yields equal to or better income. 

Use covered calls to create capital gains as a source of income. 

My strategy includes creating capital gains to create income.   I accomplish capital gains not by trading stocks and hoping I can sell at a price greater than I bought.    I accomplish capital gains to supplement dividends by using covered calls.

Covered call options are more complex than just investing in dividend producing stocks.   Covered calls are derivatives and are considered risky; however, they have been used for retirement income for many years now.

Use covered calls only on stocks that also provide income.  With dividend producers, you at least have some income from the investment in case you were wrong when you wrote the call and are stuck with owning the company. Companies that qualify as dividend machines will deliver the ever increasing income you need.   Companies that may not quite qualify as dividend machines but that pay a solid dividend and have growth, have covered option call income potential.

More Control at less cost.
Investors will reap other benefits by using this income investing strategy.  When you manage your income sources by yourself, you have more control, more safety and it costs less.  

With these principles in mind, I believe over time you will achieve income investing success if you buy dividend producing stocks, solid bonds, and for the more sophisticated investor, sell covered calls on these companies.

If you cannot live off of dividend income alone, consider learning how to sell covered calls on growth companies that have a long dividend history.  Buy bonds at a discount, with laddered maturities, and with good interest coverage ratios.


Municipal bonds, Real estate investments and Preferred Stocks are not covered in this web/blog.  Using stock dividends, bond interest and covered call income to create income have tax implications that make any qualified retirement account the account of choice.
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