Building Wealth the Smart Way: Lessons from Veteran Investment Manager Steven Selengut

Welcome to the CJ Moneyway Show podcast, the podcast show where we unlock potential one dream at a time. Today we have another guest whose journey is truly worth hearing. Sit back, relax, and enjoy the Moneyway experience.

What's up, my good people? Welcome to the CJ Moneyway Show. The podcast that brings you stories behind the success associated with Believe Network. Today we're joined by Steve, a professional investment banker, author, and coach. Welcome to the show, Steve. How you doing today, man?

Thank you, CJ. I'm fine.

I'm glad you could take the time out today, man, and join us. So Steve, let's start by getting to know you a little bit better, man. Can you share with us some of your background and your journey?

Yeah, sure. Well, most recently, I guess I spent the last 43 or so years before I sold my business as a private investment portfolio manager, and I was managing just over $110 million for about 135 people, families, businesses throughout the United States and a couple abroad. Now I'm an investment Income Coach, and I've already coached just about 100 people to show them the way to income independence, which is what I, I tried to do for my clients throughout those years. I got started when I was about 25 years old after doing a lot of odd jobs and stuff while I was in high school, you know, pre-graduating high school and summers of my time in college. I was doing jobs Various types of jobs from mowing lawns to teaching people how to water ski, to driving a truck in a lumberyard. You know, I was fortunate because I had a family, a father who was a real estate developer, and he had a type of situation where he did everything from funding people's mortgages, you know, loaning them the money to buy the houses that he sold them. To renting their properties during the winter months and having rental properties that were always rental properties. And provided them with insurance, you know, on both auto and homeowners. So he had this vertically integrated enterprise that had 3 or 4 sources of income. And as a result, I became very income-focused. In my investment investing, which started when I was about 25 and I was primarily in the stock market with dividend-producing stocks. And I discovered the market cycle, so to speak. I saw how stock prices went up and down. Didn't matter how good the company was, it went up and down in price. It never had an impact on the company itself. It just had the impact on the investors. So I determined that I would take advantage of the fluctuations in prices and set a target profit for everything I owned, just like I would if I were running a department store. And I still, you know, with the merchandise, you have merchandise on your shelves, you set a markup, somebody comes in the store, you don't say, oh no, can't sell you anything today. Market prices are going up. I'm gonna hold on till tomorrow. Yeah. You, you sell it, you take your profit and you put something else on the shelves. And that's what I started doing. So by the time I was 34, I was making between 4 and 5 times what I was making in my job in New York City, and I was commuting to New York. So I figured at that point, well, I could stop working there, cut out all the expenses, you know, the suits, the ties, and the transportation going to Manhattan, and start a business doing what I did for myself. For other people. And I had spoken to a couple friends who I thought seemed willing to get me started, and they did. So that's how it started, and it's been a fun ride since then.

Man, that's pretty cool. Like you say, something that you can eliminate, taking out the suit and ties and everything, and, uh, invest that in something else. I like how you, you know, brought the markup and everything like that, and yeah, and how you broke that down. And I thank you for sharing that with us because it's probably something that some of us probably hadn't thought about. So Steve, in your view, why is income independence so critical for individuals today?

Well, you know, think about young people getting started, adults in a business who are tired of working for that particular enterprise, and they, they either want to do something on their own or start their own business or travel or do something of any nature that's different from what they're doing now or an improvement. Income independence provides that level of security that you can do that, just like it did for me. I knew leaving my job, I was still making that much money just on my investments. So I had the luxury of the time to find something else that I really like to do, investing for other people, and get that accomplished. So I had the time and the money to do that with. So most people probably don't get that capability as early in life as I was lucky enough to do. But most people can get themselves there just by paying attention to what they do with their money. They're getting paid from their current employment. They don't have to spend it all. You don't have to have a brand new car every 2 years. You know, you don't have to have 3,000 square foot home as a starter home. It could be a 2,000 square foot home. You know, little things where you take some of that money and you put it away. Most people today have the benefit of employee 401 plans, and they can do IRAs and Roths and HSAs and other types of ways to put money away, but not much of it is invested with an income purpose. The media, all the media you hear, all the investment media is focused on that stock market. Let's make that stock market go up. Let's just throw your money in the stock market, leave it there. And eventually it'll be big enough for you to do whatever you want to do, unless it's not. And the unless it's not is important. If you happen to be ready to retire in 2008, you weren't going to retire because we had the Great Recession. If it was, uh, you were heavily invested in the tech sector in 2000 around the dot-com bubble and it was time for you to retire. Again, it didn't happen because half of your market value disappeared. So people are forced to focus on the market value of their investments instead of the income that their investments produce for them. When they have a portfolio that's focused on income, it will grow in market value as well when the market goes up, because it's invested in pretty much the same securities. You're just putting 'em in a different package. And most of your listeners, I'm sure, have heard of mutual funds, which is a package of securities theoretically managed by a professional.

Mm-hmm.

All the time. And then they probably also heard of ETFs. ETFs are a new kid on the block. They were only developed in the 1990s. There hasn't been a whole lot of experience with them. They're fine. But again, they own a variety of securities. The only thing with both of those, they too have a focus on growing in market value, not real interested in providing income for their holders. You can find high-yielding ETFs and mutual funds if you set your mind to it and really look hard. But there's another type of fund, which is really the oldest fund of all called closed-end funds. They are trust vehicles instead of— they're more like stocks in a form of a trust. And the difference between them and stocks and the other types of funds is that they have to pay out 95% of their earnings to their shareholders. I just saw your eyes opened wide when I said that, CJ. Did you realize? So, and that should open a lot of people's eyes. I just think, for example, if Microsoft paid out 95% of its earnings over time to its shareholders, there would be a million more millionaires out there. Yeah, maybe more than that. Same with, uh, this NVIDIA outfit, or Tesla if he's making any profits at all, I don't know, or, or Amazon. Amazon's the biggest one, I think, as a great illustration. Just think if 95% of that income went back out into the economy to be spent or invested by the individuals who own the shares. In any event, so that's the difference. These things are focused on income. There's no way they're going to grow significantly in market value when they have to pay out 95% of their income. They just, you just can't buy more stores. You can't buy more things and sell more things. But the people who own them with all the income they have can buy more shares and more shares produce more income. And they can grow their income every quarter, every year, just by reinvesting a good portion of that income that they don't spend. Eventually they'll have enough income to take care of all their spending needs in retirement.

Mm, man. You know one thing, Steve, about me, when I don't know something and I'm listening, I listen. You know, like you said, my eyes got big when you said 95% of their income goes out. So Steve, let me ask you, man, since we talking about, you know, the investments and how people can make money. So you also are an accomplished author. So can you tell us about your second book, Retirement Money Secrets?

Uh, yeah. Retirement Money Secrets is a book I wrote just as, and it was published just after I Sold My Business.

Mm-hmm.

And the purpose was to put in writing a lot of the things we're going to talk about here, but a lot more of the intricacies of managing a portfolio with an income focus instead of a market value focus, the types of securities, how you judge the quality of these securities, the diversification you need to have in a portfolio. For safety, you know, income production, making sure everything you own produces a significant income. And then the department store mentality that you need to make sure you take your profits when you can. Right. So these are the basic risk minimizers, and I talk about them at length in the book. And we also talk about the market cycle. And how you can expect the markets to go up and down and up and down. It's a good thing. It's not a bad thing. It's the nature of markets. And actually it's the nature of any markets. Commodities markets are the same. Economies are the same. They have their good years and their bad years. You know, it's pervasive. It's not anything you can do about, and you should learn how to take advantage of it and eventually become the type of person that says, Wow, the market's up. I'm gonna take profits today. And then the next time the market's gonna, man, it's great. The market's down and I can buy things cheaper and I can get a higher yield when I buy 'em. So both up and down of the markets are now become your friend instead of like in today's press and the financial press and so forth. Every time the market goes down, they're pulling their hair out. Oh, what a terrible state. It is, you know, we can't go on like this. It's terrible when it's not. It's just the very nature of the markets. Yeah. Yeah. So, so those are the types of things we talk about in the book. We have Q&A sessions where investors actually ask me questions and I answer it right there in the pages of the book. It's like a live Q&A going on. It's, it's neat.

That sounds pretty good. So tell us, Steve, where can we find the book at? Amazon, Barnes Noble?

Uh, yes, both. All of those. I think there's a place called Draft2Digital, which is an ebook specialty, electronic books. I also have an audiobook which they can get. It's exclusively at Amazon, however, but it's listed right there with the other, with the ebook and the hard copy and the paperback. They're all together there. You can get it in any form you like.

Okay, so yeah, go get the book, Amazon, any form you like, ebook. Audiobook, Retirement Money Success by Steve S. I can't pronounce your last name, Steve, so I'm gonna do it in French. So Steve, this one is a two-part question. So over your career, you've managed more than 300 portfolios. What does it take to be an effective investment manager and how do you build trust with your clients?

Okay, I guess the first part, how to be effective. Is you really have to have the ability to set your own rules for what you're going to do, how you're going to determine quality, how you're going to diversify, how much income is enough income to expect from every security you own. I have, like, I won't buy anything in the stock market, closed-end funds that are paying less than 5%, and I won't pay any in the income sector. I won't take anything that's less than 6%. So you have to set rules and guidelines along the way to manage it. And then you have to be really, really a strict disciplinarian when it comes to your profit taking. You have to set targets just like that store we were talking about. You gotta set those targets and don't say, well, it looking awfully good here. I'm gonna let it go up a little bit more and go up a little bit more. And then all of a sudden it's March of 2020. And people realize that COVID is the real, the real deal. And in 2 months, the market drops 40%. So all of those profits that you think were so cool and just waiting, you can take them whenever you want. Well, they weren't there anymore. They totally disappeared. You can't let that happen. You got to be taking a profit. I take a profit every day if I can. And if I can take 3 or more profits, I'll take 3 or more profits every day. But I keep that cash flow. I keep— that's what my store runs on, is cash flow. And every time I get more cash flow, I buy more merchandise and I put it there in the shelves and I can sell it again and again. And then you all know about the McDonald's principle, right? It's not how much money you make on the hamburgers, it's how many hamburgers you sell, you know? So I, I'm trying to sell as much as I can and move it out of my shelves as quickly as I can. And that builds the velocity of money and it grows my income and it grows the amount of capital that I got invested producing more and more income every year. So that's that part of it. That's the management part of it. You have to take care of those approaches to process and don't vary it. Don't let outside influences say, nah, I'm not gonna sell today, or no, I'm not gonna buy. I'm gonna wait for prices to go down lower. You know, you can't time the market. You gotta go with the flow, right? Like it is. Okay. How do you build trust amongst your clients? I think I had a unique way in the industry. Most financial advisors or brokers or people in the industry do what their bosses want them to do. They have to sell model portfolios and they have various types of models that are supposed to be geared to different individuals in different stages of their lives. And it's probably not a bad idea, but that isn't something that I like, but that's what they focus on. They focus on the things that will keep their money in their accounts and hope that it grows in market value because their fees are based on market value. Fees are not based on the income they produce for their clients. It's based on the value of the client's portfolios. So it's kind of a different incentive, particularly for retirees who really need the income. So what I used to do is very simple. I used to tell the clients, I used to tell them that I will never buy anything for them that I don't own myself personally. And that's the way it was. You know, if I was going to buy a bunch of stocks for somebody, I owned them. I tested them out. They're okay for me to own or they're okay for them. And I do that now. I have what I call universes, selection universes of the closed-end funds that I choose from when I do my own portfolio. There's about a little more than 100 different closed-end funds I use for the income-type securities like bonds and mortgages, real estate, you know, income real estate and stuff like that. And another just under 100 that focus on stock market investing. So I can use those and I own pretty much every stock that's out there that's worthy, that's investment grade through these closed-end funds. Each of these funds, uh, between 100 and 200 average number of companies or, or securities inside them. So they're super well diversified and they pay a lot of income. They pay right now 9 and 10%. Is what they're paying equities and income respectively. So, and I'm still telling the people that I coach, these are my universes of what's in my portfolios. So it shows them the yields, the prices, the dividend history, and so on. So, you know, and all I say is these are the ones you ought to look at when you're trying to make investment decisions. I'm not telling you to go out and buy any of them, But you should select from this if you want to do it the way I do it.

So with that, Steve, generating more money, spending money than we need is the goal for many. How do you advise people to achieve that?

Okay. In order to make more money with your investment portfolio, you have to focus on securities that are there with an intent to produce income for you. So for example, if you're looking at the stock market, a lot of people like to go into the tech sector and AI is very popular right now. But think about it, when Microsoft first came out, when Amazon first came out, all of these companies had competitors. Okay? And the one or two companies that actually made it were the exceptions. They were the special companies. They had the management team that got the job done, and the others fell by the side slowly or were taken over by the giants. You know, I'm sure Amazon bought out a lot of its competitors, as did the others. So it's a speculative process to try to figure out which ones are going to be the winners and which ones aren't going to make it and which ones are going to be bought out actually for more money than you invested in them. You know, that's a very difficult thing and it's not been a science that's been perfected by anyone that I know of. It's so much easier to buy a ma— and so not only so much easier, but so much safer and so much cheaper to buy a managed portfolio of securities. Let's say, You wanted to get in on into this AI, what's going on with AI, right? It's getting very popular. People are throwing money at all different AI firms. Well, if you were to be able to buy a managed fund that was paying 8% income to you while the manager worried about which of the AI companies he, and he's a professional at this, he's like I was back in the day. He's a professional investor and he's going to be closer to the news and have a better idea of which ones to get out of now and which ones to get into. And he's also going to take his profits along the way. And he's got to do that because he's going to pay you that 8% I was talking about, and he's got to get that from something. So that's the thing you can do. You can get out there and find one of these closed-end funds, the average yield of a closed-end fund to get you started, it's like between $12 and $14. So you can buy 100 shares of a closed-end equity fund and you'll own a piece of the action of hundreds of companies, hundreds of companies without taking the risk of just trying to find one and buying 6 shares of it. And reinvesting whatever dividend it pays. It's just a much quicker and safer approach to getting started in investing.

So with that, Steve, can you share some of the insight to your coaching program and what can participants expect to gain?

Okay. Coaching program is there mostly for people who have read the book and have questions about how to implement an income-focused investment operation. What I coach them on is I do several things. I send them a starter kit, which gives them like 60 different closed-end funds that this professional advisor who does things according to my methodology, he and I put together just as a, to expedite. So you don't have to do quite as much research. You can research just these 60 instead of researching over 200 of them. And you can search these 60 and find some ones you want to start with. That's one thing I give all my coaching clients. I also give them the universes, which have the entire groups, you know, all 3 groups of them. And then what I do is I take a look at what they've already done with their investment program, what they already have, how they've invested it, what securities are they in. I mostly don't deal with brand new investors at all. It's not cheap to get a coach to help you, and it would be better for you to just read the book and get into my Facebook group and raise questions there to, you know, to get started because it's free. You know, it's, you could get the book for $10, an ebook, and you can get all your questions answered by the participants in the group for free. I think that's the way to go if you're just starting out. But if you already, you know, let's say you're a business owner and you've amassed a nice asset and you're about to sell your business for a good sum of money, and you've been relying on some other professional to run your portfolio, and you see that it's only generating about 2% income, and Steve over here is saying you should be generating 9 or 10%. I show him how to do that. I show that guy, you have to get rid of these securities because they're not producing any income. You got too much over here and the NVIDIA doesn't pay any income at all. And it's a big portion of your portfolio. And you want to say thank you by taking your profits and moving into something that pays dividends, you know, because that's what you're looking for. You're looking for cash flow, you're looking for income so you can free yourself from what you're doing now and do what you want to do, get independent. So that's pretty much what I do. I help them make the transition. From a, what's probably been a very successful portfolio. It's got a lot of money in it, but doesn't pay any income. And I show them how to transition into an equally successful, safer portfolio that does generate income.

So Steve, you was talking about the Facebook program. What's the actual name of the Facebook program?

Uh, it's called the Retirement Income Independence Group.

Okay.

Yeah. If you look up my name and Facebook groups, you'll probably find it. Or if you go closed-end fund groups on Facebook, it'll probably show up on that too, but it's listed. And I think the name's in the book. If not, the link is— well, then the link is probably in there too, if it's the ebook. Right.

Okay. So Steve, I only got a couple more questions for you, man. I appreciate you coming on and giving us this valuable insight. So what would you say is the oldest income-producing investment security available to investors?

You know, I don't know if I mentioned, I'm glad you brought that up. Most people haven't heard of closed-end funds, and it's primarily because their focus is income and not growth in market value. But closed-end funds were developed in the early 1800s, possibly in the European markets, but that was about 30 years before mutual funds were developed and more than 100 years before ETFs came along. So this trust type of vehicle has been around for a very, very long time. Um, most of the securities that people will see when they go to a place or they see my universes have histories that go back an average of over 20 years. They've all been around a long time, just like any other, just like stocks and something like that. There are occasional mergers between the two and they take on a new name or a new company and Their records don't go back as much, but some of them have been around 90, 100 years.

Okay, so my last question, Steve, like I said, I appreciate you coming on. So lastly, let's talk about interest rates. How can both higher and lower interest rates be good news for income investors?

Okay, the expectations that we have about interest rates, which of course we get from the government, from signals from the Fed. Like about a year and a half ago, they said they weren't going to raise interest rates anymore. They're starting to think about when they're going to lower. So when interest rates go up, if you think about the scales of justice, you know, the two things coming down, and if one of them goes down, the other goes up.

Mm-hmm.

That's how it is with income-generating securities and interest rates. If people expect interest rates to go up and they're in a security that's focused on like a bond security or a mortgage that's going to pay income, if you were to sell it, let's say it's a 5% bond and interest rates are 2%. Okay. You're going to sell it. The guy who's going to buy it is only expecting it's a 2% market. So in order to make that bond just sells 2%, you're going to sell it at a premium. You're going to sell it at a higher price. So the actual yield only is around 2%. But on the other hand, if you have a 2% bond and interest rates go to 5%, the price of that bond's going to go down because the guy who buys it from you is entitled to 5%. So he has to keep— has to pay a lower price. That's as simple as I can explain it. When interest rates go up, prices go down and vice versa. So knowing that, and you have an environment now where interest rates are trending downward again, the Fed just cut it. They're not talking about raising it again. The economy is great, but it's not so great that they want to slow it down. Interest rates are likely to take another step down eventually. So you see that in the prices of income-sensitive securities are rising right now. Okay. But if we do go down interest rates, they'll rise even more. So the prices are lower than they were 5 years ago when interest rates were next to zero. And it's doubtful that we're going to get that low again, you know, so it's not a bad time to buy them now. So when you have that information, and to make a long story short, when you think the prices or you feel or you see that the prices of something has been going up, smarter to buy less of it when you make a new investment, because if it's going up now, eventually it's going to go down again, like the stock market, up and down, up and down. That's the only thing we know for sure. We just don't know when. Right now, stock prices are at their highest level in the history of the world. Wow. The Dow Jones is at its highest level. The S&P is at its highest level, and the NASDAQ is just You know, the tech sector is still almost 10% below its all-time high, but that's not a lot. So stock prices are very, very high right now. So if you were normally gonna go out and take an initial position in something at about $5,000, you'd be smarter to take a $3,000 position right now. Mm-hmm. If it was, you're just getting started in closed-end funds, and you're young and you're gonna go into the stock closed-end funds, instead of putting $500 in any one of 'em, put $300 into it. You know what I mean? So that's the type of thing. When prices are up, you buy less of something. When prices are down, you buy more of it. So interest rates. So if you own a bunch of interest-sensitive securities, when interest rates go up, It's to your benefit because your prices have just gone down. And that's not a bad thing because now you can add to your securities at a lower price and a higher yield. They don't change the dividends they pay. It's only the price that changes. So you get the same money at a lower price. So it's a higher yield. When interest rates go down, your prices go up. Now you can take profits and you take your profits and you reinvest. You usually buy less of the things you invest in and you spread it out amongst more entities, but you're taking the profits and you're building your base. It's like if you had a bunch of apartment buildings and they're all paying rent and the prices go way up. So, well, I'm going to sell these two apartments. I'm going to make enough money in profits that I'm now going to be able to buy these four apartments over here. So I'm increasing my rental income because now I have more properties. That's the type of situation. So that's why I say neither higher or lower interest rates are a problem to income investors. They're both opportunities to take advantage of. So that's a little, that's a little complicated. You know, it's amazing. It's amazing because bonds are very simple, you know. You're borrowing money from a corporation and it's a 30-year bond and they're promising to pay the same amount of money every 6 months for 30 years. They can't change that. They've got to do it. If they don't pay it, everything goes crazy for them. Their stock price tumbles, they get fear of bankruptcy and all this stuff. So they're going to pay and they have to pay that interest before they can pay any dividends on their stock. All right. So it's a very, very safe investment. So even if interest rates go back up to 12% and the price of that bond goes way, way, way, way down, the same money is being paid out to you if you own it.

Hmm.

It's only the price that's gone down. So think about it. You've got this fund of bonds that trade like a stock. The bonds are still paying all this money. The price has gone down, man. That's the time to buy that. Yeah, because you're getting it for much less than what its intrinsic value is, man.

Okay, you sure dropped some nuggets on us today, Steve, man. I appreciate it. Hey, so Steve, before we get out of here, man, is there anything else that you would like to share with us?

That, um, not that I can think of offhand. If you have any more questions, I'm happy to answer them. And I can tell you that the book is not written like my previous book. It's not meant to be a textbook, you know, for a junior in college or something like that. It's a conversation between my wife and I and a couple that we meet on a Viking River cruise. And we talk about how we got there and what I do differently with my investments than what he does with his investments. So it's just a conversation. I mean, it's, I think it's relatively basic and easy to follow and get the idea because this is a whole, different mindset we're talking about. It's not easy to say, wait a minute, I don't care about market value anymore. I'm just looking at income. That's a big step to take. Yeah, admittedly. But once you do it, once you realize it and you use those controls of the risk, you know, the quality, you make sure it's quality to diversify properly the income and the profit taking. When you do that, it makes that shift of your emphasis from market value to income much easier. Market value fuels the ego. You get big-headed, you feel great, right? Income fuels the yacht. Yeah, that's what you pay the bills with, is the income. That's the focus we want to change.

Yeah, yeah, what he said, change your focus.

Get the— you know, you know, another good example of it is When unions strike, mm-hmm, what do they want? They want more money. They want more income. They want more salary. They want to be able to pay their bills. They don't want a daycare center on the property nearly as much as they want more money. Yeah, that's the thing.

So that's how you gotta think about it, huh? So Steve, man, like I said, I appreciate you coming on, man, sharing this wisdom, man, dropping all these nuggets on us. Thank you for the book. Just listening to you talk about it, I think I got to dive into it even more, man. And so for those who don't have the book, check it out on Amazon or wherever major books are sold at. Retirement Money Secrets. Follow my man Steve on Facebook.

There's the book for you.

I like that cover.

I'm trying to straighten it out.

I can't. There you go.

It's like dealing with a mirror, you know?

Yeah. Retirement Money Secrets. Hey, get it in ebook, which I got it in the form of an ebook thanks to Steve. I appreciate it. Follow them on Facebook, join this investment group. Got a lot of good ideas, got a lot of knowledge to share with you guys. You have been listening to the CJ Moneyway Show with your boy CJ Moneyway and my money-making friend Steve. Hey, thank you for tuning in. We out of here.

Peace. Thank you for listening to the CJ Moneyway Show.

Show.

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