Bringing Back the Lost Art of Income Investing

Join Arsenal Financial advisors Doug Orifice and Jeremy Vaille as they open up their relaxed office conversations about various financial topics for everybody to hear. In this episode they get together to discuss the lost art of income investing. Listen to learn about:

• What is income investing?
• Why people have started to forget about income investing (but should come back to it!)
• What are bonds really?
• The different flavors of income investing for different situations and life stages from bonds to savings to dividends to properties and more
• Doug gets spicy about bond index funds
• Then finish up with some dad jokes

Learn more about Doug, Jeremy, and Arsenal Financial at arsenalfinancial.com or call (781) 335-9100.

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. The information in this podcast is educational and general in nature and does not take into consideration the listener’s personal circumstances. Therefore, it is not intended to be a substitute for specific, individualized financial, legal, or tax advice. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a final decision.

Transcript

Doug: 0:04

Well, hello out there and welcome once again to Arsenal Money Clip. We're trying really, really hard to give you a listenable podcast about money and finance. I'm here in Watertown, Massachusetts. My name is Doug Orifice. I'm a financial advisor. Our firm is Arsenal Financial. Down in the South Shore, in Norwell, representing the town of Hanover, Mass, Jeremy Vaille, my bud, my partner. What's happening, man? Happy Friday. 

Jeremy: 0:26

Hey, happy Friday.

Doug 0:29

You ready for this today?

Jeremy: 0:30

I think so. It feels like March.

Doug: 0:32

Why?

Jeremy: 0:33

I don't want to think about March. Just kind of outside, it's been cold all week.

Doug: 0:36

Because it's dark, it's cold. I had to bring all my March clothes back out. So to kind of timestamp this, we're recording this on the Friday before Memorial Day weekend and Memorial Day weekend what are you usually thinking about? Barbecue (Jeremy: Yeah.) Burgers. (Jeremy: Right.) Hanging out with some friends some time off. Sunlight.

Jeremy: 0:55

Yeah, lots of sunlight early morning.

Doug: 0:57

Yeah, we might actually get some of that, but it hasn't felt like that this week. It has been 40s, 50s, two and a half inches of rain yesterday, depending on where you are, oof.

Jeremy: 1:05

Yeah, and it feels I have PTSD, because it feels like I'm heading into April, which I never want to see again. April 2025 market.

Doug: 1:15

Yeah, it's been an interesting time for us, hasn't it, you know? And it gets more interesting, and this is a pretty good segway, man. Today's topic is bonds. Today's topic is income investing, right. What is income investing? The lost art of income investing. The fact that most investors have really forgotten about bonds and how they work. And really the whole idea of bonds and the media coverage of treasuries has gone from just your finance channels to really everywhere with this recent tax bill that is on the table and passed the House and now presented in front of the Senate. And our continuous problems fiscally, where we spend as a country, or as a country, let's say, as a government, way, way, way more than we take in, to the tune of $1.9 trillion. So we are in an interesting time for the bond market. So it's an interesting date for us to pick income investing as our topic. (Jeremy: Yeah, absolutely). I guess, warning, right, let's not get overstimulated as we talk about something as exciting as bonds and income investing. 

Jeremy: 2:19

All right, we'll try to tone it down a little bit.

Doug: 2:21

So if you're driving and listening to this, keep your hands on the wheel. I know this is like listening to, I don't know, some punk rock or something really, really exciting. A good comedy show, whatever it is. I'm being sarcastic. We know bonds are boring. We know this is a tough topic to get through, but Jeremy and I believe that this is really, really important stuff. So we really wanted to dedicate some time to talking about income investing. And at the heart of income investing, my friend, is bonds. So I guess we start with this, right. The heck is a bond?

Doug: 2:50

I'll ask you this question, what was the first time that you heard that term, bond? I know mine. 

Jeremy: 2:57

I'm not sure if I can answer that. You tell me.

Doug: 2:59

The first time I opened up a birthday card or a Christmas card with the United States savings bond inside of it. (Jeremy: Yeah, yeah.) Double E savings bond, right. You and I are born in the late seventies, products of the eighties. Back in the day, you might get savings bonds as a present from your grandparents. Here's a $50 savings bond which costs $25 to purchase and you're like, wow, this is cool. I have no idea what this is. It's a savings mechanism for a lot of people, especially those who work for the government. They could have money taken out of their paycheck and buy savings bonds. Kind of disappeared out of the ether, right. So let's go back to square one. I have this written down here. What the hell is a bond anyways? Hey, JV, in simple terms, what's a bond?

Jeremy: 3:40

A bond. It's essentially a way for companies or governments to raise capital and, in return, pay interest on that capital.

Doug: 3:51

That's it. It's a loan. It's a promise. So when you hear the word bond or you hear the word treasury, all those are is a promise. I give money to you, you hang on to the money. I get two things: Interest payments, we'll call those rent checks later, and then a promise to get the money back at a later date, at a certain established contractual point in time. That's a bond. That's it. It's an IOU. So I think, for those who have been exposed to bonds, we think of savings bonds. We think of treasuries. Jeremy, who else issues bonds besides governments? You alluded to this already.

Jeremy: 4:29

Yeah, companies, right. So there's a couple of ways that companies can raise money. Most people are familiar with the one way and that's investing in stock, right. So you get a stock and you receive equity of that company. Another way if companies don't want to give up ownership of the company but they still want to raise capital, they issue bonds and that's an IOU. You give them the money. They can use the money for their capital needs, but they promise to pay you back.

Doug: 4:55

Then how much ownership of the company do you have if you own a bond in, let's say, Microsoft? 

Jeremy: 5:00

No ownership.

Doug: 5:01

Zero, none.

Jeremy: 5:03

No ownership. 

Doug: 5:04

But if you own stock, you have a little piece of ownership, right? (Jeremy: Right.) So you know, as you're thinking about stocks and bonds and as we pull away from, you know, the Vanguard index fund for stocks, the iShares index for bonds, and stop thinking about these things as investment funds and things on your statement, this is what they are. Stocks, you get a piece of ownership, maybe some upside, maybe a dividend. Bonds, it's a promise, it's income, it's rent checks, and no ownership. So governments can raise money issuing bonds. Companies can raise money issuing bonds. Hey, Jeremy, do only companies that are in trouble raise money by issuing bonds?

Jeremy: 5:42

No.

Doug: 5:43

Tell me about that.

Jeremy: 5:44

So when you are investing in bonds, you look at the credit of that company. So good companies pay that their bills on time, not so great companies that maybe they've defaulted on their loans, they've not paid their bills on time.

Doug: 5:57

Or just have a yucky balance sheet, maybe, right?

Jeremy: 6:00

Yeah. And you got everything in between.

Doug: 6:02

What's amazing is and we'll get into this, this too, sometimes these companies that have really good finances, you know, I am staring at you through an Apple iPhone. Apple has an unbelievable amount of money, of cash, on their balance sheet. Even Apple issues bonds because they have a great balance sheet. They are very good at keeping their promises. They're so good at keeping their promises that they can pay lower rates of interest on their bonds. 

Jeremy: 6:28

Right. What if it's not so great of a company? 

Doug: 6:30

If it's not so great of a company, then you start to think twice, right? Nevermind companies, let's put a pause on the companies and let's just think about you're 15 and you get two friends. You get friend number one who always pays you back. You borrow lunch money on a Tuesday and, without even asking, you get the lunch money back on Wednesday. Then you get friend number two, who's at the movies with you and is like oh, I didn't bring any money. I want to eat some popcorn, I'll pay you back tomorrow. And you know you're never going to see that money, right? Friend one, you know they're going to pay you back on time. Friend two, forget it, you're buying their popcorn every Friday night. Friend one is Apple. Pristine balance sheet. High degree of trust, thus and so, we're going to assign friend one a low interest rate, or company one a low interest rate.

Jeremy: 7:17

Friend one has a high credit rating, right.

Doug: 7:19

Yes, awesome friend. Awesome friend who also pays you back, right. Friend number two, who you're buying, buying popcorn for every Friday night that never pays you back. This might be a company that doesn't have a great balance sheet. Might have a ton of debt and has to operate continuously on debt. Folks listening, if you have a cable provider or a cell phone provider, some of these cell phone and cable providers, have enormous amounts of debt. At&t, I'm looking at you. Verizon, I'm staring at you. Because they have so much debt, the market commands a higher interest rate. I'm not saying they welch on their payments like the friend who you're buying popcorn for every Friday, but that balance sheet's a little bit uglier. Thus and so, when we offer that promise out there, that bond commands a higher interest rate, right.

Doug: 8:07

Why the hell are we talking about this, anyways? What do bonds issue to you and me? Interest payments, right. (Jeremy: Yes.) So the topic of our podcast today is income investing. We do want to talk a little bit about the why behind a bond, how it works, but now we can start to get back into the investment piece of this, the portfolio piece of this. Why would I invest in a bond? Why would I invest in a treasury when treasuries are in the news every single day here in May 2025? And interest rates are starting to go up and you may actually be losing money on a bond fund in a statement. You might be questioning why I might own that in the first place. Right? If I'm 30, do I want to own a bond? If I'm 30, do I want to own something that pays me income? I guess I'll ask you that question. Hey, JV, you're in your 40s. How would you want to invest, given the fact that you are 20 years from retirement? Would you want to invest all in stocks, all for growth?

Jeremy: 8:58

No.

Doug: 8:59

How come?

Jeremy: 9:00

And it depends, so for my retirement dollars, more stock than less, because I know I'm not going to need that for another 20, 30 years. But for my shorter term needs, you know, maybe it's that vacation that I have in a year coming up, or maybe it's college that's coming up in eight to 10 years, I'm definitely going to want some of that fixed income or bonds in my portfolio.

Doug: 9:21

Because we have a little bit more stability, because we have some mechanism to get us paid. We get a little bit more liquidity. We'll talk about that, right.

Jeremy: 9:29

Why is it less risky? Why do we always hear that, as you get older, you need more fixed income or you need more bonds? Why do we always hear that?

Doug: 9:37

Well, I'm going to back up for a second. The first year I got into this business, I got a bunch of things that stuck with me forever, and one of those things I got from a mentor was, align the timeframe of your investment with the timeframe of your goal, right. Which is what you were talking about.

Doug: 9:51

If I can put money away for three years, but I need it in three years, I have more of a premium on getting the return of my principal, right. I need that money back and I don't have three years to mess around. So, in other words, I need a little bit more stability. I want less volatility, I want more certainty, so I might look for more trust. I might be more inclined to invest with the friend who pays you back the lunch money the next day. And that can be cash in the bank, that can be a savings account, that could be a CD. That could be different types of bonds as we start to talk about bonds and maybe I don't want to invest in stocks if it's three years away. To your point, if we do have 20 years, maybe we can take more risk. But what we'll get into too is, even if you do have 20 years, you can involve income investing.

Jeremy: 10:35

Yeah, well, it reminds me of like five years ago, when you didn't have a lot of interest out there, right. You weren't getting much from the fixed income or the bond side of things because rates were so low. So what were they really providing in portfolios? And it's that stability piece. Right, you're not necessarily going to get all the income that you can get today, but it's going to be less volatile to help stabilize heavy stock portfolio.

Doug: 10:59

And this is where we'll get into the lost art of income investing in a little bit, right? So when we break it down for clients oftentimes, especially somebody who may be new to us, maybe they haven't had a whole lot of investment experience, or maybe they've just kind of been on autopilot with their 401k for 20 or 30 years, and you and I, we feel like we have the responsibility to kind of hit the pause button and say hey, you know, you're an investor. We'd like you to understand to some degree what you own. And there's really two ways to make money. You're either buying something, hoping it appreciates, or you're getting some sort of regular payment. So like, if I buy a house and I live in the house. Yes, it's my home, it's my residence. I'm also hoping that that appreciates. If you buy a bar of gold, today somebody is buying a bar of gold as an inflation hedge, but it doesn't pay you any income, right? Somebody is buying a bar of gold because they hope it appreciates. It's the same thing with Bitcoin, right? It doesn't pay you any income. People just think that the asset will appreciate. That's one way to make money is appreciation. But there is a second way to make money which is getting paid regularly.

Doug: 12:02

You know, what you were talking about, and this is a pretty good segway, is that five years ago rates were at zero. Really from 2009 all the way through early 2022, we had historically anomalous low interest rates. You and I are always talking to clients about we went through a chapter of low low, which was low rates, low inflation. We went through a chapter of high, high, high rates, high inflation. And we've settled into higher than we're used to, higher than we're used to. Higher inflation than we're used to and have been conditioned to, and higher interest rates than we have been conditioned to. But really we're back to normal inflation rates, at least for the time being, and historically normal interest rates. Which gives us back the toolkit that we were supposed to have as investors. Appreciation on one side, income on the other. And the income part was really really hard to solve for for 13 plus years.

Jeremy: 12:57

And, to your point, these rates aren't historically very high. Those that invested in the 80s, or remember maybe getting a mortgage in the 80s, saw double digits. We're in kind of mid single digits. But our recency bias, we've talked about that in the past, those last 20 years, well, it's been zero. So four, five, 6%, that feels like a lot.

Doug: 13:18

Yeah. So I guess I would argue, number one, that if there's two different ways to invest and make money, one for appreciation and one investing for income, or rent checks as we like to call it sometimes, why would you not want to have both? Is that a fair statement? 

Jeremy: 13:33

Yeah. Well, what do you call that right, when you get in both?

Doug: 13:36

The term that I think has been thrown around but hard to justify for a long time, the balanced portfolio. And I think when somebody sees, oh I own blah blah blah balanced fund, or you own a target date fund in a retirement account, it's balanced, it's diversified. I think we often take that at face value, that it owns a bunch of stuff that's different, but we forget the fact that what that is trying to accomplish is making you money in two different ways, appreciation and income. And now, if there's more opportunities to make income. We'll give an example right without recommending something here. Do you have a friend or a client who got a mortgage recently? )Jeremy: Yeah.) What rate did that friend or client have generally on their whatever 15 to 30-year mortgage?

Jeremy: 14:21

30-year mortgage, high sixes, maybe low sevens.

Doug: 14:25

Okay, high sixes, low sevens for a mortgage rate. So many of you know how mortgages work, the reason that it's a pain in the butt now to get a mortgage, it wasn't 20 years ago. 20 years ago, you could just fog a mirror, say that you were alive and somebody would give you a mortgage right. 2025, you have to go through quite a bit of rigmarole to justify that you are a borrower who can pay back your mortgage, right. And even if you meet all the marks and you have a high credit, your rate's going to be six and a half to 7% like you're talking about. That mortgage, along with many others like it, get lumped into a pool and become a mortgage-backed bond portfolio. And if you invest in a mortgage-backed bond portfolio, guess what? You're getting the rent checks from all of these payments. You don't exactly get a six and a half to seven percent yield, but you get a fairly high yield on mortgage-backed bonds these days.

Doug: 15:18

And if stocks are historically, whatever 8% to 10%, with maybe some headwinds coming down the road, and you can get 5% to 6% income with less volatility than stocks, well, doesn't that become compelling? So I do think the balanced portfolio in some ways is back. So, without making a blanket recommendation, because we don't want to do that in this podcast, my argument number one, when it comes to income investing, is that income investing it's an all ages thing. I don't think you're too young for it, but you do want to go through that bumper sticker, a t-shirt, that says align the timeframe of your investment with the timeframe of your goal. Right, like you were saying, if money's going to sit for a couple of years because you're buying a house, maybe, I don't want to take a lot of risk.

Jeremy: 15:58

A lot of times we're advising or recommending to have a portion of money in the bank and oftentimes we're talking about a high yield savings account or something along those lines, right, to park some cash in. So that if any emergency or unforeseen thing comes up in the next 12 months, 18 months, or known expenses, well, at least you're making some headway with a little bit of interest. You're an income investor.

Doug: 16:21

Yeah, I like the way that you frame that, because income investing can involve your bank too. It can involve you going to the bank and getting a short-term CD. Or I've had this conversation with clients quite a bit in the last couple of years. Now that we're in a more normalized interest rate environment, go advocate for yourself. I'm going to make a confession to you. Well, you know this anyways. I do business with a big national bank. Most big national banks hate to pay interest on their savings accounts, right. But we're in a normal interest rate environment and there are banks out there that are willing to pay you a little bit more.

Doug: 16:59

Here's what we have again as consumers, as customers, as depositors, right. We can advocate for ourselves again, which is great. Like we can call up the bank and say, hey, what gives? Like I've got X thousands of dollars in my savings account, and hold on one second. Let me look at my statement. My interest rate says it's, let's see 0.01 and then a percentage sign. That doesn't seem like a lot. So what are my other options? If you've had money kicking around in your savings account for a while and this sounds like how your bank is treating you, Jeremy and I would urge you to pick up the phone and call your bank and see what they can do for you, right.

Jeremy: 17:36

And if they can't do anything for you, there's options. You have choice.

Doug: 17:44

Right. And I will tell you that even big national banks that are paying you nothing in your savings account, they have some other banking options. They all have CDs, right. And there's other banks out there too. You know a couple of websites. You can go to bankrate.com, nerd wallet. Yeah, these are great websites to go and kind of shop and at least get a point of reference of, okay, you know, like, what's the national rate for a one-year CD, what's the national rate for a 30-year mortgage? You can get a lot of this information, right.

Doug: 18:08

But, in the spirit of income investing, to get to our friends the bonds, there's a lot of different ways that you can solve for X using bonds or mutual funds that own bonds, or ETFs, exchange traded funds that own bonds. Even though my first introduction to a bond was opening up a birthday or a Christmas card that had a savings bond in it, that is not generally how we interact with bonds. Most of us are bond owners or get exposure to bonds through mutual funds and exchange traded funds. And there's a million different flavors of bonds. The bond market is many, many, many times larger than the stock market, whether you're comparing US bonds to US stocks or global bonds to global stocks. There are trillions and trillions and trillions of dollars more of bonds out there than there are stocks. And there's many more flavors of bonds out there too.

Doug: 19:05

And it's hard, it's not easy. I've been doing this for 27 years and I'm constantly learning and taking it in. But what I do know is that there are all different types of tools that you can use for different situations. From, maybe, a fund that owns short-term promises, as I like to call them, you can find a short-term treasury exchange traded fund or mutual fund that owns only US bonds that are coming due soon. Don't have to wait 30 years. And when you have that, we have a few things. A little bit more certainty, less volatility. You also know your upside's capped. You're never going to get a 20% return and something like that, unless, of course, we revisit the late 70s and early 80s. Right, but that's a tool that you could use for short-term goal, short-term need. But there is different types of income investing, right, JV, it's not just bonds.

Jeremy: 20:04

Right. Well, I want to go back to something that you'd mentioned. You'd said you know why would you want both or why wouldn't you want both? Right. Why wouldn't you? I did a little bit of half-assed internet research and came up with some values for stocks. Like we've seen in the last few years, call it last decade or two, strong stock performance, right. No one can argue that. We've had some issues over time but 

Doug: 20:22

Has not been a straight line and it never feels like a straight line.

Jeremy: 20:25

It wasn't long ago we were talking about all-time highs, right, 57 all-time highs last year, right. But when you look at, and this will be a great question for you back when you started in this business working with clients, but we had a lost decade, essentially, right. So if you think about that stock valuation in, call it turn of the year 2000, you're at maybe around 1,500 in the S&P. It took you almost 13 years to get back to that flat level. 13 years. So you went down, up again, down again, and then it took you 13 years to get back to that price point of around 1,500. What was it like then? 

Doug: 20:59

Sucked. 

Jeremy: 21:03

I mean, those are your first 10 years in the business, right, your first 10 years. 

Doug: 21:06

I started doing this in the late 90s, right, when you could kind of throw a dart at a tech stock and it was making money and the stock market hit its absolute peak both the NASDAQ, DOW, S&P 500, in April of 2000. And we got hit with kind of a triple whammy, which was whammy number one, we started to have a pop in the valuations of these tech companies. Whammy number two is that actually caused a deep recession. Whammy number three is we had the complications of 911 right in the middle of this recession too.

Doug: 21:38

So it was a terrible time to be an investor. It was a terrible time to be in the seat that you and I have. And then, you know, as we recovered and as the market gained some footing, we didn't realize that a real estate crisis was developing under our feet and we had the great financial crisis in 2008, 2009. So you know when you look at this, this line, from April 2000, specifically to April 2009, it's a horrifying chart. So you make a great point. Do you want to be just exposed to the possibility of reliving that, especially if you're, I don't know, 50?

Jeremy: 22:18

You talked about appreciation and income. Appreciation didn't work. That was off the table for those of you.

Doug: 22:23

Depreciation was working very well. So you know this kind of brings everything all together. That one thing that would have fended off your experience of having essentially zero return for a decade is collecting some rent checks. If you actually had a portfolio of stocks which pay rent checks, stocks which pay dividends, during that time, you had a completely different experience. Because dividend stocks number one act differently. They generally have a little bit less volatility than a growth only stock or a growth stock, right, which is looking to have high revenue growth, high profit growth. It doesn't pay income. We invest everything into the business for growth. A dividend stock may make you the proposition that, hey, our name is Coca-Cola, we're going to grow a little bit slower but we're going to pay you a dividend. Or we're JP Morgan Chase, we're already enormous. There's only so much we can grow our top line, our bottom line, but we're going to pay you a dividend. You would have had a completely different experience from 2000 to 2009.

Jeremy: 23:29

We're going to share some of our company profits with you, the owners of the company (Doug: that's right). The shareholders, right (Doug: that's right). As opposed to, hey, we're going to take all the extra money and we're going to put it into our R&D and our growth program.

Doug: 23:42

So I guess another lesson out of this whole thing is that, even though we started at the top of this introducing folks to bonds, which is a centerpiece of income investing, it's not the only way to collect rent checks, it's not the only way to collect income and dividends. Bonds, bank, stocks. We don't necessarily even have to be in the market. Properties, two family house, three family house, being a silent partner in a business where you get an income payment, right. There's a whole bunch of ways to do this. I think, no matter who you are. I had a great discussion with a client just in this past week. Yeah, this is interesting. This particular client always feels behind because they're measuring themselves against their peers who only have a 401k.

Doug: 24:27

People are different, people live different lives, have different professions. Some work for municipalities, some work for companies, some own their own companies, right. And for you and me who do retirement planning day in and day out, those are like three different puzzles. Right, they're all fun. But for the one that maybe owns a business, maybe owns some property and hasn't put as much into a traditional 401k or what have you. Maybe you don't feel like you're as ahead of the game because you don't get a statement that says X. But in reality, if you're doing it right, you actually have some other mechanisms for appreciation and income.

Jeremy: 25:05

The other thing I like that we're talking about here is that rental property, right. Because we've been in this I don't know a few years of rapidly appreciating property values, right. Despite high interest rates and getting mortgages that have a 7% rate versus 3% a few years ago, property values they've held and they've gone up. That's the appreciation piece. Right, your property is appreciating. If that's a rental property, you're also getting those income payments. Acting a lot like a bond could act or a dividend paying equity portfolio. So I really like that kind of analogy to help people our listeners understand that, because I think a lot of that they can relate to those kinds of things.

Doug: 25:40

Speaking of, relating to, I guess, if you're just starting to rethink income investing, because, again, I mentioned this line a couple of times the lost art of income investing. Income investing just became extremely difficult after the financial crisis because, as a solution to us not falling off the cliff from an economic point of view and not having a monetary system crash, we cut rates to zero and then flooded the system with money. This is the Federal Reserve. And what that did is that put savings rates down to zero. It made borrowing really really cheap. It incentivized risk taking, right. So it incentivized the growth component and it disincentivized the income component for 12, 13 years. Enough that people kind of forgot about it.

Doug: 26:24

So if you want to take notes right, here's the where can I get started thing. If you haven't thought about income investing, start with the easy stuff. We talked about advocating for yourself at the bank. I'll tell a true to life story. My son uses an app. I have a seventh grader. He uses an app that's tied to a debit card to go pay for, whatever, his movie ticket or lunch with friends or whatever it is so that he's spending his own money. On this app, there is a spending account and there's a savings account. So I get to show him hey, the money that you've saved over time, birthdays, Christmas, you know, like the 10 bucks that you get from your grandma that's getting 2% in the savings account. Income investing. So start with your bank. Second thing, if you have a 401k, I would recommend that you go look at your different options that you have in your 401k. This is a bugaboo for me and

Jeremy: 27:17

This is your spicy? 

Doug: 27:18

No, it's not my spicy segment, but it might be a good segway into it. Look at your 401k options and scroll through it. Because wherever you have your 401k, your investment options will be broken into categories, and they'll usually be broken into three categories. Which is stock investments, either something called blended investments or target date funds, right, these balance funds that oftentimes correlate with your age or your distance from retirement. And then, hiding somewhere, is going to be income or bond funds. And here's what kills me bud. These days, because of companies electing to take less risk in their set of options, which makes some sense, but also this trend towards having the cheapest possible funds within your 401k, options have now been limited. It makes a ton of sense that we can invest in a cost-effective way. Can't refute that. Three basis points to own an index bond fund. That's great, but is that a one-size-fits-all investment? I don't think so.

Doug: 28:21

So go look at your 401k statement and go look at your options. Maybe just reacquaint yourselves with okay, what are my growth options? What are my appreciation options? And then, where can I get rent checks? Look for the word income, look for the word bond when you look at these different 401k options. Right, if you're a client of ours, call us. We're probably already talking about that, but go reacquaint yourself with your options.

Jeremy: 28:43

To your point. I mean to go back. We talked about how big the bond market is, right, how diverse it is. You might have 7, 8, 15, 20 different stock fund options, but you might only have one or two fixed income bond fund options. So you're kind of getting into that one size fits all solution.

Doug: 29:02

I think this is a perfect segway to my spicy segment, JV. So there's been a very helpful trend over the last 40 years in that the proliferation of index funds and ETFs have driven costs down for investors, which is fantastic. Which is amazing. We use ETFs all the time in our portfolios. We use institutional class mutual funds, which have generally lower costs than them. This is great. However, there is a buyer beware portion of this.

Doug: 29:32

Indexing stocks and indexing bonds are two completely different endeavors. If I buy the S&P 500 index, I have 500 very different companies. We can make the argument that, okay, it's very heavily tech weighted these days and you're making a bet on tech and you're making a bet on large growthy US companies. Fine, but you own 500 different companies and a whole bunch of different sectors are represented. If you buy the bond index, you are buying a one-size-fits-all investment for the most indebted entities that you can access. It ends up being mostly treasuries, mortgage bonds, and corporate bonds, and it's the biggest issuers. So the biggest issuers of debt, are they the highest rated companies out there? Are they the ones that you want? Probably not. So be very careful when you are just choosing the bond index to represent the rent check portion of your portfolio. Because it's a lazy copy paste way to get, in my opinion, inefficient income exposure, which is not necessarily the income exposure or the types of rent checks that you want. So it's hard.

Doug: 30:45

There's a million different ways to invest in bonds. There's a million different ways to invest in income. The fact that there's thousands of ETFs right now that have driven down costs is great. However, don't think for a second that you can just invest in the bond index and that will solve for everything in terms of investing for income. We believe you have to do more. You have to find a diversified way to provide income to your portfolio. That goes beyond bonds, that goes beyond that bond index fund, as well-intended and as inexpensive as it is, it does need some complements that provide some other things. Either provide more stability in case interest rates whipsaw, which they have just this week. You might want bonds that have higher credit quality. You might want to have bonds that have shorter promise length. If you're looking at names of funds, you might see short duration, limited duration, limited term. Right, that means shorter promise. That means less whipsaw when interest rates are jumping around all over the place.

Jeremy: 31:45

Because you're going to get your money back faster, right. So to your point. If you see the word index buyer, beware.

Doug: 31:52

Take a pause. Right, take a pause. So all right, that wasn't too spicy right? All right. Man, do you think we've kind of covered the bases? 

Jeremy: 32:04

I think so. Yeah, I think we did a lot. I think we got a lot of information out there, maybe too much, maybe we will.

Doug: 32:10

I know, I know. Hopefully we didn't overstimulate people talking about bonds, right. So if you do have questions again, the bond market can be very, very complicated. There is opportunity out there. There is danger out there, right. All right, that's it. I'm cutting us off. No more bond talk. 

Jeremy: 32:27

We could do this all day. 

Doug: 32:28

We could and we do do it all day right. So thanks for hanging in there with us listeners to get to like the most fun part of our show. JV, you got some dad jokes for us?

Jeremy: 32:38

I only have one,

Doug: 32:39 

Just one?

Jeremy: 32:40

I have one, just one today.

Doug: 32:41

Maybe there's a better chance that Matt and I can actually get this one, since there's one and we can just focus on it.

Jeremy: 32:45

It's one I've kind of enjoyed for a while. So I don't know, you might have already heard it, but let's try it. How many ears did Daniel Boone have?

Doug: 32:54

How many ears did Daniel Boone have? I'm out. Matt Hanna, what do you think? How many ears did Daniel Boone have? We both come up with zero. Got nothing.

Jeremy: 33:05

He had three. A left ear, a right ear, and a wild front ear.

Doug: 33:10

Oh, I like that. What a nod to the past. I thought you were going to do a mic drop with your earbuds.

Jeremy: 33:18

Probably could have on that one. I really like that one.

Doug: 33:22

Hey, as we wrap up here, I just want to give a quick shout out to a couple of successes that we had here locally in Watertown. We just enjoyed a second annual Porchfest. 185 bands played across Watertown. We were super excited. So hopefully some of our listeners who are based locally enjoyed that. And I also want to say congratulations to the Mosesian Center for the Arts. Last night celebrated their 20th anniversary. No matter where you live, please do what you can to support arts and culture. Support the arts, your local artists and craftspeople. They're important and, you know, they help make your where you live interesting and cool. And for people like Jeremy and I who have limited creative ability, we get to live through others' creativity. So please do what you can to support the arts. So I want to give those couple shout outs. JV, anything going on the South Shore?

Jeremy: 34:08

Let's see, we have the Hanover Day coming up. End of the month, big to do. We have a 5K road race sponsored by the Hanover Chamber and a bunch of members of the chamber. And car show. Jimmy V's coming down with his Armagea so he's going to represent at the car show, and then there's carnival games and all that stuff. Lots of action. And then we also have a chamber event in mid-June, June 11th I think.

Doug: 34:32

And when you say chamber, Hanover Chamber right?

Jeremy: 34:34

Hanover Chamber joint with Norwell. So it's a luncheon across two different chambers. So that's going to be good. Continue to support the business community and we just had our override pass recently. Get some more tax revenue to help fund the schools and services in town. So I think that was a welcome vote last week.

Doug: 34:59

And, of course, we always want to give a shout out to our producer, Matt Hanna. If you live in and around Watertown, please check out Matt's podcast, Little Local Conversations, where Matt interviews people all around town who are involved in a whole variety of things, from city officials to residents, business owners, those engaged in the arts, nonprofits, everything. It's really really interesting and, Matt, thanks for your great work. A year and counting of Little Local Conversations. If you have questions for Jeremy or myself, if you're not familiar with us, you can reach out to us at info at arsenalfinancial.com. Happy to engage about any of the topics we talked today about income investing and rent checks. Until next time. Thanks for listening to the Arsenal Money Clip. See you next month.

Speaker 1: 35:36

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