Never spend the principal, only the interest.
Some reaffirming advise I heard this morning from a short video clip featuring Canadian businessman Kevin O'Leary. In the clip he actually talks about a small but important piece of advise his mother gave him and his brother when she would buy bonds from the bank.
Maybe bonds don't have the same appeal today as other investing options available but I think the advise is still sound.
I' sure many of you we're recently introduced to yield farming through CUB Finance on the Binance Smart Chain, just one example of investments that can earn yield on your principal. Speaking of which, although CUB price has dropped nearly 50% I'm happy to report that in a realatively short amount of time I've made back my initial investment back and from this point forward it's all profits baby.
"Never spend the principal only the interest."
Never touch the principal is honestly really straight forward advice and speaks more to a mindset around managing your spending and lifestyle habits according to your income. More specifically to do so in a way that allows you to keep your principal investments in tact.
Leary's advise is to adjust your spending and use of capital based on how much you can generate from your portfolio.
Keep the portfolio intact, keep building and adding, even if slowly. This could be a DCA strategy (dollar cost average), small amounts consistently over time based on what you can afford.
"Everything has to generate yield, fixed income position or equity."
This hits home for me, I just think the message is really clear, build portfolios that generate income and yield. My first encounter with this type of strategy came when I was looking for advice and info on how to build and maximize a TFSA investment account(a registered Canadian account).
The TFSA program began in 2009. It is a way for individuals who are 18 years of age or older and who have a valid social insurance number (SIN) to set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.
With the TFSA being a tax shelter account what do you think would be the best kind of assets to part in this type of account?
The answer would be dividend yielding assets that would normally incur capital gains tax! The magic words there are "dividend yielding", these assets will hopefully appreciate in value over time if they have solid fundamentals but what's more is that they will pay dividends likely quarterly. Parked in the right account these additional gains can be tax free!
Yield Generating Securities
When it comes to traditional securities there are two main ways to generate yield.
Yield on Stocks
Yield gained on stocks includes both price increase and any dividends paid. The formula looks like this: Price Increase + Dividends Paid) / Purchase Price. This is known as cost yield because the yield is calculated using the initial cost of the security.
Alternatively yield can be calculated using the current price of the security: Price Increase + Dividend Paid) / Current Price. This is known as current yield and is my proffered way of looking at and calculating yield.
Yield on Bonds
When it comes to boring old bonds that pay annual interest, it's calculated by taking the Annual Interest Earned / Face Value of Bond. This is called nominal yield.
With bonds there are other ways of calculating yield depending on if the bond has a floating interest rate. I really don't know much about these different types of bonds and ask that you do you're own research on this.
What is Dividend Yield?
Yield Generating With Crypto
When it comes to crypto as I mentioned above I think a whole lot of people have just discovered yield farming through the likes of CUB Finance. For those that haven't dipped there toes, this type of yield farming is powerful and is what is behind the latest DeFi trend.
I can say with 100% certainty that DeFi is more than just a trend, It's here to stay.
For the first time the power of yield generating assets is now widely available through cryptocurrency.
Yield farming, also referred to as liquidity mining, is a way to generate rewards with cryptocurrency holdings. In simple terms, it means locking up cryptocurrencies and getting rewards. -binance.com
So now I am ready to take the Never spend the principal philosophy to crypto yield farming. After deciding an a principal amount that can be committed for a lengthy period of time, let's say 1 year, I'm committing to keep this amount locked up and enjoy the yield that I am ale to earn on this principal amount.
What you do with the yield is up to you. In my case I use it as an income stream but alternatively you can reinvest this yield to increase you principal amount or move into an additional investment asset or security.
What Is Yield Farming? DeFi’s Hot Trend, Explained
"Never spend the principal only the interest."
I'm going to take these words to heart and do my best to build investment strategies that 1) generate either yield or dividend, and 2) stay committed to principal amounts.
There are many dividend paying investment options right here on the HIVE blockchain.
I briefly touched on a few of these points in yesterdays post titled HIVE's Passive Earning Options Are Exploding In Popularity! Have a look if this is something that is of interest to you. Happy investing!
Ciao for now,
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