Income Investing Offers Big Advantages When Volatility Is This Extreme | Steven Bavaria

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**Steven Bavaria** (0:06)
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**Steven Bavaria** (0:59)
I'm very happy that I'm in this strategy right now, because if anything, volatility seems higher than ever for all kinds of reasons. Some economic, some geopolitical, some more political. But for whatever reason, there are a lot of macro reasons that make me happy that in my micro investing, I'm doing it in a fairly predictable and not dependent on capital gains. So I can sleep a little better at night.

**Adam Taggart** (1:38)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. When stocks are as richly valued as they are today, investors, especially older ones looking to live off the wealth they've already built, start to prefer safer assets that provide income. Today's guest, Steven Bavaria, author of The Income Factory, has appeared several times on this channel sharing his approach to income investing, which he claims can deliver similar long-term returns as stocks, but within a greater margin of safety. Steven returned today to give us an update on how his approach is working here in 2025, a year of elevated volatility and bond yield so far. Steven, thanks so much for joining us today.

**Steven Bavaria** (2:18)
Thank you, Adam. It's a pleasure to be here again.

**Adam Taggart** (2:21)
Thanks. Well, it's a pleasure to have you back on, my friend. All right, Steven. Main point of this discussion is to give folks an update as to how the Income Factory Framework is performing so far in a year that's been quite volatile.
I guess let's get straight to that, but maybe in your answer, if you can just start off with giving as concise a summary of your Income Factory Framework for the people that might not have seen your previous interviews on this channel.

**Steven Bavaria** (2:49)
Sure. I'll try to keep it as concise as I can.
I think most rational investors over the long-term would like to earn what's a typical equity return of say 9 or 10 percent over the long-term. If you do it with traditional equity, Nobel Prizes have been one demonstrating that the easiest and best way to do that is to buy an index of the S&P 500 or something equivalent, hold it through thick and thin, and generally you will achieve over that long-term average, say plus or minus 9 percent. I don't claim The Income Factory is any better than that at all, but it's an alternative way to try to do the same thing. If you think that math is math, and that you earn a total return by, it's the dividend plus the capital gain or loss on your portfolio, and those two together added up in a period is the total return. That means you could earn a 9 percent return with 9 percent yield and percent growth, or 9 percent growth and percent yield, or anything in between 5 and 4, whatever. And so it's a mathematical certainty that you could achieve that with yield, you know, and not much capital gain at all. And that's the approach I take. Now, what's not a mathematical certainty is that the particular assets I choose that I think will get me my 8, 9, 10 percent yield will actually do it. I mean, there's always risk, you know, that you won't earn that yield or the capital gain if you're going the other route. But the Income Factory is an approach where we try to use mostly high yield stocks and a lot of credit investments that earn 9, 10 percent or more sometimes in interest. And that that's a more predict, those are more predictable asset classes because you're not depending so much on capital gains. So that's the theory and that's what we're trying to achieve. I try to achieve it personally, mostly with high yield credit investments, using closed end funds as the vehicle to hold them because closed end funds are often a better, more effective way to hold illiquid or less liquid assets, and high yield bonds, senior loans, CLOs, which we've discussed collateralized loan obligations, and different sort of complex asset classes or less liquid, are safer to hold in a closed end vehicle. So that's why I use those, sometimes ETFs as well. But my, so our approach is it's about 75% credit and maybe 25% utilities and other high yielding equities in my own personal portfolio and in the model portfolios we use. And recently, just to say how we're doing, we've been earning yields in the 10% to 11% range. I'm a little more aggressive in my personal portfolio, so I'm up to about 12% yields.