Introduction to global high yield investing
Who is this guide for?
This is a work of popularization, which requires some basic prerequisites in economics, but above all, common sense and the willingness to build an intellectual framework to implement an investment strategy capable of generating income. The target audience is therefore quite broad: young professionals in the wealth-building phase, thirty- and forty-somethings preparing for retirement, households with already-established wealth seeking a perspective perhaps different from those they have already encountered, and investors focused on capital growth looking to generate income.
It is always useful to take a step back, to place one’s investment strategy within a global economic, geopolitical, and monetary context. It is part of the psychological and cultural discipline of an investor to ask basic but essential questions. How are different currencies evolving? Have I properly accounted for inflation? Do my investments truly align with my objectives? Am I certain I understand the historical evolution of financial markets? Are market crashes really that difficult to weather? And above all, how can one leverage global developments to establish a strategy for generating sustainable, diversified income that grows at least as fast as inflation?
The Objective: To receive and/or live off passive income – that is, without working and without ever selling.
A clear objective is always easier to remember. From it stems a clear strategy, easier to apply. This is an essential issue because, in investing, almost everything is a matter of discipline and psychology.
For the task at hand, the objective is simple: to receive income from investments, thereby worrying less about one’s professional situation to “pay the bills.” A regular and, above all, stable income. The strategy is basic yet – as you will see throughout the pages – sophisticated: buy stocks and funds that pay dividends and distributions, and reinvest them until the income level is sufficient to stop working – or simply to enjoy the luxury of working solely out of passion.
It is useful to clarify that the goal is indeed to generate passive income, meaning without having to work, without any active effort. This perspective automatically excludes physical real estate investments, which involve significant landlord duties and various headaches. The hypothesis of trading (it’s a full-time job) or strategies using options (which are time-consuming and require closer monitoring) must also be ruled out. The passive income machine must be manageable from your couch. This implies completely excluding investment methods based on ETFs that suggest selling 4% of your assets annually – a risky strategy if you do not have a very large capital.
The Means: Buying assets that generate sustainable income.
The challenge is as follows: acquire assets that pay “salaries” in all their forms, be it coupons (bonds), dividends (stocks), or rents (shares of REITs). Depending on your situation, you may prefer to focus on one or another of these investment vehicles. This can vary based on your age, wealth, and objectives. The aim of this work is to provide clarity and help determine which strategy suits you individually (you or your family). This book should provide you with the keys to understanding, whether you are very young with no assets or nearing retirement with significant financial means.
Furthermore, your income must be sustainable, meaning it must maintain – or even improve – your purchasing power over time. And the risks you must face are numerous. The most frequently cited is inflation. Very concrete, this risk is often completely underestimated or ignored. And it persists in all scenarios, whether the inflation rate is around 2% or 10%. In practical terms, your income must increase at least as much as inflation. If not, you risk being unable to maintain your purchasing power.
Another risk lies in the devaluation of your reference currency. For many readers, this will be the euro, but the reasoning holds for all currencies, as monetary instability is real during crises. For example, in the first half of 2022, the euro lost nearly 20% of its value against the dollar. Additionally, certain companies or sectors can be severely impacted by geopolitical events or technological and regulatory upheavals. All these risks call for responses in terms of portfolio construction, and you will have the opportunity to explore multiple examples. The tax dimension, which is intentionally not addressed in this framework, must be watched carefully, especially as it is highly evolving, and it is unlikely that fiscal pressure will decrease in the coming years.
The Plan: Educate yourself, build a strategy, then execute it with discipline.
Investing primarily calls upon your common sense but requires knowledge of a few economic and financial concepts, as well as an understanding of the geopolitical environment. Three distinct stages clearly emerge before starting a project of this nature, which we will detail in the three parts below.
1/ Strategy: What does financial history tell us about the long-term return on investments? Consequently, which asset class should we invest in to go “as fast as possible”? How to limit long-term risk to ensure good performance? What does economic history tell us about financial performance? Indeed, if history doesn’t repeat itself, it does rhyme, and it’s good to know its patterns, just as it is preferable to know oneself to understand our objectives and limits fully.
2/ Tactics: Which investments correspond to these theories? Do the calculations bear this out? What risks must be considered, and how does one live with them? Among the various existing strategies, which one might suit me, according to my individual situation? How to build a portfolio resistant to various shocks (conflict, monetary crisis, geopolitical upheaval)? What is the I-CASH method? How can I use it?
3/ Portfolio Management: In this area, it is wise to be patient and meticulous. First, it is essential to know your objectives, your timeline, your risk aversion level, and to identify how you will track your progress. At this stage, you have found satisfactory answers to all your questions, and before starting investments, you are comfortable with your choices. This is the essential condition for launching operations. By respecting this principle, you can slowly but surely achieve your objectives, as long as they are realistic and you are able to provide the necessary funds.
The goal is for the reading of these pages to be accessible to the greatest number, to allow you to frame your common-sense reflections within a more structured framework; to give you the means to make a decision and prepare for your future, whether it is a distant retirement, a career change with supplemental income, or becoming a high-level long-term investor. The most important thing is to have a clear vision of the situation and iron discipline, as Warren Buffett reminds us.
« To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. You must supply the emotional discipline. »
Warren Buffett