Focus On Income Not Growth

By Jason Fittler

In a Bear Market, like we are in now, what you need to forget about is capital growth.

Do not focus on the price of your share. You need to change your focus. You need focus on the income that your investment produces.

Look at it this way, you do not live off your capital, you live on the income it produces. So if the income it produces stays the same, what does the value of the investment matter.

Let look at Westpac Bank, it has a forecast dividend of $1.58 cents per share plus franking credits of $0.68. Making a total payment of $2.26 for the year.  If you hold 1,000 shares you will make $2,260.00 for the year.

Right now the share price is $20.34, so to buy the 1,000 shares it would cost you $20,340.00. Your return or yield would be 11.11% per annum.

Our intrinsic value for the share is $31.27. So once the share reaches this price, the 1,000 shares will be worth $31,270.00. But they will still produce $2,260.00 a year in income or a yield of 7.2% per annum.

What if the price falls 20% from here to $16.27? The shares are now worth $16,270.00 and still producing $2,260.00 a year in income or a yield of 13.8% per annum.

My point. As long as you still believe that the share is worth it’s intrinsic value it really does not matter what the price is, as the income stays the same, and it is the income you use to fund your life style. 

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