Jan 31, 2025
Multimillionaire investor Kevin O’Leary often credits his mother for shaping his investment philosophy at a young age.
In a recent video posted to his YouTube channel, he talked about how his mother, Georgette, was a disciplined saver and often took him and his younger brother to the bank with her where she invested in bonds.
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That’s where he learned one of the most pivotal money lessons of his life. “She’d say to us, ‘Boys, never spend the principal, only the interest,’” he says.
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Decades later, he still applies this rule while managing his fortune. “I view my portfolio, and my trust and my positions as a chicken on a spit dripping cash,” he says. “Everything has to generate yield … I take that, I disperse it. The family lives off that, the charities I’ve committed to.”
Here’s why preserving the principal is so critical for wealth creation.
Preserving the principal
Resisting the temptation to spend accumulated cash allows it to grow. For instance, if you have $100,000 invested in an asset that delivers a 5% return every year, you could reinvest the payouts and double your wealth in roughly 15 years.
If you spend 5% a year, your wealth won’t grow. Fifteen years later you would still have roughly $100,000 in savings. However, if you spend 10% of your original savings per year — that's around $833 a month — your wealth would be cut in half within just 8 years. If you keep spending at this rate you will erode over 70% of your original $100,000 savings within 11 years.
Simply put, if you eat the chicken you can’t expect any eggs. Consuming more than your yield, eats into your principal and moves you closer to running out of money. To harness the power of compounding and grow your money exponentially, your returns need to be invested and generate returns. This is why savvy investors like O’Leary and his mother focus on preserving capital and maximizing yield.
Fortunately, there are plenty of opportunities to maximize yield and passive income from your investments.
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Income-generating investments
Investors focused on cash flow and safety should consider robust dividend stocks with a track record of rewarding shareholders. Dividend aristocrats and dividend kings are stocks that have consistently increased their shareholder payouts every year for the last 25 years and 50 years, respectively.
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To gain broad exposure to these stocks, you can consider index exchange-traded funds that hold them, like the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). This fund tracks dividend stocks in the S&P 500 that have expanded their dividend consistently for 25 consecutive years at least. Top holdings include Walmart and Cardinal Health and the dividend yield is 1.98%.
If you’re looking for a high-yield opportunity, Brookfield Renewable Partners (BEP) could be an ideal target. The renewable energy giant says its energy supply contracts are often long-term, backed by governments and linked to inflation. In other words, cash flow is stable and reliable.
BEP stock offers a lucrative dividend yield of 6.8%, which could be attractive to yield-hungry investors or those who rely on passive income for their living expenses.
These robust dividend stocks and funds should enable you to enjoy the fruits of your savings without eroding your financial safety net.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
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