Why Rising Interest Rates Are a Goldmine for Income Investors: Unpacking the Augmented Income Algorithm
Why Rising Interest Rates Are a Goldmine for Income Investors: Unpacking the Augmented Income Algorithm
Yes, notorious Apple is about to report today... but... as the Federal Reserve and Treasury continue adjusting rates upward, market sentiment often swings between anxiety and panic. Equity markets get shaky, and fixed-income assets take a hit on paper. When the Treasury raises yields... pushing risk-free rates further past the 5% mark... older fixed-income securities yielding 4% suddenly look far less attractive. Consequently, asset prices fall across the board.
For standard growth investors, declining asset prices feel like losing ground. For income-focused investors, however, a rising interest rate environment is a golden opportunity.
Fixed-income securities, preferred stocks, and baby bonds go on sale. While watching portfolio values dip short-term can be stressful, the underlying power of dividend reinvestment (DRIP) compounds exponentially at these discounted prices. Buying larger chunks of float at higher effective yields creates a snowball effect... one that accelerates dramatically when assets pay on a monthly schedule.
In this post, I will walk through the philosophy behind my Augmented Income Algorithm (AIS), why I am raising my baseline yield target by 125% today, and the exact Google Sheets code driving my strategy. Let me be clear: when it comes to fixed income, from Preferreds to Senior Secured, I'm probably not selling. Even when price volatility presses me to make a decision, I buy these for income and appreciate... value... the frequency and cash-flow returns on investment.
The Philosophy: Exploiting Market Shifts Without Heavy Technicals
My approach does not rely heavily on complex technical charting or trying to out-guess broader market moves. In fact, I align closely with concepts from Modern Portfolio Theory (often intertwined with the Efficient Market Hypothesis). By and large, market moves reflect collective consensus, and other investors are generally rational in their overall pricing decisions.
Trying to constantly fight the market or time exact bottoms is an exhausting game. Instead, my AIS strategy focuses on simple, fundamental metrics:
- Yield
- Payment Frequency
- Ex-Dividend / Record Dates
When the Treasury pushes rates higher, older fixed income goes on sale. Fixed income that previously offered an attractive 4% yield loses its appeal against the rock-solid security of long-duration US Treasuries or state tax-exempt alternatives (like certain "Baby Bonds" or I Bonds, which are particularly appealing here in New Jersey).
As other "Market Participants" reprice these instruments, I tend to buy the dips. The lower the share price goes, the more shares my reinvested dividends accumulate, building an escalating income machine for the long run.
Recently, I re-watched Adam Taggart's interview with Steven Bavaria on YouTube titled "Is it becoming a great time for Income Investors?" It reinforced exactly what my algorithm has been executing: this environment is one of the best income-buying opportunities in years. Is there anything else you should be buying? I don't think there is... anything.
Asset Priority: The "Buckets" Approach
My master program, QuantTrade, relies on distinctions of assets. The Augmented Income Strategy relies on yield. But not all yield is created equal. High yield without structural protection could become a trap. To safeguard capital while capturing elevated cash flows, my strategy categorizes candidates into distinct Buckets (Asset Sub-species):
- Senior Secured Debt (
SrSDt_DivPay): Backed by real physical assets or real estate behind the loan. First in line for payouts. - Senior Unsecured Debt (
SrUDt_DivPay): High priority obligations without specific collateral backing. - Junior Debt: Subordinated debt obligations offering higher yield for slightly higher risk.
- Preferred Stocks: Fixed-rate equity hybrid with priority payout over common shares.
- Alternative Investments / ETFs: Highly favored for diversification, though expense ratios must be monitored.
- Common Stocks: The baseline. Lowest priority in liquidation, but offers equity growth upside. A high yield here isn't pressed by Government Bonds; it's Modern Market Theory SCREAMING that nobody is buying this company.
Upgrading the Algo Baseline: Moving from 4% to 5%
My strategy runs on Google Sheets, the Database that floats on Data Centers. I appreciate the cloud-based access... allowing me to track metrics seamlessly whether I am on my laptop while traveling or sitting at my primary desktop PC setup.
At the core of the algorithm is a single control cell on my Watchlist tab where the "Value Sought" variable is assigned.
Historically (for at least 5 years), this baseline threshold sat at 4%. However, because Treasury yields have climbed and fixed-income prices have dropped across preferreds, junior debt, senior debt, and closed-end funds (CEFs), a 4% floor started bringing in assets that simply are not compelling anymore in today's rate climate.
Today, I am raising the "Value Sought" floor by 125%... moving it from 4% to 5%.
This single parameter shift echoes through my downstream Action Sheets, refining candidate selection and feeding into my dual technical scaling logic (a HIsterese Volatility-Trend strategy).
The Code Behind the Algorithm
Below are the two core Google Sheets formulas that drive candidate filtering and scoring within the Augmented Income Algorithm.
Layer 1: Ex-Dividend Window & Yield Filter
This first formula filters the master watchlist for tickers approaching an ex-dividend date within the next 30 days, meeting minimum yield criteria, and constrained to the top 25 records sorted by ex-date and yield.
=IFNA(ARRAY_CONSTRAIN(SORT(FILTER({
HYPERLINK(
"https://us.etrade.com/etx/mkt/quotes?symbol=" &
REGEXREPLACE(Watchlist!$A$30:$A$167, "-", ".PR."),
Watchlist!$A$30:$A$167
),
Watchlist!$B$30:$C$167,
Watchlist!$G$30:$G$167,
Watchlist!$E$30:$E$167
},
Watchlist!$B$30:$B$167 < TODAY() + 30,
Watchlist!$B$30:$B$167 >= TODAY() + 1
),
2, TRUE,
4, FALSE
),
25,5
),
"No Results"
)
Layer 2: The "Sort on Score" Calculation
Once candidates are identified, the next column assigns a composite score weighted across Asset Priority (My Bucket assignments), Price relative to Par (Bonds), and Yield.
Capturing income sooner is prioritized, and Senior Secured assets receive the highest inherent safety weight. I find LET decreases the processing load on Data Center execution... it is optimized to be more efficient and avoid wasting resources, significantly increasing speed and accuracy.
=LET(
ticker, AQ372,
yield, AR372,
price, AS372,
sub_species, AT372,
asset_score, SWITCH(sub_species,
"SrSDt_DivPay", 100,
"SrUDt_DivPay", 92,
"Junior Debt", 85,
"Preferred Stock", 70,
"Alternative", 50,
"Common Stock", 35,
30),
par_ref, IF(price > 38, 50, 25),
is_fixed_income, OR(
sub_species = "SrSDt_DivPay",
sub_species = "SrUDt_DivPay",
sub_species = "Junior Debt",
sub_species = "Preferred Stock"
),
par_score, IF(is_fixed_income, MEDIAN(0, ((par_ref - price) / par_ref) * 200 + 50, 100), 45),
yield_score, MIN((yield / 10) * 100, 100),
IF(ISBLANK(ticker), "", ROUND((yield_score * 0.5) + (par_score * 0.3) + (asset_score * 0.2), 1))
)
Why Speed Isn't Everything: Accuracy & Automation
When building complex Google Sheets setups with custom functions, Apps Script loops, and heavy row automation, the biggest mistake is trying to make scripts run too fast.
Rushing execution can trigger API rate limits, cause calculation race conditions, or lead to out-of-sync data rows. Deliberately pacing automation loops and allowing formulas time to recalculate ensures that every status check, row fetch, and execution write completes with 100% precision. In automated income tracking, accuracy beats speed every single time.
I was raised and educated in an era that didn't have Data Centers. We drove to a library, collected books we thought might have the content we needed. When the librarian shut the lights off, it was time to call our parents from a payphone! This processing capability is plenty fast to me.
Final Thoughts
Rising rates may look intimidating on a portfolio summary screen, but for income investors with a disciplined, algorithmic framework, higher yields represent a generational compounding engine. By raising baseline thresholds and prioritizing senior asset buckets, market volatility becomes a tool for long-term cash-flow expansion.
Notes and Links:
Adam Taggert, Thoughtful Money is one of my favorite YouTube Channels. You can check out his shows here:
Thoughtful Money https://www.youtube.com/@adam.taggart/about