Wow you are constantly providing value MJ. Thank you.Want to earn a passive income every single month for the rest of your life? And be able to survive a recession or a market collapse?
Earn (and save) enough money to build a Paycheck Pot, a lump-sum portfolio that yields a passive income EVERY MONTH through the use of market investments such as dividend stocks, preferred bonds, closed end funds, and ETFs. AND have it represent VERY LITTLE of your net worth. When it does, you can OUTLAST market collapses, recessions, and more.
PLEASE NOTE: I am NOT reliant on the income from my paycheck pot as it represents a very small portion of my income/net worth as I believe trading one master (a job) to another master (Wall Street) is not financial independence, but dependence.
Attached below is my monthly "paycheck" from my Paycheck Pot (PP) including the instruments where a Dividend was paid.
View attachment 25623
In the last couple of weeks there's been a lot of posts/questions regarding the Paycheck Pot.
For instance, here's one:
INVESTING - MJ talks about living off of 3.5% interest from bonds for life. But is he correct?
Dear Fastlaners, I have a genuine question. MJ says in TMF and UnScripted that you can live off of interest from a large sum of money all your life without working. But I have a doubt. Suppose you have $10 million invested in municipal bonds, and you earn 3.5% interest per year. That's...www.thefastlaneforum.com
If you haven't heard of "The Paycheck Pot" -- WTF is wrong with you!!???
This is an integral part of the money system I described in The Millionaire Fastlane . Moreover, I explain the PP in great detail in Unscripted , specifically Chapter 48.
The Paycheck Pot (PP) is how you can "retire early" and focus on passion projects that might not have economic viability, aren't great time investments (like my big time involvement here) but are more selfishly focused on yourself as opposed to market centered. Maybe you want to write (like me) save the whales, spread the gospel, run for office, or start another company and go without a salary for 2 years. Doesn't matter your REASON, what does matter is HOW you can do it.
At the moment I have multiple brokerage accounts, most used for options and speculative/experimental stuff (part of the FU Pot, again CH 48, Unscripted ). However one of them is a dedicated Paycheck Pot which I actively manage to the total tune of about 1 hour per week. At this moment in my life, my PP is pretty small because I have other interests that pay a lot more, and better.
To create the effect of the paycheck option in the Paycheck Pot, I instructed TD Ameritrade to literally DRAW UP A CHECK for me every month and mail it to me ... as if I was getting paid a paycheck. This little strategy helps me fire the feedback loop and keeps me actively reminded to "check in" on the Paycheck Pot to manage it. Had this money been simply automatically deposited to my account, I would have not noticed it or the amount, much less written about it.
In my PP I focus on dividend stocks and CEF's using mostly dividend capture strategies and covered calls (when available).
Here's my process:
1) I subscribe to the newspaper Barrons, and every Saturday (or Sunday) I retreat to my patio and smoke a cigar while reading it. I pay attention to their dividend pages and highlight companies approaching their X-Dividend date, the date you need to own the stock to get the dividend. From that list (usually about 100 companies) I highlight companies that might be attractive targets to own for a short period of time, at most, 3 months. This list is usually only 5 to 10.
2) On Monday I look into these companies and check their chart for any technical issues. Technical issues would be described as 1) Overbought conditions 2) Technical breakdowns confirmed by a historical backtest (I.E.: In the last X years, when Stock XYZ falls below it's 200DMA, 72% of the time it results in a lost within the next 30 days.) 3) Historical time to recovery (I use Dividend.com for that) and 4) Pending news and/or sentiment.
In other words, I'm looking at the RISK for holding the stock for 3 days to 3 months. If you aren't aware, whenever a company goes X-dividend, the market makers open the stock LOWER by the dividend, so on paper, the "gain" is a wash. I will also write covered calls on the stock if available to minimize some of the downside risk (although that also "washes" on X-DD). This is why I will hold for a bit and cycle through various instruments.
3) When the stock recovers (sometimes it can take weeks, or not at all) I will sell. Basically I'm looking for A) recovery + a tiny profit or B) Sell before earnings. There are very few things I will hold through earnings.
4) Repeat the process.
5) Collect check.
Here's another example I posted some years ago:
NOTABLE! - INVESTING - Money System Management: Real Example, Closed-End Fund
Money system management was discussed briefly in UNSCRIPTED toward the back end of the book. I thought I'd relay a real-life example into how I recently managed a money-system investment. While my objective in these investments is a monthly yield, sometimes the instruments move in a fashion...
(I made a pretty big profit on MZA again).
Now some of the disclaimers/realities:
- The $7,000 check about was on an account size of $400,000 leveraged with portfolio margin. To do this without the margin, you'd need about $600K to $1M on the high end.
- I did not OWN all those stocks the entire month. I'd sell something and buy something to replace it. On some instruments, my holding period would only be days, at most, a week. Some stocks I hold until earnings and then sell, Southern Company (which BTW I just sold) and Chevron.
- The average paycheck from this "Paycheck Pot" pot is about $5,000 depending on WHAT is going X-DIV and how active I am.
- In this account, I'm not concerned about "capital appreciation" or market returns although the account is up nicely -- this is BECAUSE the market has been up.
- In a sideways (to down) market, I would expect capital appreciation to be marginal, ZERO or perhaps negative.
- In a down market, the paycheck would be the same, but the account value that generates the return would suffer, in many instances, MORE than the check itself.
- If the stock market CRASHED (and $400,000 turned into $200,000) my life WOULD NOT BE IMPACTED. This is why I stress that investing your entire net worth into the STOCK MARKET (as the mainstream financial punditry advises) is foolish... swapping one master (A JOB) for another (WALL STREET) is not financial INDEPENDENCE, it's financial DEPENDENCE. I'm not dependent on the paycheck, although it's nice to see a paycheck appear every month, one that pays for my bills many times over with a lot left over.
- This has tax implications (as does a profitable business) so be prepared to keep up with your estimated tax payments.
- The dividends (due to the holding period) will not likely be "qualified" hence generating taxes at your marginal rate. Not good.
- The account (paycheck) is dependent on good stocks going X-div and their technical condition. In April, the check was only $1,768 due to not finding favorable candidates. The next month it jumped to $5,900. Next month should be about the same.
- If I did not have a business that earned profits every single month, my paycheck pot risk capital would probably be about 10X, and optimally NEVER amount to more than 20% of net worth. There is NO scenario where I recommend investing your entire net worth, 50%, 33%, and much less 20%, into the stock market. Id rather lose 1.5% per year on inflation sitting in cash or in speculative business ventures.
- The paycheck pot became possible early in my life (mid-30s) because I EARNED A LOT OF MONEY QUICKLY through BUSINESS and ENTREPRENEURSHIP, not because I scrimped and saved on coffee from my $50K year job, living like a pauper for most of my young adult life. Compound interest via your business is the best wealth builder out there.
Paycheck Pot: A monthly paycheck you can count on to pay bills. If you own everything CLEAR (including your house) your expenses can be shockingly small.
F*ck You Pot: A larger allocation invested (or not invested) in multiple other enterprises; your hobby business, speculative stocks, real estate, LLC partnerships, and yes, money market cash -- a call option on opportunity and market implosions.
From Unscripted ...
View attachment 25622
Final note: Earning thousands a month from an investment that takes me a few hours feels oddly different than earning money from a business. Earning profit from business is like earning a true paycheck, earning profit from the Paycheck Pot feels like winning money.
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