Thread: Never Work Another Day in Your Life...

I never intended on writing this post because it is so "cart before the horse" but after receiving countless emails asking for it, I decided to do it.

Basically, it covers a potential Fastlane destination (or Slowlane destination) if that is your poison.

As always if you like, please share/tweet/etc.

How to Never Work Another Day in Your Life, The Money-System Portfolio

Well, I read the article by MJ and... wow! I am a financial adviser (very successful practice BUT trying to create a fastlane business out of a really good job) and I think I am the only adviser in my area using Closed End Funds extensively for clients who need retirement income. I was very surprised to see that's a big part of how he creates his passive income from his wealth. I usually attend several CEF industry conferences each year to hear from the portfolio managers I am interested in and it's very informative.

Just an FYI, as he said, not a "set it and forget it" investment arena, but usually fairly good selection for investments at a true discount to net asset value (NAV), just watch for valuations and management. Also, many CEFs return some principal with the dividend so check on that as well. lastly, they often use leverage so just know what you're getting into before buying them. If properly understood though, can be a great part of an income portfolio. Great article, MJ.

Originally Posted by MJDeMarco

because it is so "cart before the horse"

I know but anyone able to use it effectively is going to need their chariot in the right direction anyway, so no harm no foul. 5% on a few hundred bucks would take a while to quit the day job. Thanks for sharing, I greatly appreciate the insightful post - your best yet authoring-wise.

Good article MJ. It is cart before the horse but its good knowledge... This would be like trying to move up to a high limit room when you cant afford the ante ....sort of.

If I was (say) 40 years old and I managed to sell a business for $5,000,000 and found myself able to limit myself to a $2,000 a week income (paid every Friday) it would take me 2,500 weeks to just spend it all. Divide that by 52 and that's 48 years which takes me to 88 years old. Even if I put it into the most secure account (or spread it out into a few very secure accounts) to try to beat inflation with a basic interest rate (or not - it wouldn't really matter) I could still get at least 40 years out of it with not a worry in the world and nothing to monitor. Freedom defined. Of course, I don't have kids (and don't plan on any) so I don't need to leave anything behind for anyone.

My point is; using Fastlane mentality, all we need is to generate some explosive cash and if frugal and happy with "just" $2,000 a week for life we'd have it made in the shade even if we were to just spend it all. You could probably even take out $100,000 to "play with and invest actively" and it would probably turn into more. Just something to think about.

Many are curious about the "postgame" stuff that this blog post talks about. Those who are in business often have great interest in how to navigate if and when they sell. Detailed and extremely thorough, clear analysis.

MJ I know you are not a big fan of real estate for good reason but I was wondering what your thoughts are on leverage. One of the aspects of real estate that I like is the ability to "safely" leverage my money 4x-10x. I see RE deals returning 10%+ all day and mortgage rates in the 4% range. Mortgage rates are usually significantly lower then margin rates so the return on your leverage capital can be better then with other investments. I know leverage is riskier but there are alot of people who use it properly to make fastlane money (hedge funds for one).

I would not need to leverage if I had 10mil in the bank but what if I have 100k and can leverage it 10-1 in Real estate with a 10% cap. With a 4% mortgage I would be roughtly be able to earn an extra 54K a year in income. Or using my 100k to control 1mil in stock ( we'll say $100/share so 10k shares with OTM calls @ $1) and writing calls for an extra 10K per month. If you properly set stoplosses and pay careful attention to your trades you should be able to minize your risk and earn a nice paycheck (not day trading).

I am very interested in yours or anybodies thoughts regarding leverage and its role in wealth creation.

Thanks

Rickson: would you consider using leaps or buying on margin for a valuation style investment strategy that you use as well as some +/- to both. I am looking at investing in a similar style as you have spoken of (long term valuation) as well as writing some covered calls on these kind of companies. With the low margin rates and some companies putting out 6-7% dividends the interest would be a wash allowing me to make any appreciation as well as premium from selling options which can be as high as 3-5% depending on the vix etc. I would look to set stop losses right around break even to minimize my potential losses.

I know trading with leverage can be risky but it seems like using a sound covered call strategy of 1%-5% and leverage of around 5:1 on 20k would give me a nice 1-5k/month cashflow. Looks pretty good in comparison to some real estate deals and the liquidity is much more attractive then RE right now. I do still plan on owning a solid RE portfolio but I would like to be diversified in my investments and see alot of benefits to covered calls for monthly cashflow etc.

Originally Posted by Pete799p

Rickson: would you consider using leaps or buying on margin for a valuation style investment strategy that you use as well as some +/- to both. I am looking at investing in a similar style as you have spoken of (long term valuation) as well as writing some covered calls on these kind of companies. With the low margin rates and some companies putting out 6-7% dividends the interest would be a wash allowing me to make any appreciation as well as premium from selling options which can be as high as 3-5% depending on the vix etc. I would look to set stop losses right around break even to minimize my potential losses.

I know trading with leverage can be risky but it seems like using a sound covered call strategy of 1%-5% and leverage of around 5:1 on 20k would give me a nice 1-5k/month cashflow. Looks pretty good in comparison to some real estate deals and the liquidity is much more attractive then RE right now. I do still plan on owning a solid RE portfolio but I would like to be diversified in my investments and see alot of benefits to covered calls for monthly cashflow etc.

Pete, be careful in thinking you can always minimize losses with stop losses. When you say "set stop losses right around break even" a red flag goes up in my mind. If it was that easy - make profitas on some trades, break even on the "bad" ones - then everyone would be doing this... they aren't, and for a reason.

I'm not saying covered calls are not a legit income producing investment plan for some, just making sure all know you can't always limit downside risk with this method like some try to do.

Originally Posted by Lumpy

Also, many CEFs return some principal with the dividend so check on that as well.

Yea, ROC (return of capital) is very common on Buy/Write funds and even some MLP funds. For those who need more details on the various CEF's, ETFConnect has a good search tool and breaks down the type of income distributed.

Originally Posted by Lumpy

Great article, MJ.

Thanks!

It is a very interesting article MJ. This year, I would like to try portfolio based on those principles, except currency though. I wonder what are your buy/sell criteria for those types of income stocks/bonds?