Lifetime passive income: The Paycheck Pot In Action

[Champion]

Thanks for sharing, MJ!

 

[fluffhead]

I've been looking to get more active with my investments. Been a bit since I read Unscripted ...this post makes me feel like its time for a re-read....right after TMF

 

[Redbeardglides]

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...

www.thefastlaneforum.com

(I made a pretty big profit on MZA again).

Now some of the disclaimers/realities:

1. 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.
2. 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.
3. The average paycheck from this "Paycheck Pot" pot is about $5,000 depending on WHAT is going X-DIV and how active I am.
4. 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.
5. In a sideways (to down) market, I would expect capital appreciation to be marginal, ZERO or perhaps negative.
6. 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.
7. 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.
8. This has tax implications (as does a profitable business) so be prepared to keep up with your estimated tax payments.
9. The dividends (due to the holding period) will not likely be "qualified" hence generating taxes at your marginal rate. Not good.
10. 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.
11. 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.
12. 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.

Wow you are constantly providing value MJ. Thank you.

 

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[MTF]

@MJ DeMarco, could you please share what percentage of your portfolio is in these paycheck stocks?

I haven't checked exactly in a while but I'd say that 70-80% of my portfolio is in dividend stocks and REITs. I feel like it may be too much but I really don't want to invest directly in real estate and deal with its headaches or invest in some random stuff that breaks your snap rule and apocalypse rule.

I'm not sure if it's safe to keep investing more of my cash into these or diversify somewhere else (but not sure where).

 

[ZackerySprague]

I am determined to get to this stage, here I am at my desk reading this. I got a letter in the mail that a debt of mine has been sold to a collection agency.

I just want to Thank you MJ for writing your book, if I haven't read or found it. Lord only knows what I would have done. Being on this side of debt really sucks. It's not fun, anytime I hear someone in debt I always recommend your book, always.

I'm getting burned out and tired of it. I know It was self-created, and I am owning up to this. Paying back Parasitic debt sucks when it's old debt, but what's even worse is when you get a feeling of "How am I going to support myself, let alone a family?" Believing in myself to earn, manage, and pay off debt has been very hard. When I found your book, it gave me hope and still does that I could to get out and become debt free.

Thank you.

 

[steelandchrome]

Thanks for posting this, I was just discussing this with my wife and then it popped up here for a reminder to keep filling up that pot and not be as passive with it...

 

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[lludwig]

I thank you for the compliment but it's not that difficult to recognize a pattern where risk is elevated. It involves a little bit of knowledge, but not something terribly difficult to learn.

To clarify I'm referring to the average business owner and their knowledge of the techniques you describe.

 

[baguvix]

Thanks for the explanation MJ. Do I need to live in the US to be able to invest in this? btw. Yesterday I ordered Unscripted and TMF , can't wait!

 

[Fukuokasan]

great idea for a 3rd book cause im still confused due to not understanding the stock market at all.
could be aimed at the richer crowd.
the first page could say in big bold letter, "If you're poor, stay away!"

Read some good book on Wyckoff

Richard Wyckoff - Wikipedia

en.m.wikipedia.org

 

[illmasterj]

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.

@MJ DeMarco what do you mean by "sell before earnings"?

 

[fluffhead]

@MJ DeMarco are you looking at any fundamental trends here at all or strictly making sure that the technical indicators align?

 

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[supervagabond]

Hey all! I read TMF 6 years ago and I just finished reading Unscripted . My ecommerce business is growing well since 6 years too.

My understanding about this money system is that you start it when you have a decent saved up capital to allocate such as $250k++ because you invest for income not for growing.

What do you recommend doing with the money you save on the way to this minimal number? Just keep it in cash at the bank?

Thanks a lot MJ for these 2 awesome books!

 

[Rearden]

@MJ DeMarco Love the value thank you!

I have read this and the Stock Options threads. I wanted to know your opinion, which would you learn first, Options trade or Dividend Capture Strategy?
Thank you

 

[Nice_home]

Warning, I read Fastlane but not yet Unscripted , so I'm not so clear yet on the Paycheck Pot / dividend setup.

So I'm not 100% sure this question is relevant other than for a "money system" in general as covered in Fastlane. But I'm curious if MJ (or anyone else) has experience with some of these higher yield ETFs?

Top 100 Highest Dividend Yield ETFs

etfdb.com

Not so much the ones related to China, but more focused on those related to tech or energy/oil. Thinking to make a move into this area ASAP and start getting a monthly check "like winning the lottery" as described above. Meanwhile keep working on the businesses. Would this make sense? Are there other options with high(er) yield that are (more) stable, for the purpose of income generation?

 

[jwhanke]

@MJ DeMarco Do you have a maximum amount of capital you use per dividend capture trade? I am asking based on a percentage of your paycheck pot. Thank you for the thread! It has been a huge help!

 

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[Two Dog]

IT'S BASIC MATH AND FINANCE. A high school kid who gets an A in calculus can easily learn finance.

LOL, that's your definition of BASIC MATH?!?

I'm happy when the cashier hands over the correct change when it's displayed on the register for them.

Learned something today though => no minimum holding period to received dividends. Not sure why I every thought otherwise, but it's probably because every piece of dividend advice always talks about reducing taxes. Interesting.

 

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