Future plans (cash flow and for this blog)
We will eventually be moving off of the substack platform!
Legend:
As with all pages the ‘✙’ sign is there to warn you/put in a “first do no harm” designation notification. Remember the disclaimer here.
A ‘do not pet that dog 🐻’ notification means you should stay the hell away or completely distrust whatever that product/security/site/external piece of advice is. It could also mean: “Don’t be dumb” To understand where the ‘do not pet that dog’ reference comes from watch this video here: link
Big changes are afoot (for my financial strategy as well as for this blog). The TLDR is this:
I will be moving this blog onto a site I fully control and own 100% at some point
I will be optimizing my finances for cash flow and focus less on appreciation of assets
Both are major changes. I’ll address the ‘why’ for both.
For the first bullet:
Substack is a great platform, and helped me get off my butt and actually do something without having to worry myself much about blog formatting etc. That was valuable and I’m forever grateful to Substack for this. However, Substack seems to be moving away from emphasizing more long-form content (which is the entire point of this blog). I am on X link here. So I already have an area to do short form content.
In addition, Substack takes a slice of any monetization or donations in exchange for content being more publicly seen. But I can do this better on X by sharing posts there in my view. In general it’s about control. Substack could change any of its policies on a whim, but I control my site 100% and can market it how I see fit.
Further: Platforms don’t stick around for forever. Sites generally do. I don’t want to permanently hitch my wagon to any platform. What’s important to me is: control + a growing email distribution list of folks who enjoy and get value out of the content I create.
For the second bullet:
After a lot of soul searching and looking at my finances as well as figuring out what I want to do now + after financial independence I’ve come to the conclusion that cash flow is the most important thing for me at this stage. Even more important than appreciation of assets. I also realize that I want to do something related to finance long term and need to focus 100% on that. Not on a vending machine business, not on a notary business, not on (insert other ideas here).
Given my background and experience, any roles / businesses I own, that are related or adjacent to finance will likely be driven by sales in some form. Since that’s the case, it’s imperative that I have a separate stream of cash flow generating securities that can keep pace with inflation long term for the times and years my sales figures are low/non-existent. Cash flow is vital at all times in general. Appreciation is more of a nice to have (at least that’s my current view for myself personally).
Right now, I will likely be constructing my portfolio in a layered cake approach. The following portfolio construction is inspired by “Dividend Dream” a content creator that I’m familiar with online:
Right now, I am focused on building out the high income portion, since I already own quite a few appreciating assets (my house in Raleigh as well as a large amount of Berkshire Hathaway B shares). I also have a large amount in cash equivalents (I Series Bonds, Fidelity’s SPAXX money market, and Treasury Bills). In addition I also have quite a bit of cash value in a whole life policy too.
My current net worth (and trajectory around it looks like this):
The rate of growth in 2024 slowed down significantly due to a few factors:
There was a significant loss on a rental property in Ohio (approximately -$25,000). (More on that in another post!) I owed a larger amount in taxes due to the fact I paid off the Ohio property (several additional thousand in taxes due to sales of securities), and I also had to replace one of the 2 HVAC systems in my personal residence (-$11,000). In addition, I was overly conservative in my portfolio for the majority of this year and was mostly in cash equivalents.
Despite all these factors, my net worth is still on track to increase by what it did in 2020 by November of this year (unless the market collapses/I lose my job etc.).
I feel I can do better than this. Over time, I will be holding less in cash equivalents, and building out a high income set of funds for 36% of my net worth (around $300,000). This portion will be invested in positions which include:
This produces an average current yield of 9.69% or $29,070 before taxes and inflation. In addition, a non-leveraged covered call and cash secured put strategy can be used to increase this figure slightly.
My current core spending is approximately $43,000 + $9,999.90 for the whole life policy premium for a total of $52,999.90 yearly. This year, we are on track to spend around 63 to 64 thousand due to the HVAC system being replaced in our home.
I would like to call out that even though $9,999.90 is being spent on a whole life policy, this amount is fixed, and is generating a large amount of cash value per year, along with a high degree of protections of various kinds. It could also be annuitized later as well if desired, or used to finance asset purchases in a low risk way, while still accruing value while it is being borrowed against tax free. I am not a believer in “buy term invest the difference”.
So… this income of $29,070 would generate enough before taxes and inflation to pay for slightly over half of our core spending not including one time events like an HVAC replacement. This would be the case even without the use of selling cash secured puts or covered calls.
I should point out that markets are extremely frothy still as of this writing (although I suspect now that rates are being cut) and the economy is cooling down, that eventually there will be some declines. Since this is the case, I am slowly doing purchases instead of larger lump sum purchases, until such time that better pricing emerges. I always want to have some cash equivalents on hand to purchase income at a discount when I can.
Regarding the timing of rate cuts, I was right but with a twist: I was wrong about 2024 not being a banner year in a good sense (at least so far) for stock market returns. But correct that rate cuts would come later in the year (the rate cutting cycle started in September of 2024). See here for my post in December of 2023, specifically this section in the screenshot below:
✙ Anyways… regarding my earlier reference to cash secured puts and covered calls - these are types of options contracts. I would never consider using leverage in relation to options contracts, and am conservative in their use. For most people I would strongly advise against their use since most people have trouble with impulse control or emotions, don’t have the time or desire to learn and understand how options can be conservatively used, and since they are complex mechanisms for transferring (or being paid to hold) risk. However, I believe that with conservative use, I can increase my income per year slightly. So I am mentioning that here.
The key takeaway for most people regarding options is this: Generally selling options is best (not buying them). Options are similar to insurance in respect to the fact that if you are selling an option contract, you are taking the role of an insurer. You get paid a premium to hold risk for a certain duration. If you are the option buyer, you are transferring risk and giving up money in a payment for protection through a certain time frame.
If you buy a covered call against a security, you are buying the right but not the obligation to buy shares in a security at a certain price within a given time frame, even if that security appreciates beyond that strike price within that time frame.
Conversely, if you sell a covered call against a security, you are receiving a premium in return for the obligation to sell that security at a certain price within a given time frame, even if that security appreciates beyond that strike price within that time frame.
For cash secured puts, if you buy a put for a security, you are buying the right but not the obligation to sell your shares to another person/entity for a given price, even if that security falls lower than that strike price within that time frame. This would in effect, insure you against a certain rate of loss if the value of the security declined significantly, but you are giving up money in the form of a premium payment to gain this insurance.
Conversely, if you sell a cash secured put, you are receiving a premium in return for the obligation to have shares “put to you” or assigned/sold to you at a given price that you will have to pay within a given time frame, even if that security has fallen in value below that strike price within that time frame.
I could go on about options from here (and talk about deltas, implied volatility probabilities, risks, strategies, hedging, time decay, etc.) but for the sake of brevity and simplicity I will refrain from this for now. Suffice it to say, this is type of action is more speculative and is more complex and riskier as a result for most people, especially if executed poorly.
The way I intend to use them is to follow a list of commandments I came up with:
Thou shalt not buy puts or covered calls (except to ‘buy to close’ before expiration to de-risk)
Thou shalt not sell puts for a security thou dost not want to own (if assigned)
Thou shalt not sell calls for a security thou canst part with (if called away)
Thou shalt never use leverage for options
Thou shalt not sell puts or calls during times of volatility unless the underlying outcomes either way are acceptable
Thou shalt not risk money thou canst afford to lose
Thou shalt take any premiums received and only use them to purchase additional dividend paying securities for additional permanent income
Thou shalt take into account the probability of a given option contract being executed, and plan accordingly. Furthermore, that shalt not accept a less favorable probability for a higher premium.
Thou shalt only utilize cash secured puts and covered calls
I think this is all plenty of material for you all to chew on. Side note: Whenever the blog is moved to another site, I will post about it on substack along with a link, and also send out an e-mail separately for folks whose emails I have on record. This will likely take time to do, since I need to research platforms and how to design and build that site well before setting it up and sending it out.