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Customizing my own payouts has 10x’d myconfidence investing
This approach changed how I think about EVERY investment opportunity.
In the past, an investment came with a payout pattern.
Say you buy real estate. Your expected payout pattern is the rent you charge minus the expenses. It pays monthly. Your principal is returned in years.
A stock might pay out a yearly or quarterly dividend. Principal returns usually when you sell the stock.
If you day trade cash in and out is unpredictable.
In steps Digital Credit (e.g. $STRC, a near-par stock paying ~11.5% in monthly dividends — see here)
Because the value of the stock remains very close to par, and you have monthly dividend payments, you can easily structure payouts any way you like, with minimal risk.
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Amortized loans vs interest only
(If you are familiar with the difference, feel free to skip this section)
Generally, loans come in two key structures. Amortized or interest only.
Interest only loans pay only interest until the end of the term, at which point the initial principal is due. For example, if you take out $10,000 at 12% interest for 12 months, you will pay $100 in interest for 12 months. At the end of the 12 months the $10,000 is also due.
Amortized loans, such as car loans or mortgages, where a part of the principal is paid back from the first payment. Using the “same” $10,000 loan and 12% interest over 12 months, you will pay $888.49 every month.
This is the debtor perspective. Now if we act as the bank, it is important to consider a few things when lending:
The longer your principal is outside your control, the more risk you run. Interest-only is therefore riskier.
Returning cash earlier gives you more opportunity to re-invest.
If you can reinvest payouts at the same interest rate, both would yield the same amount at the end of the 12 months.
For the accretion system to work, investing in amortized loans is key, as they help pay down the borrowed money significantly faster.
That distinction matters because $STRC lets you choose either pattern, or anything in between.
Build a 12 month amortized investment
The real insight is that with this instrument, you can build whatever payout pattern you like. The stability in the value and the predictability in the payout mean you are in control. This is a game changer.
Let’s start with $10,000 in $STRC ( ▲ 0.15% ) equalling 100 shares.
If I just buy and hold the position, I earn $95.83 every month. At the end of 12 months, I can sell the 100 shares for $10,000. This acts like an interest only loan.
Now let’s assume I want to modify the payout pattern so it’s more like an amortized loan. Let’s start by picking a lower interest rate for the amortized loan. It’ll make things easier. Let’s say 8%. This means, I expect a payment of $869.88 every month.
In month 1, I receive $95.83 from the dividends. To complete the expected payment, I sell 774.05 of STRC. I now have $869.88 in cash and $9,225.95 in STRC.
In month 2, I receive $88.42 in dividends (as I own less STRC). To complete the expected payment, I sell $781.46 of STRC. I am left with $8,444.49 in STRC.
I repeat this process in months 3-12. At the end, I’ve received 12 payments of $869.88 and am left over with $205.87 in STRC.
Now, I specifically selected a lower interest rate, so that we could have some leeway. Obviously, we cannot run this payout pattern and expect an amortized payment of 11.5%.
There’s more!
Your creativity is the limit. If you can run the above system and understand it, it is possible to layer on top and boost your returns!
Specific areas I implement:
Use a lower interest rate to accumulate “long-term capital”. The $205.87 leftover in the above example can stay in my portfolio forever, generating extra returns when I do the next cycle. Or I can sell that and buy bitcoin for higher returns.
Reinvest the pay back. Whether I run another cycle with the same instrument or choose a different investment, the cash that comes back is going to be used, boosting my return far above 8%.
Use margin. Most brokerages will offer some level of margin at cheaper rates than 11.5%. Whether I choose to boost my long term holdings, or can pick a higher interest rate for my amortized payment is up to me.
COMING SOON:
The newsletter is the first step. I am working on guides, calculators and videos. There will also be 1:1 time with me to help with any questions! Stay tuned!
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My moves this week
I want to make this real for you all, so I’ll be as transparent as I can.
Most of my money moves happen on or near the 1st of the month or the 15th of the month.
This week, I had some cash-flow lag, so
I moved $3,750 to M1 and bought $STRC ( ▲ 0.15% ), as part of my tax refund.
I leveraged my overall position in M1 up and bought an extra $4,000 $STRC ( ▲ 0.15% ) on margin.
That’s an extra $74 per month I can expect in my account.
Disclaimer: All material is provided for educational purposes only and does not guarantee any financial results. This is not financial, legal, or tax advice. I am not a financial professional. Results vary and are dependent on individual effort, timing and circumstances. There is no solicitation to invest.