sci-fi author, beatmaker

Category: Money/Personal Finance Page 1 of 7

Principles for Building Passive Income

Passive income is the dream, right? Arrange your life and finances so that money consistently flows into your bank account, regardless of your employment status or energy spent hustling for gigs. I don’t mind doing hourly work as long as the work is tolerable, the clients are nice, and the rate is fair, but passive income certainly reduces my stress levels.

I currently have nine sources of passive and semi-passive income:

  • book royalties
  • music sales royalties
  • music publishing royalties
  • blog affiliate income
  • Patreon
  • service contracts
  • equity dividends
  • interest
  • capital gains

Some of these sources contribute negligibly, less than $50 in a month, but in total my passive income averages about $3000 a month. Not enough to cover my current lifestyle (especially since 100% of my dividend and capital gains income are reinvested) but enough to provide a significant financial buffer. Even when I have a slow month in terms of consulting hours, the passive income almost guarantees that my net worth keeps growing.

More Thoughts on Crypto (as a N00b)

I enjoyed this post on Reddit yesterday:There’s plenty to worry about when investing in cryptocurrency. Is it even an investment? Or is it simply hyped-up gambling?

About a month ago I opened accounts with Coinbase and Kraken. Kia and I each put in $1000. In that time our money has doubled, and Dogecoin went up tenfold (I sold half at the pre-SNL peak).

It’s an absolutely insane market. A major crash is all but guaranteed. There’s a significant chance one of the four coins we’re invested in (Bitcoin, Ethereum, Doge, and Cardano) will fall out of favor and plummet in value to zero or close to it.

On the other hand, I wouldn’t be surprised if holding those coins for five years (and possibly buying the dips) yields an average gain of 50% or more annually. That sure beats a 3% bond yield or a .05% “high-interest” savings account.

Here’s my current approach and thinking:

Why I Opened a Crypto Account

About a month ago I opened a Coinbase account. I’d been watching Bitcoin since it’s inception, but had always been reluctant to buy in. I didn’t want to store significant amounts of “money” on a hard drive that might be lost or damaged, or in a password-protected “wallet” that I might lose the password to. I liked the idea of cryptocurrency, but whenever I looked into the details of how to actually acquire and store Bitcoin, I lost steam.

My hesitancy seemed prescient when Mt. Gox (the largest Bitcoin exchange at the time) experienced security breaches, coin theft, bankruptcy, and collapse. I patted myself on the back once again for avoiding crypto when Canadian exchange QuadrigaCX ceased operations and declared bankruptcy, taking the coins of its investors with it. Gerald Cotten, who ran Quadriga from his laptop and kept all the passwords in his head, may or may not have died in India in 2018 (Reddit sleuths are convinced he is alive and well).

But as the price of Bitcoin rose, so did my FOMO. Trump’s four years of reckless spending and tax cuts made me wary for the future of the US dollar as well. What if China decided to peg the yuan to BTC (or to its own national crypto coin) instead of USD? There is no rule that the US dollar will be the global reserve currency forever.

I realized that cryptocurrency was here to stay, and I might as well have a stake in it.

Index Funds are Getting More Dangerous — What’s the Alternative?

The stock market is going crazy. The S&P 500 P/E ratio is at 42 and rising (the historical average is around 15). The Schiller P/E ratio (based on inflation-adjusted earnings over the last ten years) is at 37.

These numbers indicate that the stock market is overbought. Demand for ownership in profitable companies far exceeds supply, so prices of stocks go up. While inflation is contained for the price of milk, inflation is very much NOT contained for assets that interest the rich. Stocks, bonds, crypto, NFTs, etc.

For decades, parking the majority of your savings in a low-cost ETF that tracked the S&P 500 (like VOO or SPY) was the play to make. This strategy has consistently outperformed most mutual funds, hedge funds, and individual stock-picking investors.

But we may be reaching the end game for passive ETF investing. Hedge fundie Michael Burry (played by Christian Bale in The Big Short) has warned about the risks of ETF investing. Passive investing eliminates price discovery. In other words, the S&P 500 includes some extremely overvalued stinkers, with P/E ratios in the hundreds or even thousands. P/E isn’t the only important metric when evaluating the price of a stock, but it’s a risky one to entirely ignore.

Burry also raises concerns about liquidity. All is well when money is flowing into ETFs, but what happens when money flows out? As Burry said, “The theater keeps getting more crowded, but the exit door is the same as it always was.”

So what are we supposed to do with our life savings (if we’re fortunate enough to have any)? Keep it all in cash, and lose to inflation every year? Buy lumps of valuable metals and squirrel them away in a safe deposit box? All well and good until Elon Musk brings home a gold-nugget asteroid and the price plummets. Buy Bitcoin? Bitcoin is just as inflated as everything else, being an asset of limited supply that interests the rich.

No Car Experiment: Results and Conclusions

Almost exactly two years ago, our car lease expired, and my family decided to embark on a “one month” experiment of living without owning or leasing a car. At the time our daughter was attending an elementary school just a few blocks away (easily walkable), and Kia was willing to do the bulk of the grocery shopping on her Xtracycle cargo bike. In terms of commuting, Kia and I both work from home. Otherwise we planned to use car sharing services and Lyft/Uber as needed. Our #1 rule for the experiment was that we would never turn down social invitations for lack of transportation. Also, we would not depend too much on family and friends for rides.

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