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Invest In These 5 Assets To Replace Your Paycheck & Never Work Again — Transcript

by Josh Invests · 2,781 words · 469 segments · language en · Watch on YouTube

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0:01Never working again sounds like a
0:03fantasy.
0:03>> [music]
0:04>> It isn't. It's five assets paying you
0:06enough every month the job becomes
0:08optional. And 10 bucks a day is enough
0:10to build it.
0:12In this video, I'll show you the trap
0:13most people fall into and how Josh gets
0:16around it with five [music] specific
0:17assets, each one passing three filters
0:20before he buys it. And by the end, I'll
0:22show you how his $10 a day habit becomes
0:25a $5,230
0:27monthly paycheck paid for the rest of
0:29his life without him ever selling a
0:31share.
0:33Look, before Josh picks a single fund,
0:35he gets clear on one thing. What's he
0:37actually solving for? Replacing his
0:39paycheck. That's the whole job.
0:41>> [music]
0:42>> Josh has a job paying him 1,100 to 1,200
0:44bucks a week, or about 5,000 bucks a
0:47month. That's right around what the
0:48typical American full-time worker earns,
0:51according to the US Bureau of Labor
0:52Statistics. He shows up Monday through
0:55Friday.
0:55>> [music]
0:55>> The check shows up every 2 weeks. 60
0:58grand a year. That's the number keeping
1:00his life running. Rent, groceries, gas,
1:03everything.
1:04He wants to replace it, so he sets the
1:07target. Five grand hitting his account
1:09every single month, whether he goes to
1:10work or not.
1:12The problem is simple to say. Josh needs
1:14to own a portfolio that pays him five
1:16grand in dividend income every month,
1:19about 60 grand a year. And he has to
1:21build it out of money he can actually
1:23spare every day, not a lump sum he
1:25doesn't have.
1:26Five grand a month paid by his
1:28investments. That's the target.
1:30Now he has to figure out how to actually
1:32build it. And the first thing he runs
1:34into is the trap most people don't even
1:36know they're in.
1:37Here's the thing. Most people trying to
1:39do what Josh is doing make the same
1:41mistake. They put their money into the
1:43S&P 500. [music]
1:45They watch the account grow for 30
1:46years. They hit retirement with 400,000
1:49to 500,000 dollars sitting there. And
1:51then they realize the account is paying
1:53them about 437 bucks a a in dividends.
1:56That's the gap. They built wealth. They
1:58built it well.
1:59>> [music]
1:59>> The income just isn't there.
2:01Josh thinks about why. The S&P 500 was
2:05built to grow, not to pay. The yield on
2:07VOO is around 1.05%.
2:10Even if Josh somehow ended up with a
2:12million dollars in VOO, that account
2:14would pay him roughly 875 bucks a month.
2:18The only way to get more out of it is to
2:19start selling shares.
2:21And the moment he starts selling,
2:23>> [music]
2:23>> the account starts shrinking. Every
2:25withdrawal makes the next one harder.
2:27One bad market year early in retirement
2:29and the whole plan falls apart. That's
2:32not a paycheck replacement. That's slow
2:34account liquidation with a retirement
2:35plan label on it.
2:37Josh spots the trap and walks around it.
2:39He's building income that pays him for
2:41life, and that's a completely different
2:43kind of portfolio.
2:45So, Josh has two paths in front of him.
2:47The one he picks decides everything that
2:49comes after.
2:51Each one is growth investing. He buys
2:53assets, holds them, sells pieces later
2:55when he needs cash. The account pays him
2:58by getting smaller. Every withdrawal
3:00makes the next one harder. And if the
3:01market crashes the year he wants to
3:03retire, he's selling shares at a
3:05discount just to cover rent.
3:07Here's what that looks like over 5
3:09years.
3:10Year one, Josh puts 10 grand into a
3:12growth fund. By year three, it's grown
3:14to $15,000.
3:16By year five, he needs cash to cover a
3:18bill, so he sells shares to get it. The
3:21moment he sells, he owns less of the
3:23fund. Then the market crashes 30% that
3:26same year. The fund value drops fast,
3:28and Josh is still selling shares to pay
3:30bills. Only now he's selling them at a
3:32loss.
3:33Path two is income investing. He buys
3:36assets that pay him while he holds them.
3:38The account stays. The dividends pay his
3:40bills. Market goes up, market goes down.
3:43The income keeps showing up either way.
3:46Here's what that looks like over 5
3:48years. Year one, Josh puts that same 10
3:51grand into a fund paying 5% a year.
3:54By year three, he's collected $1,500 in
3:57dividends without selling a thing.
3:59By year five, that's $2,500 total.
4:02And he still owns all 100 shares he
4:04started with. Then the market crashes
4:0630% that same year. The $10,000 might be
4:09worth $7,000 on paper, but the companies
4:12inside the fund keep paying their
4:13dividends. The 500 bucks a year keeps
4:16coming. He's not forced to sell
4:18anything.
4:19Now, that second path needs a quick
4:21explanation because not everyone
4:23watching has heard the word dividend
4:24used in a real way before.
4:26When you own shares of a company, you
4:28own [music] a tiny piece of that
4:29company. If the company makes a profit,
4:32sometimes it reinvests that profit into
4:33the business. Other times it sends a
4:35portion of that profit back to its
4:37shareholders. That payment is a
4:39dividend.
4:40It usually shows up in your account
4:42every 3 months. Some companies pay every
4:44single month. The amount depends on how
4:46many shares you own.
4:48>> [music]
4:48>> You own a piece of the business. The
4:50business pays you. No selling required.
4:53Josh picks path two. Dividends come from
4:56company profits, not from share price.
4:58So when the market drops 30%, the
5:00dividends keep coming.
5:01A paycheck replacement portfolio needs
5:03that kind of reliability. Growth
5:05investing can't give it to him.
5:07Now he goes hunting for the funds that
5:09actually deliver because not every
5:11dividend fund is built the same way.
5:14Josh sets up three filters. Every fund
5:17he picks has to pass all three.
5:19Filter one is yield. That's the
5:21percentage of his investment that gets
5:23paid back to him in income every year. A
5:25fund yielding 1% isn't going to replace
5:28a paycheck in any reasonable time frame.
5:30Josh wants funds paying enough today to
5:32actually matter.
5:34Filter two is sustainability. Today's
5:36yield means nothing if the dividend gets
5:38cut in year seven. Josh wants funds with
5:40long track records of paying
5:42>> [music]
5:42>> and ideally raising their dividends
5:44through good markets, bad markets, and
5:46everything [music] in between.
5:48Filter three is diversification. One
5:51company can fail. A fund holding
5:53hundreds or thousands of companies can
5:54lose [music] a few and barely feel it.
5:56That's what makes the income reliable
5:58enough to replace a paycheck.
6:00Now, three filters get him most of the
6:02way, but there's still a problem. If
6:04Josh just picks the five highest
6:06yielding funds he can find, he ends up
6:08with five funds doing the same job, all
6:10paying him income from the same kind of
6:12asset. One bad year in that asset class
6:14and his whole income stream takes a hit.
6:17So, he splits the portfolio across five
6:19different categories. Each one does a
6:21different job. Each one earns income
6:23from a different source. That's what
6:25makes the portfolio survive whatever the
6:27market throws at it over the next 10,
6:2820, or 30 years.
6:31Category one is Treasury bonds,
6:33basically lending money to the US
6:34government and getting paid interest
6:36every month. The safest piece of the
6:37portfolio.
6:39Category two is a US dividend growth
6:41ETF. A fund holding the highest quality
6:43American companies that pay and grow
6:45their dividends year after year. This is
6:47the growth engine.
6:49Category three is an international stock
6:51[music] ETF. Exposure to companies
6:53outside the US. Insurance against
6:55America having a bad decade.
6:57Category four is a real estate ETF.
7:00Income from rental properties and
7:02commercial buildings without Josh owning
7:04a single property.
7:05Category five is a high income ETF. A
7:08fund designed to maximize monthly cash
7:10flow. The income engine of the
7:12portfolio.
7:14Next, I'll show you which fund Josh
7:16picks for each slot and how this
7:17portfolio is projected to turn 10 bucks
7:19a day into a $669,000
7:22account paying over five grand in
7:24monthly dividend income.
7:26But first, let's look at the funds in
7:28Josh's portfolio, starting with the
7:30safest piece first. The first fund Josh
7:32picks is the most boring one in the
7:34whole portfolio and it's the one holding
7:36everything else up.
7:37He goes with BND, Vanguard Total Bond
7:40Market ETF. This is the Treasury Bond
7:43slot,
7:43>> [music]
7:43>> the safe piece of the portfolio. The way
7:46Josh thinks about it is simple. When he
7:48buys a share of BND, he's lending money
7:50to the US government, to American
7:52corporations, and to people paying
7:54mortgages, all at the same time. Over
7:5717,000 different bonds in one fund.
8:00Bonds work differently from stocks. A
8:02stock means you own a piece of a
8:04company. A bond means the company or the
8:06government owes you money. They pay you
8:09interest for borrowing it. That interest
8:11is what BND passes back to Josh every
8:13single month.
8:14Now the numbers. BND pays a 3.95%
8:18current dividend yield. The dividend
8:20itself has grown at about 3.64% a year
8:23over the last decade, and the share
8:25price has actually drifted down at
8:27roughly 1.31% [music] a year. So BND
8:30isn't a growth play. It's a paycheck
8:32play, and it pays every month, not every
8:34quarter. One of only two funds in the
8:36portfolio that does.
8:39BND doesn't crash with it. Stocks fall
8:4120% in a bad year, and bonds usually
8:44move very little. Sometimes they even go
8:46up while stocks are getting destroyed.
8:48That's the job Josh is asking BND
8:50[music] to do, stabilizing the whole
8:52thing so the rest of the portfolio can
8:54do its job.
8:56The honest trade-off, that negative
8:57share price drift is real.
8:59>> [music]
8:59>> The interest payments more than cover
9:01it, but Josh isn't picking BND for
9:03growth. He's picking it for the floor.
9:06That covers the safe piece. Now Josh
9:08looks for the part of the portfolio that
9:10grows the size of every paycheck over
9:12time. He lands on SCHD, Schwab US
9:15Dividend Equity ETF.
9:18SCHD doesn't look special on paper. The
9:20yield is average. The growth rate is
9:22high, but not the highest. Josh still
9:25picks it as one of his core holdings
9:26because SCHD holds about 105 of the
9:29highest quality dividend paying
9:30companies in the United States.
9:32Companies that have paid and raised
9:33their dividends for at least 10 straight
9:35years. Names you'd recognize. companies
9:38that have been around forever and keep
9:40growing.
9:41The current yield sits at 3.32%
9:43paid quarterly. [music]
9:45The 10-year dividend growth rate runs at
9:4610.43% a year, and the share price has
9:49been climbing at roughly 8.96% annually
9:52on top of that. So, Josh isn't just
9:54getting dividends from SCHD, he's
9:56getting dividends that grow on shares
9:58that grow. SCHD covers the US. The
10:01portfolio can't sit only inside one
10:04country. And Josh solves that next.
10:08IXUS is the international stock slot,
10:10Josh's insurance policy against America
10:12having a bad decade. It holds around
10:154,100 stocks from everywhere outside the
10:17US. Europe, Asia, emerging markets,
10:20every major region.
10:23The current yield comes in at 2.87%
10:26paid quarterly.
10:27>> [music]
10:27>> The dividend has been growing at 7.03% a
10:30year over the last decade, and the share
10:32price has appreciated at roughly 6.56%
10:34[music]
10:35annually.
10:36Stocks at home, stocks abroad, Josh has
10:39those covered. But, there's one income
10:41source that doesn't move with the stock
10:42market at all, and he wants it in the
10:44portfolio next.
10:46GQRE is the real estate slot, and Josh
10:49wants this one because rental income
10:51behaves differently than every other
10:52dollar in his portfolio.
10:55Here's the thing about real estate. It's
10:57one of the most stable income streams
10:58that exists. People always need a place
11:00to live. Businesses always need
11:02somewhere to operate.
11:04>> [music]
11:04>> The rent gets paid. But, Josh doesn't
11:06want actual property. He wants the
11:08income without the tenants, the toilets,
11:11or the property managers.
11:12So, he picks GQRE, FlexShares Global
11:15Quality Real Estate Index Fund. It's a
11:17fund that owns shares of real estate
11:19companies from around the world. Those
11:21companies are called REITs, real estate
11:23investment trusts. A REIT is basically a
11:26company that owns and operates real
11:28estate, apartments, warehouses, shopping
11:30centers, hospitals. And by law, REITs
11:33have to pay out most of their profits to
11:35shareholders as dividends. [music]
11:37That's the part Josh cares about.
11:39Looking at GQRE's numbers, the fund
11:41yields 4.29% currently paid quarterly,
11:44well above average for an equity fund.
11:47That dividend has been growing at 6.29%
11:49a year over the last decade. The share
11:51price has been the slowest part of the
11:53story, appreciating at roughly
11:57It is built to pay Josh income, not to
11:59grow on the chart. The reason it yields
12:01more than most stock funds comes back to
12:03that legal requirement around REITs.
12:05They're required to pay out their
12:06profits, so they yield more than
12:08companies that get to keep what they
12:09earn.
12:11Four slots filled, one left, and it's
12:13the one doing the heaviest lifting on
12:15Josh's monthly income.
12:17The fund with the highest yield in
12:19Josh's portfolio is also the one most
12:21people misunderstand.
12:22>> [music]
12:23>> It's JEPI, JP Morgan Equity Premium
12:26Income ETF.
12:27JEPI owns a basket of large US stocks,
12:30similar to what's in the S&P 500. But on
12:33top of just owning those stocks, the
12:35fund does something extra. It sells
12:37options [music] against those stocks
12:38every single month.
12:41JP Morgan actually breaks down where
12:43JEPI's income comes from on their own
12:45fund report. Picture three blocks side
12:48by side. The first one is dividends, the
12:51regular payments from the stocks JEPI
12:53owns.
12:53>> [music]
12:53>> That block represents roughly 1 to 2% of
12:56the yield. The second block is the
12:58options premium, the cash JEPI generates
13:01by selling those call options every
13:02month.
13:04That block represents roughly 5 to 8% of
13:06the yield. Stack those two together, and
13:08the options block is more than three
13:10times the size of the dividends block.
13:12That's where 83% of JEPI's monthly
13:15income comes from. The dividends
13:17contribute the other 17%. The third
13:19piece in the picture is the equity
13:21contribution itself, the up and down
13:23movement of the stock prices, which is
13:25variable and depends on how the market
13:27moves.
13:28That's why JEPI yields 8.46%
13:32more than double anything else in Josh's
13:34portfolio and it pays every single
13:36month. It has a dividend growth of 0.86%
13:40a year, much slower than the other funds
13:42because the yield is so high to begin
13:44with.
13:45Now Josh has all five assets. The next
13:48step is figuring out what the whole
13:49portfolio metrics look like.
13:52Josh splits his 10 bucks a day evenly,
13:5420% into each fund. Every dividend gets
13:57reinvested. Here's how the portfolio
13:59yield gets calculated. Since every fund
14:02gets the same 20% slice, the portfolio's
14:04yield is just a simple average of all
14:06five. Add up the yields, [music]
14:093.95%
14:10+ 3.32%
14:12+ 2.87% [music]
14:14+ 4.29%
14:16+ 8.46%.
14:18That comes out to 22.89%.
14:21Divide by five. The portfolio's blended
14:24dividend yield is 4.58%.
14:27The same process works for the other two
14:29metrics. The blended dividend growth
14:31rate comes out at 5.65% a year [music]
14:33and the blended share price appreciation
14:35comes out at 2.68% a year.
14:38Based on those metrics, here's what the
14:40portfolio would do. By the end of year
14:42one, Josh would have invested $3,650.
14:46That's the $10 a day every day for 365
14:49days. Fast forward 10 years, Josh would
14:52have put in $36,500
14:54of his own money. The account would be
14:56projected to reach $53,316.
15:00It would be paying about $2,723
15:03a year in dividends, roughly $227 a
15:06month.
15:07Another decade in, total contributions
15:09would sit at $73,000. [music]
15:11The account would be projected at
15:12$192,839
15:15and the annual income would reach
15:17$13,643,
15:19>> [music]
15:19>> $1,137 every single month.
15:22Year 30 is where the math gets serious.
15:25The portfolio would be valued at
15:26$669,187.
15:29Josh would have contributed $109,500
15:33of that. The other $559,687
15:37would come from the market and from
15:38reinvested dividends doing their work
15:40over three decades.
15:42The income the portfolio would pay in
15:43year 30, $62,763
15:47a year, that breaks down to 5,230 bucks
15:50a month. Every single month without a
15:52single share being sold. 5,230 bucks a
15:55month, that's the $5,000 paycheck
15:58replaced.
16:00If your goal is maximizing growth
16:01instead of replacing a paycheck, there
16:03are three ETFs projected to crush QQQ
16:06over the next decade. One of them would
16:08turn 10 grand into over $8 million.
16:11I'll show you which three. That video is
16:13on screen right now.

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