Financial Freedom - Part 4

Part 4  - Tax efficiency, Holdco's, Win Percentage & Account Implosion.

If you want financial freedom, financial literacy is a necessity. People may become rich by luck, but sustainable financial freedom is only achieved by those in the know. And that requires education.

I always like to think of financial freedom through this lens; I should be able to lose it all... and know exactly how to get myself back to where I was. I think that's when FEAR and WORRY around money truly starts fading away.

Otherwise, having more money... causes a bigger worry.

You can educate yourself on my positions around the topic and see if you can desensitize financially as I've covered in Part 1, Part 2, and Part 3 while overcoming some of your fears.

It's my position that if you don’t understand HOW to be financially literate and make good decisions as a result of such literacy, you’re very likely as good as doomed before you even start.

Why? Because you will never stop working for money, and counterintuitively, will still likely not achieve financial freedom.

They always say, what’s guaranteed in life? Death and taxes.

So how then is it that the rich don’t get taxed as much as the middle class believes they should? 

Let me invite you on a little secret mostly known by the educated. You may have already heard of it... but just in case you didn’t. The more well off the people of a country, the fewer people of the said country or need to rely on government social security programs. Ergo, if as a government, you support your society's wealthiest, then the fewer dependents you have on these social programs, as the majority are now employed and can pay their share of taxes.

Why do I make this inference?

The financially free usually supply jobs, housing, etc. And for that, they are given tax breaks as they are essentially aiding the government in keeping the citizens off the government's support structure.

Now you’d think this would make sense to anyone, but you have too many “Karen’s” and “socialistic snowflakes” who believe money should grow on trees, and ledgers balance themselves.

Have you ever spoken to a liberal? Do they ever understand monetary policy, central banking systems, and how money is valued by a society? Do they understand monetary flow and why it flows the way it does and why it always ends up in the hands of the most valuable? I don't know about you... but most of them call the system rigged and they are very upset by the system. I personally call the system accountable. You're accountable to have the information and education. And if you don't? Start asking questions till you do. Don't take your lack of knowledge down the path of "blaming" the system for not spoon feeding you. The system needed you as a supply chain worker for the longest time... so it trained you as such. Did it absolve you of the responsibility to see that there too exists someone who drives a Lambo, while the masses drive a Toyota? That's up to your own consciousness to ask questions on why that's possible for someone, and not the other.

I have yet to find this liberal political group to know what they're talking about when it comes to finances. Perhaps you're a liberal reading this, and you have already made it and you no longer worry about money. I'd love to interview you and learn another perspective. But to date... I have yet to be taken up on this challenge. I wonder why...

Parallel to my direct and conservative views... I also believe social security should exist for people with true disabilities or astronomical catastrophes in their financial paramount.

If you, however, have the mental capacity to scroll through Facebook, Instagram, or Linked In for endless hours of the day, then you have the time and ability to flip something on the Facebook marketplace as well. Why aren't you? Flipping is the first place you learn trading believe it or not.

Instead, people take the mindset that they want to work as little as possible and make as much as possible, and they're confused about why the tax structure in most countries is headed in a socialistic direction.

Alright, now that this rant is over with, let’s get into tax efficiency.

It's my position that the government prefers you to be rich. It’s one less burden for them to take care of if you are rich.

In fact, if you’re rich, you’ll give them a helping hand in funding the country. Through charities, job creation, real estate for their citizens to live in, etc. So, what do you get in lieu of such mighty stature? Tax breaks. A lot of them too. This is where incorporation and holding companies come in. Click here to check out our free webinar where you can educate yourself on exactly how these efficiencies work.

What needs to happen for financial freedom to even become a light at the end of the tunnel for anyone is that you need to cross a certain threshold where money can be placed on autopilot. What I say to most people is to figure out three versions of your lifestyle.

Version 1: The bare-bones where you don’t need much.

Version 2: The middle level is where you’re somewhat satisfied.

Version 3: The wealthy version where you are you for a lack of better terms have "f*** you money."  

Then map out how much time you want to achieve said life in. The more you forgo your need for an expensive and instantly gratifying lifestyle in the PRESENT, the faster I believe it's possible for anyone to compound their wealth to an intelligent level of automation; or what I call, money on autopilot.

Let’s look at a bare-bones example on an ANNUAL basis.

Rent (room mate in expensive city) - $8400
Transportation - $6000
Food - $6000
Phone - $1200
Entertainment - $1000
Savings - $3000
Unexpected - $3000
Total Annual - $28, 600 net - > $35, 750 Gross Before Taxes

So, in other words, to meet the quotas above, one needs to make approximately $3000/month before taxes are taken off. 

Let’s use $3000. That’s the number, that if one could make every month, consistently, one would not have to work to up-keep this bare-bones lifestyle.

Btw, I agree - $3k a month is nothing in today's lifestyle and cost structure. But it's an example to show you why it's possibly time to begin hustling the f*** up, cause time is against most people.

How can we go on a path towards financial freedom if we make $3k a month ($36k) annually without working? Well, if we had $500, 000 sitting in a professionally managed hedge or mutual fund, if we got returns of 7% annually, it would give us that $36k annual income we need. Don’t like hedge funds? Check out MIC’s. Check out angel investment opportunities. Check out Venture Capitalism. There exists a plethora of options to make annualized 7-10% returns. This is the slow and steady game, most know about.

So, the first threshold one has to get to, so that money can be placed on autopilot for a meager $36k/yr. equivalent lifestyle is $500k in a professionally managed fund in our example. 

Who the hell, making $36k/yr has access to $500k? Unless it's a trust fund or a lottery ticket... no wonder most people just want to give up financially. No wonder everything around them seems too good to be true. I used to be like this too.

What’s the fastest way to $500k which doesn’t involve a GTA5 heist or getting lucky in a hand of poker or crypto? I don’t know of any other way than trading stocks competently. 

So, let’s say one has saved up $3000 from one year of working. The idea, in the beginning, is to learn oneself in the market, but let’s say when this person get's good at this after 4-5 years, the question becomes what sort of return can they expect?

Well on average, I look for an opportunity where I can make 15% or more in a trade. That’s not to say that I can’t make a trade that makes 3 or 5%. 

Are 15% trades even realistic? Here's today's runners. Check back everyday, and find that days runners. I think over time one can draw the inference that 15% is doable.

There are normally ~250 trading days in a year. Every day won’t give anyone 15% returns. If that was the case, you'd outdo the biggest economy.

However if we assume a have a 30%-win ratio (which is small but used on purpose to illustrate a sample timeline), this means the trader would be winning 75 days of the 250 trading days. If those 75 days were multiplied by 15%, this trader would be able to grow their account by at least 1125% provided no losses are taken. This means a $3000 account would become $33, 750 by year-end.

Who in the world just wins straight? No one.

So how about the remaining 70% losing ratio? If the loss was managed to be no more than 5% loss, 5% multiplied by the remaining 175 days (250-75 wins) would equate to 875% loss.

Assuming the position sizes never change (for example, always working with $3000 position for losses and wins)... the math would look something like this.

75 wins = 1125%

175 losses = -875%

Net Result: 250% year end result.

Impressive right?

To expect a complete beginner, on their own, to knock out 250% returns from the market, is exactly how it reads. Too good to be true.

What's more realistic? They get emotional... self sabotage... they didn't take the word I shared from Part 1/2/3 of this blog... and they likely implode.

Imagine not taking a 5% loss, but taking a 7% loss instead... across 175 days that would = 1225% negative.

1125 - 1225 = implosion. 100% of the money lost.

Quite literally the story you hear from most when they trade.

So what's the big takeaway? Loss management is literally one of the key components to success.

How would you expect someone to feel who loses 175 days of the year? Not great. Can they stick to the process? Therein lays the mental stamina between those who make it, and those who don't.

Now I happen to believe that it's totally trainable, to desensitize towards losses. It's why I launched my program, and why for the most part, people find success. Much of the success however happens because I do gate people who I don't think I can help. My ethics, and reputation are the ONLY THING that keeps me going in this space. If I can't continue helping people, honestly, I'm better off just sticking to my own trades, and living life of secrecy. So far... this approach in my coaching/mentorship hasn't failed me, and I have figured out what kind of person I tend to be able to help. 

Sorry about the tangent.

Say you're a robot right from day 1, and you have no human emotions.

250% return on an account is a 2.5x multiple. 

How long would it take to multiply 3k into a million bucks in that robotic math?

A little over 6 years. This also assumes that as the account grows, the new account size is used to multiply the positions one takes.

What's exciting though is what can happen in year 7, 8, 9, 10... as that's where the numbers really takeoff.

Eventually it gets to a point where one is limited by the size of the positions they can take... and the growth multiple has to slow down. This is a good problem.

Remember where I said year 7/8/9 is where it gets fun?

Assuming the robotics continue, and you really are not human in how you make monetary decisions... the 2.5x multiple in year 7 etc can look as such: 

Year 7 - 1.8M

Year 8 - 4.5M

Year 9 - 11.4M 

Once Year 9-10 rolls around... if one puts 6M of the 11.4M into a professionally managed fund, at 10% year annualized average returns, it can be hypothesized that the passive income sits near $600k/yr.

Some variables to consider.

Who said you’re only going to win 30% of the time and only make 15% profit every time in a linear fashion? Who said the little 5% trades don’t add up? Who also said you will only take 5% losses? Maybe you lose more than 5% at a time? It’s all possible, it all depends on your discipline, education, and psychological mastery. 

Kind of like when you leave home... it's possible that's the last time.

What am I saying here? Whether you acknowledge it or not... uncertainty is everyone's truth as they know it. 

Someone who says "I will see you later" ... is solely using confirmation bias based on past expectancy of future results.

The reality is... they have no idea. If more and more people get conscious to this very reality about life... perhaps they stop seeing the stock market as a place where they need to find certainty to...

Instead enter the game, and learn it, and approach it such that you stack all odds on your side...

Similar to when you leave home there's a good chance that if you have a good functioning car... you drive on safe routes... and you don't speed... you likely will make it back home today. Those are all odds stacked in your favor. 

Understand that experienced traders will usually have a win ratio of around 65-70%. Traders tend to get better at something the more they put in 'screen-time' and study correctly. 

So, a hypothetical robot with zero human emotion made over $11M in 9 years. Now what? Check out Part 5 by clicking here.