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What To Invest In For Cash Flow and Long-Term Wealth

This is PART TWO of a mini-series called “How To Make And Keep $1,000,000.” See Part One here:
How I Got A Tesla For Free (Almost)

Before we begin, I should start by saying that everything on this page is my opinion. I’m not an investment advisor. Heck, some would say that I have no idea what I’m doing. BUT, among all the noise and crazy advice out there, this is the strategy that I’ve put to work for myself.

I’ll be revealing more about my “Make and Keep $1,000,000” system on an upcoming training class.

In my opinion, the path to getting rich (in my opinion) is broken into three steps:

1) Start a business. Why? So that you control the income and have the tax benefits of business write-offs.

2) Invest 10% of your salary into long-term wealth. I recommend ever increasing dividend paying stock. (Explained more below.)

3) Put the profits of your business into high-yield, low risk investments that are based in cash flow.

Step One: Start A Business

Profits are better than wages.

Profits that you can directly impact are the best kind.

What might this look like?

Put quite simple, it means that you can develop assets that allow you to increase your income on demand. My favorite example of this is a subscriber list. If you have a responsive subscriber list, then you can literally “hit send, and get paid.”

I also like digital products, so that you can roll out additional upsells or new platinum partnerships, events, membership programs, and everything in between to immediately raise revenue.

If you sell physical products, then you could do it by adding additional products to your product line, or you add an additional upsell in your funnel. My last business was started with $600, and it now averages $300,000 per month in sales. No job can do that.

The goal is to be in control of as many steps of the process as possible. This is why people who think that Amazon is the holy grail to physical products miss the bigger picture, because they are not in control.

Second, owning the business gives you the ability to write off expenses that you would not be able to write-off as a high-income earning employee. Cell phones, cars, gasoline, part of your rent, your computer, etc, all become write-offs when you own the business.

Step Two: Invest 10% Of Salary Into Long-Term Wealth

Once you have a successful business, how do you pay yourself?

I’ve seen too many entrepreneurs get this wrong by treating their business as a cash machine. Once the business is profitable, they pull all of the cash out and leave no room for growth. As a result, they starve the business of investment cash, and they get used to surges of profit that may not continue.

The solution to this is to put yourself on a consistent salary that does not change, even if the business gets more profitable. This will give you a monthly budget, and save business cash that you’ll need for reinvestment.

Once on salary, put 10% of your take-home salary into long-term wealth. My favorite source for long-term wealth? Ever increasing dividend paying stock. 

Personal note: I do not buy stocks with the hope that it will go up in value. I have no way to predict that. While I may have missed out on a lot of money by NOT buying Netflix stock (which is up 1,500% in the last 3 years), the “buy low, sell high” method is mostly unpredictable and volatile.

Tony Robbins puts it well; he points out that a 50% correction takes a 200% boom in order to simply break even. Therefore, when stock brokers claim that the stock market averages 9% per year, it rarely puts that money in your pocket. Because of natural market downturns, your total ROI is often lower than this (unless, of course, you are an expert at buying and selling at the right time).

Some argue that stock trading is a zero sum game. I don’t entirely agree, but I understand their point; in order to profit, you have to sell.

That’s why I prefer dividend paying stock for profits; dividends are cash flow, and they are predictable. While the returns on the surface aren’t sexy, their long term benefits are perhaps the SEXIEST ROI that you can get in the stock market.

How To Turn $10,000 Into $3,100,000

I don’t just buy any dividend paying stock. I only buy ever-increasing dividend paying stock. 

What’s an ever-increasing dividend paying stock? It’s a stock that increases its dividend a little bit every year, no matter what the market was doing. 

My target for this: 4% yield, with a 10% increase per year.

“What!? 4% yield? That’s so boring! Who would ever want 4% yield?”

Me.

My favorite example of this model is Target (TGT). I bought Target around $50 per share, and it had a 4% yield. I bought it because it has a history of raising its dividend on average about 15% per year.

If you were to invest $10,000 into a dividend paying stock that paid a 4% dividend, and the stock raised it’s dividend 15% each year, then that $10,000 would become $3,100,000 after 30 years.

You can run the numbers for yourself on this dividend calculator: http://www.hughcalc.org/drip.php

How is this possible? This example assumes that the stock price would never change, so this scenario is unlikely. Since we always reinvest the dividends, you buy more and more stock that produces more and more cash flow.

Note: Yes, I understand that this is an ideal example. Target may not raise its dividend this aggressively forever, and the stock will likely go up over time. But the strategy remains: buy 4% yields on stocks that have increased for a long time. If the stock increased 2.5% per year, and the dividend increased 10% per year, that $10,000 would be worth $500,000 in 30 years. If the stock goes up in value, then the return actually goes down, since the dividend will buy fewer additional shares. A more realistic example may be Chevron. Currently, Chevron offers a 5% dividend on an $85 stock, and it increases about 8% per year. The stock price itself averages about a 5% increase per year. If these trends were to continue, a $10,000 investment would become $318,000 in 30 years.

Step 3: Invest Profits Into Cash Flow

Each quarter or each year, I recommend investing the profits of your business into areas with high yield, low risk returns. Where do you get the ridiculous combination of high yield, but low risk?

I personally invest in:
– cash flow real estate
– private notes
– funding real estate deals
– business funding (Shark Tank style)
– business reinvestment

My favorite of these from an investment standpoint? Real estate. When you factor in tax savings, the ROI is astronomical. Listen to this podcast for more.

My favorite of these from a standpoint of FUN? Business funding. Why? Because you can directly impact the results of your cash.

This is how you make your money work for you. You operate a business that you control, and then you make your money bring back more money.

What money do you live on? You live on your salary, and you can live on the ROI of the high yield, low risk investments. You may sacrifice your lifestyle for a couple of years, but after that, you’ll enjoy a lifestyle that very few in history have ever had the privilege to enjoy.

Like this stuff? I’ll be capping off this free series with a free training class at PerfectlyPassiveIncome.com.

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