Over time I have developed a framework to achieve my goals with this portfolio. The rules and conditions for building the portfolio have evolved as I have evolved. The outcome I am aiming for, however, has remained the same.
I want a steady, consistent stream of passive, monthly income. I don’t want to have to spend too much time on maintenance. And anyway, even with a financial advisor, it would be unwise to fully unplug from managing my own finances.
This is my current framework:
- Be outcome-oriented by observing and accepting what is real
- Dollar-cost average into income-generating assets (invest weekly using money I earn outside of my normal job)
- Prioritize monthly income, but allow for long-term growth
- Manage risk by creating a well-balanced portfolio based on asset class exposure and, for equities, GICS sectors
To achieve this I am tracking my asset class exposure and GICS sector exposure.
I’m also balancing equities that pay quarterly so that my monthly income stays the same. In other words, I’ll buy a stock that pays dividends January, April, July, and October and others that pay in February, May, August, and November so that my payouts are roughly equal.
I admit this is more work than it needs to be and I could instead manage my finances just accounting for expenses quarterly and buying a fund like FDVV or VIG/VYG. But I really want to learn how this works. Why did this financial system get created? What are the benefits? What are the downsides?
And there are so many ways to make money within this financial system – growth, dividends, options contracts, foreign exchange, derivatives, futures, and the list goes on and on. Is real value being created? Is it useful? Can I use it to better myself?
I don’t mean to get philosophical, but in many ways I see it as a reflection on humanity. I believe we can continue to improve ourselves and create value and so I think this amorphous blob of a system, in whatever form it takes, will reflect that. And so I think I can make use of it. I think of it like this: a metal coat hanger is made and sold for $1.00. Someone can take that metal coat hanger and create beautiful jewelry and resell it for $20.00. Money is made out of nothing and value is created. This is my mental model. My framework.