A Perfect Example
What has transpired in the last week or so is evidence of exactly why it is important to build Passive Income Mechanisms. Much of the time this income is being earned on a live basis, which means that immediate transactions can take place, avoiding “dump damage”. Let me explain. If you earned Crypto last week, which was credited to your account, the recent dump would have wiped a lot of that value away. However, if a dump has already taken place, you can purchase coins as soon as earnings are credited. This protects you from experiencing loss.
It Gets Better
Not only is there the beneficial aspect that the capital you are receiving has not lost value but you are now purchasing an asset that has lost value. It is a form of a double whammy, which works extremely well to put you in the green later on. Once the market shifts bullish, these twin principles work together to create a synergy that will propel your assets into profit a lot quicker than your counterparts. As Crypto earnings come in, I can now purchase quality projects at a discount.
To sum it up, purchasing assets at a heavy discount with capital that has not suffered loss, or purchasing power. Shifting to alts or stablecoins once a drop has hit means that you are purchasing with decreased buying power.
The Common Shift
So what is the general response from the market when a serious correction takes place? Common practice is to either move the capital from alts to BTC, or even stablecoins. The only problem with this approach is that it is generally a reactionary response. In other words, it is only executed once a drop has commenced. This is typically a case of “too little too late”.
There might be some level of protection via this approach but there will also be a certain amount of loss. Very few traders and investors are able to predict a severe correction early enough, so as to make adequate portfolio adjustments.
A Personal Goal
Something that I am trying to maintain is the constant growth of my passive income against my portfolio. For example, if I am able to generate a 3% equivalent of my portfolio in passive income every month, then I want to see that grow. Even if the following month is only 3.1% it is growth. Obviously, in a bear market, your portfolio value drops, so it is a lot easier to accomplish in this current market.
The reason behind this is fairly obvious. If I have a 5% equivalent coming in every month, then buying quality oversold projects will be a very rewarding approach to take, especially if those coins have an income-generating angle to them. A small allocation can also be given to more high-risk micro-cap alts that show signs of promise and subsequently future potential growth.
The self-Creating Portfolio
This is in essence a portfolio that comes out of your own personally designed economic ether. It creates its own value according to design, activity, and revenue. It is self-producing and could always be left to be a Portfolio unto itself, or as I choose to use it, as an enhancement to my main structured portfolio.
Growing this portfolio of income generation is equally as important to me as growing my main portfolio. I view it as a bodyguard that can provide protection in chaos. An insurance policy, that given enough time could replace the loss in the event of an economic tsunami. There are a few of my readers who know me fairly well. I am the guy who makes a backup plan for the backup plan, complemented by another plan within that plan that leads to another plan recreating this all over again.
How Economic Power Is Created
I view a backup plan as a distraction for another plan to enter the game and so on. I prefer not to place burdensome expectations on any one leg. What happens if that leg breaks? The wisest approach would be to have multiple legs or arms within your own economic model that could, if needed, carry the weight.
Choosing then not to burden individual arms is the approach to take. This creates a dynamic of having more power than you are actively utilizing. This is how you create financial power. Use up all your power reserves and you are in a position of weakness. This applies to the body, electricity, and money.
Liquidity Is King
This is why I am not a fan of property investment, among other reasons. In my view, it should only account for marginal portfolio allocation. It is not liquid, has overheads that can skyrocket, and in essence has the owner renting from the government.
Property tax is equivalent to rent in my opinion and an unnecessary expense. I know that there are many who enjoy this market and that is why they succeed in it. I personally don’t and equally don’t oppose their strategy, it’s just not something that I find attractive. The margins are also very small. In my opinion, this is a strategy for the wealthy, not those seeking to create wealth. It is a second step approach, once wealth has actually been created.
Creating a portfolio of passive income generating ideas that subsequently feed an ever-growing portfolio, is the essence of my strategy. Property can achieve this but there are many other options. Furthermore, property requires significant capital or risk, due to mortgage responsibilities.
However, you decide to build an economic construct is entirely up to you. My only encouragement to you is simply to build one!