Wednesday, January 17, 2018

Budgeting for Peace of Mind and Resiliency with 70/20/10

Bitcoin and virtually all other cryptos remain in a murderous decline today, with showing that only three are in the green over the past 24 hours (yesterday there were just two).

I realized it is a good day to reiterate something I tell interested parties often, especially at times like these: for every dollar you put toward investments, put two toward your debts.

Why do that? I'll explain (strap in, this is a long one).

I've been using a budgeting strategy for nearly two decades now that was inspired by the book, The Richest Man in Babylon by G.S. Clason. I've been using it all of these years because, frankly, it works.

I blogged about it here years ago, too, though upon review of that post this morning I discovered that the flow chart I had created to illustrate how it all works became lost forever on an image hosting site I once used. No matter, it's easy enough to recreate (and retain a copy of on my hard drive, this time...).

First, the basics:

The budget prescription given in the book breaks one's income down three ways by percentages. Wages and "windfalls" (tips, money you find on the ground, prizes, etc.) are all part of your income, and for most people will start out as their sole source. 70% of this goes to your living expenses, 20% to your debts, and 10% into investments.

From there, I customized things a bit, which this flowchart illustrates:
(click to enlarge)
Clason's original work recommended a strict adherence to these categories; basically, once funds entered one of the three categories, they and all funds subsequently generated by them stayed in that category. Living was strictly that, the maintenance of one's day-to-day life. Debt repayments were strictly confined to that category, and the income generated by investments was to be retained and compounded.

It would be perfectly fine to do things as such, but the reasons I don't are these:

1) Debt payments essentially have two components, a required monthly minimum (most of the time) and a discretionary additional payment on the principal balance. I think the required monthly servicing should be part of one's "living" expenses, because:
  • this will make them less comfortable to carry, and
  • this gives the 20% debt category far more impact as it's then entirely additional payments on principal
2) Compounding dividends and interest is a great thing, but any amount of passive income can improve one's life now. For most people the 10% put into those investments will have far more impact on their growth than reinvestment of the income they produce, and the additional funds to apply to debt will have a greater impact still. That said...

3) Combining points 1 and 2, the amount that debts cost an individual in terms of their minimum obligation have a huge impact on the sum total of their required income, such that eliminating the debts and their corresponding required minimum payments will typically propel someone toward financial independence (no longer needing to work for money) faster than investment growth usually will, so this ought to have a greater priority.

Therefore, as you can see by my flowchart, I have my budget set up in this way, with my passive income redirected back to the "top" of the chart so that it may filter down through the three categories (as such, there is some compounding of my passive income, but it's not prioritized). This both makes life more comfortable now, and it moves me closer to not having any debts faster while still building assets.

That leaves just two other tweaks to the system, one of which was actually suggest by Clason: if you have no debts, the 20% allocated to them could be broken up between the living and investment category as you see fit. When I get that far, I plan to just dedicate all of it to investments; since I'm feeding the income they produce back into the budget anyway, I figure that doing so will grow the living category with the resulting additional passive income plenty enough to keep me happy, so why not?

The other tweak is that when I do have a capital gain from my investments, I reinvest the full net amount of it, typically into something offering a higher yield than what the gain resulted from (one exception to this are those rare occasions where cashing something out and eliminating a debt with the proceeds could yield greater over-all cash flow, which was the case when I sold some REIT shares this past spring and then nuked my student loans in one go).

I have my investments spread out over lots of different asset classes, markets, and industries, far too many to list here without it becoming a blog post of its own. Among all of the options out there, I think dividend stocks are the easiest to access. Costs in the form of commissions can greatly hamper initial efforts and the resulting yields, which is why I recommend using Robinhood for this. Robinhood offers commission free purchasing and the interface is a smart phone app. Not having to pay investing commissions is huge, because it makes small purchases reasonable to do and profitable (you can literally buy just one share of something and not have your future capital gains and yields killed by commission expense), and it puts this avenue for generating passive income within easy reach of anyone.

Lastly, depending on your spending habits and inclination to frugality, the constant input of 70% of your income into the living category can result in a hefty balance building up within it. You could just let it do so and take comfort in it as a "cushion" against uncertainty, but past a certain point it might come to represent some missed opportunity just sitting there as "idle cash." What I do is set a limit on how much I allow this category to build up, which for me is five months of living expenses (five months is the typical duration of the slow season in the work that I do). When the balance of that category exceeds five months of my budget, I put the surplus toward debt, as getting rid of them removes their payments from my budget, thus shrinking the sum total of five months of living expenses, creating more surpluses...

This has become a long one. So to sum up then, this is what I have been doing for nearly twenty years now, and it works. My liabilities are shrinking, my assets are growing (and my net worth is positive, something that's unfortunately becoming increasingly rare these days), my passive income is also growing, and most importantly, the amount of money I need to earn from working is rapidly approaching zero.

And these severe down days in the crypto market, or any market, not that big of a deal. In fact, when one's affairs are arranged like this, these events take on the appearance of opportunity rather than calamity...


One more time, here's my referral link to Robinhood, where you can buy stocks with zero commission cost, and by signing up both you and I get a free share of a randomly chosen stock: Robinhood, the easiest, cheapest way I know of to build passive income from stocks

Further reading:

Tuesday, January 16, 2018

Bitconnect is toast. Or at least the lending platform is.

If you're hearing the news, you're probably hearing "ponzi," mostly. Aside from the fact that there's no proof of that (trading robots do exist), here's the thing: you still own Bitconnect Coins.

The people behind the system immediately released all active loans in the form of BCC. They didn't have to do that, they could have just shut down the site and disappeared.

Instead, the BCC blockchain still exists, and (so far) the operators are promising to continue operating the site for its wallet functions.

That the value of BCC is cratering is not an indication that this whole thing was a scam. It's the market at work: BCC pretty much had just one use, as a lending token to generate income from the trading activity of the bot. Take away that activity, and the value proposition disappears. One's property in the form of the coin itself, however, does not disappear. Were this a scam, ALL of it would have disappeared.

Since this began a few hours ago, I have at times been able to access my account. All of my BCC is there, as promised.

There's been stress placed on the system lately in the form of regulatory activity from the U.S. states of Texas and North Carolina, lots of people constantly pounding the FUD drum, and in the past several days severe DDoS attacks directed against the service, which allegedly came with a promise that they would continue relentlessly. So, the Bitconnect crew decided to pull the plug. Put all of that together and maybe the value of the service would have dropped to nothing anyway as denial of access brought about by third parties would have contributed to the FUD, lowering expectations for the platform and thereby lowering the value of BCC anyhow.

So what's the likely outcome of all of this? That the BCC will become and remain virtually worthless, probably.

However, as long as it exists, there's a chance that a use will be created for it again. Things are such with the site right now that you pretty much can't withdraw the coins (it's under extreme load and constantly fails), and even if you could you nearly can't sell them anywhere at this point. I'd say "you might as well HODL," but you're kind of being forced to, now. So, you might as well HODL...

*(If it sounds like I'm being casual about this, I'll admit that I am, because I only had an amount in the system with a cost basis equivalent of what I make in about 1/4th of the time of my average day at work, doing what I do, so in the grand scheme of my total portfolio this isn't even a rounding error. Like I have and will frequently say, never put an amount of money into something that you can't afford to lose, no matter what it is -- no one knows the future.)
The crypto market has entered into a bloodbath today, with showing just two cryptos in the green for the past 24 hours as I write this (you can click once on the "Change (24h)" column to quickly sort the list from greatest increase to greatest decrease).

Naturally this has the usual cast of characters coming out of the woodwork to pronounce Bitcoin "dead."

The thing is, this happens every year about this time. Consider this:

You may need to zoom in on the chart a bit, but the part to focus on is on the left-hand side of each yearly graph where there's a red circle highlight. As you can see looking from year to year, this is a repeating pattern.

There could be several explanations for this, but since Bitcoin is a global commodity it's difficult to pin down just one cause. Here in the U.S. at least this could be explained by our tax laws as they pertain to capital gains on property: at the end of a calendar year, one could sell losing positions to have a deduction against other gains. Another possibility: after the new year begins, it's possible to face zero tax liability on gains if one's income from wages and ordinary interest will be below a certain threshold by the end of the year.

Whatever it is that motivates people to act at this time, the short version is, "we've seen this before."

From here, there's two ways one could play this action that I see:

1) buy more crypto during the down time in anticipation of the pattern repeating throughout the rest of this year;

2) Get into something like Hashflare, which I've just begun building up myself. I purchased 460 gigahash worth of contracts yesterday for about $100 USD, and have already received my first payout. Even at these seasonally depressed BTC prices (underscored by today's massive decline), my contracts are showing a profit forecast of 213%, roughly. This will get better on its own as the price of BTC recovers, of course, but I'm making it better than that: Hashflare accounts have an automatic reinvestment option that will purchase additional hashing power for your account each time you have enough Bitcoin to afford another one. At current BTC prices, my $100 of contracts will add an additional contract roughly every five days, which will of course contribute to the revenue stream, speed up the process, and also feature an increasing profit forecast as the price recovers (likely an even better forecast than my original lot since these new contracts will have been purchased at a lower BTC price).

Monday, January 15, 2018

The DDoS attack on Bitconnect is over (or at least the attackers are going after the wrong servers now that the Bitconnect website has reportedly been migrated to new servers under different IP addresses).

I logged in to my account and found that everything was in order. The only thing I missed out on over the past two days was the ability to convert my accrued interest into Bitconnect coins, loan it to the trading robot, or convert it to Bitcoin and withdraw it to my cold wallet. Everything continued on as normal with the platform save for the ability of users to log in. Other than that, no harm done.

Sunday, January 14, 2018

Bitconnect has been under sustained DDoS attack for two days now, making the service inaccessible to users. It did come up briefly again last night, and behind the scenes all was proceeding as normal. Unfortunately the attack overwhelmed their servers again a short time later and it's back to being "offline."

If you're not familiar with DDoS attacks, here is a great explanation of what they are, how they work, and why people launch them.

While I'm stuck waiting along with everyone else to get back into my Bitconnect account, I've been exploring Hashflare, a "cloud mining" platform that provides access to powerful Bitcoin and alt coin mining operations through affordable one-year contracts. This is the "production" side of Bitcoin, as opposed to the trading side that Bitconnect represents.

As of now, given Bitcoin's price in USD and current "difficulty," a $2.20 USD one-year 10 gigahash/second contract through Hashflare would return roughly $6.02 over the term, a return of just about 274%. All that for not having to purchase, power, and operate mining equipment of my own. Not bad, huh?

One other thing attracting me to this platform is that I can purchase these contracts with a credit card. As I wrote about yesterday, I do not think anyone should use a credit card for this kind of thing and then carry the balance. What you should do is spend cash you actually have on-hand through a card and pay the balance immediately (or at least before the end of the following billing cycle, so as to avoid interest charges). Even better is to do this with a cash back rewards card, which can be used to offset some of the total cost and thus enhance your return (example: I use a card that offers 1.5% cash back, which if I apply the cash back to the balance reduces the cost of one of these contracts to $2.167 USD, boosting the annual return by nearly 4%).

A few days ago I expressed my view that one should not take on debt to make an investment in something like Bitcoin. That's still my view.

This article that appeared in Fortune recently is along those lines. It's about people using credit cards to purchase Bitcoin, which is a method that tends to come with higher commissions (the article cites a 4% fee if the purchase is made through Coinbase), and the high cost of interest on such balances over time if one does not pay the debt off within the following billing cycle.

Add these two things together and toss in a decline in the value of Bitcoin (which has been the case as of late), and it's a recipe for big losses.

So then the article mentions that some have "concerns" about Bitcoin becoming a systemic economic risk, owing to such behavior.

I just have to laugh at that, because this same behavior, when it involves purchasing ordinary goods and services on credit, things which either rapidly decline in value or represent no sort of retained value, that just doesn't seem to attract these same "concerns." lol.

All that said, if you are using or planning to use a credit card to purchase cryptos, at least do this: use a cash back rewards card that carries no annual fee, and apply the cash back to the balance, which you should then completely pay off before the end of the next billing cycle following the date of your purchase. This will in effect reduce the commission you pay to purchase your crypto, and a credit card balance paid in full by the end of the following billing cycle incurs no interest charges.

Saturday, January 13, 2018

This is a pretty good read on Ripple (XRP), and I find it refreshing to see this point put out there in a blunt and direct fashion: Ripple is not the next Bitcoin (BTC).

As the article describes, its purpose and therefore its inner workings are wholly different than that of BTC. XRP is made specifically to work in a way that traditional financial institutions can use it, given all of the regulations they must operate under.

MIT Technology Review: No, Ripple Isn't the Next Bitcoin

However, the article leaves out two points about XRP and the existing order it is designed to disrupt that are crucial to understanding its future value prospects:

1) All of the XRP that will ever exist was created on day one, unlike most crypto currencies, however, every time a transaction occurs in XRP a tiny bit of it is "burned," destroyed permanently, thus increasing the scarcity of XRP over time; this is "mining" in reverse;

2) Existing money transfer networks require large pools of capital that be kept idle on the sending and receiving ends just in case a transfer order comes through the institutions involved (termed, "nostro" and "vostro" accounts), which XRP eliminates the necessity of; these pools represent trillions of dollars globally, which would be freed up for other uses and at least in part used to purchase XRP.

Friday, January 12, 2018

I came across an article this morning about people going into debt in order to buy crypto currencies.

Don't do that. Just don't.

People make this mistake in every hot market, be that stocks, bonds, housing, and now this.

The temptation is there because it's hard to have what most would consider significant gains without first having significant capital. Scoring these thousandfold gains that some cryptos have delivered certainly blows the mind when it's on a basis of tens of thousands of dollars. When it's on a few hundred bucks, not so much. People want that one, huge, life-changing gain.

Or is it?

A gain is a gain, period. It will change your life, however great or small, only the time frame involved might be long or short (and of course, people want "short").

A blogger and podcaster that I follow named Simon Black frequently cites something called "The Universal Law of Prosperity" (I don't know if he coined this or learned it from someone else): "produce more than you consume." That's it, that's all there is to it.

I bought Ripple coins when they were .19 cents each. As I write this while reports that Ripple is at $2.14, I have a gain of over 1025%.

With Bitcoin, I've scored even more. And now with Bitconnect, I'm building up more gains.

Huge, right?

In and of itself, yes, absolutely. How much is it in actual dollars? That I'm not going to say, I'll just state that it is not "life changing" in terms of instantly freeing me from the need to work (so far...).

But it's a nice step in the right direction.

It all started from modest amounts of initial capital, too. I've not borrowed a penny to make any of my investments in this space, and I never will. In fact, I actually put $2 toward debt for every $1 that I invest. That slows my investing, but there's very good reason to do it.

And that is my final and most important point for this post: when viewed in terms of your total balance sheet, the "boring" liability side of the ledger and not just the "hot" skyrocketing asset side, the most important figure it the net amount, and a sure fire way to bring that figure up is to pay off debt faster than you speculate on the future, which may hold gains or losses. $3 split 2-to-1 between debts and investments is an increase of $3 of net worth, even though the money you put toward your debt might feel like it's "gone." But outside of your day-to-day spending habits, the debts you carry are largely what stop "small" gains on your investments from being "life changing," and creating a debt to create an investment is frequently just to run in place (at best...).

Further reading: The Richest Man in Babylon, the book that got me started on all of this stuff, and the source of the 70/20/10 money management strategy I've used for nearly two decades now that has gotten me to the point of possibly retiring within a few years, at age 42.

Thursday, January 11, 2018

There's an acronym you may have seen about, "FUD," that pops up mostly in investing and trading circles, but also from time to time in reference to unrelated subjects.

Most of the time it's a noun, sometimes it's an adverb. But what is it?

It stands for, "Fear, Uncertainty, and Doubt."

And it's something that some people love to spread, especially when it comes to new and disruptive technologies like cryptos.

Most folks who do this probably have no horse in the race, but for whatever reason they get off on harassing others with unfounded claims and hasty conclusions, often based off of their own poor or complete lack of understanding of the subject matter, and meant to prey upon the gaps in knowledge on the subject that interested/invested individuals might also have. Most of the time it seems to me like they just want to be "the smartest guy in the room," even though it really profits them nothing, save for the greatness they probably imagine they possess (but that no one else recognizes nor cares about).

Anyway, I wanted to put that out there as a bit of background to this article that I came across today on the latest Bitcoin shakeup coming from the Chinese government.

The short version: the Chinese government is looking into restricting power usage by Bitcoin miners, possibly even banning the practice.

Most of the Bitcoin mining going on in the world right now takes place in China, owing to their cheap and plentiful electricity. So it sounds bad for Bitcoin if this comes to pass. But is it?

Not really. The thing is about Bitcoin mining is that it really doesn't matter where it takes place, and there are other locations that can supply cheap power with friendlier governments, so it will simply move (I wish I had real estate in Iceland!).

That's what the article I'm linking to below concludes with. I'm calling this kind of article a "FUDidote," an antidote to the useless FUD crud that some just impulsively fling around like chimpanzees armed with their own feces.
 "...if China does make good on its plan to restrict bitcoin miners’ power use, they could move to new regions quite easily, Lu wrote. The computers used in mining aren’t expected to last more than two years and the other equipment involved is relatively cheap...

...The overall threat to the sustainability of the global bitcoin network may not be so drastic,” Lu wrote." -- D. Murtaugh

Wednesday, January 10, 2018

I've added MGT Capital Investments (MGTI) shares to the quarter of my self-directed 401(k) that I have dedicated to Bitcoin. This is a portfolio I keep in basic accordance with the structuring prescribed by Harry Browne's "Permanent Portfolio" concept, modified slightly to seek higher income from the equity exposure portion of it, and swapping Bitcoin for gold in the allocations.

I found MGTI after listening to an episode of the Invest Like A Boss podcast in which the hosts interviewed Steve Schaeffer, the President of MGTI. During the interview he detailed how his company has been building itself up as the #1 North American Bitcoin mining operation, and how they've recently begun to HODL a portion of the Bitcoin that they're mining.

That got my attention because one of the issues I've run into with holding Bitcoin in my 401(k) is that I can only use the Bitcoin Investment Trust (GBTC), which trades for a few thousand dollars per share. It makes it difficult to keep a 25% allocation in it in my admittedly small 401(k). It worked fine prior to the great 2017 run-up, but despite the obvious benefit of doubling the value of my 401(k) in three months (not kidding), I ran into a slight liquidity problem later for lack of equity market Bitcoin options.

Enter MGTI.

What I've done now is merge the value of my GBTC holdings with the value of MGTI shares in the spreadsheet I use to track my portfolio, and then track their total worth for determining how much they make up of my portfolio. This takes that portion of my portfolio away from being a pure crypto play, but the far lower price per share of MGTI, which is crypto-focused, gives me a greater ability to reallocate value among the four portfolio categories as needed and keep each around the target allocation of 25%.

Harry Browne's Permanent Portfolio, explained.



The Invest Like a Boss podcast

Tuesday, January 09, 2018

An interesting development out of the state of Vermont:
"In addition to mandating several reports on cryptocurrencies and blockchain, it notably outlines how the state could classify certain firms as "digital currency limited liability companies," particularly those that operate their own networks.

Those companies would, if the bill is approved, be required to pay "in the form of its digital currency a transaction tax equivalent to $0.01" whenever a new unit of cryptocurrency is created, traded or transferred." [emphasis added]
That's the first government entity at any level in the U.S. I've heard of that is seeking a crypto tax payable in crypto.

This is a tiny amount of money, but it's a huge development.

The full article at Coindesk can be read here.

Monday, January 08, 2018

After a few relatively quiet days of cryptocurrency news, you can thank China for once again spicing things up.

And helping to put crypto assets on sale...

From the above-linked article:

"China is reportedly seeking an "orderly exit" from bitcoin mining, according to a leaked document seen by Quartz. The nation's internet finance regulator is asking local governments to strongly encourage firms to quit the business by jacking up power prices and and issuing stronger environmental rules. The government is reportedly concerned about pollution and the havoc that could be triggered by investors who lose money investing in mining and cryptocurrency."

I figured this was coming at some point, and it's why I've thought for a while now that Iceland is the future of crypto mining operations. Geothermal energy and a naturally cold climate; it's almost like crypto was made for Iceland.

Thursday, January 04, 2018

An interesting read on the topic of Bitcoin that I found this morning while eating breakfast.

I generally ignore price predictions. Naming specific numbers that one thinks an item might command on the open market one day is silly. It would be somewhat more honest to just say "this will go up" or "this will go down," but then of course everyone tries to name a specific time frame in which said action will occur, and it's all just as silly all over again.

No one knows the future.

So, in my opinion, you should forget about the price prediction given in this article. The real meat of it, I think, is the demographic data embedded in the piece that the subject's firm has gathered.

That part of the article is more in line with how I think of this technology: not what the price will be at X point in time, but how many people own a piece of it right now versus the total number living humans on earth.

The last time I found reasonably reliable data on individual ownership of Bitcoin, that total worked out to less than one quarter of one percent of all of humanity...

Wednesday, January 03, 2018

Social Security is dying.

That's a politically charged statement, which is unfortunate, because it shouldn't be a political topic; this is a question of math.

The quick version: Social Security was designed generations ago during a time when it was assumed that subsequent generations would be larger, or at least as big, as the previous, that there will always be as many workers tomorrow as there are today. The "baby boom" following the Second World War seemed to confirm the hypothesis, but what followed completely derailed it. And now comes the automation wave.The system requires working people to run, but society is moving toward having fewer workers.

The system will fail. The system is failing.

If you don't believe this, go to My Social Security, the website maintained by the Social Security Administration, log in, and look at your benefit statement. On page two, right under the breakdown of benefit payments you personally are set to receive one day, there's a footnote in bold print:
 "Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2034, the payroll taxes collected will be enough to pay only about 77 percent of scheduled benefits."
They put it right there in black and white: the system is running out of money. Taxing us more won't fix it, because the simple fact of the matter is that we're running ever-lower on working people to be taxed to support it.

Do you see another baby boom on the horizon? I don't. Look at popular media: the message is, in so many different ways, "do not have children."


Several years ago there was a "Social Security tax holiday" that occurred under the Obama administration. It was a 2% reduction in the employee-portion of the Social Security tax withheld from people's paychecks. This lasted for two years.

While most people spent the difference, I put all of it into a Roth IRA account. I did this specifically because I wanted to demonstrate what privatization of the Social Security retirement system could do. I put only these funds into the account, and have reinvested the dividends and capital gains ever since. Each year I like to update anyone who is interested on the numbers.

The portfolio is composed of a mix of dividend paying stocks, exchange-traded funds, closed-end funds, etc., which are selected to achieve a diversity of industries and sectors, and for the income they provide. When I see an opportunity to trade a position that has gone up in value for an attractive opportunity offering a higher yield, I make the switch. Until then, I simply let dividends reinvest. Primarily it is the income of the portfolio that I track, because I believe spending income, not principal, is both the key difference between a portfolio built to last one's lifetime, and a broken idea like Social Security that constantly "eats the seed corn."

In 2017, the income of the portfolio grew by 29.63%. Since I began tracking the income growth on August 5th, 2014, it has grown 60.76%. The value of the portfolio since I ceased funding it when the Social Security tax holiday ended has increased by approximately 71.6%.

Thus far, between myself and employers, I have had nearly $66,000 vacuumed up by the Social Security tax. Were this money in my private retirement account as I have it constructed, it would be generating around $5150 in dividends per year, reinvesting at a current yield of 6.7%. If I also merely take an average of the Social Security taxes taken from me in my working life (twenty-four years, thus far), and add that in as an annual contribution, only an additional $2750 per year, in 20 years when I reach the minimum Social Security retirement age of 62, the portfolio would be worth $1.56 million, and assuming a consistent dividend rate as today, would yield $104,520 per year in dividends. Pure income, with no need to tap into the principal.

At that age, Social Security promises to pay $1600/month (before accounting for the reduction they're saying there will have to be starting around the year 2034), or $19,200 a year, not even one-fifth of what my private account to do.

It gets worse: since Social Security has no investments supporting it, only current payments from working people that are passed through to those who have retired, you can't even treat the system as a savings account from which one draws their own money one day. However, if we do assume it works this way for the sake of comparison to a true investment portfolio, then we can gauge which one will truly endure, and which one will run out.

At present, I am having about $10,800 per year taken from me for my Social Security benefits (that's right now; I am moving toward changing my income to capital gains, dividends, and rents, which are not taxed by this system, a change that will likely occur within a few year's time). If I assume that I continue working as such for another twenty years to age 62, then added to what has already been taken from me for Social Security, I will have $280,000 "in the system."

At present, the Social Security Administration itself calculates that a man who reaches age 65 today can expect, on average, to live until age 84.3, or 22.3 years beyond the age at which he could begin drawing his minimum retirement benefit (62 years old).

Were that me, then by the time 22.3 years goes by, at $19,200 per year, I will have drawn $428,160 in benefits.

With only $280,000 paid in. Every last penny of my taxes, gone, and $148,160 in addition paid out to me.

Money that has to come from working people.

In a society with fewer births, and more machines.

The math does not work.

Meanwhile, in that same time frame, my portfolio, assuming zero growth of the principal from age 62 on (which is unlikely), would still contain $1.56 million (which could be left to my heirs, or charity), and also assuming no growth in the dividends (also unlikely), would have paid out $2.33 million. This can happen even if there are fewer births in the future, and more machines, because the portfolio would actually be invested in the economy (world-wide, even), not just on the backs of working people here in the United States, as is Social Security. If twenty years from now people are living even longer (very likely), my private portfolio would still be there for me.

It's time to abandon this anachronistic system that is Social Security.

This is not a political matter. It's just math.

Tuesday, January 02, 2018

This is one thing to appreciate about winter: days at a time without work give me more time for slower pursuits, like reading.

Finally getting around to this one:

I have a small holding in the MMO game, Entropia Universe, which is now undergoing another expansion of the investment opportunities that exist there. What follows is a posting I made elsewhere in an investment forum I'm a member of, with a few updates to bring the information I'm presenting current to today. Not familiar with this game? Then please, read on...
First, a little background.

Entropia started off over a decade ago as "Project Entropia." It was then what it is now, a futuristic SciFi online game. What was new about it among others was the full incorporation of a real cash economy in-game. Rather than merely tolerating secondary markets popping up outside of the game for in-game items (such as with World of Warcraft, for example), the creators of Project Entropia, MindArk, made it a key feature of the game, establishing a system where a player could deposit real world currency at an exchange rate of 1 USD to 10 "Project Entropia Dollars," AND vice versa.

The game took place on a planet, Calypso, and players began depositing, playing, and withdrawing. Some even began to make a living through the game.

Fast forward several years...

MindArk began to expand upon the in-game ownership opportunities by creating a new continent on Calypso, with a major new feature: player ownership of plots of land. These player-owned land areas featured a tax system on two key activities, mining and hunting, which generated revenue for the land owner.

The first major land area was put up for auction and quickly sold for around $27,000 USD. The buyer later reported that he recovered his initial investment in under one year...

Several years later, MindArk began to develop space, outside of Calypso's atmosphere. This opened up a whole new area for players to travel through, hunt, mine, and even hunt and loot each other. It also became the platform upon which MindArk created the first destination off of Calypso: a space station.

This space station later went to the auction block, too. It was purchased by a player who goes by NEVERDIE, who in real life is a DJ, producer, and amateur filmmaker. He took out a mortgage on his home and purchased the space station for $100k USD, then transformed it into a hunting, mining, virtual real estate sales (apartments were offered for sale to other players), and nightclub destination.

Nightclub? Yes, a nightclub.

NEVERDIE arranged things with MindArk such that DJs spinning in a sound booth in the real world would have their music piped into a club setting on the space station, complete with virtual turntables and an avatar to represent them. Players could purchase tickets to the venue and catch the shows via their own avatars.

NEVERDIE sold the station in pieces several years later (if memory serves, the total of the sales approached $750k USD), after reportedly having earned millions in USD from revenues over a period of about three years.

Sometime around this period, MindArk created "Calypso Land Deeds." These are essentially shares of Planet Calypso, notes that a player can hold ownership over that pay a weekly dividend derived from revenues earned by MindArk on Calypso. These debuted at a par value price of 1000 Entropia Dollars each ($100 USD). They trade in the in-game secondary market, too, the current in-game asking price sitting at an average of 1984 ED, an increase of nearly 100% over par, with an average annual yield at present of 7.49%.

MindArk then continued the expansion of Entropia by expanding on space in a brilliant way: the creation of new planets. But these were not planets created by MindArk; rather, MindArk created the opportunity for outside investors to set up new worlds incorporated into Entropia, with their own visions, themes, unique creatures, items, etc. At this point, "Project Entropia" became "Entropia Universe."

Several new worlds were created (NEVERDIE owns one of them, "Rocktropia," which is apparently where some of his profits from selling CLUB NEVERDIE went). Players were now able to travel space between the original world of Calypso, the space station, and these new worlds (in fact, several transportation businesses sprung up in-game after this, all owned and operated by players, not MindArk or other investing firms).

Then along came Planet Arkadia.

Planet Arkadia is owned by a company outside of MindArk, Arkadia Studios, just like most of the planets in the game now. It started off as just another world with its own backstory, unique creatures, minerals, etc. But then Arkadia Studios created a new area within the planet itself, "Arkadia Underground."

But this planet owner, unlike the others before them, sought outside financing for this project. To do this, they worked with MindArk and created the "Arkadia Underground Deed," which distributes daily dividends from the revenues generated by players hunting and mining within the area.
200,000 of these deeds were then created and offered for sale, just like the Calypso Land Deeds years before. They went on sale through the Entropia Web Shop (outside of the game) at a par value of $5 USD each. All of them were sold about a year later.

Today, they are worth an average of $8.40 USD each, a gain of 68%, and at present offer a 4.35% yield.

Now the current news...

Arkadia Studios is doing it again. A new moon is to be added to the orbit of Arkadia, and deeds are now on offer that represent the entire area of the moon. They will function the same as the Arkadia Underground Deed, paying daily dividends, which will come from a uniform, fixed tax rate of 5% on all activities that take place on the moon.

A key difference this time is that the deeds will have a par value of 60 ED, but until the end of January are on sale for 50 ED. The moon will be launched in-game by the 3rd quarter of 2018.
Details here:…


Like I said, this is a small holding I have within my entire portfolio. My avatar has a cost basis of approximately $1400-1500 USD, and is at present worth just shy of $2900, not counting on-going revenue it earns from Calypso and Arkadia Underground deed holdings.

There's four reasons I hold this as an investment:

1) The fixed exchange rate of ED to USD, 10-to-1, gives this holding liquidity and stability of the in-game currency (for those of us living in the U.S. anyway; players from other countries must still contend with FX fluctuations). If I liquidate everything I own in-game and convert it all to ED, I know precisely how much I would then be able to withdraw from the game.

2) Because capital gains and revenues generated in-game are in an unrecognized currency, "Entropia Dollars," none of the capital gains I might realize, nor the revenue I receive daily and weekly, create taxable events. It would only be upon withdrawal of funds from the gain above my cost basis that I would owe any taxes to Uncle Scam. Thus, the revenues I'm earning in-game can be assessed on a "tax equivalent yield" basis, how an investor can gauge the worth of the yield of a non-taxable instrument, such as a municipal bond, versus a taxable alternative, like a dividend paying stock. As such, in my current U.S. income tax bracket, 25%, the yields I stated above for the Calypso and Arkadia deeds are the equivalent of taxable alternatives yielding 9.99% and 5.8%, respectively.

3) This is a unique diversification opportunity given that it's virtual property, but specifically it offers two things in that regard: it is about as non-correlating as you can get to things like stocks, bonds, precious metals, etc, and being international in nature, it is receiving cash inputs from players all over the world in numerous currencies, which confers some benefit from purchasing power entering the game through currencies that have greater or lesser amounts of relative strength at different points in time.

4) It's fun! I own property in a freakin' video game and I get paid to do it! lol!

Entropia Universe is but one more example among many of the investing opportunities that now exist, all thanks to cyberspace, that simply could not have existed earlier in our lifetimes. It's new, it's weird, people who don't understand it mock it, but it works. And it will keep working, and growing...


(What I wrote to my fellow forum members, just this morning)

I've started accumulating the Arkadia Moon Deeds I wrote about a few weeks ago. I decided to make them a "January project" since they're on sale at about a 17% discount until the end of this month ($5 each currently, par value is $6).

As of this morning my avatar had a value of $2918.82 and is yielding $182.96, 6.29%, or 8.06% tax-equivalent yield in my new tax bracket of 22% (yeehaw!).

The income from these deeds will not kick in until the new moon launches sometime around May. I'm willing to wait though because if the price appreciation of two other types of deeds I own is a reliable guide, then from their inception to the present, I could be looking at 60-100% price appreciation of these new deeds once dividends start to flow.


If you're feeling intrigued by this, take some time and check out the game. Entropia Universe is free to play, depositing is 100% optional. Enjoy!

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