Tag Archives: wealth

It's the gradient of the curve …

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Making millions is serious business …

… don’t worry, here’s a short-cut where you can jump straight in  )

Now, back to today’s post ….

___________________________

That’s right, it’s not the size of the mountain … but, the gradient of the curve that will get you!

Given enough track, any train can climb any mountain. The track just can’t be steep … hence lots of track … hence lots of meandering around and around to get to the top (if that’s where a train really wants to go) … hence lots of time.

The train can get you there, it just can’t do it very quick!

Similarly with your Number … the size of the number doesn’t phase me, nor should it phase you …

You want a million dollars?

Easy, buy a $100 unit in a low-cost Index Fund and wait …

83 years.

Want a million in today’s buying power? Then, you’ll need to wait another 38 years.

Want $5 Million in today’s buying power? Just wait 21 years more!

You see, it’s not the size of the mountain that will kill you, but the gradient (steepness) of the sides that you need to climb.

That’s why we also need to know the Date that we want to achieve the Number:

Enter your starting Net Worth, your ending Number, and the number of years in between into a simple on-line calculator, and it should tell you the Average Compound Growth Rate required to go from the bottom (you current Net Worth) to the top (your Number).

The Average Compound Growth Rate is a measure of how ‘steep’ a financial mountain you need to climb … and, that should tell you whether you need a train, a fast car, or a helicopter to get you to the very top in time.

According to Michael Masterson in his book Seven Years To Seven Figures:

Required Compound              Investments

Growth Rate                             Required

4%                                                  CD’s

8%                                           Index Funds

15%                                              Stocks

30%                            Real-Estate together with Stocks

45%              Real-Estate together with Stocks and Small Businesses

50%+                           Start Your Own Business

So, how big is your mountain? More importantly, how steep the gradient?

And, are you prepared to try a new mode of transport, if that’s what is required?

If not, you’ll either need to find a smaller mountain (deflate your expected lifestyle) or simply give yourself some (a lot?) more time!

To focus or not to focus, that is the question …

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Put all of your eggs in one wealth-building basket or not?

That is the question posed by Bill, who says:

I guess you are trying to espouse that one must FOCUS on ONE thing which creates the abundance of ACTIVE income and then leverage further to create PASSIVE incomes via real estates…

And, he would be correct – except that it doesn’t need to be real-estate for either creating or maintaining wealth: it can be whatever turns YOU on.

Because you will only make money where your passion lies … not where anybody else’s lies.

As to my views on focusing on just one thing to create wealth, I am also ambivalent to that – although, I would highly recommend a single wealth building focus to most people.

Generally, to build wealth, do exactly as Bill suggests: “FOCUS on ONE thing which creates the abundance of ACTIVE income” … that way you give a positive variance the greatest chance to kick your wealth into high gear.

Look at it this way; if you split your time and money evenly between two activities:

– one with a solid entrepreneurial 35% compound growth rate

– the other with a slightly-above-market 15% compound growth rate

Then for every $100,000 you ‘invest’ over 20 years, you have the following outcomes:

All @ 35%        Split 15% / 35%      All @ 15%
$29,946,192    $15,684,684           $1,423,177

Significant or not? Try it at 50% v 15% …

Well?

I can tell you this; looking at these numbers will tell you an awful lot about your likelihood of even launching your ‘financial career’:

1. The Job-for-Lifers will be looking at the 15% returns and saying “well if I can turn $100k into $1 million just by investing it in an index fund what the hell am I wasting my time here for?”

… and, they will be right.

2. The ‘wannabes’ amongst you will look at the difference between the passive-style returns over 20 years of the All-or-Nothing approach and the Spread-My-Risks-A-Little split approach and say “well if I’m not sure of the ‘next big thing’ I should put some of it in to the Big Venture and the rest into something a little safer or another venture just to be sure”

… and, they will be right.

3. The true Millionaires … In Training! amongst you will be looking at one number: the one that matches most closely (or exceeds) their Number … the amount that they simply MUST have in their nest egg. And, they will (usually) be saying “I have to go for gold – the highest possible return in my chosen field …. but, if I give it a good try and it doesn’t seem capable of producing the return that I expect, I will quickly abort mission and try again”.

… and, they will be right.

It depends on how serious you are …

The world is your backyard!

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For most people, their backyard is their investment (OK, you can throw in the front yard, the kennel, the house, and the above-ground pool, but that’s it!) …

… for others, the only place that they invest is near their backyard – well, their neighborhood or those close by.

And, it seems to make sense: you understand the area; you can manage your investment; you can (almost) ‘touch’ your investment … lots and lots of ‘warm fuzzies’ around that one.

That seems to be the thinking behind Ryan’s question:

I have a question on real estate investment when you’re nomadic. My concern is I’m young (28) and my girlfriend and I have a list of places we’d like to try living before we settle down (west coast, gulf coast, a big city, etc). Do you tend to only keep rental property near where you live? Or are you comfortable owning property across the country? And if the latter, do you run into any problems with doing that?

My concern is that, if I have enough income/capital to own property, would I be better off waiting 10 years until we decide where we’re going to live long term? Or might I be better off, when we decide to move somewhere, in buying a house, then when we move, trying to keep it as a rental, or something along those lines?

Any tips or thoughts you could throw at me about real estate investing when your location isn’t static?

Ryan, the best place to invest in real-estate is where you will make the greatest return. Seems obvious, but it opens up so many questions about:

– Location: where to invest

– Type: what class of property (residential, commercial, etc.) to buy

… as well as all the usual questions around how much to invest, funding, etc.

I have real-estate in Australia and in the USA, and I happen to be right in the middle of a big ‘argument’ with my accountant at the moment about where I should invest: he thinks locally (easier to manage, handle taxes, etc.) and I think globally (spread risks; greater potential returns; etc.).

Now, you might say that’s OK for me with a portfolio of real-estate, but the reality is that we also have a single condo overseas that we have held on to, as well as a quadruplex, and until recently we kept our old house and rented that out.

In all of those cases, good property managers ensured that we could manage the investments as easily as if we lived next door – almost 🙂

In fact, by investing away from home, you remove the temptation to manage the properties yourself … you focus on increasing income and finding the next deal; let others do the ‘grunt work’ on the existing properties for you.

As to the second part of your question: if you do want to invest in R/E and you see that as your main path to wealth … start now!

Let others wait ‘until’ …

The Big Papa lives in the 11th Dimension!

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It should be obvious by now, that I am no Einstein … but, we do share a couple of things in common, the least of which is that we both believe in the power of compounding: Einstein is alleged (there is some doubt whether this is even true) to have called it “”the greatest mathematical discovery of all time”, as well as “the greatest force in the universe”, and even “the 8th Wonder of the World”.

Whether that’s true or not, Einstein and I shared one other passion:

Albert Einstein spent the last 30 years of his life “in a fruitless quest for the fabled unified field theory” … this is the Mother of Theories, the one that ties all the other theories of physics (hence, the mechanics and origins of our Universe) together.

This is not directly my passion (I’ll come to that) but I have been dying to talk about this since I first saw a documentary that explained all of this … it just fascinated me, so I will bore you with it – with a weak promise of tying some sort of financial angle into it, just to reel you in to my own morbid fascination:

You see, the closest that modern physicists have come to tying up all the loose ends of science (e.g. what is the Big Bang? What came before it? How can a subatomic particle be in two places at once? etc.) was with the discovery of String Theory.

Once thought to be the Big Mama of science, it all came apart when the String Theorists all came to similar conclusions: these ‘strings’ could be mathematically ‘proved’ in 10 dimensions – therefore, the Universe is in 10 dimensions …

… the only problem was that there were 5 totally different sets of equations which all ‘proved’ the strings (albeit, differently) in 10 dimensions … 5 theories ain’t one theory; in fact, it’s almost as bad as none!

But, then a group of scientists working on proving gravitational waves discovered that their formulas worked well in 11 dimensions.

Aha! Now a group of ‘string theorists’ went ahead and re-worked the 5 lots of ‘string theories’ in 11 dimensions (instead of the original 10) and discovered that they were all the same theory!

The scientists who discovered this (while they were riding on a train to work, by the way!) described it as similar to standing at the base of a hill: depending upon which side of the hill you happen to be standing, the view could be very different … but, it’s only when you stand on top of the hill that you realize that you are looking at different aspects of the same landscape depending upon which direction you happen to be facing at the time.

Using this new insight, scientists are now working on solving the issue of ‘parallel universes’ (the theory says they exist); what happened to cause the Big Bang (it’s what results when two or more parallel universes collide: baby universes!); and, much, much more …

So, God lives in the 11th Dimension!

I promised a financial angle, but I can’t find one other than to share my passion:

Like Einstein, I believe that there is a Unified Theory, but of Personal Finance instead of physics.

I instinctively seem to ‘know’ this .. I have certainly profited from it … and, I have already written pieces of it (including a ‘schematic‘ of what it might ‘look’ like) …

… but, I don’t have it all well-articulated or nicely laid out, yet.

Yet, I believe that when we stand on top of that mountain, each of us will see that the various discussions on the sensible financial forums (e.g. blogs, books, etc.) – discounting the ‘get rich quick’ crackpots; various financial con artists; and the ‘one trick ponies’ (who luck on one way of making a little money, then proceed to create an information publishing empire from it) …

… are really just different aspects of the same sound financial framework.

If you look out at the “young and just getting started” vista, you will see one aspect; when you look at “work for 40 years then live quietly and comfortably” you will see another aspect; and, when you look in an entirely different direction you will see all of us in the “aim for a big Number and get there” group.

Same hill, same earth, but slightly different paths and different terrain to cross … same underlying ‘laws of finance’.

So, in encouraging me to keep writing this blog – and, in challenging, commenting, criticizing, supporting it – you are helping me to clarify in my own mind what this ‘unified financial theory’, if there really is one, might really look like.

When I can write the ‘equations’ out, you will be the first to know!

There, the ‘secret’ of why some rich, ‘retired’ guy is doing all of this – when he should be lying back in his hammock, drinking Pina Coladas – is finally out 🙂

What is risk?

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Jeff raises a great question about the nature of risk; he is talking specifically about real-estate investing when he says:

After reading a couple books, it looks like the majority of the return comes from leveraging your money and keeping your money leveraged over your holding period. Also, reinvesting your cash flows into another investment (instead of living off of them) adds additional compounded return over the long haul. These, however, dramatically increase risk…but, no risk, no reward.

Now, I need to make a point right here: I talk about real-estate (RE) investing a lot … and, I certainly made a lot of money in RE … so, it follows that I am in love with RE, right?

Actually, no.

I hate investing … I dislike real-estate … I abhor risk …

…. it’s just that I hate NOT investing even more. Seriously.

I have a lot of money sitting in the bank earning interest (an excellent rate, if I may say so myself); but all I can think of is that it’s not working fully for me … I am not anywhere near maximizing my return. Where’s the capital gains?

In the bank, there is none.

So, I am FORCED to look elsewhere to invest, and I inevitably end up back at real-estate. I do it because, for me, it represents the best risk/reward trade-off that I can find … IF I am certain that I can cover the cash flows if things go south for a while (repairs and maintenance, loss of tenancy, etc.).

Jeff is absolutely right about RE’s ability to get returns ” from leveraging your money and keeping your money leveraged over your holding period”.

But, back to Jeff’s questions about risk: when Jeff says that leverage = risk, he is technically correct but absolutely incorrect.

Let’s take a look at the technical nature of risk:

Case 1 – RE v CD

We compare the risk of investing our $100k into a $100k piece of real-estate (no borrowings, and for the sake of the discussion no closing costs) v. into a bank CD and we realize that the piece of real-estate and CD produce differing rates of return: according to common wisdom, slightly above inflation for the RE and about even with inflation for the CD.

But, the RE can burn down, lose a tenant, etc. etc. Of course, on the plus side, you can rehab the property cheaply and increase returns; choose better tenants; find a high-growth area; etc.

The CD is fully government-insured (hence the $100k limit for this exercise); and, you can look around for the best CD deal (from an insured bank!) in town.

Bottom line: Slightly different rates of return, markedly different risks.

Intuitively, we understand that there is a relationship between risk and return and the RE v CD example illustrates that in a way that we can all understand.

Case 2 – RE v RE

Let’s say that you decide that the better return from RE is worth the increased ‘risk’.

RE can be leveraged; so that must increase risk? Again, technically ‘yes’, but let’s look at it in practice:

0% leveraged RE v 100% leveraged RE:

If the ‘sub-prime crisis’ didn’t show the risk (not necessarily the folly) of ‘no money down’ RE deals, then we may as well stop the discussion right here, because we all know that fully-leveraging a property is much more risky than owning it outright (it’s why we pay down our home loans, right?)

But what about 0% leveraged RE v just 20% leveraged RE?

Does that seem a lot more risky to you? If not, what about 0% leverage v 40% leverage … and so on.

In other words, risk is also personal: once you decide to invest in an asset class – say, RE – there is no magical point at which leverage becomes ‘risky’ or ‘not risky’ (unless you were one of the people who thought that 20% leverage was ‘risky’).

The point here is to show that whilst there is indeed technical risk, it can be highly subjective and frankly far less important to your financial decision making than ‘absolute risk’ …

Absolute Risk

To put this in perspective, we all know that trying to jump over roofs between buildings is risky. Much more ‘technically’ risky than going through the fire doors, down the fire-stairs, into the street, then reversing these steps in the next building …

… but, if you are Jason Bourne and a CIA Operative is coming through the doorway behind you with a BIG GUN (did I mention that you were out of bullets?) to ‘take you out’, don’t you think that you just might suddenly ignore the ‘technical risk’ and jump across anyway (if you thought there was any reasonable chance that you might make it)?

Instead you might decide to try and surprise the armed assailant with a karate chop (what is the ‘technical risk’ of karate chop v armed assailant?) … in other words, you mostly ignore ‘technical risk’ because the ‘absolute risk’ of failure is too great.

Equally, financially-speaking, ‘absolute risk’ is the only risk that really matters; it simply asks:

What is the risk that [insert preferred method of investing here] won’t be enough for me to make my financial goals i.e. my Number /Date?

If putting your money in a bank CD that earns 4.5% gets you to your financial goals, then that’s probably what you will/should do.

But, if it won’t what do you do?

It all depends on how important your financial goal really is, doesn’t it?

The Perpetual Money Machine begins to wind itself up!

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————–

I’m about to find out if I can make money on-line … read the latest installment (just posted) here!

————–

Your Perpetual Money Machine begins to wind itself up (in the case of selecting RE as your ‘income capacitor’) simply when the property portfolio that we discussed on Wednesday becomes cashflow positive …

… this is a critical point in time, because now we can exponentially accelerate the size of our pool of capacitors!

Now, we can take our 15%++ (continually growing as our income stream continues to grow) and ADD the excess cash spun off by our profitable property portfolio (assuming that we selected real-estate, as our ‘income capacitor’ i.e. storage device for money) …

…. this ALL goes into: new properties!

Now, Scott is building a whole bank of financial ‘income capacitors’ …but, for what purpose?

Aah, until the point in time that the income from these ‘capacitors’ is enough to replace Scott’s income from his inventions and movie royalties!

If you have been following the process, this can happen surprisingly quickly (5 to 10 years) IF the income stream that Scott is seeding with is large enough to purchase large ($1 million+ each) commercial properties.

If residential (incl. larger multi-family) you can expect it to take a little longer, as these tend to start more cashflow-negative, or grow too slowly.

At this point in time – assuming that the income-replacement is sufficient to satisfy Scott ‘forever’ (if not, keep working/building a few more years) – we have our Perpetual Money Machine!

You see, the real-estate will continue to grow, even if you no longer continue to ‘seed it’ with more income … in fact, it will grow (on average) at least according to inflation, producing an income that also at least grows with inflation (even allowing for keeping 25% aside as a buffer against repairs/maintenance/vacancies/etc.).

Scott can spend that entire income with impunity, knowing that his capital is never at risk … just like cash in the bank, only better because the capital also grows (at least) with inflation …. provided that your outlook is long enough.

On the other hand, if Scott chose to put his money into Berkshire Hathaway stocks, instead of the real-estate portfolio that we discussed here, which have grown at 21% compound for the past 20+ years (although, not even Warren Buffett suggests that that rate of growth will continue), then Scott can simply sell down enough stock each year to fund the next year’s income.

Different tool, hopefully a similar result …

In either case, when Scott’s royalty income stops, his Perpetual Money Machine seamlessly and automatically takes over.

Nice for some 😉

PS The mechanical/electronic Perpetual Motion Machine is impossible in physics (although, quantum mechanics may provide a solution) … the one depicted in the image above was built in 1996 and resides in a vault in a Norwegian gallery: it once ran as long as 14-days in a row without stopping … hardly ‘perpetual’ but pretty, damn good!

Motion begets motion …

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No, we are not talking about the effect of prune juice of the vital bits of our digestive system!

We are talking about beginning to wind up our Perpetual Money Machine (believe it or not, the above ‘prune bush-driven machine’ achieves both objectives!?) …

… the one that we are designing for Scott who is earning a great passive-seeming income (but, not really because it comes as royalties from various movies and inventions that Scott has created over time, not actually from cash in the bank or the equivalent).

Scott already understands this:

Have some in real estate, but not much. What is your take on the time it takes to start realizing a “substantial” income from real estate?

Longer than you think, Scott 🙂

The problem is that RE has a ‘lag’ time that is hard to estimate: you need to cover closing costs, rehab costs, tenancy costs just to ‘wind the property up’ … and, it’s possible (likely) that you will need to wait X years until inflationary forces push rents up higher than your (hopefully, fixed) mortgage costs (plus the costs of maintenance, vacancies, property taxes, etc.).

Of course, on the PLUS side you have depreciation allowances and tax benefits that can produce paper-profits, but these take very careful management to live off 😉

It’s why building a real-estate portfolio, while you can still seed it with income, is better than waiting until you can cash out (i.e. retire and cash out your 401k; sell your business; discount your annuity/royalty incomes by selling these) … you may find that you become ‘asset rich and cash poor’ for a while.

There has been many a successful business owner who has sold their business only to suddenly become ‘poor’ by putting all of their nest-egg into newly acquired RE  …

… but, that won’t be you, Scott, because you are building your Perpetual Money Machine while you still have increasing incomes.

In fact, this is the key!

You still keep ‘seeding’ your RE portfolio with the same/growing 15%++ of your income until you no longer need to cover the negative cash flows from the current ‘income capacitor’ (i.e. property/s) and have saved enough as a deposit (plus buffer for contingencies) for your next one/s.

You repeat this process until you have too many capacitors/properties to manage, in which case you trade up through a series of 1031 Exchanges until you have a manageable portfolio, and …
Final installment of this series of posts on Friday …

How to build a Perpetual Money Machine!

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Yesterday, we introduced Scott, one of the creators and stars of the success documentary, Pass It On.

Scott wanted to know if his royalty streams (he is also a prolific inventor who teaches others how to invent) meant that he was a multimillionaire.

I’ll leave you to read that post, but the answer, as you may have guessed, is “yes … but” with the ‘but’ being that he has to guarantee his future income by building his own Perpetual Money Machine!

Unlike the world of Newtonian physics, where it is impossible to build a Perpetual Motion Machine (most closely approximated by those desktop ‘toys’ with the liquids or magnets that seem to rotate and swing ALMOST ‘forever’), it is actually quite easy to build a Perpetual Money Machine:

This is ideal – and, quite necessary – for anybody who has an income stream that they want to guarantee …

… and, isn’t that everybody with a job, or in business?

Our Perpetual Money Machine needs two components:

1. An income ‘energy source’ – a source of cashflow to ‘seed’ the machine

2. An income ‘capacitor’ – a means to store/recycle the financial energy until an excess is created

This ‘money machine’ becomes ‘perpetual’ when enough cash begins to spin off to become it’s own energy source …

… but, it becomes useful when it (soon after) also begins to spin off excess cash that we can spend!

Fortunately, this is a lot easier to ‘build’ (at least, in principle) than it is to describe.

Let’s take a simple example:

Joe is working at his job; he earns a income – that’s his ‘energy source’: his weekly paycheck.

Instead of opting to spend all of his money, he decides to ‘seed’ (i.e. save 15% of his gross salary) his ‘capacitor’ (in this case his 401k) until he has amassed $2 million. This takes Joe 30 years.

Joe then retires, reinvesting his nest egg into various ‘safe’ investments (as recommended by his financial adviser) that return 10% every year (in this Utopian world, there are no variances from ‘average’) which is 5% above inflation (ditto for inflation) and Joe can safely spend 5% of a pie that keeps growing with inflation, well, pretty much forever.

Of course, Joe had to work for 30 years to achieve this result and we had to suspend the laws of ‘financial physics’ to make it work, so let’s build Scott a ‘real’ Perpetual Money Machine:

Scott has a current income from his royalties: this is his ‘energy source’ and we can trust Scott to continue to build this energy source even further, but he realizes that all energy sources eventually dissipate.

So, instead of spending all of it, Scott puts at least 15% of his income from his inventions/movies/etc. towards his first capacitor (where he temporarily stores it is of little consequence; a bank is ideal).

Why 15%?

Well, we assume that until now, Scott has been spending all of his income in the belief that he already had a ‘perpetual money machine’ … if not, then maybe Scott can begin with even more than 15% 🙂

As Scott increases his income, now realizing that it is not ‘perpetual’, he also diverts at least 50% of the additional income towards building his Perpetual Money Machine … he sacrifices a little bit of ‘current increased lifestyle’ for ‘guaranteed future lifestyle’.

When Scott has ‘enough’ (and, that is up to Scott to determine) he ‘seeds his income capacitor’ by purchasing an investment property: if Scott wants a series of ‘small capacitors’ he buys residential (houses, condos, up to quadraplexes); if he wants a ‘large capacitor’ he buys commercial (multi-unit apartment complexes, offices, strip shops, etc.).

My recommendation is that Scott uses the largest ‘capacitor’ that he can afford right now … he can always trade up later, if he wants to consolidate into fewer capacitors/properties.

Now, does it have to be real-estate?

Of course not, it just needs to be anything that you can buy/hold that produces an income: it can be divided-producing stocks; Berkshire Hathaway shares (no dividends, but we’ll deal with that later); etc. … but RE is ideal because it can be well-leveraged, eventually produces a mostly-reliable income, but is stable over a long holding period: very handy attributes for a ‘financial capacitor’.

Scott repeats the above process until a  magical point in time … when the Perpetual Money Machine starts to wind itself up!

To be continued … 😉

If it's not Passive, it's Active …

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I received a great question/comment from an unusual source: Scott who is a prolific inventor, known actor (ever see Beethoven 2 and 3?), and movie industry ‘mover/shaker’:

I generate income through intellectual properties… Inventions, movie royalties and so on. I receive royalties every quarter (or so) from many sources, the total of which far exceeds the return on one million dollars in the bank. This is passive (royalty) money.

Irrespective of one’s actual money in the bank, is it safe to say that if one is realizing the income (passively) as if having the millions in the bank, that they are living the life of a millionaire?

Is it safe to assume that if someone were doing this for a living they’d be living as if having the million(s) in the bank?

Even though Scott seems comfortable in the continuity of the income streams (he has “many on the retail shelf and on T.V. with many more coming. It’s just what I do.”), I am not quite as comfortable.

As I said to Scott:

You need to look at the certainty and longevity of those royalties and incomes … unlike cash in the bank, your ‘Life of Riley’ lasts only as long as the income keeps coming in.

You see what Scott has is NOT passive income; it’s BUSINESS INCOME and business income is most assuredly not ‘passive’ … it’s ACTIVE.

‘Active’ implies risk …

Even though Scott can create a product, put a team around it, and set it free to generate ‘passive income’ via royalties, etc. it is not enough to say that Scott is as rich as, say, somebody with enough cash just sitting in the bank on CD’s generating the same income, merely from interest, as Scott earns from the fruits of his creativity.

The money in the bank will keep generating interest for ever … the capital NEVER changes (let’s forget inflation for now, which is the real risk for this ‘money in the bank’ strategy).

You see, each ‘product’ (be it a movie, an exercise bike, a kitchen gadget, or whatever) has a ‘life cycle’ – it will either make money from the get-go or flop … if it is a winner (and, it seems like Scott has the Midas Touch, here) it will sell for a period of weeks, months, years until eventually another product will take over and product sales will die … along with Scott’s royalties.

This may happen quickly or slowly, but it will happen!

Since Scott is great at what he does – and loves doing it – this isn’t a problem for Scott: he just goes ahead and creates the next product.

Financially, though, this means that Scott is like any other professional in private practice: once he does stop creating, either by choice or because of disaster, sooner or later the income will stop coming.

Now can you see the difference between the ‘passive income’ generated by a few million in the bank and a similar level of ‘active income’ generated by Scott’s creativity?

Great! So, what can Scott do?

Well, the same thing as anybody earning an income either through their own sweat/blood/tears or through a business:

Scott could try and estimate the future cash flows of each of his product streams and see how long they will take to die down/ disappear as if he never created another product as of today and basically tie his current life-style to the present value (smoothed) of that future income stream.

If disaster doesn’t strike, Scott can review each year and adjust his ‘smoothed’ income stream, accordingly … but, this doesn’t solve the fundamental problem, so Scott should also:

Build a Perpetual Money Machine …

To Be Continued … 😉