Infinity Investing

1. Financial freedom means controlling your money, not being controlled by it

"You have control over money. At a very personal level, you can choose what to do with the money."

Mindset shift. Financial freedom is not about accumulating a specific amount of money, but rather about having control over your financial decisions. This control stems from understanding how money works and making informed choices about its use.

Passive income focus. The key to financial freedom is developing sources of passive income that cover your expenses. This can include dividends from stocks, rental income from real estate, or royalties from intellectual property. By building these income streams, you reduce your reliance on active work and gain more control over your time and choices.

Long-term perspective. Achieving financial freedom requires patience and a long-term outlook. It's not about get-rich-quick schemes, but rather about consistently making smart financial decisions over time. This includes:

• Regular saving and investing
• Avoiding unnecessary debt
• Continuously educating yourself about personal finance and investing
• Building multiple streams of income

2. Avoid financial imprisonment by understanding the true nature of assets and liabilities

"Assets are things that pay you and put money in your account. You should look for stocks like the dividend kings I mentioned in chapter 1."

Redefine assets and liabilities. True assets generate income, while liabilities cost you money. Many people mistakenly believe their home or car are assets, when in reality they often drain resources through mortgage payments, maintenance, and depreciation.

Focus on cash flow. When evaluating potential investments, prioritize those that generate positive cash flow. This might include:

• Dividend-paying stocks
• Rental properties with positive monthly income
• Businesses that generate consistent profits

Avoid the debt trap. Financial imprisonment often results from accumulating too much debt, especially high-interest consumer debt. Instead of using credit to finance a lifestyle beyond your means, focus on building assets that can generate the income to support your desired lifestyle.

3. Develop an internal locus of control to drive financial success

"If you believe that the world has lots of opportunity and that it's up to me to go out and take advantage of those opportunities that I can control, then those opportunities are going to show up because I'm going to be open to them."

Belief in personal agency. An internal locus of control means believing that you have the power to shape your financial future through your actions and decisions. This mindset is crucial for financial success, as it motivates you to take proactive steps rather than feeling helpless.

Overcome limiting beliefs. Many people hold limiting beliefs about money that stem from their upbringing or societal messages. Common myths include:

• "Money doesn't grow on trees"
• "Rich people are greedy"
• "I'm not good with numbers"

Identify and challenge these beliefs, replacing them with more empowering thoughts that align with your financial goals.

Take responsibility. With an internal locus of control, you take responsibility for your financial situation rather than blaming external factors. This empowers you to:

• Educate yourself about personal finance
• Seek out opportunities for growth and investment
• Learn from mistakes rather than being discouraged by them
• Persist in the face of challenges

4. Calculate your income spread and Infinity Net Worth for financial clarity

"Your Infinity net worth, in a nutshell, is how many days you could live without working."

Income spread calculation. Your income spread is the difference between your total monthly income and your total monthly expenses. This calculation provides a clear picture of how much you have available to invest or save each month.

Steps to calculate your income spread:

1. List all sources of monthly income
2. List all monthly expenses
3. Subtract total expenses from total income

Infinity Net Worth. This concept measures how long you could maintain your current lifestyle without working, based on your passive income sources and expenses.

To calculate your Infinity Net Worth:

1. Calculate your daily passive income (dividends, rental income, etc.)
2. Calculate your daily expenses
3. Divide your total net worth by the difference between daily expenses and passive income

This number gives you a tangible goal to work towards: increasing the number of days you can live without active income.

5. Avoid the three big "Infinity Nos" to escape the losing loop

"Do not buy liabilities with your income. Buy assets with your income."

The three Infinity Nos:

1. Never pay expenses with liabilities (e.g., using credit cards to pay rent)
2. Do not buy liabilities with your income (e.g., financing a luxury car)
3. Do not buy liabilities with a liability (e.g., taking out a loan to buy a boat)

Break the losing loop. The losing loop occurs when you continuously work to pay off liabilities without building assets. This cycle traps you in financial servitude and prevents wealth accumulation.

To escape the losing loop:

• Focus on acquiring income-producing assets
• Minimize unnecessary expenses
• Use income from assets to cover liabilities when necessary
• Avoid taking on new debt for non-essential purchases

6. Invest like the wealthy: focus on dividends and become a stock market landlord

"What the wealthy don't do is sit around and wait. They utilize dividends and stock rentals to increase their wealth."

Dividend investing strategy. Focus on stocks with a history of consistent dividend payments and increases. Look for:

• Dividend Aristocrats (25+ years of dividend increases)
• Dividend Kings (50+ years of dividend increases)

These companies tend to be stable, profitable, and resilient during market downturns.

Stock market landlord concept. Enhance your dividend strategy by selling covered call options on your stock holdings. This "rents out" your shares for additional income, similar to a landlord collecting rent on a property.

Benefits of this approach:

• Generates income even when stock prices are flat or declining
• Reduces overall portfolio volatility
• Provides multiple streams of income from a single asset (dividends + option premiums)

7. Use the Infinity Allocation Model to grow your wealth systematically

"What we have done is taken many of the concepts from the Yale model and reduced them to something any investor can implement."

Infinity Allocation Model basics:

• 30% in dividend stocks
• 30% in real estate investments
• 30% in managed portfolios
• 10% in cash or cash equivalents

Staged implementation. For investors starting with less than $50,000:

1. Begin with 90% in dividend stocks and 10% in cash
2. Once you reach $50,000, start allocating to real estate and managed portfolios

Diversification benefits. This model provides exposure to different asset classes, balancing growth potential with income generation and stability. The cash allocation serves as both an emergency fund and a resource for opportunistic investments.

8. Apply the seven criteria for selecting dividend stocks to build a robust portfolio

"You want to get seven out of seven of these metrics before you buy that stock. It doesn't mean that there's ever a guarantee, but what it means is that stock is strong and it's much less likely that you're going to have a bad experience with that company."

The seven criteria:

1. Price charting: Avoid buying at all-time highs
2. Trend charting: Look for upward or sideways trends
3. Option availability: Ensure the stock has options for potential "rental" income
4. Dividend yield consistency: At least 2% yield, consistent over 5 years
5. Revenue stability: Less than 10% fluctuation in the past 3 years
6. PE ratio: Between 15 and 25
7. Analyst recommendations: At least 3 positive for every 1 negative

Disciplined approach. By applying these criteria, you filter out riskier stocks and focus on stable, profitable companies with a history of rewarding shareholders. This disciplined approach helps avoid emotional decision-making and reduces the risk of significant losses.

Regular review. While these criteria help identify strong stocks, it's important to regularly review your holdings. Companies can change over time, so periodically reassess each stock against these criteria to ensure your portfolio remains aligned with your goals.

Last updated: August 9, 2024