30-Year Thursday – How to Become a Millionaire by Saving $700 per Month

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$700 Compounded at 8% for 30 YearsRetirement.

It’s something we all have to prepare for.  At some point, there will come a day when you don’t want to work anymore or simply can’t work anymore.  A lot of people put off saving for retirement because they don’t think they have enough to make a difference so I’m going to show you how wrong that thinking is. 

Here we have a Compound Interest Calculator, which you can play with here, and I have it set for 30 years and, even if you are 60 – you will probably appreciate an extra $1M when you are 90, right?  

For the average person making the average $70,000 per household, we’re targeting 8% annual returns on $700 per month invested – about 10% of your income.  Although it will take 30 years to show you – I am going to set up a $700 to $1M Portfolio we can follow and each month we will deploy another $700 and make adjustments and we’ll see if we can improve upon an 8% annual gain, which is about the average for the market over the long haul.  

$700 Compounded at 18% for 30 YearsIf we can boost our returns to 12%, we’ll have $2.29M in 30 years but 18%, which is what I’m shooting for, will give us an inflation-fighting $7.9M in 2053 – by just saving $700 a month for 360 months!  

But where will you get $700 per month?  There are easy ways to do it like driving a sensible car that saves you $100/month in payments and $50/month in insurance, you can get a house that’s a bit smaller and save $300/month and instead of a hobby, you can get another job (there’s plenty of them) that pays you $150 on the weekends, etc.  

It’s not about the $15/hour you get for working 10 hours on the weekend (or nights during the week) – it’s about the $8M that turns into 30 years from now.  Thing about that when you are dropping someone off at the airport for a $5 tip!  

If $700 per month turns into $8M at 18%, consider that every monthly dollar you save now in your budget is $11,500 you are giving yourself in 30 years!  

Let’s look at how this works by first skipping ahead to the end of year 1, when we’ve put $8,400 to work and let’s say we made $1,600 along the way and we have $10,000 in our portfolio.  

  • We can buy 100 shares of AT&T (T) for $18 ($1,800) and T pays a $1.11 dividend annually.  
  • We can sell 1 T 2024 $17 put for $1.85, promising to buy 100 more shares at $17 for which we will be paid $185 now.
  • We can sell 1 T 2024 $17 call for $2.45 ($245), promising to sell our shares for $17.

The net of that spread is $1,370 and, over the next 17 months, we will collect $166 in dividends and either we will get paid $17,000 if T is over $17 (we can roll the options when the time comes to avoid that) or we will be assigned another set of T shares at $1,700.  

If we are called away at $1,700, we make $330 on the spread and $166 in dividends is $496, which is 36% from our $1,370 outlay but let’s call it a $3,070 use of cash assuming this is an IRA with no margin ability.  Even so, $496 is 16% over 17 months – so we’re on track with that for a 10% average gain.

If we are assigned another 100 shares, then we are truly using our $3,070 for 200 shares but then we’d sell 2026 calls for $490(ish) and that would drop our basis back to $2,580 on 200 shares ($12.90) and the $1.11 dividend alone would be 8.6% annually.  Two years later, we sell more calls and we’re down to $8 and then 2 years later (2028) we are down to $3.10 and by 2030, our T shares are free and we’re still getting paid $222 in dividends annually.  

And, of course, the $3,050 we get back between now and 2030 would go into starting a new cycle and, after a while, we will have dozens of overlapping cycles like that on various stocks.  It’s boring, but it works like a charm!  

We don’t really care if T goes up or down – as long as they stay in business we will end up owning them for free and that’s where our returns start compounding because, while we were recouping our money, we are buying another stock that will also be net free in 10 years or less and then we would have our $6,140 back in cash AND $6,140 worth or stocks (the two “free” sets) AND we’ll be collecting $222 in dividends.  That is how compounding works in our favor.  

10 years later (conservatively), it’s $24,280 and $444 in dividends and, by year 30, it’s $48,560 and $888 in dividends.  And how do we get to $6,140 worth of stock, $3,070 in cash and $222 in annual dividends?  Well we just need to have $3,070 by the end of this year and that’s $250/month (we’ll get some dividends along the way as well) deployed over 12 months – imagine what happens when you put in $700/month and repeat this process 30 times!  

We can’t sell options until we have 100 shares so for $700, this month, we can afford 38 shares of T but let’s not put all our eggs in one basket and buy just 20 shares of T for $360 to start.  

Again, this is dead boring for a LONG time.  We started our current Dividend Portfolio back on 10/25/19 with $200,000 and, almost 3 years later, we’re at $463,424.  That’s up 131.7% so we’re averaging over 40% annually, which is great but, at the start, it’s like torture – even when you begin with a lot more cash.  

Dividend Portfolio - Aug 25 2022

Pulling from the above set, NLY at $6.65 will be my next pick as they pay an 0.88 annual dividend, which is 13% right off the bat.  We spent $360 so we have $340 left so we’ll add 50 shares of NLY for $332.50 and next month we’ll be able to sell our first option!  

What’s our plan with NLY?  

  • Accumulate 500 shares for $3,325.
  • Sell 5 Jan $6 calls for 0.75 ($375)
  • Sell 5 2024 $7 puts for $1.60 ($800)

That drops our net on 500 shares to $2,150 or $4.30 per share so, if we are called away at $6, we are thrilled to have an $850 (39.5%) profit.  If we are assigned 500 more at $7 ($3,500) then we’ll have 1,000 shares at $5,650 ($5.65 – 15% below the current price) and, as above, we wash, rinse and repeat until we have free stock.

 

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Good Morning.

hi phil what do you think of gdp and employment numbers?
thanks

Hi Phil, you are copying my armchair trades. I am going to charge you royalty on that!!!! 😜 

tuschee  😍 

Morning.

INTC – Phil,
I want to start my INTC position from scratch. From the BNN adjustments, do you advocate going with the $30-40 BCS or something different? I currently have $32.5 calls but feel they need to be at least 30 or even 27.5. What’s your thoughts?

Same question for GOLD. I didn’t get in when you did as your position is fantastic. What would you recommend for a new position now? lol .. seems to be the only thing in red today so nice time to get it going.

Phil / BABA – seems too good to be true…. stilll lots of work I think. what’s your view

Chinese tech stocks extend gains on report U.S. and China nearing auditing agreement
10:31 AM | Alibaba Group Holding Limited (BABA) | By: Chris Ciaccia, SA News Editor
Alibaba (NYSE:BABA), Baidu (NASDAQ:BIDU), JD.com (NASDAQ:JD) and several other Chinese tech stocks extended their gains on Thursday, after The Wall Street Journal reported that the U.S. and China were nearing an agreement that would let U.S. auditors have access to the records of New York-listed Chinese companies.
The news outlet, citing people familiar with the matter, noted that the Chinese companies listed in New York would transfer their audit papers and other data from China to Hong Kong. Then, regulators from the U.S.’s Public Company Accounting Oversight Board, or PCAOB, would go to Hong Kong and perform on-site inspections.
Alibaba (BABA), Baidu (BIDU), JD.com (JD) and Pinduoduo (NASDAQ:PDD) all gained 5% or more, including a 7% gain for Pinduodo.
Other Chinese tech stocks, such as NetEase (NTES), Bilibili (BILI), Vipshop Holdings (VIPS) and Kingsoft Holdings (KC) also saw sharp gains.
The Journal added that China’s Securities Regulatory Commission informed several accounting firms and companies about the plan, statin that it could happen as soon as next month.
However, the people familiar with the matter stressed that no final agreement has been reached and that the U.S. would only agree to the deal if they had full access to the records.
If the deal between is finalized and announced, it would mark the end of a years-long tête-à-tête between the two countries over the matter of access to the accounting records.
Several Chinese companies, including Alibaba (BABA) and Baidu (BIDU) have been added to the list of companies at risk of facing a delisting as a result of the Holding Foreign Companies Accountable Act, or HFCAA. 
Other major Chinese companies are also on the list of companies facing a possible de-risking, including Weibo (WB) and biotech company BeiGene (BGNE).
The HFCAA tasks the PCAOB to determine companies “that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction.”
The legislation states that a company would be delisted from a U.S. exchange if it was identified by the SEC for three consecutive years because of the PCAOB’s inability to audit it properly.
Earlier on on Thursday, the Chinese government announced a $146B economic stimulus package meant to spur the domestic economy, sending shares of New York-listed Chinese stocks higher.
Hedge fund Bridgewater Associates disclosed earlier this month that it had sold off all of its holdings in a handful of bellwether Chinese tech stocks, including Alibaba (BABA), JD.com (JD), NetEase (NTES) and Bilibili (BILI), while also making several other changes to its portfolio.

BABA
U.S., China Near Deal to Allow Audit Inspection of N.Y.-Listed Chinese CompaniesAgreement could prevent many Chinese companies from being delisted from American stock exchanges

wsj

https://www.wsj.com/articles/deal-nears-to-let-u-s-inspect-chinese-company-audit-records-in-hong-kong-11661435886?mod=hp_lead_pos4

BABA – Thoughts on this….. seems like a Long way to go…

Chinese tech stocks extend gains on report U.S. and China nearing auditing agreementAug. 25, 2022 10:31 AM ET

1 Comment
comment image?io=getty-c-w750
owngarden
Alibaba (NYSE:BABA), Baidu (NASDAQ:BIDU), JD.com (NASDAQ:JD) and several other Chinese tech stocks extended their gains on Thursday, after The Wall Street Journal reportedthat the U.S. and China were nearing an agreement that would let U.S. auditors have access to the records of New York-listed Chinese companies.
The news outlet, citing people familiar with the matter, noted that the Chinese companies listed in New York would transfer their audit papers and other data from China to Hong Kong. Then, regulators from the U.S.’s Public Company Accounting Oversight Board, or PCAOB, would go to Hong Kong and perform on-site inspections.
Alibaba (BABA), Baidu (BIDU), JD.com (JD) and Pinduoduo (NASDAQ:PDD) all gained 5% or moreincluding a 7% gain for Pinduodo.
Other Chinese tech stocks, such as NetEase (NTES), Bilibili (BILI), Vipshop Holdings (VIPS) and Kingsoft Holdings (KC) also saw sharp gains.
The Journal added that China’s Securities Regulatory Commission informed several accounting firms and companies about the plan, statin that it could happen as soon as next month.
However, the people familiar with the matter stressed that no final agreement has been reached and that the U.S. would only agree to the deal if they had full access to the records.
If the deal between is finalized and announced, it would mark the end of a years-long tête-à-tête between the two countries over the matter of access to the accounting records.
Several Chinese companies, including Alibaba (BABA) and Baidu (BIDU) have been added to the list of companies at risk of facing a delisting as a result of the Holding Foreign Companies Accountable Act, or HFCAA. 
Other major Chinese companies are also on the list of companies facing a possible de-risking, including Weibo (WB) and biotech company BeiGene (BGNE).
The HFCAA tasks the PCAOB to determine companies “that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction.”
The legislation states that a company would be delisted from a U.S. exchange if it was identified by the SEC for three consecutive years because of the PCAOB’s inability to audit it properly.
Earlier on on Thursday, the Chinese government announced a $146B economic stimulus package meant to spur the domestic economy, sending shares of New York-listed Chinese stocks higher.

I like this idea. Will you make a new portfolio to track with it?

Phil / BABA – At what price are you looking at covering?

I apologize if Phil covered this in the past couple of weeks, but do we like HBI? I know that has been a favorite in the past. Any thoughts?

Phil/HBI: Does that debt load make you nervous? $3.5bn on a $3.28bn market cap?

Phil,

What are your thoughts on lithium industry (miners/battery industry and the entire supply chain) over a 2 – 5 year timeline? Are there suitable trades? ALB and SQM tend to be very volatile

This is a mischaracterization, Phil. There are various technologies in the works that are going to reduce the amount of lithium necessary for each cell and improve the energy density of batteries.
1) Lithium is irreplaceable. It cannot be substitued with a different element so lithium based batteries will be king until the end of time for CHEMISTRY based batteries.
2) As energy density of batteries improves, you’ll need less lithium for the same amount of storage. If you double energy density, you need half the weight of batteries. If 30% of the car gets 50% lighter, you can dedicate 15% less weight in the car which passively increases range.
3) Solid State Batteries are coming up shortly. They will increase wh/kg by 50% or better.
4) Lithium Sulfur batteries are expected to triple energy density of today’s cells.
5) Sodium Ion Batteries will take over for stationary storage since they have high power density, are safer, and weight doesn’t matter. They will also be far cheaper at scale since the raw materials are far cheaper and more abundant.
6) The Calipatria/Salton Sea project in CA is going to fix lithium supply issues for a very, very long time.

As always, I’m an engineer talking technology, not finance.