by MJ DeMarco 42 comments

Passive income, passive income, passive income.

The holy-grail of making money is passive income and everyone loves talking about it.

And like any subject regarding how to create money, specifically passive income, the opinions vary from guru-to-guru.

One guru says cash-flowing real estate is the best passive income generator.

My take: Every person I know who followed the real estate formula as preached by various dual dad gurus had it blow-up in their face with the housing collapse.  Personally, I cant imagine taking out a 6-figure mortgage, and forking out 20% down on a house that might cash flow a few hundred bucks.

Another says affiliate marketing is the key to passive income.

My take: If you enter a crowded marketpsace, a passive income today wont be a passive income tomorrow.  AM also violates the Commandment of Control; will the Google Giraffe/Rhino/Honey Badger update kill your golden-goose with a simple algorithm change?  If you can diversify your AM offerings where control hierarchies cant disrupt your cash-flow and are premised on your own content control, you might have gold.

Then theres the guru who says network marketing is the best passive income generator.

My take: There are always serious longevity issues with MLM (caused by Commandment of Control violations) not to mention, you have to make sure you and your downline continual buy cases of product every single month for the rest of your life.

Despite all the various famed venues for creating passive income, the best source for creating a passive income is rarely discussed AND ironically, is the one used exclusively by the rich.

What is it?

Its the good old money system.

In other words, interest and dividends earned on lending activities, or company ownership.

In my book, I give the example that 5% interest on $10,000,000 is a whopping $42,000/mo in passive income that is generated month after month, for years, without touching the principle.

This assertion brought forth a litany of emails to me asking HOW?  And HOW in todays low interest environment?

Reader curiosity on this topic absolutely shocked me; before a money system can work, you have to have a rather large sum of money and that is what The Millionaire Fastlane is about.

The Benefits of a Money System

So what is a money system and why is it the best passive income vehicle out there?

First, income sourced from a money system is easier to shelter from tax .  Marginal rates on earned income (income earned from a job) can be in excess of 40% when state taxes are added.  The government takes your taxes before you even get to cash your paycheck!

Conversely, tax rates on qualified dividends and long term capital gains are 15%.  On municipal bonds, 0%!

What do rich people do?

If you ever wondered how on earth does Mitt Romney, a multimillionaire, get away with paying only 15% taxes?  How about Warren Buffet?

Simple: A money system where income is derived from interest, dividends, and capital gains.

And yet, do you think Mitt Romney is RICH because of the stock market?  Or because he leveraged Fastlane mathematics via leveraged business systems?  (Some might argue unscrupulously which is not for discussion here, please stick to the point of this article.)

Second, money systems are the most hands off passive income generator in existence.

For me, I monitor my investments approximately 1 hour a week.   Like any investment, I monitor technical and market changes (both economic and regulatory) for that particular vehicle.  Just like regular equities, money system investments (bonds, closed-end funds, currencies) can become oversold, or overbought.  I watch these instruments as I would watch a regular equity.

Third, money systems are highly liquid.

I can liquidate any position in my money system usually in MINUTES.

Can you liquidate that 3 bedroom house on Main Street in minutes?  How about that network marketing downline or that internet company you built?  Can these be liquidated in an instant due to changing market conditions?

They cant.

And finally, money systems are wholly supported as a part of our financial system.  The money system is the default strategy that seniors rely on to retire and is considered the final destination in the Slowlane. Save for 50 years and when you retire with millions, those millions will then spawn interest and dividends.

Leverage A Fastlane Business System to Leverage a Money System

As I mentioned in my book, I dont use the markets to create wealth, I use them to create income and liquidity.

Wealth creation should be left to your Fastlane business.

In order to amass enough cash to enjoy the benefits of a money system, deploy a Fastlane business founded on the NECST Commandments.  Give it 3, 5, or 10 years.  Build something with value.  Cash flow an enormous income where you can save most of it, resist exponential lifestyle temptations, and then cash out.  (Or take a silent position to continue cash flow).

Then, when you have enough cash to lend, you can use the money system strategy at ANY AGE.

The Never Work Again Money-System Portfolio

So in response to reader emails, I give you a money system portfolio that generates a regular, monthly passive income with virtually no work.  Even in this low interest environment, I can realize returns between 4 and 8% by using a mix of dividend paying stocks, closed-end funds, bonds, and REITS, you can make the vision of never work another day in your life real.

Here are the actual assets based on current market data, yields, and values: Ive based the yields on a money system investment of $1,000,000 minimum all the way up to $10,000,000.

The portfolio consists of 7 instruments and of course, more (or less) investment vehicles can be used depending on your appetite for risk.

FAX Aberdeen Asia Pacific Income (Government debt)

Yield: 5.57%

Sector: Government Bond, Australia/Asian

PMM Putnam Managed Municipal Trust