betashares – I Live Off Dividends

Covered Call ETFs on the ASX

Global X has recently issued three covered call ETFs on the ASX:

S&P/ASX 200 Covered Call ETF (AYLD)
S&P 500 Covered Call ETF (UYLD)
Nasdaq 100 Covered Call ETF (QYLD)

The US has for a long time been spoilt with choice when it comes to ETFs and especially income-focused ETFs. To appreciate how much choice Americans have on covered call ETFs, you only need to look at the Global X US website to see they provide 12 different covered call ETFs to Americans:

What is a covered call ETF?

A covered call ETF uses a “covered call” strategy which involves the fund manager not only holding stocks and collecting dividends but also making additional income by selling call options against those stocks. The catch is that the call option gives the buyer the right to buy the stock from the fund manager if it goes up in value. This effectively means that the upside growth of a covered call ETF is curtailed because stock price increases allow the buyer of the call option to take the stock away from the fund manager. On the other hand, the covered call ETFs in theory provide downside protection because, if the stock prices goes down, the buyer of the call option cannot buy the stock and the fund manager pockets the income from selling the call option.

Betashares already provides covered call ETFs

Although Global X has recently issued AYLD, UYLD, and QYLD on the ASX, Australia’s own Betashares has already had covered call ETFs listed on the ASX. YMAX, which is a covered call ETF that invests in the top 20 Australian companies, has been around since 2012 whereas UMAX, which is an S&P500 covered call ETF, has been around since 2014. Betashares recently issued QMAX, which is a Nasdaq 100 covered call ETF, was recently issued in October 2022.

Something that definitely jumps out about covered call ETFs from Betashares is their high management fees. YMAX as a MER of 0.69%, UMAX’s MER is 0.79%, and QMAX’s MER is 0.68%. However, all of Global X’s ETFs have a MER of 0.60% making them slightly cheaper.

	Betashares ETF, MER	Global X ETF, MER
Australian equity covered call ETF	YMAX, 0.69%	AYLD, 0.60%
S&P 500 covered call ETF	UMAX, 0.79%	UYLD, 0.60%
Nasdaq 100 covered call ETF	QMAX, 0.68%	QYLD, 0.60%

Given that YMAX and UMAX has had such a long track record, we can look at their performance over time.

As the chart above shows, YMAX (in blue) has been on a steady decline since it was issued in 2012 whereas UMAX has been increasing. In fact, one seems to be a mirror image of the other, with UMAX rising about 30% since inception whereas YMAX has declined about 30% which means that if you invested half in YMAX and half in YMAX, you’d effectively be holding cash.

Of course, investors do not invest in covered call ETFs for price alone. They are focused on dividends. According to Market Index, YMAX has a dividend yield of 8.92% so far whereas UMAX has a dividend yield of 7.18% which means if you invest half in YMAX and half in UMAX, you’d effectively be invested in cash but in a high interest savings account that pays about 8% with franking credits.

It is curious why YMAX has underperformed UMAX so substantially, but I suspect the explanation comes from the volatility of investing in the top 20 ASX stocks. Because investing in only 20 stocks on the ASX means much of the money is concentrated in Australia’s miners and big bankers, this increases volatility compared to the broader, more diversified and more stable S&P500. As such, to compensate for the higher volatility, the buyer of the call option will pay less, which results in a lower options premium for the fund manager who is the issuer of the call option.

This volatility explanation for why YMAX underperforms UMAX can also be seen in covered call ETFs on the US markets. For example, QYLD, Global X’s Nasdaq 100 covered call ETF QYLD (of which there is a Reddit community called r/qyldgang), has underperformed XYLD, which is Global X’s S&P 500 covered call ETF.

In the chart above, QYLD (in blue) has underperformed XYLD (in orange) over a long period of time. Whereas the top companies in Australia are dominated by bankers and miners, in the US the top companies are dominated by tech firms such as Google, Apple, Microsoft, and Amazon. Given that the Nasdaq 100 index is concentrated mostly in tech and internet companies, there is more volatility, which may mean lower options premiums for the fund manager, which results in under-performance.

However, a quick Google search shows that the dividend yield of QYLD is about 11% compared to 7% for XYLD. This is also analogous to YMAX vs UMAX where YMAX underperformed YMAX on price but made up for it with higher dividend yield.

Buying multiple covered call ETFs to balance income and price

What this suggests is that blending different covered call ETFs can be used as a strategy during early retirement to draw down income but also preserving capital so that you do not run out of money. For example, if you retire at 50 with $2 million in net worth, you may wish to put it all in an Australian equity or Nasdaq 100 covered call ETF because you don’t have long to live but you have a lot of net worth, so you can afford some capital depletion. However, if you retire at 35 with $750k and want to live overseas in developing countries, you may wish to put it all into S&P500 covered call ETFs which hopefully will provide more capital preservation at the expense of lower dividend yield. If you retire at 45 with $1 million, it may be a blend of all S&P500, Nasdaq 100, or ASX covered call ETFs e.g. half in YMAX and half in UMAX. You can mix and blend to balance capital preservation and dividend yield.

Selling off high growth investments (such as crypto or property) during retirement and putting it into covered call ETFs is an alternative approach rather than selling off 3% or 4% at a time. When selling off assets, for many people there is psychological stress that they may run out of money. Putting everything in high dividend ETFs (including covered call ETFs) is a much simpler way to generate income for retirement.

Disclosure: Image made using Stable Diffusion. I hold YMAX and UMAX.

Is Now the Time to Buy Crypto?

To be fully transparent, my crypto portfolio is down 83% from all time highs. My overall net worth is down 40% from all time highs. However, I started seriously investing in crypto in 2018 and my crypto portfolio is up about 700% from then.

Now that 2022 is coming to an end, I have found that this year is the first year when my net worth has declined. In fact, from the start of this year to today, my net worth has declined by 23%, but the peak of my net worth was back in November 2021 and from then my net worth, as mentioned, has declined by 40%.

Focusing on how much your net worth has declined against the all time high is an example of the achoring bias. There are many ways to measure how much you have made or lost from an investment. For example, if you purchased dogecoin for $0.007 back in 2018 and held it until today when it is $0.07, it seems like you have made 10x off your investment. However, dogecoin reached a peak of around $0.70 back in November 2021. If you had sold all the dogecoin back when it was $0.70, you would have made 100x, but because you waited, you only made 10x. Or did you lose 10x because you could have sold back in November 2021 but did not? Did you make 10x or lose 10x? I have thought about this and my view now, after listening to Dave Ramsey, is that it doesn’t matter. According to Dave Ramsey, when you have purchased an asset in the past is a sunk cost. What matters is when you sell it and if you’re comfortable with the volatility when you sell the asset.

Although 2022 has been a hard year, it is important to remember that downturns happen, especially in the stock and crypto markets. In fact, looking at history, none of this is new. The crypto market especially has seen a spectacular decline, especially with the collapse of crypto exchange FTX. However, in my opinion, the collapse of FTX is not as bad as many make it out to be. FTX is merely an exchange, and staff in this exchange stole funds. It doesn’t necessarily mean that there is anything wrong with the actual crypto. To use an analogy, if a bank is corrupt and the staff siphon off money for themselves, it doesn’t mean that there is anything wrong with the currency they stole. If a robber breaks into a vault and steals gold, it doesn’t mean there is anything wrong with gold as an investment.

I have recently started allocated more of my salary into to dollar cost averaging into various cryptos. In my view, there is a real use case for crypto. It is not just imaginary money. The use case for crypto is much clearer in developing countries. For example, if I were an expat or migrant working in Zimbabwe, I would convert my pay into crypto rather than deal with having to send it back to Australia or convert it into Australian Dollars. Look at the recent war in Ukraine. Crypto has been used by many Ukrainians and even Russian who have had to use crypto because their banking system does not work as well during war. Crypto has been used to send money to help the Ukrainian war effort. Crypto is useful when there are problems with the banking system in your country. According to Bitcoin Cash (BCH) user Roger Ver, there is a Russian man who now lives in Saint Kitts and Nevis and spends in Bitcoin Cash because his bank accounts have been frozen.

Although the use case of crypto is clear in developing countries, what about developed countries? Quite simply, there is no telling when a developed country may become a developing country due to a collapse of civilisation. In fact, due to political polarisation and extremism, I think it is becoming more and more likely that developing countries could collapse. And although I currently support the sanctions and asset seizures of Russian oligarchs currently, who is to say that another political party may get into power later and rather than target Russian oligarchs they come after me? Or you?

As such, I view crypto as a safe haven similar to gold. Some people argue that if there is a collapse of civilisation then the internet will not work and therefore crypto will not work. However, just because there is a collapse of civilisation it doesn’t mean that the internet everywhere will stop working. Crypto is useful when there is a situation where there is a collapse where you are but not in other areas. A good example, as I mentioned, is Ukraine.

Which cryptos as best?

After the recent crypto downturn, I have learned again that it is best to diversify across multiple cryptos and to stick to the ones that have been around for a long time. In my opinion, bitcoin, ethereum, and dogecoin are all good cryptos and make up the majority of my crypto portfolio. If you invest in some of the newer cryptos, I recommend investing only a small amount (e.g. PancakeSwap has not done well). If in doubt, diversify. Also I do not recommend staking or investing in stablecoins. If you want exposure to USD, just get actual USD.

As I said, if in doubt, diversify. All good investors are humble enough to understand they don’t know everything, and diversification is the antidote to ignorance. With that being said, I don’t recommend going all in crypto. It is important to not only diversify your crypto but also to diversify into other asset classes such as equities or bonds using ETFs.

How do you hold crypto in a safe way?

As the FTX collapse has shown us (and the Mt Gox collapse before that), holding crypto on any exchange is dangerous. It is much better to hold crypto yourself (self-custody) rather than let an exchange hold it for you. This is one of the reasons why I do not recommend staking crypto anymore because you typically give up self-custody when you stake crypto.

Of course, when you say “self-custody” to the average person, it is very difficult to explain the concept to them, and self-custody is very hard to do correctly. This I think is one of the main barriers to mass crypto adoption. To make self-custody easier, many in the crypto community recommend buying a Ledger hardware wallet directly from the official Ledger website (do not buy a Ledger via eBay).

An alternative to buying a Ledger, in my opinion, is to buy an ETF that invests in crypto companies. An example of one on the ASX is the CRYP ETF from Betashares. For those who are familiar with ETFs but unfamilar with crypto and self-custody, CRYP is a good way to gain exposure to crypto without any of the issues with self-custody. Many people who look at the CRYP price will be stocked to see that has been trending down since inception. However, CRYP was introduced right at the peak of the crypto market, so it makes sense that it will go down with the market. In fact, if we compare CRYP to the prices of bitcoin and ether then we notice that CRYP roughly tracks these major crypto (see below).

CRYP ETF (blue) vs BTC (orange) vs ETH (cyan) throughout 2022

It s worth noting that although CRYP gives you exposure to crypto, it doesn’t actually invest in crypto. Rather, it invests in companies that work in crypto such as exchanges like Coinbase or bitcoin miners. This is analogous to holding a gold mining ETF such as GDX or MNRS rather than a physical gold ETF itself such as PMGOLD. It is like buying Woodside Energy (WDS) rather than storing coal and natural gas in your garage. Exposure to companies rather than commodities means that there is risk associated with company scandals, corruption etc but the advantage is that you don’t need to worry about self-custody of gas, coal, gold, or crypto.

Which crypto am I most bullish about?

Of all the cryptos I invest in, I believe ethereum is the most promising. I would not be surprised if, in the future, companies and even governments are run on the ethereum blockchain. Below is a recent video I watched that captures the many achievements of ethereum in 2022 including the monumental transition from proof of work to proof of stake. Of all the cryptos, ethereum seems to be the most open to innovation.

Betashares Active Australian Hybrids Fund (ASX: HBRD)

I have always been interested in the latest ETFs in Australia. Most people are collectors e.g. they collect stamps, coins, antiques, wine, or wristwatches. I personally like to collect investments. As such I has bought and continue to hold countless investments across many different asset classes. The problem with a passion in e.g. wine or wristwatches is that it may not be profitable (unless the wine or watch is so rare it goes up in value) but an obsession or passion in investments is one you can indulge in without any guilt.

The latest ETF I have researched and purchased is the Betashares Active Australian Hybrids Fund (HBRD). The reason why I have purchased HBRD is because I feel at this stage I have an overweight exposure to stocks, so I want to reduce the risk of my portfolio. However, reducing risk usually involves investing in cash, bonds, or gold. However, these asset classes (with the exception of corporate bonds) pay low passive income thanks to the current low interest rate environment. Investing in HBRD allows me to reduce risk while at the same time getting about 4% or 5% passive income paid monthly.

For a few years now I have been worried about the valuations of stocks and property, but I have been surprised that these assets continue to go up, so the derisking of my portfolio over the last few years has certainly cost me money as I have missed out on large price appreciation. (I also missed out on the cryptocurrency boom as well.) Nevertheless, I have little regrets because I believe in diversification i.e. spreading money across everything. My plan is to gain freedom by slowly building passive income through steady and consistent investment fueled by a minimalist lifestyle. I also believe it is better to be safe than sorry. I’d rather walk steadily towards my goal rather than run there in order to save some time and potentially slip and fall. As they say, everything looks good in hindsight.

What is a hybrid?

All investments have a risk-reward trade-off. The more risk you take, the more potential reward you have. For example, cash or government bonds are safe investments. Government bonds are guaranteed by government. In Australia, cash deposits are mostly government guaranteed as well. However, if you invest in government bonds or cash, you will earn little interest, perhaps 1% or 2% if you’re lucky. Bonds are merely IOUs. If you buy a bond, you are effectively lending money and in return you receive regular interest payments (called a coupon) as well as your money back after a certain period.

In contrast to bonds, stocks are risky investments. Buying stocks allows the stockholder to vote (e.g. for who becomes a director) and allows the stockholder to earn dividends, which are simply payments made by the company to stockholders from profits. Stocks are risker than bonds because bondholders are paid before stockholders. If there is profit made by the company, bondholders are paid first and remaining profit is paid to stockholders. This also applies in the event of bankruptcy. Because stocks are riskier, companies need to pay higher dividends in order to compensate investors for taking on more risk. Dividends from Australian bank stocks such as CBA pay dividends of about 8% currently, but stock prices are volitile and can fluctuate wildly. Although bank stocks pay higher passive income, you are risking capital loss and dividend cuts should the banks become unprofitable.

Hybrids are assets that are a hybrid of bonds and stocks. When you buy a hybrid, you receive regular income as you would a bond. However, under certain circumstances within the hybrid contract, the asset may be converted into equity. All hybrids are different, so it is difficult to generalise. Some hybrids have characteristics that make them more like bonds whereas others have characteristics that make them more like stocks. Regardless, hybrids sit between bonds and stocks on the risk-reward continuum and so can be expected to be less risky than stocks while still paying reasonably high income.

Why buy a hybrid ETF

As explained earlier, every hybrid is different. In order to understand whether a particular hybrid is more bond-like or stock-like, a careful study of the terms and conditions is required. Hybrids are complex investments and as such is suited to active management and oversight by experts, which is what HBRD provides.

Conclusion

Although a good case can be made for active management in hybrids, active management has its issues. You are putting your trust in people, which is generally not a good idea. Nevertheless, I do not intend to put everything into HBRD but will instead spread money across lower risk investments with high passive income. There are another ETF also issued by Betashares that invests in corporate bonds (ASX: CRED). Corporate bonds are higher risk than government bonds thereby allowing higher yields. CRED also pays monthly income, which is very attractive for people who live off passive income (such as myself).

One of the frustrations with hybrids is that there is very little information about it. For example, if you research cryptocurrencies such as bitcoin on the internet, you will find a neverending flood of information, YouTube videos, etc. Bitcoin is a global investment that everyone can access. Hybrids, on the other hand, have few exchanges and are mostly purchased by institutional investors off exchanges. There is little information on the internet about hybrids.

Another consideration is that HBRD purchases hybrids from Australian banks, which are heavily exposed to the Australian housing market. There are currently fears of a slowdown in the property market. Nevertheless, Australian banks do not hold the property itself but rather the mortgages used to buy the property. So long as borrowers keep making their interest payments and paying their fees, revenue should be unharmed. Hybrids are issued all around the world, so the returns on hybrids should correlate with global interest rates. In the recent rising interest rate environment, this should mean higher returns from hybrids but more interest cost for Australian banks as wholesale credit becomes more expensive. Nevertheless, Australian banks do have considerable market power allowing them to respond to rising cost of global wholesale credit by raising interest rates or fees.

Betashares Legg Mason Income ETFs (EINC and RINC)

I invested a fair chunk of money into the Betashares Dividend Harvestor Fund (HVST), and while this fund pays great monthly dividends (approx 14% now), its price performance is lacking, as the chart below shows. (Read The Problem with HVST.)

Screenshot 2018-03-12 at 12.26.37 PM

HVST price as of 12 March 2018 – Source: Bloomberg

To address this issue, I have simply opted for a 50% dividend reinvestment plan, which will see half the dividends go back into buying units in the ETF in order to maintain value. Assuming HVST continues to pay 14% yield and that 50% DRP is enough to prevent capital loss, HVST still provides 7% monthly distributions, which in my opinion is fairly good. Generating sufficient monthly distributions is very convenient for those who live off dividends as waiting three months for the next dividend payment can seem like a long wait.

However, Betashares have now introduced two new ETFs on the ASX (EINC and RINC) based on existing managed funds from fund manager Legg Mason. Based on the performance of the equivalent Legg Mason unlisted managed funds, these ETFs are very promising for those who live off passive income. These ETFs have high dividend income (around 6 to 7 percent yield) paid quarterly, and based on past performance at least, there doesn’t seem to be any issue with loss of capital.

RINC (Betashares Legg Mason Martin Currie Real Asset Income ETF) derives its income from companies that own real assets such as real estate, utilities, and infrastructure whereas EINC (Betashares Legg Mason Martin Currie Equity Income ETF) derives its income from broad Australian equities.

The expense ratio of 0.85% is on the high side but not unsual for this type of fund (income focussed and actively managed). Another potential risk to consider is the impact that rising interest rates can have on many of these investments, especially “bond proxies,” into which RINC and EINC seem to invest exclusively.

The Problem with HVST (Betashares Australian Dividend Harvester Fund)

For probably two years now I have been buying up the Betashares Australian Dividend Harvester Fund (HVST), which is a exchange traded managed fund listed on the ASX. The appeal of this fund is that it pays a very high dividend yield (about 10% to 14%) and pays this dividend monthly. The monthly dividend payment normally gets paid into my bank account in the middle of the month, and every payment is roughly the same. Hence HVST makes living off dividends very easy. This is why I have accumulated over $100k worth of HVST.

However, it is becoming increasingly clear that there are many flaws with this fund, the main one being that it has not performed well in the last few year compared to the ASX 200.

HVST vs ASX 200 from 2014 to 2017 — HVST has significantly underperformed the ASX 200 over the last few years (chart from CommSec).

That being said, I am not criticizing the fund or Betashares. I was well aware that the dividend harvesting technique employed by the firm would result in less upside when markets were going up. This is a result of the fund manager buying high dividend paying stock just before dividends are paid and then selling the stock after the dividend is paid. As stock prices normally go down after dividend payment (as the company’s value goes down in line with its reduction in cash) then naturally a dividend harvesting technique would result in lower capital gains.

Something else surprising is that during downturns in the ASX 200, HVST also went down considerably as well, which makes me question the firm’s risk management overlay employed. According to the article Managing risk: the toxic combination of market downturns and withdrawals in retirement on the Betashares Blog:

One way to help manage sequencing risk is to apply a dynamic risk exposure strategy, which seeks to reduce downside market risk…. BetaShares combined its expertise with Milliman to launch the BetaShares Australian Dividend Harvester Fund (managed fund) last November. The fund invests in large-cap Australian shares with the objective of delivering franked income that is at least double the yield of the Australian broad sharemarket while reducing volatility and managing downside risk.

Based on this description, I was hoping that the fund’s risk management overlay would reduce downside movements, but the chart of the performance of HVST against XJO shows that when XJO turns downwards, HVST goes down by as much. When XJO goes up, HVST tends not to go up much if at all, which results in HVST falling by about 20% over the last few years while XJO has managed to increase in value by a modest 5% during the same time period.

As I said, this does not mean I will not continue to invest in this fund. The regular and high monthly dividend payments are extremely convenient, and any capital losses made by the fund over time, in my opinion, can be compensated for by investing in ETFs in riskier sectors e.g. investing in tech stocks, emerging market, or small caps or even by investing in internally leveraged ETFs such as GEAR. For example, if you invest half your money in HVST and half in GEAR, you get the convenience of monthly regular dividends from HVST and any capital loss is compensated for with your investment in GEAR which should magnify upside market moves. Note that a limitation of the half HVST and half GEAR strategy is that when the market goes down, GEAR will go down significantly as well. Furthermore, another problem with both GEAR and HVST is that they have management expense ratios that are significantly higher than broad-based index ETFs mostly from Vanguard or iShares. Both HVST and GEAR have management expense ratios of 0.80 percent whereas Vanguard’s VAS is 0.14 percent and iShares’s IVV is 0.04 percent.

Nevertheless, I do recommend many products from Betashares. One ETF that I am interested in from Betashares is their new sustainable ETF called the Betashares Global Sustainability Leaders ETF (ETHI). I normally buy ETFs in batches of $10k to $25k at a time, so I intend to buy a batch of ETHI and write a blog post about it later. I have mostly positive views about Betashares as they provide a great deal of innovative ETFs.

Update 18 June 2017: The poor price performance of HVST is explained in the Betashares blog article Capital vs. Total Return: How to correctly assess your Fund’s performance. If performance includes income as well as franking credits, the gross performance of HVST looks more favourable.

Agricultural Commodities Bottoming? ASX: QAG

The prices of agricultural commodities such as sugar, wheat, and soybeans have been falling for some time now. This can be seen in the performance of the QAG ETF.

For a number of months now I have been thinking that these commodities cannot go down forever. If this were the case, soybeans, sugar, etc would eventually be free. Could this be a buying opportunity?

QAG ASX price from 2012 to 2017 — Source: Google

Advice to Millennials: Don’t Buy a House

Where I live in Australia, most people are obsessive about property investment. There is an assumption that you must buy a house otherwise you will fail financially. As a millennial who doesn’t own a home, people always ask me when I will plan to buy a house or whether I have made any progress in saving up for a deposit on a house. People are either pressuring me to buy a house or to get married.

My response is that I will never ever buy a house. There is simply no need to buy a house when there are investments available that are far better. For example, BetaShares (a brilliant organization, in my opinion) has recently issued the BetaShares Global Banks ETF. This ETF tracks an index that invests in big multinational too-big-to-fail banks. The top 10 holdings are disclosed on the BetaShares website and is reproduced below:

Investing money in large too-big-to-fail banks, in my opinion, is a wise strategy. For years now, Australians have only had access to Australian banks on the ASX via ETFs such as QFN and MVB. Banks are an excellent investment because typically they pay very high dividends.

The more dividend income you have, the more freedom you have in your life. Dividend income is true passive income because you don’t have to do anything to earn it. Even if you own property and rent it out, you must still find tenants, fix broken showers, and unless you own the property outright you have to slave away at work in order to meet monthly mortgage repayments. Then you pay outrageous taxes such as stamp duty, and every year you must pay bills and council rates, as well as land tax. If you own the BetaShares global bank ETF, you pay virtually nothing other than a minuscule 0.47% management fee. You can literally sit back, relax, do nothing, and watch the dividends enter your bank account.

When you own property, you typically need to borrow money from a bank. If you’re borrowing money from a bank, you’re not generating dividends. Rather, you’re paying for someone else’s dividend income. If you borrow money from a bank, you make the bank rich, which effectively means you’re making bank shareholders rich.

What happens if there is a GFC 2 and bank shares collapse?

This is a fair argument. One could make a strong argument that the financial system is more precarious now than ever. However, even if we are nearing a massive recession (which I suspect we are), I don’t think that is a reason to not invest in bank stocks (or stocks in general) because we don’t know when the bubble will pop, and bubbles can perpetuate for decades or centuries.

When I see a bubble forming, I rush in to buy, adding fuel to the fire. That is not irrational.

~George Soros

Furthermore, if you own a property and the global economy collapses, how will owning a house help you? Property prices can go down just like stock prices can go down.

One of the benefits of owning bank stocks is that, even if these banks fail, many of them are too big to fail. They are so integrated into the economy that in the event of an economic crisis they can hold society as hostage and demand ransom (or bailout money) from the government. The government will typically give money to these banks, either from existing funds or from simply by printing new money to hand to the banks. Once banks receive bailout money, they can use it to repair their balance sheet, and stock prices should go back up again.

Below is a passage from the Financial Systems Inquiry report in Australia:

Global history records governments of all political persuasions using taxpayer funds to support distressed institutions. As undesirable as it may be to put taxpayer funds at risk to support financial institutions, in the midst of a crisis it is often the fastest and most certain option to stabilise the system and avoid widespread economic damage.

Investors can rationally surmise that the government is likely to rescue systemically important institutions if no other options exist, as their collapse would cause the most damage to the financial system and broader economy. This leads to a belief that some institutions are too-big-to-fail — that they receive an implicit government guarantee.

http://fsi.gov.au/publications/interim-report/05-stability/too-big-to-fail/

In a world characterized by wage slavery, big banks are basically the apparatuses of wage slavery. Whips and chains have been replaced with mortgages and credit cards, and banks are the institutions responsible for distributing these instruments of oppression to the masses in order to enslave them.

If the big banks are in trouble, the entire system of wage slavery is under threat, and for this reason I don’t think the government will allow the banks to collapse. They might make one bank fail just to make an example of them (e.g. Bear Stearns) but if you buy a broad-based index fund, you’ll be investing in the entire banking sector, so it’s not a problem.

How can you live without a house?

Of course you need to live somewhere. Shelter is a necessity. However, shelter is not expensive. I currently live with my parents and pay some of their bills. Other people can easily lower costs by sharing a house with others. They can rent (or even buy) a place and then rent out spare rooms. I recommend buying or renting a place far away from the city in order to get the cheapest price or rent possible and then simply use public transport to travel into the city if you need to work.

Living with others can be problematic because it can be difficult to get along with other people, but there are easy ways to fix this problem. Try to find people who are kind and who will not cause drama. Also try not to interact with people you live with too much. Personally I am always out of the house, either at work or at the local library. If I am at home I usually stay in my room. I have food cooked for me, but even if there is no food, I have a large supply of Australian Soylent (Aussielent Body) that I can drink should I need to eat. This ensures I never have to bother with cooking or cleaning, and arguments over who should clean the dishes are common when people share accommodation.

Personally, with food technology so advanced nowadays, cooking and cleaning are quaint, archaic and useless activities that must be eliminated from your life. People are always trying to tempt me into a life of slavery by telling me that I must get married because I need a woman to cook for me, but Soylent has now made the housewife’s cooking skills completely redundant.

Conclusion

You don’t have to buy a house. Live with your parents or find good housemates, and then keep interactions with them minimal to prevent drama.

Drug dealers have a saying: “Don’t get high off your own supply.” In other words, drugs dealers make money off their customers’ drug addiction, but if a drug dealer were to consume his own product, it will be to his detriment because the strength of his business depends on the weakness of his customers. The same applies to banking. Everyone in society is addicted to debt. The “drug dealers” who supply this debt to the masses are banks, and anyone smart enough can become a drug dealer by buying bank stocks or bank ETFs, but as a drug dealer you should not “get high off your own supply,” that is, you should be very cautious about going into debt.

The goal of my life is to produce passive income mainly from dividends. This ensures I can obtain income without working, which gives me freedom. I am not dependent on anyone. Even though I live with my mother, I rarely speak to her as I’m out of the house all the time, and even if she wants me out of the house, I can easily rent a small one-bedroom apartment paid for with dividend income. Most people move out of their parents’ home, buy a house, and drown in mortgage debt, which makes them slaves to their managers. Because I live off dividends, I am not dependent on my work. I don’t need a job. If I get fired or even if I dislike my work, I can simply find a different job that I enjoy or I may even fly off to Chiang Mai where US$1000 per month ensures you live like a king, and in Chiang Mai I can spend all my time in coworking spaces where I can work on whatever I want that I am passionate about regardless of whether it makes money or not since I don’t need income to live since I live off dividends. None of this would be possible if I had a massive mortgage over my head that forced me every month to pay a large chunk of my income to the bank so that other people can collect their dividend payments. I’d rather be on the receiving end of a dividend payment.

Typically when someone has a large mortgage over their head, they have more than a mortgage. A house has associated costs such as electricity and gas bills as well as taxes, and people who are desperate to buy a house in order to keep up with the Joneses are usually trying to show off in other ways as well, so they will likely have expensive furniture, massive kitchens, refrigerators, huge couches, and expensive TVs. People always put me down for being a minimalist. Some do it with more subtlety than others, but people always try to put me down for not owning a house or having expensive furniture or having a trophy wife or multiple children in elite private schools. I am usually very honest nowadays. I tell them I am trying to have more freedom in my life so I can do what I want, and I tell them I am trying to build up dividend income. This usually comes as a complete surprise to most people because most people have been conditioned by society to buy things and to go into debt. All the money they earn is eaten up either by debt or by lifestyle expenses whereas all the salary income I earn is invested. My savings rate is 100 percent, and I subsist off dividends of approx $30k per year. I do not live a hand-to-mouth existence. I am not fed with money obtained from my own labor. I am fed with money obtained by other people’s labor. My hands don’t feed me. Other people’s hands feed me.

Living off dividends and escaping slavery is not about showing off, in my opinion. I have no need to show off to people because I am quite detached from people. As such, other people’s opinions don’t matter because I am not close to them. Most people must care about what others think because they’re forced to be around them due to circumstances, and if they’re stuck with these people, they need to get along with them, which means these other people must have a good opinion of you.

But I don’t need to be around anyone. I am not dependent on anyone for anything. I am completely independent. I am not afraid of bullies. Bullies can bully me, but because I live off dividends, I can use dividend income to block them from my life. I don’t need to suck up to anyone because, unlike salary income, dividend income doesn’t impose upon you an obligation to keep someone happy. I am no one’s slave.

But from my position of freedom, I am a witness to all the manipulation, deceit, propaganda, slavery, and oppression in this world, and I personally cannot be willfully ignorant of it. I cannot close my eyes and pretend that atrocity does not exist in this world.

Doing something about it is the difference I can make. I can spread the word and help vulnerable beings escape from oppression. That is my purpose in life: to be free myself and to help others be free as well.

Can we change the world? No, but hell, we can all try.

~Rupert Murdoch

There is nothing in life more important than freedom. Even if you don’t want freedom, being free will give you the freedom to not be free. Better to be free and have the choice of being a slave or not rather than be a slave and have no freedom to be free.