Millionaire Investing Playbook for Generational Wealth

You may not come from a rich family, but a rich family can come from you. What does it take for a rich family to come from you? It takes deliberate intention.

Here I want to show you a playbook to create generational wealth. This is a playbook in the sense that if you don't have any structure to your investing, you can get a structure here. And if you have a structure, you can improve and upgrade your structure with this.

Most people don't have a structure for their investing. They are just following the crowd or getting on the bandwagon of whatever feels trendy. That is a sure way to lose money.

Everything I am about to explain to you is a dynamic framework. It has a lot of moving parts. And I will be talking about the moving parts when they move in future premium articles. You don't want to miss that. (You can ask questions in the comment section).

The Playbook

The graphic above is a highlight of the entire playbook. You can download this image, print it, and have it somewhere it can always remind you of what you are doing.

Now, let me explain the chart. All your investments should be summed up in those 4 quadrants. If you don't know which quadrant and investment you are about to make sits, then you shouldn't make a move yet. This is because the quadrant it is will determine how much funds you can allocate to it.

The first quadrant is Cash

The second quadrant is Dividend (or yield)

The third quadrant is Growth

The fourth quadrant is Future

The first half consists of the Cash and Dividend quadrants. While the second half consists of Growth and Future.

In a bear market situation, you use the first half to build the second half. In a bull market situation, you use the second half to build the first half. You must remember this always.

In a flat market, do nothing.

The curved arrows connecting the quadrants represent the flow of yields (or passive income). You feed cash into growth. You feed growth into future. And you feed monster gains from future into dividends. And you feed the cashflow from dividends back into cash. However, there is a timing factor to all of this.

When you are just getting started, you build the first half first. Your cash and dividend positions are what you should look to build first. Your cash and dividend positions must never be less than 40% of your entire portfolio. But it can go up to as much as 90% depending on the situation in the markets.

Your first move should be to stack up on the dividend quadrant. Then, you hold some cash positions that will then be ploughed into growth. Only make future investments when your growth position has been properly built.

In other words, you come in with cash. You build a dividend position first. Then, you back up with some other cash positions. Then, you build your growth positions. Afterwards, you can build your future positions.

Why is this so important? You want to avoid too much risk at the onset. If you take too much risk at the start of your investing, you may encounter steep losses. And it is very hard to recover from steep losses.

Let's say you start with $10,000. And you lose 10%. That makes it $9,000. Making a 10% gain after the loss will only get you to $9,900. You are still short of the $10,000 you started with. You need an 11.11% gain to break even (after a 10% loss).

This is why Warren Buffett says never lose money. In a lot of cases, you have to make twice the gains to cover for a loss. So, at the initial stage of your investing, you want to guard against losses at all costs. And I will share more on this. But first, let's discuss the content of each quadrant.

The Cash Quadrant

This is where you have anything that can serve as money. And of course, it is the entry point into your investing portfolio. You may choose to hold the currency of your country if you like it. However, I strongly encourage holding some US dollars here too. And that's because it is the global reserve currency (at least, for now).

The cash quadrant is also where you hold bitcoin. If you like gold and have access to gold markets, you can hold gold here too.

Now, here is a strong warning. ETFs do not belong in a cash quadrant. Gold ETF, bitcoin ETF, etc., those things belong in the future quadrant. A gold ETF is an exchange-traded fund. It is not gold. Anything with an ETF in front of it is an ETF.

Any other thing that you can classify as cash or currency belongs to the cash position. At every point in time, you must always know how much your cash position is. So that you can allocate well.

The Dividend Quadrant

This is where you have secure assets that generate cashflow. Your primary aim of investing in these assets is for their cashflow. You are not investing so that their price can go up and you can sell. These are assets you never consider selling, except if there is an eminent danger that threatens to destroy the cashflow from that asset.

Here I like energy stocks and strong financials. I like the energy sector because it is the bedrock of this civilization. And there are lots of energy stocks with high dividends. I think oil will continue to dominate for the next 50 years. And many of those oil companies make a lot of money. Share price doesn't matter here, as long as the dividends are good.

Not financial advice. My most preferred energy stocks here include; Chevron, ExxonMobil, Frontline, Alliance Resource Partners, etc. Check their dividend ratio and you understand why I picked them. And there are lots of other good ones. Do your own research.

Another sector that works here is financials. While there are a lot of weak financials, the focus here is on the strong financial names. These are big banks and big insurance companies such as JP Morgan and Prudential. Also, don't be romanced by the names, look at their dividend ratio.

There are two criteria for putting anything in this quadrant;

- Is it a strong business that will still be thriving 50 years from now?

- Does it have a good dividend ratio? (Or does it pay high dividends?)

Another thing that fits here is bonds. This includes corporate bonds or government bonds. This does not include junk bonds or EM bonds. Personally, I don't like bonds. Nevertheless, it fits the dividend quadrant perfectly.

Don't buy bonds for the price, buy them for the yield. When the yields are high, it is a good time to stock up on bonds. You always want high-yield bonds. Generally, when bond yields are beyond the 4% mark, that is already in the high territory. Beyond 5% is a great opportunity but that is always accompanied by some great uncertainty.

Money market funds also fit into this quadrant. Whatever seems stable and gives you a consistent, significant cashflow fits into the dividend quadrant.

The Growth Quadrant

Now we are getting into the riskier areas. Here you want to invest in things that are growing, especially those growing at a fast pace. This is where you begin to pay attention to the stock price. This is where you want to buy low and sell high (or maybe never sell).

I think the world will continue to make progress with innovation and advancement in every area. So, it seems to me that the first thing you want to stock up on here is the index.

The S&P 500 Index and the Nasdaq 100 index are good places to start. You buy these indexes to fuel your growth quadrant. But it doesn't end there.

What industries are the fastest growing industries? Right now, in my opinion, semiconductors are growing at that pace and they will keep growing. So, I would stock up on some semiconductor names that I think are currently undervalued.

Generally, I think Nvidia will remain the market leader for now. But the question you ask is - is Nvidia currently undervalued?

The big secret of the growth quadrant is to know the names you want to own and then wait for them to become undervalued or for the stock price to somewhat crash. So here, timing is of the essence.

Some great names to own here include; Nvidia, Broadcom, Qualcomm, and other semiconductor companies. However, it matters when you buy them. Don't buy when you believe they are overinflated.

However, on the indexes, you can dollar-cost average. This means buying the indexes on a regular schedule regardless of the price. But for specific growth stocks, wait for your chance. Wait for the doom and gloom. That often presents the best opportunity.

Another thing that can be classified into growth stocks is big growing brands. These are household names such as Microsoft, Amazon and Apple. These companies are powerful engines of growth. The world can't do without their products and services.

Also, with the big brands, you want to wait for the gloomy outlook. When the prices dip significantly, you buy. You buy not because you want to sell and make a profit. You buy because you want to own those names. You must just not buy them when they are overly inflated in price.

The lesson here is to know the growth stocks you want to own and keep an eye on them. When an opportunity presents itself you buy.

The Future Quadrant

This is a high-risk area where you can razzle and dazzle. The idea here is to think of what will change the world in the next decade. And then, you go bet on something that you know will change the world.

The thing here is that you may be wrong and lose a lot of money. But if you have built a great portfolio in other quadrants, the losses will not be significant.

For example, I would invest in Chinese electric vehicle manufacturers. Those who are producing the cheap EVs. This is because eventually, all major (crowded) cities will ban non-electric cars. And cheap electric vehicles will become something people will eagerly jump on.

You might think Tesla will benefit here (especially in the US) and bet on Tesla. Good choice. But I think when that day finally arrives in the USA, Tesla will have too much competition and won't be able to properly capitalize on it. Meanwhile, Chinese EVs will dominate in most other parts of the world. Just my thinking though.

This is high risk and not more than 25% of your entire portfolio must be dedicated to this. In fact, I would recommend around 9%.

As the future draws closer and the bets are showing signs of payoff, you can move some of those good bets into the growth quadrant, so you can bet on something fresh for the future.

Generally, the future quadrant is where you want to speculate. If you want to speculate on oil price, grain, etc., this is where you do it. If it is high risk, it belongs here.

This is also where you invest in startups if you want to. Investing in startups is high risk. It can fail or collapse.

Guidelines and Asset Allocation

As the chart above suggests, an ideal scenario is where each quadrant holds 25% of your portfolio. But there is never an ideal scenario.

So, during a bullish market, you want to grow the cash and dividend quadrants. During a bearish market, you want to grow the growth and future quadrants.

When your growth and future quadrants together become bigger than 50% of your portfolio, that is the time to rebalance. Always remember that your cash quadrant alone can be as big as 40% depending on the market situation. But the future quadrant must not be bigger than 25%.

IMPORTANT: Do not sell your dividend positions. Avoid it as much as you can.

SMART MOVES: When you rebalance, consider taking a loan with your growth assets as collateral. Instead of selling, take your stocks to the bank for them to give you a loan. In many cases, they will. This is how to never sell. You can gradually pay back those loans with your dividends from the dividend quadrant. Then you can use the loan to boost any area of the quadrant that needs to be boosted to match up.

This is how to build generational wealth. By the time you rinse and repeat this system for about 10 years, you will be surprised at how much wealth you will be handling.

Finally, if you ever think of exiting any position, you always exit from the cash position. Never sell any illiquid position because you want an exit. Always exit from the cash position.

This is the Millionaire Investing Playbook for Generational Wealth.