Transcription
You work harder every year and you make more money every year, and yet you still feel behind. And there's a reason for that. And no, it's not you. It's your money. It's lazy. $1 is doing only one job. Now, I call that horizontal investing. And the reason why you have to work so hard is because your money doesn't.
The 1% use a different system, one that makes their money work harder than they do. So, they use the same dollar, but they make it do multiple jobs at the same time. That's what I call vertical investing. The same dollar now doing three jobs or five jobs or 10 jobs, all compounding simultaneously. Now, I know this because I've been working with venture capital investors for a decade, and I run this on my own personal balance sheet every single day.
Now, the math is pretty simple. The vertical investor ends up three to five times ahead, starting with the same exact capital. That's the velocity of wealth. The number that optimizes for the health of the economy, we use it to optimize our own wealth. And over the next 18 minutes, I'm going to show you the three layers: credit, convex, and yield.
Now, real quick, I'm Mark Moss. I've had multiple 8-figure exits. I'm now a partner at a leading Bitcoin venture fund. I've coached over 6,000 people through this exact framework. And let me show you exactly how it works. So, let's go.
All right. All right, so we're jumping right in, and I'm going to try to get through this one pretty quick for you, but it's it's important because I've thrown about thrown around a bunch of words like, uh, horizontal investing versus vertical investing and velocity and all these types of words, and they're important. So, let's break it down here real quick. Of course, I'm talking about vertical investing is far superior to horizontal investing. What am I talking about?
Okay, so typically what happens is you have your money, whatever you have, your $100K, $100K, and then you invest it horizontally. So, I'm going to take and I'm going to put 10% in this investment, and I'm going to take 20% in this. We call this asset allocation. Um, and then maybe I'll put this into a couple different position sizes like this. I'll put 50%, you know, here. And then I'm going to break it down here. And what I've done is I've invested horizontally. All right. So, this money is spread out evenly. And then what I do is I can take the yield or the the return of this, this, this, and I can total it up for my total return. That's horizontal investing. This is what your financial advisor teaches you. This is all the two of you learned.
The problem with this type of strategy is a couple of things. Number one, I have to allow this asset to appreciate in value. It goes up, hopefully, right? Hopefully, we bought low and we sell high, right? Buy low, sell high. Well, that's what they tell you. I'm going to show you something different, but we would buy this low. Hopefully, we'd sell it high. So, I'm letting it appreciate, and then I sell. But when I sell, the asset has to get reset, and I have to start over. So it resets. And the core thing that we want to be careful of or understand here is that compounding stops. Why is that important? Let's just break that down real quick.
Most people, most human brains can't comprehend what compounding means. Because human brains think in terms of linear. So if I start with a $100,000 and it goes up at 10% a year, I end up with a million. Linear, right? The rate of my income goes up over time, the rate of my assets grow over time. Linear. But Einstein called compounding the eighth wonder of the world. Those who know it earn it. Those who don't know it pay it. So there's no neutral here. You're either going to earn compounding or lose it.
Let me show you what it means. Um, we take 72 and divide it by the yield. So let's say that I'm making making a 20% yield. Divided by 72 equals about 3.5 years for the time for it to compound. So that means if I had $1 million, it turns into 2, into 4, into 8, 16, 32, 64, 128, parabolic. But check this out. The time that it takes to go from 1 to two is three years. 3.5. The time that it takes to go from 64 to 128 is 3.5. That means I've made $64 million in just three and a half years. But in this old way where it appreciates and sells, I stop compounding. I'm resetting every time. So the asset goes from 1 to 2 million. Great. I sell it. I take that million and I go buy something. And now I've cost myself potentially $60 million in 10 years from now. That's the problem with this. That's the problem, one of many problems with horizontal investing.
So the way that the wealthy do it is they get one job or $1 doing multiple jobs. And they do it in something called a velocity loop. I'm going to break down three jobs for you. We can go to six, seven, eight, 10 jobs. Let's just run through three, but first, we'll understand the velocity loop.
Now, the way that the government measures the health, the wealth of the country is through GDP, gross domestic product. And they use something called the velocity of money to find out how much wealth is created. What is the GDP? So, what is the GDP divided by the amount of money that went in? So, if I give you $20, you give the $20 there, $20 there, $20 there, $20 there. Only one $20 bill, but there was $100 of economic activity of GDP. So, we want to create velocity of wealth in a similar system where I could control a million dollars of assets, but maybe only $100,000 in, or something like that. Okay.
So what we do is instead of um vesting horizontally, we want to issue credit against our assets. So we have assets, our assets are collateral. We use the collateral to issue credit to gain liquidity, and we use liquidity in order to grow. This is how we can get it doing three, five, or 10 assets. And what happens is I can then allow the assets to compound forever. So instead of a horizontal strategy like this, we want to have a layered vertical strategy. Let me sketch it out for you. I know this is probably hard to understand. So let's break it down into a couple examples.
So let's just start with layer one. Now, don't get confused with what I'm putting in what layer. You can have just two assets, and they could just create 10 different layers. You could have 10 different layers. Um, I'm going to put one here. I like to start with the tax engine layer. The reason why is because I want to make more money. And one of the best ways to make more money is to stop losing money. And the single biggest expense that you have is, of course, taxes. And a lot of people don't realize this, but the government will pay you to invest. They literally pay you. I have a whole video on it. We'll link to it down below. The government will literally pay you to invest. And when I pay to invest, using this tax engine, the government will give me money to invest. And then, uh, that's gained for nothing. Okay.
So, how do we do it? So, we issue credit. What does that mean? Well, I have assets. I have collateral. And I can issue credit against them. Now, you may not have any assets. So, the first job was to get some assets, but you could also issue a credit line. You could probably go get a credit card line, a bank loan, a bank line, a HELOC, something like that. Somehow, you get credit. And the reason why I'm using credit is because I don't want to put that money out of my pocket. I'm trying to put money in my pocket. And I'll use that and I'll buy an asset that gives me depreciation. Okay?
So, the way this works is if I make $1, that's a taxable event. I have to pay tax on that dollar. But if I get $1 of depreciation, those two cancel each other out, and now I have no tax bill. So if I make a million dollars, that's taxable. I have to pay tax on that million dollars. But if I get a million dollars of taxes, uh, tax depreciation, they cancel each other out. So I'm going to issue credit to buy an asset that gives me tax depreciation. Now, this one using section 168 of the tax code, the one big beautiful bill, it allows us to take all the depreciation of the asset in year one. So, we use section 168, and then this starts the machine.
So, if I don't have a lot of spare money, let's say that I'm making $250 grand a year, and, you know, $75,000 of that is going to taxes, and I'm living on what's left, and I'm lucky if I can save 5%. Well, if I did something like this, that entire $75,000 that would be going to the government for taxes, I can now invest. So this is what starts your machine. So layer one is an asset that one, well, it gets me tax appreciation, but it's also an asset. So it's also making me money. Now, what are these? Let's see. Oil and gas, solar credits, of course, real estate, short-term rentals, my favorite, Bitcoin mining. I have a whole video breaking down how the ones I actually use. We'll link to it down below. Okay, so that's layer one. Issued credit. Get an asset that produces that compounds wealth, and it gets me back my tax money right off the bat. That's step number one.
Okay, where do we go from here? So now we have layer one. This is our depreciation layer, an asset. Now I want convexity. I want something that has massive upside because I want to grow my wealth. I want to grow my wealth really fast. I showed you what happens if it grows at 20% a year. I want to grow it at 30% a year. So I need convexity.
So the layer two is I'll create what's called a convex engine. Now, what we'll do is we'll take layer 1, and it's now producing income, and I can move it into the next asset. I can do it two different ways. Number one, I can take the income that's already coming off of that and put it in there. Number two, it's an asset that's worth money, and I can issue credit against it, and I can take liquidity out of it that way as well. Now, I want this asset, this is a convex asset, to have asymmetric upside. What that means is it has more upside than downside. So it has limited downside, but it has multiple times of upside. It's asymmetric. That means, uh, I have a better chance of winning. If you go back and study all the most wealthiest people in history and the best investors over time, their strategy, like Paul Tudor Jones, for example, talks about this. He'll never go into an asset unless he thinks there's at least a 5x upside and a 1x downside. That way, if he goes five investments and four of them flop, he still can break even. But if two out of five hit, he makes a lot of money. Asymmetric bets. Most people are trying to invest for your 6% in your mutual fund or 401k, you know, your 7, 8% in S&P 500. That's not asymmetric.
Now, for me, of course, Bitcoin is the most asymmetric play. It's because it's a 21 million hard cap. The money printing is unlimited, will go on forever, going into a fixed supply cap. That means the upside is unlimited, but the downside is one. It could go to zero. I don't think it will. It could go to zero. So, I could lose all my money, one, but it could go up 10, 20, 30, 50 times. That's what we call asymmetric. Now, we can go through history. Over the last 10 years, it's had a 68% compound annual growth rate. Over the last three years, it's at a 44% compound annual growth rate. If we look at the 200 weekly moving average, it's averaging a 30% compound growth rate. All right.
So what we'll do is we'll take some money out of here. We'll issue credit against that, plus we'll take the cash flow, and we can buy our convex asset. In this case, it's Bitcoin. So let's use some numbers here so we can see how this works out. So let's say that I was back to that million-dollar of income in that. Let's say that I had, let's say, let's call it $350,000 of tax. So I'll take that tax savings and I'll put it here. That's $350,000. Now maybe I'll borrow, I'll issue credit of let's say $150K into this asset. $150K. Now let's say that I'm going to issue more credit. Let's call it half. So now I have $75K, and it's ready to go into a third asset. What is that going to be? Let's take a look.
So layer three, maybe I'll put this into a yield engine because someone's got to pay for all that debt, right? So we had layer one, which was our depreciation layer, right? That went into layer two, which was our convex layer, and now we can take that and we can put it into a yield layer. So now how do we earn yield, right? So a couple of ways. So number one, these are compounding. This is compounding, and this provides the yield that pays for both of those because I have to pay for the credit I issued there. I have to pay for the credit I issued there. So basically, this layer three right here is covering layers one and two.
Now, what are some yield engines we could use? Uh, two that I like. So QQQI, it's basically the NASDAQ, and it rolls options against it, and it's producing a 10 to 14% yield. Why? Well, we're facing an AI boom right now, a massive capex spending boom in the United States. AI is producing more wealth than we've ever seen, uh, before. Stock markets at all-time highs. And this allows us to take advantage of the AI boom without having to pick and choose winners and earn 10 to 14% yield while we're waiting for the upside. Also, Strike STK, it's a per, it's a perpetual preference share against MicroStrategy, and it pays about, it's an 8% guaranteed, but right now it's paying somewhere, I think around 11% yield, plus it's convertible to MicroStrategy. So, I get that convexity of the upside. So both of these allow me to get yield somewhere in the 10 to 14% range, and I get the convexity of the upside. So this yield is paying here, and it's paying here, plus I have the potential upside for this to go.
So you see what we're doing here? With no money out of my pocket. Hocus pocus. I used credit to get an asset that wiped out my tax savings, and my tax savings went into another asset. I also pulled equity valuation. And I issued credit against this asset, and the cash flow from this asset to get me more convexity in layer 2. Then we've issued credit against layer 2, taken some of the liquidity out of there, and put it into layer three to generate yield with still positive convexity to the upside. So the yield can cover both of those layers and allow me convexity upside on that as well. No additional money out of my pocket, just $1 working way harder than it was before. $1 doing now three jobs. Now, we could do five jobs. We could do seven jobs. We could do 10 jobs.
So, this is, say you have a home. Maybe you're a homeowner, and you have a $1 million home. I like to use round numbers because I'm just talking on the fly here. Not super good at math on the fly. A million home, and let's say that you have $300,000 in equity. So, we have two people. We have investor A and we have investor B. They both have the same. They both have a million-dollar home. They both have $300,000 equity. The exact same starting point, exact same dollars, doing the exact same job.
Now, investor A just stays as a single layer. He's investing horizontally. So, what he does is he holds his home equity, and after 10 years, his home is worth about 9, he has about $929,000 of equity in there. Now, investor B does something different. They take this $300,000 equity and they activate it. Meaning they move it into a second layer. Why? Well, if I have a million-dollar home, it's going to go up by the US standard is about 5% a year. So that million-dollar home will go up by 5% a year. That home, that million-dollar home will go up by 5% a year whether the $300,000 of equity is there or not. The $300,000 equity that sits there does not affect the rate at which that asset compounds. So, I could take this $300,000 and I could activate it, and I could move it into another, another layer. So, for example, I could move it into Bitcoin. And then I could leverage that Bitcoin and move it into the NASDAQ yield like I just showed you, like I just demonstrated.
Now, what we have is after 10 years, instead of $929,000, we only have $629,000. So, our equity went down in the home because we're using the equity somewhere else. However, in the Bitcoin layer, it's now worth $1.8 million. In the NASDAQ layer, it's now worth $373,000. Yes, I have debt, so I have to deduct 120. The difference is the investor A, who started in the same place, has $929,000 of equity. Investor B, who started in the same place, now has $2.7 million in equity. And that's just after 10 years.
Let's take a look at how this continues because I showed you how the law of compounding works. Now, if we stretch this out a little bit longer, we can see they started in the same place. Investor A and B, they both had $300,000 in equity. Over 10 years, what I just showed you, investor A now has $929. Investor B has $2.7 million. But see how it starts to turn parabolic here. So now after 20 years, investor, uh, A has $3.8 million. Respectable. It's nice, except for it's all in his house. And as long as he wants to live in the house, he can't do anything with that equity. So, he's rich on paper, but he could still be broke from a money standpoint. Investor B, who decided to activate some of that equity, ends up at $14.2 million from $38.8 to $14.2. That's the difference of going into a multi-layered strategy where $1 can do 2, three, five, seven, eight, or 10 jobs.
All right. Now, I can already hear it. I can already hear the comments coming down below. Of course, I make these videos, so I already know the questions that are going to be asked. What if? What if? What if? What if? Sure. What if? What if prices drop? What if the price of my home drops? What if the price of Bitcoin drops? I mean, Bitcoin's down right now. It's not off. It's off its all-time high. Yes, stock market's at all-time highs, but they could go down. What if prices drop? Well, what if that's not actually the risk? That's not the risk at all. The real risk isn't if prices drop. The real risk is if I'm forced to sell, right? That's the risk. What if it drops and I can't afford it, and now it's worth less? So, the question isn't if prices drop. The question is if I'm forced to sell.
So, let's, let's check that out. So, number one, there's a lot of things that we can do to mitigate that. This, this is an engineering problem. A lot of ways we can make sure we're not forced to sell. Do we have enough cash flow to cover that? Can we earn, generate yield that we can cover that? Do we have three or four layers of liquidity that can back that up? Backstop that. A lot of ways we can protect that. But here's the bigger risk. The bigger risk in traditional finance is that the entire model that your financial advisor is telling you to do, and Dave Ramsey and everybody else, is to sell your assets, right? You're going to save your 401k, your mutual funds, your stock. You're going to save it for 30, 40 years, and then you retire, and you start selling off the magical 4% number per year. You have to sell it off. You're a forced seller. You know why you're a forced seller? Because you got to sell the assets to pay for your life. So the bigger risk in traditional finance is you will be a forced seller, and you will be forced to sell at the exact wrong time. The model's the same. But in a velocity system, selling is optional. In a velocity system, we never want to sell because our assets are going parabolic. What we can do is we can harvest some of the liquidity, some of the appreciation along the way. We never break the compounding. We never sell the assets.
All right. Now, I want to talk about this personal GPS for a second because a lot of you have watched these videos. I met a lot of you at the Bitcoin conference last week, and I got some amazing conversations, dozens and dozens of conversations. And Mark, uh, I'm doing this. I've I've activated this, and I've leveraged this, and I'm buying this. Is that the right move? I don't know. And neither do you. The definition of good, the definition of smart, is is that thing getting you closer to your goal? So, like a personal GPS, where are you trying to go? Like Alice in Wonderland, like she asked the Cheshire Cat, is this the right way to go? He's like, I don't know where you're going. She's like, I don't know. He said, well, anyway, we'll do so if you don't know where you're going, you don't know exactly what to do here. So you have to figure out where is your exact destination, and where's your starting point? Then you can structure it around your specific situation.
So I don't know, should you be investing for yield right now? If you're behind on your goals, investing for yield today may not be ideal. You should be investing for growth. Oh, but you're 78 years old and you need the fixed income right now, you need more income, then you probably should invest for income. I'm not personally investing for income because I have income because I'm working right now. As you can see, I'm on the stage, and so I'm investing for growth. So, what is it that you need for your specific situation to get you to your destination at the time that you've decided? And then also understand that you don't have to work any harder. You already have what you need. You already have earned the money. You're just giving it away. You could recapture that money, and you could reinvest it, and you get $1 doing two, three, four, five, six jobs. You don't have to work harder. You need to get your money to work harder. And you do that by building a system where your money works harder for you.
If you want to know my five-year retirement, how to retire in 5 years with Bitcoin, you might want to watch this video right here. Otherwise, let me know what you think. Share this video with someone who needs it. And as I always say, to your success, I'm out.