For the past few months, I have had to put a lot of my economic studying to the side because I’ve stumbled upon an idea that has completely captivated my attention and imagination. While much of this is grounded in established fundamentals of investing, get ready for some radical new observations on the use of investment and the relationship between capital and consumption.

To be honest, I’m kind of scared to write this up, because I’ve spent easily over 100 hours crunching numbers to refine a model that I’m now confident enough to start testing it out on myself and to share it with you all.

I won’t bury the lead and will get to the point: I’m theorizing an investing strategy that is focused on transitioning the investor from consuming their wages and onto capital gains. Instead of either investing for the short-term or the long-term, I’m creating a system that achieves both at the same time, while minimizing taxes and fee costs.

To put this more clearly, I’m creating an investing strategy where every year you liquidate 5% of the portfolio balance as a lump sum, meanwhile increasing the contribution rate over time. This method provides cash to the investor in consistent intervals in the most effective means possible, lump sum (for those who get a tax return, think about how great that check is and what it’s allowed you to do that you wouldn’t have the means to pay for otherwise, this takes that concept a step further beyond that). The lump sum cash out increases with each year, which makes each subsequent year easier to keep the portfolio because the progressive increase in lump sum payments, which over time can effectively provide more than half of the investor’s projected annual income upfront at the beginning of the year. This is paired with a growing investment portfolio that is designed to sustain the investor for the long-run.

For non-finance nerds, what does all that mean? Basically what I’m proposing is a model that you invest like you would for retirement (I know, you’ve probably been told numerous times to do but still haven’t), but with a twist where you actually get a portion of that value back every year. This does slow down the growth of your investment a bit, but it makes the overall process of investing more achievable when you can actually get some of those returns in the near future and not just waiting for 40 years to access it. This is more psychological than it is fundamental mechanics, but as I will explain in a bit, while it is fundamentally less efficient, it creates a positive-reinforcing feedback loop that makes it easier and easier to contribute more towards investing because every additional year you get a higher percentage of your annual income upfront, which then makes paychecks less vital to your daily constraints, thus makes it less impactful to you to invest even more that year. I hope you see how this loop progresses: once you contribute more in that year, you end up with a larger balance, which then means you’ll cash out even more money next year, which allows you invest more money, which then means you receive even more money the following year.

It’s ok if this doesn’t make complete sense yet; I’ll be dedicating the next few posts to this concept. I’ll give step-by-step breakdown of how in theory this model plays out, but expand further the philosophy of how this concept changes our relationship to investment and consumption. This theory is not just limited to personal finance, but when we can more firmly grasp this new concept, we can see that it can radically change how non-profit funding operates as well.

If you find a more visual medium to learn from to be more appealing here, you can jump ahead and can observe my Excel sheet. There are a bunch of pages on there, and much of it won’t make sense until I write about it, but the most straight-forward page would be the first page that is based on a theoretically static income of $50,000 annually over a 30 year period. This isn’t supposed to reflect reality, but to make it easier to see the impact of this strategy has on the investor’s financial situation.