SPICE is the name of my strategy for using the stock market like a piggy bank. I know, it sounds scary, and of course there is risk, but over time it should generate substantial returns. What convinced to do it was backtesting 15 years of data, which showed that if I had started in 2008, my portfolio would be worth well over a million dollars. SPICE stands for: S&P Indexed Cash Engine. Here’s how it works:

1. Put day to day expenses on a rewards credit card. I use Amex Blue or Apple’s credit card earning me 2-3% on everything. Credit cards have no interest for the billing cycle, so you can use this money for free until your bill is due.
2. On payday, put your entire check into your brokerage account, pay off your previous month’s margin balance and use the remainder to buy an S&P index passive ETF like VOO.
3. Transfer the total amount needed to pay off the last statement balance on each card.
4. Repeat
5. As long as your spending is less than your income, your money sits in the S&P and earns a return that has averaged out to 12% over the last 10 years and 8-10% if you go out to 30 years.

In 6 months I’m up 8.2% ytd, on track for 16% at the 1 year mark, if all holds steady. This is substantially better than I would get even in a high yield savings account – and a high yield savings account can’t be borrowed against. By borrowing short term from my margin balance, I avoid taxes I’d incur if I sold, continue to collect dividends, and continue to hold an asset that’s appreciating with the market.

What About Market Risk?

There is always market risk and my portfolio has seen up days and down days, the s&p index can be volatile but the risk is spread among 500 of the world’s biggest companies, I think this is safer than putting all of my eggs in a handful of stocks.

Additionally, I have bitcoin set aside which can be used to save my bacon in the event of a margin call, but my margin balance is so low compared to my portfolio balance that the market would need to nearly collapse before I’d be at risk of a margin call. I usually pull $2,000 or $3,000 a month to cover expenses, and each month my portfolio grows by 5 or 10% due to new deposits and market appreciation so my hedge of safety gets bigger every month.

By enabling margin, I’m able to buy new shares of the ETF (VOO), whenever the price dips which allows me to get a better return than if I buy randomly when the market happens to be up.

Additionally I have other assets such as a pension, IRA that are subject to many of the same risks, so I’m dollar cost averaging some money each month into precious metals and bitcoin that could provide a lifeline should things get rocky in the future.

I understand many folks are afraid of the stock market but if your horizon is long enough before you plan to retire, and can manage a black swan event or two, then I think this is a strategy worthy of consideration. I’ll post about it again in 6 more months so readers can see if I’m still solvent.