Liability Matching

Happy 4th of July!

I’m weird. I get that. I enjoy financing things creatively and exploring how borrowing and investing work together. In 2010, when I began investing seriously, I started replacing specific income with liability-matching investments. What’s that?

Liability Matching

• Your Expense: In financial terms, a predictable, recurring expense is a "liability." It's a future financial obligation that you must meet.

• Your Stock: The stock you buy to generate income is your "asset."

• The Strategy: You are buying an asset specifically to generate cash flow that matches the timing and amount of a specific liability.

This is a core concept of Asset-Liability Management (ALM), a discipline employed by large institutions, such as pension funds and insurance companies. They have to make sure they have enough money coming in from their investments (assets) to pay out all their future promises (liabilities).

When an individual investor does this on a smaller scale, it's a personal form of liability matching. I’ll share how I first used it in 2010, but first…

Here’s How it Works in Practice:

Let's say you have a specific, recurring expense:

• The Liability: A $200/month cost for electric utilities. This is a predictable annual liability of $2,400.

• The Goal: Find an asset that generates at least $2,400 in annual income to "match" this liability.

• The Action: You calculate that you need to buy 'X' number of shares of a dividend-paying stock to generate $2,400 per year.

Once you buy those shares, you have effectively created a self-funding mechanism for that specific expense. The income from the asset directly offsets the liability.

In 2010, I was looking at my Duke Power electric utilities bill, and it was averaging $185 per month here in NC. The stock was trading at around $45 per share, and the dividend yield was approximately 6%. That meant I needed to buy 800 shares at $45, or invest $36,000. [$36,000 X .06 = $2,160 per year)

My $36,000 investment at 6% would throw off $2,160 a year, or $180 a month, which was my liability match goal. This assumes no appreciation on the stock, just income to offset my expenses. I have since done this several times.

Other examples: I bought Enterprise Products Group (EPD) in 2011 to offset my gas bills for my house and cars. I purchased an investment property (a duplex) in 2012 through my S-Corp and used the positive cash flow of $150 per unit to cover my BMW car lease payment of $400 a month - I was negative at first, but after two years of raising rent the duplex paid for the full car payment. I used the duplex to pay for my work cars for years, and eventually sold the duplex, investing the proceeds in another larger property.

What’s fun about this is that you invest, you earn the dividends, and you might get some capital appreciation, but one asset is specifically offsetting one (or more) liabilities.

That’s 160% appreciation in 15 years, so the original $36,000 investment in 2010 is worth about $94,000 today. Given the appreciation of $94,000 - $36,000 = $58,000, if I divided that by 15 years, that is $3,866 a year on top of the ‘free power’ from the dividends, Duke Power paid me that amount after paying for my electricity. Liability Matching isn’t guaranteed (nothing is). Still, it is a similar, advanced version of our EPR (Effective Percentage Rate) concept, which all Certified Liability Advisors learn to utilize with their clients to determine the best use of free cash flow to repay debt.

Now let me challenge you with a crazy 4th of July idea!

PS - this is not investment advice; I am not licensed or qualified to give you anything but my thoughts and what I’m doing now, but here’s another idea…

a BORROW SMART CONCEPT
Liability Matching

Use Rocket Mortgage’s Stock (RKT) as a Liability Match Against Your Own Business Risks

If you’re a loan officer, branch manager, or independent mortgage broker, there’s a powerful move you probably haven’t thought of:

Sound a bit crazy? Stay with me. This is a smart-money move that very few in the mortgage world might consider.

💥 The Problem: Your Biggest Threat (RKT) is a Publicly Traded Company

Rocket Mortgage (RKT) is the 800-pound gorilla.

• They spend hundreds of millions on advertising.

• They dominate online pre-approvals.

• They continue to tighten margins by forcing competitors to match their rates and fees.

So ironically, every time Rocket gets stronger—by taking market share, innovating technology, or pushing down average loan costs—it could hurt your future earnings. However, it will help its stock price.

The Contrarian Play: Buy Their Stock

What if you took a small piece of every commission check you make and bought RKT stock?

• If Rocket keeps dominating the industry, it’s likely their stock rises over the long run—so your portfolio profits even if your local business margins get squeezed.

• If local brokers and boutique lenders thrive, your commissions grow, but your hedge (RKT stock) might underperform. Fine—your main business is winning.

Either way:
✅ If Rocket crushes the competition, you own the giant and get to share in its success.
✅ If you outperform Rocket on the ground, your paycheck grows, and you own a conservative buffer just in case.

The Deeper Reason: Sleep-at-Night Money

It’s a simple concept that family farmers have done for centuries (hedging grain prices on futures). You’re buying corn futures in case the weather is bad for you and good for others.

🔄 How to Do It

1. Decide on your Liability Match

Maybe it’s 5% of every commission check, or $1,000/month into RKT stock.
It’s small enough not to starve your cash flow, but meaningful enough to build up a position over time.

2. Use a drip investment.

Set up automatic purchases through your brokerage (Fidelity, Schwab, E*Trade) to buy on autopilot. This way you dollar-cost-average into the stock. It doesn’t pay income right now as they are reinvesting in their business for growth.

3. Review annually.

If this works you want to kick butt in your business but also feel better about your RKT stock rocketing to the moon :-).

⚖️ The Takeaway

Rocket Mortgage is a threat—and also an opportunity.

By buying a small slice of your biggest competitor, you hedge your business risks, give yourself peace of mind, and show your clients you play the long game.

📚 Sources & Resources

• Rocket Companies (RKT) Investor Relations: https://www.rocketcompanies.com/investor-relations

• Morningstar profile for RKT: https://www.morningstar.com/stocks/xnys/rkt/quote

• “Why businesses hedge with competitor assets” by Harvard Business Review: https://hbr.org/2020/05/how-to-hedge-your-business-against-competition

✅ Done right, this is how you outsmart Goliath while still profiting if he wins.

BONUS IDEA: Do 50% RKT and 50% NAIL (the homebuilder ETF) and this covers you for real estate, mortgage lending and housing :-) if you believe they are all likely to prosper over the next 5-10 years…

LIABILITIES
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Borrow Smart University || National Institute of Financial Education