Part 2/7:
Before diving into the D5 Flywheel, it’s important to understand the fundamental idea behind a traditional flywheel. A flywheel refers to a system where actions lead to subsequent reactions in a continuous loop. For instance, when capital is deployed into liquidity positions, it generates income, which is then reinvested, thus allowing the portfolio to grow repetitively. This basic model showcases how reinvesting income can help an investment portfolio expand automatically, or sustainably.
However, as stated by the creator of the D5 Flywheel, simply reinvesting income isn't necessarily the best approach. Instead, the D5 Flywheel focuses on maximizing growth potential and allowing the portfolio to adapt to market conditions.