1.4 – Wealth

Wealth is key to personal liberty, which is key to genuine life satisfaction. This chapter of Supermorming discusses various ways to accumulate tangible and intangible assets, and deploying these assets towards the achievement and responsible application of personal liberty.

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Recap: Intangible Assets

When people talk about investing, they almost always refer to tangible assets like stocks and real estate. But there is another critical asset class that gets all too little investment attention: intangible assets. 

This week explored some of the most attractive intangible assets we can invest in. 

The checklist

  1. Skills and track record.
    • Recognize that the types of skills and track record valued by the world are changing. 
    • Define your purpose in life to give clear direction to these investments. 
  2. Heath and inspiration.
    • These are the asset classes required to put your skills and track record to good use. 
    • Find your inspiring purpose and gradually eliminate inspiration drains from your life. 
  3. Reputation and goodwill.
    • Building a good reputation requires more than just good skills and track record. 
    • The best way to build up goodwill is to develop genuine goodwill towards others.
  4. Life efficiency.
    • Consumerism and self sabotage are examples of poor or even negative life efficiency. 
    • The art of living lightly can open up some extremely valuable space in your life. 

From an investment standpoint, intangible assets are just like tangible assets.

All of them require some work without any immediate reward. Instead, you can expect exponentially growing returns in the long term. 

So, simply apply the same mindset as you would with any other investment and make intangible assets part of your balanced investment portfolio. 

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Life Efficiency

Our final intangible asset is a little unconventional, but possibly the best investment of them all. 

Life efficiency is the ability to derive more life from fewer inputs. Put another way, it’s the art of enjoying life without having to try so hard. 

Trying too hard

Consumerism is a great example of low life efficiency.

People force themselves though tedious 9-5 jobs to earn the money consumerism promises them can be exchanged for happiness. 

But as we discussed earlier, happiness comes from a genuine sense of meaning and purpose. It cannot be bought.

Hence, all the effort invested in a consumerist lifestyle yields little more than environmental destruction: 

High inputs + low outputs = poor life efficiency. 

Self sabotage

Eliminating self sabotage is essential for high life efficiency. Here, we’re talking about things like empty calories and other addictions, negative self-talk, stress about things outside your control, binge-watching or binge-eating, and actions that harm your important relationships. 

Self sabotage means you invest effort to make your own life worse. In other words: 

Increased inputs + decreased outputs = negative life efficiency. 

Living lightly

An efficient life is one with low inputs and high outputs. It’s generally best to start with getting comfortable with the low inputs. 

The skill of living lightly makes life a whole lot easier. It hinges on three interconnected actions:

  1. Reduce consumption, thus increasing your financial freedom and allowing you to…
  2. Reduce pure willpower-driven effort, which will help a lot to…
  3. Reduce stress, which lowers your vulnerability to consumerism and self sabotage.

This virtuous cycle starts with step 1. Indeed, the ability to derive greater happiness from less consumption is an incredibly valuable intangible asset.  

Direct the resulting space to purpose

Living lightly will free up plenty of space in your life, manifested in the form of time, money, energy, motivation and peace of mind. 

Gradually filling this space with your purpose completes the picture of life efficiency: 

Low input + high output = high life efficiency 🙂

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Reputation and Goodwill

Our third pair of intangible assets centers on relationships. 

Reputation is a critical element in the process of attracting future opportunities such as skilled collaborators or financial backing.

Goodwill is that special something that makes other people want to help you succeed. 

Both are excellent investments. Let’s see how we can invest. 

Building a good reputation

Obviously, a reputation of being highly skilled and capable is very valuable. Such a reputation can be built through regular investments in skills and track record as discussed on Monday. 

But there are several non-technical elements of a good reputation that are even more important. Here are my top three:

  • Integrity. People need to know that, if you say you will (or will not) do something, they can take that to the bank. 
  • Being easy and fun to work with. If the process of working with you is genuinely pleasant, people will obviously want to do it more.
  • Commitment to quality. A willingness to go above and beyond to deliver high quality results makes you a much more attractive collaborator. 

Your reputation is being built (or broken down) whenever you interact with people.

Don’t be intimidated by this fact. Rather use it to turn any challenging situation into a great investment opportunity. Indeed, good performance in tough times can really grow your reputation. 

Goodwill: Give and thou shalt receive

Do you have some people you really, truly, deeply want to do well in life? If you do, you’ll feel joy with no jealousy when they succeed and naturally want to come to their aid when they struggle. 

If you can get yourself to this evolved state with the people you spend the most time with, chances are that they will develop a similar feeling towards you. 

Obviously, I’m not advocating bootlicking here. Fake expressions of goodwill are easy to spot and often have the exact opposite effect.

You must evolve your thoughts to the point that you truly want the best for other people. 

Such genuine goodwill makes people much more open to your point of view, ideas and initiatives. And, since a lot of life is a team effort, this makes goodwill a very valuable investment.

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Health and Inspiration

Our second pair of intangible assets gives you the ability to get things done. 

Energy, vitality and confidence from good health makes you a whole lot more efficient. But if you can’t get yourself started on challenging tasks, this is of little use. For that, we also need inspiration. 

Enough said about health

This blog has talked about healthy eating habits, fitness and mental health at length.

Increased earning potential is yet another good reason to invest in smart environments for automatic long-term health. 

Value inspiration

What inspires you? 

And perhaps even more importantly; what drains your inspiration?

Actions to permanently increase your exposure to inspirational factors and limit your exposure to inspiration drains are both great investments. They will allow you to get a lot more done without burning out. 

Like any other investment, increasing your inspiration takes plenty of time and effort.

You’ll inevitably need to make some compromises. But if you fully understand the true value of inspiration, you may just find yourself willing to compromise considerably more. 

Purpose and inspiration

The most natural source of inspiration is having an inspirational purpose in life.

Get yourself one of those.

In parallel, patiently eliminate inspiration drains from your life.

Some of these will take years to get rid of, but, with some planned persistence, you’ll eventually get there. 

Together with excellent health, the resulting sustained levels of inspiration will put your productivity into overdrive, taking your life to new and exciting heights 🙂

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Skills and Track Record

This week, we’re moving on to intangible assets. These are investable assets other than the financial wealth (like stocks) and physical assets (like a house) we discussed last week.

Even though intangible assets are harder to quantify, there is no doubt that they offer tremendous long-term returns to smart and patient investors. 

We’ll start with the obvious: your skill set and track record. 

Why invest in these assets?

In general, the more in demand your skill set is, the more money you will be able to earn for an hour of work.

In highly capitalist countries, this effect can be very large, but it’s somewhat muted in more socialist-leaning economies. 

Track record is important whenever you need to provide proof of your skills for things like job applications or project proposals.  

Old vs. new

Before talking about ways to invest in skills and track record, we must first acknowledge that the world is changing. 

In the outgoing model, the goal is to get into university, earn a degree, use that degree to get a job, and use that job to build a typical consumerist lifestyle. 

It’s common for people living this model to see their job as something undesirable that must be done to buy the desirable things in life. 

This old model is pretty sad…

Luckily, a new model is emerging, where adding value to society in inspiring and stimulating ways is the primary goal. 

Key differences between old and new

Learning 

  • Old: Mainly theory at university
  • New: Lifelong applied learning while experimenting with different inspiring options for adding value to society

Skill set

  • Old: A specialization that is currently in demand
  • New: Future-oriented and more diverse, evolving as required for pursuing a long-term passion

Track record

  • Old: Degree or diploma
  • New: Various online platforms that permanently store digital value created (or a record of physical value created)

Inspiration to work

  • Old: Big house, nice car, providing for a family, buying the good things in life
  • New: Interest, curiosity, passion, purpose, long-term vision

Where to invest?

We’re currently in an interesting transition phase between the old and new models. This phase will take a long time to play out, so I’m by no means saying that the old model is not a viable way to make a living.

However, regardless of how deeply entrenched you are in the old model, here are three future-proof ideas for intangible asset investment:

  • Identify your purpose in life
  • Find ways to build skills aligned with that purpose by applying them in your life and work
  • Gradually build your online track record so that it aligns with your purpose

There’s no need to do anything drastic. Just gradually invest as much time as is practically achievable in skills and track record that aligns with your inspirational purpose. 

Like any other investment, this strategy will take many years to really bear fruit.

Just keep patiently investing and watch how life gradually gets more inspirational and exciting 🙂

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Recap: Building Wealth

This first week of the Wealth chapter of Supermorning looked at tangible assets: how to get them, how to grow them, and how to protect them.  

Let’s dive straight into the summary:

The checklist

  1. Automatic wealth building is very easy nowadays.
    • Conveniently set up an automated investment regime using online banking solutions. 
    • Occasionally adjust these automated investments to keep yourself off the hedonic treadmill.
  2.  Investment horizon is key when positioning your wealth.
    • If you can part with your money for many years, risky investments like stocks become surprisingly safe.
    • You can only lose money if you’re forced to sell your shares when the market is temporarily down. 
  3. Long-term stock market investments yield great returns at very low risk.
    • With an infinite investment horizon, your risk is close to zero.
    • Make sure you select diversified funds from several reputable investment firms. 
  4. Short-term investments need more security.
    • Good options are government bonds and faster repayment of your home loan. 
    • Split your strategy between low-return investments for your near-term financial goals and high-return investments for your long-term freedom. 

Today’s world belongs to those who own capital.

Anyone can claim their fair share of our world, benefiting from the freedom and control that goes with it. All it takes is a small automated investment regime and a couple of decades of patience 🙂 

It really speaks to the terrible power of consumerism that so few people do… 

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Short-Term Investment

Yesterday’s post was all about how a long-term investment philosophy can give you great returns with almost no risk.

However, the key constraint with that philosophy is that you must be able to part with you cash for many years. Sometimes, that’s just not practical. 

Today’s post will discuss options for those times when you’re saving for a shorter-term goal – maybe a home down payment or, as we’ll be discussing later this chapter, your personal liberty. 

Investing for the medium-term

If you’ll need to withdraw from your investments within the next ten years, the stock market is rather risky.

The classic advice here is to select funds that blend stocks and bonds.

The shorter your time-horizon, the greater the balance should shift towards bonds. Your bank should have several of these balanced funds available. 

Another safe investment is to pay off your home loan faster.

In this case, your very secure investment return is the reduction in the amount of interest you have to pay. 

You can always increase your loan later if you need to cash out this investment. The only risk is if you temporarily lose your income and the bank does not want to increase your loan when needed. 

Don’t obsess about maximizing returns

In general, you should view investments of less than five years more like savings. The awesome power of compounding simply does not have enough time to work its magic over such short timeframes. 

Thus, simply choose something that’s safe and highly practical and set it up.

A couple of percentage points of higher or lower returns will not matter much if you’re just investing for a few years. 

However, just leaving your money in the bank is not recommended.

This actually makes a guaranteed loss (savings accounts nowadays pay less interest than inflation). It’s also too easy to use money in a conveniently accessible savings account for unnecessary consumption, getting you stuck on the hedonic treadmill. 

Split your strategy 

Everyone should have some exposure to the stock market, even if its just a few percent of their monthly income.

Regardless of your other plans, set up a small monthly stock market investment and just forget about it. 

Any other savings you can spare can go to shorter-term financial goals, following the options given in today’s post.

The way you split your investments is completely up to you. It’s just important to have both:

Short-term for reaching clear goals within the next couple of years and long-term for enjoying genuine freedom later in life. 

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Long-Term Investment

Yesterday, we discussed how high-risk investments like stocks become surprisingly safe if you have a long investment horizon. 

Since the stock market always goes up in the long run, those who can simply wait out the inevitable downturns will be justly rewarded. 

Today, we’ll go into a little more detail on such low-risk, high-return investments. 

The infinite investment horizon

If you invest in stocks, you should be sure you will not desperately need that money for many years to come. In fact, the best philosophy is to have an infinite investment horizon. 

This means that you run your personal finances in such a way that you’ll never need to sell your shares. 

Just leave them to grow until the awesome power of exponential growth one day shows you what true freedom looks like. 

Automated and diversified

The best way to put this into action is to set up relatively small and fully automated monthly investments in several funds offered by a range of reputable firms.

As discussed on Monday, this is very easy to set up in our modern banking system. 

Another cool thing is that you can invest with a purpose by choosing funds specializing in economic sectors or regions you really believe in. 

If you choose some well established, diversified funds and ensure that you won’t need the cash you invested for many years to come, there’s very little that can go wrong.

Indeed, with an infinite investment horizon, you can only win or win big. 

To put any last doubts to bed, those who are highly conservative like me could put 10% of their investments in physical gold and silver (e.g. goldmoney.com). This will cover the highly unlikely financial doomsday scenario where all of us simultaneously lose confidence in fiat currencies and hyperinflation takes over. 

Never try to time the market

As a final piece of advice, never try active stock trading unless you’re a professional.

Financial markets are extremely unpredictable and human emotions tend to encourage exactly the wrong investment decisions. 

Rather just set it and forget it. As your portfolio grows, it’s nice to check in every once in a while. And when a big drop comes every decade or so, just stay calm and do nothing 🙂

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Investment Horizon

Yesterday’s post discussed how the classic advice of “start thy purse to fattening” from “The Richest Man In Babylon” can be best applied in today’s world. 

For the rest of the week, we’ll focus on two other gems from that little book:

  1. Make thy gold multiply
  2. Guard thy treasures from loss

And the best place to start is with understanding the importance of investment horizon. 

Returns and volatility

Like most other things in life, greater risk generally leads to greater reward. But it also leads to greater volatility because risky endeavors frequently go wrong (sometimes badly so). 

Thus, more risky investments can give much higher returns than safe investments, but they can fluctuate wildly over time.  

Time as a risk mitigation strategy

The stock market offers a classic example. History says that well-diversified stock market investments will, on average, double in value every decade – truly amazing returns.  

However, if you invest your money in stocks today, there’s a good chance that your investment will actually lose value in the next month or the next year. 

Here, it’s key to understand that you can only lose money in the stock market when you sell for a lower price than you bought. If your shares go down in value, you lose nothing until you sell. 

Hence, the only real risk to stock market investment arises when you need cash so badly that you have to sell your stocks at a time when your investment has lost value. 

This is the key risk we can mitigate by understanding the concept of investment horizon. 

Investment horizon

With each passing year, the likelihood that your investment will be worth less than its original purchase price diminishes. 

As illustrated in this linked article, even if you had the worst timing in history, you would have made at least a moderate return in stocks after 15 years. For perspective, the best timing in history would have increased the value of your investment by 15x over the same period! In reality, you’ll fall somewhere between these extremes. 

The aforementioned article also repeats this exercise for various other asset classes, showing that the point with essentially zero risk of losing money comes a lot earlier with secure investments like government bonds, but the long-term returns are smaller. 

Low-risk stock market investments

This leads us to a pretty striking conclusion: 

If you ensure that you’ll never need the money you invested in stocks so desperately that you will be forced to sell at a loss, the risk of stock market investment is close to zero. 

If your investment loses value, just stay calm and do nothing. After a year or two, the stock market will always bounce back. 

Tomorrow, we’ll look a little more closely at these low-risk, high-return, long-term investments. 

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Classic Wealth Advice

Welcome to the fourth chapter in the Supermorning series! Over the next month, we’ll be taking a somewhat unorthodox look at wealth.

This week will start us off fairly conventionally with investments in tangible assets. Next week will get a little more interesting, focusing on intangible asset investments. 

The final two weeks are reserved for the most interesting topics: how wealth influences personal liberty and how to invest in your own freedom and purpose. 

So, let’s get the ball rolling with some classic wealth advice: 

Start thy purse to fattening

This is the first cure for a lean purse from “The Richest Man in Babylon” – a wealth classic that everyone should read.  

The advice is ridiculously simple: everyone should divert a fraction of their income towards saving and investment.

Without this simple step any following wealth advice is useless. 

Luckily, modern banking makes it very easy to start thy purse to fattening 🙂

Make it automatic

Thanks to the hedonic treadmill, people will always be driven to spend as much as they can in the pointless pursuit of happiness through consumption.  

Luckily, you can trick your mind to get off this consumerist hamster wheel by artificially lowering your disposable income via automated investments. 

Setting this up in any modern banking system is very simple. Choosing the right assets to invest in is less simple though. This will be our focus for the rest of the week. 

Adjust as you go

This automatic investment regime should be tuned so that you can live comfortably with the remainder every month. It will take a little bit of trial and error to get this right, but making the adjustments via online banking is very simple. 

Then, as your income gradually rises, please make sure you stay off the hedonic treadmill! 

Gradually increasing your automatic savings rate so that your disposable income stays constant is the best and simplest way of doing this. 

Having wealth is fun!

Initially, limiting your disposable income may feel like self deprivation. But, as your investment portfolio steadily grows, you’ll find plenty of satisfaction just from being in control of these assets. 

Having wealth with which to buy genuine creative freedom for yourself and your loved-ones is even more fun. 

Of course, this fun can be cut short quite abruptly if you take too much risk and lose a lot of money.

Tomorrow, we’ll talk about ensuring that this does not happen to you. 

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