wealth

Schalk
, , , ,
0

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… 

Schalk
, ,
0

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. 

Schalk
, , ,
0

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 🙂

Schalk
, , , ,
0

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. 

Schalk
, ,
0

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. 

Schalk
, , ,
0

Practice What You Preach – September Edition

All the tips and strategies shared on this blog are fully implemented in my own life. The results of this implementation are reported on a monthly basis in the Practice What You Preach series.   

Streaks

Streaks are probably the most direct measure of the superpower of consistency. All my seven streaks are still alive and well:

  • Good days. According to the methodology outlined here, I’ve now had 369 consecutive good days. That’s an entire year without a single bad or average day 🙂 
  • Morning routine. My morning routine has stood strong for the past 156 days.
  • Music practice. I’ve managed to work in a little bit of music for the past 129 days straight.  
  • Supermorning. This blog has now seen 87 consistent posts.
  • Healthy days. It’s now been 3904 days since the last time I was sick. More about this 10-year journey can be found here.  
  • Days at ideal weight. Still going strong at 175 days. 
  • Highly productive months. It’s now been four consecutive months with 200+ hours of creative work on my PC.

Health

I’m determined to stay at my ideal weight, defined as a smart BMI of 34/70, for the rest of my life. To do this, I must simply keep the thick blue line between the dotted orange lines. Easy 🙂

Next, my metabolic and biological ages (defined earlier) are still nice and low. 

Wealth

As discussed earlier, I’m conducting an interesting financial experiment: living only off my investments and saving all my income into a dedicated research fund. 

My investment portfolio for covering my living expenses is tracked below. Financial markets calmed down a bit in September, resulting in a gain in stocks and a fall in metals. 

Once again, the net effect was just enough gain to cover my living expenses. Thus, my financial resilience (number of years my wealth can sustain my lifestyle) did not change much. 

Savings towards my research fund have thus far only reached 7% of my €100000 target. Long way to go…

Productivity

September started very strong in terms of productivity. But all the sport on TV this past weekend caused a bit of a weak end to the month. Even so, I reached 227 very productive hours (creative work on my PC) and an additional 106 productive hours (meetings, exercise, reading and music).

In the RescueTime graph below, the dark blue areas represent very productive time, the lightly blue areas productive time, and the red areas distracting time (e.g. YouTube). 

I’m happy to report that the 12-month moving average of my very productive hours (blue dotted line) is now over 200 hours per month. May it fearlessly continue its upwards journey!

Overall, September was another good month. It had a bit of a weak last couple of days, but I’m confident that October will start strong once again.  

Let’s see what happens…

Schalk
, , ,
0

Practice What You Preach – August Edition

One of the founding principles of this blog is that I can only share ideas and strategies that have proven to yield great results in my own life. Hence, the results of implementing these ideas will be shared on the first Saturday of each month. 

Streaks

We start with the most direct measure of the superpower of consistency I can think of: streaks. As outlined earlier, I track four streaks. And I’m happy to report that all four are still alive:

  • Good days. According to the methodology outlined here, I’ve now had 341 consecutive good days! Less than one month to go before I reach a whole year without a single bad or average day 🙂 
  • Morning routine. My morning routine has stood strong for the past 128 days.
  • Music practice. Yesterday, I reached the milestone of practicing a bit of music for 100 days straight.  
  • Supermorning. This blog has now seen 62 consistent posts.

From the health and productivity data below, there are three more streaks to track:

  • Healthy days. It’s now been 3876 days since the last time I was sick. More about this 10-year journey can be found here.  
  • Days at ideal weight. Although there have been a few close calls, this streak is now 147 days old. 
  • Highly productive months. This little streak of spending more than 200 hours per month on creative work on my PC is just three months old.

Health

My mission to stay at my ideal weight, defined as a smart BMI of 34/70, is tracked below. The thick line is the 3-month average of my weight. This line needs to stay within the dotted orange lines. I should get it a little closer to the center of the range, but so far, so good…

Next, my metabolic and biological ages (defined earlier) have not changed. 

Wealth

As discussed earlier, I’m conducting an interesting financial experiment: living only off my investments and saving all my income into a dedicated research fund. 

My investment portfolio for covering my living expenses is tracked below. August was an interesting month with a substantial drop in stocks, compensated by a sharp rise in precious metals.

As a whole, my investments went up just enough to cover my living expenses. The result is that my financial resilience (number of years my wealth can sustain my lifestyle) did not change much. 

Savings towards my research fund have thus far only reached 5% of my €100000 target. Long way to go…

Productivity

August was a good month in terms of productive hours. Overall, I reached 235 highly productive hours (creative work on my PC) and 122 productive hours (meetings, exercise, reading and music). With 8 hours of sleep per night, that’s a full 72% of my waking time spent on productive endeavors 🙂

The trends are still going in the right direction:

So, overall, August was a good month. The principles covered on this blog held strong even as Norway returned from holiday and the regular ups and downs of office life resumed. 

Let’s see what September brings…

1 2 3