Spending less than you earn and investing the difference is the first thing that comes to mind. But a bigger deal is time. Let me show you why.

Say I turn 25, start working (late start much) but have no clue about any of these things. So, I earn and spend. A few years go by and just like that, I turn 30.

And then I get to see the light of what I missed and how much harder it just got if my goal was to retire with a million bucks by the time I turn 65.

I know, I know, I am still a spring chicken and thinking about retirement is something only old people do. But remember, I am old. I just turned 30.

Though it’s not late yet but we all know that the more we put it off, the harder it gets. How much harder?

At 30, to get to a million dollars by 65, I need to set aside 701 dollars each month assuming my money grows at 6 percent rate of return each year. That is lower than what the stock markets have historically returned but I like to assume the worst and hope for the best.

But say I delay it to 35 and now I have to save 996 dollars to get to that same goal. At 40, it is 1,443 dollars and then it’s over. I mean it gets exponentially harder.

The word exponential is important because if you noticed the top end of the bars, they tend to curve up and curve up fast. That’s exponential growth. That’s compound interest. Nothing magical but then it is.

Here’s another take on the power of time and systematic investing. And all we are talking about is a mere 100 dollars one time or 100 dollars a month for 50 years. Yes, there is a difference but setting aside 100 dollars each month is a manageable sum for literally anyone.

The difference in final wealth though between a one-time investment of 100 dollars versus investing that amount every month for 50 years at that same 6 percent…

Not even in the same galaxy.

And all you had to do was set aside a cup of Starbucks worth of change each day.

Thank you for your time.

Cover image credit – Ron Lach, Pexels

And then there are the minimalists and there is a spectrum amongst them. The hard core ones are the planet-first kind who do everything they can to conserve and preserve. Think living off the land and off-grid.

And then there are the pseudo-minimalists who are the mindful consumerists. They do everything within reason to conserve and preserve but prefer not to take it to extremes even if they could afford to.

But wherever you are on that minimalist spectrum, that conservation and preservation mindset by default leads to wealth accumulation.

But ask any 6th-grader who between the two – the uber-consumerist or the minimalist – they think is wealthy and by default, they’d pick the uber-consumerist.

That’s how we are wired. What shows is what counts.

But it’s the minimalist likely swimming in cash while the uber-consumerist is one paycheck away from disaster. That’s the classic rich vs. wealthy debate. People who look rich might not be wealthy and people who appear run-of-the-mill own real wealth.

And you’d think the rich and the wealthy are the same and though there are similarities, there are big differences.

Rich is a state which is more current or transitory. Lottery winners, newly discovered celebrities, star athletes, folks working in high-paying professions such as medicine and law are the rich. They have quite a bit of money flowing in with most of it derived from a single source.

And the rate of outflow sometimes equals or exceeds the rate of inflow. The rich as a state can happen instantly and then it disappears.

Wealth on the other hand is more permanent. It comes through ownership of income-producing assets – enough assets that allows for a life full of choices.

And the income that these assets produce grows with time to a point where it surpasses income needed to support one’s daily existence.

So whether you work or not or if the skills you possess are in demand or not, your standard of living remains unaltered. If the same thing were to happen to a merely rich person, he would quickly become poor.

Wealth buys freedom. Enough wealth that the income it throws surpasses the income you need to live comfortably. Enough wealth that you can stop doing anything remotely resembling work and instead do something that you always wanted to do but couldn’t. You want to work for a non-profit that hardly pays anything, you have the freedom to do that. That business you always had an itch to start, you can do that. Or if all you wanted is to sit back and retire, you can do that too. All of that without impacting your quality of life. That’s critical mass.

And the only path that I know of that is guaranteed to get you there is a slow-boring one because it’s the most tried and true one. There is a reason why we come across many “get rich quick” schemes but never any “get wealthy quick” ones.

Yet behaviorally, the slow-boring path is the hardest to adhere to.

Charles Kinderberger, economic historian and an author of many investment classics, once said that there is nothing so disturbing to one’s well-being and judgment as to see a friend get rich.

And there will always be folks getting richer than you on some of the dumbest things you could have ‘invested’ your money in. Don’t let that take you off the rails away from a well-crafted plan.

And sure, you can strike it rich a million ways but holding on to wealth without a process, without a plan is tough. Because there are a million ways to lose it all.

I am not saying you have to hoard wealth to a point that you forget to live in the now and defer everything to that proverbial future. Because as they say, you can’t go snow-boarding in your nineties.

All I am saying is that there must be a balance between consumption now versus consumption later. That’s consumption smoothing where we tweak and optimize our spending to design a life that has a base level of happiness with occasional spurts of exoticism blended in. Because of course, YOLO.

And forget worrying about what we’ll leave behind for our heirs to inherit. That’s going to be dissipated anyways. I mean we can try but it’s going to be tough because of the human condition and hence the saying ‘shirtsleeves to shirtsleeves in three generations’.

And it makes so much sense. Say you are in the minimalist camp, your kids will absorb all those experiences and maybe implement some or most of them into their own lives. But then that minimalist mindset automatically means wealth accumulation which then gets passed down to your kids. Or at least that’s what most people do.

But then your kids someday have their own kids and now the setup is completely different. Their kids never get to see the struggle. They never experience frugality and choices being made. Life is easy. There is no drive and hence slowly but surely, wealth gets frittered away and the cycle repeats.

So is it any wonder that 70% of wealthy families lose their wealth by the second generation and a stunning 90% by the third¹.

Of course that does not mean you don’t try but many a times, it would be an exercise in futility and it’s good to have that perspective.

So coming back to you, the timeframe to reach critical mass is different for different people. And it’ll come down to two things – your burn rate and your investment returns. Investment returns beyond what’s statistically likely based on the risk-return characteristic of your portfolio are not in your control and neither should you base your financial plan on.

Burn rate is in your control and of course the lower the burn, the sooner you’ll reach critical mass. And one big side benefit of a lower burn rate is that now you are used to living on way less than you could since you’ve designed your life around that. I mean you were able to get to that base level of life satisfaction that your burn buys. And that should be the goal.

So increase the earn, reduce the burn and take the difference and deploy it into a plan that is tailored for you. Do that for some time and critical mass would be within reach far sooner than you realize.

That’s all I have to say. Thank you for reading.

Cover image credit – Joel Santos, Pexels

¹ Chris Taylor. “70% of Rich Families Lose Their Wealth by the Second Generation”, Reuters. June 17, 2015.

So I have to commute and commute means cars. No way around it with a big thank you to how we have designed our cities and our obsession with the way we have chosen to live. Even if there was a will, there’s no way an efficient public-transport system pencils out except in places where density is abundant.

So we are screwed, our quality of life is screwed and our environment, incrementally and then all of a sudden, screwed as well. There’s this thing floating around the enlightened alleys of the net that talks about how stupid and implausible an idea it is to think that we can have a backup to Earth. There’s no backup. This is all we’ve got. And what we do and how we choose to live is what’s going to make a difference in preventing an environmental apocalypse we’ll one day face.

But I digress. So I need a car and car means $$$$. We as a family are big on used cars. And the collective price we’ve paid when we paid for the entire fleet we’ve owned for almost a couple decades could be had at half the price of what an average new car costs today.

Our fleet…

They are great cars, still going strong but with paint literally falling off, they don’t look anywhere as pristine as you see them in these pictures. But I don’t care. And I have no interest to care. A vehicle to me is just a machine that takes me from one place to another, reliably and safely. That’s it.

A side-perk of driving older cars – you don’t care where you park and who you park next to. No need to shell out extra $$$ on collision and comprehensive insurance like forever.

And if you think I am an outlier, my wife is outlier-squared. I’ve basically won the wife lottery with near perfect compatibility in how we have chosen to live our lives. But we don’t skip a beat to splurge on experiences that we know are bound to enrich our time on this planet.

Oh and I have a milestone to report on the chotu (small) car that I drive. I mean that thing delivered on its promise like a charm.

Will report back at the 300,000 mile marker .

And buying used and driving until the wheels fall off means that you get to literally drive for free for the rest of your life. How? Some numbers…

We bought the van (2000 model year) in 2004 right before our oldest daughter was born. I think we paid about $10,500 for that. The tiny one (2004 model year) we bought in 2006 for $7,000.

A new one at the time could have easily set us back $25,000 a pop. And that’s for a run of the mill car. So some numbers on the impact of our decisions…

The van first…

Purchase price (bought in 2004) = $10,500

What we could have spent = $25,000

Difference = $25,000 – $10,500 = $14,500

Cash in hand at the end of 2020 if the difference was invested @ 7% annual return for 16 years = $43,000

For the small car next…

Purchase price (bought in 2008) = $7,000

What we could have spent = $25,000

Difference = $25,000 – $7,000 = $18,000

Cash in hand at the end of 2020 if the difference was invested @ 7% annual return for 12 years = $40,000

Total cash in hand because we decided to buy used instead of new and drive till they eventually fell apart = $83,000

So where’s the sin? We were in the market for another car but then someone showed me crash test videos of some of the cars we were considering and holy $#@&. Now we are all safety with reliability and economy taking a way backseat.

So we went looking for a used car again with the safety features we desired but not having the bandwidth to spend the extra time and effort required to secure a deal, we caved. We committed that sin that we promised we would never commit and went all YOLO. We bought a new car. Not just any car but an SUV. Not just any SUV but the safest of the breed in our price range (~$38,000) knowing perfectly well that the moment we drive that thing off that dealership lot, it’s going to lose 20% of it’s value.

But so be it. We could afford it. It’s got adaptive cruise control this, lane departure warning that and a myriad of other safety features that we are still in the process of figuring out.

But then we didn’t commit no sin because we know we will drive that car into the ground. Or until say autonomous driving completely takes over. That’s an easy 15 years. Until then, the remaining pile of money ($83,000 – $38,000 = $45,000) compounds away into a bigger and bigger pile which we will use to someday draw upon to buy that next car. And the car after that and so on. There is a maybe somewhere there but we’ll see.

So a few tips…

• Buy used when and where possible. A three to five year old model gives you that perfect mix of relative newness and a minimal depreciation hit.
• Pay cash when you can. If you had to borrow, keep the loan term at or below 36 months. If you need more months to payoff that loan, you are buying too much car.
• Skip the luxury. I bet you’ll find more multi-millionaires driving around in Camrys than in BMWs. Nothing against BMWs though. Oh and on BMWs, I can’t find the source but I think it was William Bernstein, an investment writer extraordinaire, who once wrote and I am paraphrasing here that a BMW is not a motor vehicle. It’s an IQ test that measures one’s ability or inability to save towards a decent financial future. So don’t fail that IQ test.
• And the best, if you are in that fortunate position where you can walk or bike to work, school, stores etc., chuck this whole car buying thingy. Not only can you shave years off of your time to reach your money goals, you and many more millions like you will slowly and then suddenly save this planet.

I have committed the sin. Don’t commit yours.

Thank you for reading.

Until later.

Cover image credit – Oleg Magni, Pexels

How do I know? Let’s run through some of the events the world has persevered through and yet capitalism marched on. The plot below is the growth of a dollar invested towards the end of 1914 in a basket of U.S. stocks and left there untouched since.

That story likely repeats for global stocks as well but because of limited data going that far back, we’ll use the data we have as a proxy.

And all these markers are events, mostly bad where if we were in the midst of them, we had every reason to bail. But had we not and remained invested, we did well.

Also, the y-axis above is log scale so those bumps that appear to be baby bumps are in fact deep craters that almost looked like it was the end of the world. But we are still here. You are still here.

A cursory look at the market returns we would have to endure through to get here.

These are annualized returns that measures the value of a dollar invested from the start of each year to the end of that year. This does not capture the intra-year (within that year) volatility which many a times is massive. What I mean by that is that we might end a year with say a 7% portfolio return but we would have endured a 30% intra-year drawdown first to eventually recover enough and avail of that 7% return.

And that has happened and will continue to happen. Persevering through that and sticking to our well-crafted investment plans is the only choice we have. And that is the right choice.

It’s one thing to look at the annualized returns and think, no biggie. I can handle that.

But a year is a long, long time watching the value of our portfolios decline day after day, month after month. Only when passing through that phase do we really realize how excruciatingly painful it is. We are likely experiencing that now. But endure through that we must. That is part of the deal.

If one year decline is rough, multi-year declines like the period post the Dot-com crash or the 70’s bear market or during what we had to endure through during the Great Depression is 10x worse. Things eventually recover but we have to continue investing through that by sticking to our plans no matter what. That is the only choice. And that is the right choice.

But who has a 100-plus year timeframe to invest? Okay, so let’s break this timeline into smaller chunks.

1915-1950

Why the quote unquote around only? Let’s chronicle the events that transpired during this time span to find out. And a 35 year timeframe matches a typical career span so even better.

1914 Austrian Prince Archduke Francis Ferdinand travels to Sarajevo to inspect the imperial armed forces in Bosnia and Herzegovina, annexed by Austria-Hungary in 1908. The annexation had angered Serbian nationalists who believed the territories should be part of Serbia. A group of young nationalists hatch a plot to kill the Archduke during his visit to Sarajevo. After some missteps, 19-year-old Gavrilo Princip was able to shoot the royal couple at point-blank range while they traveled in their official procession, killing both almost instantly. The assassination sets off a rapid chain of events as Austria-Hungary immediately blames the Serbian government for the attack. As the large and powerful Russia supported Serbia, Austria asks for assurances that Germany would step in on its side against Russia and its allies that include France and Great Britain. On July 28, Austria-Hungary declares war on Serbia and the fragile peace between Europe’s great powers collapses, beginning the devastating conflict now known as the World War I.

1914 The outbreak of war forces NYSE to shut its doors on July 31, 1914 after large numbers of foreign investors start selling their holdings in hopes of raising money for the war effort. All of the world’s major financial markets follow suit and close their doors by August 1. It would be about 4 months the markets remain closed. Imagine that happening today.

1915 One millionth Ford automobile rolls off the assembly line. Concerns around the fact that the demand for oil will outstrip supply and that the world will run out of oil soon. And then what? The Peak Oil theory will remain a concern like forever and here we are today with the likes of Tesla relegating the fact that the world will ever run out of oil as a non-issue. Stocks gain 81% that year.

1915 The Armenian genocide. Between 600,000 to a million dead.

1917 U.S enters the war. Stock market declines by 22% that year.

1918 Worldwide influenza pandemic strikes (Spanish Flu). It continues till December of 1920 infecting around 500 million people, a quarter of the world’s population. Estimated death toll ~ between 17 million to 50 million and possibly as high as 100 million, making it one of the deadliest pandemics in human history. An estimated 675,000 Americans die. Stocks gain 11% that year.

1918 Germany signs the Armistice at Compiègne ending World War I. 20 million dead worldwide with 21 million wounded.

1918 Russian revolutionaries execute the former czar and his family leading to a Russian Civil War between Reds (Bolsheviks) and Whites (anti-Bolsheviks). Reds win in 1920 and hence the onset of worldwide communism.

1927 German economy collapses. Stocks gain 37% that year.

1929 The stock market crash on Oct. 29 marks the start of the Great Depression and sparks America’s and likely the world’s most famous bear market. The S&P 500 falls 86 percent in less than three years and does not regain its previous peak until 1954 (in price). Stocks decline 8% that year.

1930 Unemployment soars, trade suffers from Smoot-Hawley tariffs. U.S. imports from and exports to Europe fall by some two-thirds between 1929 and 1932 while overall global trade declines by similar levels in the four years that the legislation is in effect. Stocks decline another 25% that year.

1932 Six million die in Soviet famine. Stocks continue their decline (another 9%) after a horrific 44% decline the year before from the already depressed levels.

1933 Germany and Japan withdraw from League of Nations. Stocks soar 50%.

1934 Dust Bowl problem continues. The worst drought in 300 years plagues 75% of the country. Stocks remain almost flat for the year.

1935 Nazis repudiate Treaty of Versailles. Stocks gain 47%.

1937 Beijing falls to the invading Japanese forces. Stocks decline 35%.

1938 Hitler annexes Austria. A 29% stock market gain.

1939 Germany invades Poland. Stocks close flat for the year.

1940 France falls under Nazi occupation. Stocks decline 11%.

1941 Pearl Harbor attack. US enters World War II. Stocks decline another 13%.

1944 The Battle of the Bulge called “the Greatest American battle of the war” by Winston Churchill. Fought in the Ardennes region of Belgium, this was Adolf Hitler’s last major offensive in the war against the Western Front. Hitler’s aim was to split the Allies in their drive toward Germany. The German troops failure to divide Britain, France and America with the Ardennes offensive paved the way to victory for the allies. Lasting six brutal weeks, from December 16, 1944, to January 25, 1945, the assault, also called the Battle of the Ardennes, took place during frigid weather conditions with some 30 German divisions attacking battle-fatigued American troops across 85 miles of the densely wooded Ardennes Forest. As the Germans drove into the Ardennes, the Allied line took on the appearance of a large bulge, giving rise to the battle’s name. The battle proved to be the costliest ever fought by the U.S. Army (about 100,000 casualties). Stocks gain 19%.

1945 Hiroshima and Nagasaki nuclear bombings. 200,000 dead. Stocks gain 36%.

1946 Worst work stoppages since 1919. Less than a year after the end of World War II, stock prices peak and begin a long slide. As the postwar surge in demand tapers off and Americans pour their money into savings, the economy tips into a sharp “inventory recession”. Stocks decline 8%.

1950 North Korean communists invade South Korea. Stock market gains 31%.

So this 35-year timeline that includes the Great Depression, two World Wars, pandemics and every unimaginably bad thing that could have ever happened to this world and we still came out okay being invested in capitalism.

And if there was ever such a thing as financial planning in those days and you panicked and deviated from the plan you had in place and sold at any point in time, well that would have been a sin. Not the greatest of sins but a sin. Why?

The financial underpinnings of the world were still in the early formative stages. The Federal Reserve bank that acts like a stabilizing force during times of economic upheaval today didn’t even exist up until 1913. And even when it did, there was not a lot of data and expertise on how to navigate around pandemics and wars and recessions. Everybody was learning. The system was learning with the world waffling back and forth between two distinct economic systems.

So you were forgiven if you had committed that ultimate sin but had you not and dollar cost averaged into the markets during those 35 years by investing a dollar each year, this is what you’d have.

So instead of $15, you end up with an amount 13x more. That’s hail to the power of an ironclad gut, a long-term mindset and dollar cost averaging. And notice that reduction in volatility because of your consistency in adding to your portfolio no matter what.

Let’s finish off this timeline thingy by recounting the major events that happened 1951 hence and the journey of that dollar that you (or your prescient ancestors) started in 1914.

1951-2020

1951 Seoul falls to Communist forces. Stocks gain 24%.

1953 The Korean War ends with the signing of the Korean Armistice Agreement. The agreement creates the Korean Demilitarized Zone (DMZ) to separate North and South Korea and allows the return of prisoners. However, no peace treaty is signed and the two Koreas are technically still at war, engaged in a frozen conflict. The Korean War is relatively short but exceptionally bloody. Nearly 5 million people die with more than half of them, civilians. Almost 40,000 Americans die in action in Korea with more than 100,000 wounded. Stocks remain flat for the year.

1957 Asian Flu Pandemic (a Chinese origin H2N2 avian influenza) claims 2 million lives. Stocks decline 10% that year.

1958 The Great Chinese famine kills 30 million. Stocks gain 44%.

1959 The Cuban Revolution – communism at America’s doorstep. Stocks gain 12%.

1961 The Bay of Pigs invasion – a failed attempt at ousting Fidel Castro from power. Stocks gain 27%.

1962 Cuban missile crisis sparks Cold War jitters. President Kennedy is assassinated. Stocks decline 9%.

1964 U.S. involvement in the Vietnam War accelerates post the Gulf of Tonkin incident. U.S. also conducts large-scale strategic bombing campaigns against North Vietnam and Laos. Stocks gain 16%.

1968 The Tet Offensive. American public’s resistance to the Vietnam War grows. Despite heavy casualties, North Vietnam achieves a strategic victory with the Tet Offensive as the attacks mark a turning point in the Vietnam War and the beginning of a slow and painful American withdrawal from the region. Stocks gain 11%.

1973 Israel’s Yom Kippur War and the subsequent Arab oil embargo sends energy prices soaring. A lengthy recession ensues. Inflation rate tops 10%. Nixon resigns post the Watergate scandal. Stocks drop 14%.

1975 Vietnam War ends with about 1.4 million Vietnamese and 58,000 Americans dead. Stocks gain 37%.

1979 Iran hostage crisis. Stocks gain 19%.

1980 After nearly a decade of sustained inflation, the Federal Reserve raises interest rates to nearly 20 percent, pushing the economy into a recession. The combination of high inflation and slow growth (stagflation) was a big factor behind Ronald Reagan’s victory over President Carter. Stocks gain 31%.

1983 Terrorist explosion kills 237 U.S. Marines in Beirut. Stocks gain 22%.

1987 Black Monday. Dow falls 22.6% in a single day, the worst in one day since the Panic of 1914. Yet, while the days after the crash were frightening, by early December, the markets bottom out and a new bull run commences. Stocks go on to not only make back all the losses but end the year +6%.

1990 Iraqi troops invade Kuwait. Stocks decline 3%.

1991 The Persian Gulf War. Stocks deliver a 30% return.

1997 The Asian currency crisis. The crisis starts in Thailand on July 2nd with the collapse of the Thai baht after the Thai government is forced to free-float the baht due to lack of foreign currency reserves that previously supported its peg to the U.S. dollar. Capital flight ensues almost immediately beginning an international chain reaction. At the time, Thailand had borrowed heavily that made the country effectively bankrupt even before the collapse of its currency. As the crisis spreads, most of Southeast Asia and Japan see slumping currencies, devalued stock markets, depressed real assets and a precipitous rise in private debt. Stocks earn 33% that year.

1998 The Russian financial crisis. Long Term Capital Management blows up on excessive leverage. Stock market gains 28%.

2000 The bursting of the Dot-com bubble. Stocks decline 9%.

2001 September 11 terrorist attacks. Stocks decline another 12%.

2003 The 2nd Iraq War begins. Stocks gain 28%.

2005 Insurgency spreads. Stocks gain 5%.

2007 A long-feared bursting of the housing bubble becomes a reality and the rising mortgage delinquency rate quickly spills over into the credit markets. By 2008, Wall Street giants like Bear Stearns and Lehman Brothers start toppling and a financial crisis erupts into a full-fledged panic. By February of 2008, the market falls to its lowest levels since 1997. Stocks earn 5% that year.

2008 Lehman Brothers files for bankruptcy. The global financial system is on the verge of collapse. Stocks end the year down 37%.

2016 Donald Trump elected President. Stocks gain 12%.

2018 End of the year stock market decline approaches 20%. Stocks end the year down 4%.

2020 The ongoing Coronavirus pandemic. A 26% decline so far.

I understand any amount of chronicling of history is not enough in light of the mayhem we have seen in the markets and in our portfolios lately. And these are also the times that remind us of the role bonds and cash play in our portfolios if drawing income to live on is a necessity. For the rest of us, we did right by sticking with the portfolios we own.

But these are also the type of events that separate us from folks who commit the ultimate investing sin if there was ever and that is to panic sell. There is no reason to and there is no need to. Granted, there will be some restructuring in the global economic landscape in light of this pandemic. Weaker companies will fail and the stronger ones will come out even stronger than before. And you don’t want to be there picking winners and losers because you are statistically much more likely to own losers than winners. You want the market to sort this out and it will over time.

This world of ours has endured far worse and we see that. We would come out of this just fine. I bet we would be looking back in a decade on this entire episode and say that was nothing. The world has seen far worse. 

And if you are in your twenties or thirties or even in your forties and you are new to this market volatility, I say this: you will have many such episodes in your life when your portfolio massively declines in value, sometimes for a reason and other times, without any. But you have to remain invested because that is part and parcel of this whole process of getting from point A to point B and beyond.

And for the finance nerds out there, when we invest in stocks, we are in fact buying perpetuities that promise to deliver a stream of cash flows this year, next year and many years beyond that, discounted at an appropriate discount rate to the present day. This episode we are living through will impair a few years’ worth of those cash flows but the longer term cash flows will eventually come through. They have to.

Markets tend to overextend on the way up and on the way down. That’s natural. But remember, things are never as bad as they seem when all hell is breaking loose and you are in the midst of that. At the same time, things are never as good as they seem when everything is going great.

So plan for things to go bad when things are going well. And when things look miserable, keep in mind that things will eventually get better.

So don’t go crazy not having any safety buffer to tide you through in situations where your income gets disrupted temporarily. At the same time, don’t panic.

And if you are a market participant (you have to be, you have no other choice), you’ve got to own stocks. There is no plan you can theoretically design in today’s interest rate environment where you can avoid that asset class completely. But when you do own stocks, you’ve got to be prepared for declines every now and then because as Charlie Munger says…

“If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder, and you deserve the mediocre result you’re going to get compared to the people who do have the temperament and who can be more philosophical about these market fluctuations.”

Not sure about being philosophical…okay, I can be a bit philosophical but if it makes you feel any better, this is a small collection of businesses amongst the thousands you own if you own a global market portfolio. And they are selling at a discount. So buy if you can.

Some companies will burn and die but capitalism will survive. It has to because… Pascal’s Wager?

The only folks who get absolutely demolished in bad times are the ones who take on excessive leverage. The only leverage that you should very reluctantly sign up for in your own personal life is your home mortgage. And very, very reluctantly at that.

And leverage, especially with stocks, never. Because I am with The Oracle on this…

“It’s insane to risk what you have and need for something you don’t really need. You will not be way happier if you double your net worth.”

And Black Swan events like these is when we see the folks flirting with leverage get completely wiped out. Those 10 AirBnB rentals that you thought you could lever up and make a killing? Not happening. That’s the nature of blind risk and capitalism has a way to cleanse the system every once in a while. That’s ultimately healthy but you don’t want to be a part of that process.

But never in my wildest imagination did I predict these unfolding of events not only with the markets but with our lives. I have been hoping and praying that there would be a correction to clean out the excesses because I feared that the longer the good times rolled, the more remote a chance of a decline will seem, the more overconfident investors will feel and the more risk they’ll take. Which means that that eventual fall, which is a near certainty, would be far more deep and wide.

But what about all those folks who got out just in time before the markets crashed and will likely get back in before they recover?

Yes, of course. And I have a bronze colored bridge I’d like to part with at the right price.

You might get lucky timing the getting out part once or maybe twice in your life but you also have to get the getting in part right. And markets don’t usually recover when you think they’ll recover. They make big and sudden moves which will catch you off-guard and you then miss the boat. Plus these moves tend to happen at the bleakest of times when all hope is lost.

And say you got out in time before the crash and you got back in at the bottom. So you got lucky twice. What’s the lesson you learnt? That the moment you have that inkling of a disaster on the horizon in the future, you’ll get out. And that disaster never happens. Or it happens but it’s not as severe and the markets zoom past the point you sold. What happens then? You wait? Wait for a decade?

Because that is precisely what many investors did this past decade and hence missed out on all those gains before these recent spate of events.

So don’t mess around. Remain invested.

Good investing is a lot about psychology and behavior combined with a decent dose of history with a sprinkle of math and finance. Any one of them missing from the mix and it’s going to be real hard to meet your goals.

And getting sucked into a fad here and a fad there and assembling investments with no particular rhyme or reason beyond hoping that you buy low and you will get to sell higher is not what it’s all about. I have seen folks talk about this airline stock or that cruise stock. Fine. A few of them will work out but what’s the definition of working out? A double or a triple? Pre-tax?

And you for sure didn’t stake the kind of money that’ll change your life. So if you didn’t, don’t bother. Stick to your plan.

I am not saying you have to but maybe you’ve got to have someone who knows these things watch over your financial life. Because as Phil Demuth, author of several excellent books and the founder of Conservative Wealth Management opines…

“If you manage your own money, you are potentially vulnerable to every crackpot investing idea that comes along. It only takes one.”

Only one. Maybe you will but most don’t get many shots at this. So act wisely.

And what I am truly worried about is the long-term health of our retirement system because when I see stats like an average retiree nearing retirement has only $50,000 saved, I say holy s#*@. We are screwed. Because as William Bernstein says…

“I’ve flown airplanes, and as a doctor, I’ve taken care of kids who can’t walk. Investing for retirement is probably harder than either of those two activities, yet we expect people to be able to do it on their own.”

And that’s why we all yearn for those pension systems of the past where we had someone other than us pool assets together with our fellow savers and design a plan with enough safeguards to make sure that the money lasts longer than any of us individually.

That don’t exist and we’ll have to live with that. In the meantime, a few tips to navigate around this and future market turbulences.

• Always, always keep emergency reserves that cover at the minimum 6 months of living expenses. And depending upon the type of work you do, maybe you need more but 6 months is the ideal minimum. Granted, it is a tall order for many folks who cannot afford to set aside literally anything because they can’t. But I know you can. How? Because you got this far reading this.
• Never panic. You will encounter many a market crashes and recessions through your investing life. You just have to acknowledge that fact and design a plan that lets you survive those events. You need to realize your own volatility to heartburn ratio and this is the time to take notes. The higher that ratio, the more equity risk you can handle and the higher the returns you can expect. A lower ratio means that you’ll sleep alright but then you have to be prepared to save ungodly sums of money to maintain the same standard of living as before through a likely long retirement.
• It’s obvious but try to avoid taking on too much debt of any kind, especially of the lifestyle kind. Screw that big home with an albatross as a mortgage if it bogs you down. It’s unfortunate that we as a country through our tax policies and incentives have turned shelter into an asset class. And a retirement plan. That’s stupid and real bad in the long run, not only for you as a home owner but also for future economic growth. And environmental costs aside, it locks people in place, decreases social mobility and increases risks in the system and in our lives. Let others participate in this game but you remain mindful of the debt you take on.
• Never borrow and invest, ever. We’ll see the repercussions of that soon as a lot of over-leveraged real estate ventures and businesses go belly up. I mean all these folks were running their ’empires’ in a way that they could not sustain a couple months of income disruption? Come on.
• And stay far, far away with that mindset of Keeping Up with the Joneses. Design your life around being happy with as small an overhead as possible. The freedom and the peace of mind that comes with that will be priceless. You’ll sleep better, play better and work better. All good.

So that’s all I have to say for now. Thank you for reading.

Until later.

Cover image credit: Josie Stephens, Pexels

Now that you’ve got that right, a few obvious things first. If the rate of return is higher, your double will happen quicker. On the flip side, if it took you a lot less time to double your money, you know that you earned a high rate of return. So it would take a lot longer to double your money if it grew at a rate of 2% a year as compared to say 10%. And with this rule of 72, you can see that $100 growing at 6% will take 12 years to double (72/6). At 10%, 7.2 years and at 12%, 6 years.

Okay, you’ve got that now so how do you use this nifty little rule in helping you make daily spending decisions? Say you are 15 and a new gadget you desire just came out and it costs $250. You worked hard and earned and saved enough money to buy that gadget. No issue there. But that last year model you own works just fine but regardless, you go in for the kill. I mean you buy it. But was it really worth spending 250 bucks for a new one? Granted, it runs a bit faster, looks a bit nicer but was it truly worth it?

And what happens to the one you already own? It gets recycled, hopefully. Most likely, it’ll end up in a landfill. And then over time, that thing starts to decompose if it ever does. And the chemicals from that thing start to leak into the water (#savetheturtles) which at some point finds its way through the tap, into your Hydro Flask and into your body. So all bad.

But I digress, that money I just spent and almost destroyed the environment in the process could have instead been used for a more worthy goal. Like to fund a business idea to clean the environment in say ten or twenty years which by then, I would hopefully know enough on how to do it. Or say to someday be able to not work for money at all and work because I want to make a difference. So at 7%, that same 250 bucks would turn into $500 in 10 years. How did I get to that so quick? That rule of 72 (72/7 ~ 10 years) again. 10 more years and we are talking about another double. In 40 years, that same 250 bucks that I had no reason to spend to replace a perfectly working gadget at 7% would be 8,000 BUCKS. So I had a choice and I blew it.

And I am not implying that you need to become a monk and give up on things. All I am saying is to be conscious about how and what you spend your savings on and how it’ll impact your future and the world.

My advice, if you are about to buy anything that feels discretionary is to not buy it on the spur. Give it some time and come around in say a couple days and see if you still feel a need for whatever you were about to buy. If yes, buy it. If not, even better.

And don’t forget the rule. Keep a rate of return in mind and see how many doubles you are missing out on if you don’t defer that purchase. Your future will be bright and so will be our world.

Until later. 

Cover image credit – Artem Beliaikin, Pexels