Do you know how much money you’ll need to have saved up in order to retire someday? For myself, I’ll need to hit anywhere from $1M to $3M eventually in life depending on my lifestyle costs. In this video, I share my experiences and thoughts based on second chapter (February: Knowing Your Number) of the Invested Book (2018) by Danielle Town and her father, Phil Town.
Should we invest in the style of rugby 7s or 15s? I’ll explain this analogy! When it comes to investing, get to know what’s in your circle of competence, like my rugby ball dropkicking example in the video!
Thinking back on the origins of the stock market, there was a lot of speculation back in the 1600s in bars about whether Dutch ships would return from India and the first tradeable public share of a company was born. [Side note: It feels like there’s lots of speculation in February 2021 too! I’m looking at you Reddit & Wall Street playing around with Gamestop/AMC/BlackBerry.]
If you google articles about how much money you might need in order to stop working, you pretty much only come across results that talk about short term actions that don’t address if you retire at age 30 and live until age 90.
It is so critical for everyone to learn how to invest because the future is foreboding that baby boomers don’t have enough to retire and social security is dwindling. Who knows if millennials will have any governmental safety net left by the time it’s our turn to retire? Who wants to work in retail as a grandma or grandpa with their teeth falling out??
If we want to abdicate our investing responsibility to the professionals, I go over several problems with trusting someone else with your hard-earned money. They include: 1) Significant fees can make a difference between ending up with maybe a million dollars to several millions of dollars; 2) They don’t even take clients who are people with net worths below $250K/$500K; 3) Sometimes there’s the Accredited Investor requirement to get in on complex investing instruments; and 4) There’s no guarantee the professionals will deliver the results you expect.
And if you’re a sophisticated enough of an investor (aka accredited investor) and like to give away your money some more: hedge funds traditionally use a 2 & 20 model. Not fun! This is why I’d rather invest on the strength of my own investing knowledge and temperament.
So if you’d like to retire with a certain amount of money saved/invested, use 4 numbers with which to calculate “your number”: average annual spending (lifestyle cost), starting amount to invest, how many years to invest, and your expected rate of return. Brace yourself for a spreadsheet demo of one example based on some of the figures used in the Invested book! There are also online calculators.
The four levels of mastery as Danielle and Phil discuss in their book and podcast are also known as circles of competence. If we’re really itching to get into the market, the Towns have introduced the concept of practice shares (maybe introduced elsewhere in the book — I’ve re-read this book a few times, and I’m not usually inclined to reading most books more than once) so we have skin in the game and are extra motivated to tranche in when our companies’ stocks go on sale at a margin of safety price.
Lastly, as Danielle encourages us to do, it’s important to practice thankfulness or maro. The powerful practice of gratitude helps one to stay humble and it contributes to positive feedback loops of karma in the universe.
All of us are on the journey towards FIRE (Financial Independence, Retire Early) and it is one filled with much gratitude and enlightenment, and I look forward to making more investor friends.
Let’s follow each other on my Instagram @ michellemarki! 🙂