For most hardworking families, retiring early is just a dream. Here’s why …
I – Safe Investing vs. Smart Investing
Let me explain with an example …
John and Paul are aged 30 and both start off with a $100,000 savings.
John decides to go the ‘safe’ route, invest his money in a fixed deposit for 35 years, at an average return of 5% per annum.
Paul decides to learn some investment skills and puts his money to work in the stock market. He loses some years, but overall because of his knowledge and skills, he manages to average a 10% per annum each year.
Would you like to know the difference between the two at age 65? Perhaps you think Paul will end up having double the amount of John?
Here’s an amazing truth …
John ends up with $551,602 for his retirement. He is likely to have to rely on government pensions to survive and live frugally, watching every dollar he spends.
Paul ends up with a whopping $2.81 Million. He will be able to enjoy his retirement and perhaps even leave something for his next generation as well.
That’s the huge difference a 5% a year can make.
II – The Problem
Most people would like to retire young and rich, but they struggle to invest the money or the time to learn the necessary skills to do so. They don’t understand how to break down the problem. Here’s the nature of the problem:
1. Limited time. If you are working a full-time job, exchanging your hours for money … by the time you get home, eat, spend time with the kids–the last thing you have time for is earning a 2nd source of income.
2. Buy and hold strategies fail. If you invested in US stock in 1997, by 2007, the combination of market crashes and market gains would have left you at square one. Again, even playing it safe on the market does not guarantee you will win in the long-run.
3. Low job security. As the years’ pass, you become more easily replaceable. This is the standard business. If you can be replaced for half the cost—you will be. Experience can only take you so far. And with exponential technologies taking off now, we are seeing more and more jobs being replaced. Just take a look at Uber or AirBnB and what they have done to the taxi and hospitality industries.
The candle is burning at both ends.
III – The Nature of the Solution
Gladly, retiring early is not just a dream for everyone. It can be real. Once you know the problem, you know what sort of solution you need. One that:
- Involves little time commitment. It could be 30 minutes a day, or less. As Robert Collier said, “Success is the sum of small efforts repeated daily.”
- Low risk. That means the worst case scenario is that there is no worst case scenario. Whether the market goes up or down, or whether job security increases or decreases–how do you protect yourself? Everything in life involves some risk. But you must be able to manage and minimize it.
- Something you can control. You can’t control the weather, but you can prepare for it. You can’t choose whether your boss at work fires you or not, but you can have back-up options.
- Is ahead of an inevitable trend. If you can see a trend, it is your friend. That’s what Warren Buffet said. Take some time to understand where humanity as a whole is heading. Wherever there are big problems, are also big opportunities. This sort of thinking will help you secure your future, even if your job isn’t secure!
At Wealth Mentors, we believe that empowering through education is key.
And for over 10 years, this is what we have observed to be timeless skills that work. Check them out!