Markets can’t go up forever… or do they?

Just when I wanted to write this article, markets went down. What a timing! But no, this is not a crash just yet.

I believe that there is no perfect answer to the question above, but let me say this: There might be a limit to growth somewhere, but I am truly not able to spot it and most certainly not any soon. I would even go as far as to say that the only way a limit could be found, would be due to our (humanity) own intervention which would include some kind of mass annihilation or a large-scale natural catastrophe that would wipe out a large chunk of humanity, infrastructure and destroy our gathered knowledge. But even this would not limit our growth, it would rather throw us back a little.

Technology is key

You see, a limit on growth has been predicted over and over again. But whenever we get to the point that we think “this might be it”, a new technological development comes along that puts us back to square one and I believe, that right now, we are just about to be put back to square one – again.

Hyping new technologies is kind of popular. Who among us would not at least hear something about the Apple Worldwide Developer Conference, Tesla, and Space X and it’s promising for an electrified future and space exploration. Even companies like Amazon, Netflix, and Microsoft change our daily lives in ways that our parents could not imagine. But all these developments are not only creating new ideas, they also fundamentally change the expectations in our daily lives, work, and social interactions.

I am not saying that it’s all great. I am saying that it changes things.

The amount of knowledge and experience that is now being shared, almost instantly across the globe with remote access to resources all around the planet, the development in robotics, artificial intelligence, improvements in health care and data analysis are creating an enormous potential. And we are just about to tap the tip of the iceberg. We are still very far from even understanding where all this can and will lead us to.

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Just a look at this chart from Visual Capitalist (really appreciate your work!) shows where we are heading now: Ever-increasing automation, which goes hand-in-hand with the development of IoT (Internet of Things) and a dramatic change of future focus on required education, labor and career perspectives. Where will this lead us?

As long as we are going to explore, research and look for ways to improve our lives and ourselves, the economy will keep growing. And so will opportunities for investors. Understanding this basic principle is all you need to understand why you should be an investor and the sooner you start, the earlier you will be a true part of it.

Disclosure: I am invested in Apple & Microsoft.

Have a plan

It’s funny how humans deal with their own aspirations, and I don’t mean it in an entertaining way. One would assume that having an exciting goal or target ahead of us would already offer enough inspiration and motivation to do everything possible to get there. But for most parts, people tend to keep dreaming rather than actively working on achieving their targets.

A goal without a plan is just a wish
– Antoine de Saint-Exupéry 

No matter what you would like to achieve in your life, having a plan is surely helpful. You may pray for luck or good fortune, and it may even indeed come true. But your odds increase greatly if you actively work towards it and to set up a plan is the first part of doing so. This could not be truer when it comes to financial independence.

Investing can be a gamble. There are hundreds of companies out there that can create or destroy wealth within the trading time of just one day. But if you think that your odds of winning the lottery are not good, then there is no need to go for a similar approach with the stock market. It makes much more sense to set up a solid strategy and to execute it step by step. Following this simple rule will help you not only to “sleep well at night” (SWAN), but also increase your chances for a comfortable, and possibly even early retirement.

Setting up a budget and a target

Everything starts with understanding the situation you are in and for this, you need to create your first budget. The word “budget” alone makes some people shiver, but for the sake of just start things rolling, keep it as simple as it gets:

+ Total income per month
– Total expenses per month
= Available cash to save/invest

Congratulations, now you know what you are dealing with. If the available cash to save is any positive amount, then you are ready to set your first financial target. For each month, and for the total year.

If the available cash is not a positive number, then it would be advisable to expand your budget slightly to see where the problem is. You might want to break it down like this:

  • +Income
    +Salary / Wages
    +Other Income
  • -Expenses
    -Housing
    -Utilities
    -Mobile/Internet
    -Food & Drinks
    -Other
  • =Available cash to save/invest

There are only 3 possible options: Either your income is too low, your expenses are too high or both. Playing with those numbers and finding ways to optimize your expenses or to increase your income (revenues) is basic budgeting and an essential part to reach your target of financial independence.

The deeper you dig into the numbers, the more details you add and the more accurately you start tracking all your money movements, the more experienced and professional you will become. You will develop a sense of understanding of where your money goes, how it comes in and what you need to do to really reach your target. All without a lottery and without prayers in dark church corners.

Your first target must be to have cash available by the end of each month.

This is the part where your commitment has to start and it needs to begin without any compromise. No matter what happens, but you need to ensure having enough cash on hand by the end of each and every month. There are few points that need to be prepared before you start investing, but to get there, you need to have cash available – every – single – month. Reaching aspirational and challenging long-term goals is all about commitment, consistency, and dedication to the plan. Of course, there must be some flexibility in certain circumstances, but this one single point is non-negotiable.

You might have to start small with as little as 25 EUR per month. That’s equivalent to only 4 packs of cigarettes or 3 cocktails in an average bar in Berlin. But this will already open up your first door towards your long-term target.

As mentioned in the beginning, one needs a lot of motivation to get started and motivation comes from inspiration. While I will seldom quote actors or wrestling stars, nobody could say it better than The Rock – Dwayne Johnson:

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Many of us dream about spending their retirement traveling, spending time with our children or grandchildren and catching up on all those things that we missed when sitting in an office to hit some KPI targets that someone else in another office considers important for life to keep rolling.

I got to be brutally honest with you: When the time comes that you can actually retire, you may find that your health deteriorated, and your social security alone won’t suffice to pay for these simple pleasures. This is not to scare you, but for many, this is already a reality and the trend is not turning to the better for future generations of retirees.

Investing is a first step to dodge this bullet. The sooner you start, the more relaxed you will live towards your retirement. What other inspiration do you truly need?

Investing is only for the rich

One of my favorite websites and even more so the Twitter account is the site of Visual Capitalist or @VisualCap. There is always something great to discover there, like for example beer prices across borders:

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This example should have some serious impact on the next travel destination, right? These graphs are not only entertaining and educational, they also cover a huge amount of valuable information that is meticulously gathered and put into easily digestible perspective. Another recent example is this one:

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Warren Buffet is, without doubt, one of the most successful investors of our time, but he started on a very small scale. Actually as small as most of us. What he discovered early was the power of investments and of compound interests, re-investments and patience.

The common belief that investing is only something for the rich is fundamentally wrong.

Fact is, that most people don’t have sufficient financial education. Schools tend not to focus on money as a topic in detail and parents often believe that the only way to reach financial highs is to have a sky-rocketing career. For most, saving large amounts is only possible with a similarly large pay-check.

This could not be further away from the truth. In fact, having obtained my vocational education in a German bank many years back, one of the most astounding things I noticed early on was that people with large paychecks were usually the ones with the largest debt. While they had good credit scores, they often struggled on a monthly basis to cover their cost of living and paying back credit card bills.

On the other hand, the average customers of our bank who earned regular wages but were also very diligent in savings and keeping their living cost at bay, tended to have very solid 6-digit accounts by the time they were in their 40ies. For those who invested in the stock market, this happened often even much earlier on.

You got to start and you got to keep doing it.

Understanding and realizing that every saved amount matters is crucial to reach the goal of financial independence. Even a small contribution of 25 – 50 EUR a month makes a difference and one will quickly realize that saving money makes us actually much more happy than spending money.

It helps in setting goals along the way:

  1. Goal: Reach 1.000 EUR (4 digits)
  2. Goal: Reach 5.000 EUR
  3. Goal: Reach 10.000 EUR (5 digits)

Once the goal is set, you really got to stick to it. There will be setbacks and there might be rough times when one gets really tempted to spend the stacked away cash or to sell the investments made. But as I mentioned in one of my previous articles, time is your biggest asset and patience, diligence, and perseverance are key to success.

Investing is for everyone.

The sooner you realize this, the sooner you will hit your 6 or even 7 digit target.

Income Streams

Ah, it’s only a few weeks left until my vacation. After 2 long years, this will be the first time to see my family again and for my parents to meet my little daughter. I am truly looking forward to that.

But for now, I keep working 6-days a week with 10-12 hours a day for over a year straight, and since it’s clearly not enough, I was looking for a small side-hustle to add a 3rd income stream to my situation. Why would I do that?

So far, I have created 2 income streams to support my target of safe and hopefully early retirement:

  1. My day job
  2. Dividend income and the occasional stock sales profit

Having more than 1 income stream is important for several reasons and is being propagated by the best investors all around the world.

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It’s not only about being able to save more but also to protect your savings in case of job loss, illness or when something unexpected happens. Also, some side-hustles might turn into new and larger opportunities at a later point, especially the more one enjoys doing them.

So, I am glad to announce that I was indeed successful and received a great opportunity to expand my passion for the stock market and dividends into a, well, side-hustle. Starting very soon, I will start to contribute as a freelance writer for The Motley Fool Germany.

The Motley Fool is a great resource for information about stocks, markets, and everything one would need to pursue the target of becoming a successful investor. It started off in the US but is now expanding internationally and I am honored to say that I am going to be a small part of it. Really looking forward to this opportunity.

I might need to have to talk to my wife a little bit though and try to explain why I add another 3-4 hours per week on top of my 60-72 hours that I am doing now. I guess this will be the tougher part.

Connecting without a connection

There are a few hot topics on the agenda that will require close monitoring over the next days and weeks. As always, president Trump ignited some fires. While it’s good news that apparently the meeting with North Korea will go ahead as per original plan, the troubles with China are less encouraging. The South China Sea dispute is heating up and it may very possibly end not well. I got to admit that I was not perfectly informed on that front, so I did some research and found this very useful map that illustrates it perfectly.

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The “nine-dash-claim” is basically what China considers their territory. Safe to say that listening to Chinese rhetoric is one thing, but a brief look at this map says it pretty much all. The nine-dash-claim is “bold” to formulate it in the most diplomatic way. I got to be honest, as a Philippino, Vietnamese or Indonesian, I would have problems with accepting this claim. I don’t want to start a debate, but what I would like to show here is that it is a rather serious matter that could easily get out of hand.

Well, in Europe we have other matters to worry about but certainly not less significant. The European Union is showing strong signs of fragility, with Italy quickly moving to the brink of bankruptcy and a political change that could move it straight out of the European Union. Poland needs the EU budget but probably wouldn’t shed too many tears if they would have to leave the EU as well. Britain is on the final steps to finalize their exit, Spain is fighting internally against itself and while we didn’t hear much about Greece in recent days, the problems there are still very far away from having been solved. Nothing shows all these problems better than the valuation of the European currency. The Euro is down to a level that we haven’t seen for a very long time. We have conflicts wherever we look.

It is kind of funny and I mean it not in an entertaining way. It’s 2018. It has never been easier to travel to any place in the world. It has never been easier to communicate within seconds across the globe. There was never a time when so many people would be interacting with each other in real time with so many tools at hand for a true 2-way-real-time-exchange. What Skype, Whatsapp, Facebook, Line, LinkedIn, YouTube, Instagram, etc. offer is far beyond what my parents could have ever imagined possible.

And yet, it seems the world is more divided than ever.

We are increasingly connecting the world. Fast trains and planes, new routes and partnerships, new technologies for improved communications, instant translation tools and a stronger emphasis on inter-cultural sensitivity are growing at such a rapid pace that it’s hard to keep up with all the developments. And yet, while everything would point towards a stronger connection among people worldwide, what we see is an increased rejection of these developments and rising conflicts across the globe.

In my professional life, I am a hotel manager and I get to meet people on a daily basis, whether it’s my employees, suppliers, business partners or hotel guests. I change the hotel, city and often country usually every 1-2 years and what I observe, hear and notice wherever I go, is a clear trend towards protectionism. There are complaints about immigrants, heated discussions about regional disputes, a lot of negative sentiment towards religions and yes, we even still have discussions about skin color and eye shapes. People are simply not keeping up with the developments, and they get overwhelmed by the effects. Namely: They get overwhelmed by other people. Other cultures. Other world-views. Other habits.

There are so many questions. Did we ever truly started to think about connecting with others? To become “one” world and “one” people? And another one: Does “social media” deserve its name? Is it truly social? Do tools like Facebook or LinkedIn really connect people? Is the possibility for everyone to raise their opinion to the worldwide public really a benefit to our society or does it only support the spread of false-information, prejudice and subjective opinions that get projected into the masses?

I could probably start a philosophical discourse about all the factors that play a role here without getting to a conclusion, thus to bring it back to the point and theme of this blog, let me say just one thing here.

What happens on the stock market, is nothing else but a mirror of human reactions and their assumptions on the shape of the world, mainly it’s economy. The economy depends on politics. So if you put it together, you always get back to the same point: People evaluate the success of global relations between people and measure it in the form of stock prices. When everybody is happy, peaceful and successful, markets go up and stock prices soar. When people get in trouble, get less peaceful and success is replaced by failure, markets go down. Watching the shape of the world today and where we are heading, it is safe to say that we can expect heavy turbulence on the stock markets across the globe for the next few months to come.

Disclaimer: I am not a professional financial advisor, thus please don’t forget to do your own due diligence before making any investment decisions.