Investing Time

Time is your single, most important asset. It’s probably the only, completely undisputable truth that anyone can find and verify for himself in this world. Time is limited, and every minute, every second that is passed, won’t return.

It didn’t take me long to recognize this, subconsciously, but it took me a while to truly understand the meaning behind it. But more on this a little later on. To finalize my short series about the 3 most important topics for successful investors, I will write today about the importance of investing time to make informed decisions when it comes to investments. For those who would like to take a look at the previous articles, here the short-links:

The first two topics have something in common and this last topic is not different: It requires studies, practice, and experience to master all of them. Time plays, therefore, a crucial role here. Let me explain.

The difference between spending and investing time

You might think that when it comes to time, spending it is all we can do. You also might guess it already: You might be wrong on this one.

Coming to work on Monday, your co-worker or your boss might ask you, how you spent your weekend. What he or she is really asking you is actually this: What did you do with the time you had available, out of your regular work?

Now to be perfectly frank, most people don’t really care about the answer. For one, because, well, most people don’t really care much about others. But secondly, even more importantly, most people do nothing productive on weekends. Watching a movie in the cinema or visiting the new, fancy restaurant in town, going with your kids to a theme park, or just sleeping through and going for a lazy-in-bed-Sunday… it’s all good stuff, and time (probably) well spent.

But if you want to get out of the rat race, you need to re-think the idea of what you do with your time out of regular work, which includes after hours and weekends, holidays and basically every hour you can spare on doing something productive.

Talking about investing time is a different issue, and you may not like it at first. Coming back to the previous question about how you spent your weekend, a more accurate version of this question from someone who might be actually really interested would have to go along something like this: How did this weekend help you to reach your goals in life?

Now that’s a deep question, but in my opinion, a pretty good one. Not only because I wrote it, but because this question shows a genuine interest in enquiring about your actions, that you were able to do while having some time on hand, to work on your life goals.

Investing time includes spending it. But while the time we spent is usually just time that passed, investing time means, that we perform actions that we expect to have a beneficiary middle- to long-term effect on the goals we set in our lives.

Investing time for FIRE aspirationals

If you are reading this blog, you know that it’s all about FIRE – Financial Independence & Retiring Early. Investing time can have a different meaning for every single individual, depending on the goals we have, but for me and for every other FIRE follower, here is a list what you should be doing whenever you have some time on hand:

  • Reading. Expanding your knowledge is a crucial element when it comes to making investment decisions, and the single most important point in this blog post. Understanding how our economy works, how things relate to each other and being able to grab hints and read between the lines when markets change directions or new products are being introduced, can have a significant impact on your success.
  • Side hustling. Even the smartest investor won’t benefit from his knowledge if he/she has no cash on hand to actually start investing. I was recently reading an article, that saving only 5 EUR a day for 30 years might be already enough to become a millionaire. The math behind it, with an average 7% return on investment year on year, is, of course, depending on market conditions. But it has a clear point: Even small investments in combination with a dedicated follow-through will lead to success. If your current job doesn’t offer you enough support to hit your goal OR if you want to hit your target as early as possible, then it means that you got to invest time to make it happen. Luckily, it’s 2018 and there is an almost unlimited amount of jobs at our fingertips. I will write more on this next week.
  • Budgeting. I spend about an hour every weekend, to go through my month-to-date expenses and to adjust my annual forecast, which is closely and accurately calculated and aligned to my goal of retiring early. You don’t need to do it in such a super detail as I (or many other FIRE followers) do, but it is truly helpful to reflect after a week on your spendings and savings and to understand what happens with your money. The more you learn about the process, the easier it will be for you to control your money.

Now, this may sound like a lot. But it’s actually not. Start slowly and dedicate 2 hours each weekend. 1 hour should be for reading and the other hour for whichever one of the other tasks you feel up to.

I can’t emphasize enough how important reading is. One part should focus on economic and political news. When you got through it, I recommend reading news about specific companies that you are interested in, to follow a blog or a specific investment website or to subscribe to an online course that might cover some basic financial topics. Reading about industries that you would consider to invest your hard-earned cash and about the people behind the companies. It’s a huge puzzle and tons of information to cover, but thanks to the internet, it has never been easier to find all these information.

For beginners, I recommend following The Motley Fool. As some of my readers may know, I am frequently writing for the German subsidiary, The Motley Fool GmbH, which is my side-hustle. This online magazine greatly helps to provide information on the daily things that happen on and around the stock market, in a simple and non-fuss manner. It’s easy to read and a perfect weekend lecture for those, who don’t have too much time on hand.

I don’t promise anything, but you might rather quickly recognize, that investing time will make a huge difference in reaching your goal of escaping the rat race. It’s Sunday. Why not start today?

Overcoming the emotion of fear

Following up on my last post, I would like to write today about fear.

Just as a reminder, in my last post I introduced 3 important topics, that are necessary to understand and successfully turn towards an investor mindset. These 3 points are the following:

  • Understanding and accepting the principles of the so-called “financial triangle” (part 1)
  • Overcoming the emotion of fear when it comes to investments (part 2 – this one!)
  • Investing time to make informed decisions on investments (part 3 – next week)

The fear of investment

This topic came up partially a few times in some of my previous posts in the past. However, I would like to dedicate one article specifically to this topic with a few more details. The reason is, that once you understand the principle of the financial triangle, which I introduced just last week, you will realise that taking risks is an unavoidable part of any type of investments.

This is a serious and very important realisation, because it makes it crystal clear: If you can’t accept taking risks, you can’t invest successfully. And this happens to be not only true for many people, it is also one of the main issues that is holding people back from starting to invest in the first place.

The idea of the potential for losing even a tiny fraction of ones savings, frightens so many people in such a strong way, that instead of evaluating their options, potential risks and corresponding opportunities, they immediately dismiss the entire idea and stick to keep doing what they were doing so far: Nothing.

Now let me tell you something about doing nothing. There is a great quote that fits very well on several topics, including this one:

“Standing still is the fastest way of moving backwards in a rapidly changing world.”
– Lauren Bacall

The same goes for your hard earned money. Doing nothing is not a safe thing to do. Just the opposite. Doing nothing is a guarantee for losing money.

Inflation

The no.1 reason for this phenomena is called inflation. You surely heard this word very often before, but truly understanding it, should make you worried. Because if you truly understand it, you will know that the value of this 500 USD under your pillow will have a much lower value next year. And the year after. And the next year also. It doesn’t end.

This may be not a perfect example because there are obviously more things connected to it, but take a look at prices for mobile phones. Let’s take specifically the iPhone. On June 29, in the year 2007, the iPhone was released with an introductory price of 499 USD. It was a top product with the latest and most modern technology on the market (if not compared to SoftBank phones in Japan, those were lightyears ahead).

10 years later, the iPhone X came with the lowest price-tag at 999 USD.

So while your 500 USD would have been enough in 2007, to buy the newest iPhone, in 2017 those 500 USD would be only sufficient for a 50% down-payment, again for the newest available model in that year.

The macro-economics behind that are of course highly complicated, but at the end of the day, Apple is not just raising prices to make even higher profits, but to ensure stable and increasing profit margins and to pass on their own costs for research, development, suppliers, etc. back to their customers.

So good or bad example, you get the point. Prices go up and the value that this 500 USD offered to you in 2007, came down by half in only 10 years. And you can see similar examples in many other areas. Whether it’s diary products, vegetables, fruits, gasoline and whatever else comes to your mind. Prices go up, thus the value of those saved USDs is constantly going down.

Saving accounts & Government Bonds

Inflation is covered pretty well in the press, thus most people are aware of it and understand, that putting money under a pillow (or certainly better: in a safe) is not a smart long-term solution. Therefore, those who seek security, tend to put their money into saving accounts. With the current interest rate it’s not a money maker either, but the argument is, that saving accounts are offering at least a little protection from inflation. Same is being said about government bonds.

But let me ask you a thing: Are you sure, your money is safe there?

First, let’s talk about saving accounts. The financial crisis of 2007 and 2008 is dating not that long back. But its effects did last far longer, and, according to Wikipedia, between 2008 to 2012, the amount of banks which failed and had to either declare bankruptcy or a restructuring, mounted up to 465 bank in the US alone. Now what happened with all those savings accounts in these banks?

When you check the details of your savings account with your bank about the protective systems that are in place to ensure that you get your money back, even if a bank fails, you might discover a surprise. Some banks cover as little as 20.000 EUR and most banks in Europe have changed their policies and regulations to a point that they now protect not more than 200.000 EUR. This goes for your savings accounts, but not necessarily for your current account.

How things can turn out with your current account can be even more dramatic. Just ask the people in Italy, Greece or Cyprus about their experience with banks in the last 10 years. When your country gets in financial distress, which can very well be caused by a financial crisis, you may experience going to an ATM to withdraw some cash only to find, that it’s not working. You go to the next bank and the next ATM, and you find that they all are not working. You turn on the news and suddenly you see, that all banks in the country have shut or limited operations – and you have no more access to your account.

What you’re gonna do?

I got no answer to this question, but my point is that, if there will be another financial crisis, its effects can have a profound impact on investments that most people consider to be safe. They are not, at least not to that degree as one would love to believe.

So, if you have no way to fully protect your assets from a financial crisis, you might, rightfully, be scared about savings and investments in general.

What is the right strategy in this kind of a situation? Well, it’s not an easy one. We have to face our fears. We have to understand, that risk is just part of how our world works and we have to learn to manage it.

There are a few easy, understandable strategies and techniques, that can help anyone who puts a little time and effort to understand them, to minimise risks and to increase the potential for higher returns on your assets.

The Financial Triangle

When it comes to investments, one must realize a few things and learn to learn to deal with them. In my humble opinion, this is the main thing that makes the difference, between a successful investor, and anyone else who is hoping for the government to support him or her, once they get old enough to retire. I don’t put an age number here on purpose, as nobody knows how much further the retirement age will be pushed out in which region.

So what are those essential things? Let me pull it together into 3 major points.

  1. Understanding and accepting the principles of the so-called “financial triangle”
  2. Overcoming the emotion of fear when it comes to investments
  3. Investing time to make informed decisions on investments

In this post, I will discuss only the first point, the financial triangle.

The financial triangle is a basic model that connects 3 keywords with each other. The keywords are:

  • Security
  • Yield on investment
  • Liquidity

Imagine a triangle, with those 3 keywords split for 1 to be in each corner. Now, when you look at an investment opportunity and try to classify it by putting a dot in this triangle, you will notice that it’s actually a tough exercise.

  • If you put the dot close to security, it will be further away from yield and liquidity
  • If you put the dot close to yield, it will be further away from security and liquidity
  • If you put the dot close to liquidity, it will be further away from security and yield

No matter how you try to position the dot, you will never be able to maximize any point without sacrificing on the other two. While modern financial instruments can get truly complicated, this very basic rule applies in almost any case.

The Important Lesson

The important lesson from the financial triangle is, that every opportunity requires sacrifice. You can’t expect high returns on your investments without taking risks. You can’t expect a high security of your investment, without accepting limitations on access to it (liquidity) and reduced potential returns.

No matter what you are reading online about any possible, get-fast-rich-investment scheme. Any company or product that is promising you to be safe, anytime accessible and offering a high yield, needs to be thoroughly researched – if not ignored right away. Chances are high, that it’s not real. Possibly a scam.

The other important lesson, especially for younger potential investors and all those who want to reach financial independence as soon as possible, is the one that without accepting a large amount of risk, early retirement and financial independence will be nothing but a dream.

I seldom quote rappers but let me put it to the extreme and quote Curtis Jackson, a.k.a. 50 Cent here: “Get rich or die tryin’.”

Luckily, the investment world is actually not that cruel, and even better, with the internet on our side, it is easier than ever to reduce risks and make informed decisions. Nevertheless, risk and losses are part of the game and without accepting it, FIRE is difficult to reach.