Trading money for time

We all know what it means to trade time for money. We call it “work”. We spend our time to perform some kind of function and receive money for it. Daily, weekly, monthly. Year in and year out.

Most people get so used to it and take it that much for granted, that they seldom try to think the other way round. Trading money for time.

Trading money for time is not any new concept or idea. Most of us do it all the time without thinking about it. When we grab a coffee at Starbucks, it’s not that we just buy a coffee. In fact, we leave our money in the coffee shop for someone to take the time to prepare and serve us a coffee. When we buy a car, we pay money to save us time and effort for travelling around. When we buy groceries in a supermarket, we actually pay money not only for the goods but also for the supermarket to have arranged us a one-stop-place where we can conveniently pick up all we need in one shoot.

So if you understand the concept, you will realize and it will make sense to you that this system can be extended much further. It rationally explains, that the more money you have to trade, the more tasks you can allocate to it and get some time back.

It makes sense – especially if you got big plans

Wealthy people understand this concept perfectly, and those among us who have big plans, big ideas, and by far not enough time to tackle it all, those are the ones who should utilize it the most.

If you are an entrepreneur and want to build up a new company. If you are passionate, dedicated and can’t think of anything else but how to make your dreams come true. Wouldn’t it be a great help if you wouldn’t need to think about all those nasty daily things that one needs to do to get through the day?

Grocery shopping, cooking, cleaning the house, taking your car to the car-wash, mowing the lawn, taking care of your taxes, manage your investments, … if you could get the time back for all those routines and use it to focus on the things that matter most to you, wouldn’t that be great?

It’s not about prestige or being lazy 

People who don’t understand the concept and its value might misinterpret the idea of hiring people for those daily routines. They might think that “that rich guy is just too lazy to do the work”.

But having a housekeeper, a nanny, a gardener, a financial advisor, or a driver… for many wealthy people out there this is not about showing off to the world that they can afford it. It’s about getting back what they value the most. Time.

There is also a financial aspect to it. If you earn 100$ per hour, spending 2 hours to go grocery shopping and cooking is equal to 200$ lost. If you hire someone for 15$ per hours to do it for you, it would mean that you spend 30$ to get these tasks done, while in the meantime you have the opportunity to earn 200$. This comes down to a profit of 170$. If you see it from this point of view, then you stop thinking about why “the rich guy does it” and start thinking about why you don’t.

Time is our most precious asset

As the title of this blog goes, it’s not about money, but about time. Time is our most precious asset and the sooner this concept is understood, the sooner the concept of FIRE receives the understanding and appreciation that it deserves.

What I will do when the markets crash

The stock market is pretty rough for a couple of weeks now. Some people predict the next financial crisis. Others think it’s just a correction. And then you have all the doom scenarios out there, putting our entire financial system in question.

The truth is, I have no clue what is going to happen. No one has. Whatever happens, there will be someone out there who “predicted” it right. He or she is going to catch some glory and probably write a book or come up in some magazines and newspapers as the next Costolany. I mean even now some of the doom scenarios are being presented by “the one who accurately predicted the 2007 / 2008 crisis.” Yes of course. Somebody got to be right.

Either way, it really doesn’t change my strategy much. Because in the long run, all those ups and downs simply don’t matter. So I keep being invested – in full.

What I did recently though is to put my ETF saving plans on hold. I decided that I will save up my monthly dividends for the time being and try to amass a cash position of around 20% of my portfolio. I will then try to keep a cash-float or approx. 10-20% at all times, so if any of my nice dividend payers comes down too strong, I will be in the immediate position to buy more shares. Cost-averaging down and increasing my dividend yield on cost and cash-flow.

Which companies I am looking at in particular? One company is Shell. Royal Dutch Shell. The shares are down 16% from my last purchase and with a dividend yield of over 6,6% it’s a screaming buy. Yes, there are reasons for the shares price to have dropped, but get this: This company have never missed a dividend payment since WW2.

The German chemistry giant BASF expects drops in profits with the on-going China tensions. And yet the company has reaffirmed investors that the dividend will neither be revoked nor will it be cut.

On the healthcare front, we have GlaxoSmithKline (GSK) and AbbVie, shining through my Numbers (the mac version of Excel) sheet with great dividend yields. And while both companies have their problems, we can surely rely on people needing medicine for the foreseeable future.

Real Estate is usually a good market to be in when regular companies face challenging times. So it only makes sense that I also look at some REITs. Iron Mountain and Ladder Corp. offer great yields and remained very stable during the recent turmoils.

To sum up, I am not ignorant enough to pretend that the markets wouldn’t signal tough times ahead. But again, history gave us great lessons, and while history doesn’t necessarily repeat itself, the odds are in favour of those who invest. It’s usually specifically those tough times that offer the greatest opportunities.

Doing the right thing

Among all the places I worked at, one place remained deeply engraved in my DNA. The Intercontinental Hotel in Berlin. I worked there for about a year as a receptionist, and even though the time was short, it had a strong impact on the development of my career and on my personality.

The first and most important thing I learned was, that it’s impossible for me to work like a robot. The Intercontinental Hotel in Berlin is a massive conference hotel with a very intense daily operation. The amount of effort, focus and never-ending attention to detail are crucial to keeping this well-oiled machine running… which is the reason why I quit after a year.

I learned a lot and had great colleagues, but when every single work-step is standardized, constantly being measured and evaluated, then, step by step, you become a machine. While there are tons of advantages to this kind of system, I realized that I was not happy with it and that it was just the wrong kind of pressure for me.

Secondly, I learned a phrase that seems trivial, but that just feels so good and so right: “Do the right thing.”

Corporate brainwashing

The Intercontinental Hotel brand belongs to the Intercontinental Hotel Group (IHG). Having also Holiday Inn under its wing, IHG is one of the largest hotel groups in the world. And like every large company with a recognizable brand, there is a solid amount of brainwashing going on to put its employees like soldiers into a line. Don’t get me wrong, every large company in the world does it so I am not judging here.

This brainwashing usually starts with a simple induction training. You will learn all about the vision of your company (what the company wants to achieve), their mission (what the company is actually doing to get there) and some basic principles the company has been build upon. The goal is to establish a bond and to let the employees identify themselves with their employer.

In the second step, things start to get more specific with more focused principles and rules to follow. At IHG, we had a thing called “The 5 winning ways”. I remember 3 of them, but luckily Dr. Google knows them all:

  1. Do the right thing.
  2. Show we care.
  3. Aim higher.
  4. Celebrate the difference.
  5. Work better together.

It has been 8 years since my IHG assignment, and I still remembered number 1, 2 and 4. Especially the first one though gut really stuck in my head. What a great statement to make. “Do the right thing.”. How could anyone not relate to that??

The right thing to do

I mean seriously, who would want to do the “wrong” thing? Doing the right thing seems like a natural, obvious and only choice in any given situation, doesn’t it? Ah, sure it does! BUT… if only things could be that simple.

Unfortunately, nothing is ever simple. As it turns out, things that one person considers to be “right”, someone else might consider to be just the opposite.

We all have something that I like to call an “inner compass”. Something that gives us a sense, a feeling and a guide on how to make decisions. This inner compass is the result of many factors that stretched through our lives. Our family values, our education, our friends, colleagues, work experience, relationships, political influence… Our experiences shape our perspective and establish a certain point of view on any decision we take every single day. Since every one of us has lived differently, this inner compass will also never be a 100% match with the inner compass of others. Thus, the feeling of “right” or “wrong” will be also different for each individual person.

Shifting perspectives

But things get even more complicated because we all have also other factors influencing our decisions. Our boss, our colleagues, our customers, our business partners. Even we might think about something being the right thing to do at a particular moment from our point of view, we might be forced to do something else to meet the expectations of someone else. To maintain a relationship. To keep a job. To our personal benefit. To someone else benefit. The reasons can be countless.

With this much influence and distractions, perspectives can shift easily. Even you sometimes might want to do something that feels like the right thing to do, the result might be just the opposite.

And the same goes for companies. Ultimately, companies are not some soulless entities, but collections of individuals who are bound by a common agenda. That is why in my opinion the Vision and Mission statement of a company is so important.

There may be moments when you think that a company, a CEO or a manager of a business does something that goes against your inner compass. A decision that you do not agree with, condemn or even consider straight evil. And yet there may be a solid reason for it, and the long-term effect of this decision might turn out unexpectedly closer to your sense of something right.

An example (from my point of view)? Let’s look at the energy giant SHELL (Royal Dutch Shell). Their activity in the oil business might feel wrong, but the fact that they use a large number of their funds to transition to natural gas and renewables is a positive long-term move. Positive for my inner compass.

Of course, it might happen exactly the other way round as well. AMAZON, for instance, is pushing for a 15$ per hour minimum wage, which sounds amazing. Only that its utter motives might rather be to kill-off its competition in the SME sector who simply can’t afford to pay such wages. Again, my point of view.

So when you invest, how do you really know that the company you invest in is “doing the right thing”? Truth is, you don’t. But to a certain extent, you can at least have some certainty that you are doing the right thing by investing. Because even if markets are going down now and a recession might be looming. As history has shown, investing was (so far) always the right thing to do.

Disclaimer: I own shares of Royal Dutch Shell – B.

4 Reasons not to invest – Being afraid of losing everything

A majority of people out there thinks that investing is not for everyone. A recent survey by Blackrock revealed some critical reasons across generations, and as for why people would postpone or even not consider to invest at all. In my last two posts, I have covered the top 3 reasons from that list. Time to get to the last one:

  1. Access to and understanding of information about investing
  2. Having not enough money to start investing
  3. Being too worried about one’s current financial situation (and thus being too busy to worry about the future)
  4. Being afraid of losing everything

Worrying about losing it all is a very common concern that is being repeatedly mentioned among those who don’t consider investing at all. So let’s take a closer look at this valid concern.

Can you lose your investment?

The short answer is simple: Yes. Of course. It could happen.

You could also lose money if you forgot your wallet on the bus or train. Or you could waste money on a product that you actually don’t need. Or a product of inferior quality that will break once unpacked and force you to have to buy something else. You could lose money when you “borrow” it to someone. There are countless options.

But these would be all examples of let’s call them unvoluntary choices. Let’s look at other ideas that are supposed to make you money, but could end up losing it. Let’s see.

Putting money in a savings account is a viable option. Or so it was. But these days, negative interest rates and inflation do just that, make you lose money. Thinking about putting it all in a safe? There is no way how money can grow there, and again, inflation will take its toll. Want to max out your provident fund payments or social security? Sure, but it’s not that these are without risks either. In Germany, the pension payouts are now so low that many retirees need to apply for additional supplement money just to get by. Playing with the idea of getting some government bonds? Well, just look at Greece, Cyprus or Italy. Countries do get in financial trouble as well.

What I want to say and show is that there is no option without any risk out there. Risk is part of the deal. Of any deal.

What does it mean to buy and to own company shares?

When you invest in the stock market and buy shares of a company, you are basically becoming a partial owner of the business that you put your money in. One of many. It means that the business is already established and grew large. Large and confident enough, to be backed up by millions of other fellow investors. Millions of other people who rely on it for this business to generate wealth for them.

And those investors are never idle. They observe and evaluate the company and express their opinion about the value of the shares and thus ultimately of the company, by influencing the share price. Every single day.

Every time when somebody puts up a buy order to purchase some shares, someone else sees the order and examines whether he/she is willing to accept this offer. So there are always two parties involved. One, that wants to sell. One, that wants to buy. And everyone has his/her reason to do so.

Opinions matter

This already clearly indicates that where you might see an opportunity for a great future, someone else sees it the other way round. This also means that where you think that you can make some money, someone else thinks that this ship has already sailed. Or that the value is already fair and has no more upward potential. Or that someone is already happy with the development and needs the funds to invest in something else. Or that someone just needs the money.

You will never know the full and real reason why someone else wants to sell a stock, but you should be aware of this system. Because it also implies that there is a risk. BUT, as Warren Buffett likes to say: Risk comes from not knowing you are doing. The more you know about the company you plan to invest in, the more you can leverage your risk. Or, if you don’t have the time and patience to dive into it, you can just leave it to others.

Reducing risk through diversification and a passive investment

Warren Buffett recommends potential investors a very specific type of investment: Low-cost passive index funds. Also known as ETFs. What makes ETFs a great investment? They reduce the risk by splitting your invested money across all companies in the index that the ETF is being applied to. So if you put 100 Euros in an ETF that is following the German DAX index (which includes the 30 largest companies in Germany), it means that each of these 30 companies listed in that index will become partially yours. In tiny amounts, but yours.

Diversification through ETFs makes sense for small investors because it is hard to achieve if you invest only small amounts of money. For example, one share of the German sports giant “Adidas” costs as of today 259,65 Euro. Just one share. So if you have only 100 Euros a month to start investing, how could you buy even only this one share? There is not much of a chance to start diversifying either.

ETFs work here the same as other funds, by collecting the money from other fellow investors and putting it to work in a nice bundled package. This way they can buy all the shares that are part of the index, and let you participate in it on a partial basis. This is just one of many ways, techniques, and strategies to manage your risk.

The financial system is built for this

As an investor, you put your money to work in a business. Our world is built on that. Our countries depend on that. Our jobs depend on that. Our financial system couldn’t function without this. So unless the whole financial world collapses, there will always be some business opportunities to invest in. As a passive investor, all you do is to put your faith into the system of how the business world works.

And yes, it might collapse someday. But guess what? If our system would collapse, then it wouldn’t even matter where you put your money in. It would be gone anyway. So you have a choice here: Trust in the system and get the chance to participate in all the opportunities that it has to offer, or don’t and forfeit all your chances right from the start. If you see it this way, the decision of whether or not to invest should be a no-brainer.

If you still have some restrictions, it might be not a bad idea to get someone to help you. The internet is very resourceful, but a financial advisor could also make sense. If you are reading this blog, it means that you have already made some steps in the right direction: to educate yourself. Don’t stop there. Keep reading. Keep learning. And start investing.