Black Swan Events

The world of finance has its own set of terms to describe whatever is happening in the market. And given the current situation, just talking about “Bulls” and “Bears” is not enough. Let me introduce to you another term. The Black Swan.

Black Swan events happen every now and then. Like now. Since this is a rare event, let me also do something rare. Let me add a visualization from my favorite visualization website, to this post:


I love this website and I can only recommend anyone interested in understanding how the world works to be a frequent reader and/or to subscribe to their free newsletter. It’s awesome. And no, I am not getting any commission or compensation for writing this.

Having said all that, there is some great information on this graph. Let me point out one negative, and one positive.

First of all, on a slightly negative note, while the markets crashed heavily in recent weeks, there is still room to fall. It may be hard to imagine, but share prices might still not have reached the bottom. We certainly have not reached the same proportional drop as back in 2007/2008 during the financial crisis. In the long-term chart most investors who are more than 10 years in the market, are still very much in the greens.

Secondly, on a more positive note, we can learn here that every crash is followed by a recovery. Investors do well to keep their shares, not to panic, and instead to look out for opportunities to continue investing even as the crisis keeps evolving.

Is a recession coming?

This is a complicated question and there are many factors involved. But the chances are, in my humble opinion, pretty high. The current crisis is forcing major industries to shut down operations. Hotels, airlines, restaurants, bars, events… we are talking about millions of jobs worldwide. All the lost income, disappearing pay-checks, lost taxes, depleted savings accounts. We will feel the effects of this crisis far beyond the time when the Covid-19 Virus will take its place in history books.

Our entire world economy is based on consumption. People need to spend money to help us generate cash flows, profits, and to pay wages and taxes to keep this machine running. This won’t stop, but it will definitely slow down over the next couple of months. Therefore, it might very well be that we will have a couple of rough weeks or even months ahead of us.

Stocks are crashing. What now?

The last week was the worst week for a few years. Throughout the entire week, there was not a single day that the markets would have gone up. Everything was crashing. Tech, utilities, income. My personal account with dividend/income stocks is down to -16,47%. My speculative portfolio was 40% up just the week before and is now back to a mere profit of only +0,16%.

So what now?

The answer is pretty easy. Nothing. I am not selling anything. I don’t sweat in fear. I don’t panic. The only battle I have right now is in my mind: When to buy the next batch of shares.

I have transferred some additional cash to my stock account and will keep it there for a few days, or maybe even weeks, with the aim to pick up shares of my already purchased companies when they get to a point that I will consider them to be undervalued.

Quality first

JFK famously said, “a rising tide lifts all boats”. Well, this also works the other way round. But while a rising market benefits preferably speculative stocks which rise on hopes and expectations, a falling market will test and distinguish the quality of your picked companies within your portfolio.

While all stocks are likely to fall, the quality ones will fall less dramatically. These are the stocks that you should keep in mind for a re-purchase because after the fear is gone, they are more likely to recover or climb even higher much quicker. Companies of lower quality might fall further and are statistically less likely to recover at the same pace.

The long-term investor’s playbook

So the recommended approach now is this:

  • Don’t panic.
  • Don’t sell.
  • Keep it cool and use the opportunity to identify your quality shares.
  • Get some cash ready. Wait for the fear to diminish.
  • Add more of your quality shares at the best possible value.

Happy investing!

Stakeholders are the better shareholders

There was some amazing news coming from Wall Street a few weeks ago. 181 CEOs, members of the so-called business roundtable and representatives of some of the largest companies in the USA, declared that maximizing shareholder value is no longer the single purpose of their companies. Instead, the emphasis would shift towards stakeholders.

I believe that many people out there don’t understand the difference between a shareholder, and a stakeholder. Or they didn’t take the manifest seriously. Otherwise, I have no reasonable explanation of why this fundamental shift in corporate management attitude doesn’t receive more coverage.

Shareholders vs. Stakeholders

The definition of a shareholder is very simple: Someone who owns shares of a company.

The definition of a stakeholder, however, can be very complicated: It’s everyone who is in direct or indirect relation with a company.

This includes the shareholders. But it also includes the employees, business partners, land-owners, basically all who are affected by the companies operations. It includes the entire eco-system in which the company is active, including the environment.

With a similar mindset to the one of thinking global and acting local, a company that takes care of its stakeholders will do its best to contribute to society in every aspect that makes sense and where the company can make an impact within the scope of its operations. Starting with its own employees, support to local governments, business partners and spreading into larger topics and areas as long as they are related to the companies business.

A holistic concept

This is a true game-changer. It acknowledges that a company, any company, carries responsibility towards society as a whole. It assumes the understanding that the companies’ employees are actually a true and real asset and require at least as much attention as its shareholders. It also acknowledges that company profits need to receive a long-term consideration that goes beyond quarterly reports.

Putting stakeholders to the front of a companies responsibilities is a holistic approach to business.

Too good to be true

I had (and still have) some serious doubts when I read the news. Especially when I noted that Jeff Bezos is a signatory of the declaration, my alarm bells went off.

The CEO of Amazon is hardly known to be a person who cares for his stakeholders. If he signs such a treaty, it automatically degrades the value of the paper it’s written on. Jeff Bezos and Amazon have gained amazing success over the years making Bezos the richest man on this planet. But his contribution to the world ends with the shopping experience.

Compared to people like Bill Gates or Warren Buffett, his priorities and philanthropic efforts seem almost non-existent. The most diplomatic word that would come to my mind would be “uninspiring”.

Same would account also for a few other CEOs and companies which have shown little effort in the past to take care of their stakeholders. Is this declaration really going to change it? Or is it just a PR stunt?

Shareholders will profit – in the long run

Time will tell, but I do believe that among many SMEs out there, the idea is nothing new. In fact, most family-run business and small enterprises which are not listed on the stock exchange had this approach on their business cards for a long time. It’s been the large corporations who moved into a questionable and unsustainable business mind – and it’s time that they get back on track.

Being an investor and shareholder myself, you might wonder why I applaud this change. True, some companies might have to review their supply chains, work procedures, payrolls. This might affect profit margins and ultimately the dividends that I collect every month.

But I rather see my dividends growing steadily over a period of 50 years than to read news about how the companies that I am invested in are contributing to environmental destruction, abuse of workers and handling its business partners unfairly, only to secure a slightly higher profit percentage.

The employees are at the heart of a company. Business partners and the environments are the tools, places and customers that ensure it stays in business. The way I see it, putting stakeholders first is definitely a smarter approach to do business and shareholders will profit from it on a much wider spectrum.

About ETF Investing and DRIP

One of the most popular ways to invest is to purchase so-called Exchange-Traded Funds, or short, ETFs. The concept is simple and quickly explained. It is basically a similar structure to a regular fund, where stocks of companies are being purchased into the fund and then being sold to potential investors as one product. The integrated mechanism is passive, which means that the fund is not being actively managed by any fund manager. Instead, it simply follows the share price of each stock within the fund.

This specific structure is great because it can keep the management fees of the ETF extremely low, while at the same time offering investors a wide diversification across several stocks at the same time. It is also a fact that most ETFs perform similarly or even better than most managed funds with the same investment scope.

I am invested in two ETFs. One is following the German MDAX Index. This ETF is not paying any dividends, but re-investing all profits immediately as they come up back into the ETF.

The other one is focused on European high dividend stocks within the EURO STOXX Index. This ETF is paying out dividends.

ETFs are a great way to DRIP

My previous article was about dividend reinvestment programs or DRIPs. As I mentioned, while it is very common in the US, it is not something European banks would offer to their customers. For my part, I am therefore usually collecting my dividends until I reach a critical sum of approximately 1.000 Euros and would then buy some new stocks/shares with it.

However, for people who just started to invest this may not be an option. If you only receive 10 or 20 Euros in dividends each month, then collecting a thousand Euros seems far off. Small investments of 10-20 Euro or even a hundred Euros may make little sense as the transaction costs for buying the shares will be too high and drag down (meaning it will increase) your average purchasing price per share.

Setting up an ETF-savings plan is a great way to solve this problem. ETF saving plans can be set up starting from as little as 25 Euros per transaction, and you can schedule it to be on a monthly, 2-monthly, quarterly or semi-annual basis. So even if you receive only 10 Euros a month, you can simply set up a savings plan on a quarterly payment basis and you will have effectively a DRIP in place.

If you prefer to set up a DRIP which will increase your dividend flow, then make sure to choose an ETF that is paying out dividends.

Creative thinking with investments

There are many methods and products in the world of finance that we can utilize to effectively set up our investments, to improve our income and ultimately to prepare ourselves for a bright future. Luckily, all we need to do is just a little bit of reading, an online banking account, and as little as 25 Euros to get started.

Investing in ETFs is a great way to diversify your portfolio, to DRIP and to build wealth in the long-run. So why not just start with it today?

Thinking about inflation

Today is the 12th of May, which means that today is the last day of the 19th week of this year. This, in turn, means that we have only 33 weeks left until it’s New Year’s Eve again. Time is short.

I have fulfilled one of my targets for 2019 and took a break in-between jobs for a total of 6 weeks. Frankly, I could use another 2 weeks. I spent 3 weeks in Thailand relaxing in and working a little on our house in the beautiful north-east province of Isaarn. After that, we visited my parents in Poland for a week and spent another 2 weeks together in our main home in Berlin. Those 3 weeks in Europe just passed by like nothing.

It’s funny because every time I visit Europe I feel different about it. Last year I was feeling great and was actually really thinking about moving back to Berlin. The summer was nice and hot, people were smiling and my daughter had the best time with my parents. This year, while it all also felt good, I took another perspective. One thing I noticed was that the city is getting pretty expensive.

Inflation is just part of the deal

When I moved out of my parents’ place at the age of 21, I had a super tight budget and was only able to spend approx. 20 Euros a week. My rent was roughly 400 Euros a month, which was equal to my income from my civil-service job (instead of going to the army I was doing civil service and working in a kindergarten). While working there from 6 AM to 3 PM every day, I took on a 2nd job for 3 hours daily at some local office. It would pay me 6 Euros an hour, and cover my expenses for utilities, telephone and whatever was required to ensure I don’t end up on the street. Additionally, in the evening, I would give Karate-lessons to children once a week in my local dojo which paid me 20 Euros. This was the money that I used to buy food/groceries for me and my girlfriend at that time, as we moved in together. It was tough but do-able.

Today, it’s impossible to find a 70 sqm 2-bedroom roof-apartment anywhere in Berlin for the same price of 400 Euros. Prices have doubled and tripled. It would also be very hard to get through the week on 20 Euros, even if that 20 Euros would be only for myself.

We all know that things change and that prices go up, one way or another. It’s just how it is and part of the game. Going deeper into this topic one might argue that today we receive much better value, despite paying a higher price. Apartments are in better conditions, with central heating systems, clean drinking water from the tap and better-insulated buildings to protect us and reduce heating costs during winter. Computers got actually cheaper while offering a performance that we could only dream of 20 years ago. Food… well this one is probably arguable. I don’t think food got better over the years.

But still, we really need to think about it and what it means for our personal situation.

Future prospects

This all happened in less than 20 years. I am now 39 years old so chances are, that I got at least another 20 years ahead of me. Probably more. It could be another 40 years. Or even 60. Could prices double and triple again?

Well, yes they could. In fact, I am pretty sure they will.

That’s why it is so important that your savings grow at a similar or larger pace. We cannot rely on things remaining similar in pricing in 10, 20 or 30 years from now. What we think will be enough to live on today, may be very different from the reality in the future. That’s why keeping money on a savings account over long periods of time is probably not the right thing to do. This money is losing value day by day.

Investing in stocks that consistently grow dividends, on the other hand, seems like a much smarter way to go. Even if those increases are marginal, like 2 % or 3 % a year, it beats every savings account out there not only by percentage but more importantly by its long-term value.

Obviously, if those increases can go up to 7 % or 10 % or even more, then there is really not much to complain about. And, this is not the case only for some rare-super-stocks. It’s pretty common for many companies out there. Plenty of companies increase their payouts on an even much larger scale, like 15 % or 20 %!

It does also make sense for a few simple reasons. As prices go up, so do revenues and profits. If companies manage on top to improve their margins and grow market shares, the growth becomes exponential. As an investor, you are poised to participate in this process.

This is why investing is such a powerful tool to increase wealth and this is why in my opinion, everyone who plans for FIRE needs to be invested one way or another.

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.


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.

FIRE – is also a job

FIRE stands for “Financial Independence Retire Early” and it’s actually not a new concept. Any freedom-loving-person will have had this idea no matter at which point in time/history/place in the world. The idea behind it is very simple: Saving up cash, investing and stop working as soon as possible.

It’s a great idea, but unless you are extremely lucky or come already from a wealthy background, it’s very difficult to pull it off without a proper plan – as I mentioned in some of my previous posts. There is no magic bullet. However, what we do have now is not magic. We got the internet.

The internet. The greatest source of knowledge that humanity ever had at its disposal, accessible 24/7 from almost any spot in the world. While there is a lot of useless data out there, there are plenty of blogs, newspaper articles, financial websites and of course, successful early retirees who are usually more than happy to share their experience and how they got there.

Sharing is caring

Sharing knowledge is, generally speaking in everyone’s best interest. At the end of the day, it’s better for all of us if more of us have a safe and sound future. Following this, there are plenty of great websites that can teach us a lot about how to deal with financial issues. How to invest, how to live a frugal (but happy) life, how to pay back your debt, and plenty of other things that can help us to advance.

Once you start following even just a few of these websites, get into investments and start figuring out how to save up cash, you will quickly realize that it’s actually pretty time-consuming. The time you spend on it will at some point start producing results, and the results will (hopefully) turn into cash. And well, isn’t this the definition of a job? Dedicating time and effort to a monetary reward?

 You will probably never retire

Looking at it this way, one can say that even a person who has reached FIRE, never truly retires. You need to keep learning, investing, saving and being actively focused on maintaining your FIRE status. This is the reason why I actually don’t use this term for my personal future goal.

Ultimately, it’s not about retiring early, but about the freedom to pursue our own interests at the time and place of our choice.

Discipline, Patience, ​and Emotions

To reach financial independence, it is important to save, invest and to create alternative sources of income. At the same time, it is also important that we keep our spending routines at bay to ensure that at the end of the month, the account remains positive, all bills have been paid and that there is still money left that can be invested. The basic formula remains as simple as it gets at all times:

Income – Expenses => Money on the bank => Money available for investments

Obviously, most of us won’t be able to set aside and invest large amounts that will immediately show a great relief. Adapting the investor mindset and truly understanding that time is our biggest asset takes a while and requires a lot of patience, but even more so, discipline.

Discipline and patience are key factors to create wealth and are both in my opinion, among the most important attributes of any human being. I might go a little far on this judgment call but I really want to point out the significance of these skills.

I can’t think of almost any situation when a patient person would not be rewarded at some point for their skill, benefitting from a much better risk/reward ratio compared to a person who rushes into things. Of course, there can be a situation where the fastest reaction may give a “winner-takes-it-all” reward. But in the long run, a patient person usually gets to where he or she wants to be in one way or another.

At the same time, nobody would doubt the benefits of a disciplined approach to any job, study or project that any person in any profession around the globe would face at any given time.


The great news is that both, patience and discipline are skills. It’s not something we are born with, but rather it’s something that can be trained. Some might find it easier or more difficult depending on the way they grew up, but overall, everyone can learn to be patient and disciplined, provided the right training and incentive.

To master patience and discipline, it is all about learning to control our emotions. 

Most of our desires are initially based on our emotions. We smell a fresh banana-pancake on the road, and we want to have it. We see the new iPhone, and we NEED it. Our friends tell us about the new gym and the amazing yoga course, and we want to join it. The sun is shining hot and bright, and we want a cool beer.

There is nothing wrong with all of that, but what we got to learn is to step back before making a decision and be able to evaluate the actual benefit of it – and whether it helps us to reach our target or not. The banana-pancake surely smells and tastes great, but if you are not actually hungry and perhaps on a diet, then you should not buy it. There is a new iPhone coming out every year. Just keep using your old one, nobody really cares and it will do the job for 5 years at least. Unless there is anything wrong in your current gym, there is probably no need to change it. Well, you might consider if it comes cheaper with a promotion. And on any day, a glass of water will refresh you more and serve your body better than a beer.

The true strength of a successful person lies in the ability to evaluate situations and to make decisions that help him or her to reach set goals, even if it goes against his/her own desires and the ideas or expectations of co-workers, families, and friends.

This is easier said than done and you may truly be forced to do some great sacrifices along the way. But at the end of the day, no one said reaching your goals would be easy. In fact, it never is. But with time on our side, setting goals and working towards them with a disciplined routine promises a high chance of success. 

Reaching financial independence quickly is not a simple task and thus not easy at all. In fact, I would say it is one the largest challenges of all times, with billions of people struggling to even think about it. It is not impossible, but in order to reach such an ambitious target, the focus and determination have to be at peak while one’s patience and dedication will truly be put to a test on more than one occasion.

  • I can’t count how many times I have been fighting with my wife about expenses that I was not willing to agree on. I am talking about simple cases, like buying toothpaste. I mean, why would I buy toothpaste if my pack at home is still full? Or buying shirts. I still got 7 perfectly fitting shirts that are less than 4 years old and enough to carry me through the week. Why would I need more?
  • I lost a lot of friends when I left my home country in pursuit of a better career and my personal goal of living abroad, in a low-tax, low-cost country. The logic was simple and turned out to be true, that we can develop better and faster in a developing surrounding. One needs to take some risk into account and accept possibly lower living conditions, but overall the risk/reward ratio is significantly higher compared with staying at home.
  • Most of my colleagues are shaking heads when they see me and my family driving around in the small Mazda 2 while I surely could afford a BMW or a Mercedes – or a second car. But why would I want to spend so much money just on some convenience? Having a car at all is already a luxury factor for me that I would not consider to have if I wouldn’t have a family, so one is more than enough. And the additional costs for gasoline, repairs, insurance, cleaning, etc. are not attractive at all. It is so much cheaper to use public transport and in the event that you really need a car, just to rent it.

This samples may sound extreme, but I want to retire with 45 and that’s only 7 more years down the road. To get to this point, I needed to focus on the main factors:

  • First to have a great career. I am sure I mentioned it before, but let me repeat: your career is your single most important starting point to get on the fast-track to financial independence, and there are more opportunities in developing countries.
  • I need to save 30-50% of my income, but this won’t be possible if I have to give away 30-40% on taxes alone and finally
  • I don’t want to spend another 30-40% of my income on basic living expenses including housing and food.

Following most financial advisors to save approx. 10% of your income is OK, if you plan on working until 65. If not, you need to save significantly more and considering this set of goals, the decision comes very rationally in my opinion. The samples don’t sound extreme to me at all. They rather show commitment to the set target. Without discipline, patience and controlling emotions, making those decisions wouldn’t be possible.

Now, this may not be everyone’s cup of coffee. Many people will say, that they want to enjoy their life and since there is a chance of dying much earlier due to an accident or unexpected medical condition, they want to make sure to make the most of it. But let me show you a very simple and brief overview. Numbers don’t lie so here it goes.

Consider living for 75 years. The first 25 years are devoted to family, school, university. Most of us have only good memories of this time due to the amount of time we spend with friends, families and other relations. Thus, out of this 75 years, 50 are left. Most of us intend to work until 65 when social security kicks in. So, from 25 to 65 are exactly 40 working years to consider.

One year has roughly 52 weeks or 14,560 days over 40 years (it’s actually exactly 14,600 days but the calculation with workweeks makes more sense here) with a 5-day workweek. That’s 260 days of work. The average European has 28 days paid vacation and another 14 days come for public holidays. So we are down to 218 days of work and 146 days off per year. You see there is one day missing out of 365 which is due to the work-week calculation, but it’s negligible in the grand picture.

A person who works 40 years will, therefore, have spent: 
218 x 40 = 8,720 days working and
146 x 40 = 5,840 days not working over the period of 40 years.

For a person who sacrifices and goes all-in to finish with 45, the calculation is as different. From 25 to 45 its 20 years dedicated to working and then he/she is done. For the purpose of a comparison, let’s see how it works to compare the 40 years of work with the same amount of time split in 20 years with, and 20 years without work.

In this case, we will have:
218 x 20 = 4,360 days working and
146 x 20 = 2,920 days not working during those first 20 years, and
52 x 7 x 20 = 7,280 days not working during the other 20 years.
Thus resulting in a total = 10,200 days not working over the period of 40 years.

I specifically calculate in days, not hours and you might be right to dispute this. If you go for a career, you will have usually no way around pushing plenty of overtime but it’s the total timeline that I want to compare.

Thus, in my eyes, there is a possible double-reward here. If you are successful in retiring early, you get to double up your free time and you reduce your total time committed to work by half. Even more so, and not taken into account on this calculation is the fact, that you won’t need to worry beyond the age of 65. Because, seriously, if you think social security will be enough to take care of you, better think again. And what about if you don’t die early, but rather old? What do you intend to do with those additional 20 or 30 years, when you won’t be able to afford going out for lunch without sacrificing payments for your medical expenses?

This is some serious stuff to think about, but no matter what, it’s never the time to get all emotional about it. Rather realize your target, set goals and start working on it. Start investing. Time is your friend. And so is the investor mindset. Stop The Rat Race.

Nobody wants to get rich slowly

When the financially most successful people on the planet are having discussions, it might be not a bad idea to listen. And there is a famous quote from Warren Buffett, which came up during a conversation between him and the currently richest man on earth, Jeff Bezos, the CEO of Amazon.

During this conversation, and those two being longtime friends, Jeff Bezos asked Warren Buffett: “You are the second richest man in the world and yet you have the simplest investment thesis. How come others didn’t follow this?” To which Warren Buffett responded: “Because no one wants to get rich slowly”.

This statement couldn’t be truer

When you think about investing money in the stock market, there is a high probability that you might have a certain picture of investors and stock traders in your mind. Successful individuals, who in your eyes made fortunes overnight. You might think about news articles when some publicly traded company reported amazing success stories with its stock price sky-rocketing by hundreds, or even thousands of percent over a few days, weeks, or months.

I am not saying that those stories aren’t true. There certainly are cases of famous companies which made some investors very rich in a short time. However, that is not really what stock investing is about.

Yes, it is possible to get rich with stocks quickly. It is also possible to lose your hard-earned money even quicker. And this is where the misconception starts because many people who lack financial education see the spectacular rise or fall of companies as something else. They consider investments as just another method of gambling. A quick get-rich-scheme with all its promises and the attached risk to it. Just another lottery. In reality, though, investing money in companies is a partnership and a commitment. And both take time to grow and to develop.

Patience is key to success

When you buy shares of a company, you become a stakeholder and thus, a co-owner. It means that from that moment on some tiny part of this company belongs to you.

If you look at investors from this angle and if you would think or consider becoming an investor, what kind of companies would you, therefore, choose to partner with?

The choice is all yours and you have plenty of diverse opportunities at hand. Would you prefer to take a stake in a new business idea? A company that may disrupt some business and that may someday produce exploding profits? Are the ideas and the team behind that company smart and resilient enough to make this come true? Or would you prefer to partner with an established business, that is growing its reach, revenues, and profits step by step?

For most people who intend to build wealth, the 2nd option will be the preferred one. The simple reason is that we do want to have some sense of security. A reliable, established and steadily growing business offers a promising risk-profit ratio. However, it does require time and patience to fully develop into a compounding source of long-term profits. It’s not a get-rich-quick scheme.

Reduce your risk with an index fund

For the average investor, Warren Buffett recommends also diversifying investments. He advises people not to buy individual stocks, but instead to invest in so-called index funds or ETFs. His preferred index recommendation is the S&P 500 which represents the largest 500 companies in the US.

When you buy this index, you become a co-owner with the 500 companies which are included in this index. The idea is that thanks to the structure of an ETF and the investment being basically split into 500 tiny pieces, your risk ratio becomes diversified and more balanced.

This works, because even if one of those 500 companies should tumble, the other 499 can easily balance out the drop. It’s a simple way for investors who don’t want to think too much about where and how to invest their money. It offers a balanced investment approach in which risks and profits are diversified. It won’t make you rich quickly. But if history is of any lesson, it will generate wealth in the long-run.