Market Crash – First Round

I somehow managed not to write an article for a whole month. No excuses, but I was busy. I got occupied with my wife’s smoothie business, I had to make a 1-week business trip to Krabi and Koh Samui, and my head office in Bangkok had plenty of requests for me to work on. My daughter required a little more attention, my dog had his final moments and sadly passed away after almost 18 years of companionship. March was a little overwhelming.

Most of the little free-time that I had left I spent at the gym. Turning 41 must have triggered a tiny midlife crisis in me, because recently I not only started visiting the gym more regularly. I even started applying face cream. Yes, I know. I might be late to the party but previously, I never actually considered doing that. Instead, I enjoyed getting to look older for the last 5 years or so. I don’t know, but all these small wrinkles, I always felt like they would add more character to the picture. This changed last month.

Anyway. That was some thoughtful introduction. Now back to finance.

With all my portfolios back in the greens, I call the market crash over. Done. Finished. History has once again proven reliable, and the stock market showed a pattern that experienced investors appreciate for many decades now. There is always a crash. And there is always a recovery. Once again those who trusted in the market and kept steady or even invested during the crash are now coming out stronger, and wealthier than before.

Don’t blame yourself if you missed out on the action. It might have been just the first round for you, but it surely won’t be the last. We don’t know when the next crash will come and it’s impossible to time the market. But history is teaching us over and over again, that there is no bad time to start investing. In the long-run markets tend to go up more frequently, and stronger if compared with the downturns. So when stocks do go down, it’s usually a good time to be looking out for great companies at fair or even at cheap prices. In the meantime, you can keep investing anyway.

The market was rising strongly for a few weeks now, and it’s very likely that it will continue to rise. Unless of course we get another pandemic, a war, or any other kind tragedy that would put the world in turmoil.

I am rather optimistic, by nature, mostly because the US has a reasonable person back at the top. President Biden is more predictable, communicates smarter, and pays attention to the world as a whole, in stark contrast to his predecessor. At the same time he is tackling massive investments in his countries future, which should push the entire world into a competitive streak of investments that will benefit a wide range of corporations globally. Investments create cashflows, revenues, salaries. These in return curb consumption, spending. That’s how the world works, and that’s why investors keep winning.

So if you are already invested: Enjoy the change of winds and watch your portfolio recovering or growing. If you are not invested yet, now is as good as ever. You might have missed the speedy recovery, but the opportunities are endless.

About multiple income streams

People all around the globe face unprecedented challenges. Well, at least it’s unprecedented for my generation (Gen X), and certainly for Millenials and anyone younger than them. Millions are losing jobs, are forced into quarantine. Many are in dire need of some kind of assistance, whether it’s cash, food, or both.

Here in Thailand, we just passed through the first month of the lockdown. When I drive through the streets of Bangkok or Pattaya where I am currently working, I see people lining up (with social distancing) for food support from the government and from some private institutions.

The Thai government is issuing cash support of THB 5.000 per month to those who need it most. It’s not much, but it’s enough to survive on a very low bar. Together with the support from private institutions, NGOs, and hundreds of those who are more fortunate and who are volunteering to support, I have no doubt that the country will get through the event.

I am also always astonished by the amount of support among Thais in times of crisis. My wife is getting postal packages from friends and family with food, face masks, and snacks. We pass on the favor by sending things to others who need it more than us. I am fortunate enough to still have my job and my monthly salary intact, albeit slightly reduced.

About income and unexpected situations

But not everyone is lucky. Similar to other places around the globe, unemployment in Thailand is on the rise on a massive scale. This is dire in a country with very limited governmental social protection in place, and where most people live paycheck to paycheck.

Which brings me to the main point: Unemployment means for many people to lose their only source of income. And we can see right now more clear than ever, how many people’s lives really depend on their job. Being without work and without an opportunity to find new employment within a short time has now turned into an existential threat for millions of people.

Also, only very few of them could have even imagined such a situation two or three months ago. Yes, some might have an emergency fund and savings to ride out bad times. But would they have expected that they can lose their job, their income, and their benefits within such a short period of time? Hardly.

Building up multiple income streams

This is where the lessons of FIRE become such a powerful reminder, because having multiple, passive income streams is what FIRE is all about! The whole point of becoming financially independent means not being dependent on your job.

Building up passive income streams is best done by investments. Sure, the stock market is crashing and we are sliding into a recession. But out of the 33 companies in my income portfolio, so far only one of them has canceled the dividend, and only two announced to reduce it for this year.

Thanks to this, I am never worried about losing my job. Sure, my monthly dividends can’t compare with my salary, but that’s not the point. The important part for me is that I won’t need to rely on government support and on charities. I will be able to fulfill my main responsibility of providing shelter, medical protection, and food to me and my family on my own.

Personally, this is a very important factor to me, as this defines my perception of freedom and independence.

Who gets the money

And just to add another layer of understanding of why investing is a safer bet than your job, let me explain here one thing. While our savings and jobs are being destroyed, a crisis like this also generates unimaginable amounts of money. While stock valuations may be nosediving right now, governments all across the globe are printing cash like there is no tomorrow.

And where does this cash go to?

In the US, every US national is receiving a one time check of USD 1.200. There are 328,8 Million people in the US, so this sums up to roughly 395 Billion USD. Yes, it’s a lot of money.

But you know who gets more? Companies. Especially the big ones. They get bailed out when they get in trouble, they receive grants, and the FED is reducing interest rates so they can borrow money almost for free. This may sound very negative, but I don’t mean it that way. That’s just how it works for plenty and a variety of reasons.

The important thing is that you have a choice to make. Do you stick to your job and when you lose it, wait for your one-time check of USD 1.200? Or do you invest, and build up multiple and passive sources of income?

Having the knowledge that governments across the globe will put significantly more effort into protecting your investments and your sources of passive income (in comparison with taking care of you directly), this shouldn’t be a complicated choice to make.

How to prepare for a market crash

The stock market has been going up for quite some time now, and every now and then we can read about some market analysts predicting the next crash or crisis. The common consensus is that it’s not whether a market crash will happen, but only when it will happen. And I fully agree. It would be foolish to think that markets can only go up. Someday, something will happen that will send share prices to rock bottom.

How investors can prepare for a market crash

And yet, every long-term investor out there will tell you the same thing: Staying in the market is the only right choice. Peter Lynch comes to mind with his fairly accurate quote that “far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

Yet this doesn’t mean that there is nothing that could or should be done. And in my case, I follow the strategy of long-term focused investors. I invest in dividend-paying companies. Especially in those which have a track record of paying out dividends even when a recession hits their profits.

The rationale behind it is two-fold.

For one, I want to make sure to have a steady cash-flow coming in, no matter what happens around the world. Those companies that not only survived the financial crisis back in 2007 and 2008 but also managed to keep or even to increase their dividends are great picks in my view.

In my personal portfolio, this would be companies like AT&T (T), Royal Dutch Shell (RDSB), AbbVie (ABBV), or GlaxoSmithKline (GSK). Other reliable candidates are the likes of Starbucks (SBUX), Apple (AAPL), Imperial Brands (IMBBF), Vodafone (VOD), E.On (EONGY).

Communications, Utilities, Medical, and Consumer stocks have proven reliable partners over the years to keep generating cash-flows no matter what. This kind of companies are called SWANs, because they let investors Sleep Well At Night.

Secondly, having a steady and continuous cash-flow allows an investor to take advantage of market corrections. While others might sweat and crumble watching their portfolio value crashing down, investors with large passive income from dividends get into the unique position of having the opportunity to buy company shares at rock-bottom prices. Following Warren Buffetts mantra of “being greedy when others are fearful”, this strategy has proven to provide outstanding results in the long-run.

Not giving into emotions

All this is easier said than done. And yes, I have been there. On a few occasions, I have watched some of my shares dropping as much as 70% or even 80%. When the value of your portfolio drops down from 50.000 Euros to be only 10.000 Euros – it really does hurt.

You can’t sleep. You get nervous, you get easy to panic and it seems that you get constantly into a bad mood.

This has completely changed since I started to focus on dividend-paying stocks. While I still have some shares that are rather speculative and pay none or very tiny dividends, the majority of my investments are in those stable and long-term focused business models.

Stable investments help us to keep our emotions in check and thus to make smarter decisions. And in the long-run, there is no smarter financial decision than to be invested.

Disclosure: I own shares of all the companies mentioned in this article.

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.

2019 – Drop the resolutions!

Yes, you read right. The new year started but we don’t do the resolution stuff. We start the year with serious targets.

Today is the 6th of January, so the 1st week is almost gone. This means that we have roughly another 51 weeks to meet our own, ambitious but still realistic expectations on 2019. What can be done in 51 weeks? Here are my targets:

  1. Improve on time management. As you all know, and as the sub-headline of this blog indicates it: It’s all not about money, it’s about time. Time is our most precious resource and it needs to be managed well. A day has 24 hours. After deducting those 6-7 hours that are necessary to re-charge our batteries, plenty of things can be achieved each and every single day, if we allocate the remaining time efficiently. I would rate myself rather poor on this skill so far, as I still spend way too much time with my phone, while I could allocate more time to this blog, to my side hustle, to stock analysis, and to my workout routine. I will start slowly by:
    • trying to leave work on time,
    • delete useless apps from my phone and
    • to schedule my workout routine a little earlier throughout the day (so far I was always exercising after 10 pm)
  2. Increase side hustle earning by 50%. Right now I am writing about 1 article a week on average. I will try to increase this to 6 articles a month to curb my side-hustle income and to have more cash available for investments.
  3. Increase my dividend income by at least 10%. That’s right. While this should be not a problem, I put it on my target list. Most of my stocks will increase the dividend throughout this year anywhere between 2% up to 25%. However, I can also increase my dividend output by buying more stocks of companies which I already owe and which had been dragged down throughout 2018. This will cost-average down the stock-price in my portfolio and thus increase my average yield on cost per stock.
  4. Prepare for a larger market crash by saving up enough cash to be equivalent of 50% of my current stock portfolio volume. That’s the biggest and most difficult one, because this would require me to really try to achieve my savings target of 40% of my total annual income. Not impossible, but a tough one.
  5. Find a new job and re-negotiate my base salary by at least +20%. As mentioned in the last post, it should be possible due to my current situation, but I will aim even significantly higher. With perks and benefits, the total value increase should be at around 35%.
  6. Take a break for 1 month in between jobs. Yes, I put this in my target list also. I need time to recover and re-charge after my current assignment. I have now worked almost 2 years with a 6-day workweek, spending on average roughly 65 hours a week in my hotel. This does not include my side-hustle activities, my family time and my exercise routines (which takes 1,5 hours per day). So yes, to ensure I get no heart-attack before time, taking a break for a month will be commendable.
  7. Visit Japan and/or Korea this year. Indeed, it is about time. I haven’t gone to Korea and Japan since 2012 which is a real shame. I know my parents want to see my daughter and want us to go to Europe, but Japan and Korea is the reason why I moved to Asia in the first place and I seriously need to visit this beautiful places once again. On top, I have promised my wife this trip for a very long time.
  8. Exercise routine annual target:
    • 36,500 push-ups (100 per day),
    • 18,250 burpees (50 per day or 150 every 3 days),
    • 18,250 squats (50 per day or 150 every 3 days),
    • 3,650 pull-ups (10 per day),
    • Fresh-up of all my martial arts / kata routines
  9. Actively teaching German and English to my 3 year old daughter for 30 min a day
  10. Actively involve my daughter in my exercise routine to practice with me. She already started to sit on my head when I do squats or push-ups and loves to hang on to me when I try to do pull-ups, but this can be fostered more

So yeah, many things to do and 51 weeks is actually a short time. The older we get, the more we realise how precious time is. Let’s make the most of it.

And no, you really don’t need 8 hours sleep. The day is just too short to spend 1/3 of it with doing nothing.

This year, I also intend to write more about individual stocks and my investments. So just to give a brief heads-up, here a list of stocks which will be discussed and possibly purchased sometime in 2019:

Monthly dividend paying stocks:

  • Gladstone Investment
  • Main Street Capital
  • Realty Income
  • Apple Hospitality

Regular Stocks:

  • Ares Capital
  • Cisco Systems
  • Starbucks
  • Microsoft
  • McDonalds
  • Coca Cola
  • Merck
  • Pfizer
  • Iron Mountain
  • Tesla
  • Bayer
  • BASF
  • Aumann
  • DÜRR
  • GlaxoSmithKline
  • Royal Dutch Shell (B)
  • Baozun
  • Alibaba
  • QQQ


  • iShares MDAX UCITS ETF

Disclosure: Some of those stocks I already owe, some I had in my portfolio in the past but sold them with a profit and plan to buy again when prices drop.

So get ready for a furious, active and hopefully rewarding 2019!

2018 in retrospect

So this is it. Tomorrow is Christmas, and only a week later we will already be saying “goodbye” to 2018 and “hello” to 2019. I will be working – a lot – over the next 10 days, so let me write my last words on this blog for 2018 today.

Obviously, since the blog is about personal finance, let’s start with that.

Personal Finance

I was not able to hit all my goals and targets for 2018, but some. The most important one is obviously my savings buildup. In 2018, I managed to save / invest 32,3% of my total income. A little bit better than 2017, when I saved 31,16%, but far away from my target of 40%.

Ambitions are good, but if setup too high, it can become frustrating to chase them. So for 2019 I will drop my target slightly and try to reach 35%. This should be manageable, because as of 1st Jan 2019, I will have no more monthly instalments for my car in my budget plan. That’s right. I paid down my car early (within 3 years) with several extra payments along the way. Thus, these payments will disappear from my monthly bills and shifted towards my savings plan.

In 2019 I might also skip vacations in Europe, which are a costly family event. This is not due to my savings plan though, but rather due to an anticipated job-change sometime around the middle of the year. So instead of 4 weeks in Europe, I might just do 2 weeks in Japan or Korea.

Either way, I was promising my wife vacations in Japan basically since the first day we met – 6 years ago, so yes, it might be the right time to get set this record straight.

In terms of stock investments, we have had a negative sentiment in 2018 and in 2019, the markets might very well crash. Therefore, for the first 6 months, I intend to collect cash and to get ready for the stock sell-off. When markets crash, there are usually plenty of great opportunities on hand, and I want to be ready for it. IF markets should drop by 40-50%, it means that I should have at least a quarter or better half of my currently invested amount available in cash – to cost average existing stocks and to add some new ones which will come as great bargains.

Maybe just a word about cost-averaging.… even the most optimistic stock-maniac (such as myself) needs to understand: When a stock drops by 50%, it will need to rise again by 100% just to be back at square 1. So if your stock drops by 50%, it might make sense to double down on it and to purchase the same or even a larger amount of the same stock at half price. This will reduce your average cost per share and your losses in % down to 25%. A loss of 25% can be recovered much faster than 50% and you will end up with higher profits – provided the stock comes back to the point where it was before the crash.

I don’t intend to sell any of my stocks. Most of my positions pay a solid dividend. In 2018, based on received payments and invested total amounts, my dividend income settled at 3,2%. It’s not a great number, but it’s only that low due to the constant additional cash that I poured into my account. For 2019, I expect the dividend income to increase to something around 4-6% and for 2020 to reach a range of anywhere between 5-8% returns. Once I reach double digits will be the point where I stop adding cash to the portfolio.

How is this achievable? Well, among a few other factors, it’s the power of dividend growth and the cost-averaging of some of my positions. Let’s take a look at the European energy giant E.On, which is one of my core holding positions. In 2018, the received dividend came down to only 2,32% after taxes. E.On paid a dividend of 0,30 Eur per share in 2018 and the withholding tax on dividends is roughly 26%. In 2019 however, the dividend will be raised to 0,43 Eur per share and for 2020 the expectation is around 0,60 Eur per share. That’s almost a 43% increase in the first year and a 100% increase over 2 years. Apple (another core position of mine) is expected to raise its dividend by at least 20% year on year, for many more years to come. Royal Dutch Shell returned to me only 2,7% on annual basis, but I purchased the shares just in June, so I missed the first 2 payments in the first half of the year, which I won’t miss in 2019. Thus the income will grow to a minimum of 5,4%, given the company will not cut or increase the dividend and of course provided that I don’t add more capital to it.

I have only 1 company in my portfolio that is not paying a dividend – and it is my biggest loss this year. My VOLTABOX shares are down 53%. However, since I don’t see any valid reason for the sell-off, I will probably add some more shares of this company to cost-average down and see how things play out in 2019.

Maybe another word of advise: During rough times, focusing on dividend paying stocks has proven to be a successful strategy to minimise risks.


I have pretty much reached the first top of my career ladder and don’t expect any significant position-jumps over the next years. My target for 2019 is to switch jobs, to move to a larger hotel (I am a hotel manager) and to negotiate a salary increase of approx. 15-20%. This should be possible, as I am still within the lower salary-range within the standard frame for my profession.

My current hotel was my first assignment as a General Manager and I made a couple of mistakes when negotiating the contract. Obviously, I won’t repeat those mistakes, so the 15-20% salary increase is realistic.


I will continue my side-hustle and keep writing for The Motley Fool Germany. Working with the team there since July 2018 was great fun and I learned a lot. I can actually imagine doing this for many more years to come, even after I retire early (the target is at the age of 45 – in 6,5 years from now).

During the last few months I have sent some money to my parents. We are fixing a small house in the countryside in Poland and are planning to open a small bed & breakfast. Nothing large, just 3-4 rooms, but there is great opportunity to support my parents about their retirement income from that. This is also the main reason why I couldn’t increase my own savings in that amount as I was originally planning to do. However, I believe that in the long-run it can turn out to be a very beneficial move for my entire family – so it’s absolutely worth it.

Merry Xmas and a successful New Year!

That’s it. Writing things down in a blog is my way of taking the time to structure some thoughts and to re-consider my approach for things to come. It’s a great exercise, and while you don’t need a blog for that, I urge and recommend you to do just that. Take some time, think about your goals and dreams, and make a plan out of it.

There is a quote, that might be politically not correct, but it doesn’t make it any less true:

“Nobody ever wrote down a plan to be broke, fat, lazy, or stupid. Those things are what happen when you don’t have a plan.” – by Larry Winget

And one more:

“A goal without a plan is just a wish.” – by Antoine de Saint-Exupéry

Take it as a constructive feedback and keep working on your plan.
It’s the only way to escape the rat race.


Disclaimer: I have all the stocks mentioned in this article.

Retirement woes – Reality is catching up

I am currently on vacation and enjoying some quiet time with my family & friends in Germany and Poland. Last week, my moms best friend came by, we had a cup of tea and overall a great time as she had the pleasure to get to know my little daughter for the first time.

My mom is 62 years old, her friend is of the same age. As usually at some point, topics diverted towards the small pains in life. Recent doctor visits, some gentle gossip about who passed away within their circle of friends and neighbors – and their expectations towards retirement.

Obviously, especially the last part caught my attention and I got to say that I was truly shocked to learn about what my parents’ generation is expecting to receive once they go the step and retire at legal age.

My parents (and their friend) had simple lives, with regular jobs and learned, studied, worked basically without any breaks since they finished universities. They hardly took vacations and are true masters in frugal living. And yet, they won’t even receive 20.000 EUR a year COMBINED after turning 65. That’s less than 10.000 EUR per person per year and even less than 850 EUR a month per person.

How far do you get with this kind of money?

Not very far. Not only do they have to pay more to cover medical expenses than in the past, but inflation also forced them to get creative and increase their frugal living efforts to a point that I think even them couldn’t imagine in the past.

A cappuccino costs 3 EUR. A pizza around 8 EUR. A pack of 1 kg of fresh strawberries is 6,50 EUR. Oh yes, and the rent for a 2-bedroom apartment is now about 1000 EUR a month in Berlin. So after paying rent, utilities and medical, they will hardly be able to afford 1 cappuccino a day for 2 persons.

That’s rough.

Is this the norm? Probably not. But it’s not an exception. And the new generation of AirBnB hosts, UBER and Lyft drivers and working vagabonds who live by blogging or social media activities need to truly understand the significance of what can and ultimately will happen if one doesn’t start early to work on his/her finances and prepare for retirement.

I hate to break the news but there is simply no way around investments!

We all get old, there is no way around. We all will get to a point that we can’t or don’t want to blog, to drive a car or to share our apartment or house with someone else. Be it for the lack of mental or physical capability or in general for security & safety reasons. We all will get wrinkles and lose our Instagram followers to a 6-packed yoga pro who is traveling the world while we may be fighting with the stairs in our house or condo.

So how are you going to push up your rent, at least to a point that this 1 cappuccino a day won’t hurt you?

  • Saving accounts? Offer not enough even to balance inflation.
  • Government bonds? That’s a zero game at this point.
  • Renting out a house or a condo? Might be an option but you still got to take care of it to ensure payments keep coming. And the older buildings get, the more issues you will have which will bring down your margins and require you to keep a constant eye on it.
  • Buying a house for your personal use? It will reduce your costs but it won’t pay any bills.

There is simply no way around it. Investing needs to be a part of your retirement strategy.

People who are not familiar with investing in the stock market, often argue that they don’t consider the stock market to be safe. They consider it to be risky. But they have to realize: We are already at a very high risk. And for some, it’s almost too late.

This is a topic that should be taught in schools, it’s significance can’t be emphasized enough. In the meantime, a retirement crisis is looming on the not too distant horizon and it may very well become what will trigger the next crash or even a major financial crisis. Let me be an oracle on this one.

Time is your biggest asset

Traders and investors are a large minority. It doesn’t really matter which country we talk about, but overall, based on the total world population, investors are a rare breed.

With my German background, I can say, that among my friends and colleagues there are only few who are active on any stock exchange and the majority still believes that the best investments one could do would be to buy a house or a condo. Or insurance.

I consider these ideas to be very flawed, but it’s hard to blame or to dispute them completely. At the end of the day, unless we have acquired the investor mindset, the biggest concern for us on what to do with our hard-earned money is to ensure it that it stays with us. It’s all about security.

People believe what they understand

Stocks are going up and down on a daily basis and therefore they don’t come across as a solid investment. A piece of land on the other hand, or a house, bricks, mortar, cement. Yep, this feels solid. Or is it?

I would attribute this bias mostly to the idea that people place their hopes in things they understand. Stocks and shares represent companies, and as an investor, we seldom really know what is going on inside a company. We have also limited influence on what the company does. A piece of land, a house or a condo is so much easier to see through and to understand what it does.

And yet, hardly anyone would dispute that stock investors are regularly among the richest people on the planet. So where is the connection? How come that those who try to play what is considered safe end up poor or at least not among the wealthy? My point of view: Because what most people consider to be safe is false.

Time is an asset

I am following a website called “Seeking Alpha” (SA) now for a while, which is an investment forum with the majority of its users being retired income investors. Income investors are people who invest in order to generate sustainable profits to secure their retirements. Many of them put their money in stocks that generate either high yield dividends or that pay out dividends on a frequent and reliable basis.

Since many of them are old and experienced, I like to read their comments. There are plenty of things to learn from the mistakes they made during their investment lives. Among their ideas, comments and yes, sometimes regrets, there is one constant note that comes up over and over again. The significance of time.

Warren Buffet said once that time is the investors single biggest asset. And he is absolutely right. No matter where we put our money in, a house, insurance or stocks, our expectation is that they either appreciate over time or generate profits. Time is the basis for every investment calculation and investment decision.

Time can be your friend, or it can be your enemy

For a house owner or condo owner, time can be tricky. Over time your property will need repairs, improvements. It will require you to add additional funds to it in order to keep it in good shape and to serve its purpose. This part is inevitable. On the other hand, over time your property can increase in value and hopefully this increase will over-compensate the need for your additional investments.

For an investor in the stock market, time becomes your friend the more you have of it.

I am not an investment advisor (yet), but I probably wouldn’t recommend a retiree without any prior stock market investments to move his/her assets into the stock market. The few years that this person may have left are simply not enough and uncertain to truly utilize time to its benefits. But if I meet a person in their 30s or 40s and they are not invested, then I believe they miss out on probably one of the best friends they may have out there.

History is shifting odds towards stock investors

Historically, any person who would be invested in the stock market for longer than 20 years would have ALWAYS benefitted from it. It doesn’t even matter when one would have invested the money. Even if one would put all his cash into one of the larger US or German Index funds and it would crash by 50% or 60% the next day – 20 years later the investment would have most probably not just paid off, it would have doubled or tripled.

With an average return on investment of 8% year on year, the value of stock investments is doubling every 7 years. So just think about it. Let’s say you are 37 years old and plan to retire at 65. Meaning you have another 28 years to go.

If you could now put 30.000 EUR into an Exchange Traded Fund (ETF) on any major stock index, and the historical trend would continue, then the development of your account could look something like the following:

2018 = 30.000 EUR (first investment)
2025 = 60.000 EUR (after 7 years)
2032 = 120.000 EUR (after 14 years)
2039 = 240.000 EUR (after 21 years)
2046 = 480.000 EUR (after 28 years)

I know, 2046 feels very far away, but if you are 37 now then chances are very high that you will get there. This 8% does not mean only the increase in stock value. It’s the whole package: Higher valuation, dividend payouts, dividend increases, etc. Now, what would happen if you don’t put 30, but 40.000 EUR in? Let’s take a look:

2018 = 40.000 EUR (first investment)
2025 = 80.000 EUR (after 7 years)
2032 = 160.000 EUR (after 14 years)
2039 = 320.000 EUR (after 21 years)
2046 = 640.000 EUR (after 28 years)

Only 10.000 EUR more for the initial investment will add another 160.000 EUR for your target date. This is ridiculous, isn’t it? And yet, this is how it works.

History doesn’t guarantee the future – but the trend is your friend

So yes, time is your friend and the sooner one starts to invest, the higher are the chances for a worry-free retirement.

Is the crash coming?

The last week was probably not very good for most investors. President Trump started tweeting and everybody went gaga. Now, nobody knows what will happen and nobody really knows how markets will develop from here on.

The year 2018 was not supposed to be the year when everything comes down. It was supposed to be the super-nova of markets before everything comes down in 2019 and for most parts, it made sense to have this assumption. Stock market valuation in the US are hight but in Europe not that much and as long as politicians keep pumping money into markets, there is no reason for the rally to end too soon. I was expecting things to get blown up even more and then to watch this bubble burst after the next year-end rally.

But of course, this was before the President of the United States (POTUS) would start tweeting suggestions about a trade war and imposing tariffs on certain products, specifically steel and aluminum. Markets and politicians around the globe reacted with shock and within just a few hours announced “countermeasures” and “retaliation”.

It is mind-blowing. A real “wow” effect. When countries start a war or aggression in the middle east, Asia, Africa or wherever people die, usually all you get from our “developed” nations is a political statement that actions get “condemned” without any significant action. But when it comes down to money, markets, and trade, you get countermeasures even before anything happened!

But well, that’s the world we live in and for those who plan on retiring early, there might be some great opportunities ahead.

As you may have learned in school, the original idea of markets was based on the assumption of rational decision making. As you may have seen in the real world, markets are more than often anything but rational. Knowing this, every crash and every dip in the stock market offers great opportunities for quality focused investors. Why is that?

Well, even the best stocks like Google or Apple will go down when the whole market goes down. It doesn’t mean that the business of these companies suffers, but it means that they are not detached from market trends. Therefore investors with patience, time and a long term-horizon don’t worry about things getting ugly. They look out for opportunities and prepare to act on them.

How can we prepare for this scenario? First of all, there is no need to sell your stocks and there is no need to panic. The crash could come but it doesn’t have to. It could be that we will simply experience some higher ups and higher downs and after that, things might just get back to normal. Timing the market is almost impossible to even the best professional trader and if you plan on living from your investments later on, I truly wouldn’t sell anything that already offers a decent yield and has a history of surviving more than one market crash. What might make sense though is to stack up some cash.

Even if a market correction should set in next week, chances are that it will be a process the starts and holds on for 2-3 months before things start to turn around. Having some cash available may offer great opportunities during this time to either buy some stocks that you always wanted to have but which seemed too expensive OR to add stocks to your existing positions which would lower your average price of purchase and ignite the famous cost-leverage-effect. Reducing your average price of purchase will also result in increasing yield on your dividends.

As Warren Buffet, the greatest investor alive used to say: Be greedy when others are fearful. Market downturns are the time to be greedy.

Also, you need to remember that when a stock falls 50% in a market downturn, it will need to rise by 100% just to get back on track. Therefore lowering your entry price by adding stocks of the company that suffered during the downturn may significantly reduce the time it will take to recover the losses – and offer even greater profit opportunities later on.

Also, if you have some stocks that have already reached a specific target, you might want to sell them off in order to re-balance your portfolio and consider adjusting your investment strategy. For example, it may make sense to relocate some of your money into a Real Estate Investment Trust (REIT). Industry bonds are probably not recommendable for the moment as governments start to increase interest rates and money already started to shift from industry bonds to government bonds and securities. But REITs receive their cash flow and profits from tenants who pay rents. No matter what happens on the market, for most people, companies, and agencies who possess physical locations, they still need to pay rents. Therefore during market downturns, REITs are usually a pretty safe investment and offer great dividend yields on top.

We had almost a decade of a rising market and a correction must come sooner or later. How strong this correction will come up is to be seen and especially young and inexperienced investors might have a very hard time handling it. Many of them just don’t know and never experienced the feeling of losing a quarter or maybe even half or more of their entire savings over the events of a single night. The psychological and emotional effect can be devastating and make people literally jump in front of trains. Yes, this happened in the past and while I am not that old, I do remember the crisis back in 2007 and 2008. Being just a student, I lost my entire savings during that time which was a nightmare experience (even though the total amount of 2000 EUR would be rather negligible from today’s point of view) and the news was full of reports about people jumping down buildings.

In every event that involves parties with different interests, there are always winners and losers. Being prepared mentally and financially will reward the patient and rational investor in the long run. So, make sure to work on your strategy now, stack up some cash or re-balance your portfolio (or both) and enjoy a cup of tea while watching the spectacle develop. It will be an interesting one.