Living off Assets
Last year, I had an interesting thing happen to me. For the first time in my life, my investments earned more than I did. I had a great year at work, where I earned six-figures, plus a nice bonus. But, it was no match for my investments, which earned almost $200,000. That wasn’t a typical year in the market and I don’t expect that kind of performance every year, but it has me thinking about financial freedom. How long will I choose to work once my investments reliably outpace my income? My investments sped up my freedom date by four years in 2020.
Income to Assets
The secret to my big success in 2020 started way back in 1985, with my very first investment. I was only saving $100 per month, but that money has doubled many times in the past 36 years and it will continue to double until I spend it or die. If you are young, you probably don’t want to wait 36 years to become financially independent. I completely understand, because I felt the same way back in the 80s. I thought I was going to hit it big and live in style. Instead, I raised a family, paid a lot of bills and climbed the corporate ladder. One day, I looked up from work and I was older and thinking about retirement. At least now I have some assets and and can afford to retire. If you can find a faster way to freedom, then go for it. But, I recommend you also save and invest your income.
No matter what your age or circumstances, you should be converting some of your income to assets.
Assets to Income
I have been in accumulation mode for so long, I haven’t even stopped to think about living off my investments. Now, that time is right around the corner and it has me worried. With very low interest rates and high inflation, getting income from your investments has become tricky. Treasury bonds and CDs are sure money losers after inflation, while the stock market is sky high and long overdue for a crash. Real estate has been on fire lately, but I’m a little late to that party and I’m not going to invest now at these crazy Orange County prices.
I’m going to start shifting some of my portfolio into Fundrise in order to diversify into real estate, without becoming a property manager. I’m also going to put a large portion of my portfolio into more conservative investments, in order to weather a crash or a prolonged downturn in the stock market. Beyond all of that, I’m just going to have faith in our country and the recovery economy. If that fails, I’ll just have to live on less for a while, until it recovers.
The Bottom Line
Investments are the engine that powers your finances. Once your investments have doubled a couple of times, they grow at a surprising rate. The best day to start investing is on your first payday. The second best day is Today.
“Never depend on a single income, make an investment to create a second source.” – Warren Buffet
