When you will have enough money to stop working depends on your actions today. There are two main contributing factors that allow this to happen:
1) Your savings rate, as percentage of income.
2) Your investment rate of return, of which 97% if is determined by what asset class you are in.
So, what is an asset class?
-see the Investopedia link/video below:https://www.investopedia.com/terms/a/assetclasses.asp
Above is a chart for a risk versus reward comparison of expected rates of return versus volatility across asset classes. In essence, how you are allocated across different asset classes will determine how much of the market’s upside appreciation you participate in, as well as how much downside participation you experience.
It is important to invest according to your goals. For example, if your goal is to have your portfolio generate a $100,000 per year passive income at age 62, and that can be achieved with an 8% rate of return they why are you taking on the risk associated with a portfolio of a 20% return? At that point it becomes more about timing your retirement in a bull market rather than a recession as opposed to proper planning.
We license neat software that helps you determine how your portfolio is skewed across asset classes in various financial accounts, i.e. Schwab, Merrill Lynch, TD Ameritrade, E*TRADE, Robin Hood, etc. This allows you to see how your overall portfolio might move as the S&P 500 (typically referred to as “the market”) goes up or down. The goal, of course, is to participate in all the upside of the market’s growth while simultaneously participating in as little of the downside as possible.
The is what I refer to as smart, slow, and dumb money.
Smart money = hedge funds Slow money = 401(k) plans Dumb money = speculation
The “retirement planning industry“, I mean wealth managers, I mean mutual fund salespeople, I mean insurance industry, I mean sales people, I mean financial industry wants you to believe they can do it faster, better, and cheaper than the next guy. And that managing a relationship with you is worth 1% of your money because you, the client, is too emotional to handle their own money. I disagree. That is why I started Future U Financial, Inc.
My goal is to empower you, the investor, with the tools necessary to determine if the risks you are taking in your portfolio are appropriate for you, educate you, provide a sounding board, and accountability. None of this should require a product sale, that is why I don’t offer financial products. Last Friday we saw the biggest market selloff of the year. This was due to lockdown fears caused by the new Omicron variant. The hedge managers funds sold. The retail investor bought. Who do you think is smarter?
It’s your money.
To see how your asset classes interact with each other, schedule a call here:
-Joshua