Victory Lap

Once you achieve Financial Independence, you may choose to leave salaried employment but with decades of vibrant life ahead, it’s too soon to do nothing. The new stage of life between traditional employment and Full Retirement we call Victory Lap, or Victory Lap Retirement (also the title of a new book to be published in August 2016. You can pre-order now at VictoryLapRetirement.com). You may choose to start a business, go back to school or launch an Encore Act or Legacy Career. Perhaps you become a free agent, consultant, freelance writer or to change careers and re-enter the corporate world or government.

When is it wise to spend more in Retirement?

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Photo courtesy Unsplash and RetireEarlyLifestyle.com

By Billy and Akaisha Kaderli

Special to Financial Independence Hub

Recently, an interesting question was presented to us: How much is Enough?

We posed this same question to ourselves years ago when we were contemplating early retirement. But what about now, three decades later?

4% rule be damned

Years of capital appreciation due to decades of compounding and proper money management has paid handsomely in the growth of our net worth and financial wellbeing. Now, 33 years later, do we still need to be diligent in monitoring our spending and outflows, or is now the time to seize the day and go first class? Eat in trendy restaurants, be seen and show off our wealth?

This is definitely not our style …

Flying under the radar living a bohemian lifestyle is more like us, and we’re still here livin’ the dream.

In fact, some family members and friends consider us “poor” as compared to their consumer-based standards. That’s fine with us. We have not owned a car for years and we tend to live in foreign countries where we can geographically arbitrage value for money spent. We prefer experiencing cultures and cuisine as compared to a shiny new car, club membership and debt payments.

We are just trying to make it to Friday

There are many ways to live a life, and our choice is unique to us. It’s a lifestyle not a vacation and our approach is one that we created based on our personal values and interests.

But back to the question of when we might loosen the purse strings … Should we start living on more – or less – than the US$35,000 that we have done for years?

We now use more private drivers than chicken buses, stay in pricier hotels (not always a better choice), and we’ve set up a stable, semi-permanent home base in Chapala, Mexico.

We donate freely, giving our time and money, helping others less fortunate, as well as teaching people better money management and life skills.

There are needs everywhere and we do our best to contribute. As always, we want results rather than throwing money at a problem to feel good and brag about it.

Checking back in with the 4% rule, we took a look at what that number would be for us today and both of us asked “How would increasing our spending to that amount change our lives?” Granted, it’s not Bill Gates’ level, but how much more can we eat, drink, travel, be merry and give away?

But that’s us.

What about you?

Is it time for you to flip the switch from saving and being frugal for your future – to enjoying a higher standard of living and giving back to the community?

Below are a couple of suggestions which might clarify this question for you.

Know where you are

Life circumstances change.

None of us know our exit date from this planet. As each day passes, we are one day closer to the end of our adventure. But you could check some actuarial tables to see where you stand in general. We are not saying throw caution to the wind and start “X-ing” out days on your calendar. Rather, utilize this bit of information to get a clearer picture of where you might be.

Imagine if you knew your Date of Death. Would that change your spending habits or the way you live?

Other thoughts

Have you or your spouse had an awakening in regards to health? Do you want to open a foundation that produces results and wealth? Begin a new business or leave a particularly handsome legacy for your grandchildren? Continue Reading…

Real Life Investment Strategies #1: Will Geopolitics Ruin my Financial Plans?

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Lowrie Financial Canva Custom Creation

By Steve Lowrie, CFA

Special to Financial Independence Hub

Now that we’re well into 2024, it’s time to turn the page on last year’s “Play It Again, Steve – Timeless Financial Tips”.

To shift gears, I recently polled my blog post readers, asking them what was on their mind and, although specific topics were varied, the underlying question resounded:

Timeless financial tips are well and good – but how do they apply to my investment decisions in real life?

To address that question, I’m launching Lowrie Financial’s “Real Life Investment Strategies.” Each post in this new series will use case studies to illustrate the choices real people are making, as they contemplate money management concerns in real time.

Active Concerns around Geopolitical Events and their Impact on your Financial Future

In our blog post readers survey, there were several responses with a clear theme:

  • worrying thoughts about current events,
  • what the geopolitical climate may mean to your money, and
  • what investment strategies to avert setbacks for your financial future

So, let’s address some of the more worrisome flash points looming large at this time: the world, its politics, and its politicians.

Of course, it’s natural, and advisable, to want your investments to weather the market storms wrought by geopolitical forces. The catch is there’s always a crisis going on somewhere and we never know for sure how it’s going to play out, until it has. That’s true whether it is history repeating itself, a new and unexpected upset, or (usually) a blend of both.

The other reality is that the most significant risks, with the greatest negative financial impact, are those you don’t see coming.

For example, in the last 25 years, we have had to deal with these three and unexpected and significant events:

If there is any good news in these events, which I realize is a stretch, they only come around every ten years or so.

That’s why I’ve long advised the best way to protect your wealth during each crisis du jour is to avoid getting tossed around in its waves. We seek to accomplish this by building — and maintaining — a steadfast, globally diversified portfolio designed to skim across the rough surfaces toward more dependable destinations.

Let’s use a couple of case studies to illustrate how we manage real-life portfolios in the face of ever-evolving, often unnerving current events. Although my stories will be drawn from real conversations and actual investor experiences, they will be fictionalized to protect individual privacy. In particular, names are not real.

The Accumulators: Suzie and Trevor Hall

Financial Accumulators Suzie and Trevor Hall

Meet the Halls

Suzie and Trevor are hard-working professionals in their late 40s, with two teenage children. They own a home, which is almost fully paid off. While they intend to stay in their home long-term, the place could definitely use some renovations.

Current Lifestyle: The Halls have been good about living within their means, while also sustaining a satisfying lifestyle. They take occasional vacations, but they’ve also diligently saved excess cash flow over time.

Financial Goals: The Halls hope to retire within 15–20 years. They also want to fully fund their children’s education, as well as complete those home renovations before they retire.

Investment Profile: Suzie and Trevor consider themselves to be conservative investors. They would like their portfolio to continue to grow. But they also worry: what if today’s global crises really do a number on their nest egg? They think they should avoid experiencing much more than a 30% hit during any given market downturn.

Suzie and Trevor’s Financial Planning Action Items

Here’s how I might advise the Halls moving forward:

  1. Start with planning, not investing.

 “How will the 2024 U.S. presidential elections impact our investments?”

Except in hindsight, the only correct answer is, “Who knows?”

As we’ve covered before in the 2020 blog, Should I Change My Investments During an Election?, leading with these kinds of queries steer the Halls’ conversation toward the market’s concerns, instead of their own.

They are better off considering geopolitical volatility in a more manageable context:

  • What is your expected retirement date?
  • Other lifetime goals?
  • Personal investment style? and so on.

True, personal goals may shift over time. But defining manageable targets helps us define desired saving targets, rate of return expectations, and asset allocations for meeting them. As the Halls’ own circumstances and larger world events evolve, we can review and update their progress annually.

  1. Establish a spending plan.

Next, I’d advise the Halls to use their available cash flow to support their three key mandates: saving for their kids’ education costs, completing their home renovations, and investing toward retirement. Three goals, calling for three different investment amounts, return expectations, and timeframes.

  1. Invest systematically.

Next, we can invest systematically across future unknowns. For example, whether Russia and Ukraine remain at war indefinitely or eventually reach an accord, global markets are expected to trend upward over time; we just don’t know when or where the growth spurts will occur. For the Halls, I may recommend adding assets monthly, so they can dollar-cost average across varied market conditions. If (or more likely, when) another crisis occurs and prices decrease, they may even want to increase their saving and investing during these “buy low” windows of opportunity.

  1. Do a lifeboat drill.

Suzie and Trevor had said they wouldn’t want their portfolio to ever drop by more than 30% as they pursue expected market returns. But would they really be ok with that much of a drop? I like to replace vague percentages with real dollar declines. We would look at past market downturns and corrections, how long they lasted from start to finish, and how long the Halls’ target portfolio would have taken to recover from each. This “life-boat drill” helps them use realistic numbers for withstanding real future declines.

  1. Remember, it’s priced in.

How will today’s heightened Middle East tensions play out for Suzie and Trevor’s investments? Once again, we don’t know; we can’t know. But I do know, whatever happens next, “by the time you’ve heard the news, the collective market has too, and has already priced it in” (as we wrote in our first timeless tip, Play It Again, Steve – Timeless Financial Tips #1: Repeat After Me: “It’s Already Priced In”). Besides, since the Halls are still in their wealth accumulation years, a price decline could even come as welcome news. Lower prices today give future market prices more room to grow over time.

In our next case study, let’s look at how today’s geopolitical pressure points may impact a couple closer to retirement.

Almost Ready to Retire: Jim and Carol Oates

Financial Almost Ready to Retire Jim and Carol Oates

Meet the Oates’

Jim and Carol are in their early 60s. Jim owns a business and Carol manages the household. They became empty nesters when the youngest of their three children recently moved to British Columbia. They own their principal home outright and are considering purchasing a winter property in warmer climes.

Current Lifestyle: To pursue a satisfying retirement, the Oates were careful to avoid lifestyle creep during their career years. Now, Jim is making moves to sell his business, and their retirement days are fast approaching. They expect to support their retirement lifestyle with the proceeds of Jim’s business sale, along with their investments. Will they be ready to loosen up a bit? Yes … and no. Maybe? They wonder whether they will have enough to do so.

Financial Goals: The Oates would like to make significant travel plans, after many years of shorter getaways, closer to home. (A business owner is never fully “off duty.”) Plus, if the sale goes well, they’d like to help their children buy into today’s housing market. Continue Reading…

Dividend investing vs Index Investing (& Hybrid strategies)

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By Bob Lai, Tawcan

Special to the Financial Independence Hub

Dividend vs Index + Good reads from the PF community
Image courtesy Tawcan

 

Ahh, the age-old debate… dividend investing vs. index investing. Is one better than the other?

Well, like any good debate, there is much evidence that can support both sides of the argument.

For example, dividend investors will quickly point out that over the long term, dividend stocks return better than non-paying dividend stocks.

SP500-and-SP-500-with-Dividends-Reinvested-Returns-Chart

On the other hand, index investors will point out that dividends are irrelevant.

I’m not going to argue which one is better on this post, but you can probably figure out where we stand given we are hybrid investors.

When it comes to investing, it’s super easy to just take all the numbers, plug them into the different formulas, and analyze the results to the nth degree. There have been a lot of books on how to invest based on mathematical formulas or theories.

They are all good and all, but I would argue that investing in real life is very different than running mathematical analysis.

30% investment strategy vs 70% psychology

In my short +15 years of DIY investing career, I have come to realize that investing in real life is not just about investment strategy and analysis. Rather, I believe investing in real life is about 30% investment strategy/theory and 70% psychology.

Psychology plays an important role in deciding whether your investment is going to be a success or a failure. It is also the number one reason why people end up buying high and selling low even though they should be doing the complete opposite.

When your hard-earned money is melting away faster than ice cream on a sunny day, all you care about is preserving whatever money you have left, so you end up selling low on emotion. On the other hand, when stocks are going higher and higher and you’re seeing everyone and their dogs making money hand over fist (and paw ha!), you want to get in on the action as well, so you end up buying high on emotion. Continue Reading…

10 Business Leaders discuss Role of Budgeting in Debt Reduction

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Image courtesy Featured.com

Exploring the critical role of budgeting in debt reduction and the journey to financial independence, we’ve gathered insights from founders and CEOs among others.

From the disciplined approach of discipline and frugality through budgeting to the strategic perspective of budgeting and debt management for independence, here are the diverse experiences of ten professionals who’ve successfully navigated their finances.

 

 

  • Discipline and Frugality
  • Debt Reduction and Savings
  • A Financial Compass
  • Fiscal Success
  • Navigating Finances
  • Clarity and Control
  • Financial Stability and Empowerment
  • A Roadmap to Financial Freedom
  • Enhanced Financial Control
  • Debt Management for Independence

Discipline and Frugality

Being in a financial crisis is not uncommon for the average person; we have all seen people in our lives suffer under the massive weight of debt and how it subsequently affects our quality of life. To get out of debt, you need to be disciplined and frugal. Following a budget needs to become a regular part of your life so that you can achieve financial freedom sooner rather than later.

When you budget, following a rule like 50/30/20, it helps you manage your income in a way that reduces your debt and allows you to live a fulfilled life while still preparing for any unexpected hiccups in the future.

When you budget following a ratio rule, you need to be flexible with the money allocated for “wants,” i.e., the 30 in the ratio. This means cutting out anything in your life that isn’t necessary—such as buying the extra coffee, eating takeout daily, or subscribing to services that you don’t use.

So, don’t allow yourself to fall into the lifestyle-creep trap. By cutting these non-essentials out, you can funnel the extra money into your essentials and debt repayments—which loosens the burden for you and your future.

That being said, you don’t have to make yourself burnt out from budgeting; it’s okay to treat yourself and splurge a little as a reward for doing well with your financial goals. You just need to know your limits and where to draw the line. — Zach Robbins, Founder, Loanfolk

Debt Reduction and Savings

Budgeting is hugely important for reducing debt and achieving financial independence because it can help you determine how much you can contribute each paycheck toward these goals. For instance, with a budget, you can learn exactly how much you have left over each month after essential expenses, such as rent, groceries, and electricity. Once you have this number, you can allocate a portion of your remaining income to reducing debt and savings.

For me, personally, budgeting helps me realize when I’ve overspent in certain areas and need to rein it in so that I will have enough to put towards savings or debt payoff. — Meredith Lepore, Content Strategist/Editor/Writer, Credello

A Financial Compass

Budgeting plays a crucial role in reducing debt and achieving financial independence. By ensuring you spend within your means, it acts as a financial compass.

For instance, when I faced a mounting credit card debt, which mirrored the national average of around $6,000, budgeting became my lifeline. It wasn’t just about tracking expenses but making conscious choices about spending.

This approach helped me not only clear my debt but also build a savings habit, leading to a more secure financial future. — Tobias Liebsch, Co-Founder, Fintalent.io

Fiscal Success

Budgeting is the financial roadmap to success. As a tech CEO, it’s been my steering wheel on the road to fiscal independence. An example would be when we faced a financial bottleneck. We reevaluated our costs, cutting back on non-essential company perks, and reallocated those funds towards paying down our debt.

Thanks to strategic budgeting, we were debt-free in less than a year. Therefore, proper budgeting isn’t just number-crunching; it’s crucial for cuts, savings, and gains, propelling us toward the land of fiscal freedom. — Abid Salahi, Co-founder & CEO, FinlyWealth

Navigating Finances

The importance of budgeting in the journey toward reducing debt and achieving financial independence cannot be overstated—it’s the financial equivalent of a compass on a voyage across the open sea. Without it, you’re essentially navigating blind, at the mercy of the winds and currents. But with it, you can chart a course to your destination, making informed decisions that keep you on track.

There was a time when my financial situation felt like a sinking ship—credit card debt and personal loans were the water flooding in, and I was desperately bailing it out with a leaky bucket. I realized that if I wanted to reach the shores of financial independence; I needed a better strategy.

That’s when I embraced budgeting with open arms. I started by laying out all my expenses and income, categorizing them with the meticulousness of a librarian. It was eye-opening to see where my money was actually going, rather than where I thought it was going. I discovered leaks in my spending—money trickling away on things that, frankly, weren’t adding much value to my life, like a gym membership I barely used or subscription services that just piled up.

Armed with this knowledge, I began to plug these leaks, reallocating those funds toward paying off my debt. Every dollar saved was like a bucket of water thrown overboard, lightening the load and bringing my ship higher in the water.

But budgeting did more than just help me manage my debt; it empowered me. It transformed my relationship with money from one of anxiety and scarcity to one of control and abundance. Through disciplined budgeting, I was able to pay off my debts significantly faster than I had thought possible. More importantly, it laid the foundation for building savings and investments, guiding me toward the ultimate goal of financial independence.

The journey wasn’t always smooth sailing. There were months when unexpected expenses threw me off course, but because I had a budget, I could adjust my sails and get back on track. Budgeting gave me the flexibility to deal with financial storms without capsizing. — Michael Dion, Chief Finance Nerd, F9 Finance

Clarity and Control

Budgeting is absolutely critical for getting out of debt and achieving financial independence. When I first started trying to pay down my student loans and credit card debt in my early 20s, I felt completely overwhelmed. I was living paycheck to paycheck and had no idea where my money was going each month. Continue Reading…

The revival of the 60/40 rule: Good for brokers, but not for investors

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The revival of the 60/40 rule is a plus for brokers – but not for investors

Image by Pexels: RDNE Stock Project

Some experienced brokers (now more often referred to as investment advisors) are pleased at the recent rise in interest rates and inflation. After all, it could lead to a revival of the 60/40 rule, which was in common use for much of the second half of the 20th century, especially among experienced stockbrokers. Veteran brokers understood how to use it to spur clients to do more trading between stocks and bonds, and pay more brokerage commissions and fees.

The 60/40 rule is based on the proposition that a good-quality, balanced portfolio is made up of 60% good-quality stocks and 40% good-quality bonds. This idea leads to another: that investors can enhance their results by “rebalancing” their portfolios when they get away from that 60/40 goal, due to divergences between the bond and stock markets.

This is one of those clever ideas that at first glance, seems to make sense to many investors. It makes sense to brokers because it’s sure to make money for them. The payoff is rather less certain for the paying customers: the investors.

The problem is that stock and bond prices rise and fall under the influence of ever-changing sets of random factors: sometimes moving them in the same direction, other times moving them apart. These sets of random factors will vary in a random fashion as well. The stock/bond balance in a portfolio can hold steady for long periods, or swing abruptly from the “ideal” 60/40 split in a single day. This can happen even on a quiet day with few news developments to promote buying or selling.

The 60/40 rule gives the broker a rationale for proposing trades in a portfolio when changes in stock and bond prices have moved the portfolio away from the idealized 60/40 split.

This leads to another of the many conflicts of interest that exist in the investment business. However, unlike the hidden bond commissions I mentioned above, some brokers made a living out of the 60/40 rule. In my days as a broker, some old-timers in the office told me they could use the rule to add 2% to 4% of a client’s total portfolio to their gross annual commissions.

Any trade in your portfolio will cost you money in the form of fees and/or commissions, regardless of whether you make or lose money. But every trade you do in your portfolio will make money for the brokerage firm and/or salesperson, of course. That’s how they get paid.

Useless as a market indicator, great as a marketing device

We’ve often pointed out that market indicators sound a lot better than they perform. The 60/40 rule falls a step or two below an indicator. Rather than telling investors how they can make money in their investments, as market indicators supposedly do, this rule tells brokers and financial advisors how they can encourage their clients to do more buying and selling in the market, and thus increase broker incomes.

After all, the rule is based on a belief about the supposed advantage of a particular ratio of stocks to bonds in a portfolio. It’s not as if the rule comes with instructions on when to buy or sell, as you can derive from many market indicators. Instead, it gives brokers a rationale for advising their clients to buy bonds and sell stocks (or vice versa) more often. Continue Reading…