One of my biggest regret is that I haven’t started investing (in a smart way) 10 years ago. Well, looking at those charts let’s say 8 instead of 10 🙂 Maybe I would write this post from a much warmer place then… I’m old enough to realize that I should have started it earlier, but young enough to remember what went on inside my head those times. In order to be a successful investor you need a few things: money, knowledge and time. Well, I was lacking a few of them…
Wow, it’s already December! This year seems to be passing by in no time. Winter is officially here, although I can’t remember when the last time I saw some proper snow was. Still I invite you for a winter theme game (if you don’t wanna join, you can still watch from your warm room). I’m going to roll a snowball. A dividend snowball! I start with something small, but on its way down the mountain it’s gonna be bigger and bigger like no one wants to stand on its way! Check out how I’m planning to do it!
In the previous post we have checked whether it worth to reallocate our portfolio during the wealth accumulation phase in case the stock market dips. That example showed that it doesn’t really worth the effort. Seemingly I am not the only one who was thinking about such strategy. Joe from retireby40.org (who is by the way a great example to prove that early retirement is achievable) had similar thoughts and asked how this strategy would work in the years of early retirement. Let’s see what the numbers show!
In the previous post we have checked some ideas that could be useful to consider when deciding about the portfolio allocation during the wealth accumulation phase. It became quite clear that based on historical data (which is of course never a guarantee for the future) it worth having a portfolio which is fully or at least heavily loaded with equities. How much weight is allocated to stocks vs bonds mainly depends on the risk tolerance and the time frame that you expect this phase to last for. In this article I’m trying to check whether it worth to keep a certain percentage of bonds just in order to reallocate them to stocks during market downturns.
In the previous parts we have looked in detail how various portfolio allocations might affect our retirement income. In each cases we started with a portfolio that has values USD 600k five years before the planned early retirement date. But unless you have 600k in hand, we need to earn it somehow. Let’s see how to get there!
In the first three part of the series it became quite clear that a portfolio consisting solely (or at least heavily) stocks provides the highest long term return, besides of the potentially serious deep dives during the investment period. Is it safe to say that if we want to perform the best during the first, wealth accumulation phase of our early retirement plan, we should invest all/most of our assets in equities? And if yes, is it true under every circumstances? What if the economy isn’t doing well for a long time? What if we are facing long periods of deflation? What if less and less people work in the economy? What if we were… Japanese?
In the previous two posts I have checked the performance of 3 different portfolios from 2003/2004 up until today. I wanted to know how did the 2008/2009 financial market crash has impacted the early retirement plan of our imaginative friends. These examples already allow us to make some conclusions, nevertheless I am still searching for the perfect portfolio. Let’s see what part 3 will show us!
In the previous post we checked the performance of 3 types of portfolios and found big differences between them. Now let’s see how timing affects these portfolios. Why is it important? Because we can’t really influence it. Market crashes can happen at any time. It may be tomorrow, but stock prices can also continue growing for many years in a row. I want to find the perfect allocation that makes my portfolio as bullet proof as possible, without sacrificing too much potential returns. Furthermore what I would definitely like to avoid, is to jeopardize the sufficient income during the years of early retirement.
Ok, so how to be a millionaire? As I explained in the introduction, the plan is simple: save regularly and invest regularly. But let’s break these down to see exactly what I mean.
Saving as a Future Millionaire
I believe most of the people get this part wrong. In order to be a millionaire you need to think like a (future) millionaire! Most people get their salary, pay their bills, spend on stuff (the more there is on the bank account the more generously), and if at the end of the month there is still some left, they save that. This is a wrong approach as it limits the amount you can save, not the amount you can spend. Instead of this, future millionaires do the following: