As human beings we start off in life learning from our parents who generally protect us from the real world. We make mistakes, do and say things we shouldn't. All part of being a kid and the learning process. Later in life we act and talk bravado, drink and party too much, fun, fun, fun continuing the learning process. Eventually adolescence leaves us behind, the real world of work and personal responsibility beckons but we are still a long way from being wise.
To be financially independent is to learn to be wise with our investments. We need to manage and adapt them to deal with the opportunities and uncertainties that we will be presented with in the 40+ years of living financially independent.
Specifically this post considers how we gain wisdom to overcome some of the challenges to our financial independence and what we could do about them.
Confidence (A.K.A THE.PaST)
Confidence is generally described as a state of being certain either that a hypothesis or prediction is correct or that a chosen course of action is the best or most effective.???Before looking at some options for financial resilience, let's consider some of the major changes to our lives and what we can learn from them.
Past PrecedentsIn the recent past mankind has overcome numerous challenges. The green revolution has fed the masses and enabled us to hugely increase the world population. Nuclear power came along at the right time to reduce our consumption of oil, coal and gas which in turn have been tapped with space age technology.
Companies have thrived, profits have flowed. Based on our past it is fair to believe that things will continue as they always have the status quo and invest accordingly based on long term trends. There are numerous investment approaches to manage investments in several of the websites linked from the front page of this site.
Investment opinions and approaches are just opinions albeit backed up with historical precedents. Should one run one's life and investments based on the opinions and ideas of others? Perhaps they should be used as a way to build wisdom, take responsibility for ones decisions, think outside the box and get rich instead of market average?
Arrogance (A.K.A THE.PReSeNT)
The act or habit of arrogating, or making undue claims in an overbearing manner; that species of pride which consists in exorbitant claims of rank, dignity, estimation, or power, or which exalts the worth or importance of the person to an undue degree; proud contempt of others; lordliness; haughtiness; self-assumption; presumption.
Seeking Wisdom from the PastWisdom takes time. For me THE.CoNTeNDeR the light bulb dimmer was adjusted up a little around the age of 36. I write my opinions here on this blog - are they wise, perhaps they are wiser for me but how would you know when you have wisdom or enlightenment?
As you grow older you tend to be more reflective instead of impulsive, learn to understand and accept risks, take responsibility for your actions, developed a greater depth of knowledge and skills, learnt how to keep your hand on the pulse and filter out the chaff from the important.
"Bloggers write s**** with exclamation marks and bad punctuation with no concrete evidence" - quoted in the film ContagionIs it wisdom when you have learnt how to be objective, understand different points of view, listen to others and then critically analyse the information and make your decisions?
Is giving no advice and just asking probing questions good advice? Is listening and asking relevant questions the right way to be happy with your family friends and colleagues? Do what you believe is right. Don't take anyone else's advice for granted or blame someone for taking it. At the end of the day you are the person ultimately taking the action of your own free will.
Listen, think, ignore and do what is right for you.
Delusion (A.K.A THE.FuTuRe)
A delusion is a belief held with strong conviction despite superior evidence to the contrary. As a pathology, it is distinct from a belief based on false or incomplete information, confabulation, dogma, illusion, or other effects of perception.
Present & Future Opportunities?I thought it is worthwhile to consider a few things going on in the world today that definitely raise a few questions on the viability of financial independence.
- Cyprus Precedent - Your Money in a bank is not actually yours - you lend it to them and it is a liability for them. What stops a bank haircut across the board?
- Negative interest rates! Yes you pay the bank to look after your money which it may use in risky lending practises to make more money or the bank safe?
- Money flows into stocks and especially dividend stocks. These "investment" actually become risky in a high inflation environment under performing in real terms as margins are eroded.
- Real estate prices rise as money finds a home - over inflating the price of a home. Worse still people buying a home with a mortgage have to take on more Debt. Debt = time and lots of debt = debt slavery. If the property bubble bursts the debt remains and due to the inherent leverage in the system the buyer can be left with huge losses.
- Increase in the money supply / inflation increases living costs. Just divide 72 by the inflation rate to get the time for prices to double. e.g. a 4% rate 72/4 = 18 years!
- Resource depletion - why are we digging up huge swathes of Canada, fracking US plains and drilling miles under the sea? At the same time US gasoline usage has cratered by 60%+ and oil is hovering around $100
- Central bank / government intervention and herd mentality - financial markets are just as emotionally driven as they are fundamentally valued. Central banks can completely change the rules of the game. Governments can force changes on the populous.
- Black swan events - what about the nuclear fusion problem being solved in the next 5 years and "free" energy being available for everyone?
Guidelines are there to be broken, re-defined just as the current rules of the game in finance are being changed favouring different people and entities.
Who knows? Perhaps the 4% rule becomes the 6% rule as we may be ushering in a new prosperity. Instead of saving 25 times your outgoing you only need to save 20 times instead? What if you invest in the right sectors?
- Oil is depleting - invest in oil companies with long life reserves and buy a small car?
- Food costs more - grow your own?
- Electricity is going up - get some solar panels, wind turbine our water wheel?
- Cash savings are loosing their value. Learn about fiat money and why we are told inflation is good and deflation is bad (to whom?) - invest your spare cash (always keep a cash buffer for opportunities and emergencies) in perhaps productive farmland or forestry, perhaps a depleting resources such as platinum, copper or silver or rarity in artwork, first edition books, stamps?
- Have your own business so you can set the right prices for your needs.
- Have a strategy, a backup strategy and and backup backup strategy. What if rental yields drop - should you exit?, Stock markets soar - should you sell some and buy rental properties? What happens if the misses is pregnant with triplets or you receive an inheritance windfall?
- What are the growing businesses of the world? What are the trends where are the opportunities? Perhaps take time twice a year to read up on the future. Trend forecast sites can be a good source of information, consider any of the new websites, buzz gadgets that are the new big thing. What are the key resources needed to provide our 21st lifestyle? (e.g. rare earths, silver, semi conductors, solar panels, new drugs etc.)
- You are getting older - look after yourself as health costs are rising - avoid processed foods high in sugars and fat, eat fresh local produce, clean your teeth properly, look at alternative medicines and preventative treatments.
Wisdom (A.K.A .....Dalai Lama, Thomas Jefferson, Socrates.....)
Wisdom is the ability to think and act using knowledge, experience, understanding, common sense, and insight.
Muses on attaining wisdom
- Listen more than talking
- Read, observe, analyse, criticise, and form your own opinions
- Be idle and have idle thoughts
- Ask questions with no right or wrong answers - What is the meaning of life?
- Have friends that like a good debate
- Don't jump to conclusions, listen, ask and understand the other persons point of view
- Wait - there is no real rush - take your time when making decisions and weigh up all options
- Open your mind - everything is interesting, there is no right or wrong just choices with different outcomes. What are the outcomes you want?
- Have a go at anything and everything