- The expenses that come with (news-worthy) lavish lifestyles equate to the earnings on investments equal to the GDP of small countries. This is far from the norm; don't believe the hype.
- The only way you can truly not work yet earn money is to invest in something that does not require maintenance and that guarantees consistent, positive cash flows (otherwise, higher rate investments require quite a bit of work). This equates to a low-risk debt security, such as T-Bills and CDs (1.5% - 3.0%). Translation: one would have to invest between $1.7M and $3.3M to offset average annual expenses.
The only ways to increase interest income are to: 1) increase the volume of money invested and/or 2) earn a higher yield. For example:
- To double annual income ($50k to $100k) assuming the same T-Bill and CD return range, one would need to invest twice as much ($3.3M to $6.7M).
- To double annual income assuming the same principal investment (between $1.7M and $3.3M), one would need to earn twice the rate of return (6% - 12%). This level of return would require investment in more risky equity securities, like stocks. Thus, enters maintenance (aka work).
*Unless you win the lottery, inherit a ton of money, find a coke dealer's backpack, put in 20 years as an iBanker or are nearing retirement, none of this is worth considering at this age.
*"Actively manage" = having to work
New definitions should be:
Financial Independence - free from the need of finances (ex: living off the land)
Financial Interdependence - financial gain from mutual reliance (ex: a job; investments; currently defined as "financial independence")
3 comments:
You say tomato; I say tomato.
Do you really think FI is a goal of the masses? My speculation is that the masses are trying to increase their 401k with as much money as possible without any rational. Who am I to say I am in touch with society, though . .
You may also want to consider taxes in your analysis. Capitalism favors investment incomes over labor income, as there is less labor opportunity without capital.
You seem adamant on being the devil's advocate for investing. Maybe that's just how I perceive it.
"Goal" is maybe a stretch - "dream" maybe? I feel F.I., day trading, etc. have received a lot of press recently. It seems to be a re-birthed fad.
Taxes aren't considered because rates change with the president (the past and current as polar opposites are a perfect example). Judging what rates you will be paying upon disbursement is just as much a gamble as the market itself.
Capital and labor aren't mutually exclusive; they work in a well-balanced cycle. My point is that it seems everyone and their brother want to get in to trading because they think it's easy money.
I believe in EMH (http://en.wikipedia.org/wiki/Efficient-market_hypothesis)
Back to the post, two related resources I've read are that most millionaires put on a middle fascade and that most people do not get happier with more $40,000 per year.
Respectively, the links are:
http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/dp/0671015206
http://blog.penelopetrunk.com/2004/08/01/you-only-need-40000-to-be-happy/
Your concept of Financial Independence, over Interdependence, is interesting. I think the only downside is not having the skill to treat a horrific illness.
Money is only a concept. You do not need to use it for food, or shelter even. But, you do need to use money when you can't independently provide the service or product.
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