Route 2 FI - Free As A Bird #16 | Volatility is not risk, it is the source of future returns

black and yellow bird on branch

Hi everybody!

Welcome to the 16th edition of my newsletter "Free As A Bird".


Into The Wild

Bilderesultat for no matter how far you travel you can never get away from yourself

This weekend I’m going into the wild.

Not to Alaska, but to the norwegian mountains.

When I’m in nature I always get these deep thoughts about life.

Sometimes I get this fantasy of escaping society to live by myself.

Just to be in peace with nature and listening to the singing birds.

It is extremely seldom we’re in solitude, just being out there and listening to the nature.

Most of us are after results, achieving goals; we are forever overcoming and conquering, and so there is no listening.

It is only in listening that one hears the song of the words.


An Interesting Thing I Read This Week That Got Me Thinking

The Farce Awakens by The Reformed Broker (Reading time: 5 minutes)

Volatility is not risk, it is the source of future returns.

Drawdowns should be embraced, not fled from.

Historically, less than 15% of all ten-year periods offer losses to investors in the stock market. That’s not the best part. Over rolling twenty-year periods – starting in any month of any year over the last century – you’ve never lost money in stocks. Didn’t happen in the 20’s, 30’s, 40’s, 50’s, 60’s, 70’s, 80’s, 90’s or the 2000’s.

If you cannot parse the difference between volatility and risk (which I define as the chance of a permanent capital loss), then at least accept the fact that risk is a given no matter what. But you have a choice: You can decide when to take the risk, today or in the future.

Rational investors would prefer to take investment risk today, accumulating assets while coping with drawdowns and fluctuations in value. Only an insane person would choose to take their risk at the back end of their life – being short of money in old age when it is nearly impossible to earn more money.

You can risk the volatility today or the chance of being broke later, your choice, but you must choose.

Sitting in cash may temporarily feel better because there is a sense of security that comes over us when the value of our account ceases to fluctuate.

But you’re not safe, you’re merely gaining the stability of a unit of currency in exchange for the risk of losing future purchasing power.


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Quote that got me thinking

How long is your investment horizon?


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If you liked this newsletter, I would appreciate that you subscribe or like by tapping the “heart”.

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Route 2 FI

Route 2 FI - Free As A Bird #15 | The 17 Laws Of Investing

blue hummingbird on tree branch

Hi everybody! Welcome to the 15th edition of my newsletter "Free As A Bird".

Today is my birthday.

I’m 32 now.

Would you be interested in reading the 32 Lessons I’ve Learned By My 32 Years?

Thinking about eventually making a blog post about it.


My Fascination For Compound Interest

As I told you in the last newsletter I’ve been thinking about stop pursuing FI, and rather focus on my goal on becoming a private investor.

The RE-part in FIRE just don’t feel right.

I love to work when it’s on my premises.

Yesterday I played around with the numbers.

I’ve assumed 10% interest rate (before inflation), $3,400 invested every month and $212,000 invested (I assume this portfolio value by the end of 2019).

I’m really fascinated by compound interest and the wealth snowball.

  • In 2020 my index fund portfolio will raise by $64,922 (40,800 is deposit and $24,122 is interest).

  • In 2021 my index fund portfolio will raise by $71,720 (40,800 is deposit and $30,920 is interest).

  • In 2022 my index fund portfolio will raise by $79,230 (40,800 is deposit and $38,430 is interest).

And then in 2023 the interest will finally beat the $40,800 I plan to deposit.

How sick is that? Over 50% of my portfolio increase comes from me doing nothing.

In 2026 I’ll receive $77,000 even if I end up working 0 hours.

In 2029 my portfolio increases by almost $160K. And at that time I’m only 41 years old.

These numbers continue to blow my mind.

What if I continue to invest these sums until I’m 60 years old?

Almost $10 million!

Just a thought experiment.

Have you played around with financial freedom numbers?

Feel free to share your story.


An Interesting Thing I Read This Week That Got Me Thinking

The Laws Of Investing by Morgan Housel (Reading time: 19 minutes)

It’s a 19-minute gem!

Here’s a piece in the text which he makes a really good point:

“Well-meaning financial advisors will speak to 23-year-olds and say, “You’re so lucky, you have 45 years before retirement.

Compounding can grow your money 20-fold during that time.” The confused and realistic 23-year-old will reply, “That’s neat, I make $16 an hour and have $58,000 in student loans.”

By the time that student’s career has taken off and they have substantial cash flow to invest they’re usually in their 40s or 50s, when the power of compounding has diminished by perhaps 90%, tempting them to take more risk to meet their goals.”


How many times haven’t you heard someone say on Twitter: “You’re only 20 years, you’ve got 50 years of compounding returns in front of you”.

I feel Morgan kills that myth pretty good in his quote above!

Unless you’re some kind of multi-millionaire when you’re that young of course ;)

Recently I’ve started reading all the texts that Morgan has ever written from back in The Motley Fool’s days, he’s writing is simply brilliant.

You can view all his writings here:

Morgan Housel - "The Motley Fool"


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Quote that got me thinking

How often do you make changes to your portfolio?


Have questions, comments or suggestions? I would love to help you.

If you liked this newsletter, I would appreciate that you subscribe or like by tapping the “heart”.

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Thanks for reading,

Route 2 FI

Route 2 FI - Free As A Bird #14 | How To Become A Private Investor Full-Time

Hi everybody! Welcome to the 14th edition of my newsletter "Free As A Bird".

The name of the newsletter represents us - we want to be free.

Free to choose how we spend our lives.


Should I Change My Goal?

Recently I’ve been thinking about stop pursuing FI, and rather focus on my goal on becoming a private investor.

Because the FIRE-goal (Financial Independence Retirement Early) means I will retire once I reach FI (in 4 1/2 years), and I don’t want to retire from everything.

I’m not interested in doing nothing while I sit on a beach at a beach in Miami sipping cocktails.

I’m interested in doing work that feels meaningful to me.

The last years I’ve been obsessed with investments and watching my money grow.

I would love making this journey a full-time adventure.

But I need more capital.

Just run some calculations, and if I save as much as I do now, I will have almost $1 million in 8 years.

Will that be enough to sustain myself as a private investor?

If I just keep 85 % in index funds and let that money grow further to aprox. 10 % yearly interest rate, while the other 15 % can be spent as trading capital?

I’m also considering real estate.

Have input to my plan?

Please comment below or contact me on Twitter!


An Interesting Thing I Read This Week That Got Me Thinking

The US Stock Market The Last 10 Years by Of Dollars And Data

Image

We’re often scared by the stock market.

But should we.

Now I want you to stare at the figure above for at leat 20 seconds.

What do you find?

There’s no point in watching the stocks daily.

As Nassim Taleb says: “When I see an investor monitoring his portfolio with live prices on his cellular telephone or handheld, I smile and smile”.

If one of the smartest investors of all time says this, then why are you closely following the market daily?

Look at the chart below.

You’re increasing your probability of seeing positive numbers in your portfolio from 54% to 67% if you only check monthly.

Why am I so interested in this?

Because checking your stocks daily makes you actively manage your passive portfolio by selling.

You may say “Oh, I don’t sell. I just love to check”.

But what’s the point?

You can’t be in control of the stock market!


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Quote that got me thinking

This quote is from when the market down-turned 3% on one day.

I hope it didn’t scare you out of the markets?

Just don’t forget how extremely well the markets have performed so far.

We’re hoping for 7 - 10 % per year, right?


Have questions, comments or suggestions? I would love to help you.

If you liked this newsletter, I would appreciate that you subscribe or like by tapping the “heart”.

Feel free to reach out directly @Route2FI on Twitter or email me at post@route2FI.com

If you like weekly wisdom on e-mail every wednesday, I would love if you signed up below.


Follow my blog here, or by tapping the picture below.

Thanks for reading,

Route 2 FI

Route 2 FI - Free As A Bird #13 | The Market Quickly Lost 38% In 2008 - Do You Have A Plan For Your Investments If It Happens Again?

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Hi everybody! Welcome to the 13th edition of my newsletter "Free As A Bird".

The name of the newsletter represents us - we want to be free.

Free to choose how we spend our lives.


How The Economic Machine Works

31 minutes of Ray Dalio explaining about how the economy works.

I’ve learned tons by watching this video.

Some key points and takeaways:

  • There are three things that drive the economic machine:

    • Productivity Growth

    • The Short-Term Debt Cycle

    • The Long-Term Debt Cycle

  • A market is all buyers and sellers of a certain market

  • The economy is the sum of all transactions in all markets

  • The central bank of a government control credit.

    • The central bank can modify interest rates and print money.

    • Credit is the most important part of the economy.

  • The cycle of economic growth is as follows:

    • Income -> Borrowing -> Spending -> Productivity -> Income

  • Productivity matters most in the long term

  • Credit matters most in the short term

  • Short-term credit cycles last 5-8 years, while long-term credit cycles last 75-100 years

  • Anytime you borrow, you create a cycle

  • Spending drives pricing,

    • If spending increases and prices rise, inflation occurs and the central bank can step in raise interest rates.

    • If spending decreases and prices fall, deflation occurs and the central bank can lower interest rates or print money.

  • Debt burden is very important to be aware of when assessing the health of an economy.

    • If debt burden is high, individuals or corporations will have to divert income to debt repayment which will result in less spending, which will result in less income for others, which will result in less wealth, which will result in less credit, which will lead to less income, and so on and so forth.

      • If prices decrease and deflation occurs as a result, this is what is commonly referred to as a “depression”.

  • After a “depression” starts, deleveraging occurs, i.e. debt burden reduction.

    • There are a few ways to accomplish this:

      • Cut Spending – this will lead to less income and possibly bring on deflation

      • Reduce Debt – through defaults or restructuring, will possibly bring on deflation

      • Redistribute Wealth – leads to less growth and stability, will possibly bring on deflation.

      • Print Money – Use new money to buy assets, this will only help those who hold assets and will possibly bring on inflation.

  • It is a central bank’s job to balance deflation and inflation.

    • Spending is what matters most in inflation

  • 3 Rules of Thumb

    • Don’t have debt rise faster than income

      • Debt will crush you

    • Don’t have income rise faster than productivity

      • You will become less competitive

    • Do all you can to raise productivity

      • Productivity is what matters most in the long run


FREE E-Book: Financial Independence Goal Setting Workbook

Download E-book

I made this 16-pages FREE workbook with the steps I’ve taken on my path to Financial Independence.

It’s 8 lessons:

1) Reflection 
2) Lifestyle 
3) Ideal Lifestyle 
4) Tracking 
5) Your FI Goal 
6) Networth 
7) Mentors 
8) Resources worth having 

Download the FREE E-book here.


How I Am Going To Quit My Job And Be Financial Independent In Only 5 Years

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Read My Blog Post Here

I’ll go into the sacrifices I’ve made on my path to financial independence.

But let me change the view on what’s a sacrifice is first.

Did you know that if you’re 40 years old, you only have aprox. 336.000 hours left to live on this planet?

Do you really want to sacrifice 1/3 of that time to a job you don’t even like?

And don’t forget that you sleep 1/3 of the time as well, meaning that you only got 112.000 hours left doing what you like.

I haven’t even mentioned commuting, getting ready for work etc. that as well eats of your time, but it’s easy to see that we don’t have much time to what we really want in life, right?

To me this is the biggest sacrifice at all.

Living an unfullfilled life.

That’s why I sacrifice to live on $1,500 – $2,000 a month now, and save 65 % of my income every month (this is for me alone).

To me this doesn’t feel like a sacrifice at all.

I do all the things that I want to do today (besides from working 9 – 5).

The only thing I want is more time.

And that’s the reason I pursue financial independence.

Read My Blog Post Here


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Articles I Read This Week That Got Me Thinking 

Investing Is a Fascinating Business by Morgan Housel

This article is the last one Morgan Housel made for “The Motley Fool”.

In total he wrote 3382 articles in 9 years.

This article summarizes his main take away’s from following the market closely for all these years.

  1. Investment fees are falling. Investment costs are not: Index fund fees now round to zero. That's a big win for investors. 

  2. Most investing success boils down to avoiding catastrophic mistakes: Few "good" decisions are needed to do well over time. This is a new development in the investing world. In the past, successful investing meant being on the inside, with access to the products and information required to do well. Today, every tool needed for success is available to every investor, no matter how small. Low-cost funds, news, disclosures, tracking software. They're all there for everyone to use.

  3. Most investing mistakes and frustrations come from trying to run a marathon in an hour: Diversified investing is so simple. Companies earn profits, and over a long period of time those profits accrue to shareholders. If you leave it at that – and you should – investing is such a basic game that doesn't require much action. But instead of letting profits accrue over time, a lot of the investment industry attempts to speed up the process by front-loading gains into shorter periods. This is done by guessing what other investors will do next and trying to get ahead of them. It's a billion times harder than true investing, and it's the cause of most investment mistakes. 

  4. Progress happens too slowly to notice; setbacks happen too quickly to ignore: The market quickly lost 38% in 2008, and it was huge deal. Books were written about it, and Congressional hearings were held. We'll be talking about it for decades. The market then slowly tripled from 2009 to 2015, and barely anyone flinched. You had to sit down and show people the numbers to get them to believe you. This is common: Recessions take place over months; recoveries take place over years. It can takes decades for companies to become valuable, but bankruptcies happen overnight.

  5. "Don't do anything" is the best advice for most people most of the time, but it's not intellectually stimulating enough for many people to take seriously: Most fields have a positive correlation between effort and results. Investing is one of few where the correlation is negative, especially for amateurs. The higher your IQ is, the harder it is to accept this. 


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Endure Long Enough To Get Noticed by Nathan Barry

How many great TV shows have you discovered in season 3 or later?

I started watching Game of Thrones after they had released 5 seasons.

Pat Flynn had released at least 100 episodes of his podcast before I even knew he existed. I discovered Hard Core History years after Dan Carlin started producing it.

This is such a common experience. There is so much content being produced that we can’t possibly discover it all. So instead we wait for the best content to float to the surface after time.

If step one in building an audience is to create great content, step two is to endure long enough to get noticed.

Seth Godin is very generous with his time and will appear on almost any relevant podcast—but you have to have recorded at least 100 episodes first. His filter is creators who have shown they are willing to show up consistently for a long time.

The morale is this:

Don’t give up!

We all have to start somewhere.

Not getting the attention you thought you deserved?

Just keep going.

One day you’ll get there!


Less Is More: Keep Investing Simple by A Wealth Of Common Sense

We all try to overthink things in life. 

We try to make the easy more complex because we think that if it was easy, everyone would be doing it. 

When it comes to your investing do not overthink it. 

Simple is almost always better in the long run. 

If you try to make your process too complex you will never stick to it. 

Or it may work once but never again. 

So apply a little common sense and use these easy to follow rules to keep it simple:

1.  Have a plan that you can stick to through all markets
Creating a plan ahead of time will allow you to take your inherent emotions out of the equation. An investment plan is much more important that what funds or markets you invest in. Having a process will keep you from trying to predict what the market will do next week, next month or next year.

2.  Don’t try to time the market
Do you have a friend or family member that loves to tell you about the times that they go to the casino and win big? 

Like it was because of their superior skill over the game. 

Think back to how many times they’ve told you about how much they lost. 

Probably never. 

Because we only like to brag about winning. The same thing applies when investors time the market. 

They love to tell you how they sold out at the top. But did they also buy back in when the market fell? 

More likely they held out even longer and missed the rebound. 

Timing the market requires being right twice – when you get out and when you get back in. You have to get the timing right and the direction right. 

That’s a lot harder than it sounds.

3.  Stay away from individual stocks unless you have time to do the homework
You should only invest in individual stocks if you have the time to actually put in the research and follow them on a consistent basis.  Even then it is a tough job. 

If you do decide to invest in individual stocks make sure it’s only with 5-10% of your overall investment balance so you don’t spread yourself too thin on a few stocks.

4.  Don’t pay attention to the short-term market movements
It’s good to know what’s going on with your investments but markets rise and fall for a number of reasons and they are not always what the headlines say. 

If you want to know what’s going on find a reliable market observer who has a successful track record.  Don’t watch CNBC.  They are a sound bite network and are usually preaching the wrong investments at the wrong time. 

Ignore the short-term noise and focus on attaining long-term goals. 

Is a short term drop in the value of your retirement portfolio really going to matter to you by the time you retire in 10, 20 or 30 years?


Quote that got me thinking

Have you ever thought about what amount of money that makes you content?

Is there a point when enough is enough, and you call it a quit?

When wealthy people are interviewed, there is a common trend that they’ll answer that they need 2 - 3 x their net worth to be fully content no matter how much money they got.

Is it a never-ending loop?

What’s your thoughts about this?

You can reply directly to this newsletter.


Have questions, comments or suggestions? I would love to help you.

If you liked this newsletter, I would appreciate that you subscribe or like by tapping the “heart”.

Feel free to reach out directly @Route2FI on Twitter or email me at post@route2FI.com

If you like weekly wisdom on e-mail every wednesday, I would love if you signed up below.


Follow my blog here, or by tapping the picture below.

Thanks for reading,

Route 2 FI

Route 2 FI - Free As A Bird | Less Is More When It Comes To Investing

Bilderesultat for bird

Hi everybody! Welcome to the 12th edition of my newsletter "Free As A Bird".

The name of the newsletter represents us - we want to be free.

Free to choose how we spend our lives.


Principles For Success In Life

30 minutes of life-wisdom.

You will not regret watching this.

At least, I didn’t.

Principles for success:

1. The call to adventure: You need to think for yourself about what is true

-Decide what to do

-Have the courage to do it

2. Embrace reality and deal with it

-Truth is the essential foundation for producing good outcomes

-Dream + Reality + Determination = Success

-Pain + Reflection = Progress

3. Five step process

-Know your goals and run after them

-Encounter the problems

-Diagnosis of the problem

-Design a solution

-Execute

4. The Abyss: Embrace the reality, there is always a way you didn't see before

5. Everything is a machine: See the cause-effect relationships that govern them and develop better principles

-Risk and Reward go together

-Know risk and reward for a balanced life

6. Ego and Blind spot barriers

-Acknowledge your weakness objectively

-The tragedy is a terrible outcome arising from a person's fatal flaw if fixed will result in a wonderful outcome

7. Be radically open minded

-Replace being the joy of proven right with the joy of learning the truth.

-Be open minded to other views

-Surround yourself with thoughtful people

8. Struggle Well: Struggle toward personal evolution with others is a reward

Have the courage to struggle and evolve well to make your life as great as it can be.


FREE E-Book: Financial Independence Goal Setting Workbook

Download E-book

I made this 16-pages FREE workbook with the steps I’ve taken on my path to Financial Independence.

It’s 8 lessons:

1) Reflection 
2) Lifestyle 
3) Ideal Lifestyle 
4) Tracking 
5) Your FI Goal 
6) Networth 
7) Mentors 
8) Resources worth having 

Download the FREE E-book here.


This Is How You Can Become A Multi-Millionaire

Check out my interview below with John.

He reveals how he he became a multi-millionaire.

The best part: It’s so easy that anyone could do it!

Read The Interview Here

Read The Interview Here


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Articles I Read This Week That Got Me Thinking 

The Investor’s High by Brendan Mullooly (3 min read)

Your Brain on Stocks

As Jason Zweig shared in Your Money and Your Brain:

 “The neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine.” 

The investor’s high, indeed.

The problem is that while confidence tends to grow commensurately with portfolio balances, our actual tolerance for risk does not respond in kind.

While markets rise, this is generally a non-issue.

After all, what’s risky about investments that are growing?

Volatility to the upside is not what most investors lose sleep over, so adding to what’s working and forsaking what isn’t seems safe and reasonable.

It’s only when markets fall that we realize we’ve taken on too much.

Our perception of risk returns to reality, but at that point, it’s too late.

Making adjustments after the fact is not a winning approach.

The best advice I can offer is to make any changes gradually, and question whether they’re truly necessary before acting.

Having a default setting of, “doing nothing”, is far from the worst thing in the world.


50 Reasons Why We Don’t Invest for the Long-Term by Behavioural Investment

Investment is a long-term endeavour designed to meet our long-term financial objectives, so why do we spend so much of our time obsessing about the short-term and almost inevitably taking decisions that make us worse off? 

Well, here are 8 reasons to start with:

1: Because it is boring.

2: Because markets are random and it’s difficult to accept.

3: Because there is always something / somebody performing better.

4: Because we watch financial news.

5: Because we think we can time markets.

6: Because even good long-term investment decisions can have disappointing outcomes.

7: Because the fund we manage charges performance fees.

8: Because short-term losses are painful.

What is your reason to not invest for the long-term?


No A For Effort by William Ehart

Bilderesultat for humble

LESS IS MORE when it comes to investing.

Less effort. Fewer transactions.

Lower costs. Less worry.

Lower taxes. Less ego.

We’re wired to try hard. To do well. Especially if you’ve had some success in your life, and built up some money to invest, you probably got there by working harder than others.

Problem is, the same rule doesn’t apply to investing.

There is no A for effort. But there is an F for frenetic.

According to PortfolioVisualizer.com, your money would have compounded at about 9% a year, in line with the historical average for U.S. stocks.

Boring you say?

What would you say to $717,000?

I thought so.

No more daily or up-to-the-minute portfolio monitoring.

No more expensive financial advisors or newsletter authors who say they can beat the market.

No more mornings, evenings and even work hours glued to CNBC.

The good news is, there’s a simple way.

You can grow wealth by matching the market—with index funds—instead of vainly trying to beat it.


Quote that got me thinking

How often haye you tried to Google a problem and read others suggestions and advice before you actually thinked about it yourself?

This got me thinking, because I often seek advice from others first, instead of going deep down in myself and try to figure it out first.

Things can be a lot easier than they first seems to be.


Have questions, comments or suggestions? I would love to help you.

If you liked this newsletter, I would appreciate that you subscribe or like by tapping the “heart”.

Feel free to reach out directly @Route2FI on Twitter or email me at post@route2FI.com

If you like weekly wisdom on e-mail every wednesday, I would love if you signed up below.


Follow my blog here, or by tapping the picture below.

Thanks for reading,

Route 2 FI

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