This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
The basis of my retirement plan involves having the majority of income coming from stocks that pay dividends or interest from bonds. I have assumed that when I have enough money invested, the cash flow from my diversified portfolio will replace my household income and I won’t have to work anymore.
Over the weekend, Mark Cuban (billionaire owner of the Dallas Mavericks) wrote an interesting blog post about how the market is broken, titled “What Business is Wall Street In?”. He suggests in his article that the market is no longer efficient and is being run by traders, who he likens to hackers – exploiting the operating system and application shortcomings of the system. These traders are breaking the “Wall Street System”, which was created as a method of raising capital, and turning it into a place where robots are making percentages of pennies per trade.
The economy in general seems fairly fragile. Look at what happened to the marketplace in 2008, whether it was stocks, bonds or real estate, the market tanked for a significant period of time and wiped out vast fortunes. Given the fact that investors have minimal or no control over the marketplace, it seems a little risky to put a ton of money in there, but that’s what most people, including myself will do – hoping it’s still there when we need it.
When I look at my other options of what to do with my money, I’m okay with the risks associated with the market. My feeling is that if the marketplace completely fails, there will be much bigger problems than money. As much fun as having a treasure chest full of gold in the backyard, I don’t think I’m going to become a gold bug anytime soon. I don’t assume that all my money will disappear once invested, but I realize there is a small chance that during a crash I may get wiped out, no matter how strong the companies I’ve invested in or diversified my portfolio was constructed.
I look at any marketplace as gambling at much lower odds than sports. I realize I am really outclassed by the majority of investors out there, both in capital and knowledge (Editor’s Note: I highly doubt that on the second one…remember mutual funds). My plan is based on cash flow returns, and hoping that I can stay ahead of any significant changes in the companies I have invested in. I have to assume and have faith that the whole market will not be reduced to a rubble in the 50+ years I will be investing or living off of my investments.
So in the end, do I have too much faith? I’m wondering what other people’s opinions are? How do you diversify your retirement savings? Do you have some sort of “black swan” investment strategy? Or are you like me and just hope for the best (while attempting to diversify as much as possible)?