In this report, I discuss what you must change to stay retired early.
The world has been turned on its head in the last twenty years. There are two things that have happened in the last ten years that will ruin your early retirement if you are not careful. First I will share those two things. Then I will share a few things I have done to overcome them. My goal is to stay retired early. So I think about how to accomplish this.
I am not an investment advisor and I am not suggesting you solve these problems the same way I am. I am just suggesting that you think about them carefully before they ruin your retirement, and get some advice from a real investment advisor.
My day job ended about 4 years ago. Now I just travel the world and share what I learn along the way. I will show you pictures I took traveling the world as I tell you what I changed in order to stay retired early. First I will share the old way of preparing for retirement and then I will share how things have changed.
The old way of investing for retirement
I am 61 years old. When I was in my twenties, back in the 80s, I read books about how to invest for retirement. You have to save 10 to 20% of everything you earn. Every time you receive money, you pay yourself first.
That means you take 10 or 20% of every dollar you receive, and you move it into a savings account. You then take chunks out of that savings account and you buy stocks, bonds, and real estate.
Over a twenty or thirty-year period, those investments appreciate in value and you would eventually have assets you could rely upon during your retirement. Some books promoted stocks, some bonds, and some real estate. Most books promoted diversification.
They also shared ideas about how to allocate investments when you are young versus as you get closer to retirement. They often said to put more money in faster-growing high-risk stocks and leverage real estate to achieve faster principal growth while you are young.
Then you adjust your portfolio to less risky investments like bonds or real estate as you get closer to and reach retirement age. The idea is to reduce risk as you get closer to retirement because it is harder to recover from losses when you are in the last decade before retirement.
Finally, as you approach retirement age, you would move your assets into investments that paid monthly cash flow but had very little risk, if any. At retirement age, you have almost no tolerance for risk at all. You have no time to replace money lost to risky investments.
Two things that will put your retirement in jeopardy
Two things have happened over the last decade that can be a one-two punch to your retirement. One started happening about 11 years ago and the other just started happening over the last few months.
About 11 years ago interest rates dropped to historic lows. Governments around the world reacted to the 2008 recession by reducing interest rates. This created cheap money to protect the world economy during the recession. They call in quantitative easing.
But low-interest rates on government bonds were a problem for retirees that had moved parts of their portfolio to low-risk government bonds. Their cash flow began to drop if they were heavily invested in government bonds.
Some retirees were seduced by high-flying tech stocks and started rotating their portfolios into risky investments as it seemed that interest rates on government bonds would never recover. But they still needed cash each year to pay for retirement. Some accomplished this by riding the tech stocks up and selling off a portion of the increased value each year to pay their retirement expenses.
For almost a decade now, they have been having their cake and eating it too.
Many still have their retirement nest eggs exposed to high-risk growth stock allocations that were unheard of just a decade ago. But so far, they have done okay with this risky play. But, if they remain in these risky allocations when the music stops, and the music always stops, they may see their retirement nest egg drop in half.
Some of them will be fine if they don’t have to sell much during the downtimes, but many are retired and will need the monthly cash flow. Those investors will begin liquidating their high-risk growth stocks when they are at the bottom of the cycle.
The second thing that just started happening over recent months is inflation. So at about the same time that the stock market may turn into an extended bumpy road, inflation is eating at the buying power of retirement assets.
So it is not beyond the realm of possibility that retirees could see their cost of living double over a 5 year period while the value of a risky stock portfolio remains down for an extended period of time. This is definitely a time to speak with your professional advisor about what to do before the music stops.
If you are in high-risk stocks when the next bear market starts, it could mean your portfolio is down 50% or more when the sun has already set on your peak earning years.
What is wrong with the old model and how do we fix it?
Although I played according to the old model for 35 years, I have begun to question its wisdom of it over the last 5 years. One of the first things I began to question was the value of net worth.
Net worth used to be how people talked about retirement nest eggs. That made sense when you could make a decent return by investing your cash. But that ship sailed over a decade ago. Net worth is still an interesting metric, but the more interesting metric now is cash flow.
If we shift the conversation to cash flow, you will be focused on something that actually helps you retire early and stay retired. You may have heard some of the best investors in the world saying, ‘cash is trash.” That is because they are unable to employ cash to create a reasonable cash flow anymore.
The markets have been flooded with cash for over a decade now so it is hard to employ cash anymore in investments that return cash flow. So high net worth is not going to help you create a cash flow as easily now as it could a decade or two ago.
A very high net worth could save you though. If you have such a high net worth that you can spend it freely in retirement without worrying about investment income, and you keep it in cash or easily liquidated government bonds, then you should be okay. But very few of us fit into that category. Most of us need at least some return on our nest egg to make sure it lasts as long as we live. Especially since we don’t know how bad inflation will get or how long it will last.
Now, I am not saying that you should not continue to save and invest. I believe you should. The amazing thing about having savings and investments is the power they give you to survive through hard times. Having a cushion allows you to pivot to whatever your next great thing will be without dropping down into survival mode.
But I am saying that you should focus more of your own attention on creating cash flow. I am saying that many of you should rotate out of high-flying tech stocks and rotate into investments that are more cash flow focused, whether dividend stocks, real estate, REITS, etc.
Talk to your investment advisor about cash flow investments if your portfolio is heavily weighted towards high-flying tech stocks and you are at or approaching retirement age. Additionally, many of you, no matter your age should start transforming your personal skillset towards cash flow creation. What do I mean by that?
If you are like me, you grew up and survived in the old economy. You drove your car to buy things. You bought things in stores. You drove to work every day, Monday through Friday, and spent weekends at home.
Things have changed dramatically. Most of us just sit at home now and things are delivered to our door. The Internet is a place where we spend money to get whatever we want. Many of us don’t have to leave our homes anymore. The Internet delivers whatever we need, whether a hot pizza or a new computer.
Everything is easier and faster now. But most of us use the Internet just to make our life easier. We don’t go that extra step to create Internet money machines. Most of us just assume that making money on the Internet is for the tech people.
I have two major streams of income right now. One is on a real estate investment that nets me about $3000 USD per month. The other stream is an Internet money machine that averages about $6000 USD per month.
The funny thing is, it took me most of my adult life to create the first income stream of $3000 per month on real estate. It is a small 4 unit apartment building that is now paid off. My property manager wires my $3000 average per month into my bank account. It took me over three decades to create my first $3000 income stream in real estate.
But I created my second income stream on the Internet. My second Internet income stream reached $6500 per month in 36 months, once I finally understood what to do. You see, the Internet does almost everything faster and better, not just ordering a pizza, buying stuff on Amazon, or doing a Zoom call with your family.
So I was able to create $6000 per month in 36 months online as compared to spending three decades to create $3000 per month in real estate. Now the past does not guarantee future results and I am sure I had some luck that some of you would not experience if you start an online business. But you can’t argue with the numbers.
Many of you asked me to put together a course that shows you how I set up my second income stream on the Internet. So I created a course called “The Hobby Income Course” that shows you how to use your favorite hobby as the foundation for creating your own income stream online.
To look under the hood of my Internet income stream and to learn more about the course I created to help you start transforming your personal skillset towards cash flow creation on the Internet, please watch the video “How I made $6500 Online Last Month.” It will be on the upper right-hand corner of the screen when this video ends and will also be in the notes below this video.
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