Sunday, August 6, 2017

How vision of life and investing are the same (for me).

I hope this is not too personal, but what better example can I give?

Sitting on my patio on a warm early summer evening I am contemplating life and how investing is such an important part of it.  I am not overly religious but if there is a God, a maker of the universe than it must be a being of such different thinking in time and scale that it doesn’t care about me and neither can I care to learn about it. Men is driven mostly by fear and one of the biggest questions is whether we will retain our individuality after death or not. Let me answer that for you. If you don’t retain your individuality then you will never know it. If you do, it is completely irrelevant for the now.

We are all without question dust parts of the universe and as such we are the universe and so is God. Because if it exists then it is part of all and we are part of all so in the end we are all part of the whole. To be honest, there is so much universe and there are so many objects in this universe – large, small and everything in between. What is the chance that one becomes human out of all those dust particles? It is truly rare and precious to be alive and  human. We should be grateful for our existence. We’re not having an opportunity that is once in a lifetime of a universal dust particle  to do something great but probably a chance of one in a billion or even trillions to do something worthwhile with our human live. Our life is full of choices and if we want to know what hell is about, just make a couple of really bad decisions or have a group of people make wrong decisions and see how that works out. It is in our individual and common interest to live a life of integrity and care for those around us. When we strive to make the best of our lives and for those around us, we are likely to build a heaven on earth. If we live poorly the opposite will happen. Many of the old religions noted this and made all kind of positives part of its value system but often written in terms that people during various periods and in various cultures could understand. Rules and laws and morals change over time as we evolve. Mankind learns, although not always at the same pace and often there are large differences between individuals and groups of individuals. But looking back, we have come a long way and the path forward is likely to be even longer.

We’re living longer and this has major implications as how to view our live. A person of 60 has quite a different perspective on live than a 20-year-old. A male sees things often different than a female. So does a rich versus a poor person, or a Canadian versus a person grown up in India or in Russia.  You probably see things even different than your next-door neighbor does or your spouse. Over time we think different from when we were younger. So we likely value things now differently than 10 or 20 years ago and going forward we will again see things in a different light. The only thing that doesn’t change is the fact that things change. If we don’t want to get lost and avoid ending up in a rut, we have to map out a travel plan but with the expectation that when we are getting closer to a particular milestone, things will change. But one thing is relatively certain: we want to stay healthy as long as we can; we want the means to live the way we want and we want to do things we consider worthwhile. It doesn’t matter how old we are, our life is too precious to do things we don’t consider worthwhile and live in a rut and in a fog of indirection.

Regardless of goal and perspective, we all will need the means to do in live what we want. This is something we can all plan; but so few achieve it. In the past, we may have thought that by sixty we need to have enough money to live until we die – probably in our early eighties.  But now we’re learning that you may live to a much older age and that it could be quite uncomfortable to run out of money with many years to go. Another way of thinking is required. To lead the life that we want until the end of our days, whenever that may be, we need the assets to generate cashflow sufficiently to achieve the things we consider worthwhile doing at the various stages of our live no matter what they may be. To do so, we need to become long-term thinkers while staying nimble to adjust with the times. Rather than expecting that our needs will decrease over time as our lifeforce ebbs, what about thinking about growing into doing ever bigger things?  Fulfilling larger and more exciting projects. In fact, more exciting to us may be more important than just ‘larger’.  But why should our ambition decrease with age?  Life is about growing not about declining. Yes, ultimately our life energy may disappear, but maybe by aiming for the opposite we may use our physical potential more active and longer; we will use our brains more active and longer and feeding on our successes our life energy will stay or even increase over time!
To do what we want in our longer lives we will need the financial means and the energy (health and motivation) to do so. We owe it to ourselves and the universe that provided us the opportunity to live as a human to do so. How do we build this financial wealth?  Simple: live below our means and grow our savings using the laws of compound interest over time.

When you come on your own and start your working live, you can choose to spend all your money on your lifestyle and live for the moment. You, may instead, decide to live like Scrooge and scrape every penny towards savings, i.e. building assets.  Often there is a middle road, and for each person the amount of wealth desired is a personal choice. But the law of compound interest is not only simple but also extremely powerful. You save every month $100 starting from age 25 and invest it at a compound rate of 10% and you will be a millionaire by age 60. Ho, ho! I am not saying invest in GICs or an RBC savings account!  No it is about assets and liabilities!
Assets grow in value and often create cashflow. Liabilities is about your cost of living and the consumption of whatever toy you fancy. Your career is an asset and the cash flow it generates can be put in liabilities or in assets in whatever proportion you desire. ‘Living below your means’ is a way of saying that not all your income is spent on liabilities but also, in a significant proportion on assets which will ultimately constitute the bulk of your net worth. Your assets when grown in sufficient size, will at one point in your life, provide more cash flow than you can earn with a salary. The moment that your assets provide cash flow greater than you need to live from, you are independent of proceeds from your career and you have reached ‘financial adulthood’.  When reaching financial adulthood, you have the means to live the remainder of your live in comfort as a vegetable. But I can tell you from experience, living the life of a vegetable can be extremely boring, kills off your brain cells and reduces your life energy. A deadly state of life! For a human to be truly be happy and fulfilled you need to be willing to push your limits and take on challenging projects that you feel worthwhile. You may also experience that the satisfaction you derive from such challenges depends on going out on a limb and to be willing to work outside your comfort zone often working on increasingly larger or more complex projects. The costs of these projects may increase over time; but so will likely the rewards – both spiritual and financial.

When I say ‘growing your assets according to the laws of compound interest’, I mean that with your net worth, your projects will increase in size and return. Yes, you will have to allocate your capital in a responsible way; but especially when you can invest in your own projects or in those run by people or with people close to you, the rewards could be enormous in many ways and your net worth will grow along with it.

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