Mighty Bargain Hunter says that earning power trumps investments. I know what he mans -- that investments are not certain, but your income is (or at least more certain than a potential return on investment.) Anyway, I thought I would add my (very random) thoughts to this discussion:
1. Your career is your most important financial asset. It's the one asset you have that allows you to survive (food, clothing, shelter, etc.) as well as provides excess (hopefully) for you to acquire other assets (home, car, investments.)
2. If you spend less than you earn, you'll eventually end up with a savings/investment portfolio that is greater than your earning power/career. That's a good thing -- especially if you're still working. You'll now have an asset bigger than your career (investments) AND still have your career. Let the good times roll!
3. If you find yourself in this situation, your net worth is now at the mercy of the markets. In the past, you may have been able to save enough from your job to make up for any market downturns. But once your portfolio gets sizeable, you can't save enough to offset market downturns. This is where I find myself these days. Unless the market turns around quickly, I'll have my first loss of net worth ever -- simply because my biggest asset (investments) is down this year.
4. But what's the alternative? Nothing really. Yes, it's likely to be a down year, but I'm continuing to max out my 401k, 529 plans (to get the highest tax deduction), Coverdells, and IRAs -- plus saving in a taxable account. I'm buying at very low prices these days, planning for the purchase made now to be worth a mini-fortune 25 years down the road.
5. Eventually, we all reach retirement, our careers end, and we only have the investments to live off of. If all plays out according to plan, the investments generate more than our careers did and we spend our last years doing things we enjoy.
I told you my thoughts were going to be random. Not sure this piece makes sense completely, but let's just say it represents a transition from career-dependence to career and investments to investment-dependence. Sound ok? ;-)
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