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October 07, 2013

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The first time I ever heard about the value of a career was actually at an Amway seminar, when they laid out the numbers pretty much like that. The point was that you were going to spend over a million dollars in your lifetime, even if you weren't a high wage earner, and went on into setting a budget and spending plan.

I think this goes to show further how important it is to have a long term view of wealth building. Some of those salaries may not seem like much, but if you're wise with it and make the right decisions it can help create solid wealth.

The flaw in this thinking is that it's not your total earnings that count, it's the sum of your total SAVINGS plus their appreciation as a result of your investment skills.

I worked for my final employer as an aerospace engineer from 1960 to 1992 and the sum total of my gross income amounted to $980,000. However what I find interesting is that upon retirement the total of our investments at Fidelity (excluding our home and a beachfront condo) amounted to $319,950 but by becoming a skilful investor and taking advantage of a once in a lifetime market bubble (the dot.com) my gains for the year 1999 alone amounted to $918,107, amost the same as my gross salary for 32 years of hard work. After that great start I eventually moved into the slow lane and became an owner of muni and corporate bonds and today our portfolio is well over $7M.

Wow Limey that's a fantastic result.

In my opinion, income is 40% of the picture. Savings is 50%. Investment savvy is 10%, since honestly one should not expect or plan for returns that exceed the market average, unless he/she has some special opportunity that for whatever reason is not available to others.

We all recognize that savings is impossible without income, right?

Of course, but without savings the value of the 'income asset' is zero.

I think of my life as a business. My employer is my customer. I sell them my labor, and they pay me my income. That's my revenue. What I spend is my cost of doing business. What I save is my profit.

The value of the business is the NPV of all future profit.

Our earned income went to zero when we both retired, however our pensions and SS checks are taxable income. After we retired we actually stopped saving and haven't added to our Fidelity investment accounts for the last 20 years. In fact we have taken money out of those accounts for home improvements and vacations.

The company whose data and investment tools that I have used since I retired used to have annual seminars in different cities throughout the USA which my wife and I attended. Eventually I became one of the speakers at those seminars and learned a great deal from my interactions with well known personalities in the investment world.

Two truths from one speaker resonated with me. They were:
1) Don't Lose Money.
2) Understand the Power of Compounding.

If you do that you cannot help but get wealthier each year. I haven't had a losing year since I retired, consolidated all of our investments at Fidelity, and started making all of my own investment decisions.

#7
Obviously in order to NEVER have a losing year it's imperative that you exceed the market average in bad years. In my early days I achieved this by the use of market timing - there's no other way that I'm aware of. At the end of 2007 our investments had grown to a size where I felt that it was wise to move into the slow lane and settle for income rather than capital gains. My holdings at this time consist of CDs with 5% coupons that mature very soon, municipal bonds that yield an average of 4.85% of income exempt from state & federal taxes, and corporate bonds in our IRAs yielding an average tax deferred income of 5.14%.

I'm curious what techniques you can use to never have a losing year.

I do not believe it is possible. Even money market funds occasionally have a losing year.

If you buy bonds direct from the government and avoid corporate bonds too
( not funds) you can Theoretically have a portfolio with no downside risk. You
Will always get your principal back if you hold to maturity. The USA government
Is the best credit out there per conventional wisdom.

Of course you will get the lowest interest rate as well. No risk equals
Low return.

That is the closest thing I can think of to a risk free investment.

But with the way the government handles it's finances of
Late in the USA-- my theory seems to be on shaky ground.

Please pardon the typos and all- I am typing on a phone.

Jnew

Most people never think about their career as you do, and it is a huge mistake. Hopefully I have more valuable assets one day but I definitely don't have a bigger asset right now.

#7
There are a great many different techniques and strategies that people use in order to time a market or a fund. It's a lot easier if you use a mutual fund that has a long history of low volatility and also a very low "max drawdown" during that history. Such a fund will obviously never be a fund that invests in volatile stocks. However there are bond funds that lend themselves to being timed with a filtered, exponential, moving average. Such a fund will usually require no more than one trade/year and will shield you from downtrending periods. However you need to subscribe to a large database of mutual funds with dividend adjusted data and you also need to purchase software that can read this database and enable you to backtest funds over lengthy periods. It also means that you have to become an active investor that watches his holdings every day in order to take action when a Buy or Sell event happens. I would never have been able to use techniques of this nature when I was working - I was far too busy in my career. It wasn't until I retired that I had the time and the interest to learn what to do and to use the software to take action when it became necessary. I still am a subscriber to the database and software which is updated daily but now, after 20 years and some services rendered, I receive a complimentary subscription.

This is so true. we never actually think of how much money we gather over a decade or two over our supposedly paltry incomes. thanks for sharing

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