Years ago when I was trying to first learn about investing I was like many, afraid of the market. Put your hard earned money in the market’s black box and see if there’s any left later. I looked into precious metals and bonds. savings accounts. Most precious metals that are used as investments are separate from actual metals used in industry, this means their value is independent from industrial needs. This also means in general they are no better of an investment vehicle than stocks, often even more volatile since there is no actual business behind it, just a lump of  metal. Bonds and Savings accounts don’t return very much and you are often lucky just to not lose money to inflation with these vehicles but they are safe and we use them when nearing retirement or in retirement to pull money from when the market is down.

Many are hesitant, like I was, to invest, even in standard safer(proven better) index funds. Scared they’ll lose their hard earned cash in the market. This fear does not discriminate, I’ve noticed the same fear in the general population whether you’re well off $100,000+ per year income or struggling at $20,000. I’ve also noticed people don’t care to actually do any research, this is a general issue not just in investing but anything they ever do… ever. People just look for the quick answer by a investment adviser who doesn’t likely have your best interest at heart. After doing further research I have calmed my initial fears of the market and realized some basic rules.

  1. Investing in the market is your only option.
  2. You need to manage your own money, or at the very least understand whats going on, why, and all the inner workings. – This means doing research beyond what one person who wants you as a client says and read books and articles.

Investing means trying to get a return and build wealth on your cash investment, on a small level it could help a business expand and prosper or expand and flop. It includes a risk. Unless you have the time and want to become very very intimate(and even then) with a company before investing, your best bet is to invest in many many companies at once with basic index funds. Inside the index funds there are companies some of which will pan out with big returns and some will flop and lose money.. but this is where it has been shown time and time again to be the best way to invest without learning too much. Simple index funds that purchase parts of many many diverse companies. Suck it up when the market drops and hang on to them. The market has always bounced back and I have no choice but to assume it always will because the market is my only option for an early retirement. Nothing good comes without risk.

If you’re trying to save for retirement without using the market it’s like trying to swim with your arms tied behind your back. You will have to save an huge amount of money, then plan for inflation to eat away at your savings and to top it all off, you’ll have to try to predict how long you will live and need to survive on that cash since it won’t really grow after you stop working.

As a simple example we will take a frugal couple takes home $80k after taxes. They save $40k and spends $40k. they also get a 2% raise to keep up with inflation. This also assumes they have job security through the whole time and a 30 year mortgage that cost them $20k per year. You can poke holes in the example but you’re really only slightly shifting the graph around.


Here we see pretty much what we expect. approximately one year of saving equals one year of you do not need to work. In my example i chose 30 years old to be the start point, the peak is 67 and ran out of money at 98. Many things could and probably would derail this plan pushing your retirement back.


Investing with the stock market expecting 7% return. Again you can argue the details but your really just shifting the graph around a tiny bit. the first peak is retirement at age 41, the valley is the 30  year mortgage being paid off and the rest is slowly taken down by inflation.

stock_mrkt_50_2exThe previous example was if you were to work to  your efficiency and stop exactly when you can at 41 with very little changes in your purchasing habits or market changes. Most people will want a safety margin, me included. This graph shows what should happen if you worked just an extra 2 years. you see the first bump when you stop working at 43 then the market slowly takes off with your investments because the average return of 7% is more than you’re spending and inflation is rising. Even this example isn’t using the 4% rule though and isn’t generally recommended.

Graphs that would be more realistic would be much more jagged but should trend the same way in general if our good fortune of the past 100+ years continues. What I notice though is that every other method of trying to save for retirement equals working until 70 anyway, and you’ll probably need help at some point because perfect execution will be very difficult. The market seems to be the only way to increase your wealth and allow for several screw ups on the way. I will also continue to earn income after I no longer need to thus growing my already big enough pile.

The 4% rule is there to save us on years when the market is down but we still need to pull money out. This should be smoothed out by bonds but it’s just an extra precaution. If you’ve been out of the industry for 10 or 20 years and need to build your wealth again.. well it’s unlikely you’ll find a similar paying job after being gone that long, so I agree with the precautions if you plan to not work at all afterwards.