“Cessation of work is not accompanied by cessation of expenses.” – Cato the Elder (De Agri Cultura, second century B.C.)
In the most recent issue of Strategic Investment, Bill Bonner says, “The average American is 44 years old, has $40,000 in his 401(k), and has more debt than at any time in history. He has effectively 10 to 15 years to save enough money to retire. If he wants a retirement income of two-thirds of his salary, he needs to save something like $500,000 over the next 15 years. I’m not quite sure how he’ll do it.”
I leave it to my colleagues who understand stocks to tell you how you can do that with equities. I believe it is possible if you start off strong, do the right thing, are consistent, and have some good luck.
But I don’t have faith in myself to accomplish that task. (If only because I’ve never been lucky –except in love.) Looking back at my stock performance — summing up the 20 years I’ve been invested in blue chips, penny stocks, growth stocks, etc. — I’d guess that I’ve earned about 6% to 8% on the average in those investments. That’s more or less what I’ve earned with municipal bonds, if you account for the tax effect.
Believing, as I do, that the stock market is still fundamentally overvalued, it’s hard to imagine how I could find a big enough return there to make a ton of money — the amount I’d need to build a retirement nest egg in less than 15 years.
So what I’m going to do is stay out of mutual funds until the price/earnings averages come down closer to historical levels — 15-to-1 — and then invest a very small amount of money (in relative terms) in companies I like that pay dividends. (See the recent guest essay written by Dr. Steve Sjuggerud in Message #665, “Getting Back What’s Gone: Three Things You Can Do Right Now.”)
But to get the money I need to retire? (Happily, I have it right now. But you never know. It could disappear tomorrow. Better to have a plan.) How do you get that $500,000? Or $1 million? Or $20 million (my personal comfort zone)?
I have two plans:
1. First, I’m going to maintain a direct interest in a business I know. (See Message #393, “Wealth-Building Lesson #4: Invest in What You Know.”) I am going to continue to have an active interest in the publishing business. This is something I’ve done for most of my professional life. I understand how it works. Most importantly, I understand how to start and develop such a business from scratch.
Right now, I have plenty of action in this area. It is keeping me busy 10 or 11 hours a day, six or seven days a week. At my age, and considering my still-burning ambitions to write those great novels, I want to gradually diminish the time I devote to these businesses and increase the time I spend on “retirement” activities like smoking cigars and writing.
If you get yourself a second business and maintain some reasonable control over it, you can eventually have it run itself if you:
* find a superstar to replace you as soon as possible (See Message #215, “Admit It. You Haven’t Found Your Protégé Yet, Have You?”)
* teach him how to create and sell new products (so the business can perpetuate itself after you’ve abandoned the helm)
* treat him like a developing partner (so he stays with you)
* develop good relationships with vendors, consultants, and competitors (so you can come back to them if you need to later on)
2. My second plan is to continue with my side business: real estate. (See the detailed series I wrote on investing in real estate: Messages #394-#399.) I’ve learned a lot about real-estate investing since I started doing it in a semiserious way 10 years ago. One of the most important things I’ve learned is that it isn’t as easy as it is sometimes portrayed to be. That said, it’s easier than my main business — because there are fewer working parts. And that’s why I think it’s one of the best of all second businesses.
If you have only 10 or 15 years to go before retirement and want to retire with enough money to enjoy yourself, do both of these things. Figure out how to have income from your present job or business for the rest of your life. And start building your own local real-estate portfolio.
Do that and you will be able to reinvest in the stock market with confidence and ease when the time is right.
Note: To find out how much you need to retire, see Message #115 (“How Much Do You Need to Retire?”).