Latest posts by Wanderer (see all)
- Investment Workshop 50: Goodbye TD Ameritrade, Hello Vanguard! - November 15, 2017
- The Three Paths to Financial Independence - November 13, 2017
- Investment Workshop 49: Expat Insurance - November 8, 2017
Hello, and WELCOME to the end of the world!
Originally, we we were supposed to be writing this Wednesday about the Investment Workshop. What ETFs should we pick, and how should we position ourselves in a world that was prosperous, and likely continue to be prosperous.
Yeah, those days are now over.
Yesterday we, along with the rest of the world, watched as the unthinkable happened: Donald Trump, a man who based his entire campaign on screaming random gibberish into the nearest microphone, has become the 45th President of the United States of America.
When the race was finally called around 3 AM EST, we read about it lying on a beach in Cambodia. And after a few minutes seriously considering swimming out into the ocean and never coming back to escape the nuclear Hellfire that would surely be raining down on us any minute now, we slowly came to a shocking realization.
This is why we became Financially Independent.
Here’s what we can all expect under a Trump presidency:
- An increase in violent hate crime across America, directed especially towards visible minorities. Visible minorities like us.
- A stock market crash. Stock markets hate uncertainty and Trump is the definition of uncertainty. At the time the election was called in his favour, the Dow Jones Industrial Average Futures had already dropped 900 points.
- A recession. If implemented, economists estimated that 11 million jobs would be lost. This will likely plunge the stock market into a tailspin.
Luckily, we don’t need jobs. That’s the power of being Financially Independent!
Because we structured our retirement portfolio as a 60% equity/40% fixed income asset allocation, with our fixed income portion pivoted towards higher-yielding investments, our $1 Million portfolio (which we expect to get hammered in value pretty soon) is currently yielding approximately 3%. That’s the entire point of a 60/40 portfolio versus a 90/10 or 100/0 portfolio. Fixed income gives you stability and, oh by the way, income!
3% of $1 Million is $30,000 a year, even if (or rather, when) our portfolio drops in value. And not only that, we have 3-5 years of living expenses outside the portfolio, just in case that fails. And that’s why we keep hammering the point home about having a cash cushion. This is EXACTLY why you need one.
And finally, because we’ve taken up a nomadic lifestyle, it is trivially easy to keep our spending below that limit by simply staying in low-cost countries. For example, right now in SE Asia, our spending if extended long-term is somewhere around $20,000 a year. That’s right, by deciding to spend more time lounging around on a beach, we will actually MAKE around $10,000 over the next year.
THAT’s the power of Location Independence, and that’s the reason we couldn’t give two shits about President Trump.
Unfortunately, there are many people who should be very very worried right now. Since the last financial crisis 8 years ago (and just to be clear, we are now officially entering the next one), many people made a lot of money during the subsequent economic recovery (which again, is now likely over). If you:
- Spent most of that money on consumer goods and have nothing to show for it, you are fucked.
- Ploughed most of that money into your house like most of our friends did, you are fucked. As we’ve demonstrated before, even when times are good your house doesn’t make you any money. Now that times are bad? You may be in for a world of hurt, just like in 2008.
- Are still dependent on your job for your day-to-day living expenses, your job may not last. Are you Hispanic? Are you Muslim? Trump promised to deport you. Are you in the country on a NAFTA visa, that may not be a thing anymore. And even if you’re not, by tearing up those trade agreements they will cause companies to lose money. And when companies lose money, jobs get cut.
But you know what? We’ve been through this before, and we survived just fine. That unpleasant feeling you’re experiencing right now in the pit of your stomach is the exact same thing we went through the last time the world collapsed in 2008. And back then, we managed to emerge from that smoking crater having lost no money, something most of Wall Street couldn’t claim themselves.
The reason for that is something that’s just as true back then as it is now. The Index never goes to zero. It always recovers. Always always always. And rather than cancel the Investment Workshop which, by the way, was supposed to be a nice and easy demo of how nervous first-time investors should wade into a stable, rising market, will now be a repeat of 2008.
We will demonstrate how to invest in a world-is-on-fire everybody-run-for-the-hills goddamned economic collapse. And we WILL make money. Because remember, this is what 2008 looked like for us.
See how quickly we recovered back then because we were buying into the storm while everybody else was fleeing? The same thing will happen here. That graph may end up shorter or longer (in terms of timeframe) than 2008-2009, but in the end it WILL look like that shape. The world will not end, and we will make money, because that’s how Index Investing works.
I get it. Right now, it seems like the end of the world as we know it. It feels like that to us too. But you know what? This feeling of dread in the pits of our stomach is exactly the same feeling as in the last economic crash that felt like the world was ending too. In fact, it was in this environment that we cut our investing teeth and built our initial fortune. And if you recall, our single biggest investing mistake was made during this period, meaning we exited the market once we made our money back and therefore missed the rampaging market afterwards.
We will not make that mistake again, and the Workshop will run as scheduled. And if you come along and manage to become Financially Independent like us over the next 8 years, the next time some demagogic jack-ass like Donald Trump gets elected, you can enjoy it stress-free while watching a sunset on a beach.
Just like we did.