Investing for the future

[Thinkingofachange]

How are you retired at 32????

Good investments, high income combined with low expenses, and a frugal lifestyle.

---Update---

He could tell you.

But then he'd have to kill you

I've tried to talk about investing on this forum, but I've been quickly shouted down with claims that the stock market is a scam. I tried.

---Update---

they do seem to have more parental support.

Oh jesus, have you actually talked to any Koreans?

Their parents beat them, repeatedly--the culture believes in discipline, and it believes in parental rights, so children are often beaten quite severely in the hopes that it will improve their performance. There is parental investment, sure, but is that parental support?

[Warhammer820]

I've tried to talk about investing on this forum, but I've been quickly shouted down with claims that the stock market is a scam. I tried.

I'm listening

[Thinkingofachange]

I'm listening

Let's not hijack this thread further--if you want, we can do another thread about it, but it doesn't seem particularly Thailand relevant. Not that that usually stops me.

[buddahas]

In one of your previous posts you mentioned you have around $175k to invest and that would get you buy in Thailand.

So, 175k is a retirement stash?

Do you own or do you rent?

[Thinkingofachange]

I own--I think I've mentioned this elsewhere. Did I mention $175k? I don't remember that.

[IsaanAlex]

^

Don't buy in Thailand.

It's not safe, for certain.

My ex-Thai wife sold our house ON HER OWN by only providing a signed photocopy of my passport, a signed transfer/sale form, and I think another form.

All easily forgeable.

I never even appeared at the land registry.

[Warhammer820]

Oh you did it, sweet.

[Thinkingofachange]

I didn't do it--I think the mods are hinting at something.

So, it's usually considered declassé to discuss money, but you guys have provided me with a lot of free entertainment and I think it's time to pay you guys back. A lot of people will dismiss what I have to say as bullshit/impossible/voodoo, and I would ask them just to ignore this thread instead of diverting it.

Essentially, investing is about placing your money into assets that will pay some kind of yield in one of three forms: dividends, capital gains, or usage fees. The most common usage fee is rent--you can collect a profit from renting out an apartment or house and earn a yield from your investment in the property.

Capital gains are when a stock go up--I buy AAPL at 500 and sell at 550, and I've made 10% in capital gains.

Dividends are usually paid to stockholders of certain companies. AT&T, Verizon, Johnson and Johnson, and Coca-Cola are some of the most well-known examples.

Now, a lot of people dismiss investing as mere gambling, but it really isn't. If I buy a share of AT&T, I am buying partial ownership to the company and rights to a portion of the profits. If AT&T makes money, so the theory goes, I make money. AT&T currently gives shareholders nearly 5% in dividend payments given out quarterly, in addition to any capital gains if the stock goes up.

There are plenty of ways to get a sufficient yield, and I'm not going to recommend a particular strategy. The main types of appreciating assets--assets that give a yield--are:

1. Bonds (essentially debts--you loan money to a government, company, or municipality)
2. Stocks (ownership in companies, also called equities)
3. Commodities (gold, oil, corn, natural gas, frozen orange juice)
4. Real estate (condos, houses, stocks in trusts that own real estate)

I'm not going to recommend a particular asset, but I will recommend that you diversify aggressively amongst asset classes. Proper diversification is the only guarantee against losing money.

But how good is that guarantee? Let's look at the end of 2008, when the financial world was collapsing. When the Dow Jones fell over 40%, there was another asset that actually made a lot of money: bonds. The reasons for this are a bit irrelevant for us now (although I can discuss it later if people want), but, generally, when stocks go down, bonds go up.

So, if you invest in enough things, some of your assets are likely to go up even if others go down.

The key is to buy and hold and be patient. People who sold during the crisis obviously lost their shirts. Those who kept their stocks will, on the whole, now be worth pretty much what they were worth in 2007.

I should also mention that people focus on the Dow, and get all hysterical when it goes above or below a certain point. Stock haters will point out that the Dow Jones hasn't gone up since 2007. This is true--it crashed, then recovered, and is now worth the same as it was back then. BUT that excludes the dividends. If we include the dividends that investors get from their stocks, people who have had shares in the Dow Jones earned 15.1% on their money over the past 5 years.

This isn't a good return, but it demonstrates that, yes, people who invest in stocks still make money. People who invest in bonds make money, as do people who invest in real estate.

So who doesn't make money? The people who waste their money on hookers and blow, for one. Another group are the pigs who are greedy and don't sell at the right time, or the chickens who sell when the sky seems to be falling.

Now, in Part II, I'll discuss how I did it...

[jonny danger]

Now, in Part II, I'll discuss how I did it...

Please hurry!

[Thinkingofachange]

Actually, before I get to my own story, I need to mention funds: there are ETFs and mutual funds, and a lot of investors don't really know about them. These offer ways of diversifying at little cost and with very little effort. Several funds have given returns over 9% per year for the past decade or more, excluding the GFC of 2008. I cannot stress the importance of investing in these over individual stocks. To find funds, you can look here:
Morningstar FundInvestor Home Page
ETF Database | ETFdb: The Original & Comprehensive ETF Database
Google Finance: Find top stocks with our stock screener

[jonny danger]

Actually, before I get to my own story

Please hurry!

[Thinkingofachange]

Part II: How I did it

In 2009, I was broke. I remember in 2009 my net worth went to about $10k in a shitty stock that was losing money and my wife and I charged up our monthly expenses as we waited for the next month's paycheck.

I was fresh out of grad school and had just landed a university position that paid very well, but my wife and I kept living the grad student lifestyle. She also worked, which more than covered her expenses. We saved about 70-80% of our income monthly, and did that for two years. (One year a lot was wasted on an expensive apartment--a big mistake.)

In the end we had enough money to buy our apartment in cash and live off the rest in investments, if we wanted to. My wife still wanted to work, and she still works; I quit academia and became a freelance writer. I suppose I'm technically retired, although I still make money from my writing.

So, what made this possible for us was a combination of three things:

1. Frugality. We lived on a tiny fraction of our income and saved the rest. This is the most important component of a sound financial life.
2. Yielding investments. If we put our money in a bank account or even a low-yielding money market account or the safest investments around, we wouldn't be able to retire. Since we can earn 9-12% on our investments, retirement is possible. I'll explain this more in my third post.
3. Flexibility. We are able to adjust our spending and lifestyle components to match our financial goals, instead of doing the opposite. This is the commonest mistake amongst the laboring classes.

[jonny danger]

Oh more! I want more!

[Thinkingofachange]

Part III: How it works

I'm going to use U.S. dollars and a baseline of $1,000 dollars per month in expenses, because that seems to be the base pay for TEFL teachers in Thailand. It's pretty easy to earn enough to yield that amount and retire well before 40, if you start at 23. Even if you start at 30, it isn't impossible.

You need to cover $12,000 in annual expenses. If you can earn 9.5% interest on your investments (this is very easy to do with relatively low risk), that means you need $126,315.79. Want safer investments? Fine--if you earn 6%, you only need $200,000. It wouldn't take long to save that much working in the ME, if you're frugal, disciplined, and devoted.

So that's how you can invest for the future, as this new title suggests. I have not discussed inflation, which is of course a big concern in Thailand. To make your investments inflation-proof, just take on the expected rate of inflation on your return; if you expect 3% inflation and you have 126,315.79, you will need to earn 12.5% on your investments. This isn't impossible, but it certainly isn't easy.

Of course, the more you read and learn about investing, the easier it becomes.

I hope that's interesting or useful for at least someone here. Feel free to ask me more questions if you'd like.

[tomcat]

...dearest toac: I find that reducing verbiage is a more effective way to convey personal experience...

...so:

1) save money
2) fear debt
3) live within (or below) your means

...to which I might add:

a) a health insurance policy
b) a 6-month emergency fund (cash or other easily convertible store of value)
c) early investments in low-fee mutual funds (Vanguard, etc)
d) look for total return on all funds (profits are re-invested for more fund shares)
e) earn your cash in a high-salary country, spend it in a low-cost country