Do you want freedom but don't come from money or status?
Then boy do I have the product for you! Ingredients: blood, sweat, tears. It's called bootstrapping in startup circles. Real estate folks call it sweat equity. It's sour at first, but savory later. It's the short-term suck, long-term win of delayed gratification. Unfortunately you can't buy an online course that'll teach you this. Gurus will tell you not to do it because it can’t scale. It’s not entertaining and it probably won't be fun but make damn sure it'll be worth it...in the long run.
Chances are if you don't come from money, you don't come pre-wired with the knowledge to acquire wealth either. Everyone has differing levels of financial education imbued in their DNA which stems from their parents and guardians. For me, I was lucky to grow up in a frugal household that understood basic personal finance but unfortunately, doesn't have a clue about what a good investment feels like. I was told you get a 9-5 because its safe. You then max out your 401k that invests in safe assets according to your trusty, non-fiduciary advisor and hopefully you retire in your mid 60s.
My best friend grew up in a household where you can sometimes miss car payments and you learned how to hide your car from the repo man. In her household, credit card debt was the norm. You do what feels good in the moment without much concern for future you. Bad personal finance habits and - investments? Why invest for tomorrow when you can live for today. After all, you only live once.
For me, having debt-loathing parents kept me from going into tons of student debt because in my household, all debt is bad. Well, almost all debt, unless it buys you that new Ford. Growing up I was taught you don't spend more than you earn. You work hard. No real reason for working hard, you just do. This is a recipe for a simple, prudent life with a nice truck. This life is You vs. the clock. You vs. the 45-minute commute to work. You vs. office politics. Then the one that stings the worst of all, You vs. your 9-5's bottom line. This unfortunate reality is usually discovered when times get tough and corporations enforce mass layoffs, like the ones we're seeing now.
I don't dislike 9-5s or 401ks by any means. Nothing is better for providing seed capital for freedom than a 9-5. My 9-5's old 401k plan offered me an 8% match that I happily contributed to over the course of my 3-year cubicle adventure as a financial advisor. That old Roth 401k gave me the seed capital to launch my first startup, Spared. My post-college 9-5 gave me the cash flow to stock away 35k to buy our first boat and ultimately start Abandon Comfort. 9-5s are remarkably powerful if used appropriately. Especially for those of us who don't come from money.
What I don't like is pretending something is safe when in reality, during times of panic, all correlations go to 1. 9-5's aren't safe. 401ks aren't safe. In a 9-5 you have no pricing power. You can't adjust your pay to match inflation without job hopping or constantly asking for raises (which will make you first on then chopping block when things turn down). This is abundantly true even in today's labor-constrained, wage-price spiral world where the employee has the most bargaining power they've ever had! A 401k staple, the 60-40 portfolio, a bellwether of "safety" in financial markets, has been decimated this year (see image below). Friends who work at prosperous tech companies have had their tech startup equity destroyed via equity markets popping yet another tech bubble over the past 18 months. This is what a correlation of 1 means. When the economy goes down, it all goes down.
2022 - 2nd worst year on record for the 60-40 portfolio
The truth is everyday is a gamble. Nothing is safe. The goal is to not be blind to the risks you are taking and learn how to effectively manage them. If you have a 9-5, your greatest risks are job security, your commute to work and losing to inflation since you can't mark-to-market what your time is worth. How do you manage those risks? You build on the side. You make hay while the sun shines. You reduce or remove your commute. You create other streams of income that rely upon the market and not office politics or corporate earnings.
If you have a 401k, your greatest risk is not identifying your time horizon and hopping off the rollercoaster at the wrong time. Don't call your financial advisor when you see Markets in Turmoil on CNBC and command them to move your account to something conservative. Don't call them when the DOW goes up 1000 points to move your account to something more aggressive to capture more upside. To the advisor, it doesn't matter. They'll make commission regardless. Don't look at your Robinhood account everyday. They want your eyeballs. They want your attention. Mr. Market ultimately always wants one thing - for you to act on emotion. If you panic, panic early or don't panic at all.
The hardest thing for me to learn was what a good investment felt like. What managing risk felt like. What delayed gratification felt like. What sweat equity felt like. These things require careful thought, subjective analysis and ruthless execution. Not seeking confirmation from loved ones who have little-to-no investing or entrepreneurial experience is still hard for me to this day. More often than not, being a contrarian and fading the direction of the collective wisdom of the crowd pays off in the long run. Like owning your own company, buying a fixer upper direct from owner with no inspection, or riding your bike to work. The crowd deems these as risky. A lot of the times, the thing you're taught is risky is in actuality risk-adverse because it offers multiple streams of income, exit plans, good defensive strategies or ways for us to create sweat equity/take ownership.
The democratization of information via the internet has allowed easier access to breaking the wheel of generational bad financial habits compared to previous decades. The worst thing any of us can do, is to rely upon the crowd to determine what is and isn't risky. Or worst of all, that we should avoid risk entirely. This is a fallacy. There is no avoidance of risk. There is only management and mitigation of risk.