Retirement; like your parents, but way cooler
In 1991 Billy and Akaisha Kaderli retired at the age
of 38. Now, into their 4th decade of this
financially independent lifestyle, they invite you
to take advantage of their wisdom and experience.
Understand the Stock Market
Billy and Akaisha Kaderli
Billy at his favorite place in the
world -- the beach!!
ďI donít understand the stock market.Ē
Over the years, I have heard this statement from people of all ages. Iím
unclear as to whether itís an excuse not to invest in equity markets or as a
reason. Yet, these same people may have a pension, a 401K, or a life or home
insurance policy -- all of which are
invested in stocks. And they
probably just don't realize that fact.
Let me try to explain this concept further.
The stock market is exactly that, a market of stocks. Just as when you shop
at a fruit market, the prices of apples, oranges, grapes, and other goods
change daily. Stocks or equities - which represent ownership in a company -
reflect the value of that particular business at any point in time.
It is true that stock prices fluctuate, which is a concern for some people.
Others look at those price adjustments as opportunities. If oranges are on
sale this week, it makes perfect sense to buy more. However, when stock
prices decline, fear can grip some investors because they are not prepared
for a paper loss.
The relationship of risk to reward and safe to guaranteed
The risk of price fluctuations in stocks offers better returns over longer
periods of time. However, if the risk of a drop in prices is enough for you to lose sleep, then perhaps you are
not suited for stock market investing.
Maybe instead, you need to place your
money in something safer and more guaranteed such as CDís, individual bonds, or money market funds. But with these
investments there is the risk of inflation eating away at your returns. This is
the hidden risk factor.
guaranteed are related as well as uncertainty and reward. Knowing your
personal risk tolerance is an individual decision and it doesnít need to be
all or nothing.
Most people have a mixture of safe, certain investments along with their
higher returning stocks.
There are risks all throughout life, and it is best to learn how to manage them.
We have been retired - or financially independent - since 1991. Throughout
these three decades,
over 10,000 days,
the S&P 500 Index has grown 10% per year on an annual basis. This does not mean we make 10%
each year as there have been some down times. However, the up years have
more than covered any unproductive ones.
S&P 500 Index 1991 - 2020
Spread the risk
Instead of picking individual stocks that contain more risk, we prefer to
buy a basket of goods, or more precisely the entire market. We like using
VTI (Vanguard Total Market) - which is an exchange traded fund (ETF) - or we
the S&P 500 Index ETF. This allows us to purchase and sell in real time,
versus being forced to take the end-of-the-day price. This gives us more
control of which price we choose to buy and sell.
Back to my example of the fruit market, instead of buying apples or oranges,
we prefer to invest in the entire store. This way if one fruit or another
goes down, we have other goods making up for those losses.
Over time this has been a proven approach for us.
S&P 500 Index 1920 - 2020
There are going to be corrections, or periods of declining prices, as that
is the nature of any
market. From 3-5% is considered to be noise, 7-10% is a
correction to re-price assets, 20% or more is a bear market and it will be
If you can hold on through these actions and add to positions if
possible, over time you should be rewarded. There are
no guarantees in life
or in investing, but based on over 100 years of stock market history and the
resiliency of the US economy,
I would not
bet against it.
this to your advantage.
What's Your Number? - How much money do you need to retire?
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About the Authors
Early Lifestyle appeals to a different
kind of person Ė the person who prizes their
independence, values their time, and who doesnít
want to mindlessly follow the crowd.
Retire Early Lifestyle Blog
About Billy & Akaisha