If you’re so smart, why aren’t you retired already?
It shouldn’t come as a surprise that I read a lot of personal finance and investment related books and I also read a lot of personal finance blogs. When I read Mark aka My Own Advisor’s recent post titled “If you’re so smart, why aren’t you retired? I thought I would write a post answering the same question. To me, Mark proposed a very interesting question. If you’re so smart, why aren’t you retired already? I mean, how hard can it be to have sufficient amount of money saved up to last the rest of your life? After all, I did graduate from one of the toughest engineering programs in Canada, learning how to solve complicated math and physics problems, so the whole how to retire early should be an easy problem to solve right?
Let’s take a closer look on why I am not retired already. Not surprisingly, my list is very similar to Mark’s.
1. Invested in high-priced mutual funds and GIC’s
When I started working, I started investing in mutual funds because they were easily available. I never paid close attention to the MER fees. Even after reading A Random Walk Down Wall Street, and realizing the importance of minimizing fees, I still purchased high fee mutual funds. I recall having a meeting with a financial advisor at one of the Canadian banks and stating that I wanted to buy index-like mutual funds only to get convinced that active-managed-high-fee mutual funds were the way to go. What a silly fool I was back then.
Although I had high savings rate in my 20’s, I “invested” a good portion of my savings in GIC’s, getting 2% or less annual returns rather than investing in stocks and getting higher returns over time.
When I finally had a financial epiphany, I started focusing on getting our money working hard for us. This involved:
- Shifting from high-fee mutual funds to lower cost investment products like ETFs and dividend stocks.
- Investing in dividend paying stocks that provide dividend income that can grow over time.
- Focusing investments inside tax-advantage accounts like TFSA and RRSP.
- Minimizing GIC investments
2. Not being patient
In my 20’s, I was into making big money really quick. So I chased high risk stocks. I had some stellar returns but also got burned a number of times. One time I tried to day-trade Ballard Power Systems because some hot contract news. Unfortunately my timing was late so found myself in a -20% hole ten or so minutes after initiating the trade. Luckily I set a limit order sell to get out of the stock completely before getting into deeper trouble. I was lucky that I never traded using leverage or I would have gotten myself into some serious troubles.
Rome wasn’t built in one day, neither should your portfolio. I began to understand that building wealth takes time. I have been building my dividend portfolio for the long term and I am not worried about the day-to-day stock price fluctuations. I know over the long term stock prices have a tendency to go up.
I still trade non-dividend/value stocks occasionally. But I’m now smarter. Instead chasing the big bucks I am now more patient. I analyze the stocks thoroughly before purchasing. Once I purchase the stock I will set upper and lower price limits. If the stock price hits either limits I’d sell it and move on. I’m no longer chasing for the quick bucks.
3. Not saving enough/Not doing an extreme budget
To be perfectly honest, I think we can do more on the saving & cutting expenses front. Our savings rate isn’t ultra-high like some personal finance blogger families and we aren’t the most frugal household. Although we do save as much as we can and invest (we have already added $18k this year, and $35k in 2016), I do think we can do more. However, being a single-income family with two little kids has put us on a slight disadvantage compared to dual-income families. After all, if two families have similar expenses, it’s certainly a lot easier to safe money with a family income of $200k from two people than a family income of $75k from one person.
Our annual 2016 expenses of $44,138.77 for a family of 4 isn’t the lowest out there. But we eat good quality food, we enjoy the occasional dine-out, coffee, and treats, and we don’t deprive ourselves.
The reality is, if we can cut our expenses by 30-40% (hard but I think it’s possible), we can expedite our financial independence timeline significantly.
While the fix seems easy, I don’t have any plans to implement it. I believe that living on either extreme ends is no good (i.e. spending like YOLO or extreme frugality). I believe in finding your own balance between spending now and saving for the future.
For me, if it means working an extra 5 years so I can enjoy my life now while working toward financial independence, the extra 5 years is totally worth it. Is it really worth it to deprive yourself now? To me, it’s not worth it. Having said all that, it doesn’t mean we do not try to optimize our expenses so we can save money to invest every month. Again, it comes down to finding the right personal balance.
4. Not being greedy when others are fearful
Hindsight is always 20/20, but one of the biggest mistakes that I made was that I was not greedy enough during the financial crisis. Instead of buying undervalued stocks I was being fearful like everyone else. I ended up selling quite a number of stocks and sat on a large amount of cash, earning very little interests. Instead of cashing out, I should have purchased some stocks very low prices, resulting easy multi-bagger returns a few years later. But I was too busy being fearful of the sky collapsing. I was fearful of my own job even though there was no financial consequences due to my low monthly expenses and the large amount of cash reserve I had.
I missed the big picture.
After missing the great buying opportunity in 2008 I have realized how important it is to purchase equities when they are on sale. So we keep cash available to deploy whenever there’s an opportunity. Over the years we managed to snatch some pretty good stock deals. Secretly I am hoping for another market crash so we can accumulate more stocks at much lower prices than today.
Looking back, there were a number of things I could have done to put myself on a faster path toward financial independence. If I had taken advantage of the financial crisis by not sitting on a huge amount of cash, I probably would be looking at a good sizable portfolio. In addition, if Mrs. T and I could be better at saving money and cutting expenses, we probably could be fast tracking our financial independence journey.
But we are not. Coulda shoulda woulda are three very dangerous words to use. I am happy with where we are on our financial independence journey; we have been receiving close to $1,200 in dividend income each month so far in 2017. I have learned the importance of saving for the future and enjoying the present moment. Spending time with my young innocent kids and seeing them grow up, and spending quality time with Mrs. T is much much more rewarding than fast track to financial independence.