How to Be Very Wealthy By 67

Current Net Worth: USD 1,038,557

As a resident of Europe, I have to admit that consumer financial system here is designed to make it a workers paradise.  When it comes to increasing your wealth, it seems to be entirely focused on getting very small, but guaranteed returns to supplement a very generous state pension

I currently am trying to help a friend of mine, who recently received a cheque for USD 10,000, invest in stocks. Wow, I never thought it would be so difficult. Online brokers are apparently non-existent in this country. The only way to easily “invest” is to hand your money over to an insurance company to give you small (1-3%) return. What kind of a deal is that? If we are looking at 20 to 50 year investment horizons, it is a HUGE mistake to take the guaranteed returns.

Here is an example:

Let’s assume that someone wants to invest USD 10,000 every year starting at age 24. The amount of the savings is increased by 2% every year as the 24-year old gets salary increases.

Option 1: You invest with the insurance company at 2% per year until you retire at 67.

Total Value of Savings:  USD 1,394,995

Option 2: You invest in small cap value companies at 15% per year until you retire at 67.

Total Value of Savings:  USD 50,861,645

The “entrepreneurial” option pays off about 36 times more than the “nanny” option. 

There is absolutely no doubt I will let my friend hand his money over to an insurance company. I will post an update when he finds a way to productively invest his money.

How Do I Control My Animal Sprits

Current net worth USD 1,027,000

The bad news...

Ok, so for the past 3 weeks I have a net worth of over USD 1 million, so maybe I will actually stay above this threshold from now on. But, who knows. One thing is for sure - I had no idea that having all this money would come with such a great amount of anxiety. I know that my investments are right for long term growth, but I still can't help feel anxious a great deal of the time. In fact, if I don't make at least USD 1,500 on any given day on my investments, I have sense of failure, forbidding, etc. All of this is very strange, since I like to think that I am a very rational person, who knows exactly why I am feeling anxious BUT that does't mean I don't feel anxious. If i feel bad about losing USD 7,000 in one day, what would happen if my net worth dropped by 40% or 50%. I mean this has happened to the stock market twice in the past 15 years, once in 2000 and the other in 2008. I personally managed to escape both of these with only a small dip in my net worth (due to luck, not skill) but I am fully exposed now. I'll let you know how this anxiety does or does not progress in further posts.

The good news...

I am all set to be able to technically retire in about 2 to 3 years and live off my investment income, BUT I am not a single man. I actually have 2 retirements and 4 university educations to pay for, so I will need to work for a while yet - or at least a combination of my wife and I will have to work. It does feel good that I will soon be in a position that I am no longer chained to my work.

Passed USD 1 million (again) Yesterday

Today's net worth USD 1,006,182

Well, for the second time my net worth has exceeded USD 1 million for the second time. The last time was in September of this year, when my status as a millionaire only lasted for a few days.

I have to admit that I am secretly oozing with serotonin today. Let me explain, for those of you that are not aware, serotonin is one of our feel good hormones. We create serotonin whenever we perceive our star is rising. Its a key chemical that any serious investor should be aware of. While its great to feel your sense of status rising - thanks to serotonin, you need to be aware when it works against you as an investor. For example, you will get a serotonin boost when you buy a new shirt, especially if the label is on the outside and everyone will be aware that your shirt was expensive or exclusive - or at least you believe that they will be aware. But should you have kept wearing that old shirt from last season and bought a share of P&G instead.