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Are You Saving Your Way to Financial Freedom? Be Prepared to Save for a LONG Time!

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Maybe even until piggy banks can fly.

If you are only taking this approach, you’ll eventually discover over time that you generally can’t save fast enough. I’m all for making sure you have an emergency fund for that unexpected personal issue that comes up, or uncle that needs your help or when your boss decides you may be too big a thread to him and finds a way to squeeze you out because you’re too awesome and making him look bad.

However, one day you will look up and realize, because you’ve been following GRODT, that $1 million just ain’t what it used to be and you’re running out of paychecks to make up the difference. It’s just a question of if you’ll be 40 years old or 50 or 60 when you come to this realization.

Sure, you can become a minimalist monk and make just about any amount of money work in retirement if you keep your expenses to a minimum, but you’ll also be a monk. When’s the last time you heard someone say they wanted to retire and spend their days re-using paper towels to save money and making your own soap, etc. Those skills have their merits – helping to save the environment, not consuming more than your fair share, etc, but few people aspire to 40 years of retirement doing that. You only have one life to live. As a matter of fact, you only get 30,000 days if you’re lucky.

The purpose of this blog is to build financial freedom so you can unshackle the handcuffs of your corporate job and enjoy your life as you see fit. Ever met a 20-something mutual fund millionaire? She’s likely diversified, right? Unless she inherited a significant amount of money, it will take her decades to get rich in the stock market using a well diversified portfolio. These are precious decades you’ll be stuck sitting at your desk, in meeting after meeting, working late at night playing catch up because you were in meetings all days instead of getting your work done.

The fact is, putting $100 a month, or $1,000 or even $5,000 a month into a well diversified portfolio is not how to accumulate wealth quickly. You know how in the last election there were all kinds of complaints about how little taxes Romney paid or how Warren Buffett says he pays a smaller % of his annual income in taxes than his secretary? Well this happens for 3 reasons.

  1. Those people have been so successful in their careers that they can pay an army of accountants to find and exploit loopholes
  2. They are wealthy enough to lobby politicians to modify tax laws to their financial benefit. Likely, if you’re reading this blog, you’re not in that stratosphere.but some day you might be, it just won’t be from kicking a few greenbacks into your 401k every 2 weeks for a couple of decades.
  3. The assets they have are so significant that they generate enough cash flow in a low risk way (bonds – taxable and non-taxable) or through higher risk ways such as dividends where their ownership of shares is so large they can weather 50% drops in share price as long as they aren’t invested in a company that goes bankrupt, a risk that could be mitigated by owning an extremely diversified, low-cost fund like VTSAX, but produces smaller yield.

With those kind of significant assets, you can easily minimize the number of taxable events. Let’s say you have $5 million 100% invested in VTSAX. (and don’t forget, shockingly $1 Million Just Ain’t What It Used to Be!)

You don’t buy any more and you don’t sell any. Just for letting the passage of time occur, you’ll generate $93,500 per year based on the yield of VTSAX at the close of the stock market today, 7/17/15. You’re still richer than 99% of people in the United States will ever be, but from the government’s perspective, you only made $93,500 for the fiscal year and will be taxed on that amount.

That doesn’t even begin to contemplate things like tax free municipal bonds which, even in this superficially low interest rate environment, can generate 4-6% with relatively minimal risk.

Here’s the problem, what are you doing to generate an investable lump sum of $1 million, $5 million or more? The vast majority of people working in Corporate American will never achieve that and, if they do, they may in well into their 60s by the time they do. While there’s certainly nothing wrong with that, my preference is to get their 20+ years faster. Hooping my boss recognizes I busted my ass last year, delivered my projects on time and under budget and rewards me with a 4% raise won’t get me there quickly either.

This is the first step in a multi-step process. You have to think big picture and recognize the trajectory you’re on to ensure it will, over time, allow you to achieve your goals and you have to be realistic.

Most of us, at best, are taught – actually, scratch that. Our schools do a terrible job of teaching us about saving and investing. However, for those of you smart enough to read this blog, you have taught yourself that saving each paycheck, living below your means, investing in your company’s 401k and getting your 401k company match,if you have one, will make you rich some day. And you’re right. SOME DAY! Not TO-DAY. Not TO-MORROW!

One last example before we go. Do you realize that if you had invested $1,000 PER WEEK every week from the day VTSAX (my choice for most diversified, lowest cost, lowest risk stock market fund) launched on 11/13/2000, that, including dividends, you’d have BARELY DOUBLED your money over the last almost 15 (that’s FIFTEEN) YEARS!

During that time, including dividends, the stock market has barely returned 5% annually. This has been one of the worst 15 years on record. Oh and, by the way, you largely can’t do anything to affect your stock portfolio other than picking better stocks or mutual funds and even the pros that can beat VTSAX over 15 years or more are in a very small percentage, so good luck!

It can leave you looking back on your stock portfolio over the past 15 years and feeling like this:

Image courtesy of Vlado at FreeDigitalPhotos.net

Image courtesy of Vlado at FreeDigitalPhotos.net

Maybe this is the new normal for stock market returns, but at that rate, that would take you over 37 years to accumulate $5 million dollars and it assumes quite a few things. Namely that you have $1,000 of extra cash PER WEEK to invest in the stock market, and we all know with how most people are struggling today and for the last several years, that’s not something most people can do.

There are many other ways to grow revenue and investing in the stock market can be a good one, as long as you’re willing to tolerate the occasional 30-50% loss of money and you stay with it A LONG TIME.

At GRODT, we’re looking for faster ways to achieve those goals.

If I started working at 23 and could sock away $1,000 per week religiously, which I couldn’t have back then, I’d be 60 before I would achieve a $5 million net worth in those investments.

There has to be a faster way!

As always, let us know your thoughts in the comments below. We appreciate your readership and hope you will tell your friends and family about Get Rich or Die Trying! and our journey to accelerated financial freedom.

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-Mr. GRODT

Today's GRODT Quote: Turn your to-do list into a to-done list! GRODT