An Inconvenient Truth: Personal Finance Edition: Additional Thoughts

In yesterday’s post, An Inconvenient Truth: Personal Finance Edition, I blogged about the notion that by purely saving you may actually be losing money.

After reading deeper into the article that prompted my thinking, the comments people have about it and talking to a few people I know interested in these topics, I have a few after-thoughts:

• I still don’t understand the hostility most of the commenters have. Of course no one wants to see our economy in trouble. No one wants to see America’s wealth shrink, but isn’t it a possibility at least worth considering? Isn’t it something worth learning about to figure where he may be coming from? You can’t predict the future, nor can you influence the will of the mob. You can prepare yourself for what might happen, whether good or bad, and have contingency plans for those options. Preparation for all likely scenarios is the only way to find consistent returns, in good economic times and bad.
   
• I can expect some people who have a lot of experience in the stock market and have had better returns than market average take particular offense to this kind of thinking. They, most likely, made a lot of money (and value) in the last 5 years. Unfortunately most people are not active investors. They do as the financial planning industry tells them and diversify their assets between market indexes or bonds or cash or REITS or all the above. They hope that “law of averages” works to their benefit. These are the people who concern Mr. Kiyosaki as they think they are getting closer to their goals, yet an argument can be made that the last five years put them further behind. They may not have the ability to live the life they planned for when it comes time to retire due to a reduction of purchasing power.
   
• His view is obviously quite unpopular, yet my studies tell me the motion of the stock market tends to favor the unpopular vote. Technical investors look at the put (a bet the market will go down) to call (a bet the market will go up) ratio as an indicator for market turns. When the sentiment is such that everyone is betting the market will keep going down, it actually tends to reverse, and vice-versa. This is a form of “stepping outside of the mob” and doing the opposite, which takes intestinal fortitude! I can’t say I’ve studied crowd psychology and the economic cycles but my guess is that things aren’t much different. I also know that Warren Buffett has made a lot of money by flanking popular vote.

I’m not entirely sure what all this means for me and my financial freedom strategies. My security blanket plan still revolves around the “put my retirement funds in a safe, secure index fund” strategy. However, the purpose of my experiment is to see if it is possible to reach financial freedom much quicker by building a business using mostly passive thought. I also like to think that there is merit to acting contrary to popular belief, as popular belief is what got most Americans (by definition) deeply in debt with little chance of a safe retirement. This is why my rules were inspired by common excuses for not using a business as a vehicle to reach financial freedom.

If all this works, it is a greatly accelerated alternative to the “buy & hold index funds and bond funds strategy”. If it doesn’t, I learned a heck of a lot for not much time or money.