You've heard it a million times: invest for the long term, go for passive income, wealth which lasts. This is generally sound advice, but like any rule of thumb, it shouldn't be taken as dogma. There are exceptions to every rule.
It's easy to get so swept up in the "longterm vision" thing that you can miss the point entirely. Let's think about just why we should pursue enduring wealth. Presumably it isn't just longtermness for its own sake: the whole point is that in the end, it should add up to a larger sum. A retirement plan which penalizes its holder for early withdrawal should offer some increased interest rate or tax benefit, or something, to compensate for the early withdrawal penalty.
Furthermore, in order to make the wait worthwhile, the total at the end needs to be significantly higher: this is because money (or any other asset) is worth more in the present than the future. For one thing, a lot of people are in better positions to actually enjoy their wealth at a young age. It's cliche, but you don't wanna put off all your fun in life until you're too old to do anything (although I must disclaim that you don't ever have to be "that old"). For another thing, as soon as you get your hands on your profits, you can reinvest them. A 5% profit compounded twice is greater than a single 10% profit.
Passive income is all the rage: if you manage to build up a $1,000-a-week income from dividends, royalties, webtraffic, and so on, you can retire and live off of it indefinitely! But you won't live forever. Supposing you have 80 years left after setting up your cashflow, that $1,000-a-week only ends up summing to around $4 million. That means if you made the $4 million all at once, you could theoretically stuff it all under your mattress and just take out $1,000 a week. The point is, any money can be viewed as "passive income", to a being with a finite lifespan. Passive income is great, but let's not elevate it higher than it deserves.
When you really boil it down to the details, the long term assets fad isn't as great as people make it out to be. The "carefully planted seed" has to really compete, just to catch up with an ordinary salary. (It's great to "earn money while you sleep", but it's not that great if the total amount is less than you could've earn by working for just one hour.)
So what should we do, just swear off long-term assets completely and devote all our efforts to shorter timescale enrichment? By no means. The great thing about all the strategy and building of enduring wealth, is that it's fun. Building longstanding dividends is like playing a game. As a matter of fact, hundreds of games are all about doing exactly that: Civilization, Age of Empires, Sim City... the list goes on and on. If you figured out a way to short-circuit the slowly-building economies of these games-- using cheat codes or something-- the games would lose all their challenge. It'd be fun for awhile, but it would get old fast.
By all means, pursue passive income and large timescale wealth building. But not to get rich quick. Do it for fun. Remember it's all a game. In this world, we only live finite lives anyway, and in the end it'll all disappear, just like game money.
FURTHER READING
Positive Affirmations
Privileged Information
Real-Life Tool-Assisted Speedruns
It's easy to get so swept up in the "longterm vision" thing that you can miss the point entirely. Let's think about just why we should pursue enduring wealth. Presumably it isn't just longtermness for its own sake: the whole point is that in the end, it should add up to a larger sum. A retirement plan which penalizes its holder for early withdrawal should offer some increased interest rate or tax benefit, or something, to compensate for the early withdrawal penalty.
Furthermore, in order to make the wait worthwhile, the total at the end needs to be significantly higher: this is because money (or any other asset) is worth more in the present than the future. For one thing, a lot of people are in better positions to actually enjoy their wealth at a young age. It's cliche, but you don't wanna put off all your fun in life until you're too old to do anything (although I must disclaim that you don't ever have to be "that old"). For another thing, as soon as you get your hands on your profits, you can reinvest them. A 5% profit compounded twice is greater than a single 10% profit.
Passive income is all the rage: if you manage to build up a $1,000-a-week income from dividends, royalties, webtraffic, and so on, you can retire and live off of it indefinitely! But you won't live forever. Supposing you have 80 years left after setting up your cashflow, that $1,000-a-week only ends up summing to around $4 million. That means if you made the $4 million all at once, you could theoretically stuff it all under your mattress and just take out $1,000 a week. The point is, any money can be viewed as "passive income", to a being with a finite lifespan. Passive income is great, but let's not elevate it higher than it deserves.
When you really boil it down to the details, the long term assets fad isn't as great as people make it out to be. The "carefully planted seed" has to really compete, just to catch up with an ordinary salary. (It's great to "earn money while you sleep", but it's not that great if the total amount is less than you could've earn by working for just one hour.)
So what should we do, just swear off long-term assets completely and devote all our efforts to shorter timescale enrichment? By no means. The great thing about all the strategy and building of enduring wealth, is that it's fun. Building longstanding dividends is like playing a game. As a matter of fact, hundreds of games are all about doing exactly that: Civilization, Age of Empires, Sim City... the list goes on and on. If you figured out a way to short-circuit the slowly-building economies of these games-- using cheat codes or something-- the games would lose all their challenge. It'd be fun for awhile, but it would get old fast.
By all means, pursue passive income and large timescale wealth building. But not to get rich quick. Do it for fun. Remember it's all a game. In this world, we only live finite lives anyway, and in the end it'll all disappear, just like game money.
FURTHER READING
Positive Affirmations
Privileged Information
Real-Life Tool-Assisted Speedruns
Posts
2 comments:
In the past I was hugely against long term savings and so on always lived by the oh well if I get hit by a bus tomorrow then all that saving was pointless, although I kinda still think like that I do save a little now for my year stay in Japan which is planned for 4 years time, but other than that I prefer to enjoy my assets now.
Maybe we should change our mindset. The previous generation's idea of success was "accumulate wealth". Maybe a more healthy way to view things would be to see making money as a secondary goal behind our life goals.
Post a Comment