Money is a means. Not an ends.
Matching Cash Flows
For most of us, investing is about trying to smooth the lumpiness of our income to consumption. When we are in college or young adults, we typically consume more than we earn with loans bridging the difference. When we get old, our spending is financed by withdrawals from our savings. In between, we may have emergencies, college bills for our children, or any number of life specific circumstances (or desires) that require extra funds to cover.
This wiki approaches the goal of investing from this lens. It assumes your goal is to match your assets to your expected liabilities. Investing is just one tool towards bridging this goal. In fact, financial investing alone will probably be insufficient if lower expected returns are a "new normal".
This wiki is designed to give you the tools to think about investing. To give you the best shot of success however you define it on that front. Investing in your human capital will be higher yielding. We'll talk about that too.
Investing is prescribed to smooth your cash flow. It's my focus. But it's worth mentioning that there are other goals such as "financial freedom". The knowledge and reasoning you acquire on investing will apply to the pursuit of those goals as well. You are not wasting your time learning.
What About Extreme Goals?
While most of us would be content to ensure a desired standard of living until we pass plus some leftovers for our family, I'd be naive not to acknowledge two additional motivations that draw people towards investing.
- You want to be extremely wealthy
- You want to give away lots of money to loved ones or a cause
Lets's discuss. They face the same reality — investing is not enough.
Extreme wealth = extraordinary luck x effort x risk
Extreme wealth is a common desire but it's usually not serious. Everyone would like to flaunt a 6-pack. They'd like to wake up with one. They don't really want to do what is required. Same with getting rich. It's hard to maintain the required motivation day after 18 hour day.
For the competitors in the next round, I'm not here to lecture you. I presume you have asked yourself the right questions. You already know that comparison is a road to nowhere. There's always someone richer. Instead, I'll presume you have the introspection covered and give you the investing truth.
Investing alone will not make you rich if you are not already rich. Generating stunning compounding returns year over year is not only a full-time job it is an outcome reserved for a tiny proportion of people who do it as a full-time job.
To get rich by investing would require tremendous luck and an almost maniacal degree of risk. Your wealth would need to be highly concentrated in a few assets that increased parabolically AND that you managed to not sell when you became "halfway rich". Every Bitcoin hodler who became extremely wealthy witnessed insane fluctuations in their net worth if they managed to hang on. It's delusional to expect you'd recognize the rare arrival of something so transformative, have the chance to invest in it, and not lose all your money betting on all the false positives in the meantime. Just look at all the innovations around you being funded today. Are you prepared to bet your house on any? The next bitcoin could be under your nose. Don't count on yourself to notice.
There are always people who will lay it all on the line. People that would risk what they need for something that they want. If they can't be a movie star they say they've made their peace with eating Top Ramen their whole life. Those people eventually grow out of that risk profile.
The path to becoming rich is being highly concentrated. It most commonly takes the form of starting your own business or acquiring a concentrated stake either as an early employee or investor in a speculative venture. Many people run that race. At some point effort and risk pass the baton to luck. They've done what they can. Now they cheer her on for the last lap.
Effort, risk, and luck. There is no shortcut. Be honest about what you are willing to give up to get rich.
- Morgan Housel on Getting Rich Vs Staying Rich (Link)
- It is difficult to predict what will make you happy. Check Paras Chopra on Miswanting (Link)
- Meb Faber's discussion of goals in the Get Rich Portfolio (Link)