Good reads from around the Web.

Stock markets continue to gyrate, especially in the US which was really the last domino to fall. Some giant US tech stocks dropped 40% or more on Friday, and the Nasdaq fell more than 3%.

As I said a few weeks ago, I think we’re in bear market conditions, whether or not any particular index is down 20% from its highs on any given day.

And at such times, gloom grows.

Telegraph of doom

The Telegraph – which it must be said has called 13 of the last 0 ends of the financial world – has a big story about this all being a perfect storm, and a unique sort of crash.

I’m not so sure about that, or at least not yet.

True, that low oil prices seem to be causing a panic not a boom is unusual.

And with negative yields spreading to Japan, it’s hard to discern a soaring cost of money in the developed world – the infamous “taking away of the punch bowl” that precedes so many slowdowns.

But much of the crash is familiar – especially the diminishing ‘breadth’ in 2015, when only a few big companies kept the US indices afloat.

Now those last leaders (Facebook, Amazon, Google and so on) are falling over, taking the world’s benchmark indices down with them.

Something is probably happening…

Soaring indebtedness in emerging markets – especially US dollar denominated debt – is certainly an issue.

And as the dollar has soared, this debt has become ever more expensive.

But why has the value of the dollar soared, anyway?

The 0.25% percent rise by the Federal Reserve seems puny. More a sort of gentle tutting from a teetotaller while the cups keep getting refilled…

Perhaps this is why many insiders seem to be panicking more than usual. It seems the mechanics of the market itself are causing fear this time, more than silly news headlines.That sort of thing has a bad track record – think 1987’s Black Monday, the Asian Financial Crisis, and of course the 2008 financial crisis.

Add seven years of near-free money to the mix, and the market is probably right to fear some sort of blow-ups are coming. Big over-leveraged funds, perhaps a major state default, and so on.

Still, that’s nothing we haven’t seen and survived before. (Touch wood. 🙂 )

Also, the bright side of market-driven fear is it can unwind as quickly as it comes, whereas genuine economic slowdowns take years to grind out. (Friday’s trading in the US did have an air of capitulation, though it’s far too early to say so.)

It will certainly be fascinating to see how things unfold if you’re an investing junkie like me.

But as I said last time, if you’re passive investor with a properly diversified portfolio, your best bet is probably not to watch it unfolding too closely and instead let your asset allocation take the strain.

(Particularly those government bonds everyone ‘cleverly’ kept telling you (and urging my passive co-blogger) to dump. They’ve been rising…)

Always remember investing is about years and decades, not days and weeks.

Nothing but cash only goes up – and not even that any more in some quarters!

Spare any change?

To refocus on the big picture, let’s instead consider three different stories I read this week about the opposite of losing money.

In Beyond wealth: What happens if you have enough?, posted at Money Boss, the original personal finance blogging superstar J.D. Roth explains how going from debt to abundance did not solve all his problems.

Has he started his new personal finance blog to get richer, quicker? Or is it because creating his first mega-blog (Get Rich Slowly) was what gave him purpose in the first place?

J.D. doesn’t say, but there are other life lessons from the trenches:

Beyond the peak, Stuff starts to take control of your life.

Buying a sofa made you happy, so you buy recliners to match.

Your DVD collection grows from 20 titles to 200, and you drink expensive hot chocolate made from Peruvian cocoa beans.

Soon your house is so full of Stuff that you have to buy a bigger home — and rent a storage unit.

But none of this makes you any happier.

In fact, all of your things become a burden. Rather than adding to your fulfillment, buying new Stuff actually detracts from it.

The sweet spot on the Fulfillment Curve is in the Luxuries section, where money gives you the most happiness: You’ve provided for your survival needs, you have some creature comforts, and you even have a few luxuries.

Life is grand. Your spending and your happiness are perfectly balanced.

You have Enough.

In Drawing A Line On Enough, Mitch Anthony at the Financial Advisor website also argues money isn’t everything.

He relates the life of Mitch Mayo, the millionaire founder of the famous Mayo Clinic, who dedicated his life to purpose once the good life was nailed-on.

Anthony points out that:

More than a few million retirees have discovered (sadly, a bit too late) the truth of [Mayo’s] phrase “contented industry is the mainspring of human happiness.”

In our culture, the only question people think needs answering about retirement is, “Do I have enough money?”

The reality is that the preeminent question really is, “Do I have sufficient purpose?”

Without some form of contented industry present in our life, no matter what our age, it is doubtful that we will experience this wellspring of human happiness.

As I have moved closer to financial independence myself, the idea of retiring has gradually left my consciousness. I don’t yet know what I’ll do, but not working at all feels like it would be a disaster.

That might seem unusual, but I don’t think it is.

We often see very successful entrepreneurs or fund managers who never stop working, for instance.

Surely they have got enough, we ask?

Monetarily, yes – even they probably understand that they do. But a life without work isn’t enough for them.

Perhaps one difficulty is it seems ever harder to define work beyond what you’re paid for it…

Paying for it

A final article this week pointed out that you don’t actually need to have a lot of money to start suffering from these sorts of questions.

Now I’m not broke, I’m terrified made for an interesting (if sometimes slightly head-slapping) insight into going from income-poor to having a decent salary:

The new money I’m making makes me happy, but it also means I have no more excuses for coming up short or not having enough money to live properly.

Which is why, when I got my first new paycheck, I went from doing a little dance to rocking back and forth on the edge of my bed out of worry.

I didn’t want to spend any of it, because for so many years, spending what I made quickly turned into having nothing left to spend.

I didn’t know how to manage my money.

While you may judge that some of his first steps into the life of a high-rolling wage slave look more like missteps, you can’t argue with the candor.

[continue reading…]

I am a big believer in setting goals and going for them. (And not only because the alternative of not setting goals, playing Clash of Clans and then falling asleep in the bath is an ever-present default…)

Read any biography of anybody who ever did anything interesting and you’ll find someone who mapped out their aims, set out their goals, and made their to do lists – and then got doing.

And not just hard-nosed but a bit boring businessmen, either.

Below is the work schedule of the novelist Henry Miller, who was once banned as the purveyor of filthy libertine tracts about having short relationships in Parisian public toilets.1

Work, Bohemian, work!

I came across this schedule years ago and saved it, and I never again told myself that a free spirit just creates, spontaneously, without thought or planning.

If you’re Mozart, Shakespeare, or Einstein then you can get by without a plan.

If you’re not, make one and regularly review it.

Athletes and entrepreneurs, investors and A-Level students – all can and do benefit from setting goals.

Stepping stones

Goals may seem boring, but they can make everything more fun.

That’s because goals can be broken down into mini-goals, and achieving those can bring their own rewards – even while the main goal remains as distant as Mars to Elon Musk.

If you’ve ever walked in the mountains, you’ll know that climbing a foothill only to see you’ve still so far to climb to the summit isn’t always exasperating – often it’s invigorating.

It’s the same with anything. Break it down, break it down, and then fill your To Do list with ticked off achievements.

When I started Monevator a decade ago, my first financial goal for the site was to make £1 in a day.

It took much longer than I thought it would.

I made my first £1 in a day when I was away in Romania, of all places. I was on the point of giving up writing a website that nobody read.

That was six or seven years ago. I hit my mini-goal, smiled, and carried on.

Goals, fingered

Of course, goals aren’t everything, either, and it’s okay to miss them for good reason, and for your priorities to change.

Just so long as you do so consciously, I think.

Who cares if you never ticked the Statue of Liberty off your New York list because you were too busy romancing your lover in Central Park?

Monevator has been a long tale of under-achievement. It grew far more slowly than my other ventures, the money has always taken longer than I expected, and then some of the money actually went away again.

To be honest I thought by now it’d either be an optional full-time job or else I’d have dumped it for something else.

But after years of working away at something, you discover stuff you never suspected. You may achieve things you didn’t even think of.

Working closely with my co-blogger The Accumulator – who wasn’t around at the start – was not a goal when I began this website. But it has been a highlight.

Also, I’ve never created anything that gets as much positive feedback as Monevator, whether via email or in comments here on the site or from certain friends in real-life.

I didn’t have “receive emails every week from multiple people who tell you that Monevator is what has turned them into investors” as a goal from day one.

Perhaps I should have? It’s been the best thing about the blog, as it’s turned out.

But the targets I did have – articles twice a week, links on Saturdays, and only write substantial posts – kept Monevator going for long enough to discover these other rewards.

Dream on

My Achilles Heel is regularly revisiting goals once I’ve set them – and especially with using visualization to help persuade them into being.

I believe regular visualization is an important part of using goals, however daft and New Age you feel when doing it.

Unfortunately I often feel so daft that I don’t do it at all. I think that shows in some of my weaker results, compared to other goals that have more easily come alive in my imagination.

Creating tangible touchstones and then keeping in touch with them – that’s the real power of goals.

I don’t believe there’s an unseen force in the universe that conspires to give you everything you wish for if only you’d ask, as certain books allege.

But I do believe that if you concentrate regularly on something, it focuses your talents and your mind on that thing.

You flake out less often. You spot opportunities you otherwise might have missed.

And other people will call you lucky.

Negative imagery and mental beliefs are at least as potent, too.

Recently I’ve been wondering if the reason I’ve never bought that house in London is because I kept imagining myself not buying a house in London?

My self-image is of a canny investor who battles the market and bags bargains. That fanciful image and the London property market don’t mix – or at least not on my budget! Perhaps if you’re a property mogul things are different.

Ironically though, I wasn’t ever really thinking of my potential London house purchase as an investment, although I do absolutely believe that’s what homes are.

I just wanted a place of my own. (Cue strings…)

Maybe if I’d spent more time imagining myself pootling about such a property – and saw my battered leather armchairs, my friends in them, a garden full of herbs, a giant aquarium, a pet tortoise, a fireman’s pole that speeds you from the bathroom to the bachelor den…

…um, well, whatever.

The point is I might at least have bought a two-bed flat in Crouch End.

Bolivian marshaling power

Visualizing goals sounds like a First World problem.

“Deep breath. Now, picture yourself with the perfect thigh gap as you sip your asparagus smoothie beaming with huge delight, while throwing uneaten salted caramel brownies out of the kitchen window into a garbage bin below…”

So I was intrigued to receive a gift this week from a friend of mine who is just back from Bolivia:

Not legal tender, even in Bolivia.

As I’m sure you can tell, it is of course a bundle of miniature $100 bills, with some sort of lucky charms attached, all wrapped up with a rubber band.

Ahem. Just what I’ve always wanted?

Well, said my friend, perhaps it is.

It transpired he’d been to the Fair of Alicitas in La Paz, where he’d thoughtfully acquired the mini-money for me from this chap:

This man will officially endorse your ISA. (I don’t know what the frog does.)

That, my friends, is a genuine Shaman. I’ve even seen a video where he blesses my money with some sort of smoky incense before squeezing something out of a detergent bottle over it. Possibly detergent. Hopefully detergent.

According to Wikipedia:

The indigenous Aymara people observed an event called Chhalasita in the pre-Columbian era, when people prayed for good crops and exchanged basic goods.

Over time, it evolved to accommodate elements of Catholicism and Western acquisitiveness.

Its name is the Aymara word for “buy me”.

Arthur Posnansky observed that in the Tiwanaku culture, on dates near 22 December, the population used to worship their deities to ask for good luck, offering miniatures of what they wished to have or achieve.

My friend saw people buying and having blessed everything from mini computers and tiny cottages to scaled down smartphones.

You could even choose between different smartphone brands!

Are the ancient gods of the Tiwanakuns still sprinkling their luck dust over the people of La Paz?

Who am I to say?

But do Bolivians who buy and have blessed a tiny diploma work harder for their degrees?

Do the people of La Paz who put an officially sanctified mini-car of their dreams on their bedside table subsequently skip a few more beers and work a few more extra hours to get the cash together?

And would you be more motivated to save and invest your way to financial freedom if you wrote your goals down, collected together some images that resonated with the life you’re aiming for – whether mid-week walks in the country or a flash sports car as a go-getter – and then studied them once a week, visualizing everything, imagining how you’d feel to have achieved your goals?

In every case I’d bet on it.

1. Something like that. I read him in my student days. [↩]

Were I able to go back in time to impart one piece of wisdom to my teenage self – one nugget that would have made all the difference to my financial future – I would somehow engineer the absence of my maths teacher for a single lesson.

Then, heavily disguised as fresh supply teacher meat, I would instruct the class in the power of compound interest.

It wouldn’t take long, needn’t tear a hole in the fabric of space-time, and it would have made a far deeper impression on me than another drone-a-thon about quadratic equations.

Because everyone likes the idea of money for nothing.

Alas in reality what little money I did lay my hands on at that time went on instant gratification. You know how it goes.

If only I had understood what a mighty money tree I could grow by saving even a pitiful amount early on and watering it with time and compound interest!

How compound interest works

Compound interest is the astonishing multiplier effect1 of interest earned on interest, over time.

It works like this for a saver who sticks away £1 and earns interest of 10%:

In Year Two, you don’t add a bean to your savings, yet you still rack up more interest than the previous year (11p instead of 10p), because you also earned 10% interest on your interest.

Big wow. It doesn’t sound so life-changing – until you scale up the amounts and timescale involved.

Once that self-feeding, compound interest mechanism gathers momentum it creates a runaway money snowball that can transform your financial position.

But time is needed to generate that momentum. The sooner you start saving and investing, the more dramatically compound interest can work for you.

Compound interest unleashed

Let’s consider two investors: Captain Sensible and Captain Blithe.

From the age of 25, Captain Sensible invests £2,000 per year in an ISA for 10 years until he is 35. At 35 he stops and never puts another penny into his fund again.

Captain Sensible then leaves his nest egg untouched to grow until he hits age 65. He earns an average annual return of 8%2 and when he looks at his account 30 years later, he has £314,870 to play with.

Captain Blithe, meanwhile, spends the lot between the ages of 25 to 35. Only when he hits 35 does he sober up and start tucking away £2,000 per year in his ISA. He keeps this up for the next 30 years until he reaches 65.

Captain Blithe earns an average annual return of 8%, too. He ends up with £244,691.

To recap:

• Captain Sensible has invested a total of £20,000.
• Captain Blithe has invested a total of £60,000.

Yet Captain Sensible’s pile is worth over 28% more than the late-starting Captain Blithe’s – even though Sensible only invested a third of the amount.

Do it. Do it now!

Remember our ho-hum interest table above? Let’s dial up the years setting to 30 to see how she performs:

After 30 years at 10%, you’re earning almost twice your entire initial investment as annual interest. That’s the power of compound interest.

Of course, the only place you can hope to get a 10% return these days is the stock market, and stocks go down as well as up. Real-life returns are more volatile, but the principle is rock solid.

Compound interest is an offer you’d be mad to refuse. Have a play with our compound interest calculator to see how much you can achieve.

When you’re young, time is on your side. Make the most of the once-in-a-lifetime opportunity by sticking some money away (anything is better than nothing) and let compound interest get to work securing your future.

You’ll be laughing later. (At me, as I snivel and regret my youthful folly).

Take it steady,

The Accumulator

P.S. – Even if you’re not so young, now is still the best time to start.

1. At this point most compound interest articles like to quote Albert Einstein as saying: “The most powerful force in the universe is compound interest.” It seems more likely that this is an internet meme than an Einstein quote, but it lives on because it would be fantastic if true. [↩]
2. That is, an 8% annual average return over the entire 40-year investment period. [↩]