Early FI: Be a Fan of Opportunity

LH Terminal (33 of 39)

There are no secrets on how to get to early financial independence. It can be achieved by ANYONE who is willing to work hard, sacrifice, commit, stay consistent and persistent, and possess a never say die attitude.

In short — Cut expenses, don’t live above your means, and invest.

Over and over and over and over again and again.

And that’s basically all that there is to it.

Yet so many on the journey to early FI still won’t get to where they want to go. Why is that? You can do everything right and yet still come up short…

Perhaps there’s more to it than just that?

The Foundation

The aforementioned traits that one needs to possess on the journey to early FI are all good and true. But I believe what separates those who succeed brilliantly from those who struggle to get out of neutral gear is something entirely else.

Cutting expenses, living below your means and being frugal aren’t exactly the easiest things to do. But once you get used to it, it becomes like just about everything else in this world…

Too lazy to exercise? Well, once you start, you probably won’t want to stop. Motivated to eat right and cut out junk food? Start eating healthy, all-natural whole foods and your body won’t want to go back to processed junk.

Acclimation and assimilation come readily after enough repetition. Perhaps those who have an innate frugal gene have a slight advantage, but I believe just about anybody can acquire the skill of playing strong defense.

Here’s the easiest way how:

  • Cut down on expenses (even just a SINGLE one) any way possible.
  • Take the now excess funds saved and invest it (e.g. dividend growth stocks).
  • Collect passive income and/or watch your net worth (assets) grow.
  • Record progress.
  • Repeat over time.
  • Analyze results.

Most people, after seeing first-hand results (the proof in the pudding!) will be far too thrilled to want to stop. This is how the snowball starts to build up, or so they say, and progress starts to accelerate.

Presto! You have now mastered the Art of Saving.

For anyone who has attempted early FI for awhile now, none of what I’ve just described will come as any surprise to you. I’ve never done a research study so I have no clue what the percentage is of folks who succeed in getting passed this “initiation” phase. But if you want some solid evidence that many people do indeed master the Art of Saving, look no further than to Rockstar Finance’s Net Worth report which gets updated monthly.

After all, you can’t keep building up a positive net worth if you’re spending more than you bring in each and every month (inheritances don’t count!). There’s no other way around it — you’ve got to learn how to save to not only get to FI but to sustain it.

Lots of qualified experts, indeed…

A Sound Gameplan

Throughout the history of this blog, I’ve spent very little time addressing the topic of savings because I feel like defense is a skill that anyone can master. And once you do, there’s not much else more that you can do to improve your results. In other words, once you’ve cut down expenses and spending to an “extreme” steady-state level, what more can you really do to maximize results? I don’t know about you, but even though I want to get to early FI, I also want to enjoy life as well and not live in absolute poverty. Like most things in life, there’s a happy medium somewhere and you’ve just got to find yours.

With that said, once your defense is in place, the only other thing you can do is to work on your offensive game. Generating strong offense is not trivial… and it’s something that I’m working on all the time. Over the years, I’ve made many mistakes, but I’ve also acquired a ton of knowledge as well.

The offensive side of the equation can take many years, or decades, or even a lifetime to master.

And it’s because of that… that’s why many people ultimately fail — Reducing investing to nothing more than a rudimentary skill, when it’s in fact probably as difficult to perfect as learning a foreign language will doom you to mediocre results.

You’re gonna need to study a lot and practice, practice, practice.

It should be obvious, but it’s not — There’s MUCH more to investing than just acquiring a single skill! Any investor who ONLY invests in stocks, or ONLY invests in real estate, or ONLY invests in precious metals and commodities is not seeing the complete picture!

There are many worthy investment classes out there and I am convinced that you cannot maximize your results and progress if you so easily dismiss the many viable options that are made available to you each and every day.

The Secret Sauce

The secret sauce is simply this — You’ve got to learn to become a HUGE fan of opportunity. And you cannot always do that if you live in a vacuum where ONLY a SINGLE investment class exists.

As I’ve been reiterating over and over on this blog lately, I am a fan of Market Cycles. I am learning to study history, trends, bubbles, valuations (one asset class relative to another), etc.

All of this studying is making me a much better investor… When I first started off on my journey to early FI, I was solely a Dividend Growth Investor (DGI). Although I still feel like DGI is an excellent investment platform (especially for those who are just starting out!), over time, I’ve learned to expand my repertoire to include other asset classes, primarily Real Estate Investing (REI) and Precious Metals (stacker!).

To me, an investor is no different than a MLB pitcher who is working on honing his craft every offseason to get better — A big league pitcher will typically start off his career with a single “go to” pitch. As the player gains more experience, he learns to cultivate other pitches… 2-seamer, 4-seamer, curveball, slider, breaking ball, etc.

As he progresses, he gets better and better… The individual battle between a pitcher and batter (or you vs. Mr. Market) is a lot like a chess match; the more moves and options you’ve got, the better your chances of winning are.

Investing is no different…

My Experiences

When I first started DGI in 2012, I didn’t know jack about stocks. But I was open to learning, studying, and growing my knowledge. I won’t say that I ever became a DGI expert, but I was making decent progress and definitely moving forward in the right direction towards early FI!

By mid-2012 and early 2013, I noticed that real estate prices were very cheap and the asset class as a whole was grossly undervalued. So, I decided to get educated up on real estate. Up to date, the best investment decision that I ever made was electing to buy Rental Property #1 (and then later Rental Property #2)…

Luck had a lot to do with it. And timing. But we can all get lucky if we are prepared!

No one told me, or forced me to get involved with real estate… I was doing just fine as a stock investor and I could have kept on marching in that very same direction…

But as I’ve learned, a whole new world of infinite possibilities can open up to you if you learn to free your mind and expand your reach. The investor who stays narrow-minded and rejects all other ideas outside their depth of competence will eliminate all chances of getting “lucky”. You can’t get “lucky” if you won’t even consider playing the game!

So Many Options!

More than just that, we’ve all got to give up the notion that we think we know everything. Even though I’ve been fortunate enough to amass $1MM+ in Net Worth over the past 4 years, I’m still grounded enough to know that I still don’t know jack about investing… I’m learning all the freekin’ time!

Further, if you want to get to early FI, you’ve got to learn to become an agnostic investor. Or, as I like to call it — a financial independence investor.

Having a strong affinity and attachment for ANY particular investment method/technique/philosophy, etc. is EXACTLY what keeps an investor from seeing the big picture (and capitalizing on wonderful investment opportunities).

Growth stocks vs. dividend stocks? I like them both!

Real estate vs. stocks? I like them both!

Fix-and-flip vs. buy-and-hold? I like them both!

Precious metals vs. fiat currency? I like them both!

Why pick and choose just ONE answer?

I can appreciate a company like Kinder Morgan (KMI) who pays a nice, big FAT 6% dividend. In fact, there are many retirees who are living large off of these same big FAT dividend checks every year! At the same token, I also live in Silicon Valley and I’m surrounded by multi-millionaires who got FAT off of investments made in: Facebook (FB), Google (GOOG), and Tesla Motors (TSLA). Although very different approaches, both methods do indeed work!

And although I switched from DGI to REI, it doesn’t mean that I think real estate will ALWAYS be a superior investment… Back in 2012 and 2013, in the Bay Area, it was. In 2015? Far from it… In fact, I don’t even want to touch a Bay Area investment property with a 20 ft. pole right now!

If you are offended by that, don’t be! I’m not insulting DGI, REI, or any other form of investment out there. There is a time and place for each type of investment, as each asset class doesn’t just go up in value for perpetuity or stay down in price indefinitely. Assets trade in a valuation channel relative to one another.

Always have. Always will.

Undervaluation. Overvaluation.

Again and again.

When an asset is undervalued, that’s when you need to tune in.

Some people say gold is a “barbarous relic”. If you are willing to accept that statement at face value, you don’t know history. Or as billionaire hedge fund manager Ray Dalio liked to put it:

“If you don’t own gold, you know neither history nor economics.”

Central banks accumulate it. China, India, and Russia are buying the yellow metal hand over fist… Let’s open up our minds a bit before drawing any ignorant conclusions. Sure, gold doesn’t pay a dividend… it isn’t designed to. But if you are an agnostic investor and a HUGE fan of opportunity, you will appreciate how depressed gold prices are RIGHT NOW!

Who cares what everyone else is doing? If you keep chasing the herd, you’ll only get the same results as the herd… And right now, the herd doesn’t want to touch what is probably the most undervalued and hated asset there is out there! If it wasn’t obvious enough — I sure do!

Think different.

I’m not suggesting anyone jump in immediately and buy into ANYTHING… I’m merely pointing out that investment opportunities are always plentiful if you are willing to look around!

A Buffet!

As an investor, if you have a free invitation to a world-class buffet where you can eat whatever you want… would you really settle on just eating the same entree over and over and over again?

Well, here’s some good news for all of us — the buffet is open to all! You have no restrictions or limitations. You can create and accomplish whatever your heart and mind desire. You are limited not by opportunity, but only by your imagination!

But I do realize that it’s a constant process… As a pitcher, you don’t learn to master 6 different pitches proficiently in a single bullpen throwing session… And the same is true with investing.

It takes time… a lot of time. Many hours of studying, learning, and asking questions. But the least anyone can do is keep an open mind. Right now, I have experience investing in stocks and real estate, but I don’t know a lick about many things…

Even within real estate itself, I’ve never:

  • Invested out of the country.
  • Fix-and-flipped a home.
  • Wholesaled.
  • Owner financing.
  • Invested in notes.
  • Etc., etc.

I don’t think anyone should ever try and do too much all at once and overwhelm themselves, but as always, you’ve just got to be willing to accept different options and possibilities. Don’t limit yourself and your progress. In fact, I think it would be really cool to do many of those things listed above!

Pick one thing and get really good at it… Try another one and see if it meshes or not. Not everything will work out. But learning is always.

Conclusion

I really believe that there are over a trillion ways to make money out there. On the quest to early FI, we all want to make the most progress and get there as swiftly as possible. I commend anyone who even dares attempt early FI because it’s not an easy mountain to climb!

With that said, I’ve found in my own experience (and from hearing the stories of others), the most successful investors are the ones who are the most open minded and willing to think outside the box; they see opportunity everywhere! When you learn to question and inquire about anything and everything, a world of possibilities opens up for you.

Recently, a good buddy of mine just sent me an e-mail packet about a fix-and-flip opportunity in the Bay Area. And you all know how toxic I think Bay Area real estate is right now, right?!? 😉

But I’m still going to open up the document and have a look around… Who knows what I might find?

And one of these days, I’ve seriously got to figure out how this whole Bitcoin thing works… and finally I’ll need to get educated on entrepreneurship and how to start my own business.

 

The joys of learning! 🙂

 

Thanks for stopping by!

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TawcanJohnNo Nonsense LandlordCheryll AbantoFI Fighter Recent comment authors
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The natural progression from residential real estate is commercial. Why not start there?

I heard a thought provoking quote before and it went something like this:

“Of all of the wealthy people who invested in real estate and have a networth of $100+ million. How many of them do you think got there through residential renting? It is safe to say none or very close to it. However, on that same line of thinking how many got there through commercial? I know many!”

My personal goal is not to hit $100million. If I stumble upon it by happenstance great if not, no biggie. I am cool in the mid 5-10 mill marker. Residential is suitable for me today. For your readers who want to aim big than expansion is necessary. Also it is a natural law that organisms need to adapt or die. So to be comfortable in one niche topic may work but having your eggs in one basket can be a great disservice.

Jp
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Jp

I have to agree with the 20 foot pole comment. Even in Boston where I thought you could always find a good deal, everything I see is a negative cashflow opportunity.

When it comes to commercial RE and extreme wealth, it makes sense to look at what you really want out of financial independence. I may prefer 4 properties with passive income of 8k vs 8 properties with passive income of 16k(example). Somewhere along the line your happiness tops out and you are adding stress to the table for the potential of being a bigger deal and buying more things.

Leigh
Guest

The journey to FI is a marathon, not a sprint. It takes perseverance and living below your means for many years. It’s easy to get distracted by shiny things along the way, but if you really want it, you’ll get back on track eventually. You’ve questioned contributing to your pre-tax 401(k). I won’t give that up – the tax savings and match money are too good. But I’m wondering lately whether I made the right decision deciding to contribute to the after-tax 401(k) and whether I’d prefer to have the mortgage paid off a bit earlier, especially as my goal is to quit my industry by my 30th birthday and time is getting closer to that date.

FFdividend
Guest

i don’t know how to invest in gold? any good starting point? how do you invest in gold?

joe
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joe

why search for the needle if you can buy the haystack? i.e. – index funds.. you are missing the boat with all of your speculation… I am sure you will regret it one day.

Jp
Guest
Jp

Joe, can you forward along your networth statement? If you are making a bold statement like that, you must know something we don’t.

No Nonsense Landlord
Guest

Index funds will accrue more net worth for an average investor than individual stocks will for even a professional money manager. Most investors cannot even beat inflation, let alone the indexes.

Indexes are low cost, and no capital gains. You can be in the market and not worry about missing the upside. Heading in and out of the market leads to lower overall returns.

No Nonsense Landlord
Guest

You have done good, but you have a very risky approach. Compare some of your stocks, even the winners, to the S&P index. Odds are, you could have purchased the index, and set it and forget it.

With an index, you always have the hot sectors. And also the slow sectors. It keeps the steep highs and lows away from your portfolio.

There are still investors that are making money in real estate. Even buy and hold ones. They wait, they analyze, and when an opportunity presents itself, they pounce. Too many investors are negatively cash flowing because they are shooting too high. It will work out for some, others it will not.

Keep up the great work, but start to lessen your risk if you want to give up a full time job.

Cheryll Abanto
Guest

FI is a path that one must tread. It begins with a single step. Might sound cliche, but to achieve FI, we have to concentrate on a single item first. Later, when we feel we are more comfortable in wandering around, we can choose to diversify interests. Of course, we cannot hope to learn it all in our lifetime, that is why there are experts that may be a well of help, along the way, i.e. if we have already taken the first step towards our goal.

John
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John

FI, how are you getting the capital to deploy for the next downturn? I thought you were on medical leave and quit your job. Did you join another company and I missed your posts?

John
Guest
John

FI,
Thanks for the reply. I also work in tech and live in the Bay Area. Wondering what is the optimal $$ I should accumulate before I can pull the trigger for FI. Can you do a blog post explaining the numbers and how you arrive at that decision.
Since tech is rapidly changing I’m afraid if I pull the trigger too soon; it might be difficult to enter the workforce again 🙁

Thank you

Tawcan
Guest

Great post, you need to be open and willing for opportunities or they’ll never show up for you. If you’re always looking for limitations, you’ll only see limitations.

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