The Pursuit of Financial Independence

Ian Cassel Blog, Educational 5 Comments

Given a reasonable rate of return utilizing your investment strategy, how much capital would you need to become financially independent? Don’t think about some obvious huge number but what is the borderline number that would enable you to start thinking about it? $500,000? $1,000,000? $2,000,000? How much capital to provide an ample return needed to pay your bills and live a “good” life?

I became financially independent in 2008 at age 27, and back then I remember asking myself these same questions. I looked at my A account, my expenses, did some quick math using an expected compounded rate of return into the future, and decided it was time. It was that simple, so it seemed. It’s human nature to think highly of our abilities and to overlay the success of the past onto the future. We look at the future and see unemotional, consistent, up and to the right returns, described best in my penned chart below:

pic1

A couple years after I became a full-time investor I hit a rough patch, and I quickly realized the simple questions above weren’t the right ones at all. The following ones were:

What if my portfolio is down 20-30-40% next year and still drawing down on the capital base to pay bills? How would this affect me emotionally, psychologically? Would two or three bad years in a row cripple me? At what point would my investment strategy start to crumble by these emotions? At what point does my advantage of “focus on the long-term” shift to “this next quarter needs to be good” because I have bills to pay? When will it start affecting my communications with management, bugging them too much, because damn it I need this next quarter to be good? Am I mentally prepared to perhaps go to my wife and tell her I failed and can’t support us anymore? That I need to get a job, that she needs to get job. This set of questions are the real ones, and they can be paralyzing.

The chart below is reality. One that hasn’t been smoothed over by the CAGR in our minds:

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Now that I’ve completely scared you off from being a full time private investor, let me tell you that financial independence is amazing. I will take it a step further. Not having to deal with bosses, customers, employees, clients is amazing. The thought of never having to wear a suit ever again, except for my daughters eventual wedding, is amazing. The time I’m able to allocate to honing my craft (microcap investing), making an impact (MicroCapClub), and spending time with family is worth the stress.

The first step to becoming a full time investor is realizing money is about freedom not consumption. The freedom you gain when you become a full time investor is worth 100x the income you lose when you leave your job. The motivation isn’t greed, but having the time to pursue your passion or purpose. You’re never going to be great at something you do part time. You need to see what you are fully capable of without restriction. It’s this determination that allows you to look at the second set of questions above and say, “Yes, it’s worth it”.

If you enjoyed this article, please read: So You Want To Be A Full Time MicroCap Investor?, Getting Started, You’re Smarter Than You ThinkThe Maturation of an Investor, and Protect Yourself From Yourself.

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Comments 5

  1. Trade/invest for a living under stress should be avoided at all cost because psychology plays a very critical role here. While it takes a lot of practice/time to have consistent returns, it is relatively simple to keep ones’ expenses down, which was super important in my early years. It was actually more important than my trading skills.

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      Author

      I agree. Investing full time is tough because you can lose last year’s gains with one bad decision. It’s also mentally draining to have to sell long-term positions to pay short term bills. The key is to stay in control of what you can control. Your expenses. Keep your fixed costs low and your variable costs variable. Learn to live on a dime so you can turn on one.

  2. Hi Mr. Ian thanks for writting this article. Its very true . i live in India i m housewife and trading in indian stock market. I always trying to earn some money in stock market and paying my bills from it. But sir as u say that some time u have to sell your long term investment to pay small bills. Sir, i there any solution to overcome these problems?

  3. Another good article Ian. If only the average investor could see beyond the ‘price’ and understand the ‘value’, we would have less volatility and more successful investors. Those who have never started or run a business themselves are generally more prone to look at the price rather than value. Stock markets provide such a fabulous opportunity to the common man to become a business owner without actually having to go through the drudgery of starting a business and taking it public. Besides, the liquidity it provides is unmatched. Where else do you get such a luxury? I wish more people understood the beauty of stock markets and the value that great businesses create for investors, rather than chasing prices of stocks.

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