The Race to FIRE - Financial Independence, Retire Early

Stop Trying, Start Training for Financial Independence

Stop Trying, Start Training for Financial Independence

As I write this post, the world’s greatest athletes are gathered in PyeongChang, South Korea for the XXIII Olympic Winter Games.

These athletes haven’t been trying to get to the world’s stage. They have been training for years to get there.

Years of sacrifice, dedication, failure, perseverance, intense pressure and an unwavering focus.

Working toward financial independence requires the same mindset. You will never achieve financial independence if you merely try. But train for financial independence; that’s a different story.

The Differences in Trying vs. Training

Trying – Failure will make you a loser

Training – Failure will teach you a lesson

In the financial crisis that lasted from October 2007 until March 2009, the S&P 500 Index tumbled more than 50%. During that time, many investors reduced their equity exposure by withdrawing from mutual funds held in taxable accounts, as well as tax-advantaged accounts. According to CNBC, in just the 2 months of September and October 2008, investors withdrew over $100 billion from stock funds.

The returns since the market bottom (in March 2009) through January 2018 have been astronomical. The S&P 500 Index has returned 268%. If you factor in reinvested dividends, the returns have been even greater – 340%!

Yet many of the investors who cashed out during the financial crisis have remained on the sidelines during the long bull run. And they have lost out on tremendous returns. This failure to stay calm during the market turmoil made them losers when the market rebounded. With stocks near all-time highs (even with the recent volatility), equities look expensive and many investors are understandably even more scared to get back into the market.

Often is it the psychological head games that cause athletes to stumble. They feel the strain of the intense pressure.

Likewise, it’s the head games that investors play that cause them to fail.

They listen to the media’s doom and gloom reporting.

They get scared they will lose all their money.

They forget what they know about fluctuations in the market and sell at the wrong time: the market bottom.

But investors who stayed the course during the financial crisis reaped incredible rewards. Even though these investors lost money during the market meltdown, the failure taught them a lesson: hold steady during the market’s ups and downs.

As investors, we all make mistakes. The difference between success and failure is how we learn from them.

Trying – A One-Time Event

Training – An Ongoing Commitment

The athletes at the Olympics aren’t hoping to win based on their best try. They have worked tirelessly to make it this far. They are the first in the gym, on the rink and the slopes. They eat only what will best fuel their bodies. They train for endurance, time and technique.

And regardless of the medals won this year, these athletes won’t stop training. They realize that training is an ongoing commitment and this type of dedication will be with them forever.

Training for financial independence isn’t a one-time event. It too is a life-long commitment. It is a pattern of behavior that leads to lasting rewards:

Focus on the long term – Realize that market fluctuations are inevitable. Ignore the noise of the market and focus on the long-term goal of building wealth.

Continue investing – Life’s challenges can throw off even the best-laid plans. But one key to financial independence is to continue investing even through difficult times. If you hit a setback that derails your savings plan, remind yourself that even small amounts invested regularly accumulate to large sums over time.

Remember that athletes push through injuries and illness to get back to training as soon as possible.

Decide on an asset mix that suits you – Everyone’s financial goals are unique. There is no one-size-fits-all approach that suits every investor. With an appropriate asset mix for your risk tolerance, you will benefit from whatever asset class the market is favoring.

Recognize that athletes use a training regimen specific to their bodies, their sport and their abilities. Just as an athlete’s training method is continually updated as their needs change, an investor’s asset mix which will change over time as well.

Trying – A focus only on where you’re going

Training – A focus on how far you’ve come

When my husband and I were first married, we had very little money to invest. Like so many young couples starting out, we rented a 1-room studio apartment, complete with a coffee table and bed frame I made from pallets found outside the back of our local Home Depot.

That was long before the industrial-chic loft look became popular. And people were willing to pay for furniture that looked like it was made of pallets found outside the Home Depot.

We were grateful for the furniture, dishes and appliances donated by family members. Our big adventures on the weekend were all day Saturdays spent at the local laundromat because we couldn’t afford a washing machine.

However, thanks to some great financial mentors, most notably by dad, we understood the need for saving and investing all that we could. For us, this meant that we didn’t spend money on expensive restaurants, exotic vacations, luxury cars, fancy clothes or even a washing machine.

Every disposable dollar went to savings and investments. It was slow-going during those years. The needle on our investments barely moved. Our retirement accounts grew at an anemic pace.

But without fail, we performed an investment analysis at the end of every year. Slowly but surely, the bottom line increased.

And every year as our wealth grew, so did our resolve to keep training.

Fast forward 25 years. We are currently on track for my husband to retire in just over 2 years.

We now look back on those early years and are thankful we had the long-term mindset to stay the course and keep investing. Of course, there were years when we had less to invest than in previous years, especially when we started having children. And there were some years, when out net worth decreased from the previous year, especially during the financial crisis.

We started small. We never quit. We appreciated how far we had come. We kept going.

Remember, the greatest skiers in the world all started out on the bunny hill.

Training for Financial Independence

Training for financial independence isn’t about competition; the goal isn’t to beat everyone else. But like athletes, training for financial independence is about sacrifice, dedication, failure, perseverance, intense pressure and an unwavering focus. The goal is to finish strong.

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