Life slips away on cat’s feet
As the author of The Millionaire Fastlane says, time is the only true currency. It is limited and cannot be increased. Most of us probably don’t value our time enough.
This is our fifth portfolio post. You can see the previous ones here: geography, risk, asset allocation, and taxes.
Time affects your investments in various ways.
1. First of all, how much time do you spend managing your investments? For people with investments, this probably ranges from 10+ hours per day (for day traders) to a couple of hours a year (for passive investors).
I probably spend a few hours a week on this, mainly thinking and reading, but that is because I enjoy it.
All things being equal, you probably want to minimize the amount of time you spend doing this. The easiest way to do this is also, luckily, the most profitable according to the best investors on the planet: invest in low cost, diversified, index funds and ignore them for as long as you can.
2. What is your time worth?
For those of us who are working, how much are we paid per hour? Make sure you include all the time getting ready for and getting to work, as well as any time outside of work you spend on work matters. Your per hour rate of pay may not be as good as it looks on paper.
Having traded your life for money, how do you then spend that money? I find it hugely helpful to think of purchases in time rather than yen.
Is that car worth nine months of my life?
If you add opportunity cost to the mix (ie what else you could have done with the money) this becomes a powerful tool to help you think about what you truly want.
3. How long will you invest for?
You investment returns can be summarized like this:
amount invested x rate of return x time
It’s relatively simple to invest more (not easy, just simple). It’s difficult to increase your rate of return. And you don’t really get much choice as to how much time you have, but you do get to start now rather than put it off for later.
If your investments yield 8% (the number most people tend to use), they will double every nine years or so. This becomes significant if you have a lot invested or you can invest for decades.
10,000 yen invested for 30 years yielding 8% would become over 100,000 yen, but that won’t help much. 100,000 yen won’t last you a month, especially in the future where prices are likely to be higher.
For most people, amount saved and invested is going to be more important than investment returns. Dividend Mantra explains it well here.
4. How long will you live for?
We don’t know the answer to this one, but it’s probably safer to assume you’ll live for longer and run the risk of dying wealthy.
Consider that you might live 20-30 years after you stop working. Some of use will live even longer.
Consider also that your state pension is unlikely to be enough to maintain anything like your current lifestyle.
Saving more and spending less not only boosts your investments, it also reduces your future needs. Hugely powerful stuff, you can change both sides of the equation at once.
So there it is. Consider time. Your time is limited and you can’t get more of it. Your time is precious and should not be wasted. The money you earn in exchange for time is also precious. The longer you invest for the more returns you will have, but many of use will not have the luxury of multi-decade investing. Our time will run out.
How about you? Are you happy with your financial plan? On track and confident of how things are going?