Unconventional wisdom: Three ways to avoid growing up
The right mindset can lead to financial freedom.
Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.
Unconventional wisdom: Three ways to avoid growing up
“If you don’t know where you’re going, you could end up anywhere. If you don’t adjust your sails to the changing wind, you’re going to end up where the wind blows you, not where you want to go. To get anywhere, you have to know where you’re going, what your course is, and you have to stick to the course.”
- Larry Jacobson
On a recent trip back to the US I walked into a friend’s house. Perched above their fireplace was one of those quirky framed sayings. The saying - growing up is a trap.
Irony makes the saying funny. It wasn’t hanging in a trailer strewn with empty tinnies. It was in a nice well-appointed house with all the trappings denoting success. The setting was as grown-up as things could get.
The media is filled with critical commentary on the changing priorities of younger Australians. The common refrain is that young people aren’t growing up.
Part of the feigned outrage is older people’s persistent surprise that young people are different. Later it is the formally young people that are shocked. They tend to grow up to become similar to previous generations.
In saying that there appears to be growing evidence that many younger Australians are giving up on the traditional pathway and instead focusing on achieving financial independence on their own terms.
The online broker Stake captured some of these sentiments in their 2024 Ambition Report. Investors between 25 and 34 were surveyed on how they defined financial success. The results were summarised in the following way:
“Themes of financial freedom and lifestyle flexibility were rated as more important than status symbols like impressive job titles, expensive cars or luxury items.”
This was also evident when this cohort of investors outlined their motivation for investing. The top two answers were ‘to retire and live off investments’ and ‘supplement income with investments.’ Buying a home came in fifth and buying more consumer goods was the lowest ranked of ten choices.
Against this backdrop of the purported generational shift in motivations and goals is the limited pathways that many young people see in front of them. The Ambition Report outlines that young people want to supplement their income with investments but also points to a lack of confidence in income growth. There is less motivation to buy a home but also acknowledgement that becoming a homeowner is out of reach.
While nobody is going to confuse me with being young I am sympathetic to the views expressed in the Ambition Report. This is how I’ve tried to live my life. The things that I’ve learned as I pusue the same pathway can benefit all investors.
Don’t wander into a trap
One of my favourite quotes is from Star Wars director George Lucas. He said, “We’re all living in cages with the door wide open.” Growing up isn’t a trap. We trap ourselves.
In a sense I’m financially independent. My wife and I can pay our rent and feed ourselves off investment income. The necessities are taken care of. But we can’t live the life we want off investment income. Not even close. Our challenge going forward is to close that gap between survival and what we want.
This was not some happy coincidence. I’ve been deliberate about making sure I am spending money on things important to me. I live in a small rental apartment with hand me down furniture which has – according to Shani – a Warren Buffett vibe. Any positives of having a billionaire’s vibe is tempered by this particular billionaire being known for frugality and poor taste.
I try to be very conscious about life-style creep with non-priorities and spend lavishly on things that bring me joy and satisfaction. A cross between a mindful miser and profligate hedonist. This can look strange to people looking at my life from the outside. That will always be the case when you deviate from societal expectations.
I heard a quote recently from retirement coach Larry Jacobson that matches the approach I take with my finances. Jacobson said, “The good things in our life are what get in the way of great things.”
That is a lesson for everyone. Don’t let the good things that aren’t priorities get in the way of living a great life on your own terms.
Throwing off investing orthodoxy
The survey results in the Ambition Report reflect a desire for younger generations to reject the orthodoxies of preceding generations.
I think there is also value in throwing off the orthodoxies of investing. At a high level the conventional advice about investing is clear:
- Take lots of investment risk when you are young
- Invest more conservatively as you age
- Risk is synonymous with volatility
- Keep sacrificing and never touch your investments until the end of your life
- Use your net worth as a marker of success
I personally reject this conventional advice. Not because it is wrong in principle but because it is wrong for me. Why would I follow a rule that isn’t based on my circumstances?
I’ve written extensively on these topics before and don’t need to reiterate. But I became an income investor in university. I don’t care about volatility. I focus on cash flow and not my net worth. I’m using my investments to make my life better now.
Die with Zero by Bill Perkins is very popular with younger generations. The overarching message is that your financial assets are supposed to provide benefits throughout your life and not just pile up.
It is a great message. Don’t let rules and timelines that you never signed up for dictate your life. Don’t let investing orthodoxies designed to roughly apply to everyone govern the specific pathway you follow. It is your life.
Throw out your bucket list
Social media and day to day conversation is filled with the term ‘bucket list’. Somehow a concept from a movie about the adventures of terminally ill 80-year-olds has morphed into year seven students describing the thrill of choosing their own frozen yogurt toppings at Yo-Chi.
I’m not a fan of bucket lists. I’ve never been to somewhere great or had a great experience and not wanted to do it again. I think there is a compounding effect in travel as familiarity with a location and culture outweighs the novelty of the first time.
If you go somewhere once your experience will be heavily influenced by luck. The weather, chance encounters and choosing the right activities all play a role. The relative merits of the location will have a bigger influence the more you visit.
Far too many investors take a bucket list approach. They may be diversified but all their eggs are in one basket. Luck has too much influence when you constantly churn your portfolio. Maybe one of those picks will be a lottery ticket - most likely won’t.
Ignoring sequencing risk is putting luck in charge of your retirement. Luck determines the success of meaningfully changing your asset allocation based on ‘market conditions’. Not saving for a rainy day only works if you are lucky enough to avoid one.
Build resilience into your portfolio and investment approach. I’ve outlined three ways in this article. Becoming financially resilient supports a flexible life. You can live your life according to your whims and what brings you joy and not some checklist you hope to complete before death. Luck will always be a factor. That doesn’t mean you can’t insulate yourself from the impact of bad luck.
Final thoughts
Perhaps the changing nature of investor attitudes is best captured by the popularity of the financial independence, retire early (FIRE) movement. I’ve been critical of some of the mechanical formulas involved in calculating a FIRE number. But there is much to admire.
The movement is centred around a goal. I am a proponent of a goals-based investment approach.
Central to FIRE is mindful spending and saving money. I think some adherents take frugality a bit too far but I agree that people should be deliberate about where they spend money.
The basis of FIRE is an acknowledgement that we have one shot at this life and we should try our best to make it what we want. There was no FIRE movement in the 19th century. But if there was, Henry David Thoreau would probably be a member. His words are a good place to end:
“I went to the woods because I wished to live deliberately, to front only the essential facts of life, and see if I could not learn what it had to teach, and not, when I came to die, discover that I had not lived.”
Email me at [email protected] with your thoughts.
I have a favour to ask
The book Shani and I wrote is currently in presale which is an important time to show our publisher and book retailers there is interest. If anyone would like to support this project you can buy the book now. Thanks in advance!
Our book Invest Your Way will be released by Wiley on October 9th in Australia.
Invest Your Way is a personal finance book that combines foundational investing theory, real-world application and our own experiences. It is designed to help readers create a financial plan and investing strategy that is tailored to their unique goals and circumstances.
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What i’ve been eating
Shani and I found ourselves in the Gold Coast for the Australian Shareholder Association conference last week. When our uber driver recommended a Mexican place called Costa Taco next to the Cellarbrations Bottle Shop I was sceptical. But we didn’t have any other options. Much like a group of U.S. military wives in 1943.
Nachos were created when a chef named Ignacio Anaya took pity on the group of Americans who crossed the Mexican border to do some shopping. They were hungry and all the restaurants were closed. Anaya pulled something together from all the leftovers in the kitchen. He fried some tortillas, piled some cheese and jalapenos on top and threw them in the oven. The military wives rewarded his ingenuity by stealing his recipe and putting it in a church cookbook. The folks at Costa Taco added a few ingredients to the original church recipe. My spice loving dining companion dumped a mouth numbing amount of hot sauce on top. But all in all, an experience worthy of Ignacio’s spur of the moment genius.
