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You may have seen the ING commercial where a guy is carrying around a sign with a number like $1.5 million and he asks his neighbor, “what’s your number?” and the hapless neighbor is clueless as he is trimming a hedge in the form of the words: “a gazillion”.

The premise of the ad is to suggest that investors need to know what the magic number is (of accumulated investment assets) in order to retire. The central strategy is to build a portfolio of stocks, mutual funds and bonds to a level of critical mass and then with savvy investment advice from Wall Street investment companies like ING will ensure that you can invest properly and retire with financial security.

This strategy of building a mass of speculative assets (publicly traded securities, commodities, etc.) and then consume the principal at the point of retirement, is a dangerous one and very risky in my opinion. How is it humanly possible to predict the performance of the stock and bond markets over the long term? Who can tell you with certainty what the inflation rate will be, the tax rates and much less how long you will live?

There have been two periods in the not too distant history of the US stock market where the market returns were flat for many years. In period from 1905 to 1933, 28 years would pass until the stock market index would reach 96 again and for the period from 1965 to 1982, 17 years went by before 969 was attained by the index. The well financed marketing machine of the Wall St. investment firms avoid sharing this bit of history with prospective clients. Most well trained stock brokers and financial planners will tell you to expect an annual rate of return of 8 to 12% (based on 100 years of historic avg.).

Can you possibly tolerate a scenario where the market went sideways for 15 to 20 years? What if the market dropped 20 to 30%? No one can foretell the future of the stock market even though we are all brainwashed to think that by listening to Jim Cramer or some talking head, we will be ale to confidently predict the direction of the markets. Is it possible to know the unknowable? There are hundreds or thousands of factors that influence the valuation of financial assets. The entire point of financial journalism is to keep hapless investors glued to their TVs so they can sell their valuable ad time to sponsors.

There is a massive industry built around capturing your attention and then convincing you that there is a safe, reliable and predictable way to ascertain the value of stocks, bonds and commodities at any given time.

Investors must wake up to the risks of speculation and understand that placing the lion’s share of one’s portfolio on Wall Street bets can be hazardous to your financial health and well-being. Speculation is dangerous and if we haven’t learned anything since the Great Recession and credit bubble implosion of 2008, then shame on us.

Once you have constructed your portfolio in a way where you can replace your income with passive, recession proof cash flow, you will have the freedom you seek.

There are ways to replace your income and retire. Invest the time and energy to learn better ways to buy your freedom back.

Who can predict the value of Apple stock in 10 years? Or any stock for that matter?

What will the price of gold be in a decade from now?

What will the inflation rate be?

What will interest rates be?

What will taxes be in the future?

When will you die?
The financial services industry want you to believe that the stock market will rise, with consistency year after year, (some say 7% per year, some even say 12% per year!). Somehow we are supposed to accept this as gospel.

Most financial advisors recommend a magical figure of 4% withdrawal rate as the optimal amount to withdraw from one’s accounts when planning for retirement. This idea is pure theory and has limited practical utility.

The ideal method for addressing the issue of uncertainty is to examine non-speculative assets that generate current income and make appropriate allocations to conform to your objectives.

Wall Street just says “we can just simply review your risk tolerance level and then its all good!”. The financial services industry is adept at over simplifying the uncertain and unpredictable nature of the public markets.

The direction of the publicly traded securities markets is not easily definable. According to James Altucher, (my favorite blogger), the financial experts and talking heads you see on TV are right only 47% of the time.

Would a psychic do better than Jim Cramer at stock picking? Maybe…

The challenge is to find better alternatives to Wall Street solutions for the purposes of diversification, reduced uncertainty and passive income generation.

Most investors reason that if your “number” is high enough, then retirement will be easy, carefree and well-deserved freedom will automatically be theirs. Theoretically, the logic seems simple enough, but the reality is that most people will not amass a massive net worth to begin with. Those who do are prone to bad financial decision making, poor investment choices and harmful habits.

“Iron” Mike Tyson amassed an incredible fortune of $400 million dollars and apparently that figure was not enough for him as he burned through his wealth very quickly with the help of multiple ex-wives and a large “posse” that he chose to support and lavish with extravagant gifts.

Did you know that 78% of NFL players and over 60% of NBA players end up filing for bankruptcy within five years of retirement? (Jason Cimpl of Wyatt Research.)

Many famous actors, athletes, celebrities and professionals litter the news with reports of their financial demise, in spite of massive incomes and the accumulation of great wealth. From Nicholas Cage to Joe Louis to Dorothy Hamill, to Vince Young to Kurt Shilling, Evander Holyfield to Burt Reynolds, Dionne Warwick to Leonard Cohen and Wayne Newton, the list of financial disasters is endless.

Hakeem Olajuwon, former member of the Houston Rockets basketball team, bought 66 Sambo’s restaurants, car washes and other business. His brother mismanaged all the restaurants and they lost millions.

While it is easy to point at the legion of over-indulged, highly-paid celebrities and professional athletes, the earth shattering revelation of Bernie Madoff’s $50 billion dollar Ponzi scheme destroyed the fortunes of many very sophisticated and well informed investors. Jordan Belfort aka “the Wolf of Wall Street” ; the main character in Martin Scorcese’s film of the same name, defrauded 1513 investors, spent years in Federal prison and owes over $100 million in restitution.

There are six common traps that end up destroying the financial futures of most athletes and these challenges can be very instructive for the rest of us.

Out of control spending – professional athletes are prone to excessive spending and maintaining a fantasy celebrity lifestyle. They fixate on their gross earnings while after taxes and agency fees, they are left with about 40% or less. Instant gratification is a common weakness that afflicts many investors and immature conduct can be damaging. Let’s hold off on the new Bentley or the $20 million dollar mansion. Financial responsibility and discipline are crucial for preventing unnecessary losses.

Lack of financial literacy – the general public is woefully deficient in the area of financial literacy, financial education and awareness. Most investors have no plans, no investment rules and lack any inclination to increase their knowledge of personal finance issues.

Excessive risk – athletes are famous for investing in restaurants, night clubs, car dealerships, and other capital intense ventures that they have no background or competency in.

Poor decision making – impulsive decisions, emotionally driven choices can be dangerous. The need or desire to build wealth can be infected with blind greed. Jordan Belfort and Bernie Madoff are smart and highly-skilled conmen who can hook their victims instantly.

No plan B. – the average duration of a career for professional athletes is approximately 4 to 6 years long. Injuries can cut careers even shorter. The party may not last forever.

No professional guidance – most investors end up trusting their hard-earned money to salesmen. Instead, investors should look for professionals with experience and business models that are sensible. Sharks and wolves abound, ready to devour your money and leave you bleeding.

The point I am trying to make here is that having a large pile of money is no guarantee that life will be peaches and cream forever. Mike Tyson teaches us that having a $400 million dollar fortune is no guarantee of complete financial freedom. The absence of an investment strategy with strict investment rules and a comprehensive plan can spell disaster for the unprepared investor.

Lessons for the rest of us.

1.Avoid speculation. Buying an asset at X and hoping to sell to some “greater fool” at 10X, is foolhardy, yet our culture accepts this as the primary means of wealth creation. Seek out assets that generate income NOW, not proforma income.

2.The challenge to earn a high income or build a profitable enterprise is daunting and difficult. There is no reason to take extraordinary risk with your investments.

3.Invest in yourself. Learn more about personal finance, real estate, taxes, insurance and retirement planning. Dedicate yourself to increasing the equity between your ears. Subscribe to financial blogs, consult with experts, and make increasing your financial knowledge a priority.

4.As Stephen Covey wrote in his “Seven Habits” book, start with the end in mind. Construct a plan to replace your working income with passive income. Financial freedom occurs when your passive income meets or exceeds your living expenses.

5.Resist the temptation to spend recklessly and be vigilant for ways to reduce debt and expenses.

6.Enhance your working income or business enterprises with content marketing, social media and learn how to use the modern tools of the digital marketing world. Start a blog, a podcast, a YouTube channel, and write a book!

7.Surround yourself with positive, supportive people who share your goals, enthusiasm and vigor for living a life at your full potential, fully expressed. Connect with smart, accomplished investors and learn from their experience.

8.Build a coherent strategy for your active/working income and your passive (retirement) income.

9.Create your own clear investment rules. Avoid burying your head in the sand, take action today.

10.Its okay to make mistakes in life, just be sure to pack that secondary parachute and try to have a Plan B. Know what your options are and act decisively.

The optimal questions we must all ask ourselves are:

What is the strategy I should implement for buying back my freedom and being truly financially free?

What are the ideal assets to invest in for a recession-proof retirement?

What can or should I do to maximize my current business or working income?

How can I build a team of trusted advisors to help me achieve my goals?

Commit yourself to finding the best answers to these questions and stop obsessing about what your “number” is. Instead look for assets that generate cash flow now.

Never give up on your dreams. With faith and hard work you will win.

In Investment Advice, Smart Investing, The Average Investor, Lessons Tags ING, What’s Your Number, Net Worth, Apple, Inflation, Interest Rates, Stock Market, Financial Advice, Income Generation, Bad Advice from Wall Street, James Altucher, Jim Cramer, Mike Tyson, NFL, NBA, Nicholas Cage, Joe Louis, Dorothy Hamill, Vince Young, Kurt Shilling, Bernie Madoff, Ponzi Scheme, Jordan Belfort, Financial Literacy, Plan B, Lessons, Stephen Covey, Strategy, Cash Flow

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