What is financial independence?
Today, a short discussion on how you can invest for true financial independence.
Ideally, we like to think of personal wealth in 3 Wells, as follows:
Well 1 – Liquid funds (<12 months)
These liquid funds can be actively managed, and while not a significant percentage of your overall wealth, should be large enough to cover your day-to-day bills and living expenses for the coming year.
Of course, if you don’t have the liquid funds to cover your next 12 months of living costs then you can’t be financially independent;
Well 2 – Living, lifestyle, and leisure (2 to 5 years)
Well 2 is a second pool of money which can also be actively managed to cover upcoming living expenses, holidays and travel, car upgrades, home renovations, school fees, and whatever else is on your 2 to 5 year horizon.
These tend to be reasonably liquid funds, most often a balance between stocks and cash; and
Well 3 – Longer term and legacy (to retirement & beyond)
These are your safe, long-term investments that you ideally never have to sell until your retirement, typically including property and, for some, safe investments in large, established, systemic companies which throw off strong income streams.
If you manage your first two wells successfully then you may never need to touch these assets, and they can go on compounding your wealth for as long as you live.
These investment assets can ultimately form a legacy for your kids, or for other family members, or for a charity of your choosing.
How markets fit into the 3 Wells
The strategies discussed in our book and on this blog using the 8 timeless investment principles can most obviously be applied to Well 2, being your 2 to 5 year funds.
A healthy balance of stocks and cash to take advantage of opportunities lends itself perfectly to this pool of your wealth.
Well 3 tends to comprise your superannuation, investment properties, and other long-term investments.
But what about Well 1, being your short term funds?
Earning more on your money
It’s also possible to apply our timeless investment principles to a short-term trading strategy with more regular rebalancing.
Rigorous back-testing shows that our trading strategy comfortably outperforms any buy and hold strategy over any meaningful time horizon.
Short-term money management (Well 1)
What if we told you there was a successful way to use a trading strategy but also class yourself as a long-term investor?
In our 3 Wells program we’ve further developed our 8 timeless investment principles that can teach you how to be a successful long term investor.
We have a trading strategy which works for the long term, but requires a simple 15-minute attention to the daily machinations of the stock market.
Many will scoff that you can’t make money buying and selling in the short term because of taxes and transaction costs.
Well, our strategy, which has been back-tested, and also used by Pete and Steve as part of their investment approach, will outperform most (if not all) other investment strategies.
Your objectives matter
Now, this trading strategy isn’t for everyone.
We all have different objectives when it comes to money, and some folks don’t want to spend even a small amount of time each day thinking about stocks.
In saying that, when our clients see the simplicity and logic of our approach they’re invariably keen to implement it.
We call this our Well 1 trading strategy and it generates wealth and profits in the shorter term which add up to long term gains.
It’s like having a second job, without the hard labour.
Sounds too good to be true, but it’s not…
Well 1 money management
This trading strategy, which takes about 15 minutes per day at the most, has been proven to outperform a buy and hold strategy over the long term.
The strategy challenges much of the standard thinking regarding investing, such as:
1. You must only invest for the long term
2. Focus on buying ‘the best’ companies
3. No-one can really make money day trading
4. You must be either a trader (short term) or an investor (long term)
5. Investing is best left to ‘the professionals’
Of course, there are plenty of traders/investors who make solid investments returns over shorter time-frames than ‘the long term’.
Principles still apply
The trading strategy still utilises our 8 timeless investment principles.
And in our Well 1 trading strategy you don’t have to spend large amounts of time researching individual stocks or buying and selling lots of companies every day.
In fact, as you already know from our 8 timeless investment principles, it negates the need to use individual stocks.
Day trading in many ways is exceptionally tough, and there are many traders out there who fail at generating any substantial gains.
But this is not day trading – our unique approach generates long term investment returns with a rigorous application of the underlying principles.
Total money management
In our 3 Wells approach, we view investing through the lens of time.
That is, a complete approach to building your total wealth using short, medium, and long term investing.
There’s no logical reason to label yourself as one or the other – trader or investor.
In our approach, if you want, you can be both.
It simply comes down to how you view the stock market, and how you can choose to generate profits from its constant ebbs and flows.
The benefit of this strategy is that it aligns with our ‘3 Cs’ (cost, choice, and control) whereby you avoid paying crippling fees for a fund manager to dump your hard-earned money into the ASX 300 and fail to deliver any out-performance.
It doesn’t require any special investing skills or secret knowledge, as we will demonstrate.
Total money management.
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To find out more about our coaching programs see here.
Low Rates, High Returns. 