Free Lunch for Life!
Let’s say you wanted to be privileged enough to get a free lunch for life. Don’t laugh; this is entirely possible.
So the main theory of Financial Independence is that if you Invest in Stocks/Bonds and withdraw only 4% per year, the invested principle amount (over time) would not only be maintained but grow indefinitely. In a 1998 paper, titled “Retirement Savings: Choosing a Withdrawal Rate that is Sustainable”, which is colloquially known as the Trinity Study, this paper considered a retirement length of 30 years. The conclusion was even after inflation adjustment if you withdrew 4% you had a 95% chance of the money lasting 30 years. There are always 2 sides to a story and there are both extremes in opinion higher and lower for this 4% withdrawal rate. Lets just stick with the 4% rule for this topic.
Sure there are ups and downs in the stock market, but over time this 4% rule is generally accepted by Financial Experts and proven through back analysis of the stock market since its inception (even with the depression, recession and bear markets).
Ok you say, so how do I get a “free lunch for life then”… well its simple math.
Let’s say you want a $10 lunch every day of the year. ($10x365 days) equates to $3,650 annually.
Simple math shows that if you were to save 25x the amount ($3,650) which equals $91,250, you could have a $10 lunch every day for the rest of your life if you saved $91,250 and put it into a simple inexpensive index fund like the S&P 500.
Why would I invest in the S&P 500 instead of Cryptocurrency, that’s the hottest thing today?
Well, if you think about it, investing in the S&P 500 means you own a market cap adjusted piece of the top 500 US traded companies. These companies answer to shareholders, HEY thats you!, and every person from the janitor to the CEO is working everyday to make you money (in the form of dividends or stock value appreciation). Now your money is making its own money. Your income is produced from capital, rather than your own labor.
Drop the mic, your done and you have a “free lunch for life”.
Oh, of course that’s if you put the work up front and saved/invested $91,250.
So all those people out there with $100k in their savings, don’t tell me there is no free lunch, you are living it. (even after adjusting for inflation over time).
Free lunches exist …. End of story.
[Photo by Brandon Morgan on Unsplash]