The First Step To Retiring In Prosperity, Market Crashes Be Darned

Posted On February 14, 2018 1:15 pm

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Yesterday, I explained how misguided  the fear of market crashes or corrections decimating one’s retirement portfolio is. In fact — simple math — the inability to build up a sufficient nest egg, should be everyone’s primary concern. So how can one ensure enough financial resources to live comfortably during retirement? Well, if you expect some magic bullet answer, or fool-proof investing formula, then you’re going to be sadly disappointed.

The first step, the cornerstone to financial security, is to have enough resources to invest. That’s because the “secret” to financial independence (i.e. becoming rich) is to think like a rich person. That means adopting an entrepreneurial mindset. No, I don’t mean go out and start a business — though being your own boss certainly has its advantages — both financial and otherwise.


Rather I mean taking a long-term view of money. And not necessarily focusing on maximizing active income (which we often do freely), but passive income instead. In other words, you need to build a portfolio that is an income (and wealth) compounding machine. No matter how great (or secure) you think your job is, layoffs can always happen. Similarly, if you do run your own business, the next recession could put you out of it. Thus any income you earn is actually variable, and cannot be depended on.

Passive income, like dividends from a quality-diversified, low-risk portfolio, are far more stable and dependable. They represent money that you don’t have to actively earn. Rather, they are your share of exponentially-growing corporate profits, generated from all over the country — or even the world. They come from your money working for you, 24/7/365. These are shares represent ownership in companies that are actively managed, hopefully for the long-term maximizing of your profits, and ultimately your dividends.

The reason wealthy people earn a lot of money is because they have a different mindset than most. They don’t focus on maximizing short-term consumption, but on steadily accruing income assets. In other words, don’t spend all your active (and volatile) income today, but put aside some of it to buy quality assets that will work for you — in perpetuity, and also increase in value over time.

In his illuminating book, Top Ten Distinctions Between Millionaires and The Middle Class, author Keith Cameron Smith outlines his years of studying millionaires (most of who are self made). He explains “Middle-class people want instant gratification. I was like that for many years. Whatever I wanted, I charged to my credit card or put a little bit down and made payments on the balance. Now I wait for the things I want because my goal is more freedom, not comfort.”

Remember that consumption is a short-term benefit. I’m not saying we all need to live like monks and agonize over every penny. We all have truly non-discretionary spending needs such as mortgage payments, grocery and utility bills. However, if you adopt the entrepreneurial mindset with a retirement portfolio being the passive income-generating engine, then you are well on your way to achieving the true American dream. No, not a penthouse in Miami Beach with a Bentley in the garage I’m talking about the ability to live life on your own terms. To actually be the boss, not necessarily of your workplace, but your entire life.

Or to put another way, think like the CEO of “insert your name” Inc, a cash flow-focused business whose goal it is to minimize your expenses, and maximize your free cash flow (discretionary income). That means economizing everything that makes sense. Join Costco and buy your non-perishables in bulk to save on groceries. Turn off lights when no one is in the room to save on energy bills. Cut the cable cord if Netflix or Hulu can provide you your entertainment at a cheaper date. More importantly make sensible choices for big ticket items like a car. In fact, choosing the most practical, reliable, but most frugal automotive choice can by itself result in a portfolio large enough to comfortably retire on!

That’s because when you make smart choices, then you will have the savings necessary to invest for the future. If you can’t achieve this first step, then no amount of investment advice, seminars, books, or systems will make a difference.

But of course, becoming financially independent — and retiring as early and comfortably as possible — is not easy. It’s a long process that requires several key factors. In my next article, I’ll explain the next cornerstone of prosperous retirement planning, specifically why the biggest risk is actually not taking enough of them.

Photo: “Retirement Account” by GotCredit is licensed under CC BY

About author

Dividend Sensei
Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I currently write for both Seeking Alpha, Simply Safe Dividends, and DividendSensei.com My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams, and enrich their lives. With 22 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams. I'm currently on an epic quest to build a broadly diversified, high-quality, high-yield dividend growth portfolio that: 1. Pays a 5% yield 2. Offers 7% annual dividend growth 3. Pays dividends AT LEAST on a weekly, but preferably, daily basis