3660: Why you need F-you money AND Time Machine and the future returns for stocks by JL Collins on Financial Independence

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[00:00:57] This is Optimal Finance Daily. Why you need FU money and Time Machine and the future returns for stocks. Both by JL Collins of JLCollinsNH.com. And I'm Justin Malek, your narrator, reading you articles every single day of the year with permission from the authors. Sometimes it's two articles in one episode, and that's the case today. So without further ado, let's get right to it as we optimize your life.

[00:01:30] Why you need FU money by JL Collins of JLCollinsNH.com. Shortly after 9-11, my company kicked me to the curb. Six months earlier, our division president had taken me to a congratulations lunch for a record-breaking year. We were explosively growing and embarrassingly profitable. Over a bottle of fine wine, we discussed my very bright future. It was the best job I've ever had.

[00:02:00] Great team, great leadership, great fun, great money. I had just cashed a bonus check for more than I had ever made in a single year before. A year later, my little girl and I were sitting on the couch watching a news broadcast. The concerned news crew was filming people standing in a Depression-era-style breadline. They were, the reporter said, the newly poor suffering from job loss in the dismal economy.

[00:02:29] I was still unemployed and licking my wounds. Daddy, said my 8-year-old, are we poor? She was gravely concerned. No, I said, we're just fine. But you don't have a job, she said, thinking, I'm sure, just like those poor souls on the TV. Who even thought she knew what a job was? That's no problem, honey. We have money that's working for us instead. That's what I said, but what I was thinking was,

[00:02:57] this was exactly why I worked hard to be sure I had F-U money. In fact, I'd been working on it long before I heard the term. If memory serves, it comes from James Clavell. In his novel, Tai Pan, highly recommended by the way, a young woman is on the quest to secure $10 million. She calls it her F.U. money, although the F word is spelled out in the book, so you can look it up in case you're wondering just what word it is.

[00:03:25] And $10 million is far more than it takes, at least for me, more monk than minister. I may not have known what it was called, but I knew what it was and why it is important. There are many things money can buy, but the most valuable of all is freedom. Freedom to do what you want and work for whom you respect. Those who live paycheck to paycheck are slaves.

[00:03:54] Those who carry debt are slaves with even stouter shackles. Don't think for the moment their masters don't know it. I first accumulated the modest amount I needed around 1989. Not enough to retire on, perhaps, but enough to say F.U. if needed. The timing was fortunate. I wanted to take some time off to pursue business acquisitions. When I found myself one morning with my boss in the office hallway screaming at each other,

[00:04:23] it occurred to me perhaps the time had come. Never did a guy more need to be told. I may never own a Mercedes, but I'll always be able to say what needs to be said when it needs to be said. Oh, and it turned out I was unemployed for three full years after 9-11. I'm really lousy at job hunting. Time Machine and the Future Returns for Stocks

[00:04:53] by J.L. Collins of jlcollinsnh.com These days, the consensus view, looking out over the next few decades, seems to be, we should expect more modest returns from stocks than we've enjoyed over the past few. They see factors forming that look to act as a drag on what we might otherwise historically expect. Indeed, this is the opinion of my personal hero, Vanguard founder and creator of index funds, Jack Bogle.

[00:05:23] As for me, I confess to having no idea, let alone the time machine tantalizingly mentioned in the title. But we can do a little thought experiment together. Let's suppose we are all gathered together over beers or coffee, way back in 1975. I picked this year as it was the year in which I first started to invest, and the year Mr. Bogle launched the first index fund. Plus, it is a span of a full 40 years.

[00:05:51] Suppose that someone, let's say you, pipes up and says something like, I just read an article about this guy, Bogle, and it seems he just created this thing called an index fund. The idea is that it will buy and hold every stock in the S&P 500 index and just track it with no effort to outperform. Wonder how that's going to work out over the next 40 years. Well, I might say, as it happens, I just returned from 2015 in my new time machine.

[00:06:21] While I was there, I looked up the history of those 40 years, and here's what happened. As you all know, Nixon took us off the gold standard, and inflation has been increasing. Turns out, that got much worse. Plus, it combined with a stagnant economy and led to someone coining a new term, stagflation. Very ugly. So ugly, the stock market languished badly enough that by 1979,

[00:06:48] no less than business week declared the death of equities. By the early 1980s, mortgage rates were over 15%. But then, around 1982, the stock market turned up and began a rather amazing bull run, at least until the fall of 1987 and Black Monday, the single largest percentage plunge in market history, including the Great Depression. This ushered in a rather nasty recession

[00:07:17] that lasted well into the 1990s. But at the same time, some rather remarkable developments began to unfold that, in the mid to late 90s, came to be known as the tech boom. But that ended in tears. Terrible tears. But not as terrible as the tears that were just around the corner with the worst attack on U.S. soil since Pearl Harbor. In turn, this led the U.S. to get embroiled in two very expensive, in both money and blood,

[00:07:47] wars, Afghanistan and Iraq, that were still going on when I climbed back into my time machine in 2015. Between the tech crash, 9-11, and the ensuing wars, the economy took a major hit. In response, interest rates were brought down even further and credit was made ever more available. It would take a book or 12 to tell you the story of what the financial industry did with this. Suffice to say,

[00:08:16] it resulted in an incredible run-up in housing prices and an even more breathtaking housing collapse, which led to the worst stock market crash since the Great Depression. Before the dust settled in 2009, the market had plunged over 50%, and it looked like the bottom would never come. But it did, and as I climbed back into the time machine in 2015, the market was again going up.

[00:08:45] Wow, you might say, that is gonna be one ugly 40-year run. Yes, indeed it was. I guess that new S&P 500 index fund didn't work out all that well then. Better stay away from it. Actually, 1975 through 2015, it had an average annual return of just under 12%. Through all that turmoil? No way. Now we know you're just funning us there, JL.

[00:09:14] So, am I predicting 12% returns for the next 40 years? No, of course not. But I am suggesting 12% annual returns don't require a perfect golden age. They can and have blossomed in the midst of turmoil, war, grief, and economic collapse. You just listened to the post titled, Why You Need F-U Money,

[00:09:44] and Time Machine in the Future Returns for Stocks, both by JL Collins of JLCollinsNH.com. I'll be right back with my commentary. You know, before I found Warby Parker, buying glasses always felt weirdly complicated. Overpriced frames, outdated styles, and somehow I needed a spreadsheet just to understand what I was paying for. But Warby Parker has changed that. And that's why my most recent two pairs have been from them.

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[00:12:09] I've always loved this idea of FU money. He's not really talking about being rich. He even says 10 million was far more than he needed. It's about having enough of a cushion that you can say no, to walk away from a job or a situation without fear making the decision for you. That's actually part of why I kept trying to build something of my own over the years. I started a few businesses and most of them failed.

[00:12:38] The podcast network is really the only one that stuck. But underneath all of it was that same pull he's describing, wanting the freedom to not have someone else holding all the leverage over my time. But I get it. For many, FU money is years away and that's completely okay. Even a few months of expenses saved up can give you a smaller version of that freedom. Room to breathe, to not panic,

[00:13:06] and to make a choice from a calmer place. And that second piece pairs with it nicely. The market gave about 12% a year across 40 years of war, crashes, and chaos. But only for the people calm enough to stay put. So maybe this week, instead of some far off number, just think about your buffer. Whatever small step gets you a little more breathing room. And with that, have a great rest of your day.

[00:13:35] Thank you for being here and I'll see you tomorrow where your optimal life awaits.