>> Investing, the Neglected Skillset

Money. Entrepreneurs understand money and cash to be the lifeblood of their businesses, and work hard to build their businesses. And yet few entrepreneurs realize how critically important investing now, and building personal wealth outside of their businesses, can be on impacting not only their futures, but their own peace of mind. Investing is like building a side business with no employees and no liability, where if done correctly, with a plan and a disciplined approach, might eventually supply you with sustainable cashflow for the rest of your life. But you must start now. And a plan need not be complex.

Our pop culture icons are full of examples of wildly successful celebrities who have made millions, and yet ended up bankrupt and broke. And yet we also have examples of how even people of modest means, such as Theodore Johnson, a UPS truck driver, who never made more than $ 12,000 / year yet saved 20 % of his paycheck and invested, and ended up with $ 70 million when he retired. Although admittedly many factors came into play to produce this result, it is undeniable that there is at least one truth: It’ s not what you earn, it’ s what you do with what you earn.

People understand that investing is important, however, few people invest. Part of the problem is ignorance. In the Wheel of Life of life balance, we often concentrate so much on our business or careers, and maybe on our family, relationships, and health, that finances oftentimes gets shunted to the back burner of the stove of life. We think we can always save later, when in reality compound growth of investing mandates that we start early. To illustrate, take the following hypothetical example of twins Anne and Beth.

Anne and Beth are both 22 years old. Anne, being initially diligent, socks away $ 2000 a year every year in a hypothetical mutual fund that returns 12 %/ year for 6 years, then gets married and then never saves another cent for the rest of her life. Beth, meanwhile, travels the world, gets an advanced degree, then finally after 6 years, she settles down and starts investing $ 2000 / year in the same mutual fund every year until she retires at age 65.

At age 65, Beth remarks to Anne“ I am so proud of myself. I was disciplined, saving every year without fail, and now I have $ 1.2M.” To which Anne replies“ Isn’ t that funny, that’ s how much I have, too.”( Figure 1)

The Anne / Beth twin example is a simple example. If the numbers seem incredible to you, run the numbers on a spreadsheet and see for yourself. Anne started only 6 years earlier, and saved only $ 12,000 compared to Beth who saved $ 76,000. Sure, 12 % is a high rate of return, but it would also be unfair to say it is unrealistic. The whole purpose of this example is to illustrate that there are only 3 variables: how much to put in each year, how much return you might make on average, and how much time

Figure 1

you let investments compound. The longer you wait, the less time you get to let investments compound, and the more you’ ll have to sock away each year to compensate. It is never too early to invest.

In this day and age, modern medicine has gotten so good that we’ re living longer than ever. Although our parents’ generation may have expected to live to their 60’ s or 70’ s on average, spending little time in retirement, currently we’ re expected to live to our 80’ s; by the time we reach 80, our life expectancy may be even longer. That means our investments now will need to cover our old age expenses for many more years. It’ s a high quality problem to have, which means now, more than ever, we need to plan our investing strategies earlier than ever.

So how do we start? One rule we cannot escape, at least in the beginning, is to spend less than you make. Pay yourself