Living like a rentier without having sold a successful company, successfully acquired an inheritance, or been aged five or older. A number of members of the so-called Generation Y, not only in the United States, have adopted investment tricks, thanks to which they could think about “retirement” already in their thirties or forties. But now they face an unprecedented economic challenge in their lifetime. The days when you could quickly earn up to thousands of percent on crypto, Tesla or meme shares are over, at least for the moment. Accumulated wealth is eaten away by inflation, asset pricing is undermined by rising rates and an economic slowdown.
The authors of the tutorials, which are guided by adherents of the ideas expressed by the acronym FIRE (Financial Independence Retire Early) are rethinking some of their key tricks due to stagflation. Experts warn that living off savings and investment returns will become significantly more unattainable. However, part of the Czech millennials is calm. By the standards of the surrounding countries, they do not see extremely high inflation as a major problem, but rather as a financial helper.
For many people, this is an extremely tempting idea. It is enough to devote all your energy and free time to earning money for a while, spend only to satisfy the necessities of life, save money appropriately, and then just compensate for all the hard work with the possibility of living out the rest of your life from savings and investment returns. Fans of the informal FIRE “movement” and the popular blog Mr. Money Mustache, which has been written since 2011 by Canadian ex-software engineer Peter Adeney, known for retiring in his 30s with his wife. From the age of twenty, he saved diligently and immediately invested all free funds from his salary. At the same time, the basic lesson that he and rentiers like him follow seems banal.
It most often takes the form of a rule that future young pensioners should have twenty-five times their annual income at their disposal, with a maximum of four percent of this package being used for living in the first year of the “pension”. In the following years, the “drawn” amount is adjusted by the value of inflation. In an ideal world, which at least from the point of view of investors, the last decade was very close to, the cost of living is covered by the ongoing appreciation of the portfolio. FIRE advocates have adopted these gimmicks, but they are effectively a follow-up to what financial advisor Bill Bengen popularized during the 1990s. His lesson was originally intended to help people who planned to end their active careers only in the second half of their lives. But now he advises taking his “four percent rule” with a great deal of distance. According to Bengen, rentiers should draw a smaller share from their iron financial reserves. And reconsider the portfolio layout.
Stagflation or What investor hell looks like. Editorial expert on financial markets Jarda Bukovský will guide you through it, watch the video:
Under normal macroeconomic conditions, according to his statement to the Wall Street Journal, he advised investing 55 percent of savings in stocks and 45 in bonds, now it is said to be better to keep 70 percent of the wealth in cash. Only twenty percent in shares, even only ten in bonds – at least until it becomes clearer in which direction the financial markets are moving from a longer-term perspective. At the same time, Bengen admits that the idea of holding such a large share of cash does not sit well with him. But the shares still seem expensive to him at current prices. According to Mark Chen, creator of the Investing Long Term website, it is virtually certain that it will become more difficult to earn an early retirement over the next ten years.
Blogger Adeney does not specifically see inflation as a major problem. Even at the beginning of this year, he mainly advised not to panic and try to enjoy the long-unseen period of inflation as a valuable experience. He writes that even for people living off investments, inflation is usually harmless, as it often inflates the value of assets. But his readers argue that Adeney overlooks the protracted stagflation of the 1970s. At that time, the Dow Jones index increased by only five percent in ten years. Millennials from the Czech Republic, with whom the website E15.cz spoke, remain relatively optimistic despite the higher rate of inflation than in the USA, as they believe that the idea of financial independence is still feasible even in domestic economic conditions.
The millennial generation (also referred to as the Y generation) is usually defined by the years of birth between 1980 and 1996. Those born earlier attribute to it a lazier approach to work with a much greater emphasis on balancing personal and private life. A number of researches confirm this value setting, but at the same time it is true that generation Y uses favorable demographics. In other words, it doesn’t have that many direct competitors on the labor market, so its members can afford to formulate demands that their parents might have preferred to only quietly dream about. “Today, employees are more willing than in the past to simply leave their job if they are not satisfied with it,” says Sander van ‘t Noordende, head of the Dutch staffing agency with a global presence, Randstad, according to Bloomberg.
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