One of the most common goals with investing is financial independence. While I respect the goal, I squirm when I hear the term.
I believe there is truth in the 23rd Proverb about wealth being fleeting, and we don’t have to look too far back into history to The Great Recession and see a time when savings, investments, home values, and earning power were seriously depleted. While not to the same magnitudes, there has been a recession every decade in the United States from the Great Depression of 1929 to the Great Recession of 2007.
Indulge me for a moment of fear-mongering to point out some realities:
/ turns fear mongering mode ON /
Job security is a myth.
Our economy could crumble.
The stock market could crash.
Banks and FDIC insurance could fail.
Our government could default.
Inflation could sky-rocket.
We or our family could become disabled or die.
There’s no such thing as a 100% safe risk-free investment net of inflation.
The most elegantly designed, thoroughly diversified, and risk-managed plans can be blown up.
/ turns fear mongering mode OFF /
// repents and takes a shower //
I’m not saying this is going to happen – now, soon, or anytime in the future. But it could happen. And that’s why we need to add an asterisk to the term financial independence.
I don’t think it’s wrong to plan to be financially independent at some point – to build our managed assets to a point where they provide income, to not have to work jobs we don’t want to work, to save diligently towards future goals (just not at the total expense of Today). I think there’s a lot of wisdom in doing so, and the amounts will vary for each of us.
What I do think is wrong is to assume we’re infallible once we become “financially independent.” We just don’t know. We can make best guesses and varying calculations – but we should never assume the defined destination is a finalized one.
All this to say, there’s tremendous value in defining how much is Enough for our lives, measured by current income, future income, and net worth. And very likely, many of us can arrive at that Enough figure at some point, or perhaps are already there. There is contentment and peace that can come from doing so. (This idea deserves its own upcoming post.)
I’m part of a profession who at times sells “security” and “peace of mind” through our plans and products, and I find myself guilty of it at times as well. But just as we can’t guarantee any investment rate of returns, we also can’t guarantee a fail-proof state of independence. And neither should individuals on their own.
We have to realize that the terminology we (advisors and individuals) use to describe this state of prosperity is subconsciously powerful. The term is tricky, and maybe even deceitful. I’ve brainstormed for years to think of a better phrase, but for now I’ve settled on using:
Financial independence.*
*subject to change