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Can You Retire Early and Still Afford to Have Children?

July 11, 2024May 23, 2024 by Fresh Life Advice

Can You Retire Early and Still Afford to Have Children? Retiring early is a dream for many, offering the promise of freedom and time to pursue passions and interests. However, the prospect of early retirement becomes significantly more complex when you factor in the desire to have children. Children come with a multitude of expenses, both expected and unexpected, that can challenge even the most meticulously planned financial strategies. So, can you retire early and still afford to have children? Let’s find out.

Welcome to the 16th FLA Guest Blog Post! Today, we explore the financial considerations, strategies, and potential trade-offs involved with retiring early with children. Thank you to Andrew from Gauss Money for sharing this helpful article.
Andrew helped develop a fintech app for paying off debt. He thought my readers might be interested to hear more about how to use Chat GPT for their personal finances. Recently, Gauss Money purchased the rights for their GPT tool that is 100% free to users, and has been created with the inputs needed to support even the most complex financial questions. They call it ChatPF (personal finance).
They’ve gained a lot interest from users dropping in all of their debts to create an optimized budget and payoff plan. They can answer which debts to pay off first and what strategies are the best for your specific budgets, goals, and debt amounts.
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The concept of retiring early has been gaining popularity over the years. More and more people are aiming to reach financial independence at a young age, allowing them to retire from the typical 9-5 job and spend their time as they wish. However, this goal becomes more complex when one considers starting a family. The arrival of children can significantly alter one’s financial landscape, making early retirement seem far-fetched.

The question then arises: Can you retire early and still afford to have children? This blog post aims to delve into this topic, unraveling the financial intricacies involved and providing guidance on how to balance parenthood with early retirement.

Defining Early Retirement: What Does it Mean?

Early retirement is a financial concept where individuals aim to achieve financial independence at a younger age than the traditional retirement age of 65. This means having enough money saved and invested to cover living expenses for the rest of one’s life.

However, early retirement doesn’t necessarily mean stopping work completely. For many, it means leaving their traditional jobs and pursuing their passions, starting their own business, or simply enjoying more leisure time. It’s about having the financial freedom to make choices that aren’t solely based on monetary concerns.

The Financial Implications of Having Children

1. Cost of Raising a Child

Having children is one of life’s most rewarding experiences, but it’s also a significant financial undertaking. One of the first factors to consider is the cost of raising a child. According to the U.S. Department of Agriculture, the average cost of raising a child from birth to age 17 is approximately $233,610, not including college expenses . This figure encompasses housing, food, transportation, healthcare, education, clothing, childcare, and other necessities. The cost can vary widely depending on your location, lifestyle, and the number of children you have.

Cost of Raising a Child USDA — **Image Source: The Cost of Raising a Child via USDA**

2. Healthcare Expenses

Healthcare costs are another significant concern. Prenatal care, childbirth, pediatric care, and routine medical expenses can add up quickly. According to the Peterson-Kaiser Health System Tracker, the average cost of childbirth in the U.S. is around $4,500 with insurance, but this can rise substantially without coverage . Additionally, ongoing healthcare costs, including insurance premiums, copays, and out-of-pocket expenses, need to be factored into your budget.

Securing comprehensive health insurance is vital. Without employer-sponsored insurance, you’ll need to find alternative coverage options. Consider:

Affordable Care Act (ACA) Plans: These plans can provide coverage if you retire before becoming eligible for Medicare at age 65.
Health Savings Account (HSA): If you have a high-deductible health plan, an HSA can help cover medical expenses with pre-tax dollars.

3. Education Costs

Education is a major expense that can impact your retirement plans. While public education is free, many parents choose private schooling or extracurricular activities that can be costly. Moreover, the rising cost of college education is a significant concern. The College Board reports that the average annual cost of tuition, fees, and room and board for a four-year private college is close to $50,000.

The financial responsibility extends beyond these immediate costs. As a parent, you may also want to consider future expenses such as higher education, wedding costs, and even helping your child buy their first home.

Balancing Early Retirement and Parenthood

Balancing early retirement and parenthood is indeed a financial tightrope walk, but it’s not impossible. It requires careful planning, disciplined saving, and sensible investing.

One of the key aspects of this balance is understanding that your financial goals will need to be flexible. The cost of raising children can be unpredictable, with unexpected expenses cropping up regularly. This means your early retirement plan needs to have enough buffer to accommodate these uncertainties.

Strategies for Financial Planning: Can You Retire Early and Still Afford to Have Children?

To retire early and still afford to have children, you need to have a solid financial plan in place. This plan should include aggressive saving, smart investing, and meticulous budgeting.

Consider using a retirement calculator to figure out how much you need to save for early retirement. Factor in the costs of raising children, as well as your expected income, expenses, and lifestyle choices.

Cost of a Child BLS — **Image Source: Cost of a Child via BLS and Brookings Institute**

The Role of Savings and Investments in Early Retirement

The foundation of early retirement is a robust savings and investment plan. The sooner you start saving and investing, the more time your money has to grow.

Investing in a diversified portfolio can help grow your savings exponentially over time, thanks to the power of compound interest.

A well-thought-out investment strategy is crucial. Consider the following:

1. Diversify Investments

Diversify your portfolio to balance risk and reward. This includes stocks, bonds, real estate, and other assets.

2. Tax-Advantaged Accounts

Utilize tax-advantaged accounts such as 401(k)s, IRAs, and 529 college savings plans. These accounts can provide significant tax benefits and help grow your savings more efficiently.

3. Passive Income Streams

Develop passive income streams, such as rental properties or dividend-paying stocks, to supplement your retirement income.

How to Budget for Children while Planning for Early Retirement

Budgeting is crucial when planning for early retirement and raising children. You’ll need to account for everything from routine expenses, like diapers and food, to larger costs, like education and healthcare.

It’s essential to create a detailed budget and stick to it as much as possible. Remember to also include potential future expenses and a buffer for unexpected costs.

Success Stories: People who Retired Early and Still Afford to Have Children

While it may seem daunting, there are numerous success stories of people who’ve managed to retire early and still afford to have children.

For instance, a couple known as the “Frugalwoods” managed to retire in their early thirties while raising two children. They achieved this by living frugally, saving aggressively, and investing wisely.

Expert Advice on Early Retirement and Having Children

Financial experts advise that the key to retiring early while having children is starting as early as possible. The earlier you start planning and saving, the more time your money has to grow.

Experts also suggest considering side hustles or passive income streams to supplement your savings. This could be anything from real estate investing to writing a blog or selling handmade goods.

1. Downsizing

Downsizing your home or lifestyle can free up significant financial resources. Moving to a smaller home, a less expensive area, or even a different country with a lower cost of living can make early retirement more feasible.

2. Frugal Living

Adopting a frugal lifestyle can help stretch your retirement savings. This doesn’t mean sacrificing quality of life but rather making conscious spending choices. Prioritize experiences over material possessions, find cost-effective hobbies, and seek out free or low-cost entertainment options.

3. Part-time Work or Side Gigs

Many early retirees find that part-time work or side gigs provide a valuable income stream and personal fulfillment. This can be especially helpful if you face unexpected expenses or if your investments don’t perform as expected.

Psychological and Emotional Considerations

1. Balancing Time and Attention

One of the key benefits of early retirement is the ability to spend more time with your children. However, balancing this time with personal pursuits and self-care is crucial. Ensure you have a support system in place, such as a partner, family members, or community resources, to help manage parenting responsibilities.

2. Social Connections

Retiring early can sometimes lead to feelings of isolation, especially if your social circle is still working. Building and maintaining social connections through community involvement, hobbies, or volunteering can enhance your emotional well-being and provide a support network.

3. Long-term Planning

Think long-term about your goals and aspirations for both retirement and parenthood. This includes planning for your children’s milestones, your own personal growth, and ensuring your financial plan can adapt to changing circumstances.

Conclusion: Is Early Retirement with Children a Feasible Plan?

In conclusion, retiring early while having children is indeed a feasible plan, but it requires careful planning, disciplined savings, and smart investing. It’s all about setting clear financial goals, sticking to a budget, and being prepared for unexpected expenses.

While it may seem like a challenging path, with the right strategies in place, you can achieve financial independence and enjoy the joys of parenthood. Remember, the key is to start planning as early as possible and to stay disciplined and focused on your financial goals.

By understanding the financial implications, implementing a robust investment strategy, and being willing to make lifestyle adjustments, you can create a fulfilling retirement while providing for your children. Ultimately, the key lies in balancing your financial resources, time, and emotional energy to ensure a rewarding experience for both you and your family.

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Disclosure: Fresh Life Advice is an opinion-based website. I am not a financial advisor, and the opinions on this site should not be considered financial advice.

What are your thoughts on Children and Early Retirement? Let me know in the comments below.

When Managing Your Health, Don’t Forget About Your Financial Wellness

April 1, 2024July 21, 2022 by Fresh Life Advice

When managing your health, people often forget about their financial wellness as well. It’s important to have balance, as with everything in life.

Welcome to the 3rd FLA Guest Blog Post! Today, we explore how to not only manage your health but also your financial wellness. Thank you to Amos from Do Money Well for sharing this helpful comprehensive guide.
From teaching your children how to manage their money to saving for your golden years, Do Money Well covers it all.

We all need money. However, when you don’t have enough to maintain your preferred standard of living, you can get stressed out quickly. This is especially true for middle-class Americans facing the uncertainty of soaring housing prices, skyrocketing childcare, and salaries that have not kept up with inflation. Fresh Life Advice explains that you can take hope knowing that there are things you can do to improve your financial standing, reduce stress, and relax.

To make the most of your money, here are a few approaches to try.

Money and Mental Health

According to UK-based Mind.org, there is a very real connection between your finances and your mental health. Not having enough money can leave you lying awake in bed each night, worrying about how to pay for everything – from your children’s braces to your electric bill.

Further, feeling as though you can’t keep up with others in your social circle can leave you with feelings of shame and guilt when you do splurge on the occasional night out. It doesn’t have to be that way. We often hear this idiom referred to as “Keeping Up With The Joneses.” A few changed habits coupled with self-care and a different perspective can help you reduce stress.

Many financial experts are of the opinion that before you send off your money to do the heavy lifting, you need to have an emergency savings account that will cover at least six months of living expenses.

One of the best places to store your cash is an FDIC-insured, high-yielding savings or checking account as it can generate maximum value.

A typical savings account provides an interest of about 0.01%. To put this into perspective, putting money in a checking account is equivalent to stashing money under the mattress. However, high-yield savings and checking provide interest rates that are more than 1%, which is about 1% more than what you usually get.

Save Money Without Sacrificing Your Health

It’s easy to think that saving money means giving up on everything you love and need to be well. This simply isn’t true. There are many ways that you can continue to put your health first. These include:

Meal plan. Meal planning is one of the easiest ways to keep your diet and nutrition goals. It’s also an excellent way to save money since you only have to shop once each week, and you won’t have the temptation to run to the drive-through since your food is already ready. There are many apps, such as Paprika and Mealime, that can make meal-planning easy. The Spruce Eats has a great list of different apps that can make mealtime healthier, efficient, and budget-friendly.
Exercise outdoors. Strong Home Gym estimates that the average gym membership costs more than $50. That’s $600 per year that you don’t have to spend, and tossing your fitness center card in the trash means one less bill to pay each month. Instead, plan to spend more time outdoors, which can help you with everything from weight loss to stress while giving you plenty of open spaces to walk, swim, and hike. Look for parks in your area that allow people to freely exercise. If you have a dog you want to include in your workouts, find a pet-friendly park and bring them along.
Look for free workouts online. If you can’t get outdoors to exercise, no problem. Thanks to the internet, finding workout routines and tutorials is as easy as logging into your YouTube account. Many personal trainers and exercise aficionados offer a wide range of exercise videos that can help you refine your current workout routine to learn something completely new. You can also download exercise videos to your tablet and take things outside.
Prioritize self-care. Self-care is something as simple as a warm bath or a good book at the end of a stressful day. Or, you may simply want to crash on the couch with your favorite video game or the television program you’re currently watching. Do what makes you feel your very best; you are doing yourself a disservice if you feel like anything less, and your goal is to feel better, not worse.
Shop for affordable products. Look for highly-rated kitchen gadgets, workout equipment, and other health-focused products to help you live healthier. You can check out Safe Smart Family for unbiased reviews and information on the latest products to help get you started.

Inflation is when the costs of products or services rise but paychecks don’t keep up. An increasing inflation rate can paralyze a nation’s currency value and buying potential.

In fact, inflation can reduce the wealth that you create. For instance, the present inflation rate in the United States is 2.26%. So, if you invest in a fixed deposit (FD) that offers a 3-4% return, that is not going to work.

This investment will erode your wealth. It will work against you. This is the reason investors invest in market-linked assets, such as mutual funds and stocks. These assets can outpace inflation. Top-quality stocks generate average returns between 9% and 12%. With mutual funds, you can get a return of 6% to 15%.

Buying assets is an effective way to make money and beat inflation. There are apps that provide access to top-quality mutual funds and stocks.

Earn Without Giving Up All of Your Spare Time

When you simply need to make more money, your first inclination may be to take on more hours at work or to get a part-time job. These can absolutely help, but then you continue to be defined by someone else’s time clock. Instead, consider starting your own business on the side such as purchasing a condo and renting it. This gives you flexibility and, depending on what you do, may segue into a passive income down the road.

Keep in mind here that there are a few steps you should take to get your side-gig off to a good start. One is to invest the time into researching how to file an LLC.

This will make it much easier to keep your business finances and personal finances from commingling, which can protect you from financial losses. However, each state has different LLC guidelines and regulations, so it’s important to do some research to ensure you’re following all of the required steps. If you’re feeling overwhelmed, work with an attorney to make sure all of your paperwork is correctly filed with the proper offices. Formation services can also help you with this part of the business formation and are often less expensive than a lawyer.

You also want to consider scouting ahead to hire an assistant, which can handle some essential tasks on your behalf while you work your “day job.” Entrepreneurs’ Organization suggests interviewing wisely and making sure that your assistant is someone you can trust. While you will have to put some time into growing your business, you only have to work when you want, which means you can take time off for self-care. Additionally, you could also hire a virtual assistant to help with things online, such as answering phone calls, responding to emails, and helping you with aspects of your business. Virtual assistants are particularly helpful if you don’t have a physical office and are running things from your home.

Your overall wellness and health is more than the sum of what you eat and the number of hours you exercise each week. To be truly at your best, you have to take care of yourself in all areas. This includes tweaking your finances so that you have one less worry on your plate.

Why Guest Post With Us?

Guest posting allows you to gain access to our readers and serves as a way to promote your content. We do not charge for guest posting like many other blogs. We believe in the power of unique, valuable content and will not charge to promote it!

Disclosure: Fresh Life Advice is an opinion-based website. I am not a financial advisor, and the opinions on this site should not be considered financial advice.

Personal Capital: The Ultimate Tool to track your Net Worth, Budget and more.

How do you focus on your health and financial wellness? Let me know in the comments below.

How to Make Your Money Work for You: A Comprehensive Guide

April 1, 2024December 13, 2021 by Fresh Life Advice

When you ask for financial advice, people will often say “make your money work for you.” But how do you do it? Well, the answer isn’t simple, and there is no one-size-fits-all solution.

Welcome to the 2nd FLA Guest Blog Post! Today, we explore how to make money work for you. Thank you to Michael from Finance-Able for sharing this helpful comprehensive guide.
Finance|able was created to fill the void in the market for approachable, intuitive finance career training.

Once you make money, it is tempting to let it sit in a savings account as you try to earn more. But by investing your money, you can make it work for you and grow over time. Investing is central to a comprehensive money management strategy.

To make the most of your money, here are a few approaches to try.

1. Open a High-Yielding Savings Account

One of the best places to store your cash is an FDIC-insured, high-yielding savings or checking account as it can generate maximum value.

A typical savings account provides an interest of about 0.01%, while putting money in a checking account is equivalent to placing money under the mattress. However, high-yield savings and checking provide interest rates that are more than 1%, which is about 1% more than what you usually get.

2. Purchase Assets that Aren’t Affected by Inflation

Inflation is when the cost of products or services rises but paychecks don’t keep up. An increasing inflation rate can paralyze a nation’s currency value and buying potential.

Buying assets is an effective way to make money and beat inflation. There are apps that provide access to top-quality mutual funds and stocks.

3. Create a Stream of Passive Income

Passive income means the money earned with little or no effort. When you have set it up, passive income will earn you money while you sleep. This can lead to financial independence, but having passive income streams is not a get-rich-quick method.

To create a stream of passive income, you must invest upfront — whether that investment is money or time. But it will lead to large payoffs later on.

A few forms of passive income include silent business partnerships and real estate investment. However, you can also generate money through other methods, such as making YouTube videos, or starting a blog and earning via affiliate marketing.

4. Create a Retirement Fund

Many people don’t enjoy the luxury of a pension. So, you should store your money in a retirement account. Individual retirement accounts (IRAs) and 401ks are investment accounts. This means your retirement savings are an investment in the market and can grow exponentially.

The primary idea is to leverage the money you have to make more money. As you save as much as you can, your money will work for you tax-efficiently to grow more money.

In addition to IRAs, another great option is health savings accounts (HSAs). These are savings accounts with high-deductible health insurance coverage.

When you sock money away in an HSA, you won’t lose it. If you need the money for healthcare, you can withdraw your money without paying any taxes. As you turn 65, the money in the account will transform into an IRA.

So, you don’t get penalized for using the fund for other purposes. Using the fund, you can pay long-term care premiums and Medicare costs.

5. Use Target-Date Funds

Lifecycle funds, or target-date funds, are structured to grow in assets and rebalance continuously over time to optimize your savings.

It’s safer to invest in target-date funds as it helps in managing investment risk. With target-date funds, it is also possible to structure your retirement fund when you don’t want to delve deep into setting up your portfolio.

A target-date fund is based on the fund you set up for return and your age. The funds are more diversified when you are younger. This increases your risk and increases the fund’s value. So, as you age, target-funds will readjust to become more conservative.

With a target-date fund, you can set the approximate age or year you plan to retire. Presently, many target-funds have been set up for a return in 2050. It is offered through many money lenders and banks.

The process comes with some drawbacks, but one of its primary benefits is simplicity. If you want, you can make your initial investment and forget all about it until you retire. This can be preferable to bonds, stocks, and other retirement portfolios, as it is a painless method to invest in your retirement. However, you should know which stocks to buy and when it’s the right time to invest in the stock market.

6. Choose Credit Cards with Rewards

When you use a credit card, it might feel like you aren’t putting your money to work. However, choosing a card that comes with a reward can be good for your lifestyle. For instance, airline miles can be good for people who are interested in traveling.

If you have steady cash flow and pay your bills on time, you can find great credit cards. However, if you are in credit card debt, this strategy might not be useful for you.

7. Invest in Gold and Bonds

When it comes to a conventional investment strategy, many tend to look toward gold. Like real estate, it is an asset that might appreciate steadily with time. You can buy gold and hold it in your hand. This can be an appealing option for people who prefer tangible assets.

As you consider investing, be sure to take your overall portfolio into account instead of just one investment. However, in such cases, gold can serve as a stunning piece of your financial plan. But don’t invest all your money in gold. It should only be a part of your investment strategy.

Another option is to invest in bonds, where you provide a loan to an organization that consents to pay back the debt on a certain schedule. Bonds are sold by businesses and government agencies. Usually, bonds pay off twice a year. Hence, you have a predictable income source if you invest in a bond until it matures.

Bonds are predictable and this makes them attractive in an investment portfolio. If you decide to spend on volatile investments that come with some degree of risk, bonds are a good way to offset such risk.

Your gains from the bond will not increase to the level of the riskier ventures. But they are a good foundation for your investment strategy. However, before you invest in bonds, make sure you thoroughly understand the difference between stocks and bonds.

8. Become a Silent Partner in a New Business

It can be a risky move to start your own business. However, if things progress well, it is likely to pay off.

A good way to reap the benefits of a startup without the stress of getting the business off the ground is to be a silent partner who invests capital but doesn’t take care of day-to-day operations. This method allows you to earn a cut of the profits without investing long hours.

However, if you use this strategy remember that you won’t be involved in the daily decision-making process. So you may not have as much control over your investment as you would like. And if the business tanks, you will have to bear the financial loss.

9. Eliminate Debt

The idea of making money work for you is that every dollar, penny, and dime you invest or save multiplies exponentially. However, if you have debt, the exact opposite is going to happen.

Basically, each dollar you owe will cost you more in the long run. Like many, you may think that spending large sums of money now will benefit you over time, even if it means going deeper in debt. But this can cause you to stay in debt longer, and the longer you are in debt, the more money it is going to cost you to get out.

Sadly, banks and credit card companies don’t exist to help you. The money you lose every month funds their organizations. Rather than working for you, your money is working for them.

Today, people are in different kinds of debt. With time, many have accepted debt as part of their life. But this is a mindset you should get rid of. You should not accept debt as part of your life.

Here are some ways to streamline your path to a debt-free life.

Find out exactly how much you owe. It is crucial that you own your debt. Only when you know the amount you owe and to whom, along with the interest rates, will you be able to pay them off effectively.
Develop a strategy. This takes into account the amount you owe to every company along with their interest rate. The higher the interest rate, the faster you should pay it off. Use loan tracking software to learn how much you have to pay monthly to clear your debt, including student loans. Make sure you are honest with yourself. It is difficult to eliminate your debt, but it isn’t impossible.

10. Invest in Real Estate

Real estate is not a guaranteed investment. But if you have the cash and risk tolerance, consider investing in commercial or residential properties.

There are two types of real estate investment.

Buying a single home.
Investing in land to sell or in homes or stores to rent.

Your decision to branch out will depend on the market and your desire to own rental properties. In most cases, if you can take on the added responsibility of upkeep and management, investing in real estate is a great option.

Many homeowners take real estate to be the biggest asset in their investment portfolio. However, make sure that you don’t weigh your portfolio too heavily toward a single asset.

11. Invest in Cryptocurrencies

Cryptocurrencies can also be part of your investment portfolio. However, it is a speculative holding. The value of cryptocurrency is increasing exponentially, but investing in crypto comes with high risk. If the market crashes, you lose your investment.

Cryptocurrencies like Bitcoin trade with swings of at least 2% routinely throughout the day. But people think that as cryptocurrencies are adopted by more and more people, they will continue to increase in value. Take that into consideration before you decide to invest in it.

What Is the Best Way to Make Your Money Work for You?

The power of investing money is incredible. However, you are not going to get anywhere until you get started. With every passing day, you are missing out on opportunities to grow your money.

No matter the type of investment you make, seeing results will take time. Hence, we recommend getting started as soon as you can to make your money work for you.

We have provided a list of investment strategies, but you should only go for the ones that work for you. Identify your risk profile and long-term goals. Decide on a plan where you will not have to take more risk than you’re comfortable with.

Remember, investing is about carefully following strategies to a robust financial future.

Why Guest Post With Us?

Disclosure: Fresh Life Advice is an opinion-based website. I am not a financial advisor, and the opinions on this site should not be considered financial advice.

Personal Capital: The Ultimate Tool to track your Net Worth, Budget and more.

How do you make your money work for you? Let me know in the comments below.

Happy One Year Blog Anniversary Fresh Life Advice

April 1, 2024September 9, 2021 by Fresh Life Advice

Happy one year blog anniversary to Fresh Life Advice! One year ago, I opened the doors of FreshLifeAdvice.com to the world.

Of course, these doors are electronic and metaphorical.

As a teenager, I can remember using some super cool website called Myspace.com to learn about HTML coding and website building. Myspace was the first social network to reach a global audience, but we all know how the rest of that story ended…

Rest in peace to Myspace as we pour one out for Tom.

Soon, Mark Zuckerberg took over the social media sphere. With roughly 2.89 billion monthly active users as of the second quarter of 2021, Facebook is now the biggest social network worldwide. In the third quarter of 2012, the number of active Facebook users surpassed one billion, making it the first social network ever to do so.

The internet, social media, and technology, in general, are rapidly changing. I had always wanted to a piece of that pie. FLA was my chance of making a small contribution to the big world wide web.

How FreshLifeAdvice.com Was Born

After college, I wanted to fill my free time with a project that would be beneficial to the general public.

I was already writing anything and everything to escape from the daily struggle of the corporate world. Lengthy emails to friends and colleagues, forum posts about stocks, and even personal journal entries.

Why not start a blog?

FLA was born with the mission in mind to help 10 million people with their own path to financial freedom. It sounds crazy, but every life-changing invention also sounded crazy before it revolutionized its respective industry.

As of January 2021, there were 4.66 billion active internet users worldwide – 59.5 percent of the global population. Of this total, 92.6 percent (4.32 billion) accessed the internet via mobile devices. Six in every ten people around the globe now use the internet…

Sure, the internet had plenty of personal finance blogs, but they all had a similar theme. Older retired bloggers who already had a large nest egg just didn’t seem relatable to the younger crowd about to embark on an arduous start to their careers. To be fair, they did inspire me to envision a prosperous future.

The millennial generation is who I wanted to reach, because, well…I’m a part of that crowd.

The mid-20s person sits at a fork in the road. It’s the age when the world presents a choice: head down a path of continuous stress and financial woes, or set yourself up for a lifetime of money mastery.

My net worth steadily grew after the Post-2008 financial crisis. Having this credibility might help people take my advice seriously, so I purchased the domain FreshLifeAdvice.com through Bluehost for any aspiring website owners.

The goal was to put a fresh perspective on personal finance. Hence, Fresh Life Advice was born.

The Great Blogging Experiment – One Year Later

I then spent the next six months nervously designing the site. Hey, I had some good-looking shoes to fill!

Of course, the design wasn’t actually the 6-month hang-up. Truthfully, I was terrified of going live.

What if nobody likes my writing? What if nobody cares what I say? And what if the only visitors are me and my mom, again?

Publishing all your thoughts and opinions for the world to see is scary enough. Baring all on a subject as taboo as money is even scarier.

Against my better judgment, on September 01, 2020, the blog you’re reading right now went live. This was the post.

When I published that first article, I made myself a promise: I was going to make it to FLA’s 1st blog anniversary, no matter what, before I could give up.

I knew I enjoyed writing, but the internet is a big place. And I was just one voice in the chatter. Maybe after one year, I’d be able to tell if anyone cared.

Well, here we are. One year later. I’m happy to report that the site has been a raging success, and I have zero intentions to shut it down.

This blogging experiment has truly been one of the most rewarding projects I’ve ever involved myself in. Every time I receive a personal reader email, an inspiring article comment, or an enthusiastic Facebook share, I can’t help but get excited and marvel at the wonders of the internet.

So, I want to say THANK YOU! At the risk of sounding extremely cliché, you – the reader – are what makes this site what it is.

I’m just a guy typing some nonsense on a keyboard. You’re the one who keeps this site alive.

One Year of FreshLifeAdvice.com Blog Anniversary Statistics

299 Page views in the blog’s first month.

150 About how many of those page views came from me.

100 Page views the first day I thought an article went viral. I remember my heart pounding as I watched the page stats, refreshing them repeatedly.

697 The most page views in a single month.

8 Total email subscribers after the first 4 months.

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52,070 Total number of words written by FLA. That’s 11% of the entire English Dictionary!

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‘Mr. Worldwide’ refers to the self-ascribed nickname of American rapper and music producer Pitbull. Soon, FLA will self-ascribe a similar nickname of ‘Mr. Personal Finance Worldwide’.

These top 5 blogger commenters certainly deserve a shout-out. They’ve supported this site from the beginning. I enjoy reading and commenting on as many personal finance blogs as I can.

The Most Popular Day is Friday, accounting for 21% of views. And the Most Popular Time is 3:00 PM, accounting for 9% of views.

There must be something about Fresh Life Advice that really gets people excited about their weekends.

99,999,999 About how many questions I get about my Side Income Reports.

It’s been quite the ride, and I still can’t quite believe how far we’ve come.

And finally, let’s hand out some year one article awards:

Article Awards

This is like the Grammys or the Oscars, but for a blog anniversary.

Most Viewed Post:

How Your DISC Personality Affects Your Spending Habits

The stats don’t lie. Every single human falls into one or more of the DISC personality traits so it was no surprise this appeal to many different audiences. It was FLA’s way of putting a fresh twist on personality tests and spending habits.

Conveniently, this post checks both boxes of fun and helpful.

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Why Start A Blog | The Most Important 3 Reasons

Either there aren’t very many readers, or this post was a total flop.

Don’t answer! That was a rhetorical question.

Seriously, this was the first post on the site as well as one of the shortest articles to date. No surprise here.

I have no regrets writing it because it got the ball rolling for the rest of the blog. It also serves as a constant reminder of my purpose for blogging.

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What Is Going On With GameStop Stock? | Explained

The meme stock mania was very topical, and this post was published during the midst of the hedge funds losing billions of dollars due to a short squeeze.

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Why Don’t The Rich Invest In Index Funds?

The rich are always a topic of controversy. People like to point to inheritance, but this post explores more so how the wealthy invest their money.

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Weighing in at a whopping 3,394 words:

Stocks | How To Know Which To Buy And When To Invest? [Investing Strategy 101]

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Fighting in the lightweight division, at only 487 words:

5 Scary Halloween Spending Facts That May Spook You

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Ideal Day of Retirement

I’m working towards F.I.R.E. just like most personal finance connoisseurs. This post lays out a rough daily plan for early retirement. See you there!

Most Profitable Side Income Reports:

December Side Income Report | 2020 – $544.01

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Some Of My Random Favorite Posts:

I really enjoyed writing these ones, and I was happy with the way they turned out. But the stats say most of these weren’t read as much as the others, so here’s to giving them a second chance!

5 Foolproof Steps for Early Retirement – These are some of the most critical practices I implement in my own life to achieve F.I.R.E. as quickly as I can.

How Much Did I Spend on Amazon Shopping in 2020? – It was eye-opening to see the annual expenses I’ve spent on the e-commerce tech giant, Amazon.

Top 10 Best Money Blogs To Improve Your Personal Finance Knowledge – I spend a lot of time learning to provide readers with the best information possible. Credit is due to the pioneers of the personal finance blogosphere.

Happy Blog Anniversary (Blog-iversary) Everyone!

It’s been an awesome ride so far. Here’s to many more years together!

Thank you to every single person who has read FLA and supported this site! Happy Blog Anniversary Fresh Life Advice!

Disclosure: Fresh Life Advice is an opinion-based website. I am not a financial advisor, and the opinions on this site should not be considered financial advice.

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Any advice for Year 2? What are your favorite things about a blog? Let me know in the comments below.

Why Don’t The Rich Invest In Index Funds?

April 1, 2024August 5, 2021 by Fresh Life Advice

Index funds have been touted across the finance world as the proven way to invest hard earned cash. However, the wealthy have turned their backs on passively managed index funds for other types of assets. But why? Why don’t the rich invest in index funds?

Despite popularity, the ultra-wealthy high net worth individuals aren’t as apt to invest in these low-cost funds.

What are Index Funds? What’s the Advantage?

An index fund is a mutual fund or exchange-traded fund designed to follow certain preset rules so that the fund can track a specified basket of underlying investments.

Over the long term, index funds have generally outperformed other types of mutual funds. Other benefits of index funds include low fees, tax advantages (they generate less taxable income), and low risk (since they’re highly diversified).

At FLA, we preach choosing passively managed index funds or ETF’s (i.e., NYSEARCA: VTI or MUTF: VTSAX) with the lowest expense ratios (less than 0.15%) in lieu of picking individual stocks, mutual funds with high fees, or actively managed hedge funds.

Let us dig into the pros and cons of index funds:

Pros of Index Funds

1. Low-Risk

Losing the principal investment is an investor’s worst nightmare. Index funds offer a low-risk option for investing in batch of stocks. They are inherently diversified, representing many different sectors within an index, which protects against deep losses. When one index is performing better than others, the index fund effectively captures these gains that individual stock picking gurus may miss out on.

2. Steady Growth

A central advantage to index funds is that they are designed for steady, long-term growth. The ideal timeline for an investor is to have their money compound forever. No one can predict the future. As a result, having so many stocks in one fund allows for diversification in addition to a self-cleansing system. The dogs are ousted, and the winners continue to ride high.

Index funds are not designed to beat the market, but simply capture the average return. Stock-picking is much harder than one would expect. For instance, U.S. News & World Report noted in 2011 that index funds tied to the Standard & Poor’s 500 (S&P 500) index generated better returns over the previous three years than almost two-thirds of large-cap actively managed mutual funds.

3. Low Fees

Index funds offer lower fees for investors than non-index funds. This means that even when a non-index fund outperforms index funds, it must perform better by a certain margin to generate returns that overcome the management fees that it charges.

Cons of Index Funds

1. Lack of Flexibility

Because index fund managers must follow policies and strategies that require them to attempt to perform in lockstep with an index, they enjoy less flexibility than managed funds. Investment decisions on index funds must be made within the constraints of matching index returns. For instance, if the returns in an index are declining strongly, index fund managers have few options to attempt to limit those losses. In contrast, managers of an actively managed fund have more flexibility to act to find better-performing options in good times or in bad.

2. No Big Gains

An index fund does not carry the potential to outpace the market the way that managed funds can. This means that if you invest in an index fund you are surrendering the possibility of a massive gain. The top-performing non-index funds can perform far better than the top-performing index funds in a given year. However, the top-performing non-index funds may vary from year to year, so those under-performing years can cancel out the over-performing ones, while index funds’ performance remains steadier.

Why invest in VTSAX or VTI?

Beats 82% of active managed funds
Expense ratio of 0.04% / 0.03%
Self-cleansing (companies come and go)
Tracks the U.S. stock market.

Buy the whole stack, instead of looking for the needles.

Why Are Index Funds So Popular?

A stock index consists of a basket of stocks that is meant to represent something else. Sometimes, this something else is an entire stock market. Other times, this something else is a section of a stock market that serves as a stand-in for either an industry or some other kind of segment.

Whatever the case, it is very common to see interested individuals put their money in an index fund, which is either a mutual fund or an exchange-traded fund that tracks an underlying index.

Index fund investing has become popular since Jack Bogle of Vanguard introduced the Vanguard 500 fund in 1976. The fund tracked the returns of the S&P 500 and marked the first index fund marketed to retail investors.

Index investing is popular for a variety of reasons:

Index investing is a very passive way of investing, which can be contrasted with more active investment strategies that see individuals buying and selling stocks on a regular basis.
It’s extremely tough to beat the market in the long run. Once taxes and trading costs are incorporated into calculations, the index funds prevail.
There is empirical evidence that shows actively managed funds consistently underperform in the long run.
Index investing is a very useful way for investors to protect themselves from non-systematic risks through means of diversification. This is due to the fact they have spread out their money rather than concentrate it in the stocks of a small number of companies.
Individual stock picking can be time consuming. Many hours of research are required before an investor has truly educated opinion on whether to invest. Index funds a practical solution that reduces the necessary time and effort.

Unless you have the knowledge, time, and patience to vet each individual company you’re considering before buying its stock, you could wind up with a portfolio that’s weighed down with bad deals and underperformers. That’s one reason why many investors tend to appreciate the beauty of index funds.

Fees Add Up

When you invest in any mutual fund, you pay a set of annual fees that add up to its expense ratio. In exchange for the actively managed fund’s cost, you are getting the expertise of a seasoned fund manager. The manager and their team will assemble a well-researched collection of stocks, put it into a neat package, and shift the fund’s holdings when they see that as a smart idea.

That doesn’t come cheap.

With index funds, by contrast, most of that work (and pricey expertise) is not necessary, so their expense ratios can be as little as one-tenth of what you’d pay for an actively managed fund. But despite the many benefits of index funds, they aren’t particularly popular among wealthy investors.

Why the Rich Tend to Look Elsewhere

Index funds are an extremely cost-effective, convenient investment choice. But they generally aim to match the performance of their associated indexes, not surpass it. The ultra-wealthy, however, may not be satisfied with that.

Instead, they turn to other money-making assets, such as private equity, art, and even IPO’s. These investments are often far riskier than your average index fund, but they have far greater upside potential. The wealthy can take on this risk because they can still get back on their feet, even after losing a relatively large sum of money. The middle and lower classes do not have this luxury.

Let’s walk through a scenario.

Imagine that you have $500,000 invested in stocks in your tax-advantaged retirement accounts. That’s probably a lot of cash for you. If your portfolio declined in value by half, or worse, it could have a major impact on your future quality of life.

But, for example, someone with an investment portfolio worth $50 million could suffer a major loss and would still be left very relatively wealthy. That allows them the freedom to take on more risk than the average retail investor would be comfortable with.

The rich can pursue high-risk, high-reward investment opportunities without worries because their wealth can make for a very effective cushion from such problems.

In fact, wealthy investors often favor actively managed mutual funds. Their iffy odds of delivering that sought-after outperformance can be overwhelming appealing despite the higher fees. The large majority of actively managed funds won’t beat the market, and over multi-year periods, the share of them that do, drops even further. By contrast, index funds often outperform active funds across different asset classes.

Other Assets

The wealthy also can more easily invest in real estate, antiques, and other less-liquid assets — whereas you probably can’t afford to take on the risk associated with buying a $100,000 piece of art you hope will appreciate in value. And in the “actively managed” sphere, the wealthy also have the ability to put money into hedge funds, which most of us are legally barred from.

In order to protect normal people, the SEC has created all sorts of rules and regulations for how companies that invest money on behalf of other people should operate. While this makes the investments safer and less volatile, it prevents the firm making investments from chasing riskier but possibly more profitable investments.

Hedge funds are not allowed to have more than 100 investors, and they are not allowed to take on any investors with less than $1 million in wealth.

The goal of hedge funds is to earn absolute returns. What this means is that they make money every year, regardless of what the stock market does. A few funds have done this, but 2008 demonstrated that most funds were bluffing in saying they were able to do that, and many of them went out of business.

Why Don’t the Wealthy Invest in Low-Fee Index Funds?

They sometimes do. But it is also easier to buy individual stocks when one is investing large sums.

Also, many wealthy people have business experience which gives them insight into economic trends and specific companies. This leads them to buy individual stocks. Whether they perform better than the indexes is not assured.

A majority of the wealthy seek for Alpha. The finance world defines Alpha (α) as excess or abnormal return over a benchmark index.

In addition, they want to diversify their portfolio across asset class and earn underlying performance return, which is different from an index fund. This has resulted in huge investment growth in the following:

Portfolio Management Service (PMS)
Private Equity
Structured Products
Hedge Funds
Art
Real Estate

The wealthy use these investment vehicles because there is a barrier to entry with high entrance costs. These risky investments generally require large buy-in costs and carry high fees, while promising the opportunity for outsized rewards.

High Risk, High Reward

Over the past 90 years, the S&P 500 averaged around a 9.5% annualized return. You’d think the rich would be satisfied with that type of return on their investments. For example, $10,000 invested in the S&P 500 in 1955 would be worth more than $3 million at the end of 2016. Investing in the whole market with index funds offers consistent returns while minimizing the risks associated with individual stocks.

But the wealthy can afford to take some risks in the service of multiplying their millions (or billions). For another example, look at world-famous investor and speculator George Soros. He once made $1.5 billion in one month by betting that the British pound and several other European currencies were overvalued against the German Deutsche mark.

Hedge funds aim for those sorts of extraordinary gains, although history is filled with examples of years when many hedge funds failed to outperform the stock market indices. But they can also pay off in a big way for their rich clients. That’s why the wealthy are willing to risk hefty buy-in fees of $100,000 to $25 million for the opportunity to reap great returns.

The one percent’s investing habits also tend to reflect their interests. As most wealthy people earned their millions (or billions) from business, they see this path as a way to continue maximizing their finances while sticking to what they know best — corporate structure and market performance.

For that matter, the rich can sink their money into luxuries such as art pieces, sprawling real estate properties, cars, and other collectibles. In this case, they can enjoy grandeur while still benefiting from their increase in value over time. By buying these luxuries, the wealthy not only enhance their lifestyles but also enjoy the value appreciation as a nice bonus.

How the Wealthy Invest

As an example, let’s look at the former CEO of Microsoft, Steve Ballmer. He holds a net worth of about $84 billion in 2021. Even after walking away from Microsoft, Ballmer owns over 300 million shares in the company. This alone translates to a multi-billion-dollar investment.

Some of the other ways Ballmer chose to invest his money included:

A roughly 4% stake in Twitter (before he sold his shares in 2018)
Real estate investments in Hunts Point, Washington, and Whidbey Island
Purchase and ownership of the Los Angeles Clippers basketball team for $2 billion.

The rich can make huge investments in the industries that catch their interest, as shown by the numerous businesspeople who have winded up buying sports teams of one kind or another.

Ballmer’s wealth is concentrated in a handful of investments. This is a far cry from the hundreds of investments that come with Buffett’s and other personal finance gurus’ recommendation of buying low fee index funds.

Hedge funds are likewise popular with the wealthy. These funds of the rich require investors to demonstrate $5,000,000 or more in net worth! The sophisticated strategies intended to beat the market are the allure of the funds. But hedge funds charge approximately 2% of fees and 20% of profits. Investors need to get huge returns to support those high fees!

This isn’t to suggest that the wealthy don’t own traditional stocks, bonds, and fund investments—they do. Yet, their riches and interests open doors to other types of exciting and exclusive investments that aren’t typically available to the average person.

Why The Rich Don't Invest In Index Funds - What Assets Make Up Wealth — Source: **Federal Reserve Survey of Consumer Finances (2016)**

The Bottom Line

It is true that the wealthy have many opportunities not readily available to the middle and lower class. But this doesn’t necessarily mean they are guaranteed higher rates of return. They won’t always beat index funds, but they more often than not can afford to take on this risk. All in all, they are less dependent on steady growth and returns.

Warren Buffett might be the world’s most famous investor, and he frequently touts the benefits of investing in low-cost index funds. In fact, he’s instructed the trustee of his estate to invest in index funds.

“My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.”
-Berkshire Hathaway’s 2013 annual letter to shareholders

If a simple, straightforward low-fee index fund is good enough for Warren Buffett, then it’s certainly adequate for the average investor.

Even though index funds aren’t popular among the very rich, they’re still a great choice for the everyday investor. If that’s the category you identify with, you’d be wise to add some to your portfolio. They may not make you rich overnight. However, by capitalizing on the broad long-term gains of the U.S. market, you could accumulate quite a substantial sum over time and achieve your own financial goals.

Disclosure: Fresh Life Advice is an opinion-based website. I am not a financial advisor, and the opinions on this site should not be considered financial advice.

Personal Capital: The Ultimate Tool to track your Net Worth, Budget and more.

What is your investing strategy? When do you know it’s the right time to buy or sell a stock? Let me know in the comments below.