Expert: Paul Henneman - 11/15/2006

Question
Hi Paul,

I noticed that your stand on investing seems to be for a long-term plan to retirement. Many individuals in my generation now have seen how hard our parents have worked, without some of the practices you have discussed, and are now working after retirement. Additionally, many of us have caught the 'retire rich and young' bug for whatever reason.

Is it possible to 'retire rich and retire young, say within 5-7 years with an investment plan? I'd like to retire while I'm still youthful enough to experience life. I'm 25 now working in business management, but I don't want to wait until I'm 65 to retire. Pipe dream?

Thanks,

Jonathan, NC

Answer
Jonathan,
  Thank you for your question! The simple answer is that yes, retirment in 5 to 7 years is definitely a pipe dream. It is possible with some VERY risky investments, but the probability is about the same as winning lottery or being hit by lightning. It just cannot be done except by some extraordinary luck.
  But the news is not all that bad. While 5 to 7 years is very unrealistic, at 25 you are young enough to work towards retirement in perhaps 25 years or so. This would put you at 50 years old, and with growing life expectancy, this would give you three or more decades of healthy, retired living with a wealthy financial situation.
   My overall suggestion would be to instead of thinking about get rich quick type investing, find something that you really like to do. The way interest compounds over time, it is very powerfull over time. But it cannot happen quickly. You would need over a 100% return each year to amass enough wealth to retire so quickly. But if you give yourself 25 years, save vigorously and avoid the temptations of expensive cars and other things purchased on credit, you can amass a great deal of wealth.
   I think the real issue behind your question is that you don't want to work. Instead, I would consider finding something that you really LIKE to do for a living. Most people are conditioned to work long hours in a corporate environment, commute long distances, all for a job they do not enjoy. The highest possible salary is not the path to happiness or wealth. Instead, a long term investment plan can be based on any income level. I would suggest taking a close look at your current position. If you truly enjoy it, great. Perhaps some minor adjustments can be made to enjoy it even futher. As an example, most people look to find the largest, most luxurious place of living they can find, usually far away from a job location where it is less expensive to live. But most do not take into account the travel expenses and time involved for commuting. The average commute for most in urban areas is approaching an hour each way, that is 10 hours a week sitting in a car, with rising stress levels caused by traffic. Best to relocate close to your place of work.
   If you do not truly enjoy what you do, consider doing something else. Life is too short to dedicate your days to something you do not enjoy doing. Perhaps part of your frustration at the work environment is lack of time for things like travel, friends, and hobbies. Other occupations can offer much more of this. For example, instead of taking on incredibly risky investments, consider going into business yourself. It can be just as much work, but also tends to be much more rewarding for most people, actually enjoyable. And so much more flexible in terms of flexibility of working hours.
   I hope these general ideas of mine on how to approach finances, and life in general are helpful in some way. My main point is that there is one hard and fast rule in finance: the higher the return you seek, the higher the risk. As you get to very high return investments that would allow retirement in less than a decade, you end up with investments that are far more likely to lose all of your money than they are to make any profits at all. I hate to be negative, so do stress the benefits of a long term investment plan to you, and possible life changes to make getting there more enjoyable.

I hope this helps, please do not hesitate to follow up with me if I can be of any further service,

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com