It might come as a big surprise from somebody aiming for financial freedom and being a very active investor for the last 17 years of my life but I do not like money.
A lot of money gets you nowhere
Now money is a pretty nifty human invention and excellent as a medium for exchange. Very practical indeed. But as a store of value it is useless. Amassing a lot of money will get you nowhere.
The reason is pretty simple. The value of our money is the future strength of the underlying economy (or at least this is the case since we have abandoned the gold standard). This why the euro, usd is worth something and the Zimbabwe dollar or Venezuelan bolivar not. Those last two countries barely have an economy left with no future change expected. As a consequence the value of their currency has evaporated.
Having your currency backed by the whole of your economy is not a bad thing (it is a hell of a lot better than it being backed by gold) but the thing is that it is by default backed by your ENTIRE economy. All of the great companies in your country, but also all of the bad, money losing companies. And a huge amount of non-profit (either by design, or involuntary) entities. Which means that if amassing a lot of money is your goal you are going to remain squarely in the middle of the pack. I do not do packs very well.
What I like is to own shares in excellent international companies, preferably with a big moat so they will remain an excellent company for a long time and with pricing power. Pricing power means that inflation is something you do not need to worry about. And international so that even if the government of your country thinks that a Venezuela or Zimbabwe policy is something worth following, the company will be fine.
Simply put, if you were a Venezuelan who had little to no bolivar but instead had your wealth in shares of Coca-Cola, life would still be good (due to rampant crime you would probably have moved some years ago, but at least you would have had the means to do so).
Even simpler put: money is the equivalent of a photo of a beautiful woman. It’s the woman you should be chasing, not the photo. I mean, Draghi is printing 60 billion new photo’s every month. But he is creating 0 excellent companies … have a guess what is going to happen with the value of that excellent company?
That is why I am fully invested at all times. It is why I do not own any bonds and will never own any. It is also why I want to amass as much shares as possible. And it will be with great pain when I will need to extract some cash from them when I stop working. The two years of cash I will hold when pulling the plug is solely due to the volatility that is unavoidable when you have a system based on fiat money.
A little side note about the gold standard
A lot of people do not like money because it is fiat money backed by nothing tangible like gold. They think a return to the gold standard would solve most of our problems.
It would solve one problem: volatility (and even then, volatility also happened when the gold standard was in place, countries too can be stupid in the capital creation department). Because the value of your money is backed by the future strength of your economy as a whole and this future strength is uncertain you do get some volatility in the value of your money. Most of the time this volatility is pretty low (since it is the whole of the economy) but in times of crisis this volatility will experience a big uptick. It is then that the proponents of the gold standard (or goldbugs) make their appearance.
Unfortunately, it would create a lot of other problems (like a lower growth but also a lot lower progress and innovation of society as a whole). You see, it is a good thing that we have fiat money. It is a very good thing that there are institutions (mostly banks) that can create new money based on nothing more than a future repayment promise. Without this a wealthy elite would most definitely control the world and the return they would demand for investing in a smart idea or business opportunity would be a hell of a lot higher than the current interest rates. If they would want to invest at all …. Since they are already very rich, backing a young ambitious person is not a very attractive proposition (it just creates more competition for a limited amount of capital), the exception being off course if the young ambitious person is family (or willing to marry into the family). Though luck for all those smart people not born in the right family….
As a society you will advance a hell of a lot faster when there are several commercial entities capable of backing future aspirations of smart, young ambitious people by ‘creating’ the necessary capital. The downside is volatility and financial crisis now and then. The root cause of these is that to much money is created which does not create an equal or bigger value than the capital employed. For instance the dot com crisis. Here too much capital was poured into companies who failed to achieve the necessary cash flow to justify all of the capital they had consumed. Or the 2008 financial crisis, where the promise for future repayments on mortgage loans turned out to be a whole lot lower than anticipated. The 2008 financial crisis was big enough to have an impact on the whole economy, so it had an impact on the tax revenue of countries. Which then actually translated in a second crisis. A sovereign debt crisis: countries who had borrowed too much and whose future repayment capacity was not big enough to service all their debt. Greece, Spain, Portugal, Italy (France, Belgium) … The thing is, a crisis that is limited to the private sector is pretty easy to solve: you let a whole lot of companies go bankrupt. Investors loose the capital they so foolishly deployed and the world can continue turning. Applying the same recipe to countries as a whole is a lot more painful. So you lower interest, you prolong the duration of the loans and you start printing a whole lot of extra money to replace the money that is now tied up in non-performing loans to countries that will never be able to repay that debt. This way, you can pretend that the money is not actually lost. The net result of this is that everybody who holds that money (euro’s in this case) will, in some way, absorb some of the losses of those non-performing loans. No idea if a better solution exists, but it does make me want to have as little as possible money and as much as possible shares in excellent companies.