Why Do We Invest? Index Investing To Reach Financial Independence

Why Do We Invest? Index Investing To Reach Financial Independence

Welcome to index investing with cole my name of course is cole welcome back everyone and i just did an interview with strongman personal finance and he asked me a question on there he asked me what is my channel about and it made me realize something it made me realize i’ve been talking a lot about index funds and the technicals behind them but i forgot the big

Question uh why do we invest because sure i can tell you to invest in index funds but but why do i invest in index funds well i invest in index funds because they give the highest return well why do i need high returns for my investments and that made me forget the whole reason i started investing and learning about investing and that is something that changed my

Life i think more than anything else has ever changed my life and hopefully changes your life just as much for those of you already pretty seasoned in investing we are gonna be talking mainly about the four percent rule so if you’ve already heard about it you know this will either be a refresher or you can go about your day if you’re not aware of the four percent

Rule then prepare to enter another world where you will see every dollar you get a little differently so just some backstory about why this was so life-changing to me is because i’ve only seen two people retire in my life those are my two grandparents and they got a job at 18 and they worked until they were 65 and then they retired and i just thought that’s what

Life was you you go to school you become an adult and you have to pick a job and then you work the job until 65 which is the the just the magic year you get to quit working and then you get to go about the rest of your life uh you don’t have to work anymore but then one day i was listening to a podcast from a guy called mr money mustache and he explained to me

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About the four percent rule so basically you can withdraw about four percent of your portfolio every single year and not run out of money and that’s because the returns from your stocks and bonds if you have any will return enough to where the portfolio keeps growing now there are some caveats to this which we’ll go into in future videos but just for now we’ll

Keep it very simple basically what that means is let’s say you live on 50 000 a year that’s how much you need to live a year if you have 25 times that which is 1.25 million with that 1.25 million dollar portfolio since it’s 25 times your annual expenses that means you can withdraw four percent of it 50 000 every single year and not run out of money so what does

This mean well as i was growing up you know i saw some people had jobs making forty thousand dollars a year some people had jobs making eighty thousand dollars a year some people have jobs making two hundred thousand dollars a year and i didn’t really concern myself with this because i’m a simple guy i don’t need a lot to be happy so i was like you know whether

I make forty thousand dollars whether i make a hundred thousand dollars it doesn’t matter uh you know i’m gonna be happy making either and that’s still true today whether i live on 40 000 or 100 000 a year um you know i’m fine with either i don’t need very expensive things to be happy this is where i got confused though i didn’t understand at the time that the

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Person making a hundred thousand dollars a year could just live on forty thousand dollars a year and then invest the other sixty thousand and then once they got to one to two million dollars saved up they can just retire i thought you had to wait until you were 65 because that’s what i’d seen all my life i’d seen people work until 65 i’d never seen someone say

Like hey i’ve saved so much money i’m just gonna retire whenever i want to and not only did i feel stupid but my life was changed because now i wasn’t on a set schedule anymore now i can make my own schedule as soon as i save up the amount of money i need 25 times my annual expenses i can quit whenever i want to and that is the why of why we invest it’s about

Reaching that level of financial freedom financial independence because let’s say one day you wake up and you don’t want to go to work anymore well if you don’t have any money saved up if you choose not to go to work you’re going to lose your house you’re going to lose your car you’re going to starve not a good solution so you have to keep going to work but if

You have that money saved up if you’re a consistent investor and saver then one day you could wake up and not want to go to work and you can just choose to do that because your investments make more money than you spend a year you are financially free you don’t rely on any other source of income but yourself you are self-sufficient and that freedom is very very

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Powerful and learning this sent me on i think it’s been five years now of just reading everything i can about investing it’s what led me to index funds because index funds are the best way to get to early retirement and financial freedom because it’s going to take me several decades to save up the amount of money i need probably 20 to 30 years and over 20 to

30 years nothing beats broad market index funds it’s simply the best bet to go so we will of course dive way more into the four percent rule and financial freedom but i’m glad strongman asked me that question about what my channel was about because it made me realize i got away from my roots i got away from why i got into investing i was just going over boring

Details about index funds and i forgot the biggest question why do we invest and that’s so we can be free and choose to do what we want day to day and not be reliant on somebody else forcing us to work because we need the money it’s about freedom so if you’d like to learn more about the four percent rule and how to reach financial independence make sure to hit

That subscribe button and uh i don’t know i don’t think i’ve ever actually said that hit the subscribe button thing before because i don’t usually do the do that stuff so now it threw off my whole ending so uh bye

Transcribed from video
Why Do We Invest? Index Investing To Reach Financial Independence By Investing With Cole