“Well, I spent six or seven years after high school trying to work myself up. Shipping clerk, salesman, business of one kind or another. And it’s a measly manner of existence. To get on that subway on the hot mornings in summer. To devote your whole life to keeping stock, or making phone calls, or selling or buying. To suffer fifty weeks of the year for the sake of a two-week vacation, when all you really desire is to be outdoors, with your shirt off. And always to have to get ahead of the next fella. And still — that’s how you build a future.” –Arthur Miller, Death Of A Salesman
Of the few predictions that I believe have a high chance of coming true over the coming 20-30 years, the one I tend to latch onto is Peter Drucker’s theory of an hour-glass America in which technological advances will displace a lot of the $40,000-$90,000 per year jobs that could be accurately described as “middlemen.” If a particular job can be outsourced or done by a machine, a time will come when it probably will.
The good news, though, is that there is a defense to all of this. We can look around us and make common-sense judgments about employment opportunities that we anticipate will be around in 2020 or 2030. And if you find yourself deep into an occupation that you believe will eventually be outsourced, the best thing to do is remember Abraham Lincoln’s advice that “the best thing about the future is that it only happens one day at a time.”
If you find yourself in the situation of working in an industry that you believe will be outsourced to another country or a machine, then the best way to mitigate the problem is to increase your savings rate and start acquiring ownership interests in excellent businesses. Without much effort, you should be able to convert every $1,000 in savings into $30 annually that will grow at 7%. And if you are reinvesting, you ought to be able to get that growth rate up to 9-10%.
It doesn’t even have to be dividend stocks—you could acquire a rental property, a car wash, or storage units. The point is, if you have a good reason to believe that your employment will face an inevitable expiration date, your #1 priority on the economic side of your life should involve trying to become an owner rather than just an employee.
People get discouraged from going down this path in their own lives because they are accustomed to thinking in all or nothing terms—they think, “I make $50,000. How the heck can I save up $1.25 million to replace that income?” Instead, you can accomplish a world of good just by getting in the habit of generating some passive income that is automatically growing. If you had been setting aside $700 in Chevron stock each month for the past 8 years, you’d now be sitting on about $115,000 that could be easily translated into $5,5750 in annual income if you suddenly found yourself needing to live off of it and switched to 5% yielding securities.
You know what that $479 per month in income just created for you? An anti-homeless fund. For $439 per month, you just got yourself this nice little place to live in Chesterfield, MO:
The next $700 per month that you save over the coming 5-10 years will be enough to cover your food costs. And then your clothes costs. And then your health insurance costs. And then your car costs. Each additional dollar you generate in passive income goes towards guaranteeing an aspect of your life—shelter, food, clothes, etc.
A portfolio worth $200,000 or $300,000 means something; it gives you food and shelter security, something that 99.9% of the global population will never know—they must always show up at work to maintain those things. It’s not just about numbers; it has a beneficial psychological effect on your life as well. When you have $8,000-$12,000 generated per year automatically just for existing, you start to come more alive when you see $1,000 deposited into your account just for staying alive another thirty days.
And as Benjamin Franklin often pointed out, money is a prolific thing that begets itself. For the first $100,000-$200,000 of savings, it is a grind. You have to come up with most of it yourself by living below your means and putting that excess cash from your labor into cash-generating assets. But then, money takes on a life of itself after that. The $300,000 portfolio in dividend stocks yielding $12,000 will grow into somewhere around $12,840 by 2015 if you live off of it and do absolutely nothing else, and it will grow into somewhere around $13,200 if you are automatically reinvesting your dividends. Who cares if you don’t have the perfect $1.25 million or whatever it is that is necessary for you to fully retire—a lot of good can come to your lifestyle just by reaching a point where the growth in dividends automatically adds $1,000 to your yearly income.