Embracing Change: My Journey from Finance to Investing

When I stepped away from my finance job in 2012, I was plagued by doubts. Sure, the pay was solid, and there was a kind of prestige that came with it. Yet, the exhaustion from the grind was wearing me down. So, I made a choice that seemed rational enough, given the brevity of life: I sought a better way to live.

Continuing in a draining job just to collect a paycheck felt, well, irrational, especially with the rising medical costs on the horizon. Still, it can be daunting to leave a paying job without a clear next step in mind.

So, I put together a backup plan.

I focused on creating what I called a financial buffer for my financial buffer. In simple terms, I imagined building enough defenses so that if my finances took a hit, it wouldn’t drag me down completely. The idea was that only if all these defenses failed would I have to don my wetsuit and face the reality of my situation.

Investment became one of the most critical buffers in my strategy.

If you have the basics, there’s plenty of room for growth. Well, not just the basics; realistically, you’d need a portfolio of around $100,000 or more to have some cushion for the long haul.

With AI encroaching on jobs, gatekeepers tightening their hold, and wealth increasingly consolidating, understanding how to invest is now crucial for survival.

Forget the old advice about learning to code. The mantra nowadays is clear: “Learn to invest.”

Why Investment Skills Are Essential Now More Than Ever

It’s well understood that artificial intelligence is set to reduce job numbers drastically.

Meanwhile, traditional pathways to advancement are narrowing. Credentials hold less weight than personal connections. As the wealthy pursue their interests, they’re not making efforts to share their wealth more broadly.

The diminishing value of labor only strengthens the role of capital.

You can either push back against this reality, complain about it, or, well, adapt. I’ve chosen the latter.

Becoming a capable investor is a means to reclaim some control amid widespread uncertainty. Investing stands as one of the few skills you can refine independently.

Setting Goals for Competent Investing

There are endless benchmarks investors can aim for, like outperforming the S&P 500 or retiring by 50. But there’s one crucial aim worth pursuing while you still have a job.

Aim to ensure your returns regularly match or exceed your annual living costs. Once you achieve that, plan on investing consistently to equal your work income.

If you can meet this target about 70% of the time before reaching financial independence, you’re likely a competent investor. You develop skill sets that allow for better choices, making job loss less daunting. You can take risks that are often unavailable to others, allowing for a more patient approach.

As you work toward financial independence, your goals will naturally shift.

The next objective might be generating enough income from your investments to cover your living expenses regularly, even if your passive income already does.

This might seem repetitive, but that’s intentional. My definition of financial independence—proposed back in 2009—is when your passive income meets your basic living costs. Any income above that is just added security.

Protect Your Future by Growing Your Assets

In retirement, the goal should be to continue building your capital to ensure that your safety margin expands rather than contracts over time.

Expenses can skyrocket due to inflation, children, and medical needs, so the more capital you have working for you, the better your chances of avoiding a return to work.

Having the aim to earn enough to cover your costs or match your peak earnings isn’t strictly necessary, but it is a meaningful pursuit in retirement.

Understanding the Stress of Investing

When your job ends, you’ll likely find new paths to work. Since I began investing in 1996 and spent a lot of time in equity departments at major banks, investing has become a significant part of my life.

After my son was born in 2017, I set a personal challenge to surpass my best return year in 2007. It’s a tough goal, but it keeps me motivated.

I faced setbacks in 2018 and 2022, but I succeeded in 2019, 2021, and 2023. A mixed track record, sure, but it adds an interesting challenge that sharpens my skills. Plus, it provides endless material for discussions.

Managing finances can feel like a full-time gig, and it can lead to emotional ups and downs.

As market conditions fluctuate, it’s easy to overly stress. Ideally, a competent investor should remain calm, almost monk-like, so that a rough market day barely registers with their family. I’m not quite there yet, but I’m working on it.

Yet, the benefits of investing are substantial.

If you’ve built a considerable amount of capital by retirement, you likely have more opportunities to earn. The greater your wealth, the less you must worry about losing it.

What gives me peace is knowing that, even in tough times, I stand a solid chance of recovering through my investments, a reassuring fact for any parent.

The Mark of a Competent Investor

Being competent in investing doesn’t necessarily mean being an expert. It means having enough skill to reliably manage your investments over time.

Successful investors don’t need home runs; they simply need to avoid pitfalls that can deplete their assets.

Key traits of a competent investor include:

1) Understanding Risk Before Pursuing Returns

A savvy investor knows their risk tolerance and how much they can afford to lose without panicking. They adjust their investments based on this knowledge, especially as their portfolios grow. Poor risk management is a common misstep among DIY investors.

Good investors avoid making reckless moves with their money; significant losses can waste precious time.

2) Having a Repeatable Framework

Investors should avoid basing their decisions on trends or social media noise. They need a systematic approach for evaluating opportunities and managing their investments.

A competent investor is familiar with historical returns and understands market cycles, allowing for informed adjustments.

3) Methodical Diversification

Good investors diversify across various asset classes, income sources, and time frames. Still, they recognize that diversification is a tool, not a one-size-fits-all solution.

4) Behavior Control

They remain disciplined, avoiding impulsive sells or frantic buying. Emotional errors tend to be more costly than analytical ones.

5) Honest Performance Evaluation

Competent investors track their success against relevant benchmarks, accounting for all fees and taxes. They resist self-deceit to maintain a positive outlook.

6) Continuous Learning

Markets change. Technologies evolve. Similarly, so must investors. Competent investing is an ongoing skill, not a finite goal.

Writing and researching investments isn’t just a pastime; it’s a necessity to deepen my understanding of market dynamics.

Outsourcing for Those Not Interested in Investing

Not everyone wants to dedicate years to mastering market intricacies. That’s perfectly fine; there are plenty of other worthwhile pursuits.

However, doing nothing and hoping for the best is risky. Years down the line, you might find yourself scratching your head about where your money went. Small shifts in returns can have substantial impacts over time.

If you’re too busy, disinterested, or just not keen on investing, consider outsourcing your financial management. Just like you wouldn’t perform surgery on yourself, you shouldn’t half-heartedly manage something as serious as your financial well-being.

The key lies in intentional delegation.

You need to find professionals who possess the systems and experience to guide you steadily—not those just trying to sell you trendy products.

Outsourcing doesn’t erase your responsibility. It’s about recognizing your limitations and choosing the best path forward. Just as I hire someone to clean my gutters, it’s wise to let experts manage your investments.

Investment as a Defensive and Offensive Strategy

With dwindling job security, investing is no longer just about building wealth; it also serves as a safeguard.

Ultimately, it can help reduce your reliance on any single employer or industry. It gives you breathing room when life gets tough.

It doesn’t need to be groundbreaking.

But you do need competence.

In an increasingly uncertain world, understanding how to make your money work for you may become one of the most vital skills you can acquire.

What are your thoughts on the role of competent investing in achieving financial independence? Do you believe it’s a skill most can learn, or should it be delegated? Do you think our children will need investing skills more than we did?