The Machinist at the Freedom Machine likes a lot to talk about money. Why is that?
Does he like to buy a lot of stuff for his family or himself? Does he have a fancy car collection or many other toys? Non of that. If you are able to look past consumption and spending, then money can be one of your biggest levers that decide how much personal freedom you can enjoy.
For example if you would have a reliable and guaranteed passive income stream that would cover all your living expenses, you could spend your remaining days on this planet exactly like you want. You could live where you want and how you want. If you would not have to earn any additional money by being employed or working for your business you would not have to care about high property prices, taxes, traffic jams or other annoyances. The advantage of money is thus less material. The real advantage is that you can buy your own life back! It’s the ultimate freedom tool in our modern world!
“Big words, Machinist”, you might say. “But how can I achieve this? How to generate such a guaranteed income stream?” Money by itself does not provide any cash flow. More than that its value get diminished over time through inflation. Gold and other precious metals also don’t provide any cash flow and were historically only providing some kind of inflation protection. Cash in checking or saving accounts doesn’t offer any significant interest yield and also interest rates of government bonds is currently near historical lows.
The answer to the question “how” is quite simple. It has been the same answer during the last 200 years. Its the asset class that has provided the highest return combined with the highest amount of security in the long term. This asset class has survived wars, revolutions and even hyperinflation. In the meantime it has been declared dead many times but nevertheless produced an average yield of ~ 8.5% per year for the last two centuries before inflation and about 6.5%/year after inflation. As a result invested money was doubled every eleven years.
“What asset class should this be? And why does not every normal thinking person have the bulk of his wealth in this asset class?” The answer is ignorance and fear! This asset class offers all of these advantages, but it has a trait which makes many people shunning away from it. Volatility! In the short and medium term the value of this asset class fluctuates.
We are speaking about stocks!