What is Lifestyle Investing?

luxury motor boat, rio yachts italian shipyard

by Vaibhav Puranik
June 14, 2021
Investments
(0)
03 Mins

Simply put, lifestyle investing is the kind of investing that will support the lifestyle you want. In most cases it means creating an investment portfolio that will keep generating enough income so that you can do whatever else you want.

The first question you may ask is how is it different from normal investing or planning for a retirement? It’s different because it doesn’t assume the normal retirement age and normal average retirement income. Instead the investments are tailored to your needs. If you want to retire and travel around the world, then you’re going to need more money vs you retiring at a countryside ranch.

People are retiring early

Interestingly in today’s world, more and more people are doing knowledge work. That’s considerably different from the 60s and the 70s when manufacturing jobs ruled the US. The main difference between knowledge work and factory work is the significant amount of mental strain involved in knowledge work. As a result, people might retire earlier than the prescribed age of 65. In case you haven’t heard, there exists a big movement called FIRE – Financial Independence, Retire Early. There are a bunch of experts on the internet who are advising people on how to retire early. Outside of FIRE, there are many cases, where only one of the spouses wants to retire and the other keeps working. In that case, your investing needs to be tailored to replacing only one income stream – at least in the short term.

Those of us who have attained significant expertise in one particular niche may keep working unchallenged, but in many cases, younger workers who adapt newer technologies are replacing older workers. They are much cheaper to hire. This is especially true in the technology field. Thus, you may be forced to retire as well!

People are living longer

People are also living much longer. Most of us who are in their 40s might actually make it to almost 100! Those who are interested in knowing how long they might live, can use this tool to estimate their life expectancy. Thus even if you retire at 60, you might have 40 years of life left after retirement! And that is why, usual retirement planning, might not be sufficient. You might need to really think about what you want to do in life and plan accordingly. Supporting yourself for 20 to 30 years without earning a W2 income and doing things that matter to you can be a difficult job.

Lifestyle Investing

In Lifestyle investing, cashflow has a significant place instead of pure appreciation. Passive income is weighed higher than other parameters. And this doesn’t always mean passive real estate investments which yield quarterly cash flows, it could mean debt investments that yield interest every month. It could be private lending or note investing. Building income even when you are asleep or on vacation is important. Risk tolerance is smaller in Lifestyle investing. The deals are structured to reduce the risk. Yes, it’s possible – one example of a low risk investment is using a non-recourse loan! It means even if the loan goes bad, the lender won’t come after your other assets! Using leverage is a good thing in Lifestyle investing. Using leverage you can actually reduce the risk and increase the return. The traditional wealth managers are out in such investing, because these wealth managers are only capable of advising you on stocks and bonds! Instead a new breed of CFPs are consulted with hourly charges instead of percentage of the assets managed.

It’s very important to understand that the days for a 60/40 portfolio – 60% of equities and 40 % of bonds – are numbered. This is not me saying it, but here are some credible articles about it –

Time to Rethink The Classic 60/40 Portfolio?

RIP 60-40 Portfolio

Why a 60/40 Portfolio is no longer good enough

A new thought is certainly required in designing the asset allocation these days.

If you want to learn more about lifestyle investing, you can read The Lifestyle Investor – The 10 commandments of cash flow investing for passive income and financial freedom.