You don’t have to ‘invest emotion’. Here are the necessary steps for retiring early:

1. Put all your money in Vanguard Money Market
2. Read a good book on indexing or go to diehards.org
3. A basic allocation follows global market caps: Nowadays, that is about 60/40 stock/bonds and for the equity part, about 50/25/15/10 US/Europe/Pacific/Emerging markets. Ask on diehards.org for the links with this info.
4. Make sure you own everything; A lot of index funds only hold companies worth more than 2 Billion USD (mid and large cap), so you might want to add small cap (250M- 2Bn) and even microcap (50M-250M).
5. Understand that any deviation from these global market caps are ’tilting’. E.g. if you are an active investor that buys Google for whatever reason, he is tilting towards large cap, US, and equity.
Good reasons to tilt are:
a. Age: I am 22, I have 100% stocks. Popular rules for the bond percentage are 100-age, 110-age, 120-age.
b. Political/Economic beliefs/insights: I am a libertarian and can’t stand the idea of owning bonds in a currency of which the central banks can print more of as they see fit. Even ‘inflation protected bonds’ won’t do, because the pricing is essentially the same as for nominal bonds, so the same risks apply, irregardless of the fancy name.
c. Financial theory: read about Fama and French. Historically, both small cap and value strategies had better results, but higher volatility.
6. Go to Vanguard and set up the funds of your choice. Or go to Zecco an buy the corresponding ETF’s.
7. Pay yourself first. Make AUTOMATIC payments every month into your brokerage account the day your paycheck arrives. You won’t miss the money you don’t see. Invest every month, also during depression and booms, because all your fears, and so many more, are already priced into the market. Also, your fixed amount of dollars buys more shares in a downmarket than in an upmarket, so you will end up with an average purchase price BELOW the average share price for any given time period.
8. STICK TO YOUR PLAN. I don’t care if web 2.0 will put Exxon out of business, or whether aliens are spotted on the moon. Stocks survived world wars, revolutions, depressions and so much more just fine. If somebody asks you what you think about the current state of the market, answer ‘I don’t know and I don’t care’. If they ask why, give them this list.
9. When you have at least 25 times your pre-tax spending needs in retirements in your brokerage account, you can consider retiring. This is called the 4% rule, where you spend 4% the first year, then that same figure plus 3% on top of it to cover inflation (so 4,12% of starting portfolio), each year plus 3% for inflation, … You will have a 5% chance of running out of money within 30 years. For added security, consider a 3% withdrawal. I plan to go for ‘dividends only’, i.e. about 2,2% in todays global market.
10. ENJOY LIFE!

Investors, on the other hand, purchase stocks because you’re buying a piece of the business. Not only do many business immediately distribute their profits to shareholders in the form of dividends, the price of the stock rises because the business is making more money and has the potential to produce even greater dividends (or other income) in the future.

Now you are diversified into many separate apartments in that buidling and you won’t lose your shirt because of mismanagement, tenants who are liars, cheats, governments raising land taxes, or mortgage manipulations …

… just playing Devil’s Advocate

I admit that I invest a large percentage of my income in the market because I believe that society as a whole will keep the price going up because they think “well, it just does because the news tells me it normally does”. I figure I had might as well take money from these people and use it when I retire since the ones paying more the the stock then will be the ones still working.

I just wish I would read an article once that states the real reason the stock market goes up. So what if a company’s earnings go up? The stockholder isn’t going to get a cut. You might get a small dividend, but it probably isn’t going to pay you back what you originally paid for the stock. I know there could be exceptions to this, but that is only true if someone else is willing to buy your stocks from you after the dividends have equaled what you paid for them. If no one would pay you anything for the stock, its value is 0.

That was just a rant and might even be somewhat illogical, but I ask that anyone that disagrees with me to please post their reasons on why any/all of my points are wrong. This isn’t a challenge, just a request since I am not a broker or anyone else that works in the finance field. I am just another investor like the majority. Yet, I am one that doesn’t see how the stock market would work if people didn’t have the belief that it goes up “just cause it does”.

I have already taken my money from the stock market and invested them with Prince Entebbe from Nigeria who has promised me 75% returns per annum.

I am going to laugh all the way to the Banks soon.

Galls,
I’ll invest in can openers then.

saladdin

Historical returns aren’t meaningless, as virtually every PF blogger has proven by their net worth statments.

Let me make this clear, I am not writting this because an argument against the stock market can’t be made, but because you make no argument against the stock market. This post is less Devil’s Advocate, and more, crazy angry guy on the corner waving a sign that says, “The world ends tonight.”

I will agree with you on the 401k. The fees are way to high.

However, you’re absolutely wrong that the stock market is a zero-sum game. Yes, there are plenty of people who’ve lost money. However, the stock market as a whole gains value (or loses it, like recently…), neither of which are zero.

I admit the Roman Empire example gives me a little pause, but if the U.S. falls apart in the next fifty years I’ll have to reevaluate a lot more than my investment strategy.