Have you ever read through profile descriptions on Seeking Alpha? A few of them state full time investor on their first line. I found this interesting since many aren’t contributors. I began to wonder what it takes to become a full time investor.
Becoming a full time investor requires enough income to cover all costs of your current lifestyle. This is often referred to as financial freedom. The variability of investing income makes it difficult to estimate income, therefore it is important to have cash savings.
There are many strategies and nuances to investing which can make it difficult to determine how much you will need to become a full time investor. Below I’ll discuss which strategies are best and how much you need to become a full time investor.
What Type of Investing Can Lead to A Full Time Income
Let’s get this out of the way early. Day trading is the worst possible way to become a full time investor. It relies on a large level of luck and many who do make it are tiny in comparison to the number who try.
Most, full time investors on Seeking Alpha are essentially retired individuals who have made their money through ways other than investing. They have built up a nest egg that allows them the freedom to invest long term.
If you are young the best way to invest is to work as you build up your savings. Small cap investing is probably the best way to begin as you will have less competition from massive institutions as you hone your craft.
A hybrid growth/value approach should be your main strategy, and should gradually move into dividend investing as you approach retirement.
Establish a Baseline Income and Aggressively Research
Once you have a 6-12 month emergency fund it’s best to establish a baseline income in order to ensure success. This can typically be determined by the average return of the market.
The market typically returns 8% over a long period of time. With investment assets of 100,000 at the beginning of the year you can expect to see a return of 8,000. This is definitely not enough to live on, even if you do have low expenses.
There are two things you can do here:
- Get better returns.
- Get more capital to invest.
This is why you will need to find alternative ways to make money until you possess enough capital to cover you expenses or at least supplement them.
While you are establishing capital to achieve greater returns you can focus on option 1: Getting better returns.
This can be done through research and analysis of small cap stocks. Finding opportunities the market is missing is the single best way to increase returns. This can only be achieved through experience and learning from other great investors.
One of my favorite investment books: Beating the Street. Written by Peter Lynch offers excellent insight into what works with investing.
Becoming a Full Time Investor
Unfortunately, there is no shortcut to becoming a full time investor. Many only achieve this in their twilight years since they have worked long enough to save a substantial amount of capital.
If you’re young, its important to hone your skills while also attaining extra capital doing something you love.
Greed and jealousy can often get in the way of many becoming full time investors in their younger years. There are a lot of gatekeepers, and those who have little patience to stick it out long term.
These individuals often crush the dreams of young hopeful investors. I’m here to tell you to not give up, it just takes time and patience. You can get there far earlier than you realize even before the age of 40 if you start young enough.
While many believe you need millions of dollars to retire and become a full time investor the reality is you won’t need nearly that much.
Utilizing Benjamin Grahams net net investing approach with profitable undervalued dividend stocks you can net 20% cumulative annual growth or CAGR. With $400,000 in investments that’s $80,000, plenty to retire on and work occasionally if you like.
Of course if you are just investing in an S&P 500 fund you will likely only make 8% which equates to $32,000. Far less than the previous example and likely not enough to live on.
Reduce Your Expenses with Geo Arbitrage
The great part about investing today is you don’t need to live somewhere like New York. The internet has made it simple to invest from anywhere on the planet.
The creates an opportunity to Geo Arbitrage your expenses. For example living in California it would be impossible to live off $32,000 and invest in the S&P 500. If you were to live somewhere much cheaper like Mexico, Thailand or Vietnam you could easily live off this amount.
But, if your dead set on living somewhere more expensive it will require more capital to achieve financial freedom and more dedication to stock research.
Adjust Your Temperament and Develop a Passion
In order to become a full time investor you will need to learn to deal with bear markets and stock market swings. Unfortunately, I have learned I can’t handle massive swings. Therefore I employ a strategy that utilizes dividends to smooth out the swings.
What I do have is a passion for stock research. I love analyzing stocks and reading about what every company on the planet does. It’s fascinating and should be for you as well. Even the boring companies interest me.
Recently I bought a company that does nothing but build steel hexagonal bolts. But, their growth trajectory and their process sounds so interesting I read through their financials and then invested.
When a Bear Market Hits
A bear market is likely not the best time to become a full time investor. This is because stocks are cheap and you want to plow as much money as you can get your hands on into the market. Doing this will set you up for becoming a full time investor in due time.
You can hone your skills and read through the many resources and books I’ve described on this website. In the end you can become one of the many full time investors, and the more of us there are the better off society will be as we increase global efficiency in both markets and individual companies.
Alternative Income Sources
Investing does not always mean investing in stocks. You can invest in many areas of your life to both enrich yourself and create value in the world.
Investing in an education that will result in a high paying job is the best investment a young individual can make. From there you can begin to focus on stock investing as you accumulate more money to make it worthwhile.
While investing in your education you can also utilize these methods for passive wealth accumulation:
- Real estate investing and house hacking.
- Website development and content creation.
- Business creation and automation.
All of the methods above require time and effort to get started, but once they start to snowball you can begin to automate your processes and create maximum efficiencies. This will create real world value and enrich both your life and the lives of others around you.
Everyone Can Become a Full Time Investor
In reality not everyone can be a full time investor. Individuals will be necessary to work specific jobs that can’t be automated.
However, it’s important to get as many people in the world to become full time investors as we possibly can. This will unlock massive potential for innovation that will advance society.
One real world example today is the cashier. Ultimately, this is an unnecessary job that can be automated freeing up many to be full time investors and contribute more to society through efficient capital allocation.
So let’s get rid of the investor vs worker stigma and help each other unlock our potential to increase our financial literacy and further society as a whole.