Creating a life of financial independence is highly achievable but requires starting early, lots of hard work, a sound investment program, planning, saving, and persistence. That’s the primary message of this book. If you stay the course, you can create a very comfortable life. But on this path to achieving financial security, you face competition in both labor and financial markets that makes the journey more challenging.
In the labor market, as we have learned, we can increase our return through education, selecting the right types of jobs, and extending our working lives. Still, our income is significantly influenced by competition. Today, only 15 percent of U.S. households make more than $100,000. So probabilities suggest that the path to significant wealth is not through traditional employment alone.
Over the long run, the capital markets are also efficient and competitive, so even with a sound investment strategy, we should not plan for long-term net real portfolio returns in excess of 5 percent. Essentially, both labor and financial assets are commodities whose return is driven by demand and supply. That’s why it’s difficult to achieve higher returns than the market averages over the long run.
Now I’m going to share with you a way to cheat the system—by avoiding the commodity trap in both labor and capital markets. This is accomplished by combining your labor and your capital to become an entrepreneur ...