Step 1 : Apply for a brokerage account
I did a lot of research on this topic and the best two are Interactive Brokers and Saxo. Interactive Brokers are based in USA, your funds are protected up to $500K. Saxo is based in Denmark and they protect your funds up to 100K Euros. I will refer Interactive Brokers as IB which has the lowest fees worldwide. IB also let you have a margin account if your account value is over $100K.
Step 2: Fund your brokerage account
Best way to deposit funds is through Wire Transfer from your bank. My bank charge me around $40 per transfer that is why I only transfer large amounts like consolidate a couple of months and then do a single transfer.
Step 3: Design a portfolio according to your risk factor
Which asset class would you invest is the toughest question? But do not worry I spent a lot of time doing research and experienced real return and loss from my choices. I will share my experience with you so fingers crossed you will be as successful as me. Check out this page for Fixed Income assets like Bonds.
Step 4: Calculate your net worth and figure out when you can reach FIRE (Financial Independence, Retire Early)
Visit this page Net Worth and you can download Mr Axe Finance Net Worth Calculator to track your net worth. You have to setup goals for yourself. You have to be honest with yourself when you fill in the sheet with values. Your net worth could also decrease based on your brokerage account returns. Always learn from your mistakes and have some strong emotions to control yourself. Let’s look at below with some sample calculations.
- How much income for month is desired to be financially independent?
Assume you want to reach $3K a month income.
- How much total investment is required to produce that income?
This is the complicated part as your calculation depends on your investment performance. FIRE people usually believe in 4% rule. There are many articles and books about this. This 4% is based on Index Funds annual return(7%) – inflation cost(3%). 4% is the amount of Safe Withdrawal from your account for you to live. In simple terms you just multiply your annual income target by 25. In our case $3K*12*25 = $900K initial investment is required to live happily ever with $3K per month.
I have different perspective on 4% rule as I am targeting 10% annual returns simply from my Fixed Income Bonds. I am also adding in to the mix Weekly Stocks Trading which has even more return annually. Weekly stocks trading is proven to beat the index performance according to backtesting of my strategy. You can read my post on this topic here. If you follow my path and achieve a return of 10% annually then calculation is as follows. Lose 3% for inflation, net spend is at 7% so $3K * 12 * 14 = $504K. Check out the comparison table below;
Net Worth Required
I cannot stress enough how important is your investment return. If you can sustain 10% return, you may retire with $504K instead of $900K. So it is worth focusing on this topic.
- How much emergency fund you need to spare or for unexpected expenses like health issues?
This answer varies a lot as we never know what can happen to us in the future. I strongly recommend setting aside a monthly payment for health insurance that would at least cover you for the most important thing which is your health. Add this amount to your desired monthly income. Get a quote if you are not sure how much it costs before you decide to retire.