How to Live Long-Term Off a Nest Egg

DRIGGS, IDAHO – Three years ago, I lost my income. I had a young family to look after. And I had a nest egg.

Somehow, I needed to figure out how to use my nest egg to take care of Kate and the kids… on a sustainable, long-term basis.

Let’s call this problem: “how to live long term off a nest-egg.”

I’ve heard from many readers who have this same problem… (More below.)

Our Teton Mountains Hideout

Greetings from our mountain hideout…

My family and I are a traveling family. Three years ago, we sold it all and hit the road with nothing but a suitcase and our three young kids in tow.

Using Airbnb, hotels, and campgrounds for our accommodation… and YouTube videos to educate our children… we’ve been to more than 30 countries since then, including India, China, Rwanda, and Nicaragua.

We’re currently in Idaho, in the Teton mountains, living in an Airbnb in a tiny town called Driggs. In the mornings, we homeschool our kids. In the afternoons, we drive up the mountain and go skiing.

We’ll spend the rest of the winter here and then… who knows?

(We had planned to return to London this year and take care of my mother, who was fighting Parkinson’s Disease. Sadly, she died unexpectedly on Christmas Eve.)

This is the view from our back porch of our mountain cabin…

We’re hoping to live like this long-term and support ourselves by using investments. Which brings us back to the problem I mentioned above…

How to Live Long-Term Off a Nest Egg

In times past, this wasn’t a serious problem.

You could have made 5% by simply depositing your cash in the bank…

You could have made a higher yield investing in utilities or AT&T…

Or you could have bought stocks and bonds for the long run in a 60-40 portfolio, compounded at over 10% a year.

That’s how retirees, insurance companies, and pension funds have managed for years.

But today? This won’t work…

We’re facing years of inflation, recessions, and deeply negative real interest rates. Stock market valuations are near the highest in history, implying negative long-term returns from the major stock indexes.

These are all huge problems for a “let’s live off our savings” mindset.

What’s the solution? This is the problem I’ve dedicated myself to solving for the last three years…

Step 1: Live Cheap and Lock In Purchasing Power

The first thing my family and I did was to learn how to live cheap, by visiting cheap countries and living out of a suitcase.

Next, as regular readers know, we locked in the purchasing power of our savings long-term by buying gold, silver, and mining stocks.

That’s all our purchase of gold and silver was – a way to maintain our purchasing power in terms of paper currencies… especially the U.S. dollar, but also in terms of emerging market currencies like the Thai baht, Indian rupee, and Mexican peso, etc.

Someday, when stocks get cheap again, we’ll dump the gold and silver and buy blue-chip stocks…

We’ll preserve our purchasing power with dividend-paying, world-dominating stocks like Coca-Cola or McDonald’s instead. (I call these types of stocks “corporate aristocrats.”)

Hence my interest in the Dow-to-Gold ratio and the magic number of 5… It’s how we’ll time our move out of gold and silver and back into stocks.

I still love this idea and I’ll continue to use it with 85% of our savings.

Step 2: Buy Tangible Assets That “Sweat”

Finally, we bought some carefully selected equities…

As a long-time income analyst and accountant, I’m always looking for situations where I can own high-quality, cash-generating assets, on the cheap, with defined payback periods…

My friend Chris Mayer coined the term for these types of investments. “Tangible assets that sweat,” he called them.

I’d add “cheap” to that because I don’t want to buy any overpriced stocks right now (and there are many).

A pipeline or toll road is probably the holy grail example of this sort of investment. Once the pipeline has been laid, there’s nothing to do except collect tolls.

It’s like a perpetual bond.

At the right price, pipelines are the perfect steady high-yield investment. They generate earnings for its owner… and they have inflation protection because they’re real assets moving real products. (This is exactly what we mean by “tangible assets that sweat.”)

We haven’t bought any pipelines or toll roads recently because I haven’t been able to find any good deals. I’m being patient.

In the meantime, my favorite tangible assets that sweat are cargo ships. (You could say ships are like floating pipelines. And they’re very cheap right now.)

I like all types of ships – from dry bulkers, to tankers, to container liners.

Anyway, we’ve carved out about 15% of our portfolio for a handful of these shipping equities. (I’ve outlined the shipping thesis at length here and here.)

My hope is, by combining gold and silver with some carefully selected operating businesses like shipping companies, we can make higher returns with less volatility through diversification.

We’ll see…

– Tom Dyson

P.S. Especially now, I want to own investments that won’t keep me awake at night. And I want to help you also have financial peace of mind this year. That’s why I created an entire model portfolio for my Tom’s Portfolio subscribers… based on the same strategy I’m following with $1 million of my own money. To learn more, watch this.

Like what you’re reading? Send your thoughts to [email protected].

Readers offer Tom their condolences after he shared his eulogy for his mother…

Reader comment: So sorry to hear about the loss of your mum. Your eulogy was a beautiful tribute to a wonderful lady. I haven’t read your posts lately because I have been overloaded with taking care of my aged parents and too many subscriptions to read. Take care. Wishing blessings for you and your family.

Reader comment: I am so sorry for the loss of your mother. She was a very beautiful lady. I’m glad you shared her picture, that showed her love of anything pink, even in her apartment. She leaves a long-lasting legacy that you and your family can be proud of. May God give you comfort and peace in the months ahead.

Reader comment: Well-spoken, Tom. I sense that this bold, brave, charming woman was looking down and saying, “That is my Tom. Those are my boys.” She is with you always. Peace to you.

As always, please keep sending Tom your questions and comments to [email protected], and he’ll answer as many as he can in a future Friday mailbag edition.