Investing in America: Why so many don't do it and why they stay poor.
Any financial advisor will tell you: "Pay yourself first". But, what does that mean?
It means to "Invest in your own business."
What does that mean?
It means to take a portion of your income, no matter how small, and invest it in an account designed to pay you money for not doing anything, NOW!
Essentially everyone is in the same business. That business is called "Investor".
Until you get that fact through your thick little head you will be poor for the rest of your life.
We are forced to invest in the Social Security and Medicare programs. But that is done for us by our employer and the investment is organized by the government. That money is gone until you retire or die or the politicians get rid of it. But, you still have to keep up with it and you should. You can access your account online and track your numbers. So, that is basic.
We also pay Unemployment insurance which we have access to when employment is lost. This is a temporary program to help while you are looking for another job. It won't get you far.
But, the real "Business" you should be in is your "Investment Business". Now it isn't an LLC or Corporation but simply your own little game on the side. To get acquainted with the investment game I suggest going to the website "Investopedia.com" and opening a Portfolio Simulator account. In this account, you are given play money to invest in the Stock Market and track your investments as if you were actually doing it. You can use the Investopedia website to learn just about everything there is to know about the world of investing. The glossary is worth visiting the website for all by itself. Now, it only tracks stock prices, it doesn't show when dividends are paid, but you can see how much dividends are paid per share and calculated as percentage yield. IMPORTANT: Dividends are paid based on the number of shares you own, not the price or value of the stock. The percentage yield is based on the dividend amount divided by the current value of the stock price.
Example: AT & T: New York Stock Exchange: T
Today is July 1, 2024. Monday. The price per share at the time of this writing is $19.11. If you were to purchase $1000.00 of that stock right now you would be buying 52.328 Shares of T Stock. The dividend payout is shown to be $1.11 per share per year. This means that it would pay $58.08 per year, or $14.52 per quarter based on the number of shares you own. This gives you a 5.81% return on your investment. ($58.08 / $1000 = 0.0581 or 5.81%)
Here is your game: You don't cash out the $58.08 but have it automatically re-invest in the stock to give you more shares which, depending on the dividends the company pays, should make you more money, buy you more shares, just sitting on your butt! What does this also mean? You own a part of the company. A small part, but a part of it anyway. That means you have that entire corporation working FOR YOU!
Now, when the stock price goes down, your money buys you MORE SHARES! So, you are actually not upset when the stock price goes down because that means you are getting the stock "on sale", per se. When the stock price goes up your investment is worth more. So, it is sort of a win/win. Now, the company is giving you the money to invest in it. Now you are playing with house money.
However, this is why you should always watch what your stocks are doing, is when the price goes down you can buy more shares for less, making your investment larger and larger over time.
Story
When I was 10 years old or so, my father wanted to teach my brother and I about the stock market. My Mom was totally against this at the time and she made it difficult for us to be interested in it. They argued about money all of the time which is not a good way to deal with money. Anyway...
We went to the local broker, 1970 mind you, and my father bought my brother 1, yes that is ONE share, of Disney Stock at $105.00 per share. We had a real certificate! We got it and forgot about it. Every so often we would get the Disney statement telling us we earned $0.93 dividend or some ridiculously low number and it would be reinvested automatically. So, over time we were amused by this little experiment. We never bought more shares, we just let it reinvest. The stock went up, it went down, it split, it split again, and over time we had $2,000 or so dollars all from that original ONE SHARE of stock and did nothing to earn it. We just left it in there on autopilot.
Had we bought ONE SHARE a month over that same amount of time and stayed with the automatic reinvestment we would have been millionaires! Heck, in 2006 Disney was trading at around $20 per share! You do the math!
The thing I am trying to impress upon you is that in America anyone can get rich, no matter how little you earn...IF YOU PAY YOURSELF FIRST! That means before you buy a loaf of bread, buy shares of stock or put money in an interest-bearing account (Savings or Money Market).
What to do NOW?
Go to Investopedia.com and bookmark it so you don't have to type it in. Open a Simulator account and just get started. Start looking around the website and learn about everything financial. It is all there.
Second, go to a financial advisor, open an account, and talk about what you want to do. They are trained to help you make decisions and guide you, but it is always your decision. The financial statements from your financial planning firm also produces the 1099 Form for Tax purposes which makes accounting a LOT easier. The Statements are your score cards and remember, it isn't necessarily the prices that determine your success but the number of shares and dividend payouts.
In addition to stocks there are many other ways to invest. Mutual Funds, Municipal Bonds, Bond Funds, REITs, and so on. So, this is your business. Your financial statement is your business. You don't own ONE company, you will be owning hundreds before it is all said and done and your wealth should increase over time until you can start living off of your investments.
Why don't people do this?
FEAR!
Of course, Fear. My parents were born in the Great Depression. My Mom thought investing in the stock market was the next best thing to suicide...until she became a savant at it...then you couldn't stop her. People don't invest because they fear they will lose their money and that is a legitimate fear. But, you will NOT ever "Get Ahead" unless you do something that creates income for you without you doing something for it.
IGNORANCE
If you don't know something, let alone understand it, you are not going to buy it. It takes work and study to learn about investing, but like I said before you are in this business already anyway, and you may as well master it your way.
LAZINESS
People are too lazy to sit down and learn. The thing is, if you are lazy this is the business for you! The whole point of investing is to get paid to lie down on the couch, eat potato chips, and earn income.
What are you really doing here?
What is investing?
The reason why you can earn money by investing is because you are lending your money to an entity so they can finance their business or projects. You are like a bank in this way. You are doing a GOOD THING! It is what builds the society.
How does investing help build our society?
It begins with the topic of money and how it is created? Where does money come from?
Money is created by businesses creating a product for sale that earns them a profit. Let's say it costs $100 to build a wood table. The company sells it for $200. That is $100 profit. That is money being made. There are sales taxes, income taxes, property taxes, and many other taxes to be paid. Sales is what funds our entire quality of life. By lending companies money you are making it possible for them to create goods and services which contribute to our quality of life and benefit the common good. It is a highly moral thing to do and the best part of it is, you get to own part of those companies!
But even more than all of that, your money is paying for people's livelihoods. How many people are employed to make a seemingly simple ballpoint pen? You aren't paying for a pen, you are paying all of those people who made that pen possible, plus the taxes that creates the funds to build our infrastructure and organizations to order our lives into a civilization so that we all don't have to do everything for ourselves.
Bottom Line
So, if you like eating at McDonald's, buy McDonald's stock, earn dividends, and have McDonald's pay you to buy their hamburgers. If you love going to Disney, buy Disney stock. If you have an AT & T phone, but the stock too. Or invest in Mutual Funds that do all of this for you.
What is true wealth?
True wealth isn't how much money you have, or how many shares of stocks etc you have. It is based on how much useable income you earn from your investments each month to pay for the quality of life you want. If you have a million dollars, you aren't a millionaire. In order to be an actual millionaire you have to earn a million dollars a year off of your investment, or passive, income, which comes to about $83,333.00 dollars per month. At an average of 5% payout...that requires a "nest egg" of about $20,000,000 dollars or Twenty Million Dollars.
But, if you want to earn say $10,000 a month, that looks a bit different. at $120,000 per year with an average return of 5% requires $2,400,000 or two point 4 million dollars.
To many that sounds like a lot of money, and it is, but really, if you start investing early and consistently over time you can get there by the time you retire. Plus, because you aren't cooking the Goose that lays the Golden Eggs the wealth becomes generational and should gain ground with each generation.
Get Started Today
I am not a financial advisor, but I do know this: If you don't do this you have no chance at ever getting ahead in life. You may die before you get there, but what you leave behind will be valuable to those you bequeath it to.
I believe that this should be learned by everyone and that families should build their fortunes together, but separately, so that for generations to come wealth is passed down raising the standard of living for everyone.