1. Open an Online Trading Account
Opening up an online trading account is generally free, and you could begin trading with the money you spend on your morning Starbucks and breakfast sandwich! In fact, many of the larger online trading platforms have 0 trade minimums, $0 in platform fees and offer stock trades for less than $5. “But how do I know what to invest in?”, you ask. Most of the online trading platforms also provide research and data on just about every conceivable aspect of the various stock offerings. In addition, the Internet provides an enormous wealth of knowledge at your fingertips. The bottom line…you don’t need to be an expert, you don’t need to spend hours and hours doing research and you don’t need to spend an arm and a leg to invest in the stock market. The barriers to entry have never been lower and the accessibility to everyone has never been higher.
You could begin trading with the money you spend on your morning Starbucks and breakfast sandwich!
2. Invest Early and Often
Basically, the earlier you start in life investing in the stock market the better chance you have of seeing large, long-term gains. Make it a habit to pull money out of each paycheck to invest. This is not day trading. You are investing for the long haul. Take a look at Boeing Co. stock in the image below. This is not a high-flying tech stock full of speculative value. They make airplanes. In 1998 there stock was trading in the mid $40’s and 20 years later its trading near $350!
In 1998 there stock was trading in the mid $40’s and 20 years later its trading near $350!
Boeing Co. (BA)
graph courtesy of Google.com
Be the millipede! What does that mean? When a human loses an arm or a leg it’s a big deal. When a millipede loses a leg, they might not even notice. This same ideology applies to an incredibly important stock market concept called diversification. Diversification is simply the concept that spreading your investments around in multiple stocks and varying market sectors can alleviate a great deal of risk. If one market sector suffers you don’t have all your eggs in one basket and your other investments will help to balance out the rest of your portfolio. Unlike singular large investments in real estate, the stock market allows you to diversify easily without a great deal of capital.
Diversification is simply the concept that spreading your investments around in multiple stocks and varying market sectors can alleviate a great deal of risk.
4. Invest in Companies with the Most Cash
OK, now it’s time to invest some of your hard-earned money. There are literally 1000s of companies you can invest your money in and there is endless speculation on which stocks are going to rocket upwards and which stocks are going to plummet in the short term. Let’s not speculate. We are not day trading here. In addition, this is your retirement we are talking about, so we are going to play the safe and smart bet. Invest in companies with a ton of cash on hand. There are many reasons to do this but we are going to focus on 2 reasons in particular:
- A ton of cash means that the company can weather the storm. Generally, these companies are fundamentally sound, and they are trading on reasonable multiples based on their cash stockpile and not speculation on where they will be in the future.
- Cash rich companies can buy the dip. Translation: companies, especially cash rich ones, will buy their stock back when the price dips. This helps to prop up the value of the stock even if they have a bad quarter or less than optimal short-term earnings outlook.
Companies, especially cash rich ones, will buy their stock back when the price dips.
According to Marketwatch.com, the 5 most cash rich companies are as follows:
Top 5 Most Cash Rich Companies
|Apple Inc. (AAPL)||$230 billion|
|Microsoft Corp. (MSFT)||$113 billion|
|Cisco Systems Inc. (CSCO)||$62 billion|
|Oracle Corp. (ORCL)||$52 billion|
|Alphabet Inc. ( GOOGL)||$49 billion|
Aside from Cisco and Oracle, all of the stocks above have had consistent long-term growth over the past 15-20 years. Which brings me to my next important subpoint:
Don’t Buy the Boom
How can you tell if you are buying the boom you ask? If the stock price over the course of 6 months looks like a vertical wall. Let’s use Oracle and Cisco as examples of this.
Cisco Systems Inc.
graph courtesy of Google.com
graph courtesy of Google.com
The good news is that these stocks and their continued success in the marketplace are no longer speculative. Back in the early 2000’s they had a good amount of cash on hand but nowhere near what they have today.
5. Own Real Estate Without Owning Real Estate Using ETFs
The stock market and real estate are the two biggest wealth creators in history. Did you know that a $100 investment over the history of the stock market would be worth over $700,000 today! Now you can use the stock market to invest in real estate! REIT (Real Estate Investment Fund) ETFs allow you to invest in several real estate investment companies at once. This gives you the diversification you want and allows you to get into the real estate game with a nominal investment. The upside is you don’t need to be a landlord and you don’t need $100,000s of dollars to get in the game. In addition, it’s totally liquid. You don’t physically take possession of anything. The downside is a slightly smaller yield due to the operating costs of running the fund.
The stock market and real estate are the two biggest wealth creators in history.
The 5 Best Real Estate REIT ETFs of 2018 according to Investopedia.com are as follows:
The 5 Best Real Estate REIT ETFs of 2018
|REIT Name||Net Assets||Yield|
|Vanguard Real Estate ETF (VNQ)||$59.62 billion||3.59%|
|Schwab U.S. REIT ETF (SCHH)||$4.48 billion||2.73%|
|iShares U.S. Real Estate ETF (IYR)||$3.38 billion||3.70%|
|iShares Cohen & Steers REIT ETF (ICF)||$2.56 billion||3.18%|
|SPDR Dow Jones REIT ETF (RWR)||$2.56 billion||3.00%|
So How Much Will I Make?
The answer to “how much will I make”, make really depends on how much you invest and how you invest it. Let’s assume for the following examples that you only invest in the stocks and ETFs discussed here and you reinvest the dividends from the REIT ETFs. In addition we will use past performance as an indication of future results (Although there is no guarantee).
Investment Earnings Over 5, 10 & 20 Years
|Monthly Investment||Stock/REIT Split||5 Years||10 Years||20 Years|
Assuming consistent monthly investments, an average monthly stock market yield 1.5% (Based on past 5-year performance of GOOG, AAPL, CSCO, ORCL, MSFT) and a monthly yield of .29% of ETF REITs (VNQ, SCHH, IYR, ICF, RWR)
As you can see by the chart above, time invested a HUGE factor here. If you get in early and invest a decent chunk of your salary, you have the highest odds of being able to shed that 9-5 job and sip mai tai’s on the beach. Just remember, you can always pull your investments and go to all cash if you get nervous. You can buy in again at any time. In addition, do research and find new the heavy hitters out there. Our example above is all tech stocks. This is not an ideal portfolio. Make sure you diversify into other market sectors and keep up to date on government regulations that could have a ripple effect on your portfolio. One such regulation coming down the pipe as I write this article deals with Rule 10b-18 which regulates a company repurchase of its common stock. But that is another story I will cover soon! Reference: https://www.marketwatch.com/story/these-are-the-5-us-companies-with-the-biggest-overseas-cash-piles-2017-04-26 https://www.investopedia.com/articles/etfs/top-real-estate-etfs/