When it comes to making money, I have made some mistakes. Unfortunately I didn’t have anyone to teach me so, over many years, I’d followed the motto, “If at first you don’t succeed, try, try again.” I’ve learned a lot.
For those of you interested, I hope to save you some of my pain, and accelerate the process, so you can earn enough money to buy your freedom and focus on those things which really matter in life. If you’re a subscriber to my site, than you understand that happiness, after a point, is not going to be achieved by money alone.
When I first started to learn about investing, it became clear that most people where generating wealth in a limited number of ways, and by using a limited number of techniques. Real estate, business and the stock market seemed to be the key avenues to wealth and techniques like leverage could amplify your efforts. Unfortunately this was like knowing that an airplane was a great way to get from point A to point B. If you just handed me the key to the airplane and sent me off, I was pretty much guaranteed to crash and burn.
(Question: How do you know when there’s a pilot in the room? Answer: They’ll tell you.)
Just like investing, I learned that flying a plane wasn’t actually that hard. If you had a good teacher (Thanks Koide), and put in a little time and effort, most of us can easily become pilots. I found it was the same with investing.
Making money is not hard and need not be particularly risky. Trying to get rich quick is hard and risky, and you probably won’t stay rich long. There are a few lessons you need to learn to accumulate and retain your wealth.
OK, here’s how I invest in the stock market.
First I set up a self-directed investment account. This way you easily buy and sell stocks online by yourself without a stockbroker. I’m in the Great White North (Canada) so this may vary somewhat in your location, but here it’s dead easy. I went online to my favorite financial institution, followed the instructions to download a form, filled it out, sent it in, and soon had an account. Any questions I had, I just asked my financial institution. They wanted my business, and were very supportive and helpful.
Next I started putting in regular contributions. This can be done manually, but generally the banks have simple systems to set up regular transfers from a bank account to an investment account. I would just like to note here that initially I don’t care about how much the contributions are. It’s more about building a habit at this point. I increased contributions as I was able.
You will notice something important at a certain point. You will begin to believe. You will see that you can do this. When that happens you will find you want to put money into your investment account more than you want that shiny new bauble, and you will save more and shop less, and be much happier because you did.
Once I had accumulated a bit of cash, I had to figure out which stock to buy. This was pretty scary in the beginning and didn’t go well. If you’ve seen The Wolf of Wall Street you’ll get the picture.
It’s really important to understand that, like losing weight and getting healthy, the faster you try to do it, the less likely you are to succeed. Time is the secret weapon here.
(Note: A stock or a “share” is just part ownership in a company. Generally you don’t get to help run the company, but if they make a profit or take a loss, you share in it. You are a shareholder.)
Now that I’ve tried and failed enough, here’s how I choose a stock.
I look for a company that has been around a long, long, long time. The odds of them of them going under and losing all my money are slim.
Next, I want a dividend. A dividend is not a complicated thing. Not all companies pay out dividends.
Here’s my explanation of a dividend. When a company makes a profit, they have a couple of choices about what to do with it. First, they can put it back into the company and use it to grow the company. This can be good, as it can make the company worth more and then you can make a “capital gain”. ( I’ll define that shortly but it’s simple.) Otherwise they can give the profit to the shareholders. Usually they do a little of both.
They’ll distribute a fixed amount of money for each share you hold. So typically about every few months you’ll see extra money appear in your account. They’ve distributed the dividends! I love it when I get dividends. It’s just like Christmas.
Three things I want to know about my dividends.
- What is the “yield”? (Don’t freak out. Yield is just another fancy word they use so that people in the financial industry can feel important. It’s not complicated and I’ll explain it in shortly.)
- How long has the company been paying out a dividend continuously? I want to know that this company has a history of paying out dividends for a long, long, long time. In other words they likely will continue to do so for a long, long, long time.
- Have they regularly increased the dividend? Again, this is simple stuff. If they’ve regularly increased it for a long, long time, then they likely will continue to do so.
All this information is free and easily available online.
I’m going to let you absorb this and then invite you to read Part 2 of this post. Maybe reread this and then go online and search “stock quote”. See if you can find some companies you think might be good candidates and see if you can find out what they pay out in the form of dividends.
See you in Part 2 and don’t forget to share or tweet this post.
It should go without saying that you are responsible for your life in all dimensions. Take what I have written here only as my non-professional opinion. You must decide what is right for you and seek professional assistance as you feel necessary. Thanks and all the best!