The fastest way to get your first million

I like to keep my blog neat and simple. I like to write articles with text only, I seldom use pictures or videos. But every now and then I might encounter an interesting infographic that is worth sharing.

When it comes to the topic of money, the best place to find interesting graphics is in my humble opinion a website called Visual Capitalist. This is also the place where I encountered the following graphic:

infographic-time-to-first-million-dollarsNow the data for this graphic comes from a website that compares casinos. To be clear: I don’t endorse, recommend or promote anything that might be concerned with gambling in any way.

Having clarified that part, the data in this graphic is highly interesting. And kind of amazing. The vast majority of people who made it to the financial top gained their very first million in less than a decade from the moment of (really) trying. How did they do that? Mostly by setting up a business.

Having your own business

So evidently, the most effective way to gain financial independence is not real estate, stocks or gambling – but your own business.

This is actually not surprising. As we know, it takes money to make more money. When you start from zero, the fastest and only way to get some cash-flow started is to work for it. You might start with a regular job, but we all know that when you work for a company, even though you might get good benefits and salaries, the majority of the profits that result from your and from your teams’ actual work goes to your employer. Obviously, this is not the case when you got your own business. As you take on all related business responsibilities, you also reap the full benefits and cash-in the entire generated profits from your operation.

Shouldn’t we all strive for our own business then?

IF having your own business is granting the fastest way to riches, then this would be the right question to ask. And for many having their own business, being their own boss, it is something worth striving for.

Not to me. I invest in stocks for a simple reason. I don’t want to have to work at all. I want to reach FIRE. For me, escaping the rat race is all about reducing the amount of responsibility on my shoulders and to free up my time. When you have a business, you always take on additional responsibility and you always have to keep exchanging your time for money. I want to have the freedom to decide whether I work or not. As a business owner, you don’t really have that choice without accepting sacrifices on your income.

Furthermore, having your own business may be the fastest way to riches, but it’s probably also the hardest one. Of course, there are different types of business and you need to consider whether you just want to earn enough to get through the day, or whether you want to build wealth. Your workload might be mild if you have a small, self-sufficient thing going on. But if you strive for that million on your account, then you will have to work really, and I mean really hard, on a scale that will surpass the amount of stress and responsibility of most regular employees out there.

So it comes down to what you really want. There are many ways and opportunities to escape the rat race. But there are only a few ways that will truly align with your own expectations. For most people who become successful with their own business, the target is not FIRE. They want to work, just on their own terms. If that is your target, great. If not, then you got to find another way.

About monthly dividend stocks

It has been a while since I introduced the idea of receiving monthly dividends. To be more precise, the article was about receiving dividends every 2 weeks – with only 2 stocks in your portfolio. If you like to take a look, you will find the article HERE.

It’s easy to create a portfolio with dividend-paying stocks and if you buy the right ones, then it’s even easier to create a portfolio that will pay you monthly. Or even weekly. So where and how do you find these companies? Don’t despair, I got you covered.

Having a long-standing tradition of taking care of its shareholders, most of these stocks are either of US or Canadian origin. Some are just regular companies, some are REITs and some of them are BDCs. The two companies that I mentioned in the above-linked article are called Realty Income and Gladstone Investment Trust. One is a REIT, the other one being a BDC. But there are more. As of now and if I am not mistaken, 39 to be exact.

Out of those 39, I chose only 10. They have a solid market capitalization and sufficient data and forum discussions available online on them. The 10 companies are as follows. I sorted them alphabetically, without any specific evaluation in place:

  • AGNC Investment Corp.
  • Apple Hospitality REIT, Inc.
  • EPR Properties
  • Gladstone Capital Corp.
  • Gladstone Commercial Corp.
  • LTC Properties, Inc.
  • Main Street Capital Corp.
  • Prospect Capital Corp.
  • Shaw Communications, Inc.
  • STAG Industrial, Inc.

There you go, plenty of research for you right there to fill your weekend. Among all the monthly dividend paying stocks, one name stands out as a seemingly dedicated company to offer its shareholders as many monthly opportunities as possible. Gladstone. Gladstone Investment (GAIN), Gladstone Capital (GLAD), Gladstone Commercial (GOOD) and Gladstone Land (LAND) are four popular investments among monthly dividend seekers. Gladstone Land is not on my list above but you might want to do some research on it anyway. Gladstone Investment is also not mentioned here, but it pops up in my previous article and you can read more about it if you click on the above link.

Also just to mention, the Apple Hospitality REIT has absolutely nothing to do with the technology company that we all know as Apple. I have no idea whether there is any dispute on the name/branding, but both companies are not related whatsoever.

The benefits of monthly payments

You don’t need monthly-paying stocks to receive monthly dividends. You could also buy a bunch of other companies which pay dividends on an annual, semi-annual, or quarterly basis. If you purchase enough of different types of them, then you will surely also get to the point that you receive dividends each and every month.

But well, with monthly paying stocks it is just an easier way to get there. If well structured and wisely chosen, you might even get to a point that you receive weekly dividends. Isn’t that amazing?

Well, not everybody thinks so and there are plenty of debates and discussions on whether a monthly payment is indeed a benefit. At the end of the day, whether you receive a partial dividend every month or a lump sum once a year shouldn’t make any difference, right? Some argue even that the reduction in bank-fees alone would justify for a company to not make any monthly distributions.

For me, it’s more of a psychological thing. The immediate, and frequent satisfaction of seeing my investments paying off simply feels great. Watching my portfolio and dividends growing and seeing it first becoming a supplement to my regular salary, and later, as the dividend income keeps growing more, to see it developing into a full-fletched source of income for my future. It’s very rewarding.

We all have a living to make. We all have monthly bills to pay. Monthly dividends are a great way to get this under control. Especially if you aim for FIRE.

As Warren Buffett said, if you can’t figure out a way to earn money as you sleep, you will have to keep working until you die. Now I definitely don’t want that.

Recent article updates

On another note, I have recently updated two of my most read articles so far. Nothing is set in stone, and as I learn more I will keep updating some content every now and then. So if you like to read again why Nobody wants to get rich slowly or about The Rat Race, then please feel free to do so.

Disclosure

And finally, not to forget the obligatory disclosure. I have shares of Realty Income, Gladstone Capital, Gladstone Investment and Main Street Capital in my personal portfolio. Furthermore, I intend to have stocks of all the above-mentioned companies in my portfolio over the course of this year.

You should have a personal budget, right?

One of the most common recommendations for solid financial planning is to have a personal budget in place. It can help you immensely to allocate your resources where they are needed the most, to analyze your expenses and to stay on top of your finances at all times. So it’s not surprising to hear this advice frequently. Personally, I also follow a very strict personal budget which looks almost like my companies P&L statement.

However, just because something helps one person, doesn’t mean that it’s good for everyone. Some people might not have the time to work on a personal budget plan. Some might hate Excel (or Numbers for Mac users), and others might just feel annoyed about micro-managing their financial lives. If you are one of those people, don’t despair. A budget is helpful, but I wouldn’t say that you need it to succeed financially.

Hitting your savings/investment target

What you actually really (and only) need is not necessarily a budget, but simply to hit your savings and investment targets.

Following a budget is a great exercise to learn how to control your income and expenses, but you could also go for a simpler and less micro-managed way. You could simply fix a target of how much you want to see yourself having saved up or invested in a specific timeframe.

Let’s say you want to see yourself having 100.000 Euros invested over a course of 10 years. This means that you need to save and invest 10.000 Euros a year on average – no matter how.

This is where you can stop, or expand a little further, it’s up to you. As long as you can hit this self-imposed target and it helps you to get closer to your end-target, you will be doing just fine.

I like to break ambitious targets into smaller, more reachable goals. 10.000 Euros sounds like a lot, but divide it by 12 to set a monthly goal and you will be down to a little over 800 Euros. Break it even further down by days and you will come down to just a little more than 27 Euros a day.

Now HOW you get those 27 Euros a day is completely up to you. Whether you save it on groceries or hot coffees, take it from your salary or take up a side-gig to increase your cash flow and to send the money into your investment account. It’s your choice. If you have some other passive income in place, like an annual bonus payment from your company, incoming dividends or interest from existing investments, or whatever will reduce your need for commitment, it counts.

This is another way to manage your money and it has some allure because it’s simple, less time consuming and it might not give you the feeling of restricting yourself too much and to still enjoy life (almost) to it’s fullest.

It’s all about your commitment

Working on our finances is similar to working out in a gym. You have to find the right way that works for you. You need to feel comfortable with the method you chose to ensure that your commitment to your goal never fades. As long as you got this in place, there is nothing to worry about and a budget might be not necessary.

Having said that and to stick with the gym analogy, if you got ambitious targets then you got to put a lot of effort into it to make it happen. A budget is just a tool that can help you to understand how the game works, but even a budget will not replace your commitment and efforts.

About ETF Investing and DRIP

One of the most popular ways to invest is to purchase so-called Exchange-Traded Funds, or short, ETFs. The concept is simple and quickly explained. It is basically a similar structure to a regular fund, where stocks of companies are being purchased into the fund and then being sold to potential investors as one product. The integrated mechanism is passive, which means that the fund is not being actively managed by any fund manager. Instead, it simply follows the share price of each stock within the fund.

This specific structure is great because it can keep the management fees of the ETF extremely low, while at the same time offering investors a wide diversification across several stocks at the same time. It is also a fact that most ETFs perform similarly or even better than most managed funds with the same investment scope.

I am invested in two ETFs. One is following the German MDAX Index. This ETF is not paying any dividends, but re-investing all profits immediately as they come up back into the ETF.

The other one is focused on European high dividend stocks within the EURO STOXX Index. This ETF is paying out dividends.

ETFs are a great way to DRIP

My previous article was about dividend reinvestment programs or DRIPs. As I mentioned, while it is very common in the US, it is not something European banks would offer to their customers. For my part, I am therefore usually collecting my dividends until I reach a critical sum of approximately 1.000 Euros and would then buy some new stocks/shares with it.

However, for people who just started to invest this may not be an option. If you only receive 10 or 20 Euros in dividends each month, then collecting a thousand Euros seems far off. Small investments of 10-20 Euro or even a hundred Euros may make little sense as the transaction costs for buying the shares will be too high and drag down (meaning it will increase) your average purchasing price per share.

Setting up an ETF-savings plan is a great way to solve this problem. ETF saving plans can be set up starting from as little as 25 Euros per transaction, and you can schedule it to be on a monthly, 2-monthly, quarterly or semi-annual basis. So even if you receive only 10 Euros a month, you can simply set up a savings plan on a quarterly payment basis and you will have effectively a DRIP in place.

If you prefer to set up a DRIP which will increase your dividend flow, then make sure to choose an ETF that is paying out dividends.

Creative thinking with investments

There are many methods and products in the world of finance that we can utilize to effectively set up our investments, to improve our income and ultimately to prepare ourselves for a bright future. Luckily, all we need to do is just a little bit of reading, an online banking account, and as little as 25 Euros to get started.

Investing in ETFs is a great way to diversify your portfolio, to DRIP and to build wealth in the long-run. So why not just start with it today?

DRIP it another way – DIY

Like in every profession, the world of investments is filled with abbreviations. One of the most popular, and dare I say most important ones, is called “DRIP”.

DRIP is an abbreviation for a Dividend Re-Investment Program which banks may offer their customers when they purchase certain stocks. The idea behind is very simple: When a company pays a dividend, the received cash is being immediately re-invested in more shares of the same company. This way one can automatically increase the amount of owned shares every time a dividend payment is due, without the need for any active involvement from the investor’s side.

It is a very effective and common system in the US. Unfortunately not so in Europe.

Europeans tend to be much more risk-averse and invest on average far less in stocks when compared with Americans. Over my investment lifetime, I had 6 different trading accounts with 6 different banks in Germany and none of them was offering DRIP.

DIY – Do it yourself

Well, if you have a problem and nobody is offering a solution, you got to take things in your own hands.

Every time when dividends are being paid out into my account, I am accumulating them until I reach an amount of approximately 1.000 Euros. Then I re-invest this 1.000 Euros. The 1.000 Euros is my guideline due to the rather high transaction costs charged by my bank. But, as long as I am working and my salary is sufficient to cover my on-going expenses, I am not withdrawing even one cent from my stock account. Ever.

Furthermore, I usually don’t re-invest this money into the same company. Instead, I will be on the lookout for another dividend paying company out there and purchase some shares of a new company.

My idea behind this is to diversify my investments to reduce the risk of any potential downturns in the market. For my FIRE account, I don’t buy companies that don’t pay dividends. So, my annual dividend income keeps increasing with every new investment I make. At the same time, as I spread out my investment over a vast range of different companies, my risk is being deleveraged.

That’s not the way of Mr. Buffett

Investment legend Warren Buffett is not a fan of this approach. He prefers a highly focused and compact portfolio. If I remember correctly, his investments as of today are in less than 20 companies. I have currently 16 different positions in my portfolio and expect to move up to 20 by the end of this year. Next year I hope to add another 10. And the year after another 10. My target is to have some 50 companies in my portfolio with ever-growing dividends.

I would love to have Mr. Buffett’s knowledge and experience, and to be able to make such successful investments as he did in the past. But let’s be realistic. I go to do this my way. I have far less money, experience, time and insights then him. For this reason, diversification is crucial for me.

DRIP or not – you got to keep re-investing

So whether your bank is offering a DRIP option or not. The lesson here is to keep re-investing your income from investments as long as you possibly can. Only this way you will be able to activate the power of compounding and see your dividends and investments grow.

Also, don’t get discouraged in the beginning. Dividend growth and re-investments are like a snowball that is slowly rolling down a mountain. It might take a while to get its momentum and it might even get stuck sometime. But at some point, it becomes a truly unstoppable avalanche.

The current market downturn will offer plenty of great investment opportunities. Watch out for solid, dividend-growing and dividend-paying companies and take advantage of the fear out there to grab them at a discount. Chances are that it will turn out to be a smart move in the long-run.