4 Reasons not to invest – Having no money

A majority of people out there thinks that investing is not for everyone. A recent survey by Blackrock revealed some critical reasons across generations, and as for why people would postpone or even not consider to invest at all. My previous post was about the no. 1 topic from that list, the access to and understanding of financial information:

  1. Access to and understanding of information about investing
  2. Having not enough money to start investing
  3. Being too worried about one’s current financial situation (and thus being too busy to worry about the future)
  4. Being afraid of losing everything

When you look at the second and third point, they do appear to be connected with each other. And surely they are. So today we take a look at the point no. 2 & 3.

It takes money to make money

A popular phrase, but is it really true? As always, it depends. If you talk to entrepreneurs, they will most certainly say “no” to it. For entrepreneurs, all you need is a great idea, dedication and hard work to make money.

But this doesn’t sound like the right approach to me. The goal for me is to stop trading time for money. Hard work and dedication always require to do exactly just the opposite.

So when you talk to investors, it’s a different story. For investors, it’s all about having money and making it work for you. As Warren Buffett likes to say: “If you can’t figure out how to make money while you sleep, you will have to work until you die.”

In other words, you have to figure out a way how to make money without having to trade time for it. The professional term for this is “passive income”.

Investing is the king of passive income 

If you just type in Google the term “passive income”, the result might produce various topics for further research. The website “Good Financial Cents” has this list in petto:

  • Savings Account
  • High Dividend Stocks
  • Passive Real Estate
  • Betterment
  • CDs
  • Index Funds
  • Corporate Bonds
  • Lending Club
  • Rent Your Space
  • Start a Blog
  • Buy a Blog
  • Affiliatize a Blog
  • Online Course or Guide
  • Online Tasks
  • Online Rebates
  • Cashback Credit Cards
  • Sleep Studies
  • Advertise with Your Car
  • Rent Your Car
  • Rideshare Driving
  • Silent Partner
  • Buy a Business
  • Outsource Your Business

Feel free to visit the website for more details on each and every single point.

From all these opportunities, investing in dividend stocks is probably the most efficient one. This is for several reasons, the most important one being that it’s completely scalable without any extra effort. Of course you need money to get started, but that is it. The only thing you need to get and/or to increase your passive income is additional money. With every additional Penny invested in a dividend-paying company, you increase your annual income.

Now you might argue that you need to trade time for money to have those funds necessary for investment in the first place. And it is true. But from some point onwards, those dividends that come up every month, quarter or year, they can and will grow your account without you having to lift a finger. Dividends grow, get re-invested and compound. In the long-run, it’s the single least-effort-strategy to go with.

How much do you need?

The belief that you need a lot of money to get started is not wrong, but it is flawed. You can start with as little as 25 Euros a month. That’s less than 1 Euro a day. But of course, with such a small investment it would take a very long time to let it grow large enough to be able to retire on it. It’s not impossible, but it’s not something to rely on.

The more you invest, the more return your investment can create. So it is advisable to invest larger amounts and to keep that investment growing until you reach a critical mass that becomes basically self-sufficient. My target: Getting to 100.000 Euros.

100.000 Euros invested in high-yield dividend stocks, REITs and BDCs or even CEFs can create stable returns of 6% or higher – after-tax. That is equal to 6.000 Euros a year. 500 Euros a month. Once you get there, your stock-investment becomes basically entirely self-sufficient. Whether you put in an automated savings-plan or add/buy more stocks each month on your own. The money just keeps coming.

With the above mentioned yield on your investment, every 1000 Euros that you re-invest will add to your annual income another 60 Euros. Times 6, that’s additional 360 Euros a year or 30 Euros a month. So just after 1 year, your monthly return will already increase to 530 Euros on average. And it will keep growing at a higher pace after that, year on year, following dividend increases and the compounding effect.

And the best part is, that you won’t need to do anything for this to happen.

Not having money and being worried about the present

So back to the original point for people not investing because of not having enough money, or to be too worried about the present. I am certain that this is for many the case. But you have to overcome it and find ways to get started. Even if it starts with only 25 Euros a month.

I like to compare this kind of situation with education or training. For example: If you can’t read and write, and your family has no money, you might be forced to engage in low-skilled-labor jobs that will ensure your families survival. But, if you keep doing it without looking for ways to improve yourself, you will never get out of this circle.

If you, however, put in the effort to study and to learn new skills, even if it’s in the late hours after work every day, on weekends, public holidays, whenever you can squeeze out that extra hour, you will set yourself up to be able to take advantage of opportunities that may pop up in the future.

So yes, not having money and being worried is absolutely a valid reason. But success won’t come to those who don’t set themselves up to be ready for it. As Warren Buffett likes to say: “The harder I worked, the luckier I got.” Look where that got him.

4 Reasons not to invest – Information

A majority of people out there thinks that investing is not for everyone. A recent survey by Blackrock revealed some critical reasons across generations, and as for why people would postpone or even not consider to invest at all. Let’s take a look at the top 4 of those concerns:

  1. Access to and understanding of information about investing
  2. Having not enough money to start investing
  3. Being too worried about one’s current financial situation (and thus being too busy to worry about the future)
  4. Being afraid of losing everything

All valid points. Some related to each other in one or the other way. So let’s take a look at each of these points one by one. Today’s article will start off the series by taking a closer look at the first point:

Access to and understanding of information about investing

This was the most significant worry in the survey and I am frankly a little astounded by it. I wouldn’t be surprised at all to see this point popping up 10 years ago. But now… it’s 2019. We got the most powerful source of knowledge ever created available (almost) for free, and readily accessible. The internet offers almost unlimited opportunities to gain knowledge.

To be fair, the internet is also full of crap. It takes some time and a little effort to find the most suitable educational source. But it’s definitely all there. Blogs, Podcasts, Audiobooks, YouTube videos, online magazines… In case you don’t know where to start, here a list of some of my most common sources to read and research:

  • The Motley Fool – www.fool.com
    The .com website is for the US market, but they also have websites for other countries, such as Germany, Hong Kong, Singapore, the UK and more. TMF is a great place to start your journey as the articles are always short, crisp and well explained. If you are not familiar with financial terms and/or stocks in general, this is a great place to start your educational journey. I may be a little biased here because, as some of my regular readers might know, I am regularly contributing to their German website. Still, I can say without a doubt, that the TMF community is thriving and full of interesting ideas and tons of knowledge with fresh articles coming out on a daily basis. They main target group are readers who want to learn about and educate themselves about investing.
  • Seeking Alpha – https://seekingalpha.com
    This one is actually a website for professionals, but there are a few authors who regularly write very detailed and well-explained articles, either for individual stocks or entire markets. It is set up like a good, old-fashioned forum with thousands of individual contributors mostly from the US. I have personally learned really a lot from this website, especially when it comes to BDC and REIT investing. Since the main target group seems to be retirees, they have a heavy focus on high yield dividend investments and many articles seem to be slightly biased towards this topic. If you ask me, there is nothing wrong with that. Just don’t take it as your only source of “wisdom”.
  • The Street – https://www.thestreet.com
    If you are up for some entertaining reads and to see all the drama that evolves around companies, markets, and the world, then this should be one website on your schedule to visit at least once a week. Run by an entertaining wall-street guy called Jim Cramer, this website wants to offer not only current news but also introduce the world of investments in general to its readers. Take a peek, it’s worth it.
  • Yahoo Finance – https://finance.yahoo.com
    If you find a stock that you are interested in and want to know more about it, research it with Yahoo Finance. That’s what I do. Even though Yahoo itself might be out of favor as a company, their financial website is one of the best you can find. Whether you are looking for fundamental data (the numbers) or want to take a look and analyze their chart, Yahoo got you covered.
  • Listen Money Matters – https://www.listenmoneymatters.com
    You prefer podcasts? Look for “Listen Money Matters”. I listen to it on and off. Not too regularly because I actually don’t like noise and those guys are entertaining, but yeah, noisy. Having said that, they cover tons of topics and can teach in a very entertaining manner.
  • ChooseFI – https://www.choosefi.com
    Another podcast is ChooseFI, with the FI standing for Financial Independence. Again, I listen on and off and think that there is always something new for me to learn.
  • Flipboard – https://flipboard.com
    Yeah, this app is amazing. Of course, it’s mainly a news app, but if you put in investment, retirement, FIRE, etc. in your fields of interest, you will receive a regular dose of information on these topics and develop your understanding of the world of finance. What I actually also recommend to do with Flipboard is to follow those companies that you actually have or plan to buy stocks/shares from. It’s never a bad idea to know what your company is doing and how it is being perceived in the world and the Flipboard algorithm will filter all the related news out for you.

There are significantly more tools to use out there, so these are just some that you might want to take a look at. The important thing is to get started and to be consistent with your reading efforts. So whatever it is you do all day long, try to dedicate 30-60 minutes a day to read. Doing that, you will quickly see your understanding of the financial world developing to the next level. That’s only 2-4% of your day. I think it’s worth it.

The next article will tackle the second reason not to invest: Having not enough money to start investing.
Stay tuned.

If you had your own business…

…how would you run it?

Many people dream of being their own boss. Making their own decisions. Dedicating their available time solely to their purpose, their passion and to their own, full benefit. But is this indeed the reality for an entrepreneur?

Well, as it is with everything, it depends. It depends on the type of business you want to run, on the size, reach, and scale, on your product or service, on your dependency of suppliers or contracted partners, on your team (or the lack of it), and on a thousand other points that may play a role once you decide to do your own thing. Most and of all, it will depend on your perspective and your definition of freedom.

Rule of a thumb is that the more people get involved, the more things get complicated. Whether it’s business partners, suppliers, contractors, your own team or your customers. With every person, every character who comes into play, you are losing some part of your independence.

Running a successful business means to serve others

I think it was Tim Cook who said it last year in a speech or an interview. “A truly successful product or service can only be realized by serving others.” However, serving others means, to a certain extent, to put yourself in the backseat, to figure out what those other people need and want, and to try to deliver it to them.

The thing is though that once you have a business, everyone becomes your customer.  The people who work for you. The people who work with you. And the people who buy from you. Those who work for and with you are called “internal” customers. Those who purchase your product and/or service are “external” customers. And your job as an entrepreneur is to serve them all.

Does this sound like freedom? It certainly is a step forward. By freeing yourself from a boss or a corporate structure, you will have definitely more freedom to make decisions. But at the same time, you will probably discover, that it is not what you might have originally imagined as freedom.

You will have more power when it comes to your decisions and it might feel like freedom in the beginning, when your company is small and easy to overview. But as your business grows and expands, your responsibilities grow with it. And with every percentage of growth, the percentage of your freedom starts to diminish.

The best of both worlds

Reaching financial independence means to me to stop trading time for money. Of course, I still need to have income, but I just don’t want to have to work for it. Not because I am lazy. I am a workaholic. But, as a great quote from Warren Buffett says: “If you don’t learn how to earn money while you sleep, you will have to work until you die.” And I definitely don’t want to end up that way.

There are several ways how this quote can be interpreted, but a realistic perspective is probably to assume that over your lifetime, your focus should shift from working yourself, to let others work for you. When you purchase stocks of companies and become therefore to a tiny part an owner of the respective company, you are doing just that.

As an investor and company owner, you start earning money by reaping the rewards of having other people working for you. And while you have to share these earnings with all the other shareholders, you are free from almost any responsibility towards both, internal and external customers. It is a pretty smooth way of becoming your own boss.

There are risks – but regular jobs bear risks as well

This is not to say that you wouldn’t have any risk. As a company owner, even to a small part, you carry the risk of realizing a loss if the company fails. Also, since your shares represent most probably only a tiny part of the company, you have hardly any vote in steering the companies politics or to contribute in any other way to its success – or failure.

But the degree of your freedom gets truly maximized. And the more different companies you invest in, the more your freedom is being manifested. As you diversify your portfolio, you automatically increase your risk protection and risk tolerance. Even if one company fails, if you have 20 others to support you, then your worries will be still limited.

This will become even more obvious if you draw a direct comparison with having a full-time job. When you invest, you can spread your investments over several companies and thus create multiple sources of income. If you have one full-time job, you are completely dependent on this single source of income. What happens if you lose it?

Food for thought

This is some serious food for thought. People who don’t invest will find a thousand reasons to tell you why investing is not something that regular people do. And they are right about that last part of that sentence. Especially in Europe, the amount of investors is surprisingly little compared to common folks who rely on their day-to-day jobs.

But those are the folks who get sleepless nights whenever companies start to talk about efficiencies, streamlining of processes, outsourcing, and globalization. Technological disruptions don’t excite them, because every disruption may put their livelihood in jeopardy. These are the people who constantly worry, and even more so as they get older.

And you can’t blame them, because these are the people who can’t come up with 500 Euros in cash even if any serious emergency appears in their life. I am not saying this to look down on anyone. I am saying this because people who never learned about how to handle money tend to end up in serious hardships. Despite having worked for 30 or 40 years, many fear that their retirement money won’t be enough to cover their rent and fill their fridge once they (have to) retire. We are not talking small numbers here. Surveys in Europe and the US show that the majority of our populations fall into this category.

This is in stark contrast to those who learned and understood that either having your own company or being a shareholder of another company, can significantly increase your chances for a worry-free retirement. There are no guarantees, but your chances are simply higher.

When it comes to human lives, things can easily and quickly get emotional. Investors, however, take the emotion out of the equation and simply calculate chances. Winning the lottery is not a valid form of retirement planning. Investing is. so when you get your next paycheck, put some part of it aside and start investing. Every single investment that you will do will put you a step closer to be a worry-free individual in the future.

When is the best time to retire?

If you are just about to enter (or new to) the workforce, thinking about retirement seems very far off. Not that it’s not somewhere in your head, it just seems very, very far away. But even if you already worked for a few years, you might still not be spending much time thinking about your future as a retiree.

When we are young, in school or university, nobody is really teaching us about retirement, about financial security. About the limited time that we have to prepare. And for sure, while your HR department might tell you about your options for provident fund support, they for sure won’t teach you how to prepare yourself financially in the best possible manner. It is even more sure that they won’t plant any ideas of early retirement in your head.

There are many reasons why this is a huge, missed opportunity. I would even argue that this hinders humanity on moving a giant step forward. It is a waste of resources, creativity and human potential on a scale that is impossible to estimate. Let me explain.

Asking the right question

So to start off, thinking about retirement, in general, is something that everyone should do. However, I would argue that instead of asking yourself the question about when and how to retire, it makes a lot of more sense to be asking another question: “When do you want to be financially independent?”

The idea of retirement is a very frustrating, de-motivational and overall just a negative thought structure, which clearly explains why we just don’t want to think about it unless we are forced to. Retirement is by most being perceived as one of the last check-points in your life. When, after working for 30 or 40 years, you reach that point in your life when either your body, your mind, or your countries legal structure forces you out of the workforce. Some, who thrived in their profession, might consider it a point when they draw a line to say “we had a good run, but it’s enough”. Some want to retire. Some don’t. But no matter where and in what state of mind you will find yourself, the core of every retirement is financial independence.

So if it all comes down to being financially independent, wouldn’t it make sense to reach this goal as soon as possible?

The benefits of aiming for financial independence instead of retirement

Thinking about financial independence instead of retirement changes the whole perspective, and takes out the negativity out of the equation.

For one, it doesn’t mark any specific point in your life in terms of not referring to you as being old, sick, or in any way considered to be useless by society. Because let’s face it, that is what happens at a certain age. Taking out all these negative thoughts that creep into our heads as soon as we think about the “golden age”, is turning the whole thought process around.

Secondly, financial independence can be a very motivating and encouraging tool that helps us not only to think about the last stage of our life, but that can greatly support us from a much earlier point on.

This is due to the fact that for many of us, challenges in relation to age start to show their ugly face very early on. Ask anyone who got laid off or who would like to pursue a career change and happens to be 45-50 years old. Finding a new job, a new venture at this age can be a very frustrating experience. You might suddenly realize that there are millions of younger, faster and smarter people out there who compete for the same positions. And like it or not, while you might have vast experience, your age will more than often be considered a hindrance rather than a benefit.

Being financially independent as early as possible will give you peace of mind. Knowing that you don’t need to worry about shelter, about food for you and your family and about medical support if needed, will give you the security and the opportunity to navigate through any hardship.

It will also give you opportunities to persevere in your quest for changes in your life. And, it will give you the self-confidence and advantage that you will need to outplay your younger competition.

Doing something else entirely

I hope to reach financial independence in a few years. In fact, I hope my current job to be my last, full-time-corporate assignment. I am 39 years old, the target is to be fully independent by 45, although I might stop working full-time earlier, let’s say at 42 or 43. The financial independence that I can reach by then will enable me to turn to some completely new ventures – and adventures.

I would like to pursue some opportunities that seem hard to reach for the moment. Like working for an NGO or a foundation and help to solve some problems in an area or field that require attention.

I would love to do some voluntary work in Africa or South America. I would definitely be interested in developing some startup companies that can help to shift some peoples lives in a better direction. I would also love to add a few more skills to my repertoire. A better understanding of electricity and potential products or solutions in that field. I want to learn more about renewable technologies, acquire basic coding skills and use that knowledge to find some new ideas and goals to strive for. I also like to learn to play the guitar and piano.

And I know that I am not the only one who would like to do something more with his life than just working for some company, following assignments that I might or might not agree with. Following orders just to meet the expectations of someone with an entirely different agenda… it just doesn’t feel fulfilling to me.

Just imagine, what humanity could reach if a majority of people could at some point in their life use their experience and knowledge, not for the good of some corporation, but to work on projects and ideas that are meant to solve problems and help others.

Our lives are so short and there are so many things to do, to learn and to experience. Staying all our lives in one job and waiting for that magic golden years to start just feels like a lot of missed opportunities. And I think, deep down, that is how most people feel. It may be one of the many reasons for us being reluctant on spending time to think about retirement.

Therefore, I would urge anyone to forget the idea of retirement and to replace that void with financial independence. Retirement is something to wait for, financial independence is something to strive for. After reading this article, which one would you consider making more sense?