Ethics and the Stock Market

Everybody wants to do the right thing. At least on paper. Of course, it sounds so much better to say “I contribute to saving the world” instead of “I contribute to spreading cancer”. Right? With this idea in mind, there is a large movement among banks and financial institutions who like to put some ethics on their website as a leading principle, and thus to promote “green” investments, “sustainable” companies and socially engaged institutions and individuals.

However, more than often, this is nothing but a farce, a concept lost in translation somewhere between blurry definitions, bureaucratic approach, lack of real oversight and purely financial motives.

You don’t support any company when you trade its shares

Let’s make this clear from the beginning. You don’t really support any company when you but its shares – unless it happens during the actual public offering, the IPO. The IPO is the only real point in time when you can show whether you support a company or not, by purchasing its first shares (and thus giving your money directly to the company) or letting the opportunity pass, thus keeping your money for yourself.

After the IPO, all publicly traded shares are being traded among the investors. The company itself doesn’t see a penny from the shares after that. Unless, of course, it’s trading its own shares as well.

This doesn’t mean that there is no indirect support. A higher stock price might make it easier for the company to get loans or to convince new business partners to work with them. But this is something you have very little influence on. But saying that, let’s say, you would support tobacco companies because you bought some shares of a tobacco company is, in my opinion, pure bogus.

You get voting rights and the opportunity to express your opinion

On the other hand, once you purchase some shares and the annual general meeting of the company shareholders takes place, you will get a proportional vote on certain company policies and decisions. So if you think that the company you invested in has a generally solid business model but you would like to express your idea of having some things being done a little differently, you get a say.

From where I stand it’s like democracy. You can abstain and not vote, thus undermining the democratic process. Or you can join in and get a say. Of course, if you are just one in a million (or billion) it won’t count for much. But if there are others who share your concerns, then at least you get a shot to support changing things for the better.

Do your own research, don’t rely on analysts

I am seeing this over and over again. Companies are receiving countless awards for their sustainable practices, their carbon footprint, their ethics… whatever. But forget the awards, forget the analysts who praise whoever is paying them. Do your own research.

Sustainability and ethics are such broad terms, and there are really not many companies that truly get what it means. So I prefer to just take a look at the basics and I usually start my research within a company itself. How are the employees being treated?

Ethics and sustainability go hand in hand with taking care of company stakeholders, and no other stakeholder is more important than a corporation’s own teams. Are they paid sufficiently so they can live on their wage and support their families? Do they get health-care plans, provident funds, and a healthy work-life balance?

The easiest way to do such checks? Talking to people who work there, or reading what they say. Less than 20 minutes of online research will quickly reveal whether a company is what it promises or not and whether you will get what you expect.

The stock market is about profits

Reality is that business, in all forms, is about profits. Like it or not, a company and its share price won’t grow if their business doesn’t make money. So the only true support or rejection of a business comes from the consumers. Not from people trading shares.

And some people who don’t understand this principle might see it as some kind of evil plot, but it really is not. True, most investors have very little morals, but also very little loyalty. They will always support a successful business. If a company is bad and does bad things, people should make conscious decisions on whether they support and buy these company’s products or not. If a clear trend emerges that will show rising profits and rising market demand for a “good” company, then investors will follow this trend. So it really is about who is doing the better job.

Unfortunately, in reality, many people still don’t care enough. How else would one explain that some of the largest companies in the world can do the worst things to humanity and yet being still massively supported by its consumer base? I am specifically referring to a popular e-commerce giant who is almost daily in the press for neverending revelations about abusing and underpaying its employees, and a social media giant who is actively contributing to misleading, if not to brainwash people into mindless puppets following fake news and disinformation campaigns. And no, this has nothing to do with free speech.

Having said all that, it’s really up to you how you define your idea of supporting or not supporting a company. Trading shares has very little real impact, but personally and emotionally it can play an important role. And the financial industry knows it. So, don’t get played by them by blindly following some awards, but invest just a little time to do your research, adjust your own habits (like i.e. where you buy which products) and to support the right thing in the right way.

A journey of a thousand miles…

…begins with a single step. There might be twists and turns, ups and downs, but once we start walking and frequently check our compass, step by step we get closer to the finishing line.

Reaching the goal of financial independence requires a substantial amount of money in savings and investments. Getting there is not easy and requires time, perseverance and patience. But no matter how hard it may seem, it’s not impossible.

Many of us are top-line millionaires

If you are blessed living in a thriving economy, you are most probably a millionaire – stretched over your lifetime. The math? It’s not too complicated. Let’s say you earn 2.000 Euros a month which is really not a high salary.

Not accounting for any bonus or extra payments, this comes up to 24.000 Euros a year. Put this into a context of 40 years of work and you have 960.000 Euros right there. Almost a million. No salary increases, no bonuses, nothing added to that.

Of course, there are taxes to be paid, living expenses, medical bills. Whatever. Your total income over those 40 years in this scenario is almost a Million Euros. In business, we call this the “Top Line”.

The deciding question is how we approach this top-line and what we do with it. All the expenses that we have along the way will reduce our top-line. The money that is left over is called “the bottom line” and this is basically the amount that we have to save and to invest.

It’s not about how much we earn

Having a high salary can help us to reach financial independence more quickly. And yet, during my short career in a bank, I observed that most people with high salaries were seldom the ones with the highest numbers on their bank accounts.

It was usually the quiet, medium-salary people who had the best credit scores and whose accounts would show the occasional million Euros. And I always wondered how that could be. How could someone with a very regular income of only 2.000 or 3.000 Euros a month amass a Million in their late 40s or early 50s?

The answer: They controlled their spendings, they invested regularly in the stock market or real estate, and they kept a comfortable but modest living standard.

  • When they got their first salaries and started to develop their careers, they would immediately start saving and investing.
  • When they got salary increases, they would increase their savings and investments first, before thinking of buying non-assets.
  • They wouldn’t succumb to peer pressure and buying shiny things or branded clothes just to show everyone that they can afford it. They would rather buy just another asset to watch their portfolio grow.
  • They would seldom use credit cards or take loans for anything.

Some might live very frugally, trying to find hacks and get creative about how and where money could be saved or re-gained. Some might push for a stellar career and higher salaries. And there is nothing wrong with any of that. They might reach their goals earlier on.

But the point is that even with modest salaries, it is possible to save, to invest and to take our future in our own hands. The first step to get there is to learn to control our spendings.

Assets and Liabilities

These two words rarely come up in conversations. Even with my friends and colleagues, unless initiated by me, I have seldom noticed anyone popping them up into a regular chat. I guess there are good reasons for that. They sound complicated. They sound very “financial”. They just don’t fit in the “what are you planning for the weekend” talk. They also don’t really fit in the “what do you do after work” conversation. And yet, when it comes to financial knowledge, these two words are the most crucial terms and in my humble opinion, everyone should learn their meaning as early on as possible.

What is an asset?

Obviously, if one is about to learn something, one should always try to learn from the best. The book titled “Rich Dad Poor Dad” by Robert Kiyosaki was my personal eye-opener. It takes the most simple and accurate approach to define assets and liabilities with one-line definitions:

“Assets constantly generate money and put it in your pocket”.
“Liabilities constantly take money out of your pocket”.

That’s it. It doesn’t get simpler than that. And yet many have trouble getting the concept. Especially the traditional souls out there who dream about buying a house or condo might have some challenges with this definition.

I as house an asset?

The definition is clear in terms of what to do with your money in general. A car is not an asset. It uses energy, depreciates in value, you need to pay taxes, insurance and chances are that even if you use it to earn money with Uber, your net-balance will remain negative.

Stocks and bonds are assets IF they generate cash-flows and add on value. So personally, I consider dividend-paying stocks, REITs, and index-ETFs to be assets. Other stocks that are highly speculative and don’t pay dividends I consider to be just that: Speculations.

But how about a house? Is a house an asset? The answer to this question is: It depends. Unless purchased for a commercial purpose, they don’t generate cash per se and if purchased with a mortgage or with any other form of a loan, they actually take money out of our pockets, month-in, month-out.

Now you can argue, that you won’t need to pay rent and the money saved is equivalent to a handsome return on investment. It is a valid comment and one could definitely have debates about it. The reason why I would still hesitate to count it is due to the structure of mortgage payments. Especially during the first years of a mortgage, almost every penny you pay to the bank is actually only covering bank fees and interest. Very little is going into the actual payback of the loan. You are therefore actively spending money on it.

Furthermore, a house is good for a couple of years, but you do have additional costs associated with it which will grow even larger as the house gets older. Repairs, refurbishments, taxes, insurance. These factors play a big role and can massively diminish your return on your investment.

Buy assets, avoid liabilities

Once you have the understanding of assets and liabilities, all you need to do is to focus. Keep buying assets. Try to avoid liabilities. Following this simple rule will lead you straight to financial independence and out of the rat race.

4 Reasons not to invest – Being afraid of losing everything

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. In my last two posts, I have covered the top 3 reasons from that list. Time to get to the last one:

  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

Worrying about losing it all is a very common concern that is being repeatedly mentioned among those who don’t consider investing at all. So let’s take a closer look at this valid concern.

Can you lose your investment?

The short answer is simple: Yes. Of course. It could happen.

You could also lose money if you forgot your wallet on the bus or train. Or you could waste money on a product that you actually don’t need. Or a product of inferior quality that will break once unpacked and force you to have to buy something else. You could lose money when you “borrow” it to someone. There are countless options.

But these would be all examples of let’s call them unvoluntary choices. Let’s look at other ideas that are supposed to make you money, but could end up losing it. Let’s see.

Putting money in a savings account is a viable option. Or so it was. But these days, negative interest rates and inflation do just that, make you lose money. Thinking about putting it all in a safe? There is no way how money can grow there, and again, inflation will take its toll. Want to max out your provident fund payments or social security? Sure, but it’s not that these are without risks either. In Germany, the pension payouts are now so low that many retirees need to apply for additional supplement money just to get by. Playing with the idea of getting some government bonds? Well, just look at Greece, Cyprus or Italy. Countries do get in financial trouble as well.

What I want to say and show is that there is no option without any risk out there. Risk is part of the deal. Of any deal.

What does it mean to buy and to own company shares?

When you invest in the stock market and buy shares of a company, you are basically becoming a partial owner of the business that you put your money in. One of many. It means that the business is already established and grew large. Large and confident enough, to be backed up by millions of other fellow investors. Millions of other people who rely on it for this business to generate wealth for them.

And those investors are never idle. They observe and evaluate the company and express their opinion about the value of the shares and thus ultimately of the company, by influencing the share price. Every single day.

Every time when somebody puts up a buy order to purchase some shares, someone else sees the order and examines whether he/she is willing to accept this offer. So there are always two parties involved. One, that wants to sell. One, that wants to buy. And everyone has his/her reason to do so.

Opinions matter

This already clearly indicates that where you might see an opportunity for a great future, someone else sees it the other way round. This also means that where you think that you can make some money, someone else thinks that this ship has already sailed. Or that the value is already fair and has no more upward potential. Or that someone is already happy with the development and needs the funds to invest in something else. Or that someone just needs the money.

You will never know the full and real reason why someone else wants to sell a stock, but you should be aware of this system. Because it also implies that there is a risk. BUT, as Warren Buffett likes to say: Risk comes from not knowing you are doing. The more you know about the company you plan to invest in, the more you can leverage your risk. Or, if you don’t have the time and patience to dive into it, you can just leave it to others.

Reducing risk through diversification and a passive investment

Warren Buffett recommends potential investors a very specific type of investment: Low-cost passive index funds. Also known as ETFs. What makes ETFs a great investment? They reduce the risk by splitting your invested money across all companies in the index that the ETF is being applied to. So if you put 100 Euros in an ETF that is following the German DAX index (which includes the 30 largest companies in Germany), it means that each of these 30 companies listed in that index will become partially yours. In tiny amounts, but yours.

Diversification through ETFs makes sense for small investors because it is hard to achieve if you invest only small amounts of money. For example, one share of the German sports giant “Adidas” costs as of today 259,65 Euro. Just one share. So if you have only 100 Euros a month to start investing, how could you buy even only this one share? There is not much of a chance to start diversifying either.

ETFs work here the same as other funds, by collecting the money from other fellow investors and putting it to work in a nice bundled package. This way they can buy all the shares that are part of the index, and let you participate in it on a partial basis. This is just one of many ways, techniques, and strategies to manage your risk.

The financial system is built for this

As an investor, you put your money to work in a business. Our world is built on that. Our countries depend on that. Our jobs depend on that. Our financial system couldn’t function without this. So unless the whole financial world collapses, there will always be some business opportunities to invest in. As a passive investor, all you do is to put your faith into the system of how the business world works.

And yes, it might collapse someday. But guess what? If our system would collapse, then it wouldn’t even matter where you put your money in. It would be gone anyway. So you have a choice here: Trust in the system and get the chance to participate in all the opportunities that it has to offer, or don’t and forfeit all your chances right from the start. If you see it this way, the decision of whether or not to invest should be a no-brainer.

If you still have some restrictions, it might be not a bad idea to get someone to help you. The internet is very resourceful, but a financial advisor could also make sense. If you are reading this blog, it means that you have already made some steps in the right direction: to educate yourself. Don’t stop there. Keep reading. Keep learning. And start investing.

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 –
    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 –
    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 –
    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 –
    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 –
    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 –
    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 –
    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.

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?

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.

Dividend Stocks make your worries go away

Over the last couple of months, I have started to reduce my social media presence and to close many of my online accounts. My Facebook account has been deleted (I seriously didn’t miss it a single day), and the same thing happened to my Twitter account and AirBnB. As I move closer towards my goal of FIRE, I plan to reduce my social media presence to a bare minimum. In the end, this blog… and possibly also my LinkedIn account for business purposes shall remain. Most others will be got to go.

But speaking of LinkedIn, I have recently noted a larger amount of posts where people are actively and openly seeking jobs, while also publicly stating that they have been unemployed for a couple of months. Some of them even go as far as to explain that they can’t pay for their children’s schools anymore, or to pay rent and needed to sell their house or downsize their condos.

Some of those CVs out there that I took a look at are actually quite impressive. From experienced, well-traveled professionals who reached tremendous success over the years, to aspiring intellectuals who surely made an impact in their previous organizations. And yet it seems that while they grew older, their age outweighs their experience. It just gets tougher to get hired, especially when you reach your 50s.

Prepare yourself

There are tons of situations why and how you might lose your job. You could debate on what is right or wrong, whether something is fair or not, and who to blame for what happens. Or you can prepare yourself. I like to prepare myself because blaming and guessing or discussing the issue at hand will probably not solve my problem. At least not as fast as I need it to get solved.

For me, investing in dividend-paying stocks is one pillar that I use to build my protection on. Due to the nature of my job, I grew with this challenge in mind since the beginning of my career. Every year or two I have to find a new hotel to work for, or worry whether my contract gets extended. Working as an expat in Asia comes with tremendous benefits and financial advantages, but the price to pay is a huge lack of security. Because every contract is limited to only 1 or 2 years and most come without any retirement pre-cautions, one can never truly relax and consider things to go well forever.

This is why securing several independent streams of income is crucial, and why the idea of financial freedom has been engraved in my DNA. I got to prepare myself for the worst-case scenario. I am 39 years old now and just signed another 2-year contract. Looking at my colleagues and other professionals in my industry, I know that 45 is the magic number when things will start to get really tough for me. Therefore I need to be ready for that before this challenge kicks in.

Dividend-paying stocks are a great source of income

It takes some time to play out well, but dividend-paying stocks are an amazing opportunity to benefit from our financial system. Buying the right stocks can result in tremendous advantages and a strong, re-occurring source of income.

When I was significantly younger, I didn’t really understand the power of what appeared to me “small yields”. 2% or 3%… this means that when I put 1.000 Euros into some company shares, I will get only 20-30 Euros back every year? Laughable.

What I didn’t appreciate at that time, was that not only do these amounts compound over a long period but also that those well-run companies tend to increase their payouts year-on-year.

Why is this important? Let me give you an amazing example. Warren Buffett is invested in Coca-Cola for a very long period through his company, Berkshire Hathaway. Over the years, Coca-Cola kept increasing its dividend payout. Year on year. The result: The yield on cost for Warren Buffett is now a stunning 62%!

This means that every year the stock returns him 62% of his initial investment. Getting back to our investment thesis of 1.000 Euros, this means that every year now he gets 620 Euros back in dividend payments for every 1.000 Euros that have been invested.

There is no hocus-pocus there, it’s just very basic and simple mathematics. And coca-cola is not the only company out there with such stunning results. Look no further than the brands you know well: Apple, Starbucks, Microsoft, Daimler, Shell… the opportunities are endless.

Start investing and stop worrying

No matter what your job or your business is, setting up a solid stock portfolio with dividend-paying stocks is a smart thing to do. While you are still working, it will increase your income. When you have no job, it will secure your most urgent needs. And when you plan to retire, you might be able to do so without even touching your savings.

But even more importantly, having another stream of income will put your mind at ease. Because even if you should lose your job, you will still have cash coming in. You will be able to buy food, and if you invested enough even pay your rent or your children’s school.

What happens if there is a crash in the stock market? Keep your cool, lean back and wait. The most reliable dividend stocks continued paying dividends even during the worst time on the stock market. Shell i.e. never lowered their dividend since the II. World War! Of course, there is some risk to every company and every stock, but that is why you need to diversify and purchase several stocks of different companies.

Do this especially when times are good, so you worry less when times turn bad.

Disclosure: I own shares of Apple, Daimler, and Shell at the time of writing. This article doesn’t represent investment advice. Please ensure to do your own due diligence before making any investment decisions.

The dividend season is coming!

As the calendar has continued to roll into March, we are quickly approaching the dividend season in Germany. While most companies in the US pay out a dividend every 3 months, German companies do so only once a year. One could argue about which system is better or worse, but that’s a topic for another discussion.

In Germany…

The majority of companies in the largest German Stock Exchange Index (DAX) is paying out dividends from April to June. Right on time before summer vacation, to ensure that we get the necessary pocket money to go on holidays. Well, or if you are smarter, to re-invest it.

Traditionally over the last years, right before the announcements for upcoming dividends will happen, share prices start to rise as analysts evaluate and predict the expected payouts. And despite challenges across the globe, 2019 does look like a great year again. To understand the significance of this season, you need to take a look at some numbers. The expectation for 2019 alone for the DAX companies is a total payout of 35 Billion Euros!

That’s the number. Can you even imagine to have something like this on your account? Well, most people can’t and most people will never come even close to it, so this doesn’t really need to be your target. But receiving a piece of that pie is definitely worth the effort.

This is even truer if comparing dividend yields with traditional saving accounts. While it is currently quite easy to find companies which offer a yield on your investment of 3% or more, most saving accounts will be still below the 1% margin. It means that even with a modest 3% yield, you can receive 3 times the money that you would get if it’s parked on a traditional savings account. Just think about that. This the reason why investing simply makes sense.

In Thailand…

Interesting enough, Thailand has 2 major dividend seasons as most Thai companies pay dividends twice a year. The first season is similar to the German one, between April to June. The second one is around September and October.

I didn’t write much about the Thai stock market yet as I am still gathering experience, but I am setting up a stock account for my wife. As you might have guessed, I prefer stocks over life-insurance. Interestingly, Thai companies offer much higher dividend yields across the board and while some might think that investing here is risky, the truth is that the risk is pretty much controlled.

Due to the close relationship between politics and business, major companies are pretty well protected and with the country growing and moving forward, their profits are almost on autopilot. I will write more about this at a later point, but for now, I am getting ready for the dividend season here as well.

Re-investing is the key to long-term success

Receiving dividends at much higher yields compared with savings accounts is a beautiful thing. Even more so is the fact, that many dividend-paying companies tend to increase those dividends year over year. Re-invest those payouts, and you will create the 8th world-wonder: The magic of compound interest. Or compound-dividend. This is the one and only true key for long-term success, which any average person can achieve with very little effort.

Regular, growing dividends will enable you to escape the rate race much sooner. Or, if you prefer to keep working, offer you a nice supplement to your monthly paycheck or retirement payout. While many financial advisors will discuss with you about the 4% rule and about taking out money from your savings/retirement account when you get old, dividends offer you a much better option: Not taking out any money at all. If you are invested long enough, you can receive dividend-yields of 5-6% easily without selling even 1 stock, thus being able to enjoy a great lifestyle until your last breath.

This is no hocus-pocus. This is the power of investing.

Take care of your family

I feel pretty motivated these days to write about a few more things that are on my mind, and one of these things is something I consider pretty important. My family.

Now, we don’t know the future. We don’t know how things will turn out, and as my anti-FIRE friends like to say: If you die tomorrow, all your work was for nothing. That is true. Sad, cruel, maybe somehow sarcastic, but nevertheless, true. As investors, we are almost obliged to be positive and to see a bright future ahead. Otherwise, what’s the point? But obviously, it is still possible that something happens that we didn’t expect or simply didn’t put into equation.

An accident, a sudden death, a divorce, family wars, or just anything that might disturb the peace, harmony, and the bubble that we feel comfortable in at this very moment. So, while it might be difficult to control most factors and possible drama around that, we can make sure of one thing: That no matter what happens, everyone will be more or less protected financially.

For this reason, I have added another 2 goals to my 2019 targets: Building up of two additional stock accounts. One for my daughter and one for my wife.

The one for my wife will be income oriented and focus on high-yield-dividend stocks. Since my wife is Thai (and we are living in Thailand), and to make sure to keep things as straightforward as possible and easy with the tax office, I will dive deep into the Thai stock market and setup a pure Thai stock portfolio. It will be an interesting ride.

For my daughter, I plan to create a mix of income and growth with my broker in Germany. A rather smaller amount will be put in some monthly paying stocks, which should cover her future pocket money requirements. And a little larger amount into a few growth stocks that may potentially help her to reach my current target at a significantly earlier stage in her life. While I plan to reach F.I.R.E. by 45, I believe she should be at least F.I. by her 30s. Being only 3 years old, she got a 27 years head-start. It should be do-able.

I started purchasing some first stocks for my wife last year, just to get to know the market and to understand trading patterns, with very small trading amounts. The great thing in Thailand is, that trading cost is extremely low. While our American friends already enjoy super-competitive trading platforms with very low cost, most European counterparts tend to be pretty expensive, with usually a minimum charge of around 8-10 EUR for a 1000 EUR order. Well, in Thailand, we are literally talking pennies, so you can even start with as little as 50-100 EUR to invest almost without any effect on your performance due to purchasing and selling cost.

Another great point of setting up a trading-income account in Thailand will be, that it will help us to reduce our currency exchange risk. When the time comes that we will start to actually use the generated income from the accounts, we will have the luxury to use EUROS when the exchange rate becomes more favourable again, and to use Thai Bath in case the EUR keeps trading low.

Obviously, in case anything should happen to me, or any single one of us, everybody will be still protected with some source of income to make it through the roughest times.

No matter how I see it, there is only a win-win there.

Again, my anti-FIRE friends might argue, that an insurance is better suited for that. I disagree. Not only have stocks a life-time-income and growth potential far beyond what an insurance can offer, it is also uncomplicated, without any small-lettered-exceptions and conditions, it is unbureaucratic and lastly, it will also help to educate my entire family financially to a point, that is far above average.

For example: I will keep re-investing the profits from my daughters account back into her account on a regular basis. When she starts withdrawing cash from the income for her pocket money purposes, let’s say at the age of 10, she will always receive a choice: Get the cash, or re-invest it, to increase her future income. She will not get any pocket money increases from me, it will be all her own decisions. No need to say that same will go for my wife 🙂 Well, if put the cash into the right stocks, she will automatically benefit from any dividend increases – and suffer from dividend cuts in case they occur.

We are 3 weeks into 2019, this means 49 more weeks to go. Time is short, let’s make the best out of it.