Evaluating your expenses

My family was never wealthy, frankly speaking, there were times when we had trouble to get through a month and as far as I remember, we mostly lived paycheck to paycheck. This resulted in a very low pocket money which our parents would hand out to me and my brother. It didn’t bother us when we were very young, but things became unacceptable when we turned teenagers.

Hanging out with friends, buying new sneakers or going for a party costs money, as do computers (I still remember that first C64) or books and magazines. I wanted to have all those things, and there was only one way to get them. I had no choice: I had to work.

The Time & Money Relation

The legal age to start working in Berlin in 1994 was 14 years (don’t nail me on the details, I might be 1 year off) and I quickly found part-time jobs which I could do after school. It was a great experience for me: Working just 1,5 hours in a shop cleaning or filling up empty drawers would provide me with the income that before I had to wait for an entire week. We are talking about roughly 10 DM – today the equivalent of approx. 5 €.

I realized how much time I had wasted in the past: 1 week vs. 1,5 hours for the same reward. Just that the latter one would require my active participation.

The lesson learned was that I could get much more money by spending more time working. Having realized this, I didn’t want to spend time at home anymore. I wanted to go out and work.

However, since that very first time, while I basically kept on working until today (I am 38 now), this feeling that I had when making my first salaries didn’t come up too often with later jobs. I was always tight with money and therefore I learned very quickly that if I wanted to get anywhere with my wishes for what I want and what I need, I had to prioritize – and sacrifice.

Measuring expenses

It was a tough lesson and I hated the very idea that most things were still out of reach for me. Because you see, we get used to our salaries very quickly and by some miracle, the more money we get, the more things we start to see that we want to have which are out of our reach.

So, when I started to work the initial happiness didn’t last that long. I got unsatisfied with the situation, as I needed to make constant choices and set priorities. To help myself manage my expectations in a better way, I developed very quickly this 1 way of measuring expenses, which helped me to actually really understand what I truly wanted every time when I reached for the wallet.

I was counting hours.

I was counting how many hours I needed to work, to either get the money back that I was about to spend, or, how many hours I would need to work in order to be able to afford something I wanted. With this idea in my head, the evaluation of “wants” and “needs” took a truly different perspective.

Time is limited. There are only so many hours in a day and with my limited knowledge, school and friends to take care of and family, there was simply a limit of how much I was realistically able to earn. Measuring working hours against the price of a product would clearly show me if it’s something worth working for.

At that time I also learned that in the future I would have to learn to control these 2 factors: My hourly income and the amount of available time to take advantage of it.

This habit stayed with me until today and in a sense, investing in stocks became the ultimate solution, because this is what stocks, especially dividend-paying stocks, do.

They take time almost out of the equation because analyzing and purchasing a stock is a one-time effort. But it can reward you for decades. The only difference is, that instead of time to exchange for money, you need to put money as a downpayment first, and receive both, time and money slowly back, stretched over a long period of time until it starts to out-weight your initial investment.

The more you invest, the more time you free up and at the same time your hourly income increases. Patience and diligence is the key here.

Just chasing higher salaries will seldom give you time back. And working less will seldom give you opportunities for higher salaries.

You see, this is what investing is all about, and this is why it’s, in my opinion, the best way to escape the rat race.

6 Dividend Ideas for 2018

We are about to pass the main dividend season in Europe and 2018 is poised to be again another record year for investors and shareholders with a massive increase in dividend payouts across the globe. Reason enough to bring the topic up and to discuss a few ideas for dividend-seeking investors.


There is an old quote with reference to the stock market which is saying: “Sell in May and go away. But remember, to come back in September.”

Historically there is some correlation to this quote, as markets tend to drop slightly by the end of May or beginning of June and go into correction mode. Then around October, they will usually start to bounce back and get in position for the year-end-rally that produces the largest gains throughout the entire year. Historically speaking.

For dividend investors, the “low season” between May and October is, therefore, the best time to find stocks that have lost some value and to add them to a dividend-income portfolio. Of course, stocks that didn’t drop in value can be still considered if one believes in their long-term success.

One such a stock is Apple (AAPL). I believe there is really no such thing as a wrong time to invest in Apple. The dividend payout seems not very attractive with only 1,56% yield at the moment of writing this article. This means that for every 100 EUR invested, one will receive only 1,56 EUR back each and every year. This does not sound interesting at first. It means that it would take 64 years to receive a return on your investment even before accounting for taxes, hardly any investors dream. But Apple plays both cards well: Stock appreciation and dividend growth. The company is not only one of the most profitable companies in the world, it is also innovating, fostering new technologies and has a huge, wealthy fan-base willing to pay a premium on prices each and every year. This enables Apple to grow its dividend year on year, and one can easily see the dividend double up every few years. In fact, just at the most recent shareholder meeting, it has been declared a new company policy to start prioritizing shareholders and to focus on total returns as the ultimate goal. We might see some influence from Warren Buffet here, who has just recently purchased a large chunk of Apple.

The second stock on my list is Starbucks (SBUX). It seems for now that the market is not convinced about the expansion plans in China and the stock has been trading side-wards for a while now. But you don’t need to be a genius to know that this company will keep paying dividends for a long time to come. I have a hard time finding a “quiet” Starbucks where I could sit down to write on my blog. They are always full of people queuing to pay highly inflated prices. Starbucks has now a yield of 2,09% which is similar to Apple not very high, but Starbucks is growing its dividend almost on a quarterly basis and one can expect it to double up every few years.

No. 3 on my list is Microsoft (MSFT). When I swapped my PC computer to a MacBook back in 2007, I couldn’t be happier and I got to say that at that time I didn’t believe Microsoft would manage to get out of the hole it dug itself. Despite weaker hardware, MacBooks were fast and significantly more stable than any PC I used in the past and there seemed to be no turnaround. And then came the cloud. And everything changed. Microsoft has been truly turned dedicated to improving its product and is now at the forefront of actively developing the cloud business which is successfully being set up as the new computing standard around the globe. The potential gains and growth are tremendous and while the dividend yield of only 1,72% may look also not exciting, I believe that shareholders will be greatly rewarded in the long-run.

What I like about US stocks is that they pay dividends quarterly, so every 3 months there is some movement on the account. But there are also some European stocks that may be worth considering for income-oriented investors with potentially much higher immediate yields.

A little bit speculative but (so far) very rewarding is a German company called Aurelius (AR4.DE). The company is known as a “hospital for companies” due to its business model. It acquires struggling companies which are mismanaged but promise great growth prospect. Then they put their own management team in place, brush the company up and re-sell it at a higher price. It is therefore not a regular BDC (business development company) as it does not only provide loans but actively engages in the acquired business operations in every possible aspect. This has proved extremely successful in the past, not only for the company but also for its shareholders.

If you click on the link above and visit Aurelius profile on Yahoo Finance, you will see a dividend yield of only 2,35%. This information is correct and refers to the base dividend which has been paid out last week in the amount of 1,50 EUR per share. However, every successful sale by Aurelius of one of it’s acquired business generates additional profits. These additional profits are also being distributed on top of the base dividend. Thus, while you may see only the 1,50 EUR per share at first, Aurelius granted this year a bonus dividend of additional 3,50 EUR on top. The final and total dividend of 5 EUR brought up the yield to mouth-watering 8,6%. If you have purchased the stock at lower prices, your yield has easily surpassed the magical 10% margin. Expectations for the next years to come are within similar amounts with a stronger growth of the base dividend and continuous payouts of bonus dividends.

GlaxoSmithKline (GSK) is a UK based health specialist and another idea that one can hardly go wrong with. There are only a handful of companies around the globe that have enough expertise, equipment, and capital to take on the really big challenges that our aging societies are facing and, GlaxoSmithKline is one of them. One of its investors is Bill Gates as he is actively engaged in their work through the Gates Foundation. As he said it during an interview a while back “companies like GlaxoSmithKline can just do things that no one else can do.”. That’s a pretty solid statement and the 6,53% yield in combination with quarterly payments and no withholding tax from UK side make it a very attractive investment.

Last on my list for today is a Dutch REIT (Real Estate Investment Trust) called Wereldhave (WHA.AS). The shopping mall investor went through a rough year and the stock dropped strongly on missing investor expectations and cutting its dividend. However, even after the cut, the yield is more than interesting. For 2017 the quarterly paid dividend summed up to a total annual amount of 3,08 EUR per share. For 2018 the board of directors will propose a dividend of 2,52 EUR per share, so it’s roughly an 18% cut. However, even after the cut at the current share price, the dividend amount will result in 7,58% yield. Shopping malls are not going to disappear and the “Amazon-effect” is in my opinion vastly overstated. If you come to a similar conclusion, then Wereldhave might be the right company for you.

Disclosure: I have a position in all stocks mentioned in this article.

I will give investment ideas every now and then but please note that these are not active recommendations and every investor is encouraged and responsible for his/her own due diligence. Also, when it comes to dividends, please always check about possible tax deductions/withholding tax. For example, I avoid buying Swiss or Swedish stocks due to the high withholding tax and complicated procedures to regain the money, despite the setup of double-tax treaties. Among the 3 discussed European stocks above, Germany has the highest withholding tax of 26,375% which would make any lower yield paying company far less attractive for a dividend income-oriented investor.

Why Dividends rock

Buying stocks is by some people considered more or less a gamble. Especially in Germany where I come from, people tend to be great in avoiding debt (most Germans actually don’t even have credit cards), having large savings accounts and an array of insurance contracts to protect them from anything that might happen. The dream for most is to buy a condo or a house someday, for which they set up specialized savings-contracts that will allow them to get real-estate-bound loans with discounted interest – and still to keep paying back the debt after utilizing the contract until the very day when they reach – or even fulfill (meaning finish) their retirement.

It would be probably very unprofessional to call this boring, but that’s exactly what I feel about it. Not only is it boring, it’s also highly inefficient and while risks are clearly well managed in this scenario, this model also eliminates any kind of opportunities.

In my Good Reads section, you will find a book recommendation from Robert Kiyosaki, who gives a great definition of the two most important terms for any investor: Assets and Liabilities. While I always had doubts about considering a house or a condo an asset, I can say that this book absolutely confirmed my skepticism.

I am not saying that buying a house or a condo is wrong. If you want it, or need it and/or can afford it, then, by all means, go ahead. But as an investment, I prefer stocks for a very simple reason: A house or condo always incurs additional costs and time effort, in the short and especially in the long run. Stocks, don’t. You don’t need a fortune to start investing in stocks and to reap rewards, stocks are easier and faster to buy and sell and there are fewer regulations to follow. For a 100 EUR, you can get a couple of bricks that will do for you… nothing. But for a 100 EUR, you can also get 2 shares of Starbucks, that will instantly start paying you 0,50 EUR each quarter (or 2 EUR a year) as of date today. And not only that, with Starbucks increasing it’s dividend every year, chances are that this 2 EUR will turn into 4 EUR after 3-4 years. And 8 EUR after another 3-4 years. And 16 EUR…. and so on.

Successful companies share their profits with its shareholders.

This is called a dividend. There are plenty of successful companies on the market and most of them are the ones that you are used to supporting in your own, daily life. Starbucks is one example, but so is Apple, or Microsoft, Colgate, Visa, etc.

Every single product, software or service we use and pay for has its origin at some company. If we already support this company for its products and services, why wouldn’t we trust in becoming a shareholder of it and claim the generated profits back in the form of dividends?

I already showed some broad calculations on the concept of dividend returns in the TIME IS YOUR BIGGEST ASSET article. Of course, there is a risk, but calling it a gamble is vastly overstated and the profit potential is exponentially larger than for any house or condo.

To put it into perspective: If you start and invest early enough in a few strong dividend payers who constantly increase their dividend payouts, even a “small” portfolio may have the potential to cover significantly more than your retirement expenses.

Great companies survive market turmoils and keep paying dividends. Once you have such a company in your portfolio, you don’t really worry about a stock crash or political unrest, another election or whatever may cause a disturbance.

What I have done so far is to invest in several companies which pay out dividends in different months. Some companies pay out dividends every single month. This way I have effectively created a stream of income that adds money to my account 4-5 times each and every month of the year. We are not talking big bucks here. It’s 20$ here, 15 EUR there, another 50 EUR then and so on, but it sums up. German companies pay only once a year, so they distribute bigger amounts at one time while US companies split the payouts on a quarterly or monthly basis. UK companies pay mostly twice a year. Dutch companies on a quarterly basis.

I expect these payments to double every 6-7 years and very possibly even earlier, as I am adding more stocks whenever any of the companies I am invested in drops cheaper in price.

Not to sound repetitive, but Warren Buffets investment in Coca-Cola is paying him annually approx. 40-55% of his investment back in form of dividends – year, by year, by year. I really don’t see any reason why anyone of us could not follow his footsteps and reach the same target. And just imagine what this could mean for your retirement: Even only a small amount of 50.000 EUR in your portfolio might have the potential to generate for you annual returns of 20.000-27,500 EUR. This is already more than the minimum pension guaranteed by the German social security system for people without any savings. What if you can double it? Or more?

Disclaimer: I am long Starbucks, Apple, and Microsoft. This means that I owe shares of these companies. 

What is passive income?

Today I would like to clarify a few points regarding the term “passive income”.

There is probably no financially successful person in the world who would not preach the mantra of protecting your financial future by having multiple streams of regular income. Relying on your job alone is a risky endeavor. You are dependent on your boss, on your companies success, your colleagues, your health, and so many other factors that could trigger a chance of losing your job and your income.

Not being prepared and without other sources of income, you might struggle to pay your rent, medical bills or even sending your children to school. Even if you are prepared and have some savings left, being unemployed may eat up these savings before finding a new job and destroy possibly years of diligent saving within just a few months.

Therefore, having several sources of income is very important. Since our daily time capacity is rather limited, these income streams should be set up as passive income streams. Meaning: One should not have to put too much (or even for the better: any) work into it.

Here is where the misconception may already start and where one should never forget the basic rule of any investment: If you don’t put anything into something, chances are you don’t get anything out of it either.

We all dream about it: Receiving money and doing nothing for it. Well, it does sound wishful but not easy. And it is not easy indeed. The thing about passive income is the time and effort you have to invest to start creating it in the first place. There is no magic bullet or “trick” how to get around it: In order to create passive income, you need to invest time, effort or money – or all of it. This is especially true for the type of passive income that I am promoting: Dividends.

Let me be clear about it: Passive income is not a side-gig. I think it’s great if you have a hobby and use it to generate some extra cash which you can use either for investing, to build up more savings or your next vacations. But passive income needs to be an automized source of income that requires no more than an occasional adjustment. That’s it. You should not have to sit in your cubicle for 9 hours daily just to move to the next cubicle after that for another 3-4 hours to ensure you have an extra income. That’s not how it’s supposed to be.

Before I talk about dividends, let me give you some examples of passive income which do not include financial instruments:

  • Referral payments from your online blog
  • Royalties from your e-book
  • Income from registered patents or issued licenses
  • Paybacks from your participation in a lending club

All these examples have the characteristic that you don’t need to actively do anything all the time to receive payments. They may be not all reliable, but they are automated and generate income in as small or as big amounts as they turn out to be successful.

The more money you would like to receive from your e-book, the better you have to write and promote it. Once. You want your patented reading lamp to be a success? Make it awesome and find some distributors. Once – or – a few times but not daily. The lending club shall pay you back monthly with interest: Borrow them your money. Once. Unless you want to get more. I think you get the point.

So the key element is, that you have to put some time, effort or money into your future source of income first before it starts generating anything. And there is no guarantee it will work. This makes it so tricky and is ultimately the reason why it scares off so many people: It requires a lot of time to start, you need to invest (time, effort, money) and it does not offer any immediate gratification. All the things that our brain responses positively to are not given.

This is even more true for dividends. Because to receive dividends, you have to invest it all: Time, effort and money. Money that you earned in your daily job and money that you understand to be your immediate reward for the work you put in during the whole last week or month – depending on where in the world you live. So why should you put your hard earned Euros or Dollars or whatever currency you use into something that seems so complicated, far off and that feels much less rewarding?

I admit, the psychological gap is hard to surpass. Investing in Stocks, REITs or whatever financial instrument you go for is an abstract model. The stock market doesn’t feel real to us, it’s nothing that we associate with our true needs. Having some stocks of a company doesn’t make us feel of being a company owner. Even though this becomes our entitlement to a tiny fraction. It is nothing we can eat, or dress or even put into the garage if we don’t want to use it anymore. And yet, it is possibly one of the strongest and most rewarding instruments to create wealth that almost anybody in the world has access to.

The dividend season in Germany is starting now, and in 2018, the biggest German companies alone, which are grouped in an index under the name DAX, will pay out approx. 34,3 Billion Euros to its shareholders. Let me write this number down in its full beauty:


That’s quite some zeros. And not only this, but you should know that this number grew by approx. 13% compared with the year 2017. This is cash money that is being transferred in tiny fractions to all shareholders who are invested in the DAX. Money that you can withdraw, without touching your stocks, and spend on whatever you want or need. Why would anyone not want to be a part of it and to get some piece of that cake?

Buying stocks/shares is not a highly sophisticated financial process. It is as easy as buying a piece of cake. Literally. Or figuratively. However, sincerely speaking, the piece you buy in the beginning will probably be very tiny and it will most probably not fill your stomach at all. It takes time for it to grow to a level, that it will be truly fulfilling your needs. But the good news is: Once it’s there, chances are that it will last a lifetime and if constructed in a clever way, it may even support your family for generations to come. The sooner you understand this concept, the sooner you will be able to profit from it.

This is why in a previous post I explained The Time Replacement Model (TTRM). Every stock you purchase that generates dividends replaces a tiny fraction of the time that you spend at work. The more dividends you receive, the more time gets replaced until you reach the point that you don’t need to work at all. Unless you truly want to. And it is truly passive because putting your money in the right stocks will still let you sleep well at night. No matter what happens in the world. I will get back on the SWAN stocks (Sleep Well At Night) at a later point.

Take care of yourself

Let me start by saying this: We only got 1 live. You might believe in reincarnation, but no matter what you believe or how you turn the story around: You always got to start from scratch. You are born and you end up under the earth or in an urn.

The available time to make the most out of our life is pretty limited. When we are young we tend not to appreciate this and waste precious time on plenty of useless tasks: Watching TV, playing video games, “liking” cat pictures on your friends Facebook, sleeping off hangovers, etc. – just to name a few.

There comes a point when we realize how much time has actually been wasted on such useless tasks and believe me, it can be a very frustrating moment. Sure, we need relaxation and free time and can’t be constantly working, learning, adding new skills or perfecting existing ones. But, we just really should appreciate the time we have and try to make the best out of it.

Having said all that, let me tell you why I bring this whole thing up: Considering that our time is limited and we should try to make the best out of it, spending most of this time at work seems just not right. I don’t believe that working all your life just to get by makes any sense. I got no problem with being active, creative and certainly, I got no problem at all with earning money. It just shouldn’t be something that you HAVE to do just to ensure that you have something to eat in your fridge, that you are able to send your kid’s to school and that you can handle your medical expenses when they come up occasionally.

Unfortunately, our society is built upon exactly this model. While some systems provide better social security than others, ultimately the overall idea is the same all around the world. The majority of the population gets by on a day to day basis, earning just enough to make it until the end of each month with little room to generate some savings and being hardly able to afford 2 weeks of vacation once a year. They spend a large part of their lives in exactly this manner, craving for the time when they hope they can finally escape into retirement, only to realize that their health has deteriorated, their financials may not be enough to do what they were hoping for and that on top they already forgot how to have a life without their daily commute to work.

There is, of course, a small minority earning significantly more, working significantly less and having much more time & money to take care of themselves at a much earlier point.

For most parts, this minority is somehow directing, entertaining, managing, or in any other way influencing a poor-to-middle-income majority. And when you think about it, it makes perfect sense. While we are constantly adding money to the markets, the basic rule is still valid: For one person to have a lot of money, many other people need to have much less. And while everything in our society might suggest that there are people in charge who care about you, either in your company or government, the fact is that you are out there on your own. Realizing this is the first step and the second step got to follow up immediately: You really need to start taking care of yourself.

It’s kind of a sad setup, isn’t it? Maybe. But it also gives clarity about what you have to do and where your focus should be upon.

Obviously, there are also other things than money to worry about, but the words life & freedom only start to make sense together when the basics are covered and your most pressing worries about food and shelter are gone for good.

And this is what this blog is all about. So how do you get to the point that you can cover the basics – without working? The 2 magic words are Passive Income and this will be the topic for one of the next posts to come.

2018 – Is it time for a crash?

Last week was apparently the worst week for the stock market since the BREXIT announcement back in 2016. My portfolio took a hit with some of my favorite stocks crashing down. In particular, one of my REITs (Real Estate Investment Trust) crashed 12% while announcing a dividend cut.

The company is called Wereldhave and is a Dutch Shopping Mall REIT. I don’t have a large position in it and see an opportunity here to add more and to lower my average purchase price, but yes, it hurts. Having said that, the dividend yield is still fine and it will keep creating passive income for more years to come.

About passive income

Now this is just my 2nd article and I didn’t really start describing in detail yet about what I am doing here. If you like to see my introduction, take a look at my previous post. To sum it up: My goal is to reach financial independence and to have the freedom to retire early. Or FIRE.

Passive income is one of the main tools to reach my target. The reason is simple. It is hard to talk about freedom if you are depending on a job, a boss and a paycheck. If you have to worry about food, shelter, medicine and education, then it can hardly be called freedom.

Also, while you might not worry about all these things as long as you have a job, you might start to worry when your company gets in trouble, when your job becomes redundant, when you get older, when the economy goes down… there are countless reasons that may create a situation in which you will have to seriously start to worry about your income.

So getting to the point where this freedom-restriction is not your major concern anymore is pretty vital. True freedom doesn’t work without financial independence. Passive income streams are therefore crucial, and for me, the way to get there is through investing.

What to do when the market goes down

While 2016 and 2017 were great years for investors, 2018 might be a rough one and I actually think that we may see a correction in some sectors. My portfolio may drop as I do have some speculative titles in it, but while some people spend their money on avocados, cappuccinos, and clothes, I prefer to pour it into dividend-paying equities that will hopefully support me in a not too distant future and start to cover my cost of living.

Any crash in the stock market is, therefore, an opportunity to purchase more stocks, lower my average purchase price for equities that I already bought in the past and set up new positions that will bring me closer to my target.

So let’s see what happens. Apple came down in price nicely despite reporting record profits. Starbucks got back to “normal” prices. AT&T is still in a good dividend yield range, Realty Income is back to a 5% dividend yield, IBM seems to turn-around and getting stronger in its cloud business section. In Europe, my all-time favorite BDC (Business Development Company) Aurelius announced a 5 EUR dividend which at the current price is a 9% yield – and 10% at my entry point, Vodafone is speculating about takeovers, and BT Group just announced a very robust business. While some people might get spooked, I am pretty optimistic and all these equities now yield over 5% on average, some up to 10% a year.

Corrections offer buying opportunities

I am looking forward to the correction and some amazing buying opportunities. So is it time for a crash? I don’t think so. Most companies actually are reporting record earnings and the bigger players are swimming in cash. Stock valuations in Europe are very moderate and while in the US they may seem high for some, the tax cuts and improved economic conditions will soon let this numbers go up. Dividend yields are good and might even get better after the correction. There is no reason to panic. Unless something really terrible happens in the world, a crash is not very likely anytime soon.

However, I am not an oracle so just in case the crash happens anyway: You better keep some cash on the side to get in the market right after the crash. Now we know very well that it’s almost impossible to time the market and to generate optimum profits with our limited time, knowledge, access to information and speed of execution. But, it actually doesn’t matter.

As a simple rule, I tend to look at it like this: There are companies which I simply know will be around in 10 years from now like i.e. the titles I mentioned above. It doesn’t matter if the world economy crashes, I KNOW there will still be a Starbucks, people still need to make phone calls and access the internet and premium brands such as Apple are very hard to kill.

These companies are seldom truly over-valued, and no matter how much they crash, as a result, their valuations will only get better. 10 years from now, will be 10 years back in the future, and you will most probably sit on triple-digit earnings and enjoy rising dividends for your passive income stream.

Disclosure: I am invested in all the shares mentioned in this article.