I hope you answered yes to the questions above, continue reading on. If you answered no, well um…the page has already loaded, you’ve used your data so might as well keep on reading!
Stocks are the greatest wealth generating tool of our time because they have historically provided the highest returns of any asset class — close to 10% over the long term.
Real estate is another great vehicle for investing and making money over time but that all depends where you live and various other factors. I don’t recommend real estate for older people because of liquidity. This is critical if an emergency happens and you need to free up some money quickly. Emergencies happen to everyone though. So think about your situation, what would you do if you invested in a rental property? Could you handle an unexpected family emergency? A car servicing that found some problems? <insert any series of unfortunate emergencies>
So let’s look closer at stocks. Stocks are liquid for two reasons:
First, stocks are easy to sell. You put them up for sale and within 24 to 48 hours you have the money. Have you ever tried to sell property or a business overnight? You won’t get your money in 24 hours. Nor in a week. Most likely not in a month. And there you are, handling an emergency, desperately needing to free up some money, and having to waste time fiddling with a myriad of details that the sale of a house or business entails – documentation, property inspections, meeting with agents and buyers, negotiations, etc. Stocks sell much faster, and with little or no effort.
Second, stocks can be sold in part. If you own 500 shares of a company, you can easily sell off 100 or 300 shares, depending on how much cash you need to free up. You can’t do that with real estate or with a business. It’s all or nothing (ok, yes you could sell portions technically but do you have time to waste fiddling with a myriad of details that the sale of a portion of a house or business entails – docu… wait, I said this already).
Ok, so I’ve got you warmed up on the idea on stocks. You’ve read this far, you’ve invested your time on this post and are thinking to yourself, just tell me how the <bleep> I can make money! If you’ve read my previous posts, then you know I preach discipline and patience. Think of this an exercise in both 😉
Enough beating around the bush, here is how you can make steady income. One word:
Now, I’ve got your attention. What are dividends? Well they are simply the company paying its investors a small amount of money per share. Say you own 100 shares of a company and they pay a cash dividend of 5cents per share. This means you made $5. Companies will pay these on a schedule, maybe 3 or 4 times a year. $5 doesn’t seem like a lot, but say you are constantly finding more companies and investing in them. You build your portfolio with a variety of strong blue chip companies that minimize risk but pay out dividends.
Remember, we are investors, not traders. Our portfolio grows and so will our dividend payouts over time. And since we are choosing strong companies and investing for the long term (see my other post about time in the market), if an emergency happens, we can always sell and deal with it.
There is an idiom, “pays dividends”, which has one definition: often used to refer to something you do now that will benefit you in the future.
So do that something now! Check out Wall Street Kitchen to find the recipe of how to choose the right companies and start making steady income.