For people who aren’t born into wealth, and who didn’t have parents to teach them about investing, investing can be a confusing and gut-wrenching experience. If you lose money over the first few months or years, I can almost guarantee you will feel devastated. If you make money, the exuberance that you will feel is an extremely palpable one that can have you skipping. Life, however, is always a great equalizer. Eventually, everyone who wasn’t born into money will realize the truth of this Charlie Munger saying, “The first $100,000 is a bitch.” Everyone realizes the hardest part of investing is just starting out.
The journey to that first 100k, as I can testify, is one of the most frustrating experiences I have ever had. When you are starting and dealing with only a few hundred dollars at a time buying stocks, it is easy to look at what you are getting and conclude it isn’t worth it. If you invest a little over $500 into Coca Cola to buy 12 shares, you are getting only $17 in dividends a year. It’s hard to look at your friends going out to parties every weekend, and not say, “what am I doing?”
This is where I can only quote President Calvin Coolidge, “Nothing in this world can take the place of persistence. Talent will not: nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not: the world is full of educated derelicts. Persistence and determination alone are omnipotent.”
Why Just Starting Out is the Hardest Part of Investing
When you first start buying stocks, the dividends and capital gains in all likelihood are going to be small. If you are aiming for financial independence with stocks, you are going to have to save. If you want thirty grand coming in from your holdings you are going to need a million dollar portfolio. Watching a stock go from $60 to $62 seems like small potatoes when you start trying to imagine enough dividend income to give you financial independence. This leads into the utility and economies of scale of money. Make ten percent on a ten million dollar portfolio and you have a million dollars to spend. Make ten percent on a thousand dollars… yeah I think that’s grocery money.
What You Can do to Ease the Journey
The process of getting to the point where your passive income holdings can generate enough money for you to live on is fun, exciting, potentially nausea-inducing, and frustrating beyond measure. What I will say is that the US has set up several amazing ways for the middle class to achieve that stage. Just look at Roth IRAs. A $5000 investment in Tiffany and Co. 26 years ago today is now worth a little more than $108,000 with dividends reinvested. That is ONE stock representing a company that every woman in America knows about.
I have written about investing in your 401k plan at work where you can retire with millions by taking advantage of your companies match. There are articles I have written about DRIPs. I haven’t even touched the rewards of investing in some of the strongest businesses on Earth. When you invest in an American company, you are buying a share of that companies’ earnings that goes to eternity short of the business going bankrupt. As long as you hold that share of Coca Cola, you are entitled to a proportional share of its earnings. If its dividend grows, so does the money that goes into your pocket. The point is to find businesses that will be around for a long time and diversify so that if one bankruptcy occurs, your other holdings protect you.
You don’t even have to invest in stocks to get financially independent. For you it may be real estate, bonds or starting your own business. The sky is the limit here in America as to how you reach the promised land. The reason why I write about stocks is because they have the highest return characteristics, and investing in them is like a puzzle where you make money if you do your homework and are intelligent about how you structure your holdings. However you plan your journey to financial independence, just remember that millions of people have started where you are now. Today there are more than ten million millionaires in the United States. Who says you can’t be one of them?