Traders and investors are a large minority. It doesn’t really matter which country we talk about and there are certainly significant shifts between nationalities, but overall, based on total world population, investors are a rare breed.
With my German background, I can say, that among my friends and colleagues there are only few who are active on any stock exchange and the majority still believes that the best investments one could do would be to buy a house or a condo. Or an insurance.
I consider these ideas to be very flawed, but it’s hard to blame or to dispute them completely. At the end of the day, unless we have acquired the investor mindset, the biggest concern for our hard earned money is its security. Stocks are going up and down on a daily basis thus feel not stable. A piece of land or a house – bricks, mortar, cement. Yep, this feels solid. Or is it? More on this at another time but to give you a heads-up: It’s not.
I am following a website called “Seeking Alpha” (SA) now for a while, which is basically an investment forum with the majority of its users being retired income investors. People who invest in order to generate sustainable profits to secure their retirements. Many of them put their money in stocks that generate either high yield dividends or that pay out dividends on a frequent and reliable basis. Since many of them are old and experienced, I often like to read their comments as there are plenty of things to learn from the mistakes they made during their investment life.
One constant note that comes up over and over again is the significance of time. In fact, Warren Buffet said oncd that time is the investors single biggest asset.
No matter where we put our money in, a house, insurance or stocks, our expectation is that they either appreciate over time or generate profits. A house might be an exception because most people don’t buy a house to sell it again but to save on the rent when they get old. Well. That’s actually already the beginning of my argument against a house but there will be a separate post on this topic… but the point is, that only time will tell if our idea will or will not pay off which will be mirrored in value appreciation or distributed profits.
Time is the basis for every investment calculation and investment decision. Time can be your friend, or it can be your enemy.
For an investor in the stock market, time becomes your friend the more you have of it.
I am not an investment advisor (yet), but I probably wouldn’t recommend a retiree without any prior stock market investments to move his/her assets into the stock market. The few years that this person may have left are simply not enough and uncertain to truly utilize time to its benefits. But on the other hand, if I meet a person in their 30s or 40s and they are not invested, then I believe they miss out on probably one of the best friends they may have.
Historically speaking, any person who would be invested in the stock market for longer than 20 years would have ALWAYS benefitted from it. It doesn’t even matter when one would have invested the money. Even if one would put all his cash into one of the larger US or German Index funds and it would crash by 50% or 60% the next day – 20 years later the investment would have most probably not just paid off, it would have doubled or tripled.
With an average of return on investment of 8% year on year, the value of stock investments is doubling every 7 years. So just think about it. Let’s say you are 37 years old and plan to retire at 65. Meaning you have another 28 years to go. If you could now put 30.000 EUR into an Exchange Traded Fund (ETF) on any major stock index, this would look like following:
2018 = 30.000 EUR (first investment)
2025 = 60.000 EUR (after 7 years)
2032 = 120.000 EUR (after 14 years)
2039 = 240.000 EUR (after 21 years)
2046 = 480.000 EUR (after 28 years)
I know, 2046 feels very far away, but if you are 37 now then chances are very high that you will get there. This 8% does not mean only the increase in stock value. It’s the whole package: Higher valuation, dividend payouts, dividend increases, etc. Now, what would happen if you don’t put 30, but 40.000 EUR in? Let’s take a look:
2018 = 40.000 EUR (first investment)
2025 = 80.000 EUR (after 7 years)
2032 = 160.000 EUR (after 14 years)
2039 = 320.000 EUR (after 21 years)
2046 = 640.000 EUR (after 28 years)
Only 10.000 EUR more for the initial investment will add another 160.000 EUR for your target date. This is ridiculous, isn’t it? And yet, this is how it works.
There is obviously no guarantee, but this has been the case since the beginning of the stock market as we know it!
So yes, time is your friend and the sooner one starts to invest, the higher the chances for a worry-free retirement.
There are plenty of other things to consider and to think about, for example: Dividends.
I am a strong promoter of companies that benefit shareholders by distributing dividends. While many companies refuse to do so in order to keep the cash for future investments, I believe that since a shareholder carries risk in regards to the companies success, he/she should also reap rewards from the companies profits. There is obviously no guarantee for any company to generate profits for lifetime, but there are companies that have paid dividends and rewarded their shareholders in a very reliable manner.
These stocks are often referred to as Dividend Kings or Dividend Aristocrats. It’s a circle of few companies that have not only distributed dividends for 25 or 50 years respectively without a single interruption. They also have never lowered the dividend payout but either kept it steady or increased it.
If you have a lot of time ahead, these are the stocks that might be of highest interest and which may offer great opportunities for a relatively secure financial future. They might offer an excellent return on your investment over time and if timed right, they might easily grow into 10%+ yielding cash-machines over time – or even more.
How is this possible? Revenue and profit growth results for this companies in dividend increases. If a company can grow it’s dividend by 10% a year, it will double within 6 years. So for example, if you buy now shares of AT&T (the biggest telecom provider in the US) which yield 5.7% at the time of writing this article, chances are that in 6 years your investment will return 11.4% in 2024. And 22.8% in 2030. And 45.6% in 2036.
Ridiculous? Crazy? Impossible? Well, to refer again to the greatest investor of all times: Mr. Warren Buffet. One of his largest investments in his lifetime was to put money into Coca Cola. Not only did the value of the company shares appreciate over his lifetime but so did the dividends. From what I was reading, his annual dividends on Coca Cola offer a yield of anything between 40-55% – depending which source you follow.
Just think of it: You put 100.000 EUR into a company, and given enough time it will return to you between 40.000-55.000 EUR – every single year on year on year… and it keeps growing!
And let me tell you another “secret”. He is not the only one. Coca Cola and AT&T are not the only examples and given enough time, anybody can do it.
Learn from the best, follow smart people who are more than happy to show you their path to success. At the end of the day, we all benefit from more people being invested and having more spending power and more time to spend and re-invest their returns. That’s the circle of our economy as of today.
I think it may be time to add disclosures to my articles so since it came up here: I am long AT&T. This means that I have shares of AT&T in my stock account.