This blog is intended for educational purposes only. None of these posts are meant to give legal or financial advice. If you need advice you should consult an appropriate professional.

Thursday, September 19, 2013

Society encourages dependence

We pride ourselves on being independent.  But are we really?  Sometimes as I'm out enjoying the day it seems that people have a veil over their eyes on how this world really works.  I'm not big into conspiracy theories, but I do notice the structure of society.  None of us have a choice where we're born.  We're all just doing the best we can reacting to the situation we are born into.  I see most human beings though, including myself, dependent on three entities throughout life:  employers, government, and schools.

Employers very well could be the biggest of the three.  Our education system, social service help, parents, friends, and family almost exclusively pressure us to fit into the employment system.  What is an employment system?  I'm glad you asked.  It's the situation where you need an employer to pay you the money you need for survival.  Some people call it wage slavery.  The problem is the number of jobs is dwindling steadily year by year, and we're now competing with nations that pay their people a pittance.  It's a race to the bottom.  By the way, employers are extremely picky these days because they know people are desperate.  The hoops they set up to get a job are more numerous than they've ever been.  What if despite your best efforts you just can't become employed?  Not a good situation to be in.  While you have a job pare down your expenses and save your money.

Government is becoming more and more of our provider either through jobs or benefits.  We need a bigger private job market.  I'm going to say this is not a good situation.  When government increases freedom decreases.  Why not aim to be dependent on the government the least amount possible.  I'm not saying it's easy.  For example it's ridiculous how much food stamp enrollment has increased in the last couple of years.  It's the modern version of the bread line.  And remember what the government gives it can take away.  Also when you take a benefit from the government they make the rules which restricts your individual freedom.

Schools encourage obedience and conformity.  I believe in education.  I think we should learn to think for ourselves.  I'm just not sure that's what happens when you're in school, be it college or K-12.  Concerning college and universities I think it's one of the most overrated and overpriced products there is out there.  Very few seem to see it though.  College for all!  Dumb!  Student loan debt is reaching epic proportions.  It seems we are producing a new generation of indentured servants who will have to take whatever job they can get.  Before going to college seriously consider exactly what you want to do with your life.  It might not require a four year degree.  And consider even more seriously taking out student loans.

In conclusion jobs, government, and education are three things we depend on and don't question much.  I'm not saying it's easy to be independent in life.  It's not easy by a long shot.  We're fighting some very established and powerful forces.  And really none of us are ever truly independent.  We all depend on society and others to get our needs met.  All I'm saying is it's a worthwhile goal to be as free as you can.

Thursday, September 12, 2013

Dividend growth investing

We all should aim to build some income that doesn't depend on us clocking in and out everyday.  Traditional defined benefit pensions are disappearing like the horse and buggy, and let's face it social security is not in the best shape either.  That leaves your own ability to save and accumulate wealth.  So we're on our own when it comes to retirement.  Scary isn't it?  Yes!  But I know a secret.  Actually it's not a secret.  It's called dividend growth investing.  It consists of buying shares in companies that pay an ever increasing stream of dividend income.  The four main ways to grow your money through dividend growth investing are:  depositing new money, reinvesting dividends, increasing dividends, and capital gains.

Depositing new money into your investment account is the fastest and most sure way to increase your balance.  This requires having a stable, consistent, adequate income to have a built in surplus where wealth accumulation is possible.  You have to structure your life where there's always extra to put to work.  A tall order for sure.  If possible it's best to invest money every month regardless of what the stock market is doing.  It's known as dollar cost averaging.  You're not doing this for the value of the stock but for the dividends, so don't focus so much on the up and down of the stock market. 

Reinvesting dividends is the second way to build wealth with dividend growth investing.  Your goal is to invest in companies that have consistently raised their dividends and should for the foreseeable future.  Something like 25 or more years of dividend raises is excellent.  Some brokerages will reinvest dividends for free.  You can also participate through a dividend reinvestment plan or DRIP directly through the company's transfer agent or even sometimes directly with the company.  I use a taxable brokerage and hold all my stocks in street name.  This means the stocks are not directly in my name but still belong to me.  This simplifies tax statements with one statement instead of 20 or so depending on how many companies you hold.

Increasing dividends is the third way you can make money with dividend growth investing.  As I said above, find companies that have raised their dividends for 25 or more years in a row.  This narrows the playing field a lot.  Any company that is able to do this is doing something right!  Usually the companies that raise their dividends that long also raise them more than the official rate of inflation.  I bet this is better than the raise you get at work.  This will raise your income even if you deposit no new money or don't reinvest dividends.  Usually the dividend increase happens once a year at about the same time.

Fourth and finally capital gains are the gravy when it comes to dividend growth investing.  Remember you're not investing for capital gains like the majority of people.  This isn't about finding the next lottery type penny stock.  You're focused totally on the income those puppies throw off to pay your bills.  That's what I like about a taxable brokerage account as opposed to a 401k or IRA.  You can use the money now with no penalties or strings attached.  A capital gain is something going up in value.  You buy something for 5, it goes to 12, your capital gain is 7.  Look at capital gains as a nice bonus.  This mindset should help you care much less about drops in the market.  In fact drops could very well be a buying opportunity.

To sum up, the four ways to make money with dividend growth investing are:  new money, dividend reinvestment, dividend increases, and capital gains.  For the average person it's the best thing I've found going.  Remember it's a way to buy a piece of the capitalist machine.  Aim to pay one bill at a time with dividend growth investing.  It's OK to start small!  There are so many ways to lose in this system.  This is one way to win!

Sunday, September 1, 2013

The three types of property

Property makes the world go round, and it doesn't have to be something physical.  Property is considered something that is owned or is under the control of someone and has some kind of value.  There are three types of property:  real, tangible personal, and intangible personal.

Real property is real estate.  It's anything that is considered permanently affixed to land.  Some examples would be a house, air conditioning unit, land, and trees.  Hard to believe you can own a tree but you can.  Just think of it as something that stays in place.  Real property is usually considered an asset because it generally goes up in value and can produce income.  I rent a place right now so the place I live is an income producing asset to my landlord, and I get a nice place to live.  It's a win win!  Some people have built real estate empires.  Who knows the next person could be you.

Tangible personal property is anything that's touchable or physical that is not real property.  This includes a lot of stuff.  A car, books, TV, and clothes are a few examples.  I would say this is the most common type of property and the most widely held.  Everybody owns something even if it's just a toothbrush.  How could one make income from tangible personal property.  That's a tough one.  I would say a vending machine is a good example.  My opinion is it's best to limit the amount of tangible personal property in your life because it almost never goes up in value and hardly ever produces income.  Plus it makes it harder to move.

My favorite personally is intangible personal property.  This is something that has value but is not touchable or physical.  Some good examples are:  stocks, a bank account, an insurance policy, and a blog.  I like this one because it has the least amount of hassle.  There's nothing to clean or maintain.  I have chosen to focus on this one almost exclusively to build my asset base.  I know some people though who want something more real.  That's fine.  To each his/her own.

These are the three kinds of property in this world.  It is my view that it's best to focus on building up intangible personal and real property because they have the ability to appreciate and produce income.  Happy property building!