Although I don’t always trust the credibility of facts and statistics that I see on social media, I saw a recent Facebook post that had a lot of truth to it. In a nutshell, it illustrated how big-ticket items like a car and home were a few times less expensive a few decades ago when compared to an average person’s annual wage than they are now. The point: the spread between what the average person makes and the things that he/she needs or wants to buy is growing larger. This made me think about how consumer debt has grown to astronomical levels in recent years. The correlation between less buying power and growing debt became very obvious to me at that moment.
After seeing that post, the saying that so many of us have heard came to mind: “The rich get richer and the poor get poorer.” I wondered how many average, middle-class people looking at that Facebook post got really discouraged, wondering how they might possibly get ahead, let alone stay afloat? I feel compelled to ponder these thoughts by writing this post and believe me, there is a lot to ponder, so be patient as I do.
I’m not much of a conspiracy theorist, but I do have one conspiracy that I’m growing more convinced about with time: the wealthy class, or “rich,” has arranged society so that the middle class and below – who I refer to as the “poor” (and increasingly so) – feeds their wealth. I could elaborate a lot on this. In fact, I could probably devote an entire blog to this one topic. I could discuss why I believe that our educational system is not teaching people to be financially self-sufficient (a bone of contention with the likes of Robert Kiyosaki, for example), but instead breeding successive generations of bigger consumers. I could discuss why I believe that the encouragement of getting into consumer debt (including student loan debt) is rampant with no apparent effort from government agencies to discourage this practice. I could go on and on!
Instead, I will cut to the chase. What really makes the rich wealthy? It is the fact that they own the companies that provide the goods and services that rich and poor alike have no choice but to buy from. The poor bemoan the fact that they owe money to the banks for their house and credit card bills and other loans, and the telecom companies for their smartphone and satellite TV bills, and the utilities companies for their power bills. Yet at the same time, they’re more than eager to renew their Costco and Amazon Prime memberships, subscribe to Netflix and Apple Music, buy the latest smartphone and pay a large monthly bill for the addiction – er, privilege – then top it all off by feeling the need to continue their addiction to their favorite drink at Starbucks or elsewhere (like Tim Horton’s up in Canada). These are but a few examples. As much as the poor complain, they are in many cases their own worst enemies.
The greatest problem with the poor is that they’re spending so much time paying for unnecessary expenses, trying to ‘keep up with the Joneses’ by buying things they don’t really need and spending the rest on entertainment, that they don’t stop to think. They don’t stop to think about what’s causing their growing debt and dissatisfaction about not being able to get ahead, let alone stay afloat. Because they don’t do this, they don’t look for ways to change their situation in order to actually get ahead. The conspiracy theorist would argue that the rich have the poor exactly where they want them.
As much as the poor complain, they are in many cases their own worst enemies
What I believe to be the greatest opportunity in a capitalist society laying at the feet of anybody – rich and poor – is the fact that they, too, can become part-owners of the world’s biggest and best companies, but it’s many of the poor who don’t realize this. Or if they do, then they don’t realize that they don’t need tens or hundreds of thousands of dollars in order to do this. Anybody who can come up with a few hundred dollars can buy a few shares in the stock of Costco or Apple or Starbucks – or Nike or Disney or Microsoft or Hasbro or eBay. A few hundred dollars can buy them one share in the stock of Netflix or Ulta Beauty. If they’re really ambitious, they can save up over a thousand dollars and buy one share of Google (Alphabet) or Amazon.
Why am I emphasizing the importance of this opportunity so much? What does this have anything to do with ‘getting ahead?’ Anybody who invested even $1,000 in any of the companies mentioned above in their early days – heck, even since 2008 – and held until now has multiplied their return, in some cases many times over. In the case of Netflix, to use but one example, that $1,000 would now be worth around $200,000. Although this is one of the best-case investing scenarios in recent history, would you still be excited with turning a $1,000 investment into only $2,000? A doubling of one’s investment is actually not an uncommon occurrence with investors who are patient enough.
Now, ponder this: how would that $1,000 have fared if stuck in a bank account or a bond? How would it have fared stashed under your mattress or hidden in a safe? If your money is not earning a minimum of 8% per year every year then you, my friend, are not getting ahead. (Some say only 4-6%, but I’ve learned that it needs to be at least 8%.) By the time you reach retirement, the cost of living due to inflation will have increased to the point where the value of your money – if you do not actively seek to earn a return on it – will buy you far less than it does today. You will end up below the poverty line. This is not meant to scare you, but to finally wake you up. Inflation is basic economics, but the poor either fail to understand it, or they’re too scared to want to understand it and so they do nothing to prepare for it.
Owning shares in quality companies is the ONLY proven long-term method of earning an inflation-beating return on your hard-earned money. Period. Unless of course you have enough money to start your own business and the smarts and dedication to make it a success, or enough money to buy your own real estate and the smarts and dedication to have it eventually earn money for you.
If you don’t fall into either of these categories, then owning a few hundred or a few thousand dollars worth of shares in successful companies is your best option – really, your only option for future wealth-building. It is essentially trusting the people running them to make all the tough business decisions for you; you don’t need business smarts or a degree, but you’re putting your money behind those who have them. As business owners, they have motivation to succeed and when they do, so do shareholders, and the stock market doesn’t discriminate between rich and poor shareholders: share prices go up for everybody who owns them. I personally trust the ability of the CEOs of the likes of Amazon and Apple and Netflix and Nike to run a business far better than I would trust myself! The stock market simply allows me to be a part-owner of such businesses.
A doubling of one’s investment is actually not an uncommon occurrence with investors who are patient enough
The means by which anyone – rich or poor – can buy little bits or “shares” of ownership in these and other companies is the stock market. However, the mere mention of these two words, “stock market,” arouses great suspicion in the minds of many poor people, especially those who have not taken the time to learn what it’s really about (a key goal of this blog).
It isn’t just designed for “rich people.” It isn’t exclusively a “rich man’s game.” It’s designed for anybody who can scrounge enough money to buy even one share in their favorite company.
Again, you don’t need to have a brilliant financial IQ; just buy shares in companies that provide the products and services that you already use or love. Let them pay you for once instead of always paying for them!
Far too many people who haven’t discovered the power of the market can only think of their dad or uncle or friend of a friend’s friend’s friend who ‘lost their shirt’ (or house or job or marriage) because the “crooks” or the “rich” who “run the market” “took” or “stole” it from them. I cannot in one sentence or blog post correct such misinformed thinking, but I can attempt to extract truth from the lies, ignorance, and misunderstandings. There have indeed been many middle-class, ‘average Joe’ types of people who have lost money in the stock market. Some have indeed lost everything, but only those foolish enough to put everything into it or those who invested in only one stock instead of several.
So here’s the hard truth: the sole cause of anybody losing money in the stock market is not the design or the nature of the market, or “the rich” stealing your money, but ENTIRELY due to bad decisions by individual investors.
An ignorant, uneducated investor in the stock market who does not realize that it is the nature of the market to ebb and flow, for prices to rise and fall – as naturally as waves on an ocean, or as the coming and going of storms – gets scared and bails out once the share price of a stock that they own drops lower than what they bought it for. However, they don’t realize that by not selling they’ve only lost money ‘on paper.’ They only truly lose once they sell, but too many inexperienced investors do this and then they blame “the market” for their misfortunes.
The sole cause of anybody losing money in the stock market is ENTIRELY due to bad decisions by individual investors
The key is to hold onto a winning stock at all costs. Doing so over a longer time frame (at least 3-5 years) not only wipes out any losses common in the first year or two, but the likelihood of strong gains increases the longer you hold it. Until people stop flocking in droves to Costco, until nobody cares to wear Nike apparel any more, until Netflix becomes upset by a better way to watch movies, then buy and hold onto stocks like these at all cost, no matter how scary the stock market looks at any particular moment or even year.
Conversely, if you buy a stock and there’s a drastic change that causes it to start dropping or even plunging – say Amazon decides to sell only baby soothers from now on instead of almost everything imaginable – then be sure to get out before it drops by more than 15-20 percent below what you bought it for and find something different.
The key to the poor getting out of their ruts of debt and the feeling of getting nowhere financially is education followed by action. That is, the poor won’t get richer until they get smarter. Blogs like this are a very good start. There needs to be a determined commitment to find ways to leverage one’s money, to make it work for you instead of you working for it all the time. What if you get sick or diseased or crippled or old? Owning things like stocks in well-run, quality companies (especially ones that also pay dividends) making money for you when you can’t or don’t want to work not only help to pay the bills, but provide incredible peace of mind.
The key to the poor getting out of their ruts of debt and the feeling of getting nowhere financially is education followed by action
If you’ve read all this and wish you could get ahead, I realize that I’ve thrown a lot your way, but I sincerely hope you now have some concrete ideas on how to start getting ahead. All you need to do now is:
- Visit your local bank or investment brokerage and ask about how to set up your own online self-directed investing account that allows you to buy and sell shares in stocks. Look for one that costs nothing to set up and that charges a flat fee every time you buy or sell, like only $9.95 or less. That’s a pretty low fee percentage if you’re buying or selling $1,000 worth of stock, for example.
- Next, find out which companies are the best to invest in. The Motley Fool (www.fool.com) is a fantastic place to start for recommendations. Jim Cramer has some great investing commentary, also CNBC (and BNN in Canada). Many people also prefer to consult an investment advisor in person; just be careful that you find one who cares more about your success than they do about your commission.
- Finally, learn as much as you can about the nature of the stock market (this blog, other blogs and sites and books) before making your first purchase so that you get a better understanding about the nature of this thing called the stock market and don’t get as rattled by any surprises.
Then, learn to enjoy being a part of the greatest opportunity available to rich and poor alike looking to grow wealth!
If you’re a brand-new stock investor – or still thinking about it – then I highly recommend the free e-book, Should You Consider Stock Investing? It could become one of the most beneficial 30-minute reads of your life.
One last thing: be sure to click the Follow button near the top of this page on desktop or after this post on mobile. (I don’t post regularly because I believe in quality over quantity, so keep an eye on your Inbox.)
To new beginnings!