Don’t Be Afraid of Owning Stocks!

A few days ago, I met a 22-year-old young man who disclosed to me that he’d opened an IRA account.

I was impressed at the fact that he even knew what an IRA account was, given his background. He was an African-American male from a low-income household; terms like “investing” or “IRA” are typically not terms you hear in a low-income household.

I asked him how he learned about IRAs. His answer was “by reading”.

I then asked what stocks he owned. He told me that he did not own any stocks…because he was afraid to.

I suggested that he buy a copy of my investment guide, The Stock Market is For Everyone, and let me know if he had any questions after reading it.

Fear of the stock market is a sentiment shared by many people. Especially minorities. It was a major motivation behind my writing this guide to begin with.

When you grow up in a family that is financially illiterate, you learn many things about personal finance – and most, if not all of these things, are wrong.

You don’t learn the importance of net worth.

You don’t learn the value of having good credit.

You don’t learn to stay out of debt.

If you hear about the stock market at all, the only thing you learn is that it is just for the wealthy. You may also have been told that it’s like gambling, and that the market is “rigged”.

It’s interesting how someone that knows absolutely nothing about the stock market can come to these conclusions!

Like I’ve said in the past…ignorance is not bliss!

Here some reasons why you shouldn’t be afraid of the stock market:

1. The stock market has an upward bias. From 1932 to 2019, the Dow Jones Industrial Average has gone from 800 to over 26,000.

2. The stock market is the single best wealth-building vehicle for the average person. Investing a modest amount in some of the great companies of our time could have created incredible wealth for you over time.

3. Understanding the stock market will make you better at managing your personal finances. 

4. The stock market has bounced back – and bounced back BIG – from EVERY crash throughout its history. In fact, the bigger the decline, the stronger the bounce back!

Fear of losing money in the stock market is common among people with very little knowledge of how it works.

For many years, I was one of those individuals. I did not fully understand how the stock market worked, and I was uninvested. For me, it wasn’t because of fear that I stayed out of the market. It was due to a lack of historical knowledge of the stock market’s ability to create massive wealth by simply buying and holding stocks.

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

 

 

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How To Go From $5,000,000…To Broke

There’s a show that comes on cable every now and then called “How Winning the Lottery Changed My Life.” The show focuses on past lottery winners – and, for the most part, how they squandered their millions.

It’s unfortunate, but 95% of lottery winners are bankrupt five years after winning the lottery. People who receive a financial windfall in the form of a settlement don’t seem to fare any better.

I don’t know the actual statistics, but I personally know only one person that received a windfall and did something intelligent with her money.

Managing money is not something that comes naturally to most of us. Good money management is a skill that is taught and learned over a period of time.

I want to tell you a true story about a couple that I know of who came into a large sum of money some ten years ago – and how they blew the whole thing.

When average people experience a $5,000,000 windfall, it is usually the result of either a lawsuit or a lottery win. In this particular case it was a lawsuit. After years of deliberation, a settlement was reached, and the couple was awarded $5,000,000.

The first thing they did was buy five brand new cars: an Audi, a Mercedes, a BMW, a Porsche, and a Range Rover. Then they bought a house in Florida for $1,500,000, because they had to have a four-car garage to park their cars in. To furnish the inside of their house they spent $100,000. To beautify the outside, they spent $90,000 on landscaping.

At this point, we are already down to around $3,310,0000 – and there have been no investments made. Not one.

Property taxes, and maintenance on the property, came to a few grand per month. By “a few grand”, I mean close to $5,000. That’s $60,000 a year just to maintain your home!

In addition, let’s not forget that they had to buy each of their adult children a car – and take many  fabulous, luxurious vacations.

Now, by no means am I suggesting that you not enjoy your newfound wealth. You should allow yourself to experience all the wonderful things you would not have been able to otherwise!

However…there is always a smart way and a not so smart way of doing everything in life.

The smart way enables you to do the things you want to do without going broke.

The not so smart way simply leads you to the poorhouse.

One of the main reasons I think people lose their minds when they come into a large sum of money is its liquidity. Liquidity is the ease in which something may be converted into cash. What could be more liquid than cash?

Remember when you were a child and your parents gave you a dollar bill? That dollar bill burned a hole in your pocket. You couldn’t wait to spend it.

Having large amounts of cash can be intoxicating to people that have never had money before. All they know how to do is spend.

Well, I have a theory as to how people that find themselves in this situation can overcome the urge to spend money senselessly.

Like anything in life, it is about your perception.

People with newfound wealth tend to have the wrong perception when they come into money.

I often tell people that if you come into money, you should treat it as though you inherited real estate.

For example, lets’s say your long lost uncle died and left you an apartment building worth $5,000,000. That’s great! But the apartment building is not a liquid asset. You can’t just go out and start buying things with it. For all you know, the building could be underwater, and you could actually owe more than what the building is worth!

In this hypothetical scenario, that’s not the case; the apartment building you now own generates $30,000 a month in positive cash flow. Positive cash flow is the difference between your income and your monthly expenses.

That $30,000 is all the cash you have access to on a monthly basis. You can still blow the entire 30 grand each month you receive it. But you’re less likely to stretch yourself beyond what  your monthly cash flow can cover. You’re kind of forced to be disciplined with your spending.

The importance of viewing windfall money as a non-liquid asset is paramount in your ability to build and hold on to wealth.

That’s how Warren Buffett views money – as a vehicle that is a means to an end. Not as a means to buying anything you can get your hands on!

 

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)