Most people do this.
There are several types of investors. Some are more aggressive and some are more passive. The passive ones are averse to risk and buy funds, or fixed interest investments, or even just a savings account. When I wrote this, September 2022, a savings account gives you 1% interest per year. To put this into perspective, 1% on a $1,000,000 is $10,000 per year. I don't think you can even pay a year's rent for an apartment with that, can you? If you decide to take on more risk and buy stocks, you can be fairly safe in buying dividend stocks. Dividends are typically paid to a shareholder every 3 months. Large banks can pay over 4% per year in dividends. Let's be generous and say 5%. On $1,000,000, that equates to $50,000 a year, or about $4,167 a month. If you can live on that, then perhaps this is the safest way to invest for you, and you may even realise an upside if the stock goes up in value. I have been tracking 8 bank stocks over the past 6 years, 2 of whom are US banks. The overall set of banks increased in share value by 17%, plus whatever dividends were paid out (however, the dividend payouts can change at the whim of the company). 17% over 6 years is about 2.83% per year. On $1,000,000, that's $28,300 per year on average. So, combining dividends of $50,000 and growth of $28,300 equals $78,300 a year, or $6,525 a month on average, and many people can live on that. One of the problems with this is that although the dividends may be fairly secure, the stock invariably goes up and down with the market conditions in the meantime. If the stocks go down, but you need cash to pay the bills, this becomes a problem.
Then there are investors who take on more risk by speculating on companies and industries, even geographies and currencies. As mentioned in the Traditional Investing section, there are too many factors, variables and unforeseen events and forces to be able to make predictions with any degree of accuracy. From January 1, 2022 to Sept 7, 2022 (the time of this writing), the DOW Jones index was down over 14%, the NASDAQ was down almost 22% and the Toronto Stock Exchange was down 9.5%. That 1% savings account doesn't look too bad now, does it? On $1,000,000 and invested in the NASDAQ, you would now only have $780,000. In other words, you'd be down $220,000 and stuck holding until who knows when. Meanwhile, this situation takes a toll on your health and freedom. But who predicted this? The answer is no one.
Besides, who has $1,000,000?
The answer is that the average person does not. Not even close.
So, what can someone do? It's frustrating and scarey.
I didn't like that feeling or situation, so I decided to do something about it for myself. I decided to Beat The Street. Now, I'm hoping to share it with you.
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