1/ One of the major questions that you will have when you begin investing is this: What does it take to generate substantial money passively over a somewhat reasonable amount of time? The answer: $650 per month for twenty years.
2/ If someone in 1990 was earning the average income and wanted to generate $67k passively in 2021 (the US median household income), it would require setting aside a bit over $200 per month into Johnson & Johnson, Coca-Cola, and McDonalds stock.
3/ For someone earning the US median household income personally throughout this entire timeframe without any raises above what the US median household earned, this would require a 19% savings rate in Year 1 but only a 11% savings rate currently.
4/ With wealth-building, the inquiry is: "How do I make money while I am sleeping?" When you are selling your labor, you are being compensated at a rate that the employer can earn a profit and capture all the upside of what you generate.
5/ Part of the appeal of stock investing is that you get to sidestep the finiteness of labor. When you work for a living, you exchange a paycheck for certain cash and that is it. The transaction is now over. If you want any more benefits, you must go out there and give up time.
6/ With stock investing, you get two benefits. First, the corporate form is perpetual. Absent a bankruptcy or a buyout (which means $$$ and a new perpetual entity), you get to benefit forever. Also, the form has limited liability, so if Enron happens, you don't get a bill.
7/ People always say investing is about making money while you are sleeping. Another way to put it, you are the principal reaping the rewards of the agent. With a job, you are the agent (employer gets upside). With a stock, you are the principal (stockholder get upside).
8/ I used MCD, KO, and JNJ as examples for a reason. They were longstanding dividend payers with excellent track records and DRIP plans back in 1990. You could have bought stock in these enterprises for no more than $1 or $2 per transaction.
9/ And they are "perpetual earners". Wherever you go, Coke products fly off the shelves. They manufacture a third of the world's beverages for other brands too. McDonald's is so busy they created a second line. Johnson & Johnson has so many brands I can't name them (look it up).
10/ Guess what, the guy driving a truck to drop off the soda, taking your order in the McDonald's drive thru, and ringing up your midnight Tylenol purchase at the gas station is part of the web that has showered wealth down upon owners for literally generations.
11/ And over a 20-year period of new purchases, dividend reinvestment, and overall growth, such a median US earner could have amassed a $2.8 million portfolio that now generates $68k in annual passive income (12 checks of roughly $5,600 per year). And, unlike labor, it continues.
12/ When you work and get a paycheck, it's over. But with this passive income, you could conceivably sell it for $2.8 million in cash if you decided you wanted to end it. It's there for the taking. Or better yet, you roll on with it, and watch your $5,600 checks grow.
13/ With blue-chip stocks in general, there is a tendency to double your income every 7-8 years. So, once this foundation is established, you could be spending your $4,200 checks (after paying $1400 to gov't) all the time and your income would still double by around 2028.
14/ Switch from agent to principal mode, and you are positioned for unlimited upside. Unlocking the limits of your upside, generating income and ploughing it back into the same or another stock for more unlimited upside is the key to wealth (i.e. "the fruits of compounding").
• • •
Missing some Tweet in this thread? You can try to
force a refresh
