Fun with money...

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The author of this article is not a financial professional of any sort.  He is also not licensed to provide any manner of advice, financial or otherwise, by any governing body.  

It's funny, I think, how my education touched on many things, math, literature, science, and history, I never really learned a lot about how money works until I was out of high school.  Even then, while that education came at the hands of a most excellent math teacher, it was not complete.

My first lessons about how money works were all about interest and the magic of compound interest.  It's true, compound interest turns small quantities of money into enormous quantities of money.  What's not really expressly shared is you can only make money via compound interest if you are the bank.  A savings account will never keep up with inflation.  In order to make money with compound interest, you need to be making at least prime, if not 10x prime.  With most "savings" accounts, you're lucky to make 1/10th of prime, and they're probably selling you on an "excellent" 1/30th of prime.  Don't fall for that hoax.  Sure it's a safe-ish place to stash your cash, but it's awful in terms of keeping up with inflation.  

At this point I should probably stop and remind you, for expressly legal reasons, that I am in no ways qualified in any state, county, or jurisdiction real or imaginary, to offer advice of any kind, definitely not financial advice.  Take everything I say with a huge lump of skepticism, do your own homework, and go hire a real professional.  I am just some guy on the internet who claims NOT to be a superhero.  Are we clear on that?  No legal shenanigans.  I'm not trying to break any laws and I am absolutely not capable of taking responsibility for anyone's actions that might be based on anything they read on my blog.

So anyway, where I think my education was lacking is in the power of the dividend, especially the power of the dividend ETF.  What's even more bizarre to me is that most retirement accounts don't plan to retire on dividend income, rather the plan is to build a "nest egg" until you retire, then crack it open and sip from it until it's empty.  Since most people don't have a finite guess as to their expiration date, this seems like an awful idea.  Build a money factory that prints your income, then when you retire, don't dismantle it!!!  Keep that thing churning out dollar bills till the day you can't withdraw anymore then pay the creation forward by leaving it to someone who also won't dismantle it!  If you created a goose that laid golden eggs, why would you kill it?

OK so a little rant there.  Think about it though.  Look at a few dividend ETFs.  They pay you some bit per share, probably not much, maybe $0.10 a month per share, but that adds up right?  10 shares is a buck a month, and most brokerages will let you roll that dividend right back in by buying more shares.  So... 10 shares of fictional ETF costs $10 a share you spent $100 to get $1 a month.  Sure there's a bit of risk that the ETF will fail and die, at which point you'll lose your investment, so do your homework and don't take risks you can't afford.  Outside of that though, that $1 a month goes right back into your investment, and in 10 months, assuming a relatively stable market and unchanged dividend payout... you've gotten a free share, now you're getting $1.10 a month.  Heck, buy 100 shares and you're getting a free share every month.  1000 shares and you're getting 10 free shares every month, which turns into an extra free share every month, every month (read that slow, the repeat is intentional!!!).  Get rich quick?  No... No that's not getting you rich quick, but it is making money without you touching it, isn't it?  It's growing too.  And the faster it grows?  The faster the growing gets!  This is something anybody can do.  Lets go a little farther, so say you stared with 1000 shares at $10 per share, each giving $0.10  back.  Your first few months get you 10 shares, but after 10 months of getting 10 free shares now you're getting MORE THAN 20 free shares!  How'd that happen?!  Well, lets just say that compounding works for more than just interest eh?  Sit down and doodle out the math for yourself.  Work it one month at a time, and instead of using my imaginary ETF, go pick a real one.  Figure out how many shares you need to get ten free shares a month and make that a goal eh?  Right.  Well, that's all coming from me, a guy who is not legally qualified or perhaps permitted to provide financial advice.

So... why an ETF and not a regular stock?  Well, you can do whatever you want really.  I'm not your advisor, or even an advisor at all.  The way I see it though, individual stocks carry a lot of risk, especially when the dividends start looking big when compared to the price of the stock.  I've lost my shirt on a stock that looked super attractive.  It was trading at maybe $6, and giving a $0.30 *monthly* dividend (many dividends are paid on a quarterly or even yearly basis only)... well long story short I put several thousand dollars into it, and that company is now in chapter 11 and my stock is worthless, and they stopped paying out any dividend at all, so... yeah that happened.  I figure ETFs are not a single stock, so they're a little less likely to just up and fail like that.  Again though, as you can clearly see, I'm no finance guy.  I do wish I had known about this when I was a teenager though.  Never too late though!

So.  Anyway, in the interest of free discourse, I should leave you with a tool you can shoot yourself in the foot with.  M1 Finance has a super slick interface that lets you build little portfolios they call "pies".  It's pretty easy-peasy to set up a pie of your favorite ETFs and have them withdraw your allowance from your bank account right into your investing account.  Here's my personal referral link to M1.  We both get a little bonus when you start using your account: https://m1.finance/7ePB4YBTnLCN