Why does everyone seem to be obsessed with the stock market? What is all this talk about treasury yields, dividends, and stock prices?
The truth is that many people turn to the stock market to generate passive income for today and tomorrow. If you are not in the markets, you and your family could have difficulty staying ahead of inflation and cost-of-living increases.
Savers are losers. My favorite author, Robert Kiyosaki, famously (or infamously) said that “savers are losers.” I took offense when I read this five years ago, but I have since come to terms with it. He is right; savers are losers.
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People who save paper money (e.g., US Dollars) in the bank will lose over time. Inflation and currency debasement (money printing) will erode the value of dollars over time.
Let’s say your grandparents put $100 in a standard savings account in 1950 and gave it to you in 2024. In 1950, you could purchase a combo meal for $0.47, meaning your grandparents could purchase 212 meals with their $100. Today, a combo meal is at least $10, so you could buy ten meals.
This is what Robert Kiyosaki meant about savers being losers. Conversely, if your grandparents had invested $100 in the Dow Jones Industrial Index in 1950, they would have gifted you over $225,000 (at an 11% annual return).
The moral of the story is that everyone needs to invest in the stock market, but there is more going on than beating inflation. We must also generate passive income to maintain and grow our lifestyles. We can do this in two ways: dividend investing and options trading.
What is dividend investing? Investing for dividends is the act of purchasing stocks and funds specifically to generate dividend income. What are dividends?
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Dividends are payments the company pays to shareholders from the profits it earns. A company can only earn profits by adding value to customers through selling goods and services.
Therefore, earning dividends is all about adding value and serving others—that’s the only way for a business to thrive in a capitalist economy.
When dividend investing, we want to pick companies that have a history of adding value. One of my favorite companies is McDonald’s (MCD).
When I invest $100 in McDonald’s, I think of it as a little savings account. Not only will my $100 grow over time because MCD keeps adding value, but they also pay me dividends. Even better, MCD will grow its dividend payments over time.
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The ultimate goal for the average person is to own enough MCD stock to live on the dividend income. Diversifying into 20 to 30 more stocks would be wise, but you get the picture.
The importance of dividend investing. It is vital that the average person do the research to become a dividend investor because there will be no other way to retire soon.
The days of pensions, careers, and social security are slowly coming to an end. I don’t want to be doom and gloom, but let’s look at it from your kid’s perspective.
Can you think of a career that your kids can start in 2024 that will be better off in 50 years? I can’t. However, if your kids start investing in 2024, they will have a fortune in 50 years. All they must do is find a way to generate the income to invest.
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Why would someone trade options? Trading options doesn’t feel like adding value to society; however, the options market is very important to the financial world.
The stock market can be very emotional, and a company’s stock price can detach from its underlying value. The options market helps keep stock prices under control.
Although options trading is an advanced financial technique, people should understand how to leverage these markets early in their lifetimes.
I love dividend investing, but you are at the mercy of the company. The companies make all of the decisions until you receive a dividend. Once you receive a cash payment, you can reinvest, save, or spend the money as you wish.
Trading options puts the power back into your hands. You can take $1,000 in January and grow it into $2,000 by December—all from the comfort of your own home.
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However, trading options can have many pitfalls, namely the emotional roller coaster of watching your money rise and fall every day.
Trading options for passive income. I added options trading to this beginner’s guide so that people can see options as a way to generate passive income.
When a person opens a new brokerage account, they will see banner ads for trading options and using margins. That’s because most people lose when trading options; companies know this.
However, if one can go into options trading with the right passive income mindset, they have a much better chance of winning.
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For example, let’s say a young investor starts with a $1,000 options trading portfolio. Without guidance, they will attempt to grow that money into $2,000 in one month (which is possible). However, a better mindset is to generate $100 in passive income from that pot of money.
There is a lot to learn about trading options, so I’ll refer everyone to some articles I have on covered calls, cash-secured puts, and long strangles. Using a combination of these has been vital to my success—your mileage may vary. Learn different techniques that fit your emotional disposition and risk tolerance.
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- Selling Cash-Secured Puts for Passive Income
- Trading Long Strangles for Passive Income
Dividends and options. I know that picking dividend-paying stocks and trading options may sound daunting right now, but that’s okay. I want to give you a broad overview so that you can begin to research these products from a passive income point of view (not a gambling one).
I lump options trading and dividends together because a young investor can use them together. Dividend investing requires one thing that most people don’t have—money!
Options trading can generate significant income if you can maintain your composure. Let’s go through how a young investor can leverage both of these financial products together to build a great deal of wealth.
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Growing with options and dividends. Let’s say my 18-year-old son works at a restaurant, making $2,000/month. First, he needs to save a $1,000 emergency fund in a high-yield savings account.
Next, he can take a year to save another $1,000 in a money market fund inside of a brokerage account. He can use this $1,000 to trade long strangles and earn $100 per month in passive income.
He then takes that $100 monthly and invests it in dividend-paying stocks like AT&T (T), Verizon (VZ), Facebook (META), and Abbvie (ABBV).
Let’s say that in 12 years (he is 30), he will grow his options trading account to $5,000 and his dividend portfolio to $30,000. Let’s assume he can use options and dividend growth to grow his portfolio by 15% each year.
If he can add $500 per month, at a 15% return, over 40 years, he will have grown his portfolio to $18 million. I can speak from experience that this is entirely possible if he keeps his eye on the prize and doesn’t get greedy.
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Conclusion. The moral of the story is that my son would become a multi-millionaire outside of his primary job. He is the deciding factor of his own wealth.
He worked hard, saved money, built an options trading account, and invested the proceeds in dividend-paying companies that add value over a long time.
He used options trading as a wealth generator and dividend stocks as a store of wealth. By learning and testing, he took control of his financial future and built an amazing portfolio.
It’s important to remember that once he has enough resources, he can diversify into starting a business or purchasing rental real estate.
Once you understand how to build wealth slowly, you will have an abundance of options at your disposal. But it starts with the simple act of building an emergency fund, opening a brokerage account, trading options for passive income, and investing in dividends. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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