Why Learning to Invest Can Make You Rich

By: GenXinvestor

For many people, ideas about the rich involve how many fancy cars they have and how big their houses are.  What’s often missing is the source of their wealth…their investments.  Owning investments are what makes rich people rich and if you want to one day become rich too; then you’ll need to learn how to invest your money.

There are many pathways to become rich.  You can own a successful business, develop and sell an App, own a real estate empire etc.  For most people though, the tried and true path of successfully becoming rich has been taking a long term investing approach.

The average person can become wealthy simply by buying, holding on to, and adding to, a collection of financial assets over the long term.  These financial assets can consist of stocks, bonds and mutual funds or exchange-traded funds (ETFs).

The key to investing is diversification, so that we don’t have too much of any one type of investment.  For example, assets are grouped into 5 major classes:

  1. CASH
  2. FIXED INCOME (ie. BONDS)
  3. EQUITIES (ie. STOCKS, MUTUAL FUNDS and ETFs)
  4. REAL ESTATE (ie. YOUR HOME or RENTAL PROPERTY)
  5. PRECIOUS METALS (ie. GOLD)

The fact is that nobody really knows which asset classes will do well over any given period of time so it’s prudent to own a bit of them all.  While it may seem counter intuitive, ideally we would want to be buying the asset class that is the worst performer among the group.  The reason being is that it will undoubtedly be the cheapest of the bunch and, when it comes to investing, would be a bargain.  This is the “buy low, sell high” mentality that can drive long term investing success.

I think the most important factor involved in a person’s investing success is not so much what they buy or sell or even which asset classes or individual type investments like stocks that they own.  The absolute key to long term investing success is setting up an automated system that guarantees that we’ll be investing on a regular basis.  If we take the 5 or 10 minutes to set up a system of automated investing then we are guaranteed to be building our personal wealth over time.

Each week, I make regular purchases of low cost index mutual funds and ETFs.  I do so in my Tangerine Account and my Questrade Account.  Each month I make regular purchases of my favorite blue chip stocks through my dividend reinvestment plans (DRIPs).  More and more financial institutions and discount brokers are making it easier and easier for anyone to start automatically investing their money.  If you’re not already doing it, I encourage all of you to start today!

I can say from my own experience that automating my investing has made a huge difference in my financial position.  In the beginning I had serious doubts about how saving just $25 a week would ever amount to anything significant.  But year after year I kept increasing that amount and started throwing extra money into my investment accounts.  Now its’ been a little over 10 years and I’ve accumulated over half a million in financial assets.  This is why it literally pays to automate our savings and investing.

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May 2017 Investment Income $334

By: GenXinvestor

Welcome to my May 2017 investment income report.  This report helps me track all of my investment income from dividend stocks, index funds and exchange-traded funds (ETFs).

May 2017 Investment Income I was pleased to see that our net worth continued to rise in May, hitting 995k.  The increase in net worth was small (6k) compared to what we’ve been used to.  This weak performance had to do with global stock markets essentially treading water for the month.  Nonetheless, the value of our financial assets continued to rise, reaching an all time high at just over 508k!  This is why I think it really pays to invest on a regular basis, stay invested for the long term, and not try to time the market.

While I was pleased to see our net worth rise this month, I was disappointed to see that our monthly investment income was below the $500 mark.  In my opinion, having a high net worth is great and all, but unless it’s backed up with some solid investment cash flow it’s not really all that impressive.  To my mind, cash-flow is KING!

Investing in Myself

The first half of 2017 has been very busy.  I’ve spent a lot of time taking courses so that I can move up in my job and get a bigger paycheque.  It’s not often that opportunities like these come around so when I was offered the opportunity I jumped at it.  More money means more funds for investing, plus I like learning new things.  I find if you stay long enough in a job things start to get a bit stale.  Change is good, especially if it means learning new skills and having opportunities for advancement.  I’m nearly finished the courses and additional training so I hope I get that raise sometime this summer.

Monthly Investing Activity

For me, the big move this month was investing in the Kinder Morgan Canada (KML) IPO.  This is more a speculative purchase than anything else.  I’m not sure if the company will pay a Canadian dividend.  Its US parent company pays a small dividend (yielding 2.6%).  But Kinder Morgan US was hit hard by the oil collapse of 2014-2016.  It slashed its dividend and its shares tanked.  So there’s lots of risk involved in this investment which is why I call it a speculative buy.

From my understanding, Kinder Morgan spun off its Canadian operations and did a share offering to help finance the Trans Mountain Pipeline expansion.  Like every other energy project in North America, there’s lots of protests surrounding this project.  So there is a little bit of political uncertainty involved.  The Trans Mountain project would triple the amount of Alberta oil shipped to the West Coast port of Burnaby.

I’m betting that this project gets done for a variety of reasons:

  1. There is already an existing pipeline along the proposed route.
  2. Enbridge’s proposed Northern Gateway pipeline that would have brought Alberta oil to BC’s northern coast was rejected.
  3. TransCanada’s Energy East seems to be a non-starter at this point now that Trump approved Keystone and,
  4. Canada needs to be able to get its landlocked energy resources to the coast so that it can sell it at global benchmark prices.

Beyond that move, I’m sticking to the same old investment plan.  I continue to buy up blue-chip Canadian dividend stocks and keep making extra cash purchases in my DRiP account to buy more shares of great dividend-paying companies.  I like to save and invest automatically because it’s a proven strategy for building long term wealth.  In addition to the stock purchases, I’m also investing in low-cost index funds in our retirement accounts.

One of the great things about being a dividend investor is that all of my dividend income is automatically re-invested.  Every month this income buys more shares in my favourite companies that will, in turn, produce even more monthly income for me.  This is how compounding works and is why it’s such a powerful force…what Einstein called the “Eighth Wonder of the World”!

This month, reinvested dividend income bought more shares in Bank of Montreal (BMO), Emera (EMA), and RioCan (REI).

Dividend Raises

I’ve had a few companies raise their dividend this month which will help my future dividend income reports.  The Bank of Montreal raised its quarterly dividend from 0.88 cents/share to 0.90 cents/share or 2%.  Enbridge raised again this year from 0.583 cents/share to 0.61 or 4.63%.  Telus (T) raised by 1.25 cents from 0.48 cents to 0.4925 cents or 2.6%.

These small, incremental increases in dividends may not seem like much but after years of investing in dividend stocks these really do add a lot of extra cash that I reinvest to buy more shares of my favorite companies.

These dividend raises also really help my financial assets compound and it’s one of the great things about being a dividend investor.  I’m constantly being rewarded with these dividend increases.

Monthly Passive Dividend Income

May is one of the weaker months for dividend income.  This month’s dividend income is the same as it was in May 2016 ($334.07).  A big part in that weak performance was a result of Potash Corp (POT) cutting its dividend (twice) in 2016!

Here is the breakdown of the numbers for May:

Dividend Stocks

Emera (EMA) – $28.84

Bank of Montreal (BMO) – $68.63

Citigroup (C) – $4.26

Procter and Gamble (PG) – $93.41

Potash Corp of Saskatchewan (POT) – $13.98

RioCan Real Estate Investment Trust (REI) – $4.45

Mutual Funds and ETFs

iShares S&P/TSX Canadian Preferred Share Index ETF (CPD) – $55.34

iShares S&P/TSX Capped REIT Index ETF (XRE) – $40.88

Canadian Short-Term Corporate Bond Index ETF (VSC) – $13.22

Canadian Short-Term Bond Index ETF (VSB) – $11.05

Total Monthly Dividend Income = $334.06

It’s great to earn a few hundred bucks from our investments!  After years of saving and investing, I’m slowly starting to see the fruits of my effort and I’m happy to finally have my money working for me.

Our new annual passive income goal is $13,000 and we have so far received $4232.  So we are  32.5% of the way there.

Thanks for reading my May 2017 Investment Income report.

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