J.C.’s Money Blog

In order to achieve financial freedom, you have to generate enough wealth to live off the interest. That is, your capital base has to be big enough, that you can allocate enough money into low risk assets that pay you back. The amount that they pay you back must be large enough to meet your expenses, and then you are financially free. Two assets that pay you back are savings accounts and dividend paying stocks. These are great instruments for living off the interest, but they aren’t they best way to grow your wealth (I don’t like dividend stocks).

The best way to grow your wealth is through buying individual stocks. Here is why:

1. Work in your underwear - judging by the number of ads that pop up for working from home, the real American dream must be the opportunity to never leave the house. You can do all the necessary stock research sitting at home, reading reports in newspapers, newsletters, online, etc. With your online brokerage, you can buy and sell with a mouse click.
2. No commitment - as a man, these are my favorite two words. With stocks, you aren’t bound to some holding period. You can resell your stocks after a few seconds if you suddenly feel unattached. You aren’t required to do anything special through this ownership, as would be in the case of buying a piece of real estate, where you are suddenly in charge of upkeeping the property. If you decide to move to another country, your stocks don’t care.
3. Low transaction costs - I use Scottrade as my brokerage account, where my trades cost me $7. Now with Zecco, you can even trade for free. If I want to buy a house to rent out, the transaction costs will be much higher.
4. Scaleable - Until you have millions, you will most likely be able to make a transaction of exactly the size you want. In real estate, your deal size is set by the property. In stocks, you can buy as many as you want, you choose the size of the deal. You can find a strategy that works and repeat it over and over. When you finally have billions to invest, the situation gets pretty tough, though.
5. Ownership - When you buy a stock, you don’t just buy a piece of paper, you buy ownership of a company. Its fun to visit the stores of your company and see it making money. You can see people working for you. You know that your capital is part of the reason why they have a job. People shouldn’t look at their stocks as simply tickers that jump up and down, but as ownership in the underlying business. One major drawback to investing in mutual funds or index funds is the loss of the ownership feeling. With mutual funds and index funds, yes, you do own even more businesses, but you don’t own businesses that you hand-picked. Chances are you don’t know which businesses you own under a fund.
6. It works -I know lots of people who have achieved personal financial freedom through investing in individual stocks. While I am sure there are other people out there who have made it through real estate investing, but I don’t know them. I am going to stick with what I have seen work.

And legend has it that somebody once told Warren Buffet he should look into real estate investing, to which he replied: “Why should I buy real estate when the stock market is so easy?” I don’t know whether he really said it or not, but this advice is good enough for me to focus my accumulation of assets to be in owning companies via purchasing individual stocks. The records show its true.