I Fear We Have Made Investing Too Complicated

Buying and holding stocks is the easy part

Just as you can’t control a pesky pandemic without competent testing and contract tracing, you shouldn’t start investing minus sound personal finance.

But humans have a tendency to put carts before horses. We bring knives to gunfights (thanks, Taylor Swift!). We fight problems with bigger problems (thanks, Elliott Smith!). We apply band aids to structural shortcomings.

I lost my job. I’ll just trade stocks in the meantime.

Investing comes after you have met the basic tenets of personal finance:

• You are debt-free.
• You can comfortably meet your monthly expenses.
• You have established a sufficient emergency fund.

This sounds basic when I write and read it.

But it’s incredibly difficult to follow — particularly if you lean entrepreneurial.

I have a friend who lost all of his income when the pandemic hit.

When I asked how he planned to survive, he recited an impressive list.

He intended to hustle, buying and reselling gym equipment. (There was huge demand in March, April, and May, apparently). He set up a piña colada stand on the front lawn of his apartment building. And he “threw $500 into a Robinhhood account.”

It’s the classic case of the aggressive-assertive type, who can figure anything out, using the stock market to fix a money-related issue. Treating stock trading like a side hustle.

I lost my job. I’ll just trade stocks in the meantime.

Given how well the stock market has performed lately — particularly high-flying tech stocks — throwing $500 into a Robinhood account might have done the trick.

That’s great. But consider yourself lucky.

Early success trading stocks breeds overconfidence. Overconfidence breeds an I did it once. I must know what I’m doing. I’ll do it again mentality.

The Not Complicated Part

It’s difficult, even complicated to get your personal finances together. However, once you do this everything else — namely investing — comes naturally, even easy.

You have all of the elements in place — no debt, a low cost of living, an emergency fund. Now it’s time for the boring, but wholly not complicated, easy part.

With every penny you have left over, buy stocks that literally pay you to own them. Refuse to buy a stock that doesn’t pay a dividend. Pick ten or so of these stocks in different categories.

Dividend Aristocrats. These are companies who have raised their dividends every year for the last 25 years or more. You can find a complete list here. Some companies — 3M, Coca-Cola, Procter & Gamble — have raised their dividends for 57 consecutive years. Go for best of breed. Pick names that resonate with you.

Future Dividend Aristocrats. These are companies you can reasonably expect to find on the dividend aristocrat list 10, 15, 20 years from now. Names like Apple, which has raised its dividend for the past 8 years and is committed to doing likewise going forward. Given the mountain of cash it sits on and easy access to cheap debt, Apple can keep this promise.

Buy What You Know. Of the few deserving, there’s an old investing adage that should stick around. Within reason. That’s the idea that you buy stocks of companies you know.

Many current and future dividend aristocrats fall into this category, particularly the above-mentioned names.

Post-it Notes. Coca-Cola! Swiffer. iPhone.

But you can also mine your life to go beyond the obvious.

I do this with a brand new dividend aristocrat — Essex Property Trust — and a future dividend aristocrat — AvalonBay Communities. These two have raised their dividends for 25 and 9 years, respectively.

I feel like I know both companies well, as they own apartment buildings in prime urban and suburban markets.

Essex focuses on the San Francisco Bay Area, Southern California, and Seattle. AvalonBay casts a wider net, but has a huge presence in California, particularly San Francisco and Southern California.

Due to the pandemic, both stocks have taken a hit. If like me, you believe in urban areas — and their post-pandemic recovery — and blue chip suburban markets, there’s no better time to buy these two stocks.

That said, my point here isn’t to tell you which stocks to buy. It’s to get the wheels turning and drive home the fact that investing is the easy part of personal finance. Everything else is hard. And we risk making it harder by using investing as a means to a short-term end.

Investing functions best as a means to a long-term end, particularly eventual financial freedom and whatever you want and expect retirement to look like for you.

Buying and holding dividend-paying stocks, making incremental monthly purchases of the same stocks, and — most importantly — reinvesting the dividends these stocks pay builds wealth over the long haul.

Constructing and minding a dividend growth portfolio of stocks absolutely is one of the most entrepreneurial things you can do.

Once you start, you can’t stop. It’s a good stock market strategy to get addicted to, even obsessed with. Because even the first dividend payment you see reinvested makes you want to put more money into your portfolio. As you do that, the dividend payments get bigger.

At some point, they’ll be big enough you’ll have the option to no longer reinvest them. You’ll be able to live off of them.

That’s the dream. It doesn’t happen overnight. Resist the urge to move too fast, to go and make things so complicated (thanks, Avril Lavigne!).

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.