You’re not a millionaire investor. Here’s how you become one.
I offer a strategy, and it’s simple.
First, save more than you spend.
Saving should go without saying, but it apparently needs to be said. It certainly goes unheeded.
Approximately one in five Americans have zero or negative net worth. Subtract liabilities from assets and you get nothing, or worse – a debilitating debt liability.
The U.S. household debt and credit report, published by the Federal Reserve Bank of New York, shows that the overall debt shouldered by Americans reached a record $13.5 trillion in the fourth quarter of 2018. It has risen consistently since 2013.
Serious-delinquency flows, a prelude to defaults, are also on the rise. An estimated 9.1%, or $1.5-trillion in total debt (another record), is seriously delinquent.
Indebtedness is associated with poverty.
Poverty and wealth share a common characteristic – momentum. Once wealth or poverty is established, both become easier to grow.
A recent report by the Institute for Policy Studies highlights this point.
The wealth of the combined Forbes 400 billionaires list exceeds that of the bottom 64% of the population. The other end of the economic pool is shallow but wide. Approximately one in five Americans has zero or negative net worth.
The differentiator between wealth and poverty can be distilled to one fact: The wealthy collect income, the poor pay it.
The data for 2018 show that U.S. consumers paid $110 billion in credit card and interest on credit cards – a record amount. The average interest rate on credit cards is close to 17%.
Carry a credit balance, pay the credit card company a generous 17% average annual cash flow.
To build wealth, you must go the other way. You have to own assets that generate income, as opposed to the liabilities that extract income.
Dividend-paying stocks are as good an income-generating asset as any, as one wealthy person acknowledged over a century ago. “Do you know the only thing that gives me pleasure?” John D. Rockefeller rhetorically asked and then answered, “It’s to see my dividends coming in.”
It’s not just John D. who receives pleasure from receiving dividends. Warren Buffett shares Rockefeller’s affinity for dividends.
Berkshire Hathaway (NYSE: BRK.b), the conglomerate in which Buffett serves as board chair and CEO, owns an extensive stock portfolio. The top-10 holdings account for 80% of the portfolio value. All 10 are dividend-paying stocks.
What’s more, nine of the 10 are dividend-growth stocks. The stream of dividends they pay to Berkshire Hathaway rises each year. Buffett reported that Berkshire Hathaway was paid $3.8 billion in dividends in 2018.
Buffett says the stream will rise this year. Berkshire will receive even more dividends in 2019.
That’s Warren Buffett, but what about you and me?
I offer Ronald Read as a motivator.
Ronald Read worked most his life in lower trades – as a janitor and a service-station attendant. Read made less money than most people. Nevertheless, he continually saved more than he spent through his life. With the difference, he invested in dividend-paying stocks.
When Read died in 2014 at age 92, he left an investment portfolio valued at $8 million.
According to Read’s attorney, the portfolio was festooned with dividend and dividend-growth stocks: AT&T (NYSE: T), Bank of America (NYSE: BAC), CVS (NYSE: CVS), Deere (NYSE: DE), and General Electric (NYSE: GE) (before Jack Welch set up GE for the mess it is today) were prominent names.
So, you want to become wealthy. You want to become a millionaire. Here’s the simple strategy in three simple steps:
- Earn more than you spend.
- Eschew debt. (Don’t pay an income stream to someone else).
- Invest your savings in income-producing assets. (Dividend-paying stocks are as good an income-producing asset as any.)
It won’t happen overnight (it didn’t’ happen overnight for Buffett or for Read), but it will happen. You will become wealthy. You’ll become a millionaire if you habitually follow these three simple steps.