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July 13, 2019 - Freedomain Radio - Stefan Molyneux
21:59
An Introduction To Investing | Paul Mladjenovic and Stefan Molyneux
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Hi everybody, this is Stefan Molyneux from Freedom Inn Radio.
Hope you're doing well.
As part of our continuing efforts to please all varieties of listeners, every time we talk about financial crises and the coming doom pornacopalypse of the four horsemen of the Federal Reserve, fiat currency, rising interest rates, and general depression, people say, well, dude, Stef, I don't have a lot of money.
Well, we have hunted high and low, and we have found the guy that you need to talk to.
His website is ravingcapitalist.com, and Paul, if you'd like to introduce yourself, tell the listeners a little bit about where you're coming from, and what you're bringing to the table for those who want to invest with less means.
Well, that's a pleasure to be on.
I'm the author of Stock Investing for Dummies and a batch of other books as well, including one on entrepreneurship.
So, I believe that wealth building should be a fun part of everybody's life, no matter who they are.
My background, actually, might be a little bit off the beaten track, so to speak.
I came from a communist country, and that's why I called myself a raving capitalist in my seminars.
So then I said, well, if I'm calling myself that, I might as well get the website, ravingcapitalist.com, And it was available.
So, I believe that everybody, especially when you live in a country like this, where wealth building is, it's still allowed by the law to build wealth.
So, the thing is, I believe everybody should be doing wealth building in a two-pronged approach.
Passive wealth building, like stock investing, etc.
And, you know, doing entrepreneurial activities in your spare time, so you can be active wealth building too.
Well, it certainly has been my experience that a lot of people from the Eastern Bloc and the Soviet Empire, they take to capitalism like an ex-monk takes to sex.
Just simply having lived with that for so long, its sweet nectar is hard to resist.
So you talk about getting people to start investing with $50 smaller amounts.
How is that possible and what can that build to?
Well, the amazing thing is, I mean, right now I'm actually doing projects, you know, on education, and it's something I've been teaching for 25 years, and what people don't know is that you don't need a fortune to start investing with stock investing.
You know, you really don't.
You can be able to buy as little as one share of a stock, for example, because they have things like dividend reinvestment plans.
So, somebody in your audience could easily start with as little as, you know, $50 or $100 to start investing, and they can have the dividends reinvest back.
And when you're part of some of these plans, they're called Dividend Reinvestment Plans, you have the ability to even send in small amounts, as little as $25 or less, and pay no commissions.
So, for a lot of people, especially beginners, these plans are excellent because, look, you know, there's over 1,500 companies that have them.
They all sell things that we want and need, no matter how good or bad the economy is.
And they're a great way to build wealth over the long term, without a doubt.
And for those who don't know, of course, when you buy a share of a company, you're buying a share of the profits.
The share of the profits get distributed to shareholders in the form of dividends.
It's not quite the same as what interest pays you in a bank or what you might earn on a bond, but a dividend is a share of the company growth that's paid out to shareholders.
Did I get that right?
Yeah, pretty much so, definitely.
And the thing is, since a lot of them are paying dividends, and these dividends are much higher than the paltry interest they'll make in the savings account, they'll be able to build wealth faster over the long term.
And look, if you're investing, and the amazing thing is because you can start with so little, you can have money and accompany those foods, utilities.
You know, energy companies, you know, water companies.
So the things that we're going to keep on buying, again, no matter how good or bad the economy is, people can literally have, like, their own mutual fund of stocks, earn a great dividend, and keep adding on to it and building wealth, I think, the right way over the long term.
Okay, so how would somebody who has a couple of bucks squared away and was interested in getting into the investment game, what are some of the terms, the first basic terms that they need to know for your average educated layperson?
Well, first of all, just a means of purchasing stock.
People forget, you know, stock is just really a convenient vehicle for buying into a company.
I mean, many people think about like, you know, all the mergers and buying, you know, because you've been in business yourselves, you know how it goes.
So, buying a share of stock, It's really no different than people buying like, you know, a dozen eggs at the store.
You know, they could easily be able to open up a brokerage account.
You don't need a lot of money to do that.
You could put in, and many of them could be able to put in money, like a few hundred dollars or even less, and be able to buy, you know, right at the website, buy one share or five shares, etc., of a particular stock.
And for me, the best thing is that all the famous companies that they're familiar with, all of them have dividends.
And what you're able to do, even right through the brokerage account, is you really have dividends reinvested, and they can be able to sign on to the plan very easily once they're a stockholder.
And then their dividends go back and buy more stock.
And then later on, they're able to send in 25 or 50 bucks as they see fit.
It's those voluntary payments.
And there's no commissions involved.
Oh, that's fantastic.
Of course, the company wants you to use the dividends to buy more stock, thus driving up its value, and so on.
So, can you go over some of the differences between stocks and bonds and GICs and that kind of stuff?
Well, here's the thing.
For the purposes of our audience, we know that with stocks, you're basically getting a fractional ownership of a particular company.
You're able to participate in the company.
I mean, no, you're not able to go down there and, like, you know, you're asking for some office supplies or whatever, but you're able to participate with the full success of the company, or not the success, because it depends on who you're getting into.
And, now, bonds, you're loaning money.
And for many people to be able to get involved with loaning money, I mean, bonds are much more expensive.
I mean, you can't buy, you know, the way stock you can buy, like, one share of a particular company to get yourself rolling, With bonds, that's a different matter.
The bonds can be $1,000 or $5,000, so that takes a little bit more.
Plus, since you mentioned earlier that much of your audience is younger and have a longer time frame, bonds are probably not at this point very suitable because they pay such a low interest rate.
And with inflation being what it is, that'll eat into their long-term wealth.
They're better off with stocks with dividends because these things, they typically, the studies are all true, they typically beat the rate of inflation.
So they could be doing better than the cost of living instead of being behind the curve on this.
And bonds, of course, bonds are much more secure, and generally the way it works is the more secure something is, the lower interest rate you're going to receive, or the lower payments you're going to receive on it.
Bonds, as far as I understand it, tend to be better for people who are older, who just want to hedge against inflation and maintain the value of their retirement savings.
Whereas stocks are, because you have these multiples over time, you get this whiplash effect the longer you stay in them.
So starting with stocks young can be a very good idea.
Exactly.
And I think that my best point, I guess, I like to make to people who are just starting off in this kind of venue is, you know, your common sense is a great investment tool.
I mean, for many people who don't know where to start, I say, look, your own utility typically is probably a public utility, and they typically give you the ability to be able to invest in their stock.
So I like it.
Utilities are very, very conservatively financed.
They have a good dividend.
And look, you know, you're going to be paying the utility bill every month.
So now when you pay the utility bill, it's like you're helping out one of the owners, which is yourself.
So that's a great place to start.
Water companies have this, you know, food and beverage companies.
So the ability to invest with very little money.
And I like to invest in things called, my term is human need.
I mean, Stefan, you know, with the economy, very precarious, there's a lot of uncertainty out there.
And for me, when I tell my students in my seminar, like the $50 wealth builder about investing, I say, remember two words that'll guide you.
Human need.
What will people keep on buying no matter how good or bad the economy is?
These tend to be more stable companies.
They tend to make profits year in and year out.
They have dividends, which make them more stable as well.
So you're going to fare a lot better than we're just generally throwing darts out there in the stock market.
I think it's also generally, and you know I certainly don't mean to give anybody an advice, my general strategy is try to invest in companies that you have some familiarity with.
And so if you have a product that you really like, that you think is very successful, that you think is really cool, particularly if it's not that well-known, that's not a bad place to start.
Your own personal taste can't be completely unique to you, so it's not usually a bad idea to look into investing in products or companies that you already know and like.
No, a lot of people discount their own acumen about investing.
Like you said, I do the same thing.
If I love the product and I see lots of people having it, then I go take a look at some rudimentary things like they're making a nice profit, they were profitable last year, the long-term outlook for the industry looks good, it's a solid company, then it makes a lot of sense.
You don't have to be some Wall Street mathematical geek to look at this stuff.
Everybody has the acumen to at least invest at this level with common sense.
So what kind of carrots can we dangle to people to get them perhaps tempted by the investment game?
If you're going to invest, say, $100 a month with a reasonable rate of return, how is that money going to grow over time?
Whenever you're investing, and the best thing that will make it grow is that they are investing, say, 50 or 100 bucks on a periodic basis.
I know some days people are tight of these budgets these days, but even monthly or quarterly even, they'll do well.
Because the long-term outlook, I think, is sensational for companies that are paying the dividends, because look at the things that are in your favor over time.
Their dividends keep on increasing.
Many of them who are successful tend to split their stock.
So before, when you had like 22 shares before, now you might have 44 shares.
So they could start off with a utility which generally has a high dividend.
Then, for example, also too, many companies like the, I don't want to get specific, but many of the major telephone companies, you know, are very stable.
People still need telecom, whether they're using smartphones or not.
And the large telecom companies have good dividends as well.
And they also have dividend reinvestment plans.
So it's, and then they just make it like a bill.
Every month they send in 25 or 50 bucks.
I mean, I know people who were investing like 20, 25 bucks a month.
And after 10 years, they had a six-figure position.
They were able to build tremendous wealth.
And so, this is where we rely the marketplace to be in their favor versus everything else out there.
I tell people, stop complaining about high prices.
You might as well benefit from them.
And so, when you're an investor, you get a chance to participate in that type of growth.
So, it's in your favor, not against you.
Now, some people think, of course, that once you start getting into investment, your taxes become a lot more complicated.
I wonder if you could run through with people some of the implications of tax challenges when you're investing.
Well, fortunately, it's not a very murky area.
There's two things to keep in mind.
Whenever dividends are being paid, those are part of your current income.
OK, so people understand it like the same way they pay taxes on their employment, you know, or W-2, etc.
So that gets current taxation.
Now, if they're buying stock, they don't have to worry about paying any tax on it until they sell it down the road.
Hell, I know people who've held stock for many, many years, and they weren't about to sell it unless they really needed to, or they thought the fortunes changed in the company, or they thought it was going to be very adverse in that industry.
So there, they could be able to go for long term, and of course, the long term capital gain tax on stocks is very favorable.
So it's in their favor.
So they pay less to the taxman and hold more of it over the long-term.
This is why I prefer investing, because this is a longer-term pursuit.
A lot of people out there try to do the trading, the jumping in and jumping out.
And I think they do themselves more harm than good, because if you have any gains, those are short-term, so they're higher taxes.
And plus, you have commissions and everything else.
You know, the amazing thing, Stefan, is everybody envies like somebody like Warren Buffett.
They would love to have his Financial cloud, right?
But nobody wants to do his process.
You know, he is a long-term investor in the truest sense of the word.
He sticks with the companies and they benefit.
Because, you know, if you're investing in the right things, they zigzag upward.
Don't worry about the occasional correction, because the correction means if it's a quality company, it's like a fire sale.
You can buy more with less money.
And when your dividend, when your dividend reinvestment plan, and you're doing a disciplined approach, like 50 bucks a month or whatever, If it pulls back, you buy more of it.
If it goes up, you buy less of it.
So, dollar cost averaging will help them build tremendous wealth over the long term without jumping in and jumping out like a lot of people are doing these days.
Yeah, I sort of, there was a study done a long time ago that had two drivers try to drive from one end of the city to the other.
And one of them was allowed to cut all corners and, you know, like change lanes and rush through yellow lights and so on.
And the other guy had to obey all the traffic rules.
And like, after an hour, the difference was like two minutes.
You know, in terms of what the person saved and I sort of feel that way about jumping in and out of stock positions as well.
You know, it's kind of stressful and you really can't beat the market in any fundamental way because it's just so is the aggregate of millions hundreds of millions of people's individual decisions which can't be predicted.
I think I'm a sort of slow and steady wins the race kind of guy with this area.
And I think that generally is less stress.
And I also read a study which said that even if you bought stocks right before every crash over the last sort of hundred years, you'd still end up making money.
Exactly.
And you know what?
For many people, if they're worried that they can't pick the right stock or have the right discipline, The great thing is that they're investing at a time that I envy them when I first started investing because you have vehicles and venues available now that were nowhere on the map when I first started teaching and doing investing in the early 1980s.
For example, exchange-traded funds.
The same way we could buy one share of a stock, we could buy one share or more of an exchange-traded fund.
All that is, it's like, think of a mutual fund.
And I realize you know what your stuff, Stefan, but we talk for the audience.
And, you know, people know mutual fund, right?
People pool their money and they get a whole portfolio and they get diversification.
What I like about exchange traded funds is that I can be able to buy, for example, stocks that, you know, Cover, for example, the top dividend paying stocks that are out there, and I could buy one stock.
And instead of betting on one company, I can bet on, say, the top 40 stock dividend payers out there, you know?
And I hope I'm not doing anything inappropriate, but at the Raven Capitalist, for my subscribers, they can get a report where I mention three of my favorite Dividend paying stocks for the long term that I feel are very good.
And two of them are exchange traded funds.
For example, there's one out there that instead of you trying to figure out which one is going to be a great stock, you know, stock pick with great dividends.
This one, this is an ETF that will invest in like 40 companies.
All of them have been rated by Morningstar as raising their dividends every year for the past 10 years.
So, and they have a great cross section of everything from, you know, food and beverage to utilities.
Other human need so and that has a phenomenal dividend It's like it pays you four times what you would get like a CD at a local bank You know and that's more it's safer It's more diversified and you're betting on companies that are blocked have a phenomenal record over the past 10-20 years and should do fairly well during the next 10-20 years so it doesn't have to be a stock it could be ETF again with small amounts of money and
And it doesn't have to be time-consuming and it doesn't have to be stressful, as long as you remember that you're in it for the long haul.
I mean, if you sit there and watch the ticker go up and down, I mean, you'll have 12 heart attacks a day sometimes.
But I think if you recognize that it is going to average out, usually statistically, historically, it averages out over the long term.
You don't have to jump in and jump out because, of course, then you're going to worry about fees and stuff like that as well.
If you buy intelligently and just hang on to stuff that's, as you say, part of core human needs, then the only thing that's going to take your stocks down will be if the economy turns us back into Stone Age chicken farmers or something, in which case the number of the value of your stocks will probably be the least of your concerns.
So it doesn't have to be time consuming and it doesn't really have to be stressful.
I would remind people of that as well.
Exactly.
And, you know, one brief point.
I did a study, my own research, where I took the general stock market and one ETF that was all about food and beverage companies.
I tracked them since 2007.
The food and beverage company ETF was beating the general stock market by over 20%.
And those are just boring companies, but look, you know, we're not looking for excitement here.
We want stuff that, you know, is going to be happy to own even five years from now, because that's the right approach versus people jumping in and jumping out who really just end up burning themselves with all this, you know, when they're that twitchy.
Yeah, I mean, the resistance for the greed and the easy money in life in general is a good thing to avoid.
And food and beverage, you talk about human needs, people always got to eat, people always got to drink.
So it's usually not too bad a place to be at all.
Now, when it comes to People's skepticism about where the economy is at the moment.
You know, I've talked to Doug Casey.
He says, well, I have a hurricane and there's going to be big problems in the economy and so on.
And people say, well, maybe I'll just buy some gold or maybe I'll just kind of buy some food or something like that.
And people are really a bit alarmed about the possibility of a fiscal cliff, not just in the government, but in the stock market as a whole.
And what are your thoughts about the timing for getting into investing at the moment?
Oh, well, first of all, When I think about, first of all, I am very, you know, concerned about the general economy as well.
There's an awful lot going on out there.
I'm not the type to dismiss things like trillion dollar spending policies and the new healthcare law about how much damage it could be done, you know, without a doubt.
So I'm with many on this.
But the thing is this, I tell people, Look, I also wrote Precious Metals Investing for Dummies, so unlike most stock people out there who hate precious metals, I say to them, get the physical gold and silver because that should help you diversify away from paper assets.
You see?
Because stocks or bonds or currencies, these have something called counterparty risk.
In other words, the value of what you hold is only as good as the promise or performance of a third party.
When you're lending money to the government, what if they default?
If you own stock, what if the company goes under?
This is why quality and human need are so important to me.
I think the general stock market is very perilous, but human need is going to get you through the other side.
So, I tell people, have some physical gold and silver, definitely, to diversify away from paper assets.
Pay down your debt.
Have a sideline business.
You know, I have diversified stocks, but don't diversify across the entire stock market.
I hate these people who say diversified everything.
Well, what does that mean?
This place is going to do well, and that industry is going to fall apart.
So where'd you come out?
So I tell them, be extra cautious and just do the human needs for now.
I mean, look, when times get better and the government finally does something well, which could be years from now, then you could be a general stock picker and throw your darts.
But no way in hell are you going to do that.
So yes, I'm very cautious.
But when you diversify, like what I'm telling you about, both in the stock market and out of the stock market, they'll do a hell of a lot better than these people who are just You know, Polly Annish about how the stock market will keep on going well forever.
Yeah, go to the farm, then go to Vegas.
Now, if you sort of give the 1, 2, 3 of steps that you would recommend for people who are interested, who have a little bit of money or want to start down this process, what are sort of the 1, 2, 3s that you would suggest on how they get started?
Well, for all beginners, here's the thing.
Now, you mentioned before bonds, and the only kind of bonds I tell people to get that are affordable, remember the $50 wealth builder from the seminar?
I tell people, get some savings bonds, preferably the I-bonds.
Because those are ultra safe.
They're free from state and local taxes.
And the interest rate is pegged to the inflation rate.
So if inflation should start going up significantly, and I think it will, then your interest rate will go up as well.
That's an ultra safe venue.
The only way you couldn't get paid is if the federal government falls apart.
And if the federal government falls apart, then I wouldn't worry about your money.
You're right.
Go for the farm and the soup cans.
But get the savings bonds.
Get some physical gold and silver.
On stocks, like I mentioned earlier, you can do the searches very easily.
There's many places that you can start searching.
They're free to email me and I'll send them free resources to help them choose the things that are out there to get them rolling if they like.
But they can start with their own utility.
You know, and you know, the kind of food companies that they know all the famous name food companies and the famous name utilities, and they could start there.
So those three steps, if they start this week on just that savings bonds, get a little precious metal, gold and silver, and start looking at stocks, the human needs stocks, I think they're going to do and stick with it, be disciplined and add on to these positions over time.
I think they'll do terrific over the long term.
And you have, of course, a website and you have a newsletter and people will put the links to those if people are interested in pursuing stuff with you.
More on that.
I certainly appreciate the information.
I hope that we can tickle some people's fancy into taking a look at it.
I think it's just a leap you have to take.
I mean, you know, whether it's going to be into stocks or something, but do something to make sure that you're not going to be a wage slave for the rest of your life.
You know, get your mad money so that you can start to play around with as much as possible.
Maybe we can do another show about entrepreneurship because I think that's something I really strongly encourage people to get.
I wish you continued success and your audience prospers for years to come.
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