I owe a great deal of gratitude to my father, for not just showing me “dad” things like how to throw a football, but teaching me about the value of money. He gave me my first book about investing. It was a brochure-shaped paperback from The Wall Street Journal called, Guide to Understanding Personal Finance and a second book called, Guide to Understanding Money & Markets. I have still made plenty of financial mistakes in my life, and still continue to do so on occasion, but it probably would have been a lot worse without his guidance.
In college, while interning during the summers, I learned about DRIPs - Dividend ReInvestment Plans that you could open directly through Fortune 500 companies. My father was a big fan of DRIPs and how the recurring reinvestment into the same value stocks could growth your wealth substantially over time. There was even a newsletter you could subscribe to called the DRIP Investor - yes, a physical newsletter that came in the mail! By the time I graduated college, I thought I was an investing master and waltzed into a Charles Schwab office to open my first brokerage account. I no longer wanted to just do DRIPs. I wanted to trade all stocks and even try options. I don’t even remember how much I opened the account with, but it was the bare minimum I could scrape together.
My “broker” commended me on taking such initiative at a young age. I don’t think I ever heard from him again, probably because my balance was so low, it was not worth trying to offer me any equities to buy.
Today, I see lots of millenials interested in financial independence through stock trading and bitcoin. I think it’s great to see, and I firmly believe I can learn just as much from the old brokers as I can from the “new guys and gals” coming up. In fact, I was late to the Robinhood game and the idea of commission free trading. I was a long-term E-Trade customer when they first came out. While Schwab and E-Trade are still around, Robinhood has more customers than both of these firms. Why? Commission free trading of course!
When I started out, you would speak to a broker to “place” your trade. When I moved to E-Trade I thought that was a game changer - being able to buy and sell on my computer without an intermediary. Commissions were around the $10 range and have come down to around $5 today. But even at that level, it can be a killer for young investors. Hence, why Robinhood and mobile apps are the future.
Think of it this way. Everyone knows which stocks have a really good chance of going up in value. I can put money on Google tomorrow at around $1,193 per share and have a pretty good chance that in 2-3 years it will definitely be worth more. But most investors, young and old can’t afford even a single share of Google stock. A commission is nothing more than a fee for being able to acquire a share of stock from the company through a given brokerage. Many companies allow you to buy stock directly, but the process is not nearly as convenient as going through a broker where you can buy almost any stock instantaneously. So the brokerage is basically charging you a convenience fee to use their system for purchasing your piece of Google. Being charged $5 to buy one share of Google is only 0.4% of the price. That’s less than 1%. But in the real world, the average investor is buying stocks that are much lower. On Robinhood, the most popular bought stocks are most likely to be less than $50 per share. A traditional brokerage will charge the same commission regardless of the price of the stock. So a $5 commission on a single share of say AMD stock at $32 a share is 15%. Yes, you just paid $5 to buy one share of AMD stock. So even if that stock never moves, you are 15% in the hole because of your out of pocket cost. Oh, and when you sell, there is a commission for that too. So even if you decided to hold AMD for a while, the stock would have to go to $37 to make your $5 back. Having your portfolio growth 5-10% in a year is considered a decent year. With your purchase of one share of AMD, you’re needing a gain of 3x.
A brokerage that offers commission free trading allows investors to try their hand at owning equities with little risk. You simply need enough money to buy the price of one share and you’re instantly a stockholder of that company. If the stock moves even a few percentage points, you’re profitable. The bigger advantage is when you add to your position over time. If you slowly build up a portfolio, you would be paying $5 many times over. In several years you could easily rack up hundred if not thousands of dollars in commission fees. That money could have gone to buying more stock. This makes the argument for apps like Robinhood, Stockpile, and M1 Finance really compelling.
While there is always room for people to abuse the system, I think there is more benefits to these new platforms than downside. Consistently investing over-time and using dollar cost averaging is a perfect way to use platforms with zero commissions (i.e. they’re not designed for day trading). While you may not get a full selection of stocks, they offer access to all the big names that you should be looking at anyway. If you’re looking for obscure equities and/or foreign stocks all the time, then you need to be on a more advanced trading platform and pay more advanced trading fees.
With the barrier to stock trading so low nowadays there is no reason not to try and build your wealth plan. You don’t have to be married to any one platform either. Most people I know have several brokerage accounts for different purposes - even a mix of traditional and ebrokers. Some of these platforms will even give you a free share when you sign up. Check our blog sidebar for details.
What it Means to Hustle and Grind
If you’ve ever watched ABC’s Shark Tank, you’ll often hear Mark Cuban or Daymond John talk about wanting to work with entrepreneurs who know how to hustle, entrepreneurs willing to grind it out to make their dreams a reality. If it sounds like it’s a lot of work - It is!
One of the pillars of financial independence is generating stable, multiple streams of income. If you’re married and your spouse works, you can say your household generates two streams of income. Whether your married or not, we think the ideal goal is to have three or more streams of income. This is where the hustle and grind comes in.
If you’re a thinker like me, figuring out your side hustle can be a daunting task. In fact, it may take years. You may have went to college and work a ten hour corporate job where you simply don’t have a lot of energy or time to generate a side hustle. So you look for so called easy side gigs. The problem is that there really is no such thing as an easy side gig. I’ve been in real estate for years and I used to work with an agent that did real estate full time while also driving for UBER and Lyft. On his way back from house showings he would turn on his app and see if he could get any fares. He could also make conversation and sell his real estate services in the car. This was a hard way to make an extra $20-$30 here and there. I don’t remember if he ever got a buyer or seller from doing this. And remember, with this type of side gig you are putting wear and tear on your assets (i.e. your car). You are only paid for your time. If you don’t have time to work or you’re spending time sick in bed, you don’t get paid for driving.
On the other end of the spectrum, you may try to launch a full fledged business, buy into a franchise, or sell products out of your home. This is equally hard, because with so much competition and marketing noise out there, you have to work twice as hard to get your business noticed and actually generate a regular revenue stream. If you are already struggling to pay bills and save, starting a business puts you further in debt with all the startup costs you will incur. Even simple things like business cards, a website, and flyers cost some money.
The Worst Mistake
I’ve been guilty of committing the worst mistake - trying to launch a new business with a product or service that is unknown. I’ve always admired entrepreneurs that are great thinkers, able to create an entirely new category that either no one thought of, or had the guts to reinvent an existing category like UBER has done for taxi service. In my naivete, I thought I was smart enough to create such a business in my part-time with virtually no capital. Even more embarrassing is that I tried this several times over many years. I created a web-based note taking app that also included a reminder service well before Evernote was popular. Why did it fail? Constantly updating the software, adding new features, and no time or money to market it, just sunk me. In another example I created an online learning platform that could be used by middle schools to teach and test digital skills. I thought it could also be used by libraries that had computer literacy classes. Why did this fail? Schools have very tight budgets and most software is purchased at the district level. Working a full-time job during the day meant no time to visit school administrators and tell them about my product. All these businesses take marketing dollars, lots of time, and lots of education before you even see the first check.
There is a curve that needs to be climbed to convince people why they need xyz product or service. I remember one of my coworkers who graduated from Harvard telling me he had a business he had been running for a few years and was looking to expand it. I was expecting to hear a great elevator pitch and a reason to invest. Instead it was an online business selling dog collars. Why? He said it started making money from day one because people knew what the product did, there was a need for it, and he didn’t have to waste time creating a grand plan to sell the idea. Meanwhile I was on my third or fourth failed business. Today that same guy is now a CFO at a biotech company and I’m sure his little website still makes enough money to pay for gas, eating out regularly, and the cable bill.
So What’s The Lesson?
Hustle and grinding are inevitable if you want to build real wealth and don’t want to take the full frugal approach to financial independence. But the lesson is to be smart about the type of hustle and grind you choose to do.
If you’re healthy, have lots of free time, and drive a Toyota Prius, then maybe Uber will work really well for you. Especially, if you’re taking all the cash from that side gig and investing it in stocks or real estate. Uber drivers in Vegas and other hot spots tend to do really well.
If you work twelve hour days at a law firm, then trying to start a brand new company which requires your time during normal business hours may not be the best choice.
How to Hustle and Grind Smartly
Don’t just hustle and grind to look busy and make yourself think you’re doing something. At the end of the day you need to make money and it can’t kill you, your car, or your family life in the process.
Most important, stay positive. You’re doing this for a higher reason.
I love single story homes for a number of reasons we’ll outline below, even though for my personal home, I tend to be attracted to 2-story properties.
Growing up on the east coast, every home I visited always had stairs. When you live in an area with limited space, builders have no choice but to build up. I have fond memories like most kids of running up and down the stairs, or playing in the basement; even pretending the stairs was some type of indoor slide. Outside of being a kid, stairs provide a number of benefits to adults too. Two-story homes allow for soaring open air living spaces, beautiful balconies in and outside the home, and front elevations that give homes a "grander" curb appeal. But apart from the improved visuals of the home and extra square feet from floors stacked on top of each other, that’s really where the benefits end to having a two-story home.
The Downsides to 2-Story Homes
Heating & Cooling - open air floor plans that go to the second story can waste a lot of heat and AC during the year, even in newer high efficiency homes. Heat rises and you can’t bend the laws of thermodynamics. So the upstairs always tends to be hotter, and the downstairs always tends to be cooler. In a dual zone house this means one unit is always working harder than the other. This is extra maintenance costs for you as the landlord, especially if you have a tenant that tries to get that one bedroom downstairs the same temperature as the rest of the house in the winter. HVAC maintenance kills cash flow.
Settling - If you’re going to buy and hold a property for a long term rental (10+ years) you will have to deal with settling and squeaky floors. While a minor annoyance if it’s someone’s own home, every time you turn the property over and have to show it to a new potential renter, the age of the home will show when people walk the house. If your property is in a area with bad soil, foundation problems often come up. A two-story home with foundation issues is more expensive to fix than a one-story home. You have more weight and potentially more cracks across two floors.
Water, Water Everywhere - If you have a two-story property the water heater will typically be in the attic and not the garage like a one-story home. I’ve lived in two separate homes where the water heater has cracked while we were away for the weekend. Not only is it a pain to fix a water heater in the attic, but the sheet rock damage to two-story ceilings are also expensive to get repaired.
Benefits to 1-Story Homes
Renovation - If you want to update an older kitchen with can lights or drop in a new light fixture, it’s easy with a single story home and attic access. If your kitchen is below a bedroom or second story bathroom in a two-story home, you won’t be able to easily make those updates. From hanging Christmas lights to security cameras, all of this is much easier on a single story home.
Heating & Cooling - A one-story home usually means one AC unit and not two. Less to fix and you typically have a more consistent temperature throughout the home.
Accessibility - People are living longer but knees are not. Single story homes make your property available to more renters who don’t want stairs.
So if you like the prestige of a two-story property, it’s fine; just keep it for your personal home.
From house.of.leaders on Instagram... Don't know if he actually said this, but it's an awesome quote from an awesome actor.
Welcome to StepChange (StpChg). A blog about personal finance, small business, and investing.