If you exit this article you are going to be missing out on one of the most valuable pieces of information in the world. If you stay, I guarantee your life will be better off and you will reach financial independence sooner rather than later. Listen, I’m not a salesman. I’m a human being like you who has been graced with financial knowledge from industry professionals and I want to share it with you.
Let me give you two scenarios, and I want you to pick the one you think is best.
- You have $1,000 right now and when you wake up tomorrow morning you still have that same $1,000.
- You have $1,000 right now and when you wake up tomorrow morning you have $1,005.
Now, which scenario do you prefer? Number 1 or number 2? I hope 100% of you picked number 2 for the reason that you have more money AND you earned it while you were sleeping. This my friends, is the power of the stock market which I believe is the BEST form of passive income.
What do I mean by passive income? My definition of passive income is money earned by doing little to no work in the long-run. This is different from a job where you work the 9 to 5, this is known as active income. Passive income is what most people dream about, they want to earn money while not working an actual job. Now, back to the stock market.
Why do I say the stock market is the best form of passive income? Three reasons:
- Little time invested
- Easy to do (if you follow my advice)
- Anybody can enter the stock market
Let me set the record straight, having multiple streams of passive income is the optimal scenario if you wish to quit your job. Whether it’s investing in the stock market, affiliate revenue, real estate investing, or setting up a Shopify drop shipping store. Other than the stock market, all the other options take time learn, grow, and develop. You will get there eventually, I have my faith. But for now let’s focus on the stock market.
I bet when you read the words “stock market” you got scared because you know somebody who has been negatively affected in some for whether it be from day trading or the 2008 financial crisis. Perhaps you feel the stock market requires a lot of knowledge and that it’s a huge gamble. Right now I’m going to convince you not all of that is true.
The reason people hate the stock market is because they don’t understand the words diversification and average. If you understand these two words, you have reached the holy grail of the stock market and you will earn more money than most day traders by sleeping!
Stocks are determined by company performance. When a company does well the stock typically goes up and when it does bad it goes down. When an industry is booming all companies in the industry have rising stocks and when the industry is in recession all companies have declining stock. This is where diversification comes into play. When investing you do NOT put all your money in one basket!
Only fools put all their money in one company, industry, or asset class. Here is what you do; purchase many stocks that stretch across a multitude of industries and asset classes. Large companies, small companies, foreign companies, diversify your portfolio as much as you can.
When an economic crisis hits the USA all your USA stock will take a hit, but in Asia you most likely won’t be hit or at least you won’t be hit as hard. When Boeing makes a mistake in their design and airplanes crash (737 MAX) and the stock goes down you won’t be hit as hard because you have numerous other stocks to save you. Hell, your portfolio will probably go UP because you are diversified.
My finance professor was scared to take a job at the same university as his wife due to lack of diversification. Crazy right? If something bad happens to the university then there is a possibility both would be let go as opposed to just one. Diversity is everything in financial markets! This is the first point I wanted to emphasize in order to make you confident in the stock market which will in turn generate passive income.
The second point pertains to average returns. Anybody who beats the average of the S&P 500 is a genius. I have read Benjamin Graham’s book The Intelligent Investor and he mentions so many people try to get higher returns than the average but fail. I’m serious, people come up with formulas and they think they have it all figured out. They spend hundreds of hours and end up below the average. If they just invested in the S&P 500, which is the average return of the largest 500 companies, they would have been better off.
I hate to break it to you but not everybody is a genius like Warren Buffett. We don’t have the resources to beat the market so it’s best to ride along with it. This is why I recommend you invest in index funds which are diversified portfolios that consist of thousands of stocks. Historically the average return of stocks has been positive. Check out this graph…
Large company stocks like those on the S&P 500 historically have earned about 12% annually and Small-company stocks have earned about 16%. Of course with higher reward comes higher risk but to my first point you simply need to diversify.
I know you’re reading this and you still have doubts. I’ll admit I’m not an expert and I don’t work on Wall Street. But I have earned money from doing literally nothing by following these principles. Diversify and only focus on the average. You can sleep like a baby during any financial crisis because in the long-run it will average out.
When people see their stock go down they instinctively want sell it and buy it when it hits the low. The problem is that it’s impossible to predict a stock which means most people buy and sell at the wrong time.
In this particular stock when it goes down people get worried and begin to sell. As more people sell the price will go down because demand isn’t high.
Then the same stock eventually goes up and people want to buy it back. Eventually people buy it back at a higher price than what they paid for it! You never want to pay more for something. When it comes to stock just keep holding on and in the long-run it will most likely be positive.
Listen, the stock market seems like a complicated game and a gamble but it’s not too bad if you understand diversity and average. I currently use Betterment which is a robo advisor that invests my money in an extremely diversified portfolio. I have been in for about four years and have earned 6.6% annually by doing nothing. I just put my money in, close my eyes, and check it once or twice a year. To make things better management fees are very low at 0.06%!
Betterment and Wealthfront are great applications for first time investors and amazing for passive income. The more money you invest, the more you earn long-term. Just keep letting your money grow until you’re ready to take it out. Look at the power of the stock market.
If you invested $1,000 today and $5,000 annually, in 10 years you would have almost $70,000.
In 30 years when you retire you will have $720,000. It just grows, and grows, and grows!
NOTE: The return on these investments are equal to the market rate of the S&P 500.
I’m a realist and I know there are issues with stock market investing and here they are:
1.) You must have a job and be disciplined to save your money for investing.
A lot of people want to spend their entire paycheck and it takes major discipline to think about the future.
2.) The past doesn’t determine the future.
Although the historic average has been positive that doesn’t mean they can’t all be negative at some point. Although this can be true it most likely won’t be happen. Companies are extremely competitive and always creating value. For stocks to go down forever all companies would have to throw in the towel.
As I said earlier, having a diversified (see what I did there?) stream of passive income is optimal, but the stock market is the best method due to little time investment, ease, and access.
For anybody who reads this I just want you to know I care about your well-being. I’m not some scam artist trying to promote something. Investing in index funds with diversification and averages in mind will be the best form of passive income you can earn if you are just starting out. I know people who use Betterment and other services who have seen results and I have too. As you begin your passive income journey to reach your financial goals you should consider the stock market as an option.
This article had a ton of information and if you have any question I urge you to comment below or email me. There is still so much to learn and if you want to talk I would be happy to do so. Cheers and good luck!