An abridged version of this blog post is available on the Public app. Click here to follow me on Public.com.
Building wealth is not about how much you invest, what matters most is what you invest in and how long you invest.
As mentioned in my “Extreme Dollar Cost Averaging” post, I buy $1 worth of Amazon stock every day on Public. In my RobinHood account, I now invest $1 a day into Boeing. Currently, I am dollar cost averaging a total of 76 different stocks and ETF’s.
74 out of the 76 of the stocks that I am actively dollar-cost averaging are held within my Stash app portfolio. All of my Stash app holdings started as free partial shares from the app’s Stash Party promotion. I decided to dollar cost average my stash holdings because as much as I enjoy receiving the “free stock”, a portfolio full of $0.20 partial shares isn’t my ideal definition of a healthy portfolio.
After tallying up my DCA expenses and realizing that I was spending an average of $21 a month on my Amazon stock purchases, $21 a month for my Boeing stock purchases, and $74 a month to dollar cost average my entire Stash app portfolio, I began to refer to my DCA budget expenses as “the dollar army”.
So far, it costs me $116 a month to maintain my dollar army, but unlike other items on my budget, my investment expense is not a true expense. When I purchase stock, I convert my tangible assets (cash) into a paper asset (ownership equity) that can easily be traded and converted back into cash.
So why would I buy stock instead of saving my money in a bank? The answer is stockholders’ equity. “Stockholders’ equity, is the remaining amount of assets available to shareholders after all liabilities have been paid”.
As a shareholder, my ownership equity in those companies allow me to vote on how the companies I invest in are run. Having a say in how business is conducted is great, but my favorite benefit of stock ownership is the appreciation of assets. Investing in stocks gives me the potential to make more money on my investments than I would receive if I were to put that same amount of money into a savings account.
When I invest a dollar into the stock market that dollar immediately goes to work and starts earning money for me. If the stock that I invest in has a good day and rises 5%, every dollar that I invest in appreciates by the same percentage. My $1 becomes $1.05 and will continue to rise and fall with the share price until I make the gain real (realize my gains) by selling the stock.
If the stock that I invest in pays a dividend, each dollar that I invest will work harder and earn more. Dividends are distributions of cash or stock that are paid to the shareholders of stock issuing companies. Cash dividends are typically paid to shareholders from the company’s net profits and are generally paid to shareholders every quarter.
By now you may be wondering, “How much harder does the dollar army work compared to uninvested bank savings?”.
The easiest way to demonstrate exactly how hard your investments are working is to compare the interest rate for your savings accounts to the returns of the stock market.
According to Bankrate, The current national average interest rate for US savings accounts is 0.06 %. The US stock market, on the other hand, has an average annual return of 8%, plus an additional average yield of 3.26% if the company you invest in pays a dividend.
Wealth building is all about putting your money to work and my dollar army is working very hard for me. Each dollar that I invest has the potential to earn money in two different ways, stock gains and dividends, every dollar in my brokerage account has the potential to grow faster than any money that’s sitting inside of my bank account.
⚠️Warning: This is not investment advice.