I’ve been reading this book called “Stop Working, Here’s How You Can” By Derek Foster and i’ve enjoyed it so much that I thought I’d share it with you.
The author has created a strategy that has allowed him to to retire early (at the age of 34). He did this by thinking differently than most people do about the stock market.
Did you know that many companies give a large portion of their earnings back to their shareholders? At the moment, most of these companies only pay between 1 and 4 percent which is hardly enough to keep up with inflation. There are some companies however that have a history of raising their dividends (the money that gets paid to the share holders) year after year even during recessions. He gives an example of RBC shares that could have been purchased at $15.56 in 1995 which would now be giving you an almost 13 percent yearly payout. Derek Foster says that these are the kind of companies that you should focus on. There are many other examples like this in his book.
So how much money can this actually make for you on a regular basis? Well lets say you spend about $150,000 (less than most people spend on a house) and buy shares in a few different companies, and after a few years if you are receiving an average amount of 13% per year, you would be bringing in $19,500 per year. I know this doesn’t seem like a lot but keep in mind that you are being taxed at a lower rate. It might be enough to live off of while you continue to build up your portfolio, and because of the companies that you invested in, your income would continue to increase year after year.
I know that there is (as always) a risk in investing in the stock market, but Mr. Foster has a set of rules that he follows in order to minimize the risk involved. He admits that many of his ideas are different from what most people will tell you, but his strategy has allowed him to retire at age 34 (just 10 years after he started working towards this goal).
Derek says that the idea is not to worry about whether your stocks are up or down. As long as the dividends are increasing year after year, then there is no need worry about the share price. Also as long as your shares are paying out and increasing, you should never sell them. The idea is to focus on recession proof companies (companies that sell things that people will buy even when they’re short on cash) then hold on to them for dear life. “Plant trees but don’t ever think about cutting them down!”
Also, he suggests only investing in Canadian stocks because of the added tax advantage this gives you.
I like his strategy because it takes a lot of the stress and apprehension out of investing in the stock market. I’ve always dismissed the idea of investing in individual stocks because I considered it to be more like gambling than investing, but now I’m thinking I might learn a little more about it and give it a try.
This book is a great read; it has definitely given me something to think about. I would recommend it to anyone.