Buy Stocks, not Bikes
If you had invested money in Apple Inc. 10 years ago, your money would have grown 2704% (ignoring inflation)
If you had invested money in a bike 10 years ago, your return on investment is -99% + an 80000% gain in awesomeness
I’ll let you decide whether you would rather be rich or awesome…
So this post has nothing to do with bikes (the title is just a teaser to get my cycling friends to read this far into a post about stocks). I want to share something called dividends with people who may not be so familiar with investing.
Risk-averse people often stow their money in CDs or high-yield savings accounts, like those 5% accounts at ING. Many do not realize that companies pay stockholders a fixed amount, called a dividend. A dividend is a fixed payment, per share of stock, that a company will pay you, just for holding the stock. The dividend rate is often called the “yield” of a stock. Citi Bank currently pays a 4.61% yield, Verizon 3.76%, Bristol Myers Squibb 3.95%, Pfizer 4.91%, Bank of America 5.38%, and there are many more (many small companies will even pay upwards of 30% yields, but these are more risky than the larger, more established companies).
By putting your money in a high-dividend stock, you are getting a comparable interest rate to a bank account, but have the added upside of the stock’s normal appreciation. There is the risk that the stock goes down, but these large, well-established companies almost always appreciate over a long time frame.
In some sense, it’s like playing a slot machine that spits out a nickel each time you pull the lever, and–almost always–pays an average return of 10-20% if you play it for a year. With companies like Zecco offering free stock trades, you also don’t have to spend any cash on commissions/fees etc.
As for that 2704% return I mentioned earlier? Well, that can buy a guy a lot of Pinarellos.