By: Dividend Sensei
Investing Has Never Been Cheaper Or Easier
In the late 1980’s the average US broker charged $45 per trade. And that was after commissions had already fallen about 60% from their all time highs back in earlier decades before the advent of modern telecommunications and automated trading technology. In fact back in 1973 the average commission to either buy or sell a stock was 1.3% of the investment value. In other words buying $10,000 of a stock would cost $130 in commissions. Selling the shares? Another $130.
Today the world is awash in discount online brokers with ever lower commission costs. In fact brokers like Merrill Lynch even gives qualifying customers 30 free trades a month. I personally use Interactive Brokers and am on the tiered plan. This means that I usually pay about $0.30 per trade or about 0.06% of my capital (217 times cheaper than in 1973). Or how about Robin Hood, the broker I used before I switched over to Interactive Brokers? Robinhood, while offering limited (though growing) accounts and features, has unlimited commission free trades. You literally can’t get any cheaper than that. And of course the benefits of low cost trading are hardly only for active investors (who buy individual companies). According to analyst firm ETFGI in mid July of 2017 there were 5,024 exchange traded funds available around the world with 1,756 in the US.
These offer you the chance to invest in any country, sector, or the entire market in general. In other words instant diversification at very low cost. How low? Try an expense ratio of 0.03% for a top quality US market index ETF. That means you pay just $30 in fees per $10,000 invested annually. That’s compared to mutual funds that used to frequently charge 1% to 2% a year fees, PLUS 5% front and back loads as well. In other words you would lose 5% of your money coming, 5% going, and 2% a year to let a “professional” handle your money and 95% of the time lose to the market.
Now you can not just own the entire market, but even individual sectors, as well as gain exposure to international stocks too if that’s your wish. ETFs for bonds? Those exist and have expense ratios just as low. Smart Beta or factor ETFs that use time tested methodologies like valuation, quality metrics (like returns on invested capital), volatility, and size to try to boost returns? They are also becoming more popular and still sport rock bottom expense ratios of 0.05% to 0.2%.
That’s still practically free compared to the highway robbery rates that fund managers used to charge us. But the biggest reason of all that investors are living in a golden age is because the world has never been more prosperous or interconnected. And that means it’s literally never been easier to get rich over time.
A Globalized World Means It’s Never Been Easier For You To Profit From Growing International Prosperity
In 1820 94% of the world lived in poverty (on $2 a day or less in today’s money) and 84% in extreme poverty ($1 a day or less). By 2015 global poverty was down to 9.6% and its still falling.
That immense improvement to global living standards and prosperity has been led by ever improving technology, productivity, and an ever more interconnected world. And while the greatly improved living conditions of the world’s billions are surely a wonderful thing in their own right, what I’d like to point out is that it’s never been easier to get a cut of that prosperity. For example large multinationals both in the US and those that trade on our exchanges offer you and I a chance to tap into the growing world economy and fast growing emerging markets all over the globe. Want to profit from China’s booming middle class which will number 600 million by 2020 (about twice the population of the US)? Nike, Starbucks, and Unilever are great dividend growth stocks with large China exposure that are trading at attractive prices right now.
Not interested in individual stock picking? Well any broad based index fund will get you exposure to those same multinationals. In fact about 43% of all S&P 500 company revenue comes from overseas. But in case you really want to get in on the global growth action how about Vanguard’s Total World Stock Index ETF (VT)? This ETF yields 2.1%, charges a 0.1% expense ratio, and gives you an ownership stake in 7,986 of the world’s biggest companies. VT literally allows anyone who can save up $75 (the cost of one share) to buy a stake of the world’s growing economy and financial abundance. Think about that for a second. It means that you are a part owner in the entire world economy. Tens of millions of employees are working hard every day, providing goods and services to billions of people in every corner of the globe, all in an effort to increase your profits and enrich you.
Centuries ago we had a word for people who could command such resources and marshal so many to do their bidding; “emperor”. Now of course a single share of VT isn’t going to make you rich, even if you buy it commission free on Robinhood. And the $0.26 quarterly dividend from that single share won’t buy you a stick of gum. But the point is that thanks to our modern world almost anyone is capable of joining the true ownership society. That means converting your active income (from wages) into passive income via saving and investing. And whether or not you want to or feel capable of investing in individual stocks the fact remains that it’s literally never been easier for hard working, disciplined, and patient people to get rich over time. That’s thanks to the modern miracle of the stock market, the information about how to harness it properly, and the super cheap means to do so.
I'm an Army veteran and former energy dividend writer for The Motley Fool. I currently write for both Seeking Alpha, Simply Safe Dividends, and DividendSensei.com My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams, and enrich their lives. With 22 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams. I'm currently on an epic quest to build a broadly diversified, high-quality, high-yield dividend growth portfolio that: 1. Pays a 5% yield 2. Offers 7% annual dividend growth 3. Pays dividends AT LEAST on a weekly, but preferably, daily basis