5 lies you've been told about investing

There are many lies people have been told about investing. Some of these lies are self-thought. People have been lied to because the person telling this lie doesn't know any better or they failed themselves and don't want to see you fail.

Other people have succeeded and don't want to see you accomplish your goals. So right now, we'll debunk 5 lies you've been told about investing.

Number one: you need to be a millionaire or have a lot of money to start investing

This is not true at all in this day and age. Yes, in the past the stock markets were only for the rich and wealthy, but the doors have been opened to us common folks a long time ago.

With the help of the internet investing the stock market is a lot more accessible now. You can buy and sell shares from the comfort of your living room or bedroom. Discount brokers have also made it very affordable to buy and sell shares. 

Previously, you would have to pay hundreds of dollars just to buy or sell stocks. Now your commission fee can be as low as $4.99 or even free if you're using an app like Robinhood.

You also don't need thousands of dollars to buy shares. You can start off by just buying one share in a company like Coca-Cola, which has a share price of $46 right now.

It's also better to start with a little bit of money compared to investing $1 million from the get-go. Reason for this is that with small amounts of money you can experiment and have fun while you're learning the ins and outs of the market.

Imagine your first time investing with $1 million; you would probably be too scared or cautious with the money hoping not to lose a single penny in the market.

Number 2: I don't have enough or make enough money to start investing

Now, this one is a follow-up from the last lie. Any small amount of money you can set aside will help, even if it's only $10 a week. These 10 dollars add up to $520 by the end of the year and you can definitely start investing with $520. Start saving for investing now and your future self will thank you.

Look at where you could save a couple of dollars during the week. It might mean eating out less during the week or one less trip to Starbucks a week. That is if you like Starbucks of course.

A change of mindset will do wonders. Instead of saying I don't have $10 to spare, change it to how can I save $10 a week? You will kick your subconscious into high gear and before you know it you'll end up saving even more than just $10 a week.

Number 3: invest now because long-term the market has always seen a 7% return

Number three is a tricky one. You will hear financial advisors and even people in the media saying this one. The reason you have to be careful with this one is because the future is unpredictable.

No one can predict what the market will do or return in a given year. If the market went up 10% last year that does not mean that it will go up another 10% in the future. On the flip side, however, staying on the sidelines, because you don't know what the market will do is risky in itself.

People usually talk about the long-term returns to ease your mind and get you into investing. If you stay on the sideline not only will your money not grow, it’s actually losing its buying power, because of yearly inflation.

Number four, I don't invest because the stock market is too risky

This one follows up nicely with lie number 3. Yes, if you don't have at least some basic knowledge about investing then it will be too risky, but with the help of financial planners and advisors there's no need to be scared. 

Also, many investors do at least some self-education by reading investing books and listening to some audio books.

Keep in mind that there is risk involved with anything you do. If you don't want to invest and rather keep the money under your mattress, you are opening yourself up to burglars, house fires or even your dog that might end up eating or shredding your money.

If you think that leaving your money in the bank or your savings account is the way to go, think again. With the measly 1% or less in interest that you earn, your money's buying power is being eaten away by inflation.

If on average inflation is 3% per year, $1 today is worth 3% less next year, so $0.97.

Number 5, You need to be an expert to start investing

It is true that you need to have some basic knowledge about how the stock market works, but you don't need to be Warren Buffett in order to get started. Get yourself educated by reading books (this one is a great start).

Once you have built up your confidence, you can start by investing a small amount of money. Money you would not mind losing. By investing a little amount, you psychologically prepare yourself for growth, because once you see your investments growing it will build up your confidence and knowledge to invest more, in a responsible manner of course.

I hope I've been able to motivate you by debunking some of the most common lies that I often hear being told to eager investors.

Residual income ideas

Let's look at three methods to make residual income which will skyrocket you to financial freedom.

If you are dying to quit your job, live the life you deserve or just simply want to have more freedom to do what you want, then you will like this chapter. Residual income is income you generate passively. So, the money continues to come your way no matter if you're not working or even sleeping.

I'm not going to lie to you and say that it's easy to get a residual income stream setup, but it is worth it. Because once you have this residual income stream setup, you only need to passively maintain it.

Online Businesses

The first method of making residual income is by running an online business. This can be making money from ads while your blogging or making money from your YouTube channel. You can also set up your own e-commerce site or sell other companies products and get a commission, which is also called affiliate marketing.

Another popular way of making residual income is from receiving royalty checks by selling physical books, eBooks, music or photos. 

Even though you can make money with these ideas, there is a ton of competition, because online businesses are very popular and people underestimate how hard it actually is to make a decent amount of money from these ideas.

With all the competition it also means that the online markets are flooded with mediocre products and services. So even if you come on the scene with the best product on the market you won't stand out. 

This is when you have to think about how you want to advertise your products or services to rise above all the other mediocre products and become the leader in your field.

Let me emphasize that having a product or service alone is just half the work. You also need to get visibility by advertising, whether this is social media marketing, PPC marketing or word of mouth marketing is up to you.

It's always good to do some competitive analysis and see how your competition is promoting their products.

Another problem with online businesses is longevity. Many of these businesses can be here today and gone tomorrow, because the competition just pushed you out of the market, your products or services became obsolete or you could not keep up with technological or advertising changes, not allowing you to get all the necessary exposure to stay relevant. 

So, it's not set it and forget it, it's said it and maintain it.

Anything that is not considered passive I left out of the list. So, freelancing and consultancy only works while you are physically present, if not you won't get paid. This defeats the purpose of making residual income.

Real Estate

The second way to make residual income is through real estate. I'm not talking about flipping houses because that takes too much work to buy and sell. It's also not passive.

The focus should be on income properties which cash flow. Meaning that after all expenses are accounted for you come out with a net profit.

Your tenants are paying you rent monthly. With these rent payments you pay down the mortgage (if any), home insurance, taxes, capital expenditures, etc. If you buy in the right location hire the right property manager and run your numbers, you can have a nice stable income.

You won't break the bank by just buying one property starting out and the more properties you buy and take a mortgage on will increase your debt amount. This accumulation of debt will also hinder your process of getting approved for additional loans.

This is when you have to get creative with financing your purchases. Private lenders or portfolio lenders could be two options to try out.

The rent payments allow you to generate residual income and the more properties you own the higher your residual income could potentially be.

There are also many tax benefits associated with doing real estate. This is not a method of making a ton of residual income fast, but it is stable and grows nicely with each additional property. Many millionaires owe their riches to real estate, also giving them the flexibility and freedom to travel and be their own boss.

A great way to start is to buy single-family homes, duplexes, triplexes or quads. These are considerably cheaper than commercial real estate or apartment complexes.

You can start with residential real estate or try your hands at franchising and commercial real estate once you have the skills and money saved up.

Dividend Paying Stocks

The third method and if you have been paying attention to my book, you know what it is: making residual income through dividend paying stocks.

There are a group of companies that pay some of their net income out as a dividend to shareholders. Not all of these companies are worth investing in, though. So, analyzing a company's performance is highly recommended.

The beauty about investing for dividends is that you are creating a nice stream of residual income that should grow faster than inflation. Companies increase their dividend payments and by constantly buying the right dividend stocks and reinvesting those dividends to buy whole or partial shares you supercharge your dividend income.

Just keep in mind that you will have to pay taxes on your dividend income depending on the type of investment account you're using.

It's also very easy to start, because you don't need to have a ton of money. You can start by just buying one share of a dividend paying company.

Many of the wealthiest individuals on earth have dividend paying companies in their portfolio. Guys like Warren Buffett, Charlie Munger and even Bill Gates.

Now, the last two methods of making residual income, real estate and investing, I call those old money, because they have been the pillars of generating and maintaining wealth.

Online businesses, however, can be tricky. One month you could be making a lot of money, but the next month could be the total opposite. If you want to play it smart and safe, you should diversify your income streams, so you have money coming in from different sources.

90% of investors make these 5 mistakes

Making a mistake will make you scratch your head and think about what you've done wrong. But making additional mistakes will surely make you want to quit.

I want to prevent this from happening by letting you know what the five common mistakes are that investors make, so you won't fall for them.

Number one: the so-called Financial or stock market gurus

These are the so-called personalities who tell you what to buy and when to sell. They might also end up screaming their predictions.

You should always be cautious when someone is giving you investing advice. Sometimes there are financial incentives that come into play in advising you what to buy.

Always question the information you receive and that your guru has those investments he or she is pitching to you in their own portfolio. Gurus know how to tap into people's fears and emotions in order to get them to take action.

Following the herd is also very risky. Instead of following a guru you're following along everybody else. So, if there are family members or even colleagues at work who will tell you what to buy and sell, you listen to them without even doing your own research first.

This is very dangerous and this is how people lose their money, by listening to hot tips.

You don't want to follow the herd, they're easily influenced and they act on emotions only when it comes to investing in the stock market. The herd is not logical, whatsoever, and they only follow the latest trends hoping to get rich quick.

Number 2: not being patient and expecting wealth immediately

It goes without saying that people invest in the stock market in order to get rich, save for retirement or maintain the wealth they have accumulated. Being impatient and expecting results too soon will leave you disappointed and open to make mistakes.

Every one of us has heard stories about investors making millions out of small investments. Most of these stories are anomalies, because the majority of investors have to invest for the long-term in order to see significant gains in their investments.

Of course, it is possible to make a ton of money fast, but that is also very risky. The higher the risk in your investment the higher the potential reward could be, but it could also be your downfall.

Number 3: not enjoying the investing process

You don't need to be passionate about investing in order to make it work in your favor, but you need to have some interest in investing. If the thought of doing your due diligence to decide which companies to invest in does not spark your interest, then it is best to invest passively which is investing in mutual funds, ETFs or index funds.

There is absolutely nothing wrong with being a passive investor and it's also recommended for beginning investors.

That's how I started, by investing in mutual funds, bonds and index funds. I quickly learned that investing was not too hard and I thought it was kind of interesting. I then switched from being a passive investor to being an active one, researching individual companies I want to invest in, buying them when they are undervalued and making sure my asset allocation is up to date.

Number four, giving up too early on the market

Many of us have had a bad experience with the market or know someone who has.

Stock market crashes occur far too frequently, leaving investors disappointed, frustrated and stressed out.

Many investors also get scammed into investing in shady companies, which end up crashing on the stock market. Like my dad, who got contacted by an investment firm to invest in this particular mutual fund poised for growth.

He ended up losing all his money and swore never to invest again. Luckily, I've been able to show him the error of his ways and he has become an avid investor. I actually need to slow him down from not buying too many stocks, especially when they are overvalued.

If you're ready to give up, DON'T. Try to figure out what you did wrong and ask for help if you need to. The stock market is still one of the best ways to build wealth.

Number 5: jumping in with no goals

Goals are your road map to success. Without a map you will never be able to reach your destination. Imagine traveling from Kansas to New York without a map. You will have a much more pleasant travel experience with your map in your reach.

This also applies to investing. You need to have a goal. Are you planning on day trading for a living? Or do you want to invest in penny stocks? Maybe you're investing time horizon is only 10 years.

These things will influence your investment strategy. It's okay to start out and test the waters without a plan in the beginning. But you quickly find out that you need a long-term goal which will have a major impact on your asset allocation.

Passive income investing

If you want to invest for passive income, look no further then dividend paying stocks.

We’ll talk about what dividends are, why companies give them out to shareholders and the pros and cons. 

At the end I'll give you four great dividend stocks to put on your watch list.

Dividends are a great way to earn consistent income. Companies pay out dividends to their shareholders on a quarterly basis, but there are also companies that pay out monthly, semi-annually or annually dividends.

When you receive a dividend, it is either deposited in your cash account or it is reinvested to buy more whole or fractional shares. This is also called a dividend reinvestment plan or DRIP.

The ultimate goal of a dividend strategy is to receive dividend payments that meet or exceed your earned income. It is at this moment that you can retire and live off dividend income without ever having to sell the underlying stocks.

It's also important that these dividend payments grow faster than inflation in order to maintain your buying power.

Do you need 1 million dollars to start investing in dividend paying stocks? Of course not. You can start off by just buying one or two shares in dividend-paying companies.

However, it will help if you have more money to invest, because you'll get more in dividend income. The more shares you own the more dividends come your way.

For example, the Coca-Cola Company pays out a 37 cents quarterly dividend, which adds up to one dollar and 48 cents a year.

That's what you would receive if you only owned one Coke share, but if you owned 100 shares you would receive $148 for the year.

In order to see your dividends make an impact, there are three things to take into account.

Number one is, of course, buying dividend stocks on a consistent basis. Number two, the dividends you receive need to be reinvested or used to buy other shares that pay dividends and number three, the companies you invest in need to grow their dividends faster than inflation on a yearly basis.

These three factors will snowball your dividend income. Companies that pay dividends are usually blue-chip companies. These are well established and large companies. They are the top companies in their industry, companies like Walmart, 3M and Proctor & Gamble.

Because these companies are well established they tend to not experience a ton of growth, like a successful startup company.

Many of these blue-chip companies generate a ton of cash, which they end up paying out as a dividend to their shareholders.

Shareholders demand these dividends from companies as a repayment for investing and believing in the company, but leadership in the company also benefits from dividend payments, because they get awarded stock shares and options.

So, let's say you have a successful local company selling ice cream and are planning to expand nationwide. You need more capital in order to achieve this, so you connect with investors who will invest in your company, but they want ownership in the form of stock shares.

Your company goes public and after 15 years you've been able to expand nationally. Your business is at a point where growth is slowing down.

Your investors who’ve held onto these shares want to receive some of their investment money back. So, you decide to pay dividends to your investors, so they can take their dividend income and invest it in a new business opportunity.

Keep in mind that not all companies pay a dividend, because every company goes through the business lifecycle.

A business first starts out as an idea in the mind of the creator. It is in this start-up phase where it can be a small group of people working together, believing in the idea of the creator.

It's also at this point where venture capitalists and angel investors could see the potential of the business.

After working out all the kinks and learning from their mistakes, the company should have a customer base. It now can enter the growth phase. In this phase there are still a lot of growing pains, this is also where a company might decide to go public and issue shares to potential shareholders.

All the revenue a company generates is invested back into the business to further grow the company, think about businesses like Snapchat.

A company eventually hits the maturity stage where it is well established and a leader in its space. It's at this stage cycle where most companies start to pay dividends to their shareholders, companies like Walmart Clorox, ExxonMobil and even Johnson & Johnson.

Being a leader in your market is great, but if companies are not careful they can shift into the decline cycle where their products are becoming obsolete, like the Walkman or Polaroid pictures.

Some of the pros of dividend investing:

They are stable and consistent more so than capital gains. You benefit from the cash payment and also from the increase in the share price of the stock.

Because these companies are seen as more stable they tend to perform better during the stock market crash, because investors will sell their riskier stocks and look at more safe and stable companies and bonds to invest in.

You can also plan out your dividend income, which is something that is harder to do with capital gains.

A couple of cons of dividend investing are: companies that pay out a dividend tend to appreciate slower in the stock market. Companies can also cut or even stop paying a dividend and some companies don't even grow their dividends.

It is therefore important to only invest in great dividend-paying companies, which will not only pay a healthy dividend, but also have the financial capabilities to grow these dividends yearly.

Let's look at four of these companies:

Number one: Walmart - this retail giant has stores worldwide, saving their customers money by providing products at competitive prices. Lately they've been focusing much more on their online presence. They bought jet.com and a delivery company to improve their same-day-delivery.

Number two: Lowe’s - the second biggest home improvement retailer, with of course Home Depot being number one. Lowe's has done such a good job in their field, they've been able to pay a consistently growing dividend for over 50 years!

Number three: McDonald's - the golden arches have been dragged through the mud, especially with the younger generation focusing more on healthier food and snacks. However, McDonald's is still the number one fast food restaurant and this giant pays a quarterly dividend.

And number four: Fastenal - this boring company provides tools and equipment for businesses to create products, build and maintain facilities and they also sell safety products for personnel. 

Fastenal not only has a great business, they also have repeat customers. Nothing is more important for a company than having customers that constantly return to buy your products.

How to create wealth with the stock market

So, you want to make easy money in the stock market, but don't know where to start, how to take action or you're trying to figure out how other successful investors are making money.

We'll look at the two easiest ways investors have been able to get rich by investing in the stock market. Best of all, you can do it also. The two common ways investors make money in the stock market are with capital gains and dividends.

Capital Gains Explained

When you have your money invested in the stock market the value of this asset goes up and down. When your money, also called your capital, increases in value you have just received a capital gain and when it decreases in value it's called, you guessed it, a capital loss.

As long as your money is invested in the stock market it’s unrealized. It only becomes realized once you sell your stocks.

Let's look at an example; you decide to buy 100 Nike shares at around $65. Without factoring in trading fees, you ended up buying $6,500. This is also what your Nike stock capital is worth is.

A few days go by and you decide to check on the stock's performance. You notice that the Nike stock price dropped from $65 to $61. So, your capital also dropped in value, from $6,500 to $6,100 to be exact.

You lost $400, which is your capital loss. But you thought about this chapter and remembered that this is an unrealized capital loss, because it is still parked in the stock market. You decide to wait it out and after a few more days the stock price increased back to $65 and you're happy that you're at break-even point.

After a few days it hits $72. You have just experienced your first unrealized capital gain and decide to sell your Nike shares. You sell all your 100 shares at the current stock price of $72. So, you just received $7,200 in your cash account (transfer fees not accounted for). By selling you turned your unrealized gain into a realized capital gain.

$7200 - $6500 = $700, you just made a quick $700 without doing any physical labor.

Now, you still have to pay taxes on your capital gains depending on which type of investment account you were using and which income tax bracket you are in.

This quick explanation is how many day and swing traders and even long-term investors make money. They analyze stock charts by looking at indicators and patterns to decide when to buy and sell stocks.

You made a quick $700 with 100 Nike, but if you bought 1000 shares your profit would have been $7,000!

If you have the money to spare, don't like taking any risks and have idle time on your hands, you could make a pretty penny quickly by investing in the very risky penny stocks out there.

Dividends

The second most common method investors make money is with dividends they receive from dividend paying stocks.

Let's stick with the Nike stock example. So, you bought 100 shares at $65, but instead of selling for a capital gain you decided to hold on to those stocks for 1 year. Nike has made four dividend payments of $0.18 per share for the year. With your 100 shares you received $18 for every single quarter or $72 total.

The great thing about dividends is that these payments get deposited into your cash account or you can also reinvest them to buy more whole or fractional shares. These whole and fractional shares also end up paying you dividends.

There are also disadvantages to dividends. The money you receive from dividends is mostly a lot lower than you would receive from a capital gain. Dividends are also a long-term strategy, they are not get-rich-quick. Also, many companies are flaky with their dividend payments. Some constantly cut their dividend payments and others completely halt paying dividends during times of financial hardship. There are also companies that never increase their dividend payments or increase it after years of paying the same dividend amount.

However, I like dividend paying stocks, but only from specific companies. I do fundamental research to see which companies are worth buying and I also analyzed the dividend payment history, especially during times of economic turmoil, because companies that can still pay an increasing dividend during a stock market crash are companies to keep an eye on.

Let's look at four dividend paying stocks you should have on your watch list.

Number one: Nike - This athletic apparel retailer sells its products worldwide with a focus specifically on athletes. However, the brand is still so immensely popular that even non-athletic types also were Nike apparel. 

The biggest money makers are there footwear products, with their flagship Jordan brand always selling like hotcakes.

Number two: the Pepsi Company - Many consumers think that the Pepsi Company only owns the beverage, but they also own popular brands such as Frito-Lay and Quaker Foods.

Number three: Coca-Cola – This company owns many additional brands besides the iconic Coke brand, like Minute Maid, Vitamin Water and Powerade.

Number four: Realty Income - This Real Estate Investment Trust (REIT) has tenants such as Walgreens, FedEx and LA Fitness. They operate nationwide and are also diversified across many different industries. They also pay a monthly dividend.