In Astute Observation, Investment Idea

We have seen some pretty drastic stock market gyrations over the last few weeks. At one point broad market indicators like the S&P 500 dropped over 10%. Ouch!

So what?

In reality more than 50% of Americans have little if any exposure to the whims of the stock market ups and downs as shown in this recent New York Times article.

What is this really telling us about income inequality?

First of all lets get this straight… Sure 84% of all stocks are owned by the wealthiest 10% of households but the US Stock market is unquestionably the easiest access way for anyone with $10 or more to build wealth over time. And by wealth, I mean the kind of cash pile that can help lift people up on the economic ladder. And by more than a few rungs as you will see below.

Sure you can go out and invent the next big technology gizmo that grows into a billion dollar company, invest in some real-estate or even buy a winning lottery ticket… but, over time, nothing builds wealth as easily and reliably as the good old US stock market.

For people who think they don’t have a enough money to invest in the stock market skip that pack of cigarettes, cup of Starbucks coffee, expensive lunches, or whatever else is robbing you of future wealth and make that money really work for you.

If the distant possibility of a better future doesn’t convince people then the actual numbers might be helpful.

If a person puts $20 a week into the market, that comes out to $1,040 each year.  Let’s forget about the wild 20%-plus stock market returns in each of the last few years and just use a more conservative 7% return going forward.

Please stay with me on these numbers because it will be well worth it.

Assume you are 25 years old so that gives your money forty years to grow… How much money do you think you would have in 40 years?

How about $207,620 for just giving up a few packs of cigarettes or something else you really don’t need?

What if someone offered you a check for $207,620 right now to give up some bad and costly habit? Of course, that check would be postdated 40 years. But it’s still a lot of money and could make a difference some day in the way you live or even survive.

$207,620 may not be enough to convince some people… I commend them on being finical over-achievers and not selling out their bad habits for a measly $207,620. Well if you tweak the return rate up to 10% you would have $460,296. And if you can find whole $50 a week in disposable bad habits at a 10% annual return that is $1,150,741. The kind of money people dream of…

If people can’t be convinced with a million-dollar check then they have bigger problems.

If you don’t believe my numbers see this handy spreadsheet titled “How can $20 a week really create wealth? “

For people not sure how to actually invest only $20 a week in the market see this article that lists companies that can help make this happen.

The reality is that there will be some down years in the stock market but over time average returns like these can really happen. Maybe even more.

And that million dollars is the generous gift for giving up some bad and costly habit.

How about even more bang for a small investment dollar?

Maybe the $2 Million mark ($2,301,481 to be exact but what is $300,000 between friends?) is really where a person could go.


Maybe the person’s company has a 401K plan where deposits are matched for a 100% guaranteed double your money proposition.  How many people don’t put money into 401Ks? It’s not like organ donation. No one will harvest your eyes, kidneys, and spleen while your body is still warm because some hurried doctor checks the wrong slot on an electric form. (<- This really happens!)

This 401K thing sounds like a no brainer, right?

Well…  according to a recent Bloomberg article 79% of Americans work at places that sponsor a 401(k)-style plan. But over half (59%) of workers at those companies DO NOT participate in the company offered 401K plan.  It’s free money! What’s wrong with people?  Your organs will be safe. I promise!

Could better financial literacy really be the key to dragging people up the income ladder?

As the numbers here show… Maybe people should try and get their money to work as hard as they do.

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