Let's say "little capital" means something like $10,000. Suppose
you invest that in the stock market. You pick your own stock by
watching finance channels, reading financial statements online,
and keeping ahead on the news events.
You diligently work 2 extra hours per day on these investing
activities. And you make 15% annually which is well above
average.
So that year with your effort, you made $1,500.
You would then be below minimum wage
Hmmm, $1,500 for about 2 hours/day. This comes out to about
$2.88 per hour. But that is actually below the U.S. minimum
wage...
Say you make $60,000 per year. If you devote that extra two
hours per day to your job, can you make more?
Would a 25% extra effort make you stand out from your
co-workers?
You Bet!
You only need a 2.5% raise to beat your investment in the stock
market. If you are paid hourly, you can make up to $15,000 more
by working 2 extra hours per day.
Moreover, this is a compounded effort. 25% extra effort devoted
to your career could be the difference between becoming the
president of your company or a division director one day.
15% percent pay raise is NOT even enough
However, when your "stock-investable" net worth exceeds your
income then it is a whole different story. With $60,000 capital,
a 15% return equates to a profit of $9,000 profits annually. And
You will need a 15% percent pay raise to beat that.
The following table should make things clear:
CASE 1: Salary > Stock Investment
Specific Numbers: Salary = $60,000 Stock Investment = $10,000
Salary x (2.5% Raise) = (Stock Investment) X 15% Return
Conclusion: It makes heck of a lot of sense to bang away at your
career.
CASE 2: Salary < Stock Investment
Specific Numbers: Salary = $60,000 Stock Investment = $100,000
Salary x (25% Raise) = (Stock Investment) X 15% Return
Conclusion: What! I need a 25% raise to make more than my
investment. I need to focus more on the more profitable income
source.
As you can see, assuming a modest 15% return, it makes sense
only to focus on your investment after you have saved an
“investment fund” larger than or equal to your current income.
100% Investment Return ... Just A Thought
However, if you can get an above average return then it is
reasonable to focus more on your investment even if your
investment capital is less than your income. Let’s look at the
following case:
CASE 3: Salary > Stock Investment
Specific Numbers: Salary = $60,000 Stock Investment = $20,000
Salary x (33% Raise) = (Stock Investment) X 100% Return
Conclusion: Holy Moly! 33% raise will probably take maybe more
than a couple promotions. But how can anyone make 100% in a
year? Making in excess of 100% per year is not that difficult if
you follow with discipline systems that had been proven to work:
Value Investing Insider Trading Analysis Industry Trend Analysis
What we have done is a very crude analysis of a hypothetical
situation and it is very enlightening. There are really ONLY two
choices before you have a net worth greater than your income:
Work Harder At Your Job Or Attain Superior Return from the Stock
Market (which can be risky if you don't follow proven systems).
Since we are not investment advisors, we are not allowed to give
out individual investment advice. This is as specific we can go.
For more information and advices on investing and finance,
please visit:
http://www.value-discovery.com
About the author:
David Teng is the President of Value Discovery, Inc.
He led the effort to offer individual investors a comprehensive
finance and investing topics website. Striving to be unbiased,
Value Discovery uncovers many of common misunderstanding created
by the investment arena.
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