A common theme on financial blogs is how to retire early and enjoy the financial freedom that goes with it. Living off of dividends, interest, and other forms of passive income requires being a serious investor. Here’s my take on becoming a full-time shareholder versus a full-time employee.
Shareholders get respect, employees don’t. Companies aim to impress shareholders and Wall Street. Employees not so much. Employees are paid as little as possible and laid off to benefit the company’s bottom line. Employees deal with workplace stress such as toxic managers, discrimination, and unpaid overtime.
However, being a shareholder is like living in a whole different dimension. In terms of connection, it’s as detached as it gets. As far as I’m concerned, that’s a good thing. When you’re a shareholder, you don’t have to be in a good mood, be energetic, or be the life of the party. When you’re a shareholder, you don’t have to worry about being a man or a woman. You don’t have to worry about being too short or too tall.
Basically, being a shareholder is a generic state that takes subjectivity out of the equation. Judgment doesn’t exist. When the corporation pays a dividend, everyone gets paid, not just the boss’ pet. When the stock price grows, it grows for all shareholders and everyone gets rich. There is no getting passed over.
You might say, “Stocks go down,” or, “I don’t play the stock market.” Anything can happen, it’s true. But it’s a safe bet that AT&T is going nowhere. Proctor & Gamble and Johnson & Johnson are here to stay.
I paid off my second car with GE stock. When I saw that sucker drop to $6 in 2009, I bought 1000 shares the next day. That helped me pay off a big chunk of a car loan amidst the economic uncertainty. The market can go up or down, but the resources of these giant companies don’t disappear because of some temporary influence that jolts the stock market. (Hint: Those are occasions to buy more.)
Most of us are employees right now. One of my goals is to transition from an employee to a shareholder. Because I’m only one person, I can only take myself to work and earn one paycheck. But by converting my W-2 income to shares of stock, it’s my way of having others work for me. Those shares act like worker bees and I’m able to exponentially leverage others’ skills.
Becoming a shareholder allows me to tap into the profitability of industries for which I have zero expertise. I don’t know anything about the construction industry. Hell, I’m a 5-foot woman — it wouldn’t be good for my nails. But the brawny men who are made for that line of work enjoy getting up every morning to play with heavy equipment. By investing in a construction company, I stand to gain from the earnings and growth potential of that enterprise without getting my hands dirty.
I look around at all the nicely-designed stores and new buildings. I can get a piece of that rental income by investing in a REIT. REIT stands for Real Estate Investment Trust. One of my best investments was buying several hundred REIT shares in 2005. Not only has it grown 240%, but the dividends buy me a few shares each month. That’s from doing nothing. I’m riding the gravy train on dividend reinvestment compounding. Even better: it’s in my IRA where I don’t pay current tax on the dividends.
I also think of stock ownership as owning my own business but without the stress of the day-to-day management. The enterprises’ managers and employees worry about the mundane operations. Plus, I’m not risking my life savings or personal assets, other than my investment.
I can’t know every industry, but if I spread my money into buying shares of each industry’s leading companies, I’m now promoting their success as well as my own. I’ve taken a very aggressive stance on the switch. Every payday, I commit a minimum of $500 into an investment. If you’re an employee that loves your job, that’s great, but I think that’s the exception. Based on my experiences, employees are truly short-changed and don’t get enough respect.
I feel it’s time to regain my integrity.
About the Author: Dora DeLellis is a CPA and CFP. Dora is the author of How Ally Found Her Financial Freedom and Jake’s Financial Transformation. Visit her blog, Thoughts on the Money.
Photo Credit: Arch_Sam
RD Blakeslee says
IMO, if being a shareholder is better than being an employee, then being the sole owner of an enterprise is better than being a shareholder:
Hi and thanks for commenting. I’m sure everyone dreams of being their own boss and the article you referenced noted that it’s better to be in control of your own endeavor “unlike paper investments in enterprises managed by others”.
That said, not everyone is cut out to be an entrepreneur. It requires resources and good business sense. Some people are great at their skill but are terrible business owners.
For those that don’t have the goods to be business owners, owning corporate stock is a good alternative.
Jay @ Intelligent Trend Follower says
Interesting! I am a big proponent of shareholders, but hadn’t considered it from a “rights” perspective. To me, that makes it even more appealing!
Karen Kinnane says
“But its a safe bet that AT&T is going nowhere.” Well…. I’d like to ask a bunch of original Lucent shareholders about that idea!
” Im only one person, I can only take myself to work and earn one paycheck.” I’d like to disagree with this idea, what’s wrong with getting a part time job or opening a small business and investing all the money from the second job or business in stocks? I always had a second job. Not only do you earn more money, but you are kept busy so you don’t spend time (and money) at the mall, going out to eat, or clubbing.
Stocks? I LOVE the idea of being a stock holder, you earn any extra money, you put it in stocks. While you’re at it, set the brokerage accounts and IRAs as “DRIP” (Dividend Reinvestment Program) accounts so all dividends are automatically invested in more stocks AT NO COST TO YOU and your amount of the stock grows quarterly. Then you get dividends ON the dividends and your number of stocks grows due to compounding.
Thanks for commenting. I appreciate your feedback on my opinion of AT&T, comparing it to the defunct Lucent. I was also a Lucent investor, so I have to agree with your sentiment. However, AT&T has developed a growth pattern through its innovations and is a current leader in telecommunications.
Anyone can argue one company over another and I was just using AT&T as an example of a long-range, reliable investment. Maybe I should have just kept with P&G and J&J.
I also don’t argue with your suggestions for earning more than one paycheck. I continue to teach as an alternate earnings source, but my point is that a person is limited to their 24 hours each day. Some people can’t handle a second job for a variety of reasons especially if their primary job requires long hours.
Did you mention DRIPs? DRIPS and dividend compounding are my two favorite subjects.
Time Hedge says
That is a neat concept investing in companies outside your realm of employment and experience. Traditionally people are encouraged to invest in what they know, but you are doing the opposite and in this case it makes sense as a diversifier. I share your dream to one day be a shareholder only and not an employee. Cheers.
Hi and thanks for weighing in. I realized that I should look outside of my bubble. There’s a hugely successful world out there that I chose to tap into. It begins with knowledge and awareness. Luckily, I never stop learning.
All the best,
Being a buy-and-hold shareholder in a bull market is easy. The gravy isn’t so easy to come by in a bear market. Dividends can get cut, and companies can go out of business.