A Tale of Two Co-Workers

Several years ago, my company had a special policy for rewarding is employees who decided to continue their education and go back to school.  If you completed a degree program while working at the company (bachelors, masters, etc.) you received exactly 100 shares of company stock, straight up.  This was in addition to the free tuition assistance that the company provided.  Even better, those 100 shares were given to you directly.  You didn’t have to hold it in the company retirement plan.  The company stock award has since been discontinued, so I personally cannot take advantage of it.  There are two of my co-workers, however, who succeeded in getting that stock bonus as they finished their master’s degrees.  What they each did with it was different and had an impact on their future wealth.

For the sake of privacy, we’ll call my co-worker friends Isaac and Antoine.  Both graduated from the same engineering program with their master’s degrees around 2008.  Isaac took his 100 shares and sold them all within a short period of time.  He spent the cash over time on lifestyle purchases.  Antoine, on the other hand, made the decision to retain his ownership.  Over the past five years or so, he just decided to sit on the shares.  Now, my company pays dividends to shareholders.  I’m not sure whether or not he re-invested them as they were paid out or if he just took the quarterly cash payments, but we’ll look at both cases.  What would his return be on his investment?  Does sitting on shares of a big company that churns out cash provide more total value than selling your stake and pocketing the profits?  I’m sure you know the answer qualitatively, but as far as the numbers go – how much of a difference does it make?

The stock price around the time my co-worker friends received their award was about $81.15.  With 100 shares, that adds up to a $8,115 bonus, not a bad reward for finishing a degree.  As I stated, Isaac took with money and ran.  But what about Antoine – what would things look like now?  Below is are two graphs showing the different scenarios – one without and one with dividends reinvested.



The capital gains and dividends received in the first case aren’t too shabby, around $6,357.00 as of the end of December 2013.  Look at the next graph though.  If Antoine delayed gratification and reinvested dividends over just a five-year period, he racked up $8,524.97 in total gains – a full $2,167.97 in additional wealth.  The difference in return on investment is 11.09% versus 13.95% over that time period.

This is just another example of growing wealth one dollar at a time.  By relinquishing his stake as a partial owner in the company, Isaac decided that the utility of having those $8115.00 in 2008 was greater than leaving his money to sit and grow.  There’s nothing wrong with that – that made him happy and that’s just fine.  However, if you’re interested in building long-term wealth, that is no way to do it.

Investing, as I have learned from reading about it a lot and starting to do it myself, is a long term game.  Everyone’s looking for the next Apple or the next Amazon.  That’s fine, there are definitely people who get rich that way.  I however, prefer the more consistent steady growth that investing in a company like the one shown here provides (there are reasons why I don’t invest in shares of my company outside of my retirement plan because of factors like the cyclical nature of the business and inconsistent dividend growth, but that’s a topic for another post).  Just remember, in a capitalistic society just as the United States, money tends to flow to those who are owners in profitable enterprises.   Selecting conservative, consistently profitable stocks and holding them for a long time is a good way to do that.  When you give up your ownership stake like Isaac, you must remember you are also giving up your right to all future shares of profit the business generates.

No Man’s Land – The Place Between Debt Free and Financially Free

If you’ve been learning about personal finance for awhile now like I have, you likely had an initial burst of energy and enthusiasm.  Maybe you’ve gotten really fired up, created a plan and put it into action.  Chipping away at debt for a while, you eventually become debt free.  Great!  So…now what?  You probably learn a bit about investing basics, and then put together a plan to take the necessary steps toward financial independence (throwing money intelligently into cash generating assets).

This is all well and good, but as you start to build wealth, you notice your energy level start to plateau.  I’ve experience this myself, and it can be hard to overcome.  After all, being “just” debt free is a pretty comfortable place to be.  It’s not like it used to be when you had creditors nipping at your heels every month demanding payment.  Now it is all on you.

I have realized that this part of the journey seems to take the most discipline.  Not because it is harder – it is just a longer period of time to fight through.  Also, think about this.  When you have debt you are being forced to resolve the situation because if you don’t, you could kill your creditworthiness or have your wages garnished from you.  By investing and working towards financial freedom, there are no immediate short-term consequences if you say, “I don’t think I’ll buy any stocks this month.”

To me, the whole spectrum of financial progress is like going over a hill.



When you are born, you start out at the bottom of the hill, at ground level (unless you are born into a rich family, of course).  When you grow up you get a job that pays you money in exchange for your time, but you also acquire liabilities, which put your backward into a hole.  Realizing the error of your ways, you begin to dig yourself out of debt.  Eventually you gain some traction and begin climbing up that hill.  At first it is a steep climb, but as you get closer to the top it gets easier to walk up.  This is the long, arduous process of accumulating capital.  It is the less-than-exciting “no man’s land”.

In spite of this dullness, you must remember that incremental progress has great power over time.  Eventually, you reach that magical point – the top of the hill – where your investment income fully pays for your life expenses.  Remember, retirement has nothing to do with age.  It has everything to do with passive streams of income that allow you to live how you choose.

If you’re currently in the no-man’s land like me, know that you are not alone.  Stick to your plan and build passive streams of income, even if they seem small and insignificant.  It’s hard to get excited about a $2 or $3 dividend when you look at your income.  However, that will build into much bigger numbers eventually.  Over time, your diligence will pay off.

What are ways that motivate you to continue pushing for financial freedom?

A Different Definition of Success

When I met the woman who would become my mother-in-law, I was happy and felt good about her – this was a woman I knew I could get along with.  Despite my initial nervousness during our first interactions, it was very clear that her and her youngest daughter (my then girlfriend) had very similar personalities: they are both sweet, energetic and social people, who are not afraid to get things done in order to get ahead in life.

When my mother-in-law came to this country, she was just a teenager.  The oldest of eight children, she helped carry her younger siblings over with her so they could all work for a better life in America.  She married young and had children, but could not excel professionally because her husband forbade her from going to college.

Eventually, after a divorce and a move across the country, she worked her way up from ironing ties at a factory to becoming an accomplished educator with a master’s degree.  She now has a fruitful career, a great relationship with all of her kids and grandkids, and two rental units that provide her with passive income.

I read recently that coach John Wooden was known to have said that the way to measure your life is not how well you did in comparison to others, but rather how well you did in comparison to your potential.  It is what you do with what you have that counts.  It is far more respectable to see a teacher who retires with dignity than a trust fund baby who merely maintains their inheritance.

Search within yourself and think about your own life.  Sure, you may not have been born into riches.  You may not have fancy qualifications.  But, you assuredly have something – a skill, a talent, or an experience you can use to your advantage.  For my mother-in-law, she leveraged her passion for educating to make a better life for herself.  For me, I utilized an aptitude for math and science to learn about engineering and now about investing and personal finance.

One of my greatest fears is looking back on my life as an old man and thinking, “Wow, I wish I had done it all differently.”  Along the road, we all make mistakes – no doubt about that.  However, I believe far too many people out there lack an internal fire to do something great, or they suppress it out of fear of rejection or failure.  We each only get one life – why not try to make the best of it?