Most people know that my wife and I pay ourselves a monthly allowance. We refer to it as our fun money. In November of 2016 I decided to use a portion of my allowance to start buying shares of a stock market ETF (Exchange Traded Fund) every month. The initial purchase price was $112.63 per share. I purchased nine shares using money saved from my allowance. Fast forward 20 months and now I own 34.646 shares. The most recent purchase was made on 7/3 at a price of $141.30. If you’re wondering, the current price as I write this is $146.43 per share. Here’s how my fun money is performing:
$5,073.28 - Current value
- $4,387.94 - Total cost (money I invested)
$685.34 - Total gain (unearned income according to the IRS since it’s not from a job)
If my math is correct, the ROI is 15.62% ($685.34/$4,387.94). Don’t forget that I had to fund (i.e., intentionally save) 86.49% ($4,387.94/$5,073.28) of the account’s total value from my pocket.
After determining what fund to invest in, there were only three things I needed to do.
Commit to purchase one share per month. This was easy since I set my brokerage account to automatically withdraw $150 each month from my checking account.
Execute the order. There are two main ways to buy or sell: (1) Market Order – You buy or sell in real time at the current trading price, (2) Limit Order – You determine a maximum buying price or a minimum selling price.
Leave the money alone. This fund pays dividends (sum of money paid regularly [usually quarterly] from a share of profits. I also get the benefit of capital gains (rise in the value of a capital asset (i.e., investment) that gives it a higher worth than the purchase price.
It’s true that you can earn money doing almost nothing from investing. However, money will work for you only after you first work for it. Always remember, anytime you invest, there is a chance you can lose money. That’s a risk I’m willing to take.