I started investing in the early 1990s. Even if I had wanted to, it wouldn’t have been easy to be an active trader. To place a trade, I had to call the broker, sometimes wait on hold, give my instructions, and wait for a confirmation. There was also the commission of $49 per trade, which put a big dent in your returns.
Less than 10 years later, I could trade online, and I had access to all the charts and information that I needed.
Today it’s even faster, easier, and cheaper, as commissions are at or near zero.
It’s not just a matter of trading stocks and traditional options. Traders now have the ability to trade fast-moving vehicles like crypto, options that expire at the end of the day, and “prediction markets,” where they can bet on sports, political outcomes, weather, and pretty much anything else you can think of.
(“Prediction markets”… I’m sure Billy the Bookie taking bets in the back of the corner bar wishes he had come up with that genius branding.)
Speaking of taking bets, 38 states allow you to gamble on sports, and there are a handful of states that have legal online poker and online casinos. You can also walk into a physical casino in 44 states.
Basically, if you’re looking for action, you can find it – especially now that some brokerages, such as Interactive Brokers and Robinhood, will allow you to place a bet on whether Timothée Chalamet or Michael B. Jordan will win the Oscar for Best Actor right alongside your purchase of Nvidia (Nasdaq: NVDA) shares.
It’s only a matter of time before the big banks start taking bets too, not wanting to miss out on that revenue.
While that kind of action can be fun, with so many ways to speculate (and potentially lose), it’s more important than ever to make sure your long-term investments are secured before betting on the Oklahoma City Thunder to repeat as NBA champions or on which recording artist will have the most Spotify listeners at the end of February. (For anyone curious, Bad Bunny is favored over Bruno Mars, Drake, and Taylor Swift.)
Before taking a big swing on an options trade or prediction market, your retirement accounts should be fully funded and you should have six months’ worth of expenses in cash at the ready in case of an emergency. It’s also a good idea to have some money invested in dividend payers that are either compounding your wealth through dividend reinvestment or generating income for you.
You may not get the adrenaline rush of a winning bet on the Super Bowl, but you also won’t get that sickening feeling in your stomach when you lose a dumb wager.
I can tell you from experience that after a number of years of growing your wealth, seeing the income that is generated by your dividends can be pretty darn exciting.
There is definitely a dopamine rush when you see income that you didn’t have to work for in your account each month – and that feeling doesn’t get old.
You’re not going to double your money overnight in a stock like Phillips 66 (NYSE: PSX), which sports a 3.1% yield. However, it has outperformed the S&P 500 by nearly 1.7 times since I recommended it in my Oxford Income Letter newsletter nine months ago.
It’s the same story with drug maker Gilead Sciences (Nasdaq: GILD): I recommended it over a year and a half ago, and it’s up 149% including dividends, versus the S&P’s return of 32% over the same time period. While the current yield on Gilead is just over 2%, investors who bought it when I first recommended it are earning nearly 5%.
Both of these companies are growing their dividends. Gilead has increased its dividend every year for 10 years, while Phillips 66 has a 13-year dividend-raising streak. With stocks like these, if you invest today and earn 6%, at some point in the not-too-distant future, you could be earning 10% or more each year on your holdings.
Just like you’d make sure you can pay the rent before spending on a luxury vacation, secure your financial future first with smart investments like index funds and dividend growth stocks. Then, once the money is rolling in, you can bet on who will get married on Love Is Blind.