Today, as I’m writing this article, the stock market just finished losing about $2 trillion in a 2 day period.
5 years ago, I’d have told you “just wait it will come back up”. And the truth is, it probably will.
But today, even though it will come back up and I could go buy shares while they’re “on sale” I still stay out. I have no money in the market. I want to share with you why.
What is investing?
At it’s root, the word invest literally means “to clothe my money”. I’m clothing my money in an asset and if done right, I should get interest, income, appreciation, or a combination of those.
Let’s keep this simple. When I pick out clothes, I look for 4 things.
- I only select clothing I like
- I only select clothing I understand
- I only select clothing that fits me
- I only select clothing that fits the occasion I’ll be using it for
Why should my investments be any different?
If I’m investing I’m going to follow the same parameters. So let’s look at a mutual fund.
A mutual fund is what most investors own. It a basket of maybe 20–30 different stocks owned by a fund.
Do I like stocks?
This is primary. I’m not going to invest in what I don’t like. For me, no I don’t like stocks.
For one, they’re invisible. I don’t actually own anything.
They’re also speculative with no guarantees of anything. If the company goes bankrupt, I as the stockholder am the last one to get paid. (Taxes, wages, secured debtors, bondholders, and preferred stock holders all get paid first). If this were a mortgage, it means I’m in 6th position behind the company executives because we know they already got paid if the company went under.
I also have no control if I own a stock. I can vote or proxy vote. That’s about it. And they’re not actually going to listen to me if I do vote. I can’t set my own pricing. I can’t control the value or earnings of my stock. I’m at total effect.
They also don’t really cash flow. The average mutual fund dividend yield is around 2% or less. Meaning if I have $100,000 in mutual funds, I am only going to earn about $2000 per year in dividends. That’s not very much.
On top of that, about 30% of my gains are going to go to fees. A mutual fund full of stocks has an annual management fee and that annual management fee costs the average investor around 30% of their overall growth. And the fee gets charged whether my stocks made money or lost money.
So no, I don’t like stocks.
Do I understand stocks?
I was a financial advisor for half a decade. I sold stocks and mutual funds. I passed federal and state licenses where I had to study what stocks, bonds, options, and other financial instruments and be able to understand what they were. I had to pass tests to ensure my understand. And I did very well on those tests too!
But I still can’t honestly say I understand stocks.
For one, again, it is invisible.
It is a share in a company, but I don’t actually get anything for it.
The pricing has very little to do with the earnings of the company, which is also very confusing.
If I own a stock, what do I actually have? What is it? A piece of paper that says I own part of a company? Can I go touch my share of ownership and look at it? No, it’s digits on a screen.
I can give you all the technical definitions for what a stock is, but I challenge you to try and simplify and answer in plain words what I actually own if I own a stock.
Do stocks fit me?
I’m a high control individual. I like to run things and have my hands on them and be in the driver’s seat. Stocks don’t give me that.
I also like tangible investments that I can see and touch. Stocks don’t give me that.
I HATE losing money and to this day I have not lost money on an investment and don’t plan to. Stocks don’t give me that.
I want cash flow. I want 8–12% annual income yields from my investment. Stocks don’t give me that.
I want to be able to leverage against 70–90% of the value of my assets to use them to make money while I make money. Stocks don’t give me that.
I don’t like fees and I want to avoid paying them as an investor. Stocks don’t give me that.
Do stocks fit the occasion I’d use them for?
I invest in 2 phases.
Phase 1 is accumulation mode. I am trying to amass the right amount invested so that I can move into phase 2.
This means I am following three main rules.
- Don’t lose money
- Don’t invest in what I don’t understand
- Earn the highest growth rate possible while not violating #1 and #2
I automatically violate my 3 rules of accumulation by investing in stocks. And they don’t even have the highest growth rate.
My second phase is distribution mode. This is where I’ve graduated from phase 1 and I’m now going to convert my assets into maximal cash flow to live on and reinvest.
I have three main rules here too:
- Don’t lose money
- Don’t invest in what I don’t understand
- Earn the highest monthly cash flow possible without touching my principal amount invested
Again stocks violate #1 and #2 right off the bat.
And for #3, stocks have a terrible yield. At best I might get 6% in dividends in a REALLY good stock. But for the most part, I have to sell shares to produce income. Which puts me at risk of running out of money and liquidating everything I’ve worked so hard to build.
The reason I don’t invest in stocks is that I don’t like them , I don’t understand them (and keep in mind that I know more than 99% of the population on this topic because of my back ground), they don’t fit me, and they don’t fit the occasion I would use them for.
I’m not going to get into technical arguments of how it could work if I would just become a day trader.
I’m not going to justify that the market does always go back up if I wait long enough.
I’m not going to even get into the fact that the stock market has been almost 100% manipulated and artificial in its growth since the 1990’s.
As an investor I need to look at who I am, what I like, what I know, and where I’m going.
And if an investment doesn’t mesh with all of those things, I won’t be participating.
If you’d like to know more about what I invest in instead, check out my free course by clicking here.
Own Your Potential,
Jerry Fetta helps create financially educated and wealthy families who navigate their economic futures with certainty and help build prosperous communities around them. If you’d like to experience this for yourself and your family, then get more information about Jerry Fetta and Wealth DynamX by going to Membership.JerryFetta.com