I may have only been seven, but I played the game Monopoly for the first time —  I was hooked! I quickly realized that owning houses, hotels, and collecting rent was a far superior strategy to simply “passing Go” and collecting a “salary.” This insight re-emerged a number of years later when I became interested in investing in the stock market.

“Forget biotech or nanotech and stick to simple investments any six-year-old can illustrate using a crayon."

Simplifying stocks

Most people believe that the stock market is a really risky place to put your money — as risky as simply taking a trip to Vegas. But that’s because most people who consider themselves to be investors are really speculators.

With investing in stocks, I discovered a simple fact that is often overlooked. Investing is very similar to planting a tree. You plant a seed (your initial investment) and hope to watch it grow over time. However, while many “investors” look for quick growth, so they can quickly sell the tree off for firewood (selling their stocks for a quick profit), I don’t do that. I wait for the tree to begin to bear fruit, so that I can harvest the fruit every year while leaving the tree intact and not chopping it down. In investment terms, I aim to collect dividends (cheques good companies send to shareholders regularly), but don’t sell my stocks.

The advantage of this approach is that you don’t have to time the market or be all that clever. I used this approach to retire at the age of 34 to become “Canada’s Youngest Retiree.” I explained my whole approach in my first national best-selling book, STOP WORKING: Here’s How You Can!

"The other benefit is that with owning stocks (as opposed to real estate), you never have to do repairs, chase tenants for rent payments, or unclog toilets."

How I became a millionaire

The beauty of this approach is that you simply sit on your ass(ets) and collect dividends over time. That is why a couple of years after retiring, I became a millionaire without doing anything all that spectacular. The truth is that I am not that clever, but when you invest using this approach, the odds are simply stacked in your favour. The other benefit is that with owning stocks (as opposed to real estate), you never have to do repairs, chase tenants for rent payments, or unclog toilets.

However, you have to make sure you buy quality companies. In another one of my books, The Idiot Millionaire, I highlighted a list of companies that are “idiot-proof” (will do well no matter what happens). I have found that many people feel that the more complex a company is, the better their investment will do. This is dead wrong! Forget biotech or nanotech and stick to simple investments any six-year-old can illustrate using a crayon.

For example, ask yourself if you brushed your teeth today. If the answer is yes (and it should be), you probably used one of two dominant brands, either Colgate or Crest. These brands have dominated the market for decades, and people automatically brush their teeth every day. Nobody stops buying toothpaste if they lose their job or if fashions change, and this is why these companies have paid uninterrupted dividends since the 1890s. Over a century of gushing cash payments! They have also increased dividends for over half a century. With this investment you get an automatic “pay raise” every year — without even working!

I own a collection of these types of stocks that I have highlighted in my books, and the dividends simply “appear” in my account at regular intervals — the same way that you automatically accumulate cash in Monopoly when you own a number of properties with houses or hotels on them.

It sure beats waking up to an alarm clock every day and scurrying about simply trying to “pass Go.”

 

Check out Derek Foster's guest spot on CBC's The Hour below, where he gives a small bit of insight into his investment strategies.