By accepting you will be accessing a service provided by a third-party external to https://www.newvestor.com/
I Heeded Warren Buffett's Advice. He was Right. 3 Months Later, I Can't Stop Winning!
This post is an update to a previous post I created on March 11, 2019. In the beginning of March 2019, I decided to conduct a small investing experiment. I took Warren Buffett's investing advice, and purchased an index fund: the Fidelity 500 Index fund, FXAIX. At that time, the mutual fund was trading at a net asset value (NAV) of $95.70. So with $290, I bought 3.03 shares ($290/95.70). The following day, I successfully asked my student loan servicer to allow me the opportunity to skip the next month's payment by claiming "financial hardship." I used that skipped payment, $1,800 to be exact, to buy 18.81 additional shares of the fund (1,800/95.70). I then had a total of 21.84 shares (3.03 + 18.81) or $2,090 invested. Here's where I stand 3 months later.
Before we delve into the calculations, you need to understand how investors make money in the stock market: capital gains and dividends. In simple terms, a capital gain is the increase in value or price of an investment to a price higher than the initial purchase price. On the other hand, dividends are a portion of earnings or profits that a company pays to shareholders of a stock or mutual fund. As of 6/21/19, mutual fund FXAIX is trading at a NAV of $102.95. This new NAV represents a $7.25 increase in capital gain ($102.95 - $95.70). On 4/8/19, the fund paid out a dividend rate of 0.574/per share to fund holders. These calculations are summarized in the table below.
|Fund Ticker||Fund Name
||Capital Gains Rate
||Capital Gains Amount||Dividend Rate||Dividend Payment||Balance|
|FXAIX||Fidelity® 500 Index Fund||$0 (as of 3/15/19)||$0 (as of 3/15/19)||0 (as of 3/15/19)||$0 (as of 3/15/19)||$2,090 (as of 3/15/19|
|FXAIX||Fidelity® 500 Index Fund||$7.25 (as of 6/21/19)||$158.34 (as of 6/21/19)||0.574 (as of 4/5/19)||$12.54 (as of 6/21/19)||$2,260.88 (as of 6/21/19)|
As shown in the table above, the amounts earned in capital gains and dividends are $158.34 (21.84 shares x $7.25) and $12.54 (21.84 shares x 0.574), respectively. The combined amount earned in dividends and capital gains is $170.88 ($12.54 + $158.34). As of 6/21/19, the total balance is $2,260.88. This new balance represents a percent increase of 8.18% from the initial investment [(170.88/2090)*100). Keep in mind that I made no additional contributions. Otherwise, the gains would have been more. Here are the main takeaways from this simple experiment.
This simple 3-month investing experiment illustrates these few key facts:
- Investing is not solely reserved to the wealthy. You don't need a lot of money to start investing.
- Investing is the best way to save for retirement and secure a brighter financial future.
- If you were wondering how investors make money in the stock market, they do so via earned capital gains and dividends.
- Any money stockpiled in banks (or your mattress!) beyond your emergency fund is a waste. Banks invest the money you deposit with them to generate higher returns. They can afford to give you crumbs.
- If governments want to help their citizens get ahead financially, they must help them create self-sustaining opportunities.
- When you invest, your money makes more money even when you sleep. The rich understands this concept very well.
- If you have a 401k at work, you are an investor. Congratulations! If you don't have an employer-sponsored 401k account, open an IRA (Roth or traditional) or an investment account.
- If your company offers a 401k program and you don't participate, you are robbing yourself of a brighter financial or retirement future.
Like this article? Please share and leave us your feedback in the comment section to help us improve and grow. Subscribe below to get our latest articles. Here are a few more articles you may find useful: How to buy and invest in marijuana stocks | Acorns reviews: How to earn free money | How to build a diversified portfolio | How to fight mutual fund separation anxiety disorder | 2 simple reasons why you don't need bonds.