Investing in the stock market can be dangerous, and more often than not the risk far outweighs the potential benefits. The Forever Cash philosophy is not about risk-taking or putting your money into something that you have little control over. It is also not about investing in a slow-growing mutual fund or 401K.
That being said, there are certain occasions when stocks can be a Forever Cash asset. When?
Let’s start by identifying what a Forever Cash asset is (you can find more details in chapter 13 of my book Forever Cash).
A Forever Cash asset should provide cash flow, should go up in value, and the cash flow should not stop anytime in the foreseeable future. When does a stock meet these requirements? A stock can be considered a Forever Cash asset when it is a share of a profitable and well-established company that pays out periodic dividends to its shareholders. Let’s look at an example.
Apple (symbol AAPL) was recently trading for $498.69 per share. Let’s say that you were able to purchase 10 shares of Apple stock, worth a total of $4,986.90. Each year, companies sum up their stock worth in a document called a “prospectus” and include a percentage number called a “yield”. This percentage is the amount that an investor can expect to receive back each year in a profit distribution plan called a “dividend”. In the case of Apple, you can expect to receive a yield of 3% of the total amount of stock that you own. For your ten shares, you can expect to receive a check for $149,60 (3% x $4,986.90).
What would you have to do to receive that dividend? Nothing at all, which is what makes it passive income. A solid company like Apple is expected to grow in the future, which means that the value of each share (and of your dividend) can reasonably be expected to go up. $150 per year may not seem too impressive, but long-term investing (and with greater numbers of shares) can mean big returns over five, ten, or fifteen years.
Forever Cash is about investing in several assets (one of which may be a dividend-paying stock) in order to guarantee your future. If you remember how to classify your assets, then each investment you make will be a great one.