The Millionaire Wage Slave by Alex Johnston
The theme of Mr. Johnston’s book is: You CAN get rich by working for someone else.
For you Feds, this means that Dollar Cost Averaging in to the TSP can make you a ‘TSP Millionaire’ someday. In fact, the TSP Director has mentioned that yes, there are a handful (562) of TSP Millionaires walking this earth.
To get rich, you need two things:
- Equity, and
Equity is ownership of stuff (Businesses, Real Estate, cash). Someday you can sell this stuff for a profit and pocket the proceeds.
Income is something that provides you a check every month. For most of us, this means wages from work. Income can also be generated from ownership positions in businesses (through payment of dividends or bond interest).
Once you have enough equity that your assets are generating a monthly income that pays your bills, you’re officially rich!
According to Mr. Johnston, the following are the advantages of being a Wage Slave versus owning your own business:
- Lower Cost of Entry – It is much easier to get started owning the S&P (with as little as $100) than it is to purchase a business or franchise.
- Liquidity – You can sell your ‘Business Holdings’ (The S&P 500) at any time.
- Income Stability – You’re earning a steady paycheck from your employer that is generally not tied to the cycles of the business you work for.
- Reduced Risk – Owing small chunks of 500 large companies is less risky than owning 100% of one small company.
Mr. Johnston mentions a fact that the S&P 500 Companies in aggregate have never lost money in any year since the index was created (1957). That is, while the market valuation of the S&P might bounce around from year to year, the group of 500 companies as a whole has NEVER had negative income for an entire year (he did not provide a reference, though).
I did some research on my own and found this 2009 Denver Post article that states that the S&P had its first quarter of negative earnings during the crash of 2009. The Post article also states that there was a period of six consecutive quarters of negative earnings growth spanning 1951 and 1952 (which, to Mr. Johnston’s credit, technicaly was before the S&P index was founded).
- Diversification of Income and Equity – Your wages provide your income, your investment provides your equity. A failure of your employer does not wipe out your equity in the S&P 500.
- Reduced Admin – You don’t have to make payroll or deal with Sarbanes Oxley like a business owner does- this is all outsourced to the ‘staff’ of your S&P 500 companies.
Mr. Johnston’s book is a both entertaining and informative read. While there’s nothing earth shattering in the book, Mr. Johnston makes a compelling case for index buy-and-hold investing. In light of the S&P statistic he mentions in the book, Feds participating in the TSP should revel in the TSP’s low fees rather than lament that hedge funds are not offered within the Thrift. After all, why pay a hedge fund manager 2% of assets and 20% of investment profits when the ‘set it and forget it’ strategy of Dollar Cost Averaging into the C fund gets you partial ownership in 500 companies that almost always make money year-in and year-out?
The book is very reasonably priced, so grab a copy for Amazon Kindle today (or see if you can find an electronic copy through your local library).
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