Smartphones have revolutionized our lives, especially in our daily actions. And to think they could have also given us a great opportunity on the path to financial independence.
Let me tell you a story about some personal experiences. It was during the euphoric adoption of smartphones by the consumer masses. What if, back then when I was a student, instead of buying the latest iPhone, I had bought shares of my favorite company? The answer might surprise you.
In the article on “The False Myths about Housing and Money Management, we analyzed the topic of the house, which represents the ultimate real estate asset and an important milestone for all of us.
The key point you need to reflect on is understanding that if you are still in the accumulation phase, savings and investments are the priorities, avoiding unnecessary expenses.
The accumulation phase
Bring me the Apple iPhone from New York!
Let’s play a simple game to clarify the concept. I remember that in the early 2000s, I frequently traveled to New York for work and was inundated with purchase requests from friends and family for the latest Apple technology products.
Today, with a high level of financial education that I unfortunately lacked twenty years ago, I wonder what would have happened if, instead of buying the latest iPhone or, in general, the latest Apple product, I had bought shares of the company? What if, instead of being a buyer of Apple products, I had been the owner of a piece of the company that sells them?
Investing in what you know was the approach of Peter Lynch, one of the greatest investors of all time. His GARP (Growth at a Reasonable Price) strategy is explained in the best seller “One up of Wall Sreett” a book that all enthusiasts should read at least once in their life.
Invest in what you know
Peter Lynch
22 Apple Shares Today After Over 20 Years
Let me present some numbers. On October 23, 2001, Apple released the first generation of the iPod. The retail price was 399 dollars. In October of the same year, one share of Apple (AAPL) was trading at about 17.56 dollars. So, with 399 dollars, you could buy around 22 shares.
First, Apple has had several stock splits. A stock split involves splitting the company’s shares into more shares at a precise ratio without altering the total equity. For example, in a 2:1 split, your shares are split into 2. So, if you had 10 shares before the split, you would have 20 after. Apple had a 2:1 split in 2005, so my initial 22 shares would have become 44. Then there was another 7:1 split in 2014, making the 44 shares become 308. Finally, the last split was in 2020 at a 4:1 ratio. Now the 308 shares would have become 1,232. As I write this article, Apple is trading at 174 dollars per share.
So the value would be 1,232 x 174 = 214,368 dollars. All of this obtained at the cost of an iPod or one of its smartphones.
Smartphones Paid with Dividends
And that’s not all, because there are also dividends. For example, today Apple’s dividend is 0.25 x 4 = 1 $/year, and my 1,232 shares would provide an annual income of 1,232 dollars. This means that you would have received, just from dividends, almost three times what was invested 20 years ago (all in a period of not particularly high inflation). Paradoxically, if I did not want to reinvest the dividends, I could buy smartphones and other products from the company, paid with the money that the company itself makes from its products.
Of course, Apple is one of the biggest success stories on the stock market. Not all results are so spectacular. But what I want to help you understand is that for your financial independence, it is better to buy a piece of the company that sells things rather than buying its products. Especially if the products are particularly “trendy.”
The example of investing in Apple shares highlights the importance of considering opportunity cost when making financial decisions. If, instead of buying an Apple product, you had invested in the company’s shares, you would now have a significantly greater value, not to mention the annual dividends you could have reinvested or used.
The Importance of Financial Education
Good financial education enables you to make informed and conscious choices. Investing your money in financial instruments with high potential returns, such as stocks or ETFs, can accelerate achieving financial independence compared to tying up capital in consumer goods or real estate.
Even though the Apple example is a success story, it is important to diversify investments to mitigate risks. Not all investments will be as successful, so diversifying your portfolio can protect your capital from significant losses. “Don’t put all your eggs in one basket,” says the popular wisdom.
In summary, to achieve financial independence, it is crucial to make strategic and informed financial decisions. Investing in shares of solid and recognized companies, or better yet in ETFs, rather than in immediate consumer goods, can lead to much higher returns in the long term.
This approach, combined with good financial education, patience, and discipline in investing, can significantly transform a person’s financial future.
On avance!
