Many people look at wealth building as steady trading within assets like stocks to earn profits that compound over time. Trading is definitely a way to build wealth, but it requires constant vigilance and constant trading. When trading to build wealth an investor must be on the lookout all the time for the next opportunity. It doesn’t mean trading every day or even every week. In fact a lot of investors trade only one or two times in a year. These types of investors wait until they see an opportunity and then make a large investment that sometimes can double their capital. They are trading their way to wealth.
Wealth Building For The Average Investor
For the average person this type of wealth building is difficult. I know for me it is. It is hard work and I cannot put all my capital into one trade no matter how strong the conviction for success.
I was taught to invest in what I understand and that has perhaps been the best advice ever given to me. For example I remember the first time I entered a Walmart Store. It was in 1994. I loved the concept. I was impressed by the wide variety of goods including grocery items to the friendliness of the staff and the excellent refund policy. Walmart Stores stands behind their products and their customers. I liked that and after reviewing financials, I started to accumulate stock. Today I own a few thousand shares. Back in 1994 the dividend was .085 cents and by the time I stopped buying more shares my stock average price was $12.90. Today Walmart stock pays $1.59 annual dividend and I have earned all the capital I originally invested through receiving the dividends and selling covered calls.
I understood Walmart from the outset. I can repeat the same story for stocks of great companies like Johnson and Johnson Stock, PepsiCo Stock, IBM Stock, Exxon Mobil, Microsoft and others.
I believe for the average investor this could be the best path to true wealth building. To creating the kind of wealth that withstands market gyrations, recessions, wars and depressions. The kind of wealth that is handed down to heirs. I also believe this type of wealth building is within the ability of most investors if that is their goal.
A Story Of Wealth – Coca Cola Stock
In 1985 when my mentor passed away I was bequeathed a certificate for 1000 shares of Coca Cola Stock. In the accompanying letter he explained that he had left this for me as a gift for the years of friendship we had developed and probably the hours we had spent discussing and debating stocks, options and hundreds of strategies.
He went on to explain that these shares were bequeathed with the express understanding that they could never be sold and no options could ever be used against them. In his will he instructed that the dividends from these 1000 shares were mine but upon my death, these shares were to be willed to my children with the same instructions and they in turn must will them to their children. It turned out that he had inherited these 1000 shares of Coca Cola Stock at the time of his father’s death in 1939 and he felt I would put them to good use. I was incredibly touched by this inheritance. This was an amazing event to be sure.
Building Wealth – Could AT&T Stock Be A Candidate
What got me thinking about wealth building was an email I received from an investor who had been Put Selling AT&T Stock (symbol T) and been assigned 1000 shares at $36. The investor wrote for advice because the investor wanted to sell covered calls but found call premiums were small for the $36 and above strikes as at the time of writing, T Stock was trading for $34.01.
In my reply I discussed two strategies. One was a straight forward,, sell the calls here and get exercised here and then reassess. That is typical among many investments. But this investor indicated that this was a small IRA with just $37,000 in total capital. This struck a chord with me because I had started out with almost that amount of money.
Am I Building Wealth…
It was at the first meeting with my mentor where he had brought up to me the concept of building wealth. He told me at that first meeting, “Are you building wealth that can be given to your heirs or are you investing for yourself. You have to decide. Neither is wrong but you need to know your goal for the right strategies to be applied.”
In the ensuing years my mentor and I had many great discussions about wealth building techniques. In the end, he and I agreed that true wealth for the average investor could be built by selecting corporations that could expand through the decades and grow in value, thereby mushrooming our own wealth. Coca Cola Stock which was first issued in 1919 represents a company that today is in almost every major market around the world. It has a logo recognized by more than half the inhabitants of our planet. This seems like a good example of wealth building for generations.
Through carefully selecting stocks like Coca Cola, an investor can build in his lifetime a lasting wealth that generates income for himself and his heirs. This was my goal back when I started investing. I wanted to build a retirement nest that could generate income and yet leave the majority of the assets intact for my children. To assist in that building I needed more than just dividends to grow my capital quickly.
The Need For More Than Dividends – Covered Calls
In Canada, where I live, we are restricted in many options strategies including Naked Put Selling and Naked Calls. This meant I needed to develop a covered calls strategy that could generate enough income to get my capital returned quicker than dividends alone from an investment and then start a new investment.
All of us have a finite lifespan to invest and compound our capital. It is important that capital compound as quickly as possible to build the kind of wealth that will outlive myself and my heirs but it is also important that a strategy be simple enough to use that I could easily apply it to many different stocks.
The email from the investor about his AT&T Stock covered calls problem made me think about building wealth through a stock like AT&T.
To that end the second strategy I present in my reply looks at one of the principal wealth building covered calls strategies I have used to grow my capital in my Retirement Account.
Simple to comprehend and implement, it has served me well for decades. The article is 15 pages in length with 5500 words. It is the type of strategy article that I built the FullyInformed Members section for. FullyInformed Members can directly access this covered calls strategy article through this link or Members can login here. Non-members can join here.
Any questions about this Covered Calls Strategy please email me directly or post them to the comments section. I hope this article will assist those investors seeking to build lasting wealth.