My Best Advice on How to Build Your Portfolio From Scratch

The biggest lie people are telling you is this.

"The stock market is a place to get rich".

The reality is that most seasoned investors have a different perspective.

The stock market for us, merely serves two functions - (1) capital appreciation and (2) cash flow.

In my own words - the brokerage account is nothing more than a high-interest savings account (if you know what you are doing).

Stock Market Does Not Make You Rich Unless...

Just because someone invest in the stock market, it does not makes them rich.

You see, let's say - if someone's makes an amazing 20% every year.

But if he only has $100, a 20% return is only $20.

I am sure you get my point here.

Don't see the stock market as a means to get rich.

It is merely a vehicle for you to compound your money faster than your bank account which gives you measly interest rates.

To me, this is an ultimate shift in mindset.

Stock Market vs Bank Interest Rates

When you truly view the stock market as simply a vehicle to compound your money faster than bank interest account.

Your mindset starts to shift.

For me - I no longer leave surplus money in my bank account anymore.

Because, let's be honest - why would I put money in an account that give me less than 2% every year?

And let me illustrate this.

Let's take a look at the S&P 500 growth over the years.

Some of you might "Yes yes, Gin - you shown this image multiple times...".

So this graph shows you that the S&P 500, gives you a positive return over the long run. In fact, on average, it gives a return of 10% annually.

Put it simply, that's 5 times more than what bank interest rates would give you.

But that's more to it.

What if I told you, it is so simple to get 2% annually using your brokerage account?

It is simply by selling a put option at a year long expiry.

In the above example, S&P 500 was at $411.59.

I can actually sell a put option at $347 and collect a total option premium of $704 (see the bid price column).

Essentially, I am promising to buy 100 shares of S&P 500 at $347 (i.e. total $34,700) and in return, I am already paid $704 up front.

If you do the math, $704 / $34,700 is 2.02%.

So if I had $34,700 - where do you think I will put my money? In the brokerage account or in the bank?

The decision is a simple one.

"Gin, what if the stock market falls - you will have to buy the 100 shares!"

For those who are experienced, you probable know where I am coming from. Look at the S&P500 chart above again.

Do you think I would mind holding 100 shares of the S&P 500? and compound my money at 10%?

Not only that, even after I get the 100 shares of SPY - I can continue to sell call options and collect more premium as a result.

In short - I would never put surplus money in the bank - simply because making 2% per year is really that straightforward.

(Of course, if you know more about options - making more than 2% is entirely possible)

Treat Your Brokerage Account Like Your Bank Account

Remember how I started this blog post.

The stock market does not make you rich.

It is merely a vehicle to compound your money faster than your bank account.

So by mastering the skill set to extract cash from the stock market, it becomes common sense that you will much rather put money in your brokerage account rather than your bank account.

And your savings compound in your brokerage account - that is how you can actually get rich and become financially free.