By simply putting $300 extra each month into shares of U.S. Bancorp, the firm that owns his mortgage, instead of paying off principal each month, this family member should end up with an extra $535,000 net in 30 years, plus own his house outright, and be collecting approximately $33,000 annually in cash dividends.
A member of my close family has been using a technique to build substantial wealth that doesn’t require a high income or any specialized knowledge, extra work, or effort. I was so impressed by the way he implemented this program, I thought I would share it with my other family and friends (as well as anyone else who reads my blog) without giving away who it is.
Each month, he has a house payment of approximately $1,500, payable to U.S. Bank. He decided that instead of making an extra $300 payment along with his regular mortgage bill to lower principal and pay the debt off early, he would instead establish a direct stock purchase plan and have that same amount automatically used to buy shares of U.S. Bancorp. He was convinced the balance sheet of the bank was strong, and the fact that the CEO earns more in cash dividends from his outright ownership of U.S. Bancorp stock made him feel confident that management would act in the best long-term interest of shareholders compared to other banks, where huge bonuses and perks rewarded failure.
The commissions charged for this service are negligible, typically $2 per transaction. This means that every year, he is investing roughly $3,600 in U.S. Bancorp common stock, with instructions that all of the dividends should be reinvested. The mortgage on his home loan is roughly 5.5%. How much will he make in extra profit from this transaction? (more…)
