The Best Thing George W. Bush Ever Said

No, this isn’t going to be satire. It’s a serious article about a genuine good idea that W had, and that for various reasons never came to fruition. The idea is this: the Ownership Society. W said he wanted more Americans to have a stake in the future of the country, and that the best way to do that would be for more Americans to own stakes in the companies that drive our economy. This is a great idea. The problem is that instead of removing the various barriers between people of modest means and meaningful stock ownership, he and his team used the “Ownership Society” as a smokescreen for their efforts to privatize (that is, destroy) Social Security and other government programs.

But the concept of the ownership society—a real one, that is—has great potential. Here are some ideas on how we might be able to achieve it. We need to remove a few barriers.

This ad was code for "I want to dismantle pretty much all government social programs," but what if he'd actually tried to make it easier for Americans to buy stock in American companies?

Source

Most People Simply Can’t Afford to Invest

You know how a lot of conservative commentators like to remind us that about half the people pay no income tax? Yeah, most of those people live paycheck-to-paycheck. That is to say, their day-to-day expenses (rent, utilities, transportation, food, clothing, etc.) eat up almost all of their income. These folks find it difficult to put ten or twenty bucks aside for a rainy day, never mind scraping together enough cash to make a stock purchase. But even if they manage to accumulate fifty or a hundred dollars, they’re going to have a hard time turning that cash into dividend-paying stock.

Not Many Brokers Want to Bother with Micro Investors

I say “micro-investors” instead of “small” investors because a “small” investor is generally a middle-class person who can relatively easily afford relatively frequent stock purchases of over a hundred dollars each. The folks we’re talking about are going to want to buy in something like twenty-dollar increments. Investopedia tells us that “most brokers will process a trade for a few shares of common stock.” That’s fine, but consider: at the time of this writing, shares of common stock in Ford Motor Company were trading at $12.26. A “few” shares would cost anywhere between $36.78 and $73.56, well above the twenty-dollar threshold for our hypothetical micro-investor. It’s possible that you could find a broker willing to buy one share of Ford for you. Maybe he’s betting that you’ll become a regular investor and will make more trades for larger amounts in the future. But that broker is not going to be easy to find. Even if you can find him, there’s still a pretty important reason not to buy that one share of Ford.

The Brokerage Fee Eats Your Capital

Recall that brokers usually charge commissions or transaction fees (that’s one of the ways they make money), and a typical transaction fee is in the neighborhood just north of our twenty-dollar threshold. So if you want to buy one share of Ford at $12.26 a share, you’ll actually have to cough up $37.26 (the price of one share of Ford plus a brokerage fee of $25). No doubt you’ve seen why practically nobody wants to buy stock one share at a time: most of your wealth gets eaten by the brokerage fee. Sure, now you’ve got your share of Ford, but it cost you three times its current value. You don’t have to be Warren Buffet to figure out that this isn’t such a hot deal.

Even the Banks are Against You

You’d think that banks would be in favor of people saving their money, right? I mean, that’s kind of what they’re for, isn’t it? Well, try this experiment. Walk into any random bank and ask to open a savings account with a $20 deposit and no direct deposit agreement. The bank will probably want nothing to do with your measley twenty bucks. If they do agree to open an account with a twenty dollar deposit, there will probably be a monthly maintenance fee. Unless you’re able to set up an automatic direct deposit, or are able to deposit more than about $500 at once, they’re going to charge you for the privilege of looking after your money. Put twenty dollars into a bank, and in four to six months, it will be gone. Living paycheck-to-paycheck, with maybe ten spare dollars per week, how will you be able to save up enough to make a stock purchase that makes financial sense? Short answer? Can’t.

So how do we make it easier for those of us who can usually only scrape together about twenty bucks at a time to become investors?

Here’s a few ideas.

Minimum Balance Requirements: Kill ‘Em.

No, really. Yes, I understand that it’s hard for banks to make money on tiny accounts like this, but does it really cost five dollars to mail a statement? I don’t think so; not in this modern electronic age. Rather than charge people to keep small balances in their savings, why don’t the banks just not pay interest on balances below the minimum? They’ve still got the money, and are still making money by lending it out. They make significantly more income by lending money than they pay in interest on savings accounts. At the moment, the interest rate on a 30-year, fixed-rate mortgage is 3.75%. The typical savings account pays a bit less than 1%. So not paying interest will earn the bank an extra almost 1%, and the banks will probably get more money to look after if they stop taking it away from people with small balances. How many people decide against putting their money in a bank because the bank will eventually take it all? I’m betting lots. How many of those people would put their money in a bank if they knew that it would all still be there the next time they had some extra cash to put into their savings accounts? I’m betting lots. It would be even easier for the bank to make money on micro-savings accounts if they were not required to send a monthly statement for accounts containing less than the minimum balance requirement. If someone wants to check their balance, they can look it up online (if they're able) or come down to the bank and check in person.

If banks would stop penalizing people who try to save small amounts, more people would try to save. And they’d eventually accumulate enough savings to invest.

Brokerage Fees: Couple Ideas about Those

First idea: Charging someone $25 to invest $20 means nobody will want to make that twenty-dollar investment. So perhaps brokers should charge a lesser fee for investments less than or equal to triple the standard fee. How do we encourage brokers to do that? Let the waived portion of the fee be tax-deductable. How do we keep wealthy people from taking advantage of this loophole by making two hundred twenty-dollar stock buys rather than a single four-thousand-dollar buy? Well, this might not be a problem, because that’s a lot of trouble to go through to save twenty-five bucks. Someone who can afford to make a four-thousand-dollar investment probably won’t bother. But hey, someone might decide that it was worth filling out the same form twenty times to save $25. We can stop them by letting the rule be that only one waived fee per investor per month is tax deductable. The broker will not want to waive nineteen twenty-five-dollar fees without some incentive: he’d lose $475.

Second idea: Maybe we don’t send any incentives to the brokers: maybe we send them directly to the micro-investor. What if we make brokerage fees for investments less than $100 double-tax-deductable? What I mean is, if you invest less than $100 at once, your fee of $25 gets you a tax credit of $50. We want to reward people for investing, right? An investment of less than $100 will not earn enough dividend income for the lower capital gains tax rate to be an attractive incentive. Of course, this micro-investor tax credit is open to abuse, too. Perhaps we place a twelve-purchase per annum, one purchase per month limit on the micro-investor tax credit. That way, the investor with $1200 to invest (and who probably wants to invest it all at once) will be forced to spread his purchases out over the course of the year if he wants to take advantage of the credit. Sure, everyone could make one $99 purchase per month and get the credit, but large investors probably won’t bother. Small investors investing more is something we want to encourage, isn’t it? And micro-investors will have a real incentive to invest.

Realistically, double-credit is too much, but the credit needs to be greater than the expense for it to be an effective incentive.

Here’s an important caveat: we want Americans to invest, yes, but we want them to invest in American companies. These discounts and incentives should apply only to investments in US-based companies. We can create incentives for companies to keep jobs in the US by requiring the companies in question to have at least 51% of their workforce employed in the US for the incentives to apply. Of course, this adds a layer of complexity to the investment process: for the incentives to be worth anything, the micro-investor will need to easily be able to find out if his chosen company meets the 51% requirement. That information ought to be available in a company's quarterly report, if it isn't already.

What Do We Get? A Nation of Investors

Or at least, more investors in our nation’s industries. Yes, I know that it will be a bit of a job to convince conservatives that it’s a good idea to create new regulations just so a bunch of people who haven’t got much money will be able to invest. Generally, conservatives are against regulation on principle, and balk at government programs that benefit the working poor. But this program won’t benefit only the working poor. More capital will also flow toward corporations, which supposedly means more jobs will be created, right? Sure, the capital will merely trickle in, in increments less than a hundred bucks at a time, but trickling is acceptable to conservatives when the flow is downwards. Why shouldn’t it be equally good when funds trickle up? Plus, if ten thousand Americans (that’s less than .003% of the population, remember) all invest $50 in Ford, Ford gets a cash infusion of $500K. This month. In a year, they'll have an extra $6 million. Not bad, eh? And if ten thousand different Americans do this every month, that's 120,000 new investors, who each own about four shares of Ford, and will get a share in Ford's profits at the end of the year. Not much, but it’s a start.

Some Related Reading

The Motley Fool Investment Guide: How The Fool Beats Wall Street's Wise Men And How You Can Too
The Motley Fool Investment Guide: How The Fool Beats Wall Street's Wise Men And How You Can Too

The Motley Fool has been making the stock market more accessible to the rest of us for a long time now.

 
Rich Dad Poor Dad: What The Rich Teach Their Kids About Money - That The Poor And Middle Class Do Not!
Rich Dad Poor Dad: What The Rich Teach Their Kids About Money - That The Poor And Middle Class Do Not!

The best take-away from this book: the difference between an asset and a liability. (Hint: you home is almost certainly not an asset.)

 
Investing For Dummies
Investing For Dummies

My personal advice: treat a down market like a sale, and stock up (heh, see what I did there?) on bargain shares of solid companies. Of course, this advice is only useful if you have spare cash to invest....

 

So What do you Think?

I’m not a broker, a banker, or a financial advisor, just a guy with a few ideas. If you know a thing or two about stock-broking or banking, I’d love to see your constructive criticism in the comments below.

If you think these ideas won't work, the important question is this: Why won't they work? A more important question is this: How can they be made to work? Or if my ideas are hopelessly flawed, perhaps, "Here's an idea that will work."

If you would rather share your ideas in a hub of your own (and why wouldn't you?), please let me know. If your hub is well-written and useful, I'll probably link to it.

More by this Author


Comments 11 comments

IdeaMan1 profile image

IdeaMan1 5 years ago from Hamtramck, Michigan

One of the partial solutions for the microinvestor is in electronic trading, as with eTrade and similar online brokerages, you're dealing with a much lower commission. Of course, part of the trade-off there is that you don't get the same type of education about your prospective investment that you might get through a regular broker.

The biggest problem, though, is that most people in the position of micro-investors have no real idea about how the stock markets work--sure, they might understand the concepts of buying low and selling high, but with no understanding of profit versus earnings, stock volatility, and other investment matters, they're doing no better than tossing their chips into a casino bet.

The worst part about the Wall Street Casi--er, stock exchanges is that they're really in shaky territory now due to several factors, including problems related to the relatively uncharted waters of high-frequency trading (remember the "Flash Crash" of May 2010?) atop the volatility caused by our current Depression.

Structures of investment have to be changed at their very base, as do the nature of corporations, before investment is stable enough for the microinvestor to be buying more than a Wall Street "scratch-off ticket."


American Romance profile image

American Romance 5 years ago from America

You failed to mention Etrade, couple of bucks will invest your money all day! 50 Million on welfare, that is a mindset of addiction not need! There are jobs in the paper every day! Why are they not taking them? I just moved to a new area, population 100K! We were on the phone all morning trying to find a dog groomer, normally cost us around 60 bucks! They can groom him in one hour! We ended up driving 40 miles to the closest one! Dog grooming can be done from ones home! That is just one example! Now back to your investing, Why would anyone want to invest right now? We lost over 100K over the last year! We have a broker who has worked for us for 15 years! He does a great job! He cannot change the world economy! Democrats destroyed the economy world wide! (I count Greece and the European countries as liberals therefore they go in the group) Time to take people off the tit and put them to work! Investing should not be protected with tax credits anymore than those who were not protected when they opened the companies in the first place! Stop trying to GIVE something from my hip pocket and let us allow individuals to make it on their own like this great country was designed to do!


IdeaMan1 profile image

IdeaMan1 5 years ago from Hamtramck, Michigan

@American Romance: (Great name, by the way.) Having been a beneficiary of the social safety net in the past, I happily pay into it now--it's not about addiction, it's about helping people get back onto their feet.

Having looked at the jobs in the paper and participated in the resume lottery, I eventually decided to strike out on my own. While I can't speak to others' primary fields, it seems as if companies hiring technical professionals are trying to hire one person who has amassed the skills of six professionals and trying to get them to do the equivalent of six forty-hour jobs... all without the security of health-care or pension that used to be available some few years ago.

As to "who destroyed the economy," that would have to go to the greedy bankers that not only spent time developing new types of toxic assets in the derivatives market, but also participated in what now seems to be a *global* deception over actual asset value. With that, you're looking at CitiBank, Chase, Goldman-Sachs, and other backers of the *REPUBLICAN* party--one of the big reasons why W. through money at them through TARP.

I do have to wonder how people living in a community of 100,000 people have to drive that far to find a dog groomer... and for that matter, if it only takes an hour, why they wouldn't take it upon themselves to take care of their own animal. For that matter, I would have to wonder why this was even included in a post about investing.


Jeff Berndt profile image

Jeff Berndt 5 years ago from Southeast Michigan Author

Hi, folks! Thanks for stopping by.

IdeaMan, I actually looked into E*trade myself, and at the time (it might be different now, it's been s few months) the per-trade fee was still high enough to discourage someone from investing in amounts smaller than about a hundred bucks at a time. Also, I seem to recall a requirement to make a certain number of trades in a year, which our micro-investor can't commit to. Plus, there's the digital divide to contend with. Lots of paycheck-to-paycheck folks don't have secure internet connections.

As for the casino-like nature of the stock market, that's only true if you buy and sell a lot. If you buy and hold, you'll do fine over the long haul.

AmRo, I've covered E*trade already, but, okay, you say you lost 100K last year. Let me ask you this: did you lose that money on paper, as in, the cash value of your portfolio dropped by 100K? If so, you haven't really lost anything unless you sell (which you probably know). Or did you really lose all that money (either by selling off the stocks that dropped, or by the companies you invested in going bankrupt)? If the companies went under, you have my sympathies--not much you can do about that. If you sold low, well, that's really your own fault, and if your broker is as good as you say, I'm sure he advised you against selling for a lower price than you bought. Unless you sold at a loss to get a tax break? Some people do that, too.

Why would anyone want to invest now? Because stocks are CHEAP right now! It's a good time to get good stock at bargain prices. "Why would anyone want to buy gold now?" would be a better question. Gold is at record highs, and for some reason, people can't seem to get enough of it. I wish I'd had the means to buy a lot of gold in 2000. (Remember the drop after the Y2K thing didn't happen? Me, too. But I didn't have any spare cash at the time. Rats!)


feenix profile image

feenix 4 years ago

Hello, Jeff,

This is a very informative article and for me, it is quite educational.

However, I must say that there is one way that many people of "modest means" can make investments.

They can take out "whole-life policies" with stockholder owned life insurance companies. As an example, if parents take out a $10,000 policy from one of those comapanies on a newborn, and keeps it in force until the child turns 18, by that time the policy will have a fairly-high cash value that can help finance the child's college education or provide him or her with a nice lump sum of cash.

And I am just scratching the surface here. There are numerous ways in which people of "modest means" can make investments through taking out "whole-life policies" and keeping them in force.

By the way. I retired from the life-and-health-insurance industry after working in that industry for nearly 40 years.


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

An excellent suggestion, feenix! I know very little about whole life policies, other than the fact that they exist. What is the typical premium for a $10K policy for a newborn? When it matures, will it be worth the $10K face-value (benefit value?), or might it be more valuable? 10K isn't exactly small change, and will help with college, but won't cover the whole degree. And then there's the risk of not being able to make the premium payment in a month when the car breaks down and needs a new fuel pump or whatever. What happens to the policy if our paycheck-to-paycheck investor misses a premium? That's really the only drawback that I can see: if our microinvestor has a financial emergency (doctor's visit, car needs a new fuel pump, whatever) and misses a payment, does the policy disappear? If there's a whole life policy that has a grace period for late payments, that'd be ideal.

Thanks for the comment!


feenix profile image

feenix 4 years ago

Hello, Jeff,

I'll try to cover as many of your questions as I can.

For a newborn, $10K of whole life would only be about $20 a month -- and the face value of the policy could be increased at a later date -- say to $25K -- and the premium would be at the "newborn rate."

So far as keeping the policy in force during tough times, after about two years, the policy usually has sufficient cash value to cover the premium payments for up to about six months. Also, a rider can be taken out on a policy that provides premium payments during those times when the policyholder is unable to do so.

And generally, a policy with a $10K face amount can be cashed in for that amount, upon reaching full maturity (which would be 18 years, for instance).

This is just a brief explanation of how it works. But you gave me an idea. Perhaps at some point in the near future I will write a hub about "investing through life insurance."


Jeff Berndt profile image

Jeff Berndt 4 years ago from Southeast Michigan Author

Brilliant, feenix. When it's written, I'll link to it! This is the kind of thing would-be micro-investors should know about.


kittythedreamer profile image

kittythedreamer 4 years ago from the Ether

Jeff - I have to be honest and play the dumb one here...this type of stuff (political stuff) is way over my head or realm of thinking...though I know that I should learn more about it. Even though I'm not in full understanding of everything you've said here, you always do a wonderful job at presenting your thoughts and the facts. Voted up and awesome. I hope to learn from you as I continue to read your hubs concerning politics/economics and the like. :)


Angela Brummer profile image

Angela Brummer 4 years ago from Lincoln, Nebraska

Very informative article!


Rodric29 profile image

Rodric29 3 years ago from Phoenix, Arizona

Very good hub. Voted up. The ideas are sound and I am one of those poverty stricken people who would love to invest, well, not really poverty stricken, just poor.

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