[jbkunt2]

I have been reading about investing for a regular income stream.

I think that a $50k annual income would be enough for me to live comfortably (along with any other sources of income).

What sort of amount of money in investments would you think would be a decent budget to try and get that sort of income?

$1m at 5% target return?

High dividend yield stocks?
REITs? Property?
Anything else?

Any thoughts are very welcome.

Thanks.

[Slam]

It depends on how passive you want it to be. The more passive = lower % return.

It's hard to get a completely passive return over 5%.

But if you invest in real estate, doing due diligence, rehabbing and renting out, etc. You can make 5-15% on your money.

Note that some high dividend yield stocks will have higher % dividends, but if you look at the 5 or 10 year charts, you will see their stock price has declined, significantly lowering or even nullifying the ROI.

[RatInTheWoods]

2 rental properties, worth $400K and $320K (when purchased) bought by cash, no mortgage.

first rents out at $720, the second $600. After bills and costs etc that equals about a grand a week, or $50K per year.

The good thing about property is it also increases in value each year (capital gain) last year they went up 10% but that's a crazy year. You can bet on them going up at CPI or inflation rate.

This means you can put up your rent, so that you will always get $50K in real terms each year.

[gework]

(01-31-2018 05:36 PM)RatInTheWoods Wrote:  

2 rental properties

Does someone manage them for you?

OP: Have a look at this. $200K should net you $50K per year, though note the risk of the exchange's collapse. I've been doing this for about 3 years and they were hacked once or twice in that time. I consider it a moderately high risk. The only reason I keep doing it as when they we're hacked it was handled very well and they went out of their way to get everyone their money back.

I am very apprehensive on buying anything right now. You'd be buying in at historic near highs for a lot of assets.

For stocks the best bet for passive is to research what you think will be a growing market over the next 10 years. 10 years ago that would have been certain tech stocks and travel stocks. Last year I bought Canadian marijuana stocks which are up several hundred percent. I was also looking at Chinese tech companies like Tencent (up over 100%) and companies that make automation devices like Faunc (up about 100%) but didn't buy .

Some markets I was looking into:

- Airports with big in/out-flows of migrant workers and tourists and room for a new terminal
- Budget airlines with room to grow; hold WizzAirr, up over 100% YTD
- IVF, growing international market and likely at home due to male soyification, though PEs very high
- Chinese tech, growing market
- Food Panda / Delivery Hero, suspicious of their poor financials though suspect they will have good growth
- Gardening is the No. 1 hobby in the US and with an aging pop. and low cost of products it will likely grow and with cross over the the potential US cannabis market
- Genealogy is the No. 2 hobby in the US, Ancestry is meant to be IPO-ing soon. They have recently had massive growth in DNA kits, selling more in the last 12 months than all genealogy kits sold by any company prior; you can buy Ancestry via the stock of one company that has a big share; French genealogy company, Filae, has had some good growth, traded on a small cap EURO exchange or can be bought as part of that exchange's NAV
- Some company that sells whatever useless tat hipster millennials buy, so I can profit from the ends of their family line
- Work online brokerages like Freelancer, their financials look poor, but they are rallying after a big dip
- VISA, Mastercard - global growth
- Exposure to high-growth tourism destinations: Thailand, SPain, Mexico, Ivory Coast, all of South America, Japan, UAE, Oman
- Chinese Netflix: iQiyi IPO
- Companies that sell diapers to developing countries (one of the few things poor people buy); also baby food
- Companies that build automation devices to replace human workers
- 3D printing
- Companies that sell gym equipment to developing countries

[qwertyuiop]

If you can find a niche site that makes 4-5k a month to buy you would get there.

you'd pay anywhere from 80k to 150k for the site and there's the possibility it would go down -- but you could also grow it.

Probably one of the more risky but much less expensive than having 1m tied up making you 5% interest.

[edlefou]

RatInTheWoods makes a good point about rental income increasing at a greater rate than inflation. My rents have gone up an average of 6% per year over the past decade or so, which handily beats inflation.

Regarding investing in a niche site vs real estate: they have completely different risk profiles, so niche site requires more than 5% to justify the additional risk (also it's not very passive if you have to work on it to maintain or grow).

[Australia Sucks]

As a general rule if you are looking at any investment with low risk and good long term growth rate use a 3% rule. Therefore if you want $50,000 in income you should have nearly 1.7 million in net assets. This is a relatively conservative assumption and should give you a margin of safety for the lean years (nearly every investment has certain years when the cash flow is not great).

[Brodiaga]

This is not financial or tax advice.

You can use 80% VTSAX, 20% VBTLX portfolio (Alternatively, if you want to diversify internationally you can use total world stock index VTWSX instead of VTSAX or use separate index funds for US and Intl).

The 4% rule: 50K/4% = 1.25M

According to this rule, this is what you need to generate 50K per year adjusted for inflation going forward for at least 30 years. Generally, if you are good for 30 years it's likely that you can generate this income for life, though nothing is 100% guaranteed when it comes to predictions.

Some people argue that the 4% rule is not conservative enough. Another, more conservative rule of thumb is based on the PE10 (CAPE) ratio which is a pretty good predictor of future stock returns for the medium term (there is no perfect predictor obviously, but at least PE10 has a pretty good negative correlation with returns for the next few years).

PE10 for the S&P500 (which is 80% of VTSAX) is currently 33.8 http://www.multpl.com/shiller-pe/
Based on this ratio, a rule of thumb is to use 1/PE10 instead of 4%.

50K/2.95% (or 50K X 33.8) = 1,69M
This is what you need according to this more conservative rule. Notice that this is very close to what Australia Sucks wrote above.

50K includes all the taxes you pay per year which shoudln't be much on capital gains (could even be 0 for a two person household at this level).

What if the market crashes? Don't sell low, just keep your stocks and sell bonds in the meantime. VBTLX has been relatively stable, so let's assume it remains stable in case of a major crash. What you do is keep selling bonds while stock prices are down. At 20% bonds, you have 5 years worth of expenses using the 4% rule (25 year's worth X 20%). More using 1/PE10 rule. Just keep selling bonds, rebalancing back to 20% bonds and hoping that the market recovers by the time you do so. If it doesn't, you can keep selling remaining bonds, but obviously there is no guarantee that stocks will recover within a certain time period. If you can't stomach 80/20% stocks/bonds allocation, use 70/30% or something more conservative, but the more conservative you are the more you'll miss out on potential gains.

This post is US-specific and the portfolio has a US home country bias which makes sense if you live in the US and spend US dollars in retirement. If you plan to live overseas when retired, you need to keep currency exchange risks in mind (e.g. the local currency appreciates and you need more dollars to keep the same lifestyle) In this case, perhaps you should consider diversifying more internationally.

[Blancpain]

^
He knows what he is talking about

Couldn't have said it better myself.

[Troller]

Check this:

https://retirementplans.vanguard.com/VGA...ggCalc.jsf

You probably need ~2M.

[lavidaloca]

Depends how long of term you are talking about. Theres also the very reasonable possibility of significantly decreasing your spending during recessionary periods. If you do this it shouldn't be hard to do with 1 million in my opinion. But yea if you want to spend 50k then 3% more every year without fail I think the numbers Brodiaga and Australia Sucks are reasonable.

Reality is by the time someone acquires 1 million+ in investments they are probably going to be 35+ and more likely 50+. Of course there are situations where people get there faster. Theres tons of additional factors that will then likely have an affect be it inheritances or windfalls, life expectancy, how much will you spend at 80 verse 50...reality is you probably wont spend very much at 80. On the flip side you can get your 50k a year investment smoked pretty hard if you have kids a spousal dispute, medical complications etc.

I think 3% is very conservative if you are flexible. If you are not flexible and you need 50k every year without fail and can not work or do anything to mitigate falls in the market then sure.

[Australia Sucks]

The 3% rule mean your capital will last a lifetime under most scenarios is what the retirement calculators will generally tell you.

Also its the level (partly based on empirical observations and partly based on experience) in which you can safely live purely from yield without having to sell down any of your investments. If you are using a 4% or 5% rule and investing in developed economies its likely in some years you may have to cash out some of your gains but with the 3% rule, generally speaking you are living purely from income.

In Australia where our stock market is biased towards income/yield (as opposed to the U.S.A. market when companies wherecompanies are reinvesting more of the earnings or buying back shares) you can invest in a self selected portfolio of stocks with reasonable growth prospects or even an index fund and get a dividend yield of 3-4% (with some tax imputation credits attached). Also if you buy houses in important cities in Australia (excluding Sydney and Melbourne which are overpriced) in middle class suburbs you can generally get 2-3% net yield. If you add some stocks to your investment allocation so you then have a mix of property and stocks then your overall yield will be north of 3%.

In the U.S. stock market currently most of the Blue Chip stocks with predictable earnings (and a good outlook) and a long track record of consistently increasing dividends are trading on dividend yields of between 1 and 3.5% (with most towards the lower end of that scale) therefore in the U.S. stock market if you want a relatively safe 3% yield where the income will grow nicely over time you probably need to throw some small to mid cap stocks into your portfolio mix. For example the following article http://www.dividendgrowthinvestor.com/20...s-for.html lists some examples of dividend payers in the S&P 500 which are examples of the types of stock I just described. Out of the 14 stocks in the article only 2 pay a dividend yield of above 3%. So like I said you will probably need to look outside of the S&P 500 (at least for part of your portfolio) if you want a safe and increasing yield above 3%.

Ideally you want to be in a position where you have reliable income that is enough to cover your expenses so you don't have to sell down any of your capital. Hence the 3% rule. The 3% rule is just a rule of thumb, a highly shrewd and energetic stock picker can find growth investments on much higher yields. Also when stocks are very cheap e.g. 2008-2010 its easier for anybody to find higher returning/yielding investments and therefore in that environment you can use a 4% or even 5% rule.

In current market conditions (and indeed on a through the cycle average) for an investor of normal skill level who wants their capital to last forever (that way you eliminate longevity risk and also leave an inheritance) and who wants to solely spend the income, a 3% rule is a good general rule of thumb.

[jbkunt2]

Just wanted to pop back to this thread and thank you lads for some extremely interesting insights. Much appreciated!

[LaFleur]

Open a car wash, laundromat, or RV Park in the Delaware Basin.

[qwertyuiop]

beating the market is as easy as buying Visa and holding it.

you're welcome

[Days of Broken Arrows]

Look into high yielding closed end funds (CEFs) and buy them when the market is in a pullback.

A bunch of companies offer several funds each. There are the Nuveens, PIMCOs, MSF, Calamos, Invesco, and others. These funds have baskets of stocks that are professionally managed. They offer dividends that are 6-10 percent and sometimes more. Find ones that hold stocks you believe in.

If you buy when low, you can get profit and nice dividends, always a great combo.

Knowing when to sell is where the problem comes. Ideally, you want to sell on a high note and then wait for a drop, then re-invest. But, as you might expect, it's not so easy to predict the market. I ended up with far less profit than I wanted, because I have a habit of selling too soon. But the dividends were still great while they lasted.

Had I fully invested during the big pullback of January 2016, I'd have done really well with this method.

But our investment styles don't just reflect our intellect. They are an outgrowth of our personalities as well, sad to say. In my case, I was smart enough to know when to buy but too anxious, worried, and self-doubting to actually do it.

As such, I guess I'm the Woody Allen of investing, sans the hot, young Asian wife/stepdaughter. We all have our crosses to bear.

[jbkunt2]

Just follow up with a different angle... I would love to get opinions on this...

How would you do things differently if you $50k was just a target income and he investor was already self-sufficient from work/business income?

That is to say, it would be okay if this figure dipped to $20k for a few years or $70k in good years.

The previous replies were gold and greatly appreciated.

Thanks.

[jbkunt2]

Bouncing to see if anyone caught my last message...

[Black Caesar]

Buy or start a business that generates $50k in owner earnings and you're solid.

Could be rental income like someone above said, or anything really.

Getting it from the stock market / REIT / other financial product is fine too but will probably take a bit more upfront investment.

I'd look at buying a low-maintenance software or internet business. They usually go for 3x-5x ARR and don't require a lot of upkeep or already have the infrastructure team in place.

You could probably find one for 300k - 500k that will throw off enough cash to hit your target.

In business it's best to go in to something you know or hire a great management team that knows better than you and pay them well.

[bws8118]

(01-31-2018 12:13 PM)Slam Wrote:  

It depends on how passive you want it to be. The more passive = lower % return.

It's hard to get a completely passive return over 5%.

But if you invest in real estate, doing due diligence, rehabbing and renting out, etc. You can make 5-15% on your money.

Note that some high dividend yield stocks will have higher % dividends, but if you look at the 5 or 10 year charts, you will see their stock price has declined, significantly lowering or even nullifying the ROI.

No it's not. A medium risk portfolio should run you a 7% return on average. Last year, the average in the UK for such a portfolio was easily over 10% due to strong equities.

FYI, a return of 5% minus fees minus inflation will mean you're at around 1% real term growth.

[bws8118]

(02-02-2018 12:28 PM)Brodiaga Wrote:  

This is not financial or tax advice.

You can use 80% VTSAX, 20% VBTLX portfolio (Alternatively, if you want to diversify internationally you can use total world stock index VTWSX instead of VTSAX or use separate index funds for US and Intl).

The 4% rule: 50K/4% = 1.25M

According to this rule, this is what you need to generate 50K per year adjusted for inflation going forward for at least 30 years. Generally, if you are good for 30 years it's likely that you can generate this income for life, though nothing is 100% guaranteed when it comes to predictions.

Some people argue that the 4% rule is not conservative enough. Another, more conservative rule of thumb is based on the PE10 (CAPE) ratio which is a pretty good predictor of future stock returns for the medium term (there is no perfect predictor obviously, but at least PE10 has a pretty good negative correlation with returns for the next few years).

PE10 for the S&P500 (which is 80% of VTSAX) is currently 33.8 http://www.multpl.com/shiller-pe/
Based on this ratio, a rule of thumb is to use 1/PE10 instead of 4%.

50K/2.95% (or 50K X 33.8) = 1,69M
This is what you need according to this more conservative rule. Notice that this is very close to what Australia Sucks wrote above.

50K includes all the taxes you pay per year which shoudln't be much on capital gains (could even be 0 for a two person household at this level).

What if the market crashes? Don't sell low, just keep your stocks and sell bonds in the meantime. VBTLX has been relatively stable, so let's assume it remains stable in case of a major crash. What you do is keep selling bonds while stock prices are down. At 20% bonds, you have 5 years worth of expenses using the 4% rule (25 year's worth X 20%). More using 1/PE10 rule. Just keep selling bonds, rebalancing back to 20% bonds and hoping that the market recovers by the time you do so. If it doesn't, you can keep selling remaining bonds, but obviously there is no guarantee that stocks will recover within a certain time period. If you can't stomach 80/20% stocks/bonds allocation, use 70/30% or something more conservative, but the more conservative you are the more you'll miss out on potential gains.

This post is US-specific and the portfolio has a US home country bias which makes sense if you live in the US and spend US dollars in retirement. If you plan to live overseas when retired, you need to keep currency exchange risks in mind (e.g. the local currency appreciates and you need more dollars to keep the same lifestyle) In this case, perhaps you should consider diversifying more internationally.

Just get some financial advice from a reputable company. I agree with some of what is in here and some that isn't. FYI I have a substantial amount in investments.

[LionHound]

I work for a small company that recently began to offer a Savings Incentive Match Plan for Employees of Small Employers(SIMPLE) retirement account through Vanguard? The company will contribute a matching contribution to my SIMPLE IRA equal to my salary reduction contributions up to a limit of 3% of my compensation for the calendar year. I'm paid hourly and only a couple of dollars above min wage. Would it be worth it? Will pm with more details if anyone wants to give me some advice.

[SamuelBRoberts]

It's basically free money if you're willing to save it. Matching means that your 100$ investment immediately turns into 200$, which is a return that's very, very difficult to match, even with very good investments. Instant 100% return is very good.

There are only two circumstances where I'd turn this down.
1.) You're not making a lot, and you'd rather have the money immediately to pay bills, get education, etc. Something that provides a higher immediate return to your life.
2.) You are EXTREMELY comfortable with leveraged trading of volatile assets (Like you're a high end Bitmex trader) to the point where 100% returns on small amounts don't mean that much to you and you feel you can do better.

[jamaicabound]

(02-01-2018 08:17 AM)qwertyuiop Wrote:  

If you can find a niche site that makes 4-5k a month to buy you would get there.

you'd pay anywhere from 80k to 150k for the site and there's the possibility it would go down -- but you could also grow it.

Probably one of the more risky but much less expensive than having 1m tied up making you 5% interest.

Love the concept of niche sites however I would never pay big money for one. One change in Google algorithm and the site could be done, once the origional creator leaves the feel and content on the site is gonna change unless its simply some type of autoposting site so that too could sink it.

I'd suggest working on building up sites of ones own. I feel like someone who can't build a site and grow a following and traffic probably isn't going to be able to maintain one.

Heck even just getting a niche site off the ground and flipping it can be good money

[Black Caesar]

You should almost always take advantage of the full employer match to a 401k because it is free, tax-advantaged money.