Currently reading "Motivated Money"

noob alert..

Wow what a book.. I have recently read "barefoot investor", "rich dad, poor dad" and now reading "motivated money" ..

i am really re-thinking my investment strategy as a result.. up until recently i was just trying to pay off house and pick up an investment property here and there..

there are so many more questions to ask, but i'm curious if people believe that with a regular 10-15 year investment into the funds (i still don't know which ones), which have dividends, that this could be enough.

I was thinking about re-financing an investment property and pulling out 100k and putting it into an ETF or whoever pays dividends - and re-invest the dividends..

Anybody know if this is a common strategy with decent results (100k start off and then re-invest dividends and also add in 10 or 20k per year extra from your own disposable income)?

Dividend Reinvestment Calculator

 

Enough for what? There's no stated goal here.

Put a spreadsheet together and see how much you end up with assuming 8, 10, 12, 14% returns. See what you end up with and see if it's enough (for whatever you are thinking about).

 

yeah re-reading my post even i picked up that i should have mentioned something..

enough for something like an equivalent of a 80k annual dividend payout ... something like a 1.5m value of shares.

example objective: 12 years from now to have 1.5m in stocks yielding 80k annual payout of dividends...

what would be a good way to start this off and what amounts?

 

Inflation 2% for 12 years, you'll need 100k. Assuming 6% yield? 1.7m.

Assuming average 12% return? You'll need to put in 63k AFTER tax EVERY YEAR for the next 12 years. And that assumes zero tax.

If you are willing to retire on 80k, you probably don't have 63k after tax each year to put in.

This is a ridiculously short time period without using leverage.

Run your own excel if you want. But the first year's 63k becomes 245k in 12 years. The last 63k is worth 70k. You want 1.7m.

 

On the other hand.....
A 63k deposit (assuming 90% LVR, 5% a year gains, net cashflow flat) = net 376k in 12 years. And 977k in 24 years.
63k in shares now, assuming 12% a year gains = 245k in 12 years, and 956k in 24 years.

But the numbers can be tweaked to give you whatever result you want. Crashes happen, especially with shares. And this does not include say refinancing to buy other investments. The point is that investment payoffs tend to be at the long end. Thats why you should start early and invest for a lifetime.

 

One of the (possibly THE) best books I've ever read and I've reccomend to others on these forums.

The concept makes sense, and I had been working towards such a plan before reading the book.
It was comforting to read that I wasnt the only person out there who thought there was another way to success other than negatively gearing into over priced residential property in the hope of an eventual capital gain.

Unsurprisingly Peter's methods and reasoning resonate well with the FIRE community. Here is a link to a recentish interview with him:

Podcast - Peter Thornhill - Aussie Firebug

He talks about about leveraging into shares (in the book) which I'm not interested in, and he has a preference for LICS over ETFs which differs to my own opinion and situation, but the basic principles are the same.

 

Hi, doing something is better than doing nothing. Most of us start like that, with small amounts and then they grow and we gain wisdom and grow with our investments & our mistakes.

What you're thinking of is making some money from the differential in yield that you'd get eg 100K
at 3% interest and your 100K invested in funds yield 7% therefore you make 3-4% after costs

It's the 20-30K annually that will earn the full 7% yield and helps snowball your investment.

The 2 undetermined are the interest rate will not remain at 3% forever and the yield may not be consistently above 3%

In July, I started a small 'investment' with only $9700. Invested fully in one major bank. I made $800 realised cap gains and moved the money into cheap shares mainly hospitality reits and am sitting on $725 unrealised cap gains. That's about 15% in 4 months.

That's just to let you work with some numbers.

Of course, my shares took a 200% walloping in March from which my portfolio has not recovered.

Good luck & good on you for thinking of your own investment journey.

KY

 

My plan for retirement is $80k per year income and my wife and for the last 4 years have put away $160k per year.

 

Can you explain the leverage part?

 

and the income to be derived from dividends?

 

Leverage just means borrowing money. If you have 75k, you could buy 75k of shares. Or possibly buy a 600k property. The shares go up 10%, you make 7,500. The property goes up 10%, you make 60k.

Obviously not that simple, since it depends on cashflow, borrowing capacity, returns, etc. Leverage magnifies your gains and losses. For most people that have to live and save on average wages, its hard to get anywhere without leverage.

If you can put in 160k a year and willing to live on 80k a year like some, maybe you don't need leverage.

If you think property won't go up like it has in the past, leveraging into property might not work. But only if you are right. But people have been saying that forever too.

 

How long do you estimate it will take?

 

At 5% yield you would need $1.6 mil in shares so at $160k per year that would mean 10 years, assuming no inflation or capital growth.

You are nearly half way there. Well done

 

Leveraging into shares has become alot easier, cheaper, and less risky than the past too.

I haven't bothered with it myself, but something to consider might be the likes of NAB equity builder.
It's a P&I loan, no margin calls, rates starting from 3.9%, and I believe LVR upto 75%.

I've only had a cursory look at it so maybe read the details further.

It makes leveraging into shares comparable to investing in residential property (without the exorbitant transaction costs).

 

This works but the outcome is reliant on many factors both external and internal.

 

i hate stamp duty, to get leverage, there is a massive entry point for property, like that 600k property would probably cost 25k in stamp duty - although i do agree a balance approach is probably the best way.

 

Attached are a couple of scenarios, using the calculator..Dividend Reinvestment Calculator

Assumptions are: 12 year investment, 5% return on dividends (re-invested) and 5% capital growth per year (pls let me know if this is too high of an assumption).

50k - after 12 years - yields: $56,984.27 per year returns
100k - after 12 years - yields: $113,968.53 per year returns

Am I missing something major here?

 

The calculator is BS, because it doesnt account for returns on the realized Dividends that are put into other investments if they were put into growth assets you could have $100k gain in 10 years . If the $8.5k dividend is used to finance 100k asset, even the same company using the same figures giving 10% would give you $10k p/a, more in 3 years, than 10 years of DRP.

 

hate has no place in investing. Your (or anybody elses) opinion doesnt matter. For property it is the price of entry.

 

good point, hate is emotion and that has no place.