Living off dividends and capital

Discussion in 'Investment Strategy' started by Realist35, 19th Feb, 2020.

Join Australia's most dynamic and respected property investment community
  1. Realist35

    Realist35 Well-Known Member

    1st Mar, 2016
    Evening guys :)

    We often talk here about FIRE and living off dividends, which is the only approach I've been thinking about... until today! We don't plan to pass our capital to anyone (no children) so now we're considering retiring even earlier by using capital AND dividends.

    What is the best strategy to utilise capital and dividends? My concern on relying on capital as well, is in case of big market corrections and selling shares at a very low price.

    Any thoughts would be much appreciated :)
  2. Fargo

    Fargo Well-Known Member

    23rd Jun, 2015
    You sell when a company gets over a level that would hurt if you lost 50% and puts your capital at risk. Depending on your conviction and risk rating generally it is not advisable to have more than about 12% of your portfolio in one company. When that level is passed you can sell down and hold it as cash, or reduce a loan. A company that has fallen in price, so giving a higher yield, but already got a reduced weighting could be bought so that a higher yield can be achieved. Your capital gain can be used to buy houses , which give income, and can be borrowed against for funds, or sold if needed. When the crash does come equity can be used for bargain hunting and achieving better yield for perpetuity . FIREing and living off dividends is a contradiction, You cant build enough capital to live off dividends with out growth, unless you work. Working and dividends earn a pittance compared to what you can get from companies giving scalable high revenue growth.
    The Y-man and Realist35 like this.