Minimum capital to make $30,000 per year in the stock market?

Bill M said:

Not really, it is what it is. Those dividends posted are what they are and in most cases increasing year after year. It is a good example of how much you actually need to pull 30K a year out of dividends alone.

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So there's no mention of the capital loss that can occur? Oh sorry, its only a loss if you sell it

So as long as the punter (Warren Buffet wanna be, or whatever) is ok with Pain, the draw down in capital is ok?

Oh right...i forgot, just buy more

CanOz said:

So there's no mention of the capital loss that can occur? Oh sorry, its only a loss if you sell it

So as long as the punter (Warren Buffet wanna be, or whatever) is ok with Pain, the draw down in capital is ok?

Oh right...i forgot, just buy more

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Wake up on the wrong side this morning, can?

I think they were just giving an example of how one could construct a portfolio that generates $30k/year. I don't think anyone was arguing it was a risk free $30k. The OP is very open ended, so of course there are many ways to answer the question.

CanOz said:

So there's no mention of the capital loss that can occur? Oh sorry, its only a loss if you sell it

So as long as the punter (Warren Buffet wanna be, or whatever) is ok with Pain, the draw down in capital is ok?

Oh right...i forgot, just buy more

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Why would you draw down capital if you don't need to? He only wants the 30K a year. Some posters here are not traders, some are long term investors who have different ways of doing things. What works for some might not work for others, it can be done.

qldfrog said:

without being nosy: how much in dollar per week and how long is the waiting list?
Genuinely interested
This is a bit off the main thread : my apologies
I also assume this is government subsidised?
I have the feeling that I will not have access to much government paid subsidies in 30/40 years...
PS I really wish I am wrong and will live on tax funded pension till I am 120 playing golf every day...but....

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I don't know if this is off topic.

Also, I don't know how much her pension was, in dollar terms.

I do know it was 85% of her pension, indexed.
It was in the agreement.

She was really lucky with the waiting list.
(someone had to die ... )

She had Parkinsons, so we knew how it would unfold.
That is why we shopped around.

(some aged care facilities were an absolute ripoff)

Wake up on the wrong side this morning, can?

I think they were just giving an example of how one could construct a portfolio that generates $30k/year. I don't think anyone was arguing it was a risk free $30k. The OP is very open ended, so of course there are many ways to answer the question.

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Bill M said:

Why would you draw down capital if you don't need to? He only wants the 30K a year. Some posters here are not traders, some are long term investors who have different ways of doing things. What works for some might not work for others, it can be done.

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My point is to me, the first thing to consider is risk. That wasn't considered at all here.

Sure, everyone is different, but if you're not considering risk then you're kidding yourself....

Thanks Buglar,
anyone else know a rounded figure for the cost of a semi intensive aged care facility per day/or week without subsidies?
This should be the base of any long term minimum income for our older age.

qldfrog said:

Thanks Buglar,
anyone else know a rounded figure for the cost of a semi intensive aged care facility per day/or week without subsidies?
This should be the base of any long term minimum income for our older age.

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No, maybe take it to another thread?:topic

CanOz said:

My point is to me, the first thing to consider is risk. That wasn't considered at all here.

Sure, everyone is different, but if you're not considering risk then you're kidding yourself....

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I don't disagree with you on that. But I think as an illustrative example of how much is required to generate $x dividend stream it is a good place to start.

qldfrog said:

Thanks Buglar,
anyone else know a rounded figure for the cost of a semi intensive aged care facility per day/or week without subsidies?
This should be the base of any long term minimum income for our older age.

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Well, as from 1 July 2014, the accommodation bond is to be capped at $550,000 (but more can be taken if the provider gets Government approval) and as the distinction between low-care and high-care is also to be removed.

This link is just a start to enable one to be utterly and completely confused.

http://www.livinglongerlivingbetter.gov.au/internet/living/publishing.nsf/Content/Residential-care

In essence, the power, despite all the frilly words, is with the provider not the consumer.

burglar said:

And with an annuity draw down it would be less.
Off course I assumes that:
1. You realise you are mortal and do not require 167k on your deathbed.
2. You realise your cost of living will shrink as your age approaches 120.

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Haha... this is great. Let's "go there".

If you should live to 65, the average Australian male can be expected to live a further 19.1 years. The average female can be expected to live a further 22 years. That's the unconditional average. Amazingly, it turns out that people who can actually save up enough to rub two cents together actually know how to take better care of themselves, exercise a bit, smoke less, hit 65 with less disease...and basically live longer.

On average, the chances of a male at 65 living past 100 is close to 5%. The chances for a female making it to 100 if she reaches 65 is close to 10%. If the thread initiator happens to be in hetero-sexual relationship and both male and female reach 65 at the same time, the chances of at least one making it to 100 are around 15%. Now think what the odds are for healthier people and you get the sense of what the term 'longevity risk' is all about. These figures are for the average population. Once again, those who can self-fund live longer. Do you want to run out of money before you run out of oxygen? Do you want to die and leave your partner in the minimum grade nursing home eating porridge and lonely? No? So you need buffer over the expectation of life span.

When you are the greatest gift to investment, but magnanimously choose to give away all your hedge fund revenue to charitable causes which would otherwise see you in the top handful off the Forbes lists, attempting to live of an $X pot earning 20% consistently with expenses rising at 2% per annum (I'll get to this), size of the pot required to fund your self - alone - to only the average expected age beyond 65, given you reach 65 is $161k vs the 167k I mentioned earlier. Not much difference. If you want to pump it up to 100 so that you can relax a bit in the knowledge that you will probably outlive your bankruptcy, maybe, hopefully, then that figure rises to $166k. And you remain mortal. On your deathbed, you'll have nothing in your account.

As you point out, as you get older, your expenses slow down until you start needing nappies and the whole thing unravels. But it doesn't stop there. You can't have it both ways.

Remember, the 20% is earned by total rock stars. We're talking Beatles, Madonna, Rolling Stones level stuff here. Once a decade kind of people - although the posts on this site sometimes have me wondering - and they are truly rare. Investment performance vs skill exhibits a strong power law relationship. That is, winner takes a heck of a lot. You are a rock star, you make $10bn. You are the #2, you make $1bn. You are #3, you make $100m. That sort of thing (this is just illustrative, it's not quite this steep, but it's very steep). Look at the earnings profile of tennis players, baseballers, soccer players, records sold by bands....same same...not different. Although he is slowing down, I don't think John McEnroe's earning power is quite what it was when he won the US open. To continue mashing my metaphors, if you claim these guys are older and slower, their ability to generate enough performance to sell out 10 concerts in 5 minutes in Berlin as part of world tour after world tour fades a little too...and the $X required as a result of falling ability to generate investment performance rises a heck of a lot more than any reasonable diminished expenses short of moving to Tibet and possibly dying on the Annapurna track (which is kind of a nice place to go out, I guess). In fact, even moving to Tibet might not save you.

My example was meant as a joke to point out the extreme low end. So low as to be ridiculous.. But thanks for the interesting provocation. You will need a lot more than $167k to produce $30kpa real and plan to have a decent chance of outliving your bankruptcy/state-dependence and maybe that of your spouse/partner, if you care to, even if you are the mortal rock star of investment and slow down a little bit with the passing of the years.

This has been fun. Thanks.

Bill M said:

You are right of course, money in the bank doesn't keep up with inflation. You would need 700K in fixed interest products to earn you 30K a year for 30 years (inflation adjusted). The assumptions are that you will earn 6% a year and that inflation runs at 3.5% p/a, this is including a management fee of .55% p/a and is in pension mode (no tax). The 700K will be totally depleted in 30 years. I ran this scenario because my wife and I have no kids and we will not be leaving anything for anyone when we go. It is not important to maintain capital for us, we intend to blow it all. We will have our house as back up should we end up in a nursing home at a very old age. Anyhow figures are attached.

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Bill M, thank you, sir, for undertaking this work. I verify your analysis and wish you and your wife a long and happy retirement.

CanOz said:

Aren't we all making a big assumption about these companies?

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McLovin said:

Wake up on the wrong side this morning, can?

I think they were just giving an example of how one could construct a portfolio that generates $30k/year. I don't think anyone was arguing it was a risk free $30k. The OP is very open ended, so of course there are many ways to answer the question.

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It will also depend to some extent on the tax status of the OP. If, for example, he is about to move into pension phase of his Super - when $30,000 p.a. will be fine for some people - he won't be paying tax so the lower amount of capital would suffice.

Bill M said:

Why would you draw down capital if you don't need to? He only wants the 30K a year. Some posters here are not traders, some are long term investors who have different ways of doing things. What works for some might not work for others, it can be done.

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+1.

CanOz said:

My point is to me, the first thing to consider is risk. That wasn't considered at all here.

Sure, everyone is different, but if you're not considering risk then you're kidding yourself....

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Which is exactly why I asked you yesterday to outline the strategy you would suggest, especially taking risk into consideration, viz

Tinhat has outlined how he could do it with a low risk strategy. Could you perhaps do likewise, CanOz, including if you wouldn't mind, an evaluation of the risk?

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So far, nothing.

Contrary to the dream sold to Storm investors, there is no risk free option. If the p/f outlined by tinhat were to fall into dust we'd all be in a heap of trouble.

qldfrog said:

without being nosy: how much in dollar per week and how long is the waiting list?
Genuinely interested
This is a bit off the main thread : my apologies
I also assume this is government subsidised?
I have the feeling that I will not have access to much government paid subsidies in 30/40 years...
PS I really wish I am wrong and will live on tax funded pension till I am 120 playing golf every day...but....

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qldfrog, you'd be one of the few who are being sensible enough to think about this.
The rules for aged care will no doubt change many times by the time you may need to access it.

As has been explained above by Judd, the situation has just changed with bonds being payable (I think) for both high and low care. When I organised it for my father it was absolutely means tested. No bond then, but a significant daily fee calculated on his assets.

Even people who have nothing will, in theory, still be cared for and often to the same standard as those who are paying plenty.

Nursing homes, even the better ones, are best avoided. They treat intelligent adults as babies, talk down to them as though they have lost their mental capacity along with their physical strength. My father was ordered to play bingo and was noted as 'unco-operative' because he declined. You give away all your autonomy when you go into any of these places. Not their fault, really: they are under funded and have to find the cheapest way to deliver a basic service. If that sees you lying in your own waste, there's nothing you can do about it.

Personally I've made sure if I need care I can pay for it to be delivered in my own home.

Julia said:

Which is exactly why I asked you yesterday to outline the strategy you would suggest, especially taking risk into consideration, viz

So far, nothing.

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Why do i have to do what you ask me? Mom? Is that you?

Actually i tend to agree with MichaelD

Essentially an unanswerable question and a bit of "how long is a piece of string" as it depends on how and what you trade.

Some here could do that easily with $10,000 or less.
Some here couldn't do that with $300,000.

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CanOz said:

Why do i have to do what you ask me?

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You don't, of course. And I didn't tell you to do anything. I asked politely because I was genuinely interested in how you'd answer the question. I was particularly interested in your views about risk since you've raised this in connection with what most people would consider a fairly low risk p/f suggestion

But no matter.

tinhat said:

Assuming a very conservative portfolio and assuming the $30,000 income is gross (inclusive of imputation credits), here is an example portfolio i threw together with one minute of thought:

Code:

 investment stock gross yield  dividend 
 60,000.00 	 cba 	7.12%	 4,272.00 
 60,000.00 	 anz 	7.40%	 4,440.00 
 60,000.00 	 wbc 	7.50%	 4,500.00 
 60,000.00 	 wpl 	8.17%	 4,902.00 
 60,000.00 	 tls 	8.20%	 4,920.00 
 60,000.00 	 wes 	6.62%	 3,972.00 
 60,000.00 	 wow    5.59%	 3,354.00
-----------------------------------------
 420,000.00 			30,360.00 

Total return (gross): 7.23%

I've used the price at market close last Friday. I've taken the lower value of the Reuters Thompson broker consensus forecast dividend yields for FY14 and FY15. I've grossed them up to include the imputation credits.

If the $30,000 of income is net of tax then you would need $600,000 for the above portfolio.

I would expect this portfolio, over time, to appreciate in capital value with the cost of living at a minimum.

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Hi Tinhat,

Whilst some may argue that this is a low risk portfolio, I tend to disagree.

43% of the capital and around 43.5% is exposed to the banking sector. I assume that this is a set and forget portfolio, therefore it will be exposed to the cyclical nature of the economy over time. I would be wary of the banks, they shoot the lights out when things are looking good (and they have been for 20 years now), but would be exposed in a recession. Who knows what skeletons are in the closet? Sounds like a big risk wagering 43% of your capital on everything staying rosy for ever.

If those dividends get cut then you are forced to sell in an environment where capital value may be at a low ebb (banks historically have traded near book value in a recession).

The banks have their place in a portfolio, when risk and reward is well placed, but for someone relying on a long-term income stream 43.5% in banks looks way over the mark.

There has not been a hiccup in a long-time, but can you say that this will be the case for another 20 years as a certainty?

Ves said:

Hi Tinhat,

Whilst some may argue that this is a low risk portfolio, I tend to disagree.

43% of the capital and around 43.5% is exposed to the banking sector.

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Thanks Ves, thats what i was getting at, thinking of if you could handle the pain in a situation like 2008-09...

Here is my suggestion. The 20% flipper, averaged enough starting with 100k per year. You need to pay tax too, but it should do 30k per year average gross. 250k is even better.

CanOz said:

Thanks Ves, thats what i was getting at, thinking of if you could handle the pain in a situation like 2008-09...

Here is my suggestion. The 20% flipper, averaged enough starting with 100k per year. You need to pay tax too, but it should do 30k per year average gross. 250k is even better.

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Hi CanOz, what's a "20% Flipper"?

DeepState said:

Hi CanOz, what's a "20% Flipper"?

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Its a simple algorithmic equity trading system...as explained in Unholy Grails-A New Road to Wealth by Nick Radge.

I'll round up a quote from the book on the logic but in a nutshell it buys stocks in a Universe you specifiy, after a 20% increase in price that follows a 20% decline in price...the theory being that in order for an equity to make 100%+ it must first make 20%....

Its a trend following system.

CanOz said:

Its a simple algorithmic equity trading system...

Its a trend following system.

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Interesting. It waits for reversion prior to an anticipated slingshot. And there are probably stop-outs on the other side of the algo which might run to the mirror if you want to participate on the downside or you can stay long only. You could vary the 20%, make it asymmetric, check for excessive movement...and get lost up your...A But this one's single parameter. I can see why you like it over the backtest horizon utilized and universe selected. Thanks.

Ves said:

Hi Tinhat,

Whilst some may argue that this is a low risk portfolio, I tend to disagree.

?

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Another risk is that you simply pay too much and could have just buried your pot under the garden bed, taking out a few bucks occasionally, until prices got cheaper and then bought in. Opportunity cost.

Pls see below Moody's BAA-AAA yield spread. Notice how it is really low right now relative to history. History prior to 2007 thought that all was cool in the debt markets...didn't quite turn out that way. In English, this means that the price assigned for credit risk is very low in an historical context. Does that seem right to you? Uhhhhh.



That is a clear marker for the search for yield phenomenon that is leading to anything with a yield over government bonds being bid up to the whazoo. It is by the design of the central banks via their unconventional monetary policies or record low interest rates to stimulate the economy through the channel of asset inflation amongst other things. They, at least the Fed, are unwinding that although Japan is on an upward trajectory and ECB might move to unconventional methods to defray lowflation.

Yield is expensive. Our Banks are trading at market multiples. They are the most expensive in the world by a country mile. They are indicating to you that forecast growth isn't so hot when they dish out 80% of earnings in the form of dividends. Just for example.

We can go on to a bunch of other stuff:

The economic sensitivity of the basket may not match the inflation sensitivity of the real annuity. For example WPL is a big chunk...do we consume that much gas, let alone financial services, in our consumption basket?

There is a heck of a lot of stock specific risk in there. Even great companies fail. Take a look at the composition of the ASX 20 years ago and look at the top 10. See if you can even remember them. Being a stock major is almost a mortality sign.

Ves has already mentioned the banking concentration risk. Even if things don't blow up in the banks, credit growth decline, changes in the four pillar policy, competition leading to erosion of the NIM, innovations for non-interest income, changes in the capital requirement that APRA just makes up on the spot...all impact the whole lot of them together. Then, as Ves mentions, they can just blow up.

Cheers

Disclaimer: This is not advice. I am not recommending any securities. I do not know your situation. Please do your own work.