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



## steelcat

what is the minimum capital for you to make $30,000 per year in stockmarket


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## CanOz

*Re: what is the minimum capital for you to make $30,000 per year in stockmarket*



steelcat said:


> what is the minimum capital for you to make $30,000 per year in stockmarket




If you can do this with $300k, year in and year out then you can manage money professionally...

Think about that for a bit


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## banco

*Re: what is the minimum capital for you to make $30,000 per year in stockmarket*



CanOz said:


> If you can do this with $300k, year in and year out then you can manage money professionally...
> 
> Think about that for a bit




Far easier to do it with 300 k than millions.


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## CanOz

*Re: what is the minimum capital for you to make $30,000 per year in stockmarket*



banco said:


> Far easier to do it with 300 k than millions.




+1, or even billions...


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## So_Cynical

steelcat said:


> what is the minimum capital for you to make $30,000 per year in stockmarket




Based on my 5 year average, 185K - but more realistically 225K would do it low risk.


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## pavilion103

Trade futures instead 

Nah I don't want to give anyone ideas


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## Julia

*Re: what is the minimum capital for you to make $30,000 per year in stockmarket*



banco said:


> Far easier to do it with 300 k than millions.



Would you like to expand on that?


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## Wysiwyg

No one has mentioned that skill, know-how or a proven system is required.  Then the amount of capital will be known.


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## VSntchr

*Re: what is the minimum capital for you to make $30,000 per year in stockmarket*



Julia said:


> Would you like to expand on that?




Likely referring to investment opportunities which are not available to large sums of money.

Buffet famously quoted that he would *guarantee* a 50% return on $100k* (*I think it was 100k?)


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## MichaelD

steelcat said:


> what is the minimum capital for you to make $30,000 per year in stockmarket




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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## systematic

...and you're not going to know what you _did_ make until later on (after the fact) anyway.

My opinion:  whichever 'method' you're looking at using to extract that 30k from the market...you should have an idea of what your expected return is going to be based on quantitative measures, not mere guesses.  i.e. That simply means that your method(s) expected returns have been measured (whether by you or not). 

You then move forward with it, at the same time accepting that your reality will only be one possible result in a range of possibilities.  (i.e. All I mean by that is that you accept that the expected result is not set in concrete).

All that said; you should therefore be telling us how much you need to make 30k, based on your expected returns.


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## Julia

Julia said:


> Would you like to expand on that?






VSntchr said:


> Likely referring to investment opportunities which are not available to large sums of money.
> 
> Buffet famously quoted that he would *guarantee* a 50% return on $100k* (*I think it was 100k?)



Thank you for your comment, VS.  I'm hoping to have an answer from banco who made the original statement, however,  and/or CanOz, who endorsed it.

I don't, e.g. see why you couldn't invest $1M (or multiple millions) at the going deposit rate at any bank and achieve the $30,000.  The fact that there would be much left over is irrelevant.


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## steelcat

pavilion103 said:


> Trade futures instead
> 
> Nah I don't want to give anyone ideas




you can lose your pants for trading future.


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## steelcat

MichaelD said:


> 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.





*Some here could do that easily with $10,000 or less.*
please give me some detailed information.


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## MichaelD

steelcat said:


> *Some here could do that easily with $10,000 or less.*
> please give me some detailed information.




Sigh. Why is that the phrase that captured your imagination?

Learn to trade. There is no shortcut. Educate yourself. There are numerous threads here both in the Trading Systems/Strategies forums and the Derivatives forums.


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## beachlife

This page shows what is possible with futures

http://www.worldcupchampionships.com/live-stats-3


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## qldfrog

that is basically what I lost with a wrong timing on future
so even billions would not have help


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## Julia

banco said:


> Far easier to do it with 300 k than millions.






CanOz said:


> +1, or even billions...






Julia said:


> Would you like to expand on that?






Julia said:


> Thank you for your comment, VS.  I'm hoping to have an answer from banco who made the original statement, however,  and/or CanOz, who endorsed it.
> 
> I don't, e.g. see why you couldn't invest $1M (or multiple millions) at the going deposit rate at any bank and achieve the $30,000.  The fact that there would be much left over is irrelevant.




banco and CanOz:  might I reasonably still hope for a response here ?  Seems a shame that you're reluctant to let us know why it's *easier* to make the $30,000K from $300K rather than millions.
I think the OP was asking the question in good faith.


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## CanOz

Julia said:


> banco and CanOz:  might I reasonably still hope for a response here ?  Seems a shame that you're reluctant to let us know why it's *easier* to make the $30,000K from $300K rather than millions.
> I think the OP was asking the question in good faith.




Once you are so big you can no longer cover your moves so easily and in many cases you can move the market with your trades.


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## tinhat

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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## Julia

CanOz said:


> Once you are so big you can no longer cover your moves so easily and in many cases you can move the market with your trades.



OK, thank you for your response.   



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.



Thank you, tinhat.  Pretty much exactly where my thought went also.

So we have quite a divergence here between the assertion that it's easier to generate $30K pa from $300K
than from $1M and that it would take around $600K for a conservative p/f to generate a net $30K.

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?

Banco?


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## kid hustlr

I don't think anyone was saying its easier to make 30k with 300k than with a mil. They were talking about the fact that that its harder to make 10% with 3 billion than it is with 300 thousand...


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## CanOz

kid hustlr said:


> I don't think anyone was saying its easier to make 30k with 300k than with a mil. They were talking about the fact that that its harder to make 10% with 3 billion than it is with 300 thousand...




Yeah, thats what i was agreeing to...


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## banco

*Re: what is the minimum capital for you to make $30,000 per year in stockmarket*



Julia said:


> Would you like to expand on that?




As others have mentioned making a given % return becomes harder the more money you are managing for a variety of reasons (ieyour investment options shrink to shares etc. that are liquid enough to bother with).  Obviously having never managed money I don't know how much harder it is to manage a large sum of money  but it seems to be exponentially harder.    

Would be interesting to give the top fund managers a small (by their standards) sum of money (ie $500,000) and see how well they do with managing it versus managing millions.


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## pavilion103

kid hustlr said:


> I don't think anyone was saying its easier to make 30k with 300k than with a mil. They were talking about the fact that that its harder to make 10% with 3 billion than it is with 300 thousand...




Exactly


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## Julia

kid hustlr said:


> I don't think anyone was saying its easier to make 30k with 300k than with a mil.




No?   See direct quote from banco and agreement from CanOz.



banco said:


> Far easier to do it with 300 k than millions.






CanOz said:


> +1, or even billions...


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## Bill M

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.




So far this has been the best response to the question asked so far. Nice little portfolio and I agree. You certainly don't need millions to get 30k a year.

Just as a comparison, I ran the calculator for a minute or two too. If you put 690K into UBanks Ultra Saver at 4.37% you would earn 30k in interest. If you have to pay tax then you need 755K for that same account.


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## DeepState

*Re: what is the minimum capital for you to make $30,000 per year in stockmarket*



banco said:


> As others have mentioned making a given % return becomes harder the more money you are managing for a variety of reasons (ieyour investment options shrink to shares etc. that are liquid enough to bother with).  Obviously having never managed money I don't know how much harder it is to manage a large sum of money  but it seems to be exponentially harder.
> 
> Would be interesting to give the top fund managers a small (by their standards) sum of money (ie $500,000) and see how well they do with managing it versus managing millions.




Hi.  It's not exponentially harder.  But, in general, it's harder.  How much harder depends on how you manage money and what you are doing to make it.

For example, if you are ultimately a trend following manager, you consume huge amounts of liquidity.  Depending on a thousand things, the ability to make money declines with AUM as your t-cost increases and you can't even get set before your idea runs out of steam. The shape of the decline is not exponential.  It's more like the shape of a curve you would imagine when I use the phrase "diminishing rate of return".  You underlying ability to make money declines quickly at first, but this flattens out after about $2bn although it still trickles down - as an indication (a thousand and one things impact this). An Australian equity manager running 2-3 tracking error vs S&P/ASX 200 on a long only book would have to cap out at around $8bn to have a decent shot at producing returns 2% per annum over index.

To persist with caricatures, if you are a contrarian, you can make a ton of money on huge volume if you know what you are doing.  The market is always coming to you.  The more the market hates the stock, the more you love it.  Bring in on.  But this has limitations when you get truly large because the market can't supply enough liquidity to you either.  So these people have a kind of inverted U-shape return profile vs AUM.

Then, there are the market makers.  They attract flow, inventory positions and release them with a spread.  No-one in their right minds is going to call someone with a book size of $500k unless they were trying to test theories in making $30k per year on AUM of $100k to $500k.  That market maker is going to starve.  Move that book up to $50 million gross notional and you get a few phone calls, especially if you are a warehouse for illiquids like RMBS and options.  If you become the hub for equity trading or, better still fixed income (except for JP Morgan) with a couple of billions gross notional, you can offer better spreads, have better contacts, have a bigger entertainment budget, get to know all the strip joints....and get paid $20mill a year for managing your prop book. And that's post-GFC salaries.

So it's not straight forward.


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## DeepState

Bill M said:


> So far this has been the best response to the question asked so far. Nice little portfolio and I agree. You certainly don't need millions to get 30k a year.
> 
> Just as a comparison, I ran the calculator for a minute or two too. If you put 690K into UBanks Ultra Saver at 4.37% you would earn 30k in interest. If you have to pay tax then you need 755K for that same account.




Presumably the thread initiator wants this $30kpa to actually grow at least with the rate of inflation?  Pls advise us of what your calculator says....


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## CanOz

Bill M said:


> So far this has been the best response to the question asked so far. Nice little portfolio and I agree. You certainly don't need millions to get 30k a year.
> 
> Just as a comparison, I ran the calculator for a minute or two too. If you put 690K into UBanks Ultra Saver at 4.37% you would earn 30k in interest. If you have to pay tax then you need 755K for that same account.




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


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## DeepState

steelcat said:


> what is the minimum capital for you to make $30,000 per year in stockmarket




Hi.  

There is no minimum if you want to have $30kpa year in and year out as a buy-hold investor.  You should not be in the market.  You need to invest in bonds and money market instruments and the figures are being crunched by Bill M.  I'll give them to you if he doesn't. They figures required for this situation and much larger than for anything below.

If you are happy to earn this over the longer term as opposed to year in and year out then....assuming this and that...around $300k but with no margin for error.  If you neeeeeeed this...say, to eat and keep your home heated and cooled, then you need a margin for error.  Over the long term, a capital base of $400k should suffice.  But you never know. And you'll need b...s of steel.  

If you think you are the greatest gift to investment and can earn 20% ROC as a trading genius, the required pot is 167k and I have allowed for inflation at 2%pa.  However, if you can do that in a sensible way that actually makes sense, please give me a call and I'll put down my Pina Colada and we'll do business because the people that can do that consistently typically become deca-billionaires. We'll spend $30k per night on dinner because we literally couldn't spend our money fast enough.  

Adjust all figures proportionately for tax.


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## burglar

DeepState said:


> ... If you think you are the greatest gift to investment and can earn 20% ROC as a trading genius, the required pot is 167k and I have allowed for inflation at 2%pa. ...




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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## qldfrog

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.



I do believe  point 2 is the greatest illusion/mistake done by so many people,,
by the time you are dribbling in a "retirement" village, you will burn cash like mad:
not on fast car or stunning escort but on constant 24/7 monitoring,pain relief drips and nursing aid paid to spent the two hours spoon feeding you your lunch meal.

Every one would like to imagine him/her self having a nice quick stroke/heart attack on the way down from the anapurna trek or machu pichu trip, or ever last cup of tea after sunset at 85;
the sad truth is many if not most will see the last 5 to 10 years living as a vegie (no offense intended ) lying on a bed under heavy medical care and this is if you are lucky not to have a painful cancer;
your 167k will be quickly burnt.
Irrespective of how you do it, I computed that to get 60k a year 2014 equivalent forever (ie keeping enough capital intact after inflation), you need 2.6 Million in 2014;
so to get 30k->1.3 million but I agree you will not need the 1.3 million on your last day!
You might be able to do with less but the risk increases and your entry timing in the market becomes critical.
Hope it helps and keep the spirit up


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## Bill M

DeepState said:


> Presumably the thread initiator wants this $30kpa to actually grow at least with the rate of inflation?  Pls advise us of what your calculator says....




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

CanOz said:


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




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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## sydboy007

Partly depends on your risk profile, but I'm sort of asking myself the same question as once I've got enough capital to conservatively make $35K a year, that's te threshold I'm at that I can seriously consider quitting the IT industry and doing something else.

There's quite a few hybrids out there that provide fairly reliable income, and you can combine that with higher yielding bonds - FIGG a re probably the cheapest way to directly own bonds.

With this in mind here's some high yield options to help with 

* Silver Chef Senior Debt 14 Sept 2018 Fixed - around 6.44%

* Bendigo & Adelaide Lower Tier 2 - 1st Call 29 Jan 2019 Maturity 29 Jan 24 Floating - around 5.89%

* AMP Group Lower Tier 2 - 1st call 18 Dec 2018 Maturity 18 Dec 2023 Floating - around 5.73%

-----------------

* Sydney AIrport Finance Senior debt ILB 20 Nov 2030 - around 6.95% - note cashflow is around 4.45% with the capital component increase each quarter by the inflation rate

* jem (Southbank) Pty Ltd Senior Debt IAB 28 jun 2035 - around 6.25% - cashflow will be higher as this will pay interest + some capital each quater.  Think of it like paying off a mortgage only your the bank receiving payments.

The above 2 go well together as they provide a high yield with the IAB helping to offset the reduced cashflow of the ILB.

-------------------

AYF - listed hybrid investment company.  Currently provides 10c / qtr and roughly 5c a year in franking credits so offering around 7% grossed up yield.  Best to buy just after it goes ex dividend.

Some higher yielding hybrids are MXUPA and AAZPB.  Some of the samller bank hybrids offering over 5% yields at present.

--------------------

Using a combination of the above you should quite comfortably be able to generate 6% a year with minimal volatility.  I'd be tempted to say go for floating rate at this point in the interest rate cycle may be better, but depending on how well the re-balancing goes away from the resource sector we might get more interest rate cuts.

If you go conservative at say 5.5% and achieve 6% and reinvest that extra 0.5% to build capital for inflation protection then you'd need ~ $545K to generate your $30K pre tax income with $2,700 left over to reinvest (9% which comfortably beats 2.7% inflation).


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## McLovin

sydboy007 said:


> * Silver Chef Senior Debt 14 Sept 2018 Fixed - around 6.44%




Wow. There are people willing to buy Silver Chef debt at 6.44%!


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## burglar

qldfrog said:


> I do believe  point 2 is the greatest illusion/mistake done by so many people,,
> by the time you are dribbling in a "retirement" village, you will burn cash like mad:
> not on fast car or stunning escort but on constant 24/7 monitoring,pain relief drips and nursing aid paid to spent the two hours spoon feeding you your lunch meal ...




I am glad you qualified your post!
There are aged care facilities that provide monitoring, pain relief and someone paid to spoon feed. 
In the case of my mother, it cost her 85% of her pension indexed. 
It included accommodation and meals, medication too.

They didn't even ask for a bond on her house!


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## qldfrog

HLNGA	(heathcote)HLNG NOTES I/II around 10% from $100 face value, currently at $106 or around 9.4% but unfranked


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## qldfrog

burglar said:


> I am glad you qualified your post!
> There are aged care facilities that provide monitoring, pain relief and someone paid to spoon feed.
> In the case of my mother, it cost her 85% of her pension indexed.
> It included accommodation and meals, medication too.
> 
> They didn't even ask for a bond on her house!



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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## CanOz

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.*





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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## McLovin

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




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

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




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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## burglar

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....




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)


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## CanOz

> 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.







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.




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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## qldfrog

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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## CanOz

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.




No, maybe take it to another thread?:topic


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## McLovin

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....




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.


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## Judd

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.




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.


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## DeepState

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.




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.


----------



## DeepState

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.




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


----------



## Julia

CanOz said:


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






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.



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.



+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....



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?



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....



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.


----------



## CanOz

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.




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.


----------



## Julia

CanOz said:


> Why do i have to do what you ask me?



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.


----------



## Ves

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.



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?


----------



## CanOz

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.




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.


----------



## DeepState

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.




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


----------



## CanOz

DeepState said:


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




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.


----------



## DeepState

CanOz said:


> Its a simple algorithmic equity trading system...
> 
> Its a trend following system.




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.


----------



## DeepState

Ves said:


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




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.


----------



## qldfrog

my attempt last year to do the 20% flipper after finetuning of stop loss/trigger based on backtesting ended up in the real world as a net loss and substancial loss in percentage in an overall  bull market
another proof that you can back test as much as you want, if you enter at the wrong time in the cycle and limit your experience to a year, you can end up with a nasty surprise
just a world of caution...


----------



## CanOz

qldfrog said:


> my attempt last year to do the 20% flipper after finetuning of stop loss/trigger based on backtesting ended up in the real world as a net loss and substancial loss in percentage in an overall  bull market
> another proof that you can back test as much as you want, if you enter at the wrong time in the cycle and limit your experience to a year, you can end up with a nasty surprise
> just a world of caution...




Not wanting to go to far off topic, but was this your own code QLDFrog, or you just played with the index filter a bit? Also, Drawdowns are part of it all, trust me, we're in a a 25% draw down at the moment in a managed futures fund, I'm feeling the pain....

Here is the last 12 months...


----------



## DeepState

qldfrog said:


> my attempt last year to do the 20% flipper after finetuning of stop loss/trigger based on backtesting ended up in the real world as a net loss and substancial loss in percentage in an overall  bull market
> another proof that you can back test as much as you want, if you enter at the wrong time in the cycle and limit your experience to a year, you can end up with a nasty surprise
> just a world of caution...




 If that was intended for me. Thanks for the heads-up. Could leave you flipping burgers.

I wouldn't use the rule as specified...although it is not without some merit deep deeeeep inside.  No offense intended to CanOz to each their own..

Let's add another risk:

Model.


----------



## tinhat

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.   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?




Hi Ves, what I provided is not a model portfolio, its a thought experiment. As I said with only a moment's thought, I just jotted down a short list of conservative "blue chip" income stocks and then performed the experiment to work out what capital base would be required at current market prices and using short term dividend forecasts to generate the requested $30,000. Personally, I think it is the best of the suggestions that have been put forward so far.

I tend to agree with you that as a model portfolio, you would probably reduce the weight to banks to diversify the risk across sectors. I am more in the school of money in bank stocks over money in the bank though. The fact that since the GFC, bank deposits are government guaranteed changes that a little. It would be interesting though to consider what proportion of the ASX200 is made up of banks. I don't know what it is off the top of my head but at the current capitalisation of the big four it is bound to be high.

If a person were to rely solely on stocks for income I would also suggest you would also need a two year cash reserve which would add another $60,000 to the initial capital requirements. The question asked was not specific though.


----------



## DeepState

tinhat said:


> Personally, I think it is the best of the suggestions that have been put forward so far.




I'll put a vote in for Sydboy007. In my view, he's actually closest to the mark.   It seems this is a serious question.

$30kpa. Not a lot of money. No margin for error.  Melbourne Institute Sept 2013 poverty line for a couple which does not work (and hence does not incur working expenses) is $20k.  That's poverty.

Assumption: You do not want to live in poverty.
Assumption: You can't stand the thought of living in poverty.

The least risky....as opposed to riskless...thing you can do is buy Australian Treasury Indexed Bonds.  These are currently trading at 2% real and could be regarded as expensive in absolute terms.  This should not be directly compared to the figures provided by Sydboy007 for Southbank or Sydney Airport. FIIG adjusts their quoted yields for an expected inflation rate of 2.5% flat forever.

If you can assume that the real yield curve for the rest of your life will remain at 2% real (and it won't), you will need $600k.  You will have next to nothing on expected death.  To the extent the coupon does not meet your current income needs, you sell the bonds required to meet them.  In reality you'd do all sorts of stuff to mix the durations/maturities of the bonds to best meet your needs and sell them in a precise formulation.  You get the point.

This amount will fund you for $30k per annum inflated by CPI.  In the event that CPI should fall below the level at the time the bond was issued, your coupon won't fall any further and you will feel richer, but the world economy is probably collapsing.

Assumption: Your income needs will increase at the rate of inflation.

As these bonds mature, you will need to roll them.  There is absolutely no assurance at all that you will be able to get 2% real on the roll. So...you need to allow a risk margin.

I am guessing that you do not want to live on anything much less than $30kpa. All this is pre-tax.  If so, this is what you do:  Buy TIBs...on the ASX.  You can't take risk.

It has been suggested that hybrids and other higher yield securities might help.  It might..it might not.  This adds risk.  And...you may not be in any position to absorb a credit event.  We just went through one.  Typically, hybrids and 2nd tier will be completely wiped out or have nominal recovery.  Senior debt gets 30% recovery.  The yield gap reflects credit risk.  This credit risk is not free money.  Hybrids also contain derivatives in their payoff description.  Essentially they have options embedded in them to enhance the yield.  This is not a free lunch.  Some investors call them "death bonds".  For those inclined, the typical structure is an embedded collar, with a written put on the left wing.

I wrote about yield compression.  Sydney Airport Finance recently issued a tranche of 10 year nominal bonds in Europe for only 100 bps over government.  This is a security rated at the lowest rung of investment grade....ring any alarm bells?  This pricing is essentially the same as per what their indexed securities are offered for, just in a different format.

Dude/Dudette your most riskless assets are TIBS.  You will need to hold a margin over $600k, maybe $700k just to feel vaguely ok you won't slide into abject poverty from an investment angle.  Any deviation from this brings risk and you have virtually no margin.  As others have pointed out, your $30k probably doesn't make allowance for life events.  Again, to the extent you do not want such developments to push you into poverty, you need to make allowance.  If you happen to have more than something like 800-900k then, perhaps, go get funky with some of your hard-earned.

Bill M's analysis was accurate.  The main difference between what he has calculated and the above is that he is using an assumed nominal interest rate and a fixed rate of inflation.  In reality, you have no real idea...well some here seem to...of how the yield curve will evolve over the rest of your life.  You do not know how interest rates will move against inflation.  So there is no margin at all for the real return spread risk in there.  The above hedges that.

Relative to a portfolio of stock with seemingly attractive yields....when the stock price dives, you can't hold.  The peak to trough exceeded 50% in the GFC..big falls happened in Iraq II, Asian/Russian crisis, 1987...it will happen in your lifetime over and over.  You can't hold because doing so brings the risk of poverty higher.  Although some people seem to think it's easy, try it when you're sitting there watching your portfolio shrink by 50%.  Please try it. You cannot know that the markets will recover or your cash dividends (as opposed to yields) will recover and you must protect your margin.  Those who argue value/reversion have a point.  But, you can only do it if you are in a position to absorb loss.  You are not if you are looking at $30kpa as a living allowance and asking questions about the minimum required to get there.  If you have to ask...you probably can't afford it [no disrespect, just a phrase].  I'll bet you've done your sums and this is the least you feel vaguely comfortable with.  Maybe if you turn your car over every 10 instead of 5 years and patch your shoes, you could get by on $25k...but $20k...that's too harsh.  You know what I mean.  Naturally, if you have excess assets to the figures above, you have risk buffer and can go for it.

Hope this helps a little.

Disclaimer: This is not advice.  I am describing a hypothetical scenario.  I do not know your circumstances.  I am not recommending the purchase or sale of any security.  I am not recommending FIIG or its officers or subsidiaries. I do have an account with FIIG.  Please do your own work.


----------



## qldfrog

about my bad experience with the 20% flipper:
own code in amibroker but based on Radge's book with no extra guess :moving average on the asx deciding to stop any new buy, backtest to decide best exit stops
started at the wrong time early 2013, my adjusted stop loss made me exit most of my positions with a loss in the april/may 13 decline(from memory); by the time the buy was on again, I had missed much of the surge up.
I exited most last october/november waiting for the crash which did not happen (yet?)..but did not loose much anyway.
I also believe the bias in the asx toward the banks and rio/bhp makes using the asx200 as an indicator too distorded.
But in a nutshell, these 30k per year are not that easy !


----------



## CanOz

qldfrog said:


> about my bad experience with the 20% flipper:
> own code in amibroker but based on Radge's book with no extra guess :moving average on the asx deciding to stop any new buy, backtest to decide best exit stops
> started at the wrong time early 2013, my adjusted stop loss made me exit most of my positions with a loss in the april/may 13 decline(from memory); by the time the buy was on again, I had missed much of the surge up.
> I exited most last october/november waiting for the crash which did not happen (yet?)..but did not loose much anyway.
> I also believe the bias in the asx toward the banks and rio/bhp makes using the asx200 as an indicator too distorded.
> But in a nutshell, these 30k per year are not that easy !




Wow, good on ya for having a go at the code.

Yeah, sometimes its easier to just go to work than worry about your investments, systematic, fundamental or whatever...


----------



## burglar

CanOz said:


> ... Yeah, sometimes its easier to just go to work ...




Agree, if fit and well.


----------



## tinhat

DeepState said:


> I'll put a vote in for Sydboy007. In my view, he's actually closest to the mark.   It seems this is a serious question.




I've found your and Sydboy007's responses to be very informative and very well thought out and explained. You are, however, adding a lot of assumptions to the original question which simply was:

*what is the minimum capital for you to make $30,000 per year in stockmarket*

You've provided a scenario where the poster is looking to create an investment income as the sole source of income for retirement and made some additional decisions about capital draw down without being provided with any information that would allow you to make reasoned calculations. None of this is in the original question but understand your reasoning and the solution you provide.




> Although some people seem to think it's easy, try it when you're sitting there watching your portfolio shrink by 50%.  Please try it.




This is not relevant to the original poster's question, but I've been there, done that. During the GFC when the death of a trustee of the family SMSF saw the share portfolio frozen through most of the crash. CBA, WOW and WES all paid dividends through the crash and the subsequent Euro crisis with stock prices that are currently higher than the 2007 top. If you had bought CBA at the 2007 peak of $62.16 and held them all the way through the GFC, the lowest yield you would have received was 5.2% (grossed up) in FY09. 

If one accumulates and manages a portfolio of quality stocks over several decades, these market shock risks aren't as huge as they might seem. Obviously, those that managed their investments and implemented stop losses during the crash would have had the opportunity to profit greatly from the crash. The 2008 crash gave that opportunity whereas the 1987 crash unfolded much faster. Of course the stock market is volatile and everyone should invest according to their own needs.

[edited to add...]
Additionally, if we return to the original question, my thought experiment was partially to set a bit of a benchmark, perhaps for my own benefit, of looking to see what returns are available from an equally weighted portfolio of a handful of the leading income stocks amongst the giants of the ASX. My income portfolio has most of the stocks I mentioned (not WBC and not WPL) but I have a lot of smaller income stocks such as GZL, NWH and PRT which probably carry more risk and I have been caught with capital losses in owning smaller stocks with more volatile stock prices and getting stuck in a couple of dividend traps too.


----------



## DeepState

tinhat said:


> I've found your and Sydboy007's responses to be very informative and very well thought out and explained. You are, however, adding a lot of assumptions to the original question which simply was:
> 
> *what is the minimum capital for you to make $30,000 per year in stockmarket*
> 
> You've provided a scenario where the poster is looking to create an investment income as the sole source of income for retirement and made some additional decisions about capital draw down without being provided with any information that would allow you to make reasoned calculations. None of this is in the original question but understand your reasoning and the solution you provide.




Thanks for your thoughtful response. I guess Sydboy007 has at least two fans.  Could it be the Avatar? 

Yes, I made the assumption that SteelCat has this as the sole source of retirement income.  And, I also indicated that if SteelCat has surplus assets that risk could be taken.  However, given we are in the absence of further information and this absence leaves a whopping void (MichaelD "how long is a piece of string"), I feel free to state my assumptions and work within them.  By the way, are you even vaguely aware you have also made assumptions by suggesting that SteelCat can withstand risk and has surplus assets and or income? That he values franking credits?  That he wants these in perpetuity? That we wants to consume from dividend rather than total return? And on and on...none stated in the title. There are, in fact, a reasonable number assumptions behind your 'thought experiment'. You did not state your assumptions other than those related to the securities and franking. If you are to call my scenario to account for use of assumptions not presented in a short sentence, I shall raise the flag to you in return, sir. My assumptions just happen to be different to the ones that are seemingly implicit to you - except I don't know what yours are because many aren't stated even though they have been made.  The fact that I have made assumptions in this context does not make them inappropriate. Absence of proof is not proof of absence.

Further if I was not provided with sufficient information to make a reasoned calculation, how were you able to make a reasoned calculation unless, given that a calculation took place,...it was not reasoned?  I did label this a hypothetical scenario.


----------



## kid hustlr

I still feel like as a whole a lot of members on this forum run by the mantra "ah it doesn't matter if the share price is below what I paid for im getting the dividend so its fine". Business's can cut dividends to or go under completely. I get people in their later years need an income stream but buy and holding 'blue chip stocks' is a riskier approach than most give credit for.


----------



## MichaelD

kid hustlr said:


> but buy and holding 'blue chip stocks' is a riskier approach than most give credit for.



but it's a good company


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## Julia

kid hustlr said:


> I still feel like as a whole a lot of members on this forum run by the mantra "ah it doesn't matter if the share price is below what I paid for im getting the dividend so its fine". Business's can cut dividends to or go under completely. I get people in their later years need an income stream but buy and holding 'blue chip stocks' is a riskier approach than most give credit for.



Very good point.  Particularly when we're dependent on our capital to generate a living, capital protection should be the first priority imo.


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## ROE

kid hustlr said:


> I still feel like as a whole a lot of members on this forum run by the mantra "ah it doesn't matter if the share price is below what I paid for im getting the dividend so its fine". Business's can cut dividends to or go under completely. I get people in their later years need an income stream but buy and holding 'blue chip stocks' is a riskier approach than most give credit for.




So most of your purchase share price always go up after you bought them? it doesn't go backward? how do you do that?

Stocky market is a high risk asset if you focus on short term price movement it doesn't matter what stock you buy..It is unpredictable, price move in mysterious way and act like a wild beast...

the key is you buy good business at the right price and you ignore the price movement....not buying sh*tty business and hope it goes up and keep up the dividend..

Blue chip stocks doesn't mean anything ...it just large cap business...
it doesn't tell you if the business model is any good, it doesn't tell you if it is financially sound...

some blue chip are a lot more risky then its much younger brother like RFG, NVT, FLT,ARP, TGA etc... 
90% of my money isn't in blue chip and I fell very safe, I ain't care if it dropped 5% one day or up 3% the next.

Having said that it doesn't mean, I do nothing all year round... I do use the market opportunity to trade or use other instrument to control my risks and hedge my investment.

and to 30K question I dont think it is easy for someone who has little knowledge of the market to 
be able to deploy the cash and has little worry.. It is all dependent on their age.

someone like me still have 2 decade plus left, I am not too worry about my capital being depleted, I can top up each pay cheque..someone in their retirement with no other income, they would be frighten seeing their capital move backward.

Right I can generate 25-30K income a year from dividend and option premium, factor in capital gain from trading and CFDs I can generate 50K-80K a year... I started with a modest 100K and that was 9 years ago and came out of the GFC stronger than when I entered it


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## CanOz

How about a combination of the following:

Investment Property: $350,000 @ 4.5% net yield = $15750

Three 'safe' large cap with divi = $100,000 x 6% = $6000

Equity trading system with 50,000 starting capital returning 20% average net = $50,000 x 20% = $10,000

Total $31,750 on $500,000 invested


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## DeepState

CanOz said:


> Equity trading system with 50,000 starting capital returning 20% average net = $50,000 x 20% = $10,000





FYI, HFRI Equity Hedge Index last 60 months annualized return: 9.46%...in a strongly rising equity market.

What matters is not current yield.  What matters is sustainable ongoing yield which, as Kid Hustlr and Julia have pointed out, with MichaelD's approving wink, cannot be assured.  So you are going to need a ton of buffer if $30k is a hard floor, and less buffer if not.  

Actually this whole yield obsession thing is a fallacy.  What matters is total return, gross of franking if you like.  You can consume from running yield or capital.  They are equivalent if in pension phase, or a trader for tax purposes. The "eat your dividends but don't touch your capital" philosophy is a mental accounting cognitive error, or otherwise a method for personal discipline.   

Since we are here, the US equity market is the most successful market in the world.  We forget that markets get extinguished or suffer egregious capital loss.  So, even in the most successful market in the whole world....which you could not know would have been in 1900...the average bear market duration is 18 years for the period since 1900 (source: Forbes).  The Japanese markets have never recovered from the disaster put upon them by the Plaza Accord and has been in a whopping bear market since the late 1980s..25 years.  Australia was once compared to Argentina...  Your dividend yield might be sustained...but your dollar dividend...the part you actually eat...is crushed along with earnings. Markets may...generally...go up in the long term.  But you could die before they do.  Check your assumptions.

Ever heard of the 6ft man who drowned crossing a 5ft, on average, river?  You put up the drawdown chart for the Flipper previously. That's fantastic.  Just be sure that your portfolio can hack it as you are drawing down in a stochastic environment.  Average is just a concept.  You will hardly ever get the average return.  You will experience volatility.  Drawdown and volatility are not good friends.  They reduce expected realized effective return.

To Julia's point about preservation of capital...and as I was pointing out in the TIB's scenario, when you run out of buffer or feel at threat of doing so, you sell.  You have to or you punch through your hard floor. Or, you have your account frozen or are blissfully unaware of risk.  Sometimes ignorance is bliss and it can work.  But, drawing from MichaelD's moniker with a nod to Taleb, it was a very bad bet to take in a probabilistic sense.  You (not you) bet with stupid odds, but won.  That's a dumb win.  Believe it or not, you are paying a call premium for entering a market under these conditions and the premium is higher if your buffer is smaller (forcing you into cash or, more accurately, your matching asset...TIBs).  It will force you to buy high and sell low.  Kimmell (Morningstar) looked at the actual returns earned by people invested in a pile of different mutual funds for the 10 years to 2014 vs the actual returns generated by the mutual funds.  Guess what...the actual returns achieved trailed what was actually generated by around 2% in all sorts of asset classes with greater losses in volatile assets like equity. Examination of cashflows showed a synthetic call type pattern. Naturally, everyone here has b...s of steel and amazing RockStar insight and will clearly do better than average.  Nonetheless, they will incur this call option premium cost, because if they are Rockstars, they will understand risk and act to maximize the chances of meeting the objective.

Good idea to diversify over more things than equities. Great idea.  And it is entirely reasonable to have non-directional strategies in the mix, if well managed. You would be in good company...Harvard and Yale Endowments would support you on the broad direction.  They would, however, be using somewhat less aggressive assumptions on alpha generation than you are making on this front.  They also consider investing in various types of commodities and other types of direct investments.  But, you do what you can.

Overall, you are going to need more money if the $30k is a hard floor.  It's probably alright-ish if your floor is around $15k.  All pre-tax.

Best.


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## Julia

CanOz said:


> How about a combination of the following:
> 
> Investment Property: $350,000 @ 4.5% net yield = $15750



Where do you envisage this property to be to get that *Net* yield?

I've just done a very quick calculation on a $350K rental in my area - coastal Qld, pop 55,000, no shortage of tenants - and a property of that value, after expenses, would net roughly 2.5%.
Calculated as follows:

Rent $300 p.a. max:  rounded up to $16,000

Less:
Rates  $3000 pa
Management fee $500 p.a.
Insurance $1500
Water and general maintenance at least $2000 p.a.
=   Net $9000 approx.

And that is before allowing for any tax.

Then we cannot assume property will appreciate in value.  Property values here are still more than 20% below pre-GFC levels, so you have capital loss to consider as well.
So a poor ROE coupled with all the hassle of tenants.


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## qldfrog

I have to agree:
bought at the low: 270k unit (total cost after all stamp duties etc) rented at 320 a week
property now valued around 300k (ie 10 % capital gain in around 3 years-> just matching inflation when you think about it)
after all costs, repairs etc get around 7.5k a year so a return of 2.8%
I could get a bit more managing myself, not being nice to the tenant etc etc-> but a 3% return is  IMHO the most realistic figure you can get at present time on a standard property;
yes there is some depreciation etc to add to this but will not add an extra point
and honestly, I think I am doing quite well with this one.
bying now at 300k + cost would reduce the return even more

Commercial property is better and I have a shed soon settled but finding a tenant will not be easy....


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## CanOz

Julia said:


> Where do you envisage this property to be to get that *Net* yield?
> 
> I've just done a very quick calculation on a $350K rental in my area - coastal Qld, pop 55,000, no shortage of tenants - and a property of that value, after expenses, would net roughly 2.5%.
> Calculated as follows:
> 
> Rent $300 p.a. max:  rounded up to $16,000
> 
> Less:
> Rates  $3000 pa
> Management fee $500 p.a.
> Insurance $1500
> Water and general maintenance at least $2000 p.a.
> =   Net $9000 approx.
> 
> And that is before allowing for any tax.
> 
> Then we cannot assume property will appreciate in value.  Property values here are still more than 20% below pre-GFC levels, so you have capital loss to consider as well.
> So a poor ROE coupled with all the hassle of tenants.




When i calculated it, I considered the net yield costs of only rates and BC....I have since been told not to listen to the RE agents, as they tend to optimize the yields...So yes, it was a little rich. My point was that if the vacancy rates are low, it could be one of the lower risk components of an overall strategy....So easy there mom.


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## CanOz

qldfrog said:


> I have to agree:
> bought at the low: 270k unit (total cost after all stamp duties etc) rented at 320 a week
> property now valued around 300k (ie 10 % capital gain in around 3 years-> just matching inflation when you think about it)
> after all costs, repairs etc get around 7.5k a year so a return of 2.8%
> I could get a bit more managing myself, not being nice to the tenant etc etc-> but a 3% return is  IMHO the most realistic figure you can get at present time on a standard property;
> yes there is some depreciation etc to add to this but will not add an extra point
> and honestly, I think I am doing quite well with this one.
> bying now at 300k + cost would reduce the return even more
> 
> Commercial property is better and I have a shed soon settled but finding a tenant will not be easy....




Thanks QF, really appreciate that example...very helpful


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## skc

qldfrog said:


> I have to agree:
> bought at the low: 270k unit (total cost after all stamp duties etc) rented at 320 a week
> property now valued around 300k (ie 10 % capital gain in around 3 years-> just matching inflation when you think about it)
> after all costs, repairs etc get around 7.5k a year so a return of 2.8%
> I could get a bit more managing myself, not being nice to the tenant etc etc-> but a 3% return is  IMHO the most realistic figure you can get at present time on a standard property;
> yes there is some depreciation etc to add to this but will not add an extra point
> and honestly, I think I am doing quite well with this one.
> bying now at 300k + cost would reduce the return even more




We have a unit in Brisbane valued at around $350k, and renting at $370 per week ($19250 per year). The EBITDA cashflow is around $12,300, or 64% of total gross rent. So yield is 3.5%.

Of the ~$7k expense, it's pretty much $2k council rates, $2.2k body corporate, $1.5k agent fee and the sundry maintainance. Most of these are some what unavoidable. So typically take a 30-40% discount to gross yield of 5% is a decent first gustimate on actual cashflow.

Begs the question... if you want exposure to property, why not by a "leverage adjusted" listed property trust.


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## pinkboy

Buying residential property for _NET_ cash flow is a mugs game unless you are buying with after tax paid cash. With high turnover costs of tenants moving in and out, vacancy, management, and all the other accosiated costs and maintenance, it becomes like a job when you have 10+ properties and achieving 'passive' cash flow is non existent, not to mention not even getting close to $30k if you are paying interest costs. 

If you were going to buy property, and had a lazy $350k, then you would be much better off buying a 8-11% net yielding commercial property with at least 5x5 lease terms with 3-4% rent increases and market option floor pricing, all outgoings including Land Tax paid, and reputable tenants. . Even then you would need 3 of these to get close to $30k passive income. 

Looking further left field, what about buying or creating a direct business? If you have the balls to do this, there can be returns greater than $30k net cash flow if the business model is steered correctly over time and you eventually have it managed. 

There are endless ways to make $30k passive income, but to be truly passive - it has to outstrip every conceivable dip in each asset class held at the same instance. 

pinkboy


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## kid hustlr

Might be the first time I've ever heard a residential property return referred to as EBITDA


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## skc

kid hustlr said:


> Might be the first time I've ever heard a residential property return referred to as EBITDA




I just wanted to take financing structure and tax out of the equation, so EBITDA is most useful.

Yes... it will catch on like BRIC and PIGS... and remember you read it here first 



pinkboy said:


> Buying residential property for _NET_ cash flow is a mugs game unless you are buying with after tax paid cash. With high turnover costs of tenants moving in and out, vacancy, management, and all the other accosiated costs and maintenance, it becomes like a job when you have 10+ properties and achieving 'passive' cash flow is non existent, not to mention not even getting close to $30k if you are paying interest costs.




Property is always a capital gains game. Whether you can get any capital gains really just depends on timing. In the property example above, we were very fortunate to have bought that unit in 2000, before the major boom for about 1/3 of its current value. So if I was to sell the place I could probably only realise ~$250k after tax... so my net yield on "realisable capital" is more like 5% (i.e. still $hit)...


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## pinkboy

skc said:


> I just wanted to take financing structure and tax out of the equation, so EBITDA is most useful.
> 
> Yes... it will catch on like BRIC and PIGS... and remember you read it here first
> 
> 
> 
> Property is always a capital gains game. Whether you can get any capital gains really just depends on timing. In the property example above, we were very fortunate to have bought that unit in 2000, before the major boom for about 1/3 of its current value. So if I was to sell the place I could probably only realise ~$250k after tax... so my net yield on "realisable capital" is more like 5% (i.e. still $hit)...




Yes, I realise this for sure. When I bought my first house when I was 18, from the time I signed the contract to the time it was finished built - it doubled in price. It has since doubled in price again. Purchased 9 years ago.  I paid it off in a couple of years as I started my business shortly after. It now generated me around $20k p/a. 

This purchase was pure luck though. All I wanted to do was move out of home as I had just finished at boarding school, so living with the folks again just wasn't cutting it for me. 

Same - I couldn't sell it. Just too positive to let it go for now. Its equity also funds other investments so I'd need to think how much opportunity cost of the next investment would be. 

pinkboy


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## CanOz

Basically the attraction with property is that someone else is paying for your investment...So if one can finance part of it, eventually the people renting will pay off the debt....that's a nice thought....revenge...i was a renter once!


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## Julia

skc said:


> Property is always a capital gains game. Whether you can get any capital gains really just depends on timing.



+1.
When inflation was rampant in the 70s and 80s  in NZ certainly interest rates were high, eg I was paying 22%-23% on my IPs, but with rental property shortage you could get great gross yield, and most of mine doubled in capital value in less than three years.

Something similar might be happening in Sydney and Melbourne but it's certainly not in most regional areas as I mentioned before.   
Too many people are ready to believe the spruikers' claims that property is "always a great investment", "always goes up" and "there are great yields to be had before you even get to that magnificent capital gain", without doing their own research.

In the current issue of "AFR Smart Investor" they are quoting Gross Rental Yields on Houses as:
Sydney  -  3.9%
Melbourne  -  3.4%

and on Apartments:
Sydney  -  4.7
Melbourne  -  4.2%

Body corporate fees can be a real killer on apartments.  And if there really is a property bubble in those two cities with a pullback inevitable, there are going to be some capital losses as well.


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## muir

steelcat said:


> what is the minimum capital for you to make $30,000 per year in stockmarket




Work it backwards



5y US Treasury ZF  $31.25 per 32nd    ($7.8125 tick)  

How many ticks do you need to make (on average) daily?

Do you have that skill level to make that on 1 contract?
Do you need 5 contracts?

Can you make any money at all?

By the way the answer is just four 1/32nds but your skill level, if you do have, determine how many contracts


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## luutzu

steelcat said:


> what is the minimum capital for you to make $30,000 per year in stockmarket




Long term average market returns around 8 to 10% p.a.?   so around $300K if you put it in a low cost mutual fund and keep it there over 5 to 7 years.

I think you're interested in earning an OK income during the year though.
If that's the case, it's not really a matter of how much capital you have... it's more a matter of how good you are at analysing the businesses, how hard you are prepare to work... and how lucky you during the year.


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## TPI

DeepState said:


> Actually this whole yield obsession thing is a fallacy.  What matters is total return, gross of franking if you like.  You can consume from running yield or capital.  They are equivalent if in pension phase, or a trader for tax purposes. The "eat your dividends but don't touch your capital" philosophy is a mental accounting cognitive error, or otherwise a method for personal discipline.
> 
> ...
> 
> Your dividend yield might be sustained...but your dollar dividend...the part you actually eat...is crushed along with earnings. Markets may...generally...go up in the long term.  But you could die before they do.  Check your assumptions.




If you invested in stocks that didn't pay any dividends and share prices fell by 30-50% (before you could get out) and then went nowhere for 5 years, consuming from capital is potentially going to see you running out of capital very soon isn't it?

Also, you say cash dividends will get "crushed", but did this actually happen in the GFC?

What actually happened to cash dividends in a portfolio of household name stocks during and soon after the GFC?

Eg. CBA, WBC, ANZ, NAB, WOW, WES, TLS, BHP, RIO, ASX...

Some of them did get crushed, eg. WES and RIO, but the rest did not from what I can gather.


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## TPI

Julia said:


> Very good point.  Particularly when we're dependent on our capital to generate a living, capital protection should be the first priority imo.




I would agree that capital protection is important, but I think this can also lead some people to be too focused on short-term changes in share prices, rather than the underlying quality of the company and sustainability of earnings and dividend payments in the longer term.


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## ROE

TPI said:


> If you invested in stocks that didn't pay any dividends and share prices fell by 30-50% (before you could get out) and then went nowhere for 5 years, consuming from capital is potentially going to see you running out of capital very soon isn't it?
> 
> Also, you say cash dividends will get "crushed", but did this actually happen in the GFC?
> 
> What actually happened to cash dividends in a portfolio of household name stocks during and soon after the GFC?
> 
> Eg. CBA, WBC, ANZ, NAB, WOW, WES, TLS, BHP, RIO, ASX...
> 
> Some of them did get crushed, eg. WES and RIO, but the rest did not from what I can gather.




You cant argue against the guy arms with theory 

on paper it always looks right and sound logical, but that why none of the academics are very rich investors
cos when they come to put in practise it doesn't work ... 

Theory does not account for greed/fear/psychology and human factors..

same with the dude that goes to a financial advisor and ask for their projected retirement income
so they bring out their charts and their compounding formular of stock gain 8% a year yadida
and wala after 30 years you have this much if you put this much away  .. no worry we all set for a decent retirement income.

same with industry super fund projection but then after 30 years most people don't have enough money for retirement it doesn't add up to the projected figure   WTF? what happened?

Experience and time follow and invest in the market will tell you why


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## TPI

ROE said:


> You cant argue against the guy arms with theory
> 
> on paper it always looks right and sound logical, but that why none of the academics are very rich investors
> cos when they come to put in practise it doesn't work ...
> 
> Theory does not account for greed/fear/psychology and human factors..




Yes very true, theory can be interesting though.

Interestingly WOW increased DPS by 45% from 2008 to 2013, so no crunch there, inverse crunch perhaps.

The rest mentioned got a bit squished for a few years... seem better now though.


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## ROE

Wow is a baby compared to RFG and DMP

RFG increase just over 100% and DMP 200%
And I reckon in future years they will out stripped Woolies in dividend payment -

And if you lucky to pick up CCP in 2008 you got 9 fold increase in dividend 

I don't mind theory, they are good foundation but I don't apply it literally I take my experience and mix with it and come out with my version - hence no dividend paying business no Buy


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## Bill M

ROE said:


> I don't mind theory, they are good foundation but I don't apply it literally I take my experience and mix with it and come out with my version - *hence no dividend paying business no Buy*




I have been investing in the stockmarket for 27 years now and I can honestly say I have never bought a stock that wasn't well established and paying dividends (currencies excluded). I live totally off my dividend, rental and interest income. I'm not interested in promises of new you beaut blue sky mining spec companies that promises the world and delivers nothing. Every dollar has to work for me. There is nothing in my portfolio that pays lower than 4.7% right now.


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## TPI

ROE said:


> Wow is a baby compared to RFG and DMP
> 
> RFG increase just over 100% and DMP 200%
> And I reckon in future years they will out stripped Woolies in dividend payment -
> 
> And if you lucky to pick up CCP in 2008 you got 9 fold increase in dividend




Yeah the smaller caps DPS growth can be much higher.


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