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

[Julia]

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.

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:

 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?

 

[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...

 

[CanOz]

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...

 

[banco]

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

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.

 

[pavilion103]

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

 

[Julia]

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.

Far easier to do it with 300 k than millions.

+1, or even billions...

 

[Bill M]

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:

 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.

 

[DeepState]

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

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.

 

[DeepState]

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....

 

[CanOz]

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?

 

[DeepState]

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.

 

[burglar]

... 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.

 

[qldfrog]

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

 

[Bill M]

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.

 

[Bill M]

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.

 

[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).

 

[McLovin]

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

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

 

[burglar]

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!

 

[qldfrog]

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

 

[qldfrog]

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....