Author Topic: Best fund/investment to produce income?  (Read 5018 times)

LouisianeBelle

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Best fund/investment to produce income?
« on: April 19, 2015, 06:42:19 AM »
Hi everyone!

I am new to the MMM community, but have been a long time reader of his blog. I am in my late 30s and will be taking early retirement starting Jan. 1.

I'm looking to transition completely from full time employment at the end of this year.  I am in great financial position.  I should be completely debt free by Dec (including mortgage) and will be purchasing investment properties with cash and also doing some freelance work to produce income, all the while traveling, doing missions work, and simply loving others well.

I'm sure the answer to my question is buried somewhere in this forum, so if you could please point me there or provide insight, that would be so fantastic.

What is the best investment/fund if I am looking for monthly or quarterly income?  Is it realistic that there is something out there that would produce an average of 5% per month?

Any advice and guidance would be greatly appreciated.  Looking forward to learning from you all.

forummm

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Re: Best fund/investment to produce income?
« Reply #1 on: April 19, 2015, 07:21:07 AM »
5% per month? As in an 80% annual return? Nothing legal.

fartface

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Re: Best fund/investment to produce income?
« Reply #2 on: April 19, 2015, 07:36:25 AM »
5% per month? As in an 80% annual return? Nothing legal.

LOL ^^^^^^^^^ THIS

At least the OP didn't ask for a "guaranteed" 5% / month.

SLV...it's got nowhere to go but up, and is a good hedge against the coming correction!



forummm

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Re: Best fund/investment to produce income?
« Reply #3 on: April 19, 2015, 07:47:04 AM »
5% per month? As in an 80% annual return? Nothing legal.

LOL ^^^^^^^^^ THIS

At least the OP didn't ask for a "guaranteed" 5% / month.

SLV...it's got nowhere to go but up, and is a good hedge against the coming correction!

If the OP wants "income", she probably wants something that pays a dividend. Although we all know that total return is more important than dividend yield (except for rare circumstances).

LouisianeBelle

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Re: Best fund/investment to produce income?
« Reply #4 on: April 19, 2015, 07:59:00 AM »
Lol, easy easy on this newbie please. :)

Let me rephrase the question......

What is the best investment/fund right now for producing income? 

So it sounds like 5% a month is unrealistic.  And looks like I incorrectly stated expectations and calculations.  10-12% annual would be more ideal, but not sure it's realistic. So what's that about 1% a month or so? 

For example, I have about $125k invested in a MM account now and I get about 90.00 a month interest. That's sorry and ridic, but it's in something safe.  I would love to earn more....

Thoughts?  Tell your favorite investment/fund/tool right now for earning income as opposed to growth.

FuckRx

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Re: Best fund/investment to produce income?
« Reply #5 on: April 19, 2015, 08:50:25 AM »
hey there and welcome. glad you are posting, definitely a lot of info here. But I think you will get more out your posts by asking specific questions. For example, you can say a little bit about your current holdings, how much of it is in taxable and how much of it is in tax deferred accounts and what your actual income needs are. 10-12% of annual income is perhaps not impossible but it's certainly a high expectations. When it comes to investing your money risk and rate of return are generally well correlated. But many experienced investors will tell you that it's not worth it to risk most of your money for the sake of that high of a return. So again, maybe post a little more and ask a specific question such as what might be recommended in your case with whatever your holdings are. Especially if you are planning on using your money soon to invest in real estate you may not want it invested too aggressively in the market. Just my 2 cents. Best of luck.

forummm

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Re: Best fund/investment to produce income?
« Reply #6 on: April 19, 2015, 08:53:27 AM »
Here's some info. But the more important stuff is at the bottom.

Over the next 5-10 years, 10% annual on anything is unrealistic at this point. The market is too expensive and interest rates are too low. In the short term, who knows what will happen.

If you need to keep your principal amount 100% safe (more or less), and just have some dividends, then a money market or CD is the way to go. A CD right now will pay you about 1 or 2% per year (around what inflation is). So if you spent that interest, you're letting inflation eat away your principal value.

If you're willing to take some relatively small risk with the principal, you could buy a bond fund like VBILX (https://personal.vanguard.com/us/funds/snapshot?FundId=5314&FundIntExt=INT). The biggest risk is that interest rates rise (which they will, likely this year) which will cause your principal to decline a little. The other risk is that the borrowers default on their loans, but that's a very small risk (50% of the bonds in that fund are Treasuries, the rest are mostly very solid companies). VBILX is yielding around 3% (per year) right now.

Stocks are much riskier and (over the long run) have a correspondingly higher total return. They frequently go up or down as much as 30% in a single year.

More important stuff:
You mention retiring this year. Well, you might not have enough to retire on without income from employment. I know you said you would continue to work some, so that's good. If your cash to buy investment properties is a source other than this $125k, that's good too. But don't rely on this $125k to provide more than about $5k per year of money that you can take from it on a sustainable long term basis--and that's only if you invest it in a diversified stock portfolio. If your goal with this money is to have a sustainable ability to withdraw from it each month, and to keep that up for the rest of your life, then you might put it in a Vanguard Target Retirement 2045 Fund (https://personal.vanguard.com/us/funds/snapshot?FundId=0306&FundIntExt=INT) to correspond with when you turn 67-ish and leave it there forever. The market will crash several times in the coming decades, but you'll need to keep your money in that fund and not sell it during a crash.

I think you have a lot more to learn about before you decide to retire. This is a good first start.

forummm

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Re: Best fund/investment to produce income?
« Reply #7 on: April 19, 2015, 08:59:05 AM »
And even a 100% stock portfolio invested in the S&P 500 (or equivalent) has returned only a 7% inflation-adjusted return over the long run (over 100 years). But in the short term, it's gone down more than 50% a few times. And sometimes it has stayed down for about a decade.

VanTran

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Re: Best fund/investment to produce income?
« Reply #8 on: April 19, 2015, 09:28:32 AM »
Here's a closed end fund with over an 8% yield, monthly distribution: NHF. Investment manager, Dondero, is buying shares like crazy. the portfolio: http://edgar.sec.gov/Archives/edgar/data/1356115/000119312514426918/d828251dnq.htm

This looks like a solid income vehicle. You've got a discount to NAV and exposure to investments in distressed debt and structured products, which I doubt anyone here has access to.

Does anyone know the tax implications of CEFs in a Roth IRA?
« Last Edit: April 19, 2015, 09:31:17 AM by JoJoK »

lemanfan

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Re: Best fund/investment to produce income?
« Reply #9 on: April 19, 2015, 09:46:34 AM »
May I suggest reading up a bit on the following blog: http://www.dividendmantra.com/

That blog is about individual stocks however, not funds.   

waltworks

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Re: Best fund/investment to produce income?
« Reply #10 on: April 19, 2015, 10:41:35 AM »
OP: how much money do you need to live on, and how much do you have? At the most basic, you can spend about 4% of your investable net worth per year and expect the money to last a long, long time. So if you've got a cool million, you can spend $40k/year.

Probably not the answer you wanted, but there is not any low risk investment out there that will return more than low to mid single digits *annually* right now. 1% a month could be done but with CRAZY risk of losing massive amounts of capital.

Go to the bogleheads forum, and read all their intro/beginner/FAQ information. That will give you a good base of  knowledge from which to ask more useful questions.

-W

« Last Edit: April 19, 2015, 11:11:44 AM by waltworks »

Dodge

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Re: Best fund/investment to produce income?
« Reply #11 on: April 19, 2015, 03:37:42 PM »
Lol, easy easy on this newbie please. :)

Let me rephrase the question......

What is the best investment/fund right now for producing income? 

So it sounds like 5% a month is unrealistic.  And looks like I incorrectly stated expectations and calculations.  10-12% annual would be more ideal, but not sure it's realistic. So what's that about 1% a month or so? 

For example, I have about $125k invested in a MM account now and I get about 90.00 a month interest. That's sorry and ridic, but it's in something safe.  I would love to earn more....

Thoughts?  Tell your favorite investment/fund/tool right now for earning income as opposed to growth.

Be careful with the "producing income" piece.  If you start your search with those terms, you'll very likely end up with a more risky portfolio than you intended, either junk/high-yield bonds, or individual dividend stocks (worst idea ever).  All that matters is the portfolio's total return, not "income".  This is a common issue that many newbies get hung up on, but once you realize this, you'll be much better off.  What you're likely meaning to say, is that you're looking for a low-risk investment.  The problem with that, is low-risk investments have correspondingly low returns, which is the biggest enemy of someone who's looking to retire early, and needs the money to be there for 50-60 years.

If you're looking to learn more about investing, I recommend starting with this short Boglehead video series.  Yes the guy is a bit over the top, but he explains the concepts very clearly, and the content is geared towards newbies:

http://www.bogleheads.org/wiki/Video:Bogleheads®_investment_philosophy

If you're just looking for a quick answer, I'd say a Vanguard LifeStrategy fund:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

Since risk is all that matters (not "income" or "growth"), simply pick the fund that matches your ability, willingness, and need to take financial risk.

Good luck!

LouisianeBelle

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Re: Best fund/investment to produce income?
« Reply #12 on: April 19, 2015, 03:45:28 PM »
WOW!  Such great information!!! Thank you all SO SO much!!! Looks like I've definitely got some homework to do.

Just to answer a question from above.  This will definitely not be a main source of income.  I'll have plenty that I'll net from RE and freelance.  Just looking to pick up a little pocket change here and there.  This is totally separate from retirement, emergency fund, etc.

Thank you again!  Look forward to learning much more as I read and watch the above videos. :)

Leisured

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Re: Best fund/investment to produce income?
« Reply #13 on: April 20, 2015, 06:02:54 AM »
Even Warren Buffett the Great does not achieve 5% per month! Do you know who Warren is? The world's greatest investor, and the vehicle for his investments is Berkshire Hathaway.

Welcome to our little world, and good luck, or better still, good learning.


Mighty-Dollar

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Re: Best fund/investment to produce income?
« Reply #14 on: April 22, 2015, 09:23:34 PM »
Quote
Is it realistic that there is something out there that would produce an average of 5% per month?
No. If there is then it's a SCAM. You looking to commit the CARDINAL SIN of what's known as "chasing yield". The higher the yield the greater the risk. In today's rate environment high paying stock indexes like IDU pay only about 3%.
Instead just invest in a mix of VOO (the S&P 500  index) and AGG (total bond market index). You will only earn about 2%. If you need more income than that then simply sell off a portion of your principal that is growing and compounding. Simple.

Money Badger

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Re: Best fund/investment to produce income?
« Reply #15 on: April 23, 2015, 07:51:54 PM »
SimplySara,  Opinions vary widely and the phobia in the markets about interest rates is causing wide opinion swings among pros and amateurs alike.    So here's a (admittedly long) opinion FWIW from someone with a reasonably high net worth that's also growing more income producing troops...

First, if you have enough investments to retire, then you may have already read bogleheads.org and the forum for 3 or 4 fund "lazy portfolios".    Withdrawing as such a portfolio grows over time is "income".    That would include stocks and bond ETFs with low expenses in %ages depending on your age and years to retirement.   This is my "foundation" investment FWIW.

Then there's the desire for a real income generating fund that's tax advantaged (or mostly advantaged) to minimize capital gains.   As others mentioned, chasing yields is deadly, but making calculated bets on consistent performers is good.    FWIW, I have several years of positive results (w/solid payouts during the tough stretch of 2008-11) with REIT, Muni and MLPs in the Energy (Oil/Gas) sector for pipelines/infrastructure...   Get the details from the websites for JRS, MHI, NKV and JMF closed end funds (the last one is in MLPs but avoids some of the tax headaches and risk of owning just 1 or 2 MLPs that might get whacked by an individual company's failings in some way).    These go up and down in value but payout is in the 5-8% range consistently tax exempt or advantaged and they retain investment value well on average (not always, just average).   This is my "anything over $20K early IRA conversion withdrawal and I need fun money" investment.   As I see entry points in these, I'm heading to about a 50/50 split of my "foundation" and these assets within which, there's a 70/30 split of REIT/Muni to MLPs (now's a good time to build an MLP position based on valuations!).

From this point, the opinions really get interesting...  FWIW, here's another one...   We just completed the "post great recession" deficit spending and our government's financial health credit rating isn't what it once was (I simplify the situation a bit here, but you get the idea).    We just had the 4th highest deficits as a % of GDP in our history (http://www.usgovernmentspending.com/federal_deficit_chart.html)  At some point, we will have a smaller crisis that by itself wouldn't hurt much, but due to recent history, we won't be able to borrow or print money to get out of trouble as other countries will demand a premium to lend to us (among other problems).   That's the argument for treating this somewhat like the early 70s where we changed the structure of our financial system (ie, Nixon dismantling Breton Woods gold conversion) plus other "everyone gets what they want from the government" irrational forces at the time let the inflation genie out of the bottle through the early 80s.   When this happens, the Closed End funds above will become "unpopular" and lose real value unlike the "Great Recession" period unless you get one that "floats" with the rates or you catch the "downslope" of the inflation curve with a long term position that pays off for that period.   In this case, frankly nothing works very well... Equities are not as bullish when real purchasing power is declining and a lot of bond and dividend paying funds are challenged when inflation rises...  this is when things like real estate and strangely TIPS government securities, short term Munis and maybe metals are where you ride it out until the system purges the financial demons.  I was too young at the time to know why I had family buying gold and Treasury bills back in the day or why my parents thought our house was going to be their retirement plan as it skyrocketed in value.  Now I know, these were just the only things that were generally keeping up with the decrease in real purchasing power that is inflation exceeding wage growth.  Fewer people got rich during that window, but those who kept steadily investing really did well when inflation dropped and the 90s bull markets ran wild.    Ahhh, the good (and bad) 'ol days...   Opinions aside, I hope this helped some... good luck!

Bottom line IMO is there's no "safe" single income stream.   Build at least 2 of 3 above and be ready to shift towards the 3rd based on the situation using history as a compass...  Unfortunately, there's no financial GPS though!