I shall be getting $100,000 on sale of my property. How do I invest the money to get a monthly income on the capital?
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2Would you be devastated if you lost a portion of it? Do you need the income monthly starting now or in x-years?– Hart COCommented Apr 12, 2018 at 16:20
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3Additional Qs: How much income do you need? How long does it need to last? Do you have any debts to pay?– D StanleyCommented Apr 12, 2018 at 16:26
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I think Vanguard has a managed payout fund that returns 4%? Probably not the best option, but expectations above 4% might not be realistic depending on risk tolerance. Downside is no adjustment for inflation.– RockyCommented Apr 12, 2018 at 17:01
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Possible duplicate of $100,000 to invest, how should I invest it?– yoozer8Commented Apr 12, 2018 at 17:41
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1Seems pretty clear what OP is asking, and I disagree that it is a duplicate of how to invest $100K because it has the extra element of needing current income.– JohnFx ♦Commented Apr 13, 2018 at 14:49
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3 Answers
First off, the answers that are already on here are spot on. I just want to add an alternative view.
If you take $100,000 and put it in a high risk stock, then you might, and that's a HUGE might right now, get 8% return. However, if you take $20,000 of that money and leverage it to buy a $100,000 rental property, you might make that $800 a month and still have another $80k to invest elsewhere.
This is a conservative estimate. I have 3 four family properties right now. Each were on average close to 100k and they all do well beyond $800 a month after all the expenses. I have all three financed as well.
There's plenty of free advice on this over at https://BiggerPockets.com
Like I said, it's just an alternative to the already mentioned answers here. It works for me but may not work for everyone. Buy at your own risk and for the love of god DO YOUR OWN RESEARCH.
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Bigger Pockets is a legit message site for real estate advice. The part I deleted caused a spam alert and would have gotten this answer deleted outright. Commented Apr 12, 2018 at 22:40
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@JoeTaxpayer No worries. Thanks for cleaning it up for me. Commented Apr 12, 2018 at 22:43
You'll probably be disappointed, but here are some very broad options:
Low Risk - Interest Bearing Savings or Money Market Accounts: Currently you can easily find 1.5%-2.0% interest on these - monthly income ~$150. Bonus is that the capital can be insured by FDIC. Here you're probably not keeping up with inflation
Low-Mid Risk - US Government Bonds: Yields are currently ~1.6%-3.0% depending on term. Monthly income ~$125-$250. Advantage is they're considered very safe and you might beat inflation.
Mid/Mid-High Risk - Corporate and Municipal Bonds: Wide range of yields depending on rating/risk/category/etc. Getting closer to the 5% range - monthly income ~$400. If the company or municipality goes out of business or bankrupt, you might lose all of your money.
High Risk - Stocks/Equities: Historically S&P 500 has returned ~10% annually. Monthly income ~$800. Value ranges dramatically - you're riding the market. Most people wouldn't use this for monthly income, but rather for growth until retirement where on the way they'd convert to less risky assets as they approach retirement.
What you should choose depends entirely on your goals (retirement? spending money?), time to achieve goals, tolerance for risk, additional income, etc, etc ad nauseam.
If you're seeking income with moderate risk and will not have a need for the money for some time, consider preferred stocks.
If you go the ETF route, PGF pays 5.45% and in the past 4 years, its share price has been been no more than $1 higher or $1 lower. PGX pays 6.24% and price range over the past 4 years is about $1 higher, 60 cents lower.
There are 8-10 other Preferred ETFs as well (see ETFdb.com). If you don't like some of the holdings in the ETFs, you can buy individual issues. Stick with investment grade so that the existence of the company and the dividend don't become an issue. The prime risk would be long term rates rising. Avoid paying more than par (usually $25) unless the yield is attractive enough to warrant the premium loss if called. Avoid issues above par that are callable in the near future.
Some but not many preferred stocks pay monthly income. You could stagger individual holdings since there are ex-div dates every week of the month.
If this intrigues you, pick up a copy of "Preferred Stock Investing" by Doug LeDoux ($10-20 used/new) so that you can make a more informed decision.
answered Apr 12, 2018 at 17:27
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Absolute change in share price isn't very meaningful. For sub-$20 ETFs like these, $1 isn't a large movement, but it isn't negligible either. Important also to note that after expenses, fees, and taxes, the return is down closer to 3%. These details aren't difficult to dig up, but your answer would be stronger if it included them. Commented Apr 13, 2018 at 1:12
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1) Your criticism misses the mark. A plus or minus $1 range over 4 years is peanuts in terms of risk. Yes, it's not very meaningful other than to demonstrate that there's not much volatility or variation in value of the principal. In terms of market risk, it's low compared to common stock. That $2 range goes back more years than that. Commented Apr 13, 2018 at 2:22
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2) Returns for the two ETFs mentioned were in the 5.5% to 6% range. If the income was reinvested rather than needed to for expenses, the return would have been 50 to 60 basis points higher. Your 3% return number is nonsense. Taxes are a fact of life unless non sheltered and silly to mention since they vary from individual to individual. Oh, and then there's the fact that over 400 preferred stocks are eligible for the 15% Tax Rate. That detail isn't hard to dig up either. Commented Apr 13, 2018 at 2:23
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The information in your answer is not peanuts in terms of risk. Variability of $1 on AAPL (over $170) is basically no change at all. On a stock worth $1.10, $1 variability is very risky. For the two you mentioned, $1 is nice and low volatility but no one can tell that. For the other, down around 3% return is what Morningstar shows: PGF PGX Mentioning how preferred ties into LTCG tax rates would improve your answer too. Commented Apr 13, 2018 at 2:39
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Yes, variability of $1 on AAPL (over $170) is basically no change at all. But let's try some reality. Over the past year, the high/low range of AAPL was 25% of current price and in 2015, AAPL lost over 30% of its price. Comparing the volatility of AAPL to a Pfd ETF or stock is specious. If you don't like the ETFs or their return, investment grade Pfd stocks offer an average of about 6% yield. If they pay Qualified Dividends, 6% taxed at a 15% rate does not leave 3%. Buh-bye! Commented Apr 13, 2018 at 13:21