I’ve recently fired up some new passive income streams with dividend stocks and lending. It feels good to know that I’ve diversified my income and am doing more than just letting it sit in a savings account earning a piddly interest rate. I’m thinking about what it would look like to be rich in terms of the money I get from passive income. I’m going to define this as $120,000 a year just from passive income sources. It’s a fun number to play with so let’s see how this might be allocated.
I’m shooting for about a 9% dividend yield across all my stocks. The dividend yield percent is simply what the stock expects to pay you as a percent of share price over the course of a year. Dividends are usually paid out quarterly and those quarterly payouts are 1/4 of the total dividend yield percent.
So if I have 100 shares of a stock that is worth $10.00, I have $1,000 worth of stock. That means at a 10% dividend yield, I should expect roughly $100 of extra cash from that stock over the course of a year. Right now I have about $10,000 invested in dividend stocks. Here is what my portfolio looks like right now when I combine everything:
- Total Shares: 773
- Average Share Price: $33.07
- Market Value: $10,621.90
- Average Annual Dividend: $2.53
The annual dividend for each stock (available in my online account in a report) is simply the expected annual dividend paid out per share of stock owned. Yes, owning a stock can get you cash paid to your account! By taking that number and multiplying it for each set of shares owned for each stock, I come to the number $1,063.67. This is roughly the cash I can expect to come into my account by end of year.
To get $120,000 just from dividend stocks would be a tall order, but I don’t see dividend stocks making up 100% of my portfolio. I think 15% of my income portfolio is much more realistic. I want dividends to create about $15,000 a year for me to make up the percentage of my portfolio I think it should. Therefore, having just started, I’m about 5-7% of the way there!
To get dividend stocks paying me about 15% of $120,000 I simply need to realize I just need to have about $200,000 in dividend stocks earning about 9% a year in dividends. Having only about $10,000 right now makes this seem like a daunting task. However, I must keep in mind that building wealth is a process. Shares managed well should increase in value over time and most dividends will stay about the same or increase. I’ll simply sell those stocks who aren’t increasing dividends.
Getting another $1,500 a month in dividend payouts by retirement is not an unreasonable goal. To get there, I plan on steadily contributing to my stock account from earnings from my salary, dividends I earn, and other business ventures.
Peer to Peer Lending
I was introduced to Prosper.com not too long ago. It’s simply an EBay type website for loans where one can get a loan or be a lender. I choose to be a lender and get interest $ paid back to me :) One simply buys parts of a loan called notes and then receives interest payments on the interest for that loan. I still need to figure out how often the interest is paid, whether monthly or yearly, but I think monthly is more likely since that’s how most loans are paid…
I put another $10,000 into Prosper.com lending to give it a try. It hasn’t been a month yet, but the supposed interest rate across all my notes is about 8.5%. This means I should expect about 850 dollars from the money earned as interest in the year. To make this another 10% of my portfolio, I just need $120,000 or so for this to make up its portion.
Side note: Of course there are fees and risks of default on loans, so some percent is taken out to account for this money lost.
These Two Streams
To have both these income streams make up a percentage of my passive income to feel rich, I’ll need about $320,000. That seems like a lot right now, but at the same time, given returns year to year and keeping myself disciplined and involved with my money, I don’t think it will take 30 years to get there. In fact, I’ve done a little calculation.
If I simply invest $5,000 every year into both of these and happen to earn 9% a year from the growth, dividends, interest payments, etc… (which will take hard work and discipline, yes!), here’s what the dollar amount for each account looks like over time:
By the time I am 60 (year 25 in this list), here is the outlook for one of these income streams:
Year Dollars Growth New Dollars Passive Income Additional $ 1 10000 0.09 10900 900 5000 2 15900 0.09 17331 1431 5000 3 22331 0.09 24340.79 2009.79 5000 4 29340.79 0.09 31981.4611 2640.6711 5000 5 36981.4611 0.09 40309.7926 3328.331499 5000 6 45309.7926 0.09 49387.67393 4077.881334 5000 7 54387.67393 0.09 59282.56459 4894.890654 5000 8 64282.56459 0.09 70067.9954 5785.430813 5000 9 75067.9954 0.09 81824.11499 6756.119586 5000 10 86824.11499 0.09 94638.28533 7814.170349 5000 11 99638.28533 0.09 108605.731 8967.44568 5000 12 113605.731 0.09 123830.2468 10224.51579 5000 13 128830.2468 0.09 140424.969 11594.72221 5000 14 145424.969 0.09 158513.2162 13088.24721 5000 15 163513.2162 0.09 178229.4057 14716.18946 5000 16 183229.4057 0.09 199720.0522 16490.64651 5000 17 204720.0522 0.09 223144.8569 18424.8047 5000 18 228144.8569 0.09 248677.894 20533.03712 5000 19 253677.894 0.09 276508.9045 22831.01046 5000 20 281508.9045 0.09 306844.7059 25335.8014 5000 21 311844.7059 0.09 339910.7294 28066.02353 5000 22 344910.7294 0.09 375952.6951 31041.96565 5000 23 380952.6951 0.09 415238.4376 34285.74256 5000 24 420238.4376 0.09 458059.897 37821.45939 5000 25 463059.897 0.09 504735.2877 41675.39073 5000
At 60 years of age, with some disciplined investing, I’ll be earning more than what rich will feel like to me on my money. The main key here is the disciplined and consistent investing – staying engaged and continuing to do it. Done over time, the power of compounding is amazing here. And this is with little additional investment.
To Feel Rich
To feel rich for me is having extra money coming in where I don’t have to think or worry about money too much anymore. However, I believe a rich person is indeed thinking about money, looking at net worth and staying constantly engaged in their finances. So I’m adjusting this definition. To feel rich, stay constantly engaged with your money and constantly look for ways to invest and grow your net worth. Pick a dollar amount that feels rich to you and go for it :)
What feels rich to you? How much money would it take?
- A Case Study Of Financial Opportunity: AGNC and NLY
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- Q1 2013 Money Report: Stocks, Lending, Bit Coins, and Personal Business