What income from investments do you need for financial freedom?

[evand]

I understand all that. I also have a portfolio of divvie playing blue chips (i guess that's my 'investor side') lol.

But that's MASSIVE growth on a ~$2m portfolio. Was it $45k per week for 4 or 5 months!?

You are taking it out of context. I was merely refering to the appreciation of the shares over the last 4 months (at that point) expressed on a weekly basis. Because you are a trader (and there is nothing wrong with being a trader, there are just different rules by which you manage your money), you regard that as income, i just regard it as capital appreciation You assumed that that could be annualised over a year.

I was actually being rather sarcastic because i also mentioned it was unrealised profit and thus what the market gives the market can take away. But for me thats not the primary focus. The primary focus is the income generated from the assets vs the market value. And more importantly the growth rate of the income. For shares thats grossed up dividends.

 

[Dazz]

hi TPFKAD
are they financially free
there is a big difference and thats what this post is about
can they walk away for 12 months and have no issue with funding there retirement
this is very hard to do

Hi grossy,

Yes that is what I was talking about. There would be at least 6 or 7 of the older posters here on the board who are financially free.

its not impossible because I know a few that are at that stage
and they could be on this board and yes there will be alot that would be in that group
but yet to hear of one here.

As I said previously, they have mentioned it.....you just didn't pick up on it.

financial free is not the same as living on equity.
financially free
have we any one here that can say they are at this stage.

Once again Grossy, you are making it far more difficult than it needs to be. The elderly group of investors here are free. No-one mentioned LOE.

I would be very interested in what people see as financially free and do we have anyone here that is at this stage

It's like a broken record....I hope you listen to the bankers you negotiate with better than this.

financially free
is when it does not matter what happens within any economy that your structure still brings in the same income

Exactly.

to build a structure that does not get effected by external economic problems not only is very difficult but it is very long term to put in place
but there could be someone here

As I said mate, there are plenty on this board.

tell me have you got financial freedom
did the gfc not effect you
is your income stream the same now as it was 2001
even higher
is your capital base the same as 2001 or higher
and will it be the same or higher 2020
if so tell me how you have done this

Yes mate to all of your questions. The GFC didn't affect me one bit....it was all a concocted furphy from where I sit. I never expected a couple of losers in Alabama and Mississippi who couldn't afford their mortgage to affect our operations and they haven't.....well, except interest rates going through the floor, but that wasn't difficult to bear.

How have we done it ?? That's a bit big for this thread grossy.

 

[nkirlew]

Do you cash in your super pay down some debt thus bringing the sell off date closer?

$180k a year.
This thread is the reason I typed Jan Somers retirement into Google today.
I reckon the first book was the best, and it said buy ten houses and sell five (among other things of course). Live of the income from five properties.

What follows is a line of thought, not a solution.

Go back to 1989 and set a goal of $3m in IP. That could be 10 IP’s worth $300k each.

Now it is 2009 and you own $3m of IP with 80% LVR, so your debt is $2.4m. You have been fortunate and the ‘beast’ is finally cash flow neutral.

The plan is to have $3m property with no debt which will generate $180k (6%) which is enough to live and repair what ever breaks for the rest of your lives.

The property is going to increase in value at 8% a year.

Go forward 9 years it is the year 2018.
You still owe $2.4, your properties are worth $6m.

Sell half, this returns you $3m, all this money pays off what you owe plus taxes and costs (hard to say). Maybe set up a trust for the kids.

Life gets in the way and your partner can retire at 55, maybe return to work part time.
Holidays, home improvements, educating the kids all require current funds.

These items are stretching the end date further away.

And the question is do you cash in your super pay down some debt thus bringing the sell off date closer?

 

[steveadl]

Chances are, if you acquired $3M worth of properties starting from 1989 to now - the LVR would be lower, even taking into account the most recent purchase which hasn't grown yet.

So for your calculations, I'd say 80% LVR on $3M in 2009 is a bit too much on the cautious side. This then changes the rest of your figures for another 10yrs down the track, you may not have to sell as many etc.

 

[HiEquity]

Yes that is what I was talking about. There would be at least 6 or 7 of the older posters here on the board who are financially free.

Hi Dazz

Of that 6 or 7 you are aware of, do you have a feel for how many did it using the Somers' method of B&H resi for x years then sell down or slow down the purchases and live off the rent?

Perhaps this was the point GR was making (it's hard to tell sometimes... )?

My take on it is that while this method is a good way to slowly and securely grow your wealth over the long term, it is a very slow path to "financial freedom".

 

[Dazz]

I think it would be more appropriate if they spoke for themselves. Of course, they have a right not too.....and that is typically when the thread usually dies.

 

[chilliaa]

I understand all that. I also have a portfolio of divvie playing blue chips (i guess that's my 'investor side') lol.

But that's MASSIVE growth on a ~$2m portfolio. Was it $45k per week for 4 or 5 months!?

Remember i use margin debt so both upside & downside are magnified (which is why i have to pay such close attention to those annual reports).

I cant remember whether it was $45k per week for 4 or 5 months it was just a quick back of the envolope calculation at the time of the comment.
Obviously over longer periods this drops.
If i do another back of the envelope calculation from 30 Jan09 to now the portfolio achieved a net increase in value of around $750k, so obviously the 'weekly' return is much smaller.
The gross value of the portfolio was $750k at 30 Jan 09, Gross value now $2200k (actually a bit more now), $200k of additional capital was allocated between Jan-March09, $750k is the 'increase in value' and the balance is increase in debt.

But more importantly to me is the cashflow from the portfolio. Share prices go up and down, but getting the cashflow is the key for an investor as cash flow sustains the investor whilst Mr Market is deciding his mood.

 

[JIT]

Remember i use margin debt so both upside & downside are magnified (which is why i have to pay such close attention to those annual reports).

chilliaa, would I be correct in saying that your share based income stream at present is predominantly "active income", regardless of whether it involves fundamental analysis, buy and hold or trading strategies?

ie. could you walk away from that share portfolio with SANF and be confident it would still be there in 12 months generating you a reliable income stream?

or would the necessity to read those annual reports etc. preclude that?

 

[chilliaa]

chilliaa, would I be correct in saying that your share based income stream at present is predominantly "active income", regardless of whether it involves fundamental analysis, buy and hold or trading strategies?

ie. could you walk away from that share portfolio with SANF and be confident it would still be there in 12 months generating you a reliable income stream?

or would the necessity to read those annual reports etc. preclude that?

Firstly what is SANF? ive seen the word periodically and have no idea what it means

To comment on each part of your post:
'active income', what do you mean by this? is it total return (ie asset price movement + the income stream)
Income for me in regards to residential property is easy: the net rents.

Income from shares is more complicated:
I only treat the dividend as 'income' because this is only 'stuff' that will service my loans.
However i dont purchase shares based only on the dividend (otherwise it would be easy (but not safe), just use a software program to pull out the highest paying dividend stocks on the ASX).

Instead i purchase shares on a business basis. Ie if i was rich enough given the market cap of the company and its future earnings + dividend streams would i buy the whole business. If i wouldnt buy the whole business i wouldnt buy one share.

Because i use debt i like to be able to service that debt, i hate being cash flow negative on an asset (this is just me, i am not passing judgement on cash flow negative strategies).

Therefore sometimes i will purchase shares that have a lower 'future profit stream' if they have a high and sustainable dividend. In this case say Telstra.
By owning telstra shares i can also own a low dividend paying stock, but with good future earnings growth such as CSL, and still achieve a cash flow positive result overall.

Could i walk away for 12 months with peace of mind?
NO WAY. If you are using margin debt, you can never walk away and set things on autopilot. Margin debt is RISKY for two reasons:
1) The mark to market of the shares every day (Mr Market doesnt give two hoots about my version of intrinsic value)
2) You are dealing with a business, each share is a % of a business, people forget that. And businesses are risky.

To be able to truely walk away and set things on autopilot i would have to pay back all margin debt.
To be able to 'ride into the sunset' I would need sufficent net assets (with minimal debt throughout the portfolio). This would be split between
1) residential property
2) Australian and international shares through index funds
3) cash

 

[JamesGG]

Firstly what is SANF? ive seen the word periodically and have no idea what it means

Sleep At Night Factor.

Ie, compares your tolerance to current exposure to risk, in a pseudo-measurement of how well you can sleep at night as a result.

 

[JIT]

To comment on each part of your post:
'active income', what do you mean by this? is it total return (ie asset price movement + the income stream)
Income for me in regards to residential property is easy: the net rents.

Income from shares is more complicated:
I only treat the dividend as 'income' because this is only 'stuff' that will service my loans.

Hi chilliaa,

What I meant really was that your sharemarket investing strategy is very ''active'', even if it is predominantly based around fundamental analysis and "buy and hold".

ie. It's not really "set and forget"... you still have to do a lot of reading of stock specific annual reports as well as broader market commentary etc... once the stock has been purchased.

Whereas, generally speaking, buy and hold property investing is largely ''passive'' once the purchase has been made and the property has been leased.

And leading on from this then, how do you expect to generate a relatively low risk ''passive'' retirement income stream in the future...?

Doing what you're doing now in the sharemarket?

I suspect not, and I think you answered this below...

To be able to truely walk away and set things on autopilot i would have to pay back all margin debt.
To be able to 'ride into the sunset' I would need sufficent net assets (with minimal debt throughout the portfolio). This would be split between
1) residential property
2) Australian and international shares through index funds
3) cash

I like this very much (full marks for mentioning index funds!), and it is similar to my own end strategy for a relatively ''autopilot''/"passive" retirement income stream at some point in the future.

I would personally add un-leveraged/low LVR direct commercial property in the mix too for the "inflation hedged" net yields achievable in this asset class, and would use residential property as the major high growth component of the ongoing portfolio.

 

[HiEquity]

I would personally add un-leveraged/low LVR direct commercial property in the mix too for the "inflation hedged" net yields achievable in this asset class, and would use residential property as the major high growth component of the ongoing portfolio.

Hi JIT

Don't want to derail the thread but you seem to be of the opinion that CIPs generally achieve lower growth than RIPs. What makes you think that? Do you have any evidence of it?

It's just that when I compare the capital growth of the CIPs I could have bought locally with the RIPs I did buy over the last decade I get quite the reverse result... maybe it's just me?

 

[JIT]

Hi JIT

...but you seem to be of the opinion that CIPs generally achieve lower growth than RIPs.

I'm just speaking ''textbook generally'' (which probably counts for diddly squat!), the reality may be quite different depending on your specific experiences, types of properties, timing in the cycle etc... as has been discussed in other threads.

My theoretical plan would be to have a PPOR as the main residential component (so no income from here), maybe a couple of actual RIPs, and the rest would be CIPs, index funds, cash.

The use of CIPs in retirement would be for an income stream, so growth wouldn't be so important (unless I wanted to gear up again, but I would have just geared down for retirement so that would be unlikely, or if I wanted to sell, but I woud then loose the income stream so why would I do that... unless I'm dead, and it's part of my deceased estate!).

 

[grossreal]

hi dazz
interesting answers
as I am yet to hear from one that is free.
I know that there will be one here some where.
the question was what income do you need.
maybe you can tell me what you think you need.
for me.
I would and will need multipul residual income streams.
if you have reachee this financial freedom them simply answer the question
say yes I have and this is the income.

for me the income does not come just from investments like property or shares.
I will read the answers have not been keeping up with these boards as I am a bit busy

 

[devo76]

Its clear from the replies so far that everyone has a different idea of what they could permanently retire on.Many hear want the big $$$$$ plus early retirement. These people have a lot of work ahead of them in a constantly reducing time frame. Im not saying they cant do it. Its just not going to come easy.

Others have set the bar lower and as long as there drive is not equally lower. Then there end result will come alot faster.
Many people would love to just have enough cashflow to cover a modest lifstyle allowing for
the occasional trip with the caravan.
Dinner at the local club and a few games of keno once or twice a week
Fuel for the tinny and bait.
Toys for the grand kids
Etc etc

If you live in regional Australia you could live a comfortable life with cash to spare with just a few properties paid for.
If your open to just reducing your work hours instead of full retirement then things look better again.

I for one love my job and if full retirement was not an option in my early 50's but reduced hours was. I would be happy as. A couple of days a week just to keep active sounds fine to me.

3 days work a week and then the other 4 for fishing,hobbies,golf,camping,cafes etc etc. That sounds great to me.

 

[Perp]

Interesting thread, sash. Thanks!

Its true the more you earn the more you spend

It's freaky. I don't think we can afford to earn any more.

Time is the most valuable thing in the world

So true.

They are now grown and flown the coup, but they will be back and it is the second stage, where there will again be small children to dig holes in the sand and to marvel at crabs in the rock pools that we look forward to.

Seeing my parents' enjoyment of my children has been an amazing gift. Of course I thought they'd be loving grandparents, but we were all taken by surprise at just how much their lives were changed. They thought they'd never be grandparents, and were just ecstatic to find out that they would be - and to twins, to boot! Dad decided to change from full-time to casual, so that he could take off to visit his grandsons whenever he wanted. Mum just got a whole new enthusiasm and passion for life. We live quite a way apart (QLD and Vic), so we only see each other about 4 times a year (which admittedly is a lot given the distance), but even so, my parents' whole motivations, priorities, and enthusiasm for life have changed dramatically. I'm sure it's keeping them young and healthier. Any talk about their health etc now revolves around "but I have to be able to dance at the boys' 21st", and things like that. It's been so rewarding for me to see my parents' joy; I tear up just thinking about it.

I pray it's a similarly rewarding experience for you, Kristine, when your turn comes. And it can be - it's all about attitude. Hubby's parents have the same grandchildren and see them just as often, but find the disruption to their routine and noise an imposition.

I can't see myself 'retiring' as such, just a full time investor with a lot of spare time

You think your expenses expand to fill the available income, then you should see what your "to do" list does when faced with spare time!

For the most part, enjoyment in life is determined by what one thinks the meaning of life is, and the aspirations they build on that.

Profound and true.

tell me have you got financial freedom
did the gfc not effect you
is your income stream the same now as it was 2001

Interesting definition of financially free. I prefer to set goals so high that they accommodate the bumps in the road. If I need $200K pa to live comfortably, but have set up a passive income of $500K pa, I wouldn't be too upset if it dropped to $300K pa due to the GFC. Or even if it dropped to nil, I could dip into that $300K pa I was saving in earlier years.

 

[VYBerlinaV8]

Or even if it dropped to nil, I could dip into that $300K pa I was saving in earlier years.

I find it interesting that so few people consider that they will need a cash reserve to 'smooth' their income across periods of variable return.

 

[Jazza]

Well, we do have the house with the beach at the end of the street

Wouldn't mind a Beach Box - there is a gaggle of Boxes where we come on to the sand

By the time we do the knock down rebuild of the house we are going to be looking at the equivalent of four green houses equals one red beach house!

However, the question of the thread was about 'need' - what income from investments do you need for financial freedom.

and to live financially independently we would need about $50,000 from investments.

Squillions of dollars more is just spending, or hoarding, or whatever.

$50,000 per annum would satisfy the need and the rest, fantasmagorical though it may be to imagine all this stuff, is just about stuff.

I think my knees may hold me up long enough to get down the street and back each day, and if not, I can just sit in the house and look at the water anyway.

cheers
Kristine

I couldn't agree more.

$50k passive, living near the beach, take a pushy ride to check the surf/water each day and spend most of life in/on/around/near the water except for 1 or 2 holidays per year - living largely on seafood.

Cheers.