Re:How I got wealthy without working too hard
by PaulDavisThe1st on Thursday November 18, 2021 @04:14PM
(#29270665)
> There is no such thing as guaranteed income no matter how much money you have.
state bonds (free of federal tax) backed by an insurance policy are pretty close to guaranteeed income. At least that's where I put my first (and only) half-million (for a while).
> And in practice, most people doing this have a hedge of some type against a protracted downturn -- the cost of the hedge is already baked into the 4% expected return.
All true if your goal is to generate a 4% return over the long haul. Not so easy if your goal is to generate a reliable 4% income stream. The 4% return, reinvested, will be smoothed out over time, and if things are planned well, achieving that over the long haul should be fine. Pulling 4% out of the investment every year, on the other hand, is much harder to cover with hedging.
Remember, the goal in this case is not to generate a 4% average return over the lifetime of the investor. It's too generate an annual income of 4% of the investment value, without ever depleting the investment value. These are not the same goals.
state bonds (free of federal tax) backed by an insurance policy are pretty close to guaranteeed income. At least that's where I put my first (and only) half-million (for a while).
> And in practice, most people doing this have a hedge of some type against a protracted downturn -- the cost of the hedge is already baked into the 4% expected return.
All true if your goal is to generate a 4% return over the long haul. Not so easy if your goal is to generate a reliable 4% income stream. The 4% return, reinvested, will be smoothed out over time, and if things are planned well, achieving that over the long haul should be fine. Pulling 4% out of the investment every year, on the other hand, is much harder to cover with hedging.
Remember, the goal in this case is not to generate a 4% average return over the lifetime of the investor. It's too generate an annual income of 4% of the investment value, without ever depleting the investment value. These are not the same goals.