The Best Investment to Live off Interest

[koopkoop2]

My friend has a large amount of money and wants to live off the interest. After doing the math, he can live comfortably on a 1% ROI per month, but is unsure of what type of investment would:

a) Be stable enough that he could trust placing the entire amount of money into with high certainty the investment will not lose his money.

and

b) Would provide 1% per month. Obviously, if it could return more than 1% that would be even better, but 1% would be the minimum.

The closest thing we've found so far would be the "TD Canadian Bond Fund". It's holdings are very stable because it's comprised entirely of bonds from the largest Canadian corporations, but the ROI per month is not stable enough to provide a decent income. Neither of us are investing pros though so I was wondering if anyone on here has a better suggestion on where to put the money to accomplish this.

Thanks.

[beyond_ban]

Invest it in me, i will make twice as much back within a year and i am happy with keeping only 10% of my earnings. ;)

[koopkoop2]

Originally posted by beyond_ban
Invest it in me, i will make twice as much back within a year and i am happy with keeping only 10% of my earnings. ;)

Send me a PM, if you're serious.

[GQBalla]

Originally posted by beyond_ban
Invest it in me, i will make twice as much back within a year and i am happy with keeping only 10% of my earnings. ;)

explain what you do

[beyond_ban]

PM'd

[ckangarloo]

Dividend paying companies. I have been in SPB.to for a while and quite enjoying the dividend.

[sputnik]

Dividend paying mutual funds. Relatively consistent monthly income and a low tax rate to boot.

[koopkoop2]

Originally posted by ckangarloo
Dividend paying companies. I have been in SPB.to for a while and quite enjoying the dividend.

Thanks for the tip on that. Was looking at the Sept dividend and it looks pretty good. Got any others that aren't as volatile?

[Criticull]

all tsx:

ipl.un (9%)
pif.un (10%)
blx (6-7% i think)
cgx.un (< 10%)
agf.b (6% ish)
key.un (9% ish)
trp (5% ish)

The best ones for low volatility and high distributions are the income trusts here, though they'll eventually have to convert, the three energy infrastructure related ones here plan to maintain their distribution levels.

[sputnik]

I just noticed the 12%/year return minimum.

He is going to have a hard time getting that from anywhere that isn't incredibly volatile.

And is that 1%/month before or after taxes?

[Criticull]

bonds won't pay shit unless you take a gamble and find some depressed corporates, and what sputnik said, you have to pay tax on your investment income (in most cases).

[koopkoop2]

Originally posted by Criticull
all tsx:

ipl.un (9%)
pif.un (10%)
blx (6-7% i think)
cgx.un (&lt; 10%)
agf.b (6% ish)
key.un (9% ish)
trp (5% ish)

The best ones for low volatility and high distributions are the income trusts here, though they'll eventually have to convert, the three energy infrastructure related ones here plan to maintain their distribution levels.

Thanks, I'll check these out. I'm just learning how this all works - why will they need to convert and how does that affect how they currently operate?

[koopkoop2]

Originally posted by sputnik
I just noticed the 12%/year return minimum.

He is going to have a hard time getting that from anywhere that isn't incredibly volatile.

And is that 1%/month before or after taxes?

1% before taxes. 1% after taxes would be awesome though :D

[bksze]

How long is he planning on living for? I think you have a lot more planning to do before you get into this. I just went through this exercise because I thought that if I could bank 2 million in investment vehicles, I could live off 10% annual interest for the rest of my life.

Anyways, after going through the exercise with an estate planner I am way off.

If you are planning on going this route, I highly recommend you visit an estate/financial planner. Doesn't matter how young or early in your life, it definitely helps you plan financially for the long term in a realistic manner.

[sputnik]

Originally posted by koopkoop2


1% before taxes. 1% after taxes would be awesome though :D

1% before taxes would be awesome too.

Seriously though. Expecting to get a 12% return every year is about as likely as asking Santa for world peace. Even if you find a mutual fund that AVERAGES 12% year over year you still need to somehow live in the down years.

If you need to sell units of a share or mutual fund during the lean years you will end up with fewer units in the good years and result in lower than expected/needed returns.

Think of it like a farm.

Farmer buys 500 acres. Knows he can make $50,000/year selling the crops in a good year. If a drought year happens and he makes only $25,000 he would have to sell 100 acres to make up the difference. However the following year he only has 400 acres and now can only make a maximum of $40,000/year on a good year.

Your friend will also have to take inflation into consideration.

Again to keep the numbers simple. Say he has $500,000 and makes 1%/month ($5000 every month). That might seem like good money, but what about after 15 years when the guy taking your coffee order at Tim Horton's is making $5000/month? Will that still be enough for him to live off of?

His best bet is to invest the money as best as possible and watch it move over the next 2-3 years and then decide if he feels comfortable living solely off the returns.

[Criticull]

Originally posted by koopkoop2


Thanks, I'll check these out. I'm just learning how this all works - why will they need to convert and how does that affect how they currently operate?

It won't affect day to day operations, income trusts were simply a vehicle through which taxes could be avoided via distributions to the shareholders. You can read up on the specifics, as my knowledge is not 100%.

Jim Flaherty changed the rules in fall of '06 and you can see it in the charts of the trusts, it wiped out a lot of wealth. So now everybody's going back to being a corporation starting in 2011. Because of the switch back, the taxation rules will force a large portion of income trusts to reduce their dividends (ex. ala.un).

[sputnik]

Originally posted by bksze
How long is he planning on living for? I think you have a lot more planning to do before you get into this. I just went through this exercise because I thought that if I could bank 2 million in investment vehicles, I could live off 10% annual interest for the rest of my life.

To be honest. You could live quite easily on $200,000/year for the rest of your life.

However, you can't SPEND $200,000/year for the rest of your life. You would need to invest at LEAST 25% of that income for a good amount of time just to make sure you have enough to cover inflation later on down the road.

[koopkoop2]

Originally posted by sputnik


1% before taxes would be awesome too.

Seriously though. Expecting to get a 12% return every year is about as likely as asking Santa for world peace. Even if you find a mutual fund that AVERAGES 12% year over year you still need to somehow live in the down years.

If you need to sell units of a share or mutual fund during the lean years you will end up with fewer units in the good years and result in lower than expected/needed returns.

Think of it like a farm.

Farmer buys 500 acres. Knows he can make $50,000/year selling the crops in a good year. If a drought year happens and he makes only $25,000 he would have to sell 100 acres to make up the difference. However the following year he only has 400 acres and now can only make a maximum of $40,000/year on a good year.

Your friend will also have to take inflation into consideration.

Again to keep the numbers simple. Say he has $500,000 and makes 1%/month ($5000 every month). That might seem like good money, but what about after 15 years when the guy taking your coffee order at Tim Horton's is making $5000/month? Will that still be enough for him to live off of?

His best bet is to invest the money as best as possible and watch it move over the next 2-3 years and then decide if he feels comfortable living solely off the returns.

As you had pointed out, there are other components of this to make this strategy work. We've got work underway on those other components. This thread is only for the "fixed income" component, since the other components could each take a thread of their own.

[Celica TVS3]

A 1%/month return in non voilitle fixed income vechile just isn't going to happen. Also, income trust distributions are not fixed income.

[T-Bone M5]

If you have wads of cash, you should be seeking advice from a fee based advisor, NOT a comission based advisor.

High yeild dividend ETF's are a good bet with low MER:

CDZ - 4.8 % yeild
CYH - 4.9% yeild

You get a nice monthly dividend and benefit from diversification.

Worth doing some research on your own. Commission based advisors will not recommed these are they do not get trailer fees, but you benefit from low MER.

Just stay away from BetaPro double ETFs if you don't understand them.

BMO is also paying 8.8 % on their Monthly Income fund, but I hear they are also having to cash in their holdings to pay the monthly dividends. :dunno:

[e36bmw///]

nm