Quote:
Originally Posted by anoldanalyst
Whizzard, I make even less than a third of my cash income compared to when I was at the top of my game in a bank, but after you get to a certain point where you have saved enough, the stress of top paying jobs is not worth the money and your health. Right now, I have a 9-5 job in my own office and can disappear at 4pm if I want.
A few ideas which might help you on your quest:
After I quit my job, I went through the same analysis as you i.e., generating passive income > expenditure and trying to ensure that I'm hedging against inflation. I was largely successful, but while your $10m in capital can generate $500K in returns per year, they may not be cash returns unless the $10m excludes equity in the property you live in. I have lower expenditure than you - $200+K per year - and my yield on all my equity and fixed income investments is around 6.5% (helped no doubt by wading into high yield stocks in Mar '09)
About half of my assets (not capital) are in a bungalow that I live in. I have a multi-million dollar loan on the bungalow (currently at around 35% loan to valuation) and the bungalow has more than doubled since I bought it giving me an incredible return. That is the power of Leverage. I think you should lever, but just not too much. For the bungalow, I was able to take what most people would consider a gigantic loan (but still a fraction of my net worth) at around 2% fixed interest rate. In my opinion, its easy to beat 2% in the market. I can pay off the bungalow loan with my capital, but why should I do that if I can easily beat 2% return on cheap leverage from DBS.
I'm already up about 500% off the downpayment on my bungalow, which is like 100 years at 5%. Going forward, I conservatively expect landed property to rise at about 3% pa long-term through the cycle so with a little leverage, I can easily beat inflation and generate an adequate return even without rental income.
However, since I actually live in the bungalow, the return is not cash. So while overall I have been generating waaaay more than a 5% return on my capital for the past few years, my passive cashflow is just around $200K+ and just enough for my family expenses. I've found that working a simple job, you feel better about it and keep busy while seeing your savings continue to pile up, which is a nice feeling. I experimented with retirement, but the boredom drove me nuts. Its better to work a simple easy job at low pay. I wouldn't go back to a difficult job that doesn't pay well. When you have been earning about $1m a year, its fairly easy to convince someone to pay you $200K to do just about anything. I'm fortunate to have found a simple management job in a small unlisted company. Part of the deal is that I get a fair bit of equity instead of cash. I'm prodding them to IPO  Whatever you do, don't sit at home and waste away. Once you stop working, the body starts to prepare for death and I've seen so many people who retired and then dropped dead a little later. Keep active by working and you will live longer. Good luck. |
Dear anoldanalyst,
Thanks for sharing. First off, I don't have $10 mil capital yet - wish I am there though
Am working my way there .....
When I was out of job for a few months, I felt so unplugged. The business world was zooming around me and I was not part of it. Not a good feeling at all. Had loads of free time and not enough friends or activities to fill it up - maybe I didn't set out to establish a life without work during that period, whilst I was cracking my head as to how to get back in. Well, that's all water under the bridge now. Totally agree with you that one has to keep working. Am glad that I am gainfully engaged now. It's great to have work problems to resolve, targets to meet and friends coming up to me for advice on career or business matters and little wins to celebrate when a new mandate is secured. Suddenly, you are useful again!
Still, the lesson I learnt is to be able to fend for myself without the security of a regular employment income should one ever find oneself unexpectedly out of a job again. The only way is to build up a portfolio of income generating assets. My properties are giving me a stable set of rental income but are they worth the trouble - is there a better way of getting recurring in come e.g. REITS or beaten down blue chip bonds? Am still suspicious of the financial markets in general and still very convinced about physical assets especially properties.
I used to be more aggressive in stock investments ... now, I am sitting on more cash balance than I ever used to. Maybe I became a little conservative after the incident but being too conservative is not good since the most I can generate is a 1% pa returns on this riskfree money. But, I found I have become much more circumspect in investing ... in the past, I used to jump in quite easily but now, I tend to wait for pullbacks to get in and in a recovering market, the pullbacks tend to be shallow. Hence, I have not been able to get in as much as I would like but I am happy that I am much more disciplined now. No more buying high in the hopes of selling even higher. Most times, I think the market is range bound and I am patiently waiting to trade the range, which means not buying on the higher end and sitting on it when it corrects. Also, I knew of many who were well invested when the markets came tumbling down last year ... it was a good time to buy but they couldn't do it due to the psychological impact of carrying a severe paper loss in their existing portfolio. In summary, I think patience is a virtue and I am learning more of that each day. One doesn't need to be fully invested in the financial markets all the time ... and I don't believe in efficient market hypothesis. Too much is traded on inside info, just that not many have been caught.
Why this focus on money? Well, with sufficient money, one can build a life with meaning around oneself based solely on participating actively in one's interests. Some require more money, some less - but whatever the case, they still require money. I have a friend who retired from a high flying career when he was in his forties ... I am watching and learning how he has developed his new lifestyle and whether it is something I would emulate or adapt. He has a portfolio of real properties where he is collecting a chunk of rental income regularly, more than what his expenditure requires (this idea resonates well with me). He also does active trading in stocks, which I think replaces the highs and lows that you get in the workplace. But I still think he has yet to fill the void of having too much time. He needs to pick up some hobbies or participate actively in some interest groups.
In summary, as I gather ideas on how to build a portfolio of assets which will generate me a stable inflow of cash, I am also building a life that doesn't revolve around work, little by little.