Contents
- Contents; Introduction
- Living on equity compared with other methods
- Risk profile
- Implications of risk profiles for living on equity
- Summary of the impact of risk profile
Introduction
In this penultimate article of the five part series we will: - calculate how much capital you will need, to achieve your desired level of passive income;
- look at how to balance your portfolio to ensure you have a sufficient margin of safety built into your investment strategy; and
- examine how the investor's individual risk tolerance impacts on the implementation of a living on equity strategy.
How much money do you need to be financially independent?
A common rule of thumb used by financial planners to determine how much capital is required to fund retirement is the so-called “rule of twenty”. This rule is simply derived from the fact that at a 5% average return, you would need assets equal to twenty times your desired income level to generate that income. So to generate an annual income of $100,000 would require 20 x $100,000 = $2,000,000 in assets. Of course, that assumes that the assets are ungeared. To build up net assets of $2m will probably take a considerable length of time. Another way of looking at it is to build up a net portfolio of just $1m and then live on the equity. This should take around half the time!
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