Imagine a world where someone is paying you quite well, yet you don't have to lift a finger to earn it. Now, imagine that you not only get paid well for not working, but you also get regular raises. Sounds nice, doesn't it? It probably sounds a bit like a pipe dream, too.
Believe it or not, though, you can get there. In fact, it takes just a few key commitments on your part to set you up on your way toward living the good life:
- The willingness to buy and own stock in the right kinds of companies.
- The dedication to routinely invest new money and reinvest your dividends.
- The patience to stick with the plan until you reach your goal.
That's the master plan. If you can stick with it over your investing lifetime, you can find yourself in that enviable position of getting well paid -- and getting raises -- for doing nothing at all.
Which companies?
Absolutely key to making the whole thing work is knowing what companies to buy. The right ones to own are businesses that pay decent, regular dividends, and raise those payments on a routine basis. These are exactly the types of companies that we seek to uncover for subscribers of Motley Fool Income Investor. There are literally hundreds of firms out there that are willing to offer you that opportunity, if you'll do them the favor of buying their stock. Perhaps you've heard of a few of them:
|
Company |
Recent Yield |
10 Year |
|---|---|---|
|
Allstate |
2.2% |
12.7% |
|
Freddie Mac |
2.8% |
18.7% |
|
Citigroup |
3.9% |
29.3% |
|
General Electric |
2.8% |
12.6% |
|
Hershey Foods |
2.0% |
10.5% |
|
McDonald's |
2.6% |
16.7% |
|
Wells Fargo |
3.1% |
15.3% |
Each of these companies currently pays its owners yields of at least 2%. Even better, they've all raised their payments at a better than 10% annualized clip for a decade! As a shareholder during that period, you would have seen your income grow tremendously, without having to do anything more active than just watch the cash flow into your account.
Stay on target
Of course, with an average yield of 2.8%, you'd need quite a bit invested in those companies to fully replace your income. Assuming you'd like about $50,000 in pre-tax income to no longer have to work, you'd need a hair more than $1.8 million socked away. You can certainly get there in time, but it won't happen overnight. This chart shows how long it would take to reach that level, based on various combinations of starting balances, monthly investments, and return rates:
|
Starting Balance |
Monthly Investment |
Return Rate |
Years |
|---|---|---|---|
|
$75,000 |
$500 |
12% |
22.5 |
|
$0 |
$1,000 |
12% |
24.6 |
|
$10,000 |
$1,000 |
11% |
25.3 |
|
$0 |
$1,250 |
8% |
29.5 |
|
$50,000 |
$100 |
11% |
31.0 |
|
$25,000 |
$500 |
9% |
33.6 |
|
$0 |
$500 |
10% |
34.4 |
That's why it's important to have the dedication to regularly invest and reinvest your dividends. The regular investments are absolutely crucial toward helping you build that nest egg. The reinvested dividends give you an afterburner kick to add a few more percent to your compounding rate, getting you there even faster.
Eyes on the prize
While it won't happen overnight, when you get to the end of the journey, you've got it made. Once your investments pay for your costs of living, you'll be free to spend the rest of your life as you'd like. Even better, as the companies you partially own continue to give you raises as their businesses improve, your lifestyle will continue to get better.
It's a wonderful place to wind up. Best of all, it's achievable, with help from the kinds of long-term solid companies that become Income Investor recommendations. Join us for a 30-day free trial today to get started making your money work for you. Your journey to financial easy street starts here.
At the time of publication, Fool contributor Chuck Saletta owned shares of General Electric. The Fool has a disclosure policy.
