Living off dividends/interest vs. buying and holding stocks?

[TechnoGamer]

First post - hi everyone!

I've read the book numerous times in the past few years. Hands down the most practical business book I have ever read.

I am in my mid-20s and have created a business through which I am making 200k-300k USD per year in income after re-investing back into the business, etc.

I maintain a minimal lifestyle with a low monthly burn rate. No debt or kids either. I would like to have the money grow passively so I can focus 100% on my actual business.

Almost every single investment book I have read suggests building a some kind of Index-Fund based portfolio using ETFs and let the money grow with the market.

However MJ recommends becoming a lender and living off dividends and interest.

I am conflicted between both options. I don't need the money right now and anything I make from my investments will get re-invested back completely. The only thing I would use the money for is making larger investments 5-10 years from now.

Does anyone (MJ? ) have any advice on picking between those two options?

Is one better than the other? or should I create a money making system that has a bit of both?

Anyone have any reading recommendations that talks why living off dividends/interest is better than buying and holding ETFs to "grow with the market over time"?

 

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[jon.a]

You described two different things and you know it.
Wealth accumulation and income generation.

You are in the wealth accumulation phase.

 

[OldFaithful]

If I understand your question correctly, you're wondering if Index Funds (like ETF's) or lending (like the Lending Club) are a better store of your $$$.

Read this GOLD thread:

https://www.thefastlaneforum.com/co...-cant-make-your-life-decisions-for-you.33485/

If you have 200k to 300k in cash lying around, you're still in the "wealth accumulations phase", just as @jon.a described. Do the math. If you look at the number of years you have ahead of you, and the capital required to live JOB free, you still don't have enough to begin storing your wealth. Perhaps you might invest that capital in expanding your business and accelerating the growth...but then again:

https://www.thefastlaneforum.com/co...-cant-make-your-life-decisions-for-you.33485/

Oh, and welcome to the forum. It's a great place to be.

 

[TechnoGamer]

@jon.a @OldFaithful

Thank you. Fair enough.

I agree that I am in the wealth accumulation phase and there are multiple options of what I can do instead of letting the money sit in a checking account.

If anyone has any other opinions or good reads feel free to post away

 

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[OldFaithful]

I don't know what your current business might be, or what sector or what structure. Nonetheless these are just some ideas...

CONTROL
Are there any weaknesses in your current sales funnel? Could adding another sales outlet/method provide more stability and control?

SCALE
Could you expand your operations to another geographical area? Take on new companion products? Expand your service to other sectors?

TIME
If it's working and producing income, how much of your time is required to maintain it? Can you automate/hire or outsource any portions of the business?

 

[Duane]

Welcome to the forum.

If your business is making 200-300k per year, then you're in a good spot. But as others have said, you aren't at that stage where you want to throw your money into passive investments. If you invested your left over money each year into wealth preservers like stocks/RE, your passive cashflow wouldn't be much at all compared to the additional income you could be gaining reinvesting it into your business.

Focus on building, then once you're at a place where you have built a lot of wealth, then worry about how you're going to preserve it.

 

[TKDTyler]

Ever think about trading options?

 

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[MJ DeMarco]

I am in my mid-20s and have created a business through which I am making 200k-300k USD per year in income after re-investing back into the business, etc.

I maintain a minimal lifestyle with a low monthly burn rate. No debt or kids either. I would like to have the money grow passively so I can focus 100% on my actual business.

Congrats!

You described two different things and you know it.
Wealth accumulation and income generation.

You are in the wealth accumulation phase.

Ditto.

You are in wealth accumulation phase so growing wealth via the stock market isn't the objective -- it's doing it via your business which seems you are doing pretty well right now.

When I was in the wealth accumulation phase I took more market risks, but ultimately I carried the same "income" objective -- except I didn't use the income, I just reinvested it.

 

[MattCour]

Muni bonds and dividend paying stocks have been discussed in many threads in the Investing section. A 4-6% annual yield is possible with the right choices. $300k @6% per year = 18k a year in completely passive income. That doesnt sound like a lot but do that for 5-10 yrs and you never have to work again if you don't want to. $3mil X 6% yield = 180k/ yr or $15k a month. That's pretty sweet if you ask me!

 

[TechnoGamer]

I am in the B2B software business. All of our operations are done online.

SCALE
Could you expand your operations to another geographical area? Take on new companion products? Expand your service to other sectors?

I am in full agreement that it is probably best for me to invest back into my business as much as I can to scale faster. There are multiple ways to do that: automating operations, more sales/marketing, newer/better products.

When I was in the wealth accumulation phase I took more market risks, but ultimately I carried the same "income" objective -- except I didn't use the income, I just reinvested it.

For my business that really comes down to hiring more sales reps or more programmers. I have a few right now and our roadmap is being executed along well. The only thing I am scared of is over-hiring -- hiring more people than we need at this specific stage of the company just because I have extra money sitting around.

I know of too many companies that have over hired sales and engineering staff at the wrong stage of the company's growth and that resulted in more bad than good.

 

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[Pete799p]

I am in the B2B software business. All of our operations are done online.


I am in full agreement that it is probably best for me to invest back into my business as much as I can to scale faster. There are multiple ways to do that: automating operations, more sales/marketing, newer/better products.


For my business that really comes down to hiring more sales reps or more programmers. I have a few right now and our roadmap is being executed along well. The only thing I am scared of is over-hiring -- hiring more people than we need at this specific stage of the company just because I have extra money sitting around.

I know of too many companies that have over hired sales and engineering staff at the wrong stage of the company's growth and that resulted in more bad than good.

Start looking into commercial real estate. It can be a great asset to help diversify ones income. You can also buy properties with passive lease structures so you can focus on your business. Might need a bit more cash or partners depending on the city you want to invest in but 5%-6% with increases every 5 years are easy to come by, higher if you take more risk.