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How much income?

One of my friends recently asked me about how much money I would need to invest to earn a certain amount of money each month. It’s actually quite easy to explain, but the actual calculations are a little bit complicated.

I invest in dividend paying stocks and ETFs that pay a certain amount of money out in dividends/year. I hold some things on the lower end, such as VWO (Vanguard Emerging Markets ETF) at 1.2% and PSX (Phillips 66) at 1.9%. At the higher end, I own JNK (Junk Bond ETF) at 10.16% and NLY (Annaly Capital Management) at 10.4%. Most of what I own is at the 3-4% range.

So, while it is theoretically possible to calculate the dividend return of my portfolio based on how much I owned of each position, that would be quite time-consuming. I generally just assume a rate of around 4%/year after taxes (around 15% usually). Further complicating this is the fact that these companies raise dividends at various times throughout the year, and occasionally, a company will cut its dividend. It’s just a lot of moving parts to keep track of for an individual investor.

Assuming this rate of 4%/year, if I have $100 000 invested, I’ll make about $4000/year, or $333/month. Of course, this monthly rate fluctuates because companies generally pay out at similar times. $200 000 would equal double that, at around $8000/year.

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