I got into a discussion with another physician in the doctors lounge who is probably in his mid-50s and told me he exclusively invest in dividend paying stocks. If you take a distribution of Roth IRA earnings before you reach age 59½ and before the account is five years old, the earnings may be subject to taxes and penalties. You need about 5 times that to make a small RE deal. Real estate is all fun and games until the local market collapses because the local industry fails. The tax benefits are whats hard to ignore. I do appreciate that there is much less correlation from “the market” to my real estate holdings. Re: Roth. There are many different ways to invest that allow you to, I like the idea of having relatively high-income investments in retirement, so long as the. Thoughts? That rate is probably something between 2 and 4% over the long run. I saved very aggressively earlier in my career; am now fortunate to have “won the game”. Many roads to Dublin be it real estate or index funds or even individual stocks. Who said I can’t go ski? The Pros and Cons of Income Investing. OVerall this is I understand, is passive, with higher returns. I’ve got to give you a hard time with all the hard times you give me! If I wanted to work harder or learn more it would probably be more weighted toward Real Estate. You want cash flow? Your allusion to IRAs not making sense for “hardcore real estate investors” doesn’t make sense. I read alot and found similar thinking people. -About 10 years ago, I became more focused financially. I have built in margin of safety. Anyways, a whole post can be written about this but everybody has different approach to growing money. But there are important concepts that an index fund investor can learn from a real estate investor and that a real estate investor can learn from an index fund investor. Investors rely on these for regular income, whether in retirement or as a supplement to their earned income. http://www.livefreemd.com/a-taxable-account-isnt-actually-that-bad/. But it’s really not designed to be a checking account or a line of credit. I mean, which is a more stable, impressive business to own a piece of- Amazon or that duplex on the corner? Accidental landlord here…..Rollercoaster ride. There is always a heavy denigration of the “Wall Street Casino” and “paper assets” but I wonder if the fear of these things is in large part simply ignorance. Covered calls can be sold on dividend stocks (during bull markets) to significantly increase yield without increasing investment risk. I typically use velocity of money to mean adding leverage. But there have been some “bumps in the road”. Just not much data since it is all new. Retirement accounts simplify your estate planning, boost your investment return (by lowering your tax bill), and, in most states, provide a very high level of asset protection, even higher than that available through an LLC (which is still a good idea for an income property in a taxable account.) Yes, you can find high-dividend stocks in other industries, but you find a higher concentration of them in these industries. I’m perfectly content with owning nothing but our primary home, modest second home, and Vanguard’s REIT index fund. Hi WCI, great article. completely agree thas whole life insurance is a crappy investment. But many covered call strategies involve selling call options 6 weeks out, completely throwing any hope of monthly income planning. You are not locked into one way to invest and to be honest, there are huge benefits in doing both types of investing. I’ve been investing since I was 20, between stocks then moving to majority real estate then adding in more stocks. Real estate investors routinely ignore these benefits. With inflation at 2%, this leaves investors and retirees with a real income return of 1.25%. or in a couple of weeks I have a new post coming out with more information. After my retirement accounts (which were invested in equity mutual funds) recovered from the “great recession”, I decided to completely transition from equities to notes. I’m guessing that 20% returns are not realistic in the long run, in any asset class. It was in the spam folder. Not trying to be cocky but honestly who even has a contrarian point on this blog? But I guess it was lost on you… /s. It doesn’t matter what your dividend is if the total return sucks. The typical vehicle of choice is real estate, although occasionally it is high dividend yield stocks… Very helpful. article Does Living Off Covered Calls Really Work? Too lazy to type the rebuttal now. Taxes are always a consideration for any type of income so be sure to ask your CPA or do some research. I may venture into some crowdfunding deals when I’m in lower tax brackets. If you had a 15% round-trip transaction cost, and spread that out over 5 years, that would reduce that return by about 3% a year, reducing your return to 13.5%–still a great return. Its acting scared. The key is to save it in the first place and put it to work. It sounds to me like you lean more toward the entrepreneur side, which is perfectly fine. There's no sense in denying it, but it is important to realize what it takes to get those higher returns. The tax-protected and asset-protected structure is still useful. Your email address will not be published. I was gung ho about RE for a while, but getting harder to trade away my non headaches away as I get older. This could make or break a retirement plan. I hear lots of bragging about 20% returns, but no one seems to acknowledge what a 20% return really means. Another point to note is that rising interest rates may hurt the company’s financial strength. There I made contacts that led to acquisition of my Dallas/Ft. This is our test run, I hope it goes well since the return is hard to ignore, even if the only thing that happens is they pay off an asset for me that I can roll into something else. The Pros and Cons of Investing in Stocks Stocks are very powerful wealth-builders, but learn about the downsides as well as the upsides of stocks. I’ve found the concept of “velocity of money” to be used most frequently by people selling something. I agree with your thesis. If you pick the wrong stock, you risk losing the value of your investment. Part of it is they don't know how to calculate the return and part of it is they never add in all the expenses, especially the value of their time. And buying or starting a small online business are also excellent opportunities for investors looking to increase income. Are you, like me, a moderate on this issue and if so, how have you decided to blend these two schools of thought in your own portfolio? 1) My time is precious and I am not interested in learning another skill or another trade. I used to be very confused about how investments in a taxable account are taxed. Time remains my most precious commodity. This can be a challenge when you are living off investments. I reinvest dividends in tax-protected accounts. It depends on how much the retiree is withdrawing, how much is saved, the investment income and the capital gains in the retirement savings account. If you have a membership or recurring business model, income can be more consistent. Required fields are marked *. Now, maybe that is what you want because you love your job and you would rather leave money behind than spend it yourself, which is fine. As noted in an earlier post, my first property manager didn’t work out because their maint/repair/make-ready expenses were too high. At some point most busy docs probably would rather trade the headache for simplicity. Think of it as buying an index fund. You can put off the day of reckoning by exchanging the property, over and over again, until your death at which time you get the step-up in basis, but that is difficult to do with anything but direct ownership of the property. Before you say, “Income stocks are great! Thank you so very much. Maybe buying a bunch of syndicated properties on RealtyShares after watching their webinars and going through the financials. I am also not interested in having to directly manage properties or those investments to maximize gains. Small Business Income (Which I consider an investment), Income Investments Vs Retirement Withdrawals, Income on $1,000,000 in High Yield Investments, Income on $1,000,000 in Typical Dividend Stocks and Treasuries, Income Producing Assets and Capital Gains, Pros and Cons of Income Investing Summary. YOU found velocity of concept bad. The historical return for publicly traded companies is about 7% real per year. Great tips. I would say that majority of readers here are just better off following indexing all the way for everything. The distribution is made in substantially equal periodic payments. If he has a self-directed Roth IRA brokerage account, then what he said would be true. You can’t influence how well the markets perform. Also maybe your thoughts regarding RealtyMogul vs RealtyShares? The stock market index doesn’t go up in value because “it has always made 7%.” It goes up in value because millions of people are out there every day working hard to make their companies more profitable. I get cash flow, I re-deploy that back into another investment. Just did it on purpose this time, with property managers that arent too expensive at all, and to me, totally worth it. Although that was a bad experience, it wasnt on purpose and had no intent or forethought (that was the problem really) so I dont hold that as a reason to stay out for good.