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Free Money recurring from passive investment idea

So you want to generate passive income?

How do you do this?

There are many ways to do this and many listed in my eBook “Passive Income Strategy Bible”( https://delswaino.com/product/passive-income-strategy-bible/available ) at my eBookshop or on amazon.com

Lets look at another example:

Say you have good credit status but have a few hundred a month to spare and you wonder what to do with this rather than just saving.

Then why not borrow some money invest it in a passive income fund and then you leave this invested for the next 20 years?

So lets consider the maths on this example –

Borrow 20,000 at an interest rate cost of 3.7% and repay over 60 months

The cost of interest on this would be 3,700 and would require a monthly repayment of 395 for 60 months.

So you would have 20,000 to invest but would have to pay 395 a month for 60 months for the privilege.

Trust me – this is win/win so read on!

So what do you do with the money?

Lets say you invest in a passive investment fund – passive in the sense you invest and leave it be as a fund manager will manage the investment fund on a day to day basis moving forward.  Yes, you will pay a cost for this but overall subject to market conditions you will benefit and prosper.

So lets invest this in the following fund – Investec Monthly High Income Fund GB00B7MDT866 (stock report attached InvestecHighIncome03May2018 for details of this fund). This fund currently yields 5.01% per year.

So you invest 20,000 through an online stick broker (assuming you have one!) and buy 20,000 worth of units which based on today’s price would equate to 20,000 divided by 0.9918 which would equate to just over 20,000 units.  I will not calculate this accurately as the difference will cover your online stock broker trading costs.

So assuming 20,000 currency buys you 20,000 units the this investment fund pays 5% per year or c. 0.42% per month.  Based on this investment the 20,000 invested would generate 83.33 per month or 1,000 per year.

If we take the cost of the loan and the investment passive income together

At the end of year 1 –

Loan repaid = 20,000 less 12 payments of 395 which would leave 18,960 to repay

Passive income gained = 1,000 this year which results in 1,000 in total to date

At the end of year 2 –

Loan repaid = 18,960 less 12 payments of 395 which would leave 14,220 to repay

Passive income gained = 1,000 this year which results in 2,000 in total to date

At the end of year 3 –

Loan repaid = 14,220 less 12 payments of 395 which would leave 9,480 to repay

Passive income gained = 1,000 this year which results in 3,000 in total to date

At the end of year 4 –

Loan repaid =9,480 less 12 payments of 395 which would leave 4,740 to repay

Passive income gained = 1,000 this year which results in 4,000 in total to date

At the end of year 5 –

Loan repaid =4740 less 12 payments of 395 which would result in the loan being paid off so no debt remaining.

Passive income gained = 1,000 this year which results in 5,000 in total to date

In summary, the 20,000 loan cost you 3,700 in interest however over the repayment period you received 5,000 dividend income so you make a profit of 1,300 as a result.

Yes, there is risk to this – the market may go up or go down. If this goes up then the value of your investment would go up and appreciate capital value in addition to the dividends.  Analysis suggest that over a typical 5 year period the market will generally increase in value.

In this  example, while you continue to leave the 20,000 invested you will continue to receive 1,000 of dividends per year so looking over a 10 year period your profit would increase to 6,300 (assuming you don not re-invest year on year which if you did would increase annual income amounts further!).

And again, looking further forward say over 20 years this profit would rise to 16,300. Not bad hugh?

When do you break even overall then I hear you ask?

This would be during year 24 in month 9 when total dividend income would exceed 23,700 which would be greater than the initial total cost.

From then on this is in effect FREE MONEY from passive income at 1,000 per year if no further investments per year.

 

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