Million Dollar Journey

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Building Wealth through Saving and Investing

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Building your “Forever Money” Portfolio

One of my “money philosophies” is to focus on nurturing the goose that lays the golden eggs.  In this parable, a farmer had a goose who laid a golden egg on a daily basis.  The eggs were valuable and allowed the farmer to live a modest, but fullfilling, lifestyle. Even though life was good, the farmer turned greedy and assumed that there was much more gold inside of the goose.  Sadly, upon killing the goose the farmer discovered that it was just like any other goose, destroying their passive income, and lifestyle, in the process.

How does this story apply to personal finance?  It’s follows the strategy of preserving capital (the goose) while at the same time, spending the interest (the golden eggs).  If you build a diversified portfolio big enough so that it distributes sustainable (preferably increasing) dividends, or interest, to pay monthly expenses, then that portfolio is distributing what I call “forever money”.  Providing that the portfolio is full of companies that have a long history of paying uninterrupted dividends, and the holdings are not sold off to pay for stuff (killing the goose), the golden eggs will likely last you for the rest of your life.

While this money philosophy may not be for everyone, it’s a safe bet for those who are aggressive savers, considering early retirement, and comfortable with leaving a financial legacy. This strategy provides a steady source of income even during times of market volatility and encourages investing over the long term.  Perhaps most importantly, this strategy does not require the selling of assets to fund retirement during a bear market which can potentially cripple a retirement portfolio.

The upside of this strategy is that the money will last forever.  The challenge is also that the money will last forever.  The portfolio will continue to grow over time but will be passed on eventually.  The challenge is determining what to do with a large lump sum in your estate plan.  Some will pass it onto their kids, while others have committed their wealth to charitable organizations.  But that issue is for another article.

Between my RRSP, TFSA and a non-registered dividend portfolio,  I’ve managed to build a modest dividend portfolio yielding about 4%.  We’ve recently created a corporate portfolio which will also pay distributions.  The overarching goal is to build a portfolio (dividend stocks and other assets) that will distribute enough income (golden eggs) to pay our monthly expenses.  As it stands right now, that would require a portfolio value of around $1.5M with an annual distribution yield of 4%.  We have a long way to go before reaching that portfolio value, but it is something to work towards.

What is your plan?  Do you plan on building a portfolio (or assets) that will last forever?

 

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Personal growth, even if the progress is slow, is a worthwhile pursuit for everyone. Canadian Dream hits the right notes by discussing about Adding Capacity.

Michael James on Money asks: Does the Value Premium Exist? and addresses the implications for index ETF portfolios.

The Retire Happy blog highlights why Money, Marriage & Divorce are better addressed together.

With summer here, Financial Highway offers timely Money-Saving Barbecue Menu Ideas.

Boomer and Echo writes about A Simple Way To Boost Your Retirement Savings, which is a good example of baby steps towards a goal.

It may be a pipe dream for most people as Young and Thrifty poses the question: Can You Live Debt-Free?.

Apart from earning more and spending less, if you Want a Little Extra Money? You Might Already Have Some as Canadian Finance Blog shows.

Sustainable Personal Finance provides ideas about What To Do with the Extra Produce from Your Garden.

Calculating Adjusted Cost Base: A Case Study at Canadian Couch Potato demonstrates the significance of the exercise.

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  • Grant: I’m not sure what you mean by “S&P currently paying $37 per “share”...
  • SST: Now that the capital intensity issue has been addressed, I’d like to bring up another point: “If you...
  • Grant: I think I follow you…. How many shares do you own now?
  • SST: If the current S&P is paying a $37 per “share” dividend, that works out to (37×485) =...
  • Grant: @SST. I think what you are talking about is yield on cost, but that’s a misleading concept because it...
  • SST: @Grant — the S&P “shares” bought in 1974 would now provide a yield of 7.6% (37 per 485...
  • The Passive Income Earner: @David I do the same as Frugal Trader. I always buy or sell with limits. Often time,...
  • Jon Evan: Required rate of return is but one risk profile factor to consider. The other is capacity for risk. The...
  • Grant: @SST: The S&P has a yield of 1.89%, not 7.6%. $800,000 in the S&P will yield $15,000 a year, not...
  • Grant: @SST: I wouldn’t say that dividend investing is a “play it safe Canadian way of investing”....

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