When I started this blog, I wrote about my goal of Financial Independence by 2040, http://www.stockles.com/about/. Let´s take a look. Will I make it? If we say that my principal (portfolio) is around $35000 at the moment, and that my age is around 24, how will things look in 2040?
- It´s normal to consider an annual average growth at somewhere between 6 – 10 % in the stock market. I will be using 6 % in this calculation.
- I´m going to use a yield at 4 %
- I´m going to be pessimistic and say that I only add 2000$ each year, annually
- The investment horizon is 23 years, 2040 – 2017 = 23
- I´m going to show you one without reinvestment (DRIP = NO), and one with (DRIP = YES), and one with a bit more annual addition.
- I´m neglecting inflation and wealth tax this time since the big variable is future salary. When that variable is set in stone, I´ll calcuate again with a much more accurate amount
Excited? Well, I am!
First is without DRIP:
After 23 years:
- New Principal $226682.89
- Total Return 181, 09 %
- Avg Annual Return 7, 87 %
- New annual Dividend Income $9107. 32
- Dividend Paid out through 23 years $97788.60
- Yield on Cost 11,24 %
Okey! Interesting. Well, annual dividend is $9107. It´s certently something, and it would make life easier at 2040 (when I´m 47 years). Since an average salary in Norway is around $60000, this annual dividend makes up about 1/5 of my income (I´m expecting to earn a lot more (!) than “average salary”, but that´s another story)
Second is with DRIP
After 23 years
- New principal $472486.63
- Total return 482, 32 %
- Avg Annual Return 21,01 %
- New Annual Dividend Income $18899. 47
- Dividend Paid out through 23 years $156584. 65
- Yield on Cost 23.33 %
Impressive, almost 30 % of average salary without doing anything. Cool, but nooot cool enough. I can´t quit a job and only live by the dividend income. So, what has to change? The way I see it, the easiest thing to change is my monthly or annually savings. Once I get a proper job, I will probably be saving around 30 – 40 % of that income, and putting about 20 – 30 % in the stock market. Let´s take a look at the new situation if I invest $10000 each year:
- New principal $1108830. 83
- Total Return 318, 43 %
- Avg Annual Return 13,84 %
- New Annual Dividend Income $44353.23
- Dividend Paid out through 23 years $337532.33
- Yield on Cost 16, 74 %
That´s enough to live a sweet life. Especially if I don´t live in Norway where a beer costs $10. Hurray! And there are even better news, I am most likely going to save more than $10000 each year, which will make this annual dividend even higher, and the waiting time will be reduced even further.