The simplest income investing allocation would be:
- 1/3 of assets in dividend paying stocks that meet the criteria we discussed.
- 1/3 of assets in bonds and / or bond funds that meet the conditions we discussed.
- 1/3 of assets in real estate, most likely in the form of direct property ownership through a limited liability company or other legal structure to protect you if you are sued. You can use this portion of your portfolio as a 50% down payment and borrow the rest on top so you can actually own double the real estate.
A Look at the Numbers In Detail
What would this allocation look like in a real portfolio? Let's take a look at a worker who retires with $350,000 because, again, this would only take $146 per month at 7% from the time you were 25 until you were 65. To keep the numbers simple, I'm going to round up to the nearest $5 increment.Stocks: $108,335 invested in high quality dividend stocks that have an average yield of 4.5%. Expected annual income: $4,875
Bonds: $108,335 invested in high quality bonds that have an average yield of 4.5%. Expected annual income: $4,875
Real Estate: $108,335 used as 50% equity combined with another $108,335 borrowed from the bank to buy a total of $216,670 in property. After expenses, maintenance, costs, vacancies, et cetera, expected annual income: $15,100.
Grand Total Pre-Tax Income: $24,850 in cash. For sustainable money, however, you should only take out 4% of the $350,000, or $14,000, so you would leave $10,850 in your income investing portfolio. This setup should last you forever.
