A stable investment platform?
Question: I need some professional advice. Where and how can I make an investment and look for a return of up to $50,000 per month? Where do I invest, and how much would I need to invest? Would you suggest that I use my own money to invest, or get a loan from the bank?
Please advise me accordingly as I am really in need of a stable investment platform.
– Andrae
Answer: It seems that you are interested in a fixed-income instrument from which you can expect to get a known return on a set schedule. Considering the low rate of return on such instruments, you have a high mountain to climb to get the return you have stated.
Fixed-income instruments, whether money-market instruments or bonds, do offer a reliable stream of income and relative safety of principal but do not give phenomenal returns. It is the more risky investment instruments, like ordinary stocks, that give really good returns. But this does not happen overnight, not to mention that there is the real possibility that you could lose some of your capital.
If you need to get $50,000 on a monthly basis, it seems that you are interested in a 30-day instrument, perhaps a repurchase agreement (repo). Let us say the rate is 2.50 per cent. The tax rate is 25 per cent, so you would net 1.875 per cent. How much would you need to invest to earn $50,000 per month or $600,000 per year, assuming that you do not reinvest the interest that you earn each month? You would need the tidy sum of $32 million. That is not what you have in mind!
To be able to get better returns, you would need to invest for capital gains. Apart from ordinary stocks, you could consider unit trusts, which invest in stocks and real estate for growth. Unit trusts, which invest primarily in the money market and in long-term bonds, are not able to give comparable returns over the long term.
Although equities generate cash through dividends, you should not expect monthly payments. Expect one or two payments per year. Do not expect a distribution from unit trusts because most do not distribute income.
HOW MUCH SHOULD YOU INVEST?
The big question is not how much you should invest to make the sum you mentioned unless you are interested in just income. As you reflect on how you can participate in the financial markets, you should consider how much you do have to make that move.
You need to establish a base by making a budget to help you generate savings if you do not have one. Invest the savings you do not need in the short term. Start slowly and with the intention of remaining invested for the long term.
To invest, go to one of the stockbroking companies or a portfolio-management company. You will get help to create a portfolio that is suitable for you. You should be able to get help to determine your risk profile, which is important in determining what is suitable for you.
Go to one of the unit trusts if you prefer to choose that option, but bear in mind that there are many different types of funds. It is important to determine your risk profile to determine what is best for you.
When you do decide to start your investment programme, consider the importance of diversification. If you choose to buy stocks, select them from more than one industry and, later, if your pocket gets deep enough, in more than one country.
Oran A. Hall, the principal author of ‘The Handbook of Personal Financial Planning’, offers personal financial planning advice and counsel. Email finviser.jm@gmail.com.
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