What do Bogleheads think of Passive income through Dividend Stocks

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Derivative
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What do Bogleheads think of Passive income through Dividend Stocks

Post by Derivative »

What do Bogleheads think of Passive income through Dividend Stocks?

I have looked at some YouTube videos on people investing in dividend stocks and they generate ~$500- $1000+ in dividend stocks. I would like to know if there is a good way to invest Boglehead style in dividend stocks and generate passive income of $500-$1000+ per month with one's investments. I would want to use this money to pay for things like rent, utilities, and food (living expenses).

Again, I am thinking of putting maybe $100k+ in investments to generate passive income and am wondering what the best way to do this would be if I wanted to generate passive income. I kind of know real estate is better for this but I am wondering how good other alternatives are (in stocks) with less hassle. I am thinking the best would be to make a diversified dividend portfolio.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by BogleMelon »

Derivative wrote: Mon Feb 19, 2018 11:53 am
I have looked at some YouTube videos on people investing in dividend stocks and they generate ~$500- $1000+ in dividend stocks. I
$500- $1000+ per what?!
In short, the historical data supports the theory that there’s nothing special about dividend strategies. And interestingly enough, they performed worse during the 2008-2009 financial crisis, when investors were likely expecting them to perform better.

Summarizing, the returns to dividend strategies are well-explained by their exposure to common factors (such as market beta, size, value, momentum and quality). In addition, at least for taxable investors, dividend strategies are generally less efficient than total return approaches.

Finally, dividend strategies result in less diversified, and thus less efficient, portfolios because today about 60% of U.S. stocks and about 40% of international stocks don’t pay dividends, which begs the question: Why are they so popular?
http://www.etf.com/sections/index-inves ... fall-short
Conclusion

Both theory and historical evidence demonstrate there isn’t anything unique about dividends. They are just another source of profit, along with capital gains. Yet many investors treat these two sources of profit very differently, with negative consequences in terms of lower returns, greater risks and less diversified portfolios.
http://www.etf.com/sections/index-inves ... idend-myth
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dbr
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by dbr »

I can't speak for Bogleheads in general, but my personal suggestion is that investment planning and execution is about a number of considerations in which passive income probably does not appear as an item. The primary elements of investment planning and execution are investing in low cost, diversified assets that offer as a whole portfolio that suits a person's need, ability, and willingness to take risk to obtain return. Looking at passive income rather than return and the associated risk places the focus on an incomplete analysis and distraction from the picture that needs to be understood to invest.

If your objective really is passive income without regard to all other factors probably the best recommendation is to take the assets and buy an SPIA which provides a lifetime guaranteed* constant payment. *This is not to deny the possible risk of the insurance company somehow defaulting and state guarantees being inadequate, etc. There is also inflation to consider. Someone else can list the risks in depending on dividends for passive income.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by David Jay »

Derivative wrote: Mon Feb 19, 2018 11:53 amI have looked at some YouTube videos on people investing in dividend stocks...
Perhaps this is not the optimal source of investment information.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Derivative »

David Jay wrote: Mon Feb 19, 2018 12:05 pm
Derivative wrote: Mon Feb 19, 2018 11:53 amI have looked at some YouTube videos on people investing in dividend stocks...
Perhaps this is not the optimal source of investment information.
I have also taken some financial courses by other finance professionals and they recommended a couple of sources for investing/generating "passive income" including dividend stocks, real estate, REITS, etc. Not just YouTube of course...
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Derivative »

BogleMelon wrote: Mon Feb 19, 2018 12:01 pm
Derivative wrote: Mon Feb 19, 2018 11:53 am
I have looked at some YouTube videos on people investing in dividend stocks and they generate ~$500- $1000+ in dividend stocks. I
$500- $1000+ per what?!
In short, the historical data supports the theory that there’s nothing special about dividend strategies. And interestingly enough, they performed worse during the 2008-2009 financial crisis, when investors were likely expecting them to perform better.

Summarizing, the returns to dividend strategies are well-explained by their exposure to common factors (such as market beta, size, value, momentum and quality). In addition, at least for taxable investors, dividend strategies are generally less efficient than total return approaches.

Finally, dividend strategies result in less diversified, and thus less efficient, portfolios because today about 60% of U.S. stocks and about 40% of international stocks don’t pay dividends, which begs the question: Why are they so popular?
http://www.etf.com/sections/index-inves ... fall-short
Conclusion

Both theory and historical evidence demonstrate there isn’t anything unique about dividends. They are just another source of profit, along with capital gains. Yet many investors treat these two sources of profit very differently, with negative consequences in terms of lower returns, greater risks and less diversified portfolios.
http://www.etf.com/sections/index-inves ... idend-myth
Okay, so basically you are saying don't invest in dividend stocks at all and that investing in dividend stocks for $500-$1000/month is a bad idea?
Just turn to other sources of passive income like REITs, real estate, royalties, etc.?

What would the best options to generating $500-$1000/month in passive income be? That's my goal.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by mega317 »

There are hundreds or maybe thousands of pages of comments on this topic on the forum. Clearly people have different opinions. My distillation of the majority opinion is that the total return, before taxes, of total stock funds is similar to diversified stock funds focused on dividends, so the main difference is that you have less control over taxes. If you try to get fancy and pick stocks you introduce a lot more risk and effort with likely negative impact.

Do you not have a job to pay for living expenses?
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Derivative »

mega317 wrote: Mon Feb 19, 2018 1:31 pm There are hundreds or maybe thousands of pages of comments on this topic on the forum. Clearly people have different opinions. My distillation of the majority opinion is that the total return, before taxes, of total stock funds is similar to diversified stock funds focused on dividends, so the main difference is that you have less control over taxes. If you try to get fancy and pick stocks you introduce a lot more risk and effort with likely negative impact.

Do you not have a job to pay for living expenses?
I am student who probably won't have time to work during school. I have enough to pay for tuition in cash. I don't want the rest of my money to just sit in a 2% CD during 4+ years of school and am looking for some passive income for living expenses during school.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by anonsdca »

This is probably not the best place for this kind of advice. Do a Google search for other dividend message boards, forums, blogs, etc.

I just took a look the SPDR Dividend ETFs and it looks like there is a range of yields from 2%-5%. Essentially, you need to determine how much risk you want to take. You can do what you want with all kinds of investment instruments including all of those you mentioned, ETF, stocks, Reits, CEFs, etc. I wouldn't invest in any until you have done more research on your own and have established your baseline risk levels.

Good luck
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by dbr »

Derivative wrote: Mon Feb 19, 2018 1:36 pm
mega317 wrote: Mon Feb 19, 2018 1:31 pm There are hundreds or maybe thousands of pages of comments on this topic on the forum. Clearly people have different opinions. My distillation of the majority opinion is that the total return, before taxes, of total stock funds is similar to diversified stock funds focused on dividends, so the main difference is that you have less control over taxes. If you try to get fancy and pick stocks you introduce a lot more risk and effort with likely negative impact.

Do you not have a job to pay for living expenses?
I am student who probably won't have time to work during school. I have enough to pay for tuition in cash. I don't want the rest of my money to just sit in a 2% CD during 4+ years of school and am looking for some passive income for living expenses during school.
How much do you have to invest and what amount of income are you looking for? There is no "passive" income that produces much of a living expense other than just drawing down the saved money, unless you are talking about a very large amount of money. But, again, specifics are needed.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by onourway »

Derivative wrote: Mon Feb 19, 2018 1:36 pm I am student who probably won't have time to work during school. I have enough to pay for tuition in cash. I don't want the rest of my money to just sit in a 2% CD during 4+ years of school and am looking for some passive income for living expenses during school.
4 years is not a long enough time period to be thinking like this. What good is your passive income if it comes at the cost of a potential 30-50% loss of principle?

Your cash should be sustaining you while you go through school. Who cares if it's only earning 1-2% At least the principle will be there if you need it.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Pajamas »

Agree that it doesn't make much sense in your situation to put money into stocks for a few years to earn dividends. What do you plan to do with the money in the long run? It would make more sense to me to spend some of the money for living expenses and to invest the rest for long-term goals.

A part-time job when you are a student is probably a better way to provide income. If your major has co-op or paid intern opportunities, that can provide learning, income, and contacts for eventual permanent job placement. If not then there are usually local employers who like to hire students part time such as shipping companies, movers, catering companies, and similar.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by BogleMelon »

Derivative wrote: Mon Feb 19, 2018 1:25 pm
BogleMelon wrote: Mon Feb 19, 2018 12:01 pm
Derivative wrote: Mon Feb 19, 2018 11:53 am
I have looked at some YouTube videos on people investing in dividend stocks and they generate ~$500- $1000+ in dividend stocks. I
$500- $1000+ per what?!
In short, the historical data supports the theory that there’s nothing special about dividend strategies. And interestingly enough, they performed worse during the 2008-2009 financial crisis, when investors were likely expecting them to perform better.

Summarizing, the returns to dividend strategies are well-explained by their exposure to common factors (such as market beta, size, value, momentum and quality). In addition, at least for taxable investors, dividend strategies are generally less efficient than total return approaches.

Finally, dividend strategies result in less diversified, and thus less efficient, portfolios because today about 60% of U.S. stocks and about 40% of international stocks don’t pay dividends, which begs the question: Why are they so popular?
http://www.etf.com/sections/index-inves ... fall-short
Conclusion

Both theory and historical evidence demonstrate there isn’t anything unique about dividends. They are just another source of profit, along with capital gains. Yet many investors treat these two sources of profit very differently, with negative consequences in terms of lower returns, greater risks and less diversified portfolios.
http://www.etf.com/sections/index-inves ... idend-myth
Okay, so basically you are saying don't invest in dividend stocks at all and that investing in dividend stocks for $500-$1000/month is a bad idea?
Just turn to other sources of passive income like REITs, real estate, royalties, etc.?

What would the best options to generating $500-$1000/month in passive income be? That's my goal.
I am saying that it is the total return that matters. Total return = dividends + capital appreciation.
Example:
Stock A distributing 2% in dividends while not appreciating in value
Stock B distributing 0.5% while avg capital appreciation = 12%/yr
Assuming that both stocks will (magically) have the same returns over the next 20 years, why would you choose Stock A over B? You could buy B, sell a piece of it each that is equal to 2% in income, and still come out ahead
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by livesoft »

Here is a decent discussion of what Bogleheads think of Passive Income through Dividend Stocks that was started in December 2017:
viewtopic.php?t=233637 It has 185 posts
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by BogleMelon »

Derivative wrote: Mon Feb 19, 2018 1:36 pm
mega317 wrote: Mon Feb 19, 2018 1:31 pm There are hundreds or maybe thousands of pages of comments on this topic on the forum. Clearly people have different opinions. My distillation of the majority opinion is that the total return, before taxes, of total stock funds is similar to diversified stock funds focused on dividends, so the main difference is that you have less control over taxes. If you try to get fancy and pick stocks you introduce a lot more risk and effort with likely negative impact.

Do you not have a job to pay for living expenses?
I am student who probably won't have time to work during school. I have enough to pay for tuition in cash. I don't want the rest of my money to just sit in a 2% CD during 4+ years of school and am looking for some passive income for living expenses during school.
As others said, 4 years is not enough period to take stocks risk, let alone picking specific stocks for specific companies instead of a total US index fund. Look at General Electric (GE) stock, a good paying dividends company (I think over 3%), but someone who put $230,000 in GE Feb 2013, would have to redeem his shares today at $150,000 ($80,000 loss of his principle or ~ -7% annually)
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by White Coat Investor »

Derivative wrote: Mon Feb 19, 2018 11:53 am What do Bogleheads think of Passive income through Dividend Stocks?

I have looked at some YouTube videos on people investing in dividend stocks and they generate ~$500- $1000+ in dividend stocks. I would like to know if there is a good way to invest Boglehead style in dividend stocks and generate passive income of $500-$1000+ per month with one's investments. I would want to use this money to pay for things like rent, utilities, and food (living expenses).

Again, I am thinking of putting maybe $100k+ in investments to generate passive income and am wondering what the best way to do this would be if I wanted to generate passive income. I kind of know real estate is better for this but I am wondering how good other alternatives are (in stocks) with less hassle. I am thinking the best would be to make a diversified dividend portfolio.
I love it. I do better though. I get $20K in dividends! All I had to do is put $1M in VTSMX and wait until the end of the year.

Seriously though, nothing magic about dividends. You can declare your own any time you like.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by rkhusky »

Derivative wrote: Mon Feb 19, 2018 1:25 pm
Okay, so basically you are saying don't invest in dividend stocks at all and that investing in dividend stocks for $500-$1000/month is a bad idea?
Just turn to other sources of passive income like REITs, real estate, royalties, etc.?

What would the best options to generating $500-$1000/month in passive income be? That's my goal.
It appears that you want an investment to earn 6-12% annually. In order to do that, you will need to put your principal at risk, i.e. invest in the stock market or in junk bonds. You need to realize that you could easily lose 10-20% of your principal in a given year, with a possibility of losing 50%. But that is what it takes to earn 6-12% with passive investing. It's the old risk vs reward thing. If you are okay with the risk, just drop your money into a combination of US total market and Int'l total market funds, or in a total world fund. And you don't need dividends, you can also sell shares. In fact, capital gains from selling shares are taxed as low or lower than dividends, 0% in the 12% tax bracket or lower, which is also true of qualified dividends.
Last edited by rkhusky on Tue Feb 20, 2018 6:45 am, edited 1 time in total.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Clever_Username »

Derivative wrote: Mon Feb 19, 2018 1:25 pm What would the best options to generating $500-$1000/month in passive income be? That's my goal.
Put approximately $800,000 in VMMXX. This will generate about $1000/month at current rates. For $500/month instead, invest half as much.

If you need $1000/month towards living expenses for a short period, such as school, you can keep the $50K in cash and withdraw as needed. The money needed to generate $1000/month in distributions is far beyond what you likely have. Sorry.

As for my general view: there's nothing magic about dividends. They made sense in the era of hundred-dollar transaction costs. Nowadays, total return is far better. I'll withdraw when I want it. And there's nothing great about "dividend stocks" that wouldn't be true about total market either. And those dividends are guaranteed... until they're not.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Tyler Aspect »

onourway wrote: Mon Feb 19, 2018 1:53 pm
Derivative wrote: Mon Feb 19, 2018 1:36 pm I am student who probably won't have time to work during school. I have enough to pay for tuition in cash. I don't want the rest of my money to just sit in a 2% CD during 4+ years of school and am looking for some passive income for living expenses during school.
4 years is not a long enough time period to be thinking like this. What good is your passive income if it comes at the cost of a potential 30-50% loss of principle?

Your cash should be sustaining you while you go through school. Who cares if it's only earning 1-2% At least the principle will be there if you need it.
I agree. With the current high valuation of the stock market, we might only see less rise to the top compared to the subsequent drop in the next recession. There is no guarantee that a stock type investment would produce a net positive return during a 4 year period. Normally the Bogleheads styled investors are investing for retirement, and their holding period can be as long as 40 years. However, the original poster's holding period for the asset allocated to college expense is only 4 years. That is a big difference.

I believe the original poster's best option remains a CD ladder. Summer internship can provide some additional income.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by MrPotatoHead »

I shall not comment on your particulars, as I am not sure you objective is appropriate but I have no issues with pursuing dividends for cashflow. The past of least resistance is likely a quality ETF that specializes in dividends, take a look at ishares HDV and DGRO, available commission free at Fidelity. Both weigh in with a .08% Expense Ratio which is pretty cheap(80 bucks per 100K invested). You could also look at PFF which may not be a bad option if you are gogin to buy and hold, as it gets you close to the lower end of your desired cash flow; note, however, this may not be the best time to buy into preferreds, given a rising interest rate environment, the ER is less palatable also at .047% but given your parameters, as long as you can stomach the volatility, it may fit the bill.

Another approach is to go to your library and look at Valueline's model portfolios. They have two portfolios that may appeal to you. Portfolio II consists of stocks with above average income and growth, so they are balancing two key factors and Portfolio IV focuses on above average divided yields.

The advantage of using the Valueline portfolios is your time to maintain them is in the area of 5 minutes a week. They are professionally designed, diversified across industries and work as advertised. The downside is, in a taxable account you likely will have 2-3 transactions a year. In addition since you need to buy roughly 20 stocks it helps to have a larger portfolio like yours. However note, at a place like Fido with <5 transaction fee you can establish your position, in terms of commission for about 80-100 dollars. That is a pretty cheap ER. Also the volatility is likely less that the market as a whole with the two portfolios I mentioned.

Here is a link that may prove useful:

http://valueline.com/Tools/Educational_ ... otvwYaP-Hs
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by badbreath »

I have looked at some YouTube videos on people investing in dividend stocks and they generate ~$500- $1000+ in dividend stocks. I
$500- $1000+ per what?!
You have to realize most dividends are quarterly not monthly
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by unclescrooge »

I have a rental property worth about $120k, that rents for $1000/month. From this you will deduct expenses. This is the closet you will come to achieving your objective.

Unfortunately, the higher yield come with higher risk. In fact, after several years without incident, the house has been vacant for 3 months and I had to sink $5k in repairs. I don't expect it to rent until end of March.

You can try your luck with high yield stocks, but the low interest rate environment has bid up the the price of these stocks to where they are pricier than the overall market.

Seems like a bad time to jump into dividend strategies.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by CyclingDuo »

Derivative wrote: Mon Feb 19, 2018 11:53 am What do Bogleheads think of Passive income through Dividend Stocks?

I have looked at some YouTube videos on people investing in dividend stocks and they generate ~$500- $1000+ in dividend stocks. I would like to know if there is a good way to invest Boglehead style in dividend stocks and generate passive income of $500-$1000+ per month with one's investments. I would want to use this money to pay for things like rent, utilities, and food (living expenses).

Again, I am thinking of putting maybe $100k+ in investments to generate passive income and am wondering what the best way to do this would be if I wanted to generate passive income. I kind of know real estate is better for this but I am wondering how good other alternatives are (in stocks) with less hassle. I am thinking the best would be to make a diversified dividend portfolio.
If you want $1K per month in dividends, you'll have to invest a lot more than $100K to generate it. That would be a 12% dividend yield which simply does not exist. Unless you put it all in New Residential Investment Corp (NRZ) which has a current yield of 11.84%. However, REITS get killed in rising interest rate environments, so your principal would be headed south if that environment persists.

A basket of stocks yielding 2.x % to 11.x % (McDonald's, Starbucks, Rio Tinto, Altria, Walmart, Verizon, AT&T, Proctor & Gamble, Coca-Cola, J&J, 3 M, Amgen, Clorox, Omega Healthcare, Qualcomm, Vale, Chevron, Realty Income Corp, Con Ed, Wells Fargo, New Residential Investment Corp, etc...) would provide you with dividends as well as share price appreciation. But $100K simply isn't going to cut it to generate $12K. You'll need to bump that up considerably to generate the type of dividend income you mention ($1K per month).

Can you build a portfolio to generate $12K a year in dividends?

Yes.

http://www.dividend.com/how-to-invest/c ... -by-yield/

Cycling Duo (We've managed to trim our dividend producing portfolio down over the past year+ to now only yield about $24-25K per year.)
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by ChinchillaWhiplash »

Derivative wrote: Mon Feb 19, 2018 1:19 pm
David Jay wrote: Mon Feb 19, 2018 12:05 pm
Derivative wrote: Mon Feb 19, 2018 11:53 amI have looked at some YouTube videos on people investing in dividend stocks...
Perhaps this is not the optimal source of investment information.
I have also taken some financial courses by other finance professionals and they recommended a couple of sources for investing/generating "passive income" including dividend stocks, real estate, REITS, etc. Not just YouTube of course...
There are some CEFs that are designed to provide income. Most pay 6%+. Some quarterly, some monthly. Will have expense ratios around 1%. Be careful as some high div payers have high ROC and sell for a high premium over NAV. Others are highly leveraged. There are some decent ones if you look hard enough.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Northern Flicker »

I would like to know if there is a good way to invest Boglehead style in dividend stocks and generate passive income of $500-$1000+ per month with one's investments. I would want to use this money to pay for things like rent, utilities, and food (living expenses).

Again, I am thinking of putting maybe $100k+
...
Without spending principal, you are asking for a 6-12% annualized return. You can’t get that over a 4-year horizon without taking risk of a substantial negative return over the period.

The first thing you may want to consider is funding a 529 education savings account with what you will spend on qualified expenses: tuition, books, fees, and qualified living expenses over 4 years. This can be invested very conservatively, and the calculated amount to contribute now discounted by say 10% so return on investment gives you the full amount needed. That’s not much return, but the 529 will make it be tax-free if spent on qualified educational expenses. If you want $1000/month for 4 years, that is about $44-45K to put into the 529. You may be able to use a smaller initial principal by factoring in the federal education tax credits.

Any additional funds, about $55K in your case then can be invested for a longer horizon. Stock index funds are tax efficient, you could use the ETFs VTI and IXUS and still harvest the generated dividends. You might hold $35K in VTI (total US) and $20K in IXUS (total international).

You will generate $1000/mo of “income” by spending down the 529, but the stock is likely to grow significantly over a significantly long time horizon, possibly over just 4 years, but it may take longer. The point is that you invest the funds you need for certain in a conservative investment that will preserve principal and earn interest tax-free, and you invest the funds you don’t need in the short-term in a more volatile investment that should provide long-term growth.

You probably want to look for a 529 with a low fee money market fund or low fee stable value fund, or you may have a plan in your state that provides a 10% tax credit for contributions. There also are federal education tax credits that may be used to reduce the amount you need to set aside in the 529 and increase the amount invested for the long term.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Pajamas »

If you want to know more about the risks that people are referring to, you can google "sucker yield" and "yield chasing".

High yields are often a signal that the market thinks the dividend will be cut. There are quite a few stocks yielding over 10% right now and that is even after some of them have already cut their dividends. A reduction in the dividend often causes the share price to go down which can even increase the percentage yield despite a smaller dividend, in dollars.

6% yield or $500 a month from $100k is currently reasonable in certain sectors such as REITs. 12% or $1k a month is not generally reasonable currently with inflation and interest rates where they are.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Tyler Aspect »

Hopefully we can save the original poster from a very expensive learning experience of excessive yield chasing. There is a very basic observation that states when the yield is very high, then the principle value must be extremely unstable. Works for high yield bonds as well as high yield stocks.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by gotester2000 »

Derivative,

Create a diversified stock portfolio,about 15-20 stocks from different categories(top 2 of each category). There is a probability of getting a good return as you get dividends,splits,bonuses etc - this is not a monthly paying scheme though.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by CyclingDuo »

gotester2000 wrote: Tue Feb 20, 2018 6:20 am Derivative,

Create a diversified stock portfolio,about 15-20 stocks from different categories(top 2 of each category). There is a probability of getting a good return as you get dividends,splits,bonuses etc - this is not a monthly paying scheme though.
Yes, that is a way to construct a dividend portfolio. One can also choose companies with good dividends that stagger when their quarterly earnings are reported, and when the dividends are paid out to have monthly dividend income. The "Fill the Gap Portfolio" at Seeking Alpha is somewhat constructed that way (21 stocks, dividends spread out for a monthly stream). The dividends are not evenly distributed as some months receive more than others. However, it would cost the OP $200K to get his $1000 per month version of that portfolio based on today's prices and dividends it is producing. It is currently producing a 6% yield.

That being said, the OP is not going to find much support here at BH for a dividend portfolio.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by delamer »

Have just skimmed the replies, so this may be repetitive.

If you have $50,000 saved for living costs while you are in school and need $100,000, there is no magic formula that will get you the $100,000 via dividend investing or any other means. In fact, when you need to use money within a 5-year period, you should avoid stocks due to their volatility.

Assess your expenses while you are in school, and then figure out if you have a deficit. Assume that you current savings will only grow enough to keep up with inflation. If you do have a deficit, then you’ll need to borrow (or work) to make up the difference.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by CyclingDuo »

Derivative wrote: Mon Feb 19, 2018 1:25 pmOkay, so basically you are saying don't invest in dividend stocks at all and that investing in dividend stocks for $500-$1000/month is a bad idea?
Just turn to other sources of passive income like REITs, real estate, royalties, etc.?

What would the best options to generating $500-$1000/month in passive income be? That's my goal.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Derivative »

Thank you so much for all of your responses. Any additional insight(s) would be greatly appreciated.

What do you guys think about this guy: "ppcian" who invests for cash flow and dividend checks and not capital appreciation? He seems to have a robust business and investing background and lots of experience with dividend stocks.

His strategy and philosophy is to buy and hold forever. He never intends to sell and says that he will definitely achieve his goal of living off his dividend passive income stream.

CRUSHING The S&P 500 Index With Dividend Growth Stocks (Dividend Stocks Vs. Index Funds): https://www.youtube.com/watch?v=6rhvz8-0TDY

Dividend Cuts, Economic Recession, & PANIC: My Perspectives As A Dividend Stock Investor: https://www.youtube.com/watch?v=j_DJLLmpi74

http://www.ppcian.com/i-invest-for-divi ... l-freedom/

I am guessing there are many people here who do not have any experience or knowledge of dividend stocks whatsoever and would just brush off any other forms of investing without having researched them in depth. Please do not give advice if that is the case as that would be the same as telling someone to not become a doctor or invest in self-storage/hotels because it's "too hard."
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by triceratop »

Derivative wrote: Tue Feb 20, 2018 2:01 pm Thank you so much for all of your responses. Any additional insight(s) would be greatly appreciated.

What do you guys think about this guy: "ppcian" who invests for cash flow and dividend checks and not capital appreciation? He seems to have a robust business and investing background and lots of experience with dividend stocks.

His strategy and philosophy is to buy and hold forever. He never intends to sell and says that he will definitely achieve his goal of living off his dividend passive income stream.
I think that living off of a dividend stream is the same as selling that portion of your portfolio off. So I find his dual intention to never sell and live off his dividend stream to be a contradiction in terms.
I am guessing there are many people here who do not have any experience or knowledge of dividend stocks whatsoever and would just brush off any other forms of investing without having researched them in depth. Please do not give advice if that is the case as that would be the same as telling someone to not become a doctor or invest in self-storage/hotels because it's "too hard."
Do you only want opinions from people who agree with your perspective, or those who have thought about the strategy and disagree about its worth?
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Whakamole »

It sounds like you have already made up your mind, in which case the thread should be closed. Or never started to begin with.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by bhsince87 »

I've studied the heck out of this, and even followed that approach for a few years. 20-30 years ago, it made a lot more sense than today.

It CAN still work today. However, for an equivalent risk profile, recent history shows you will get better returns overall by using a total returns approach. In other words, a combination of spending dividends and occasionally selling for capital gains.

In order to get higher returns from dividends only, you must take on additional risk. If you are willing to accept ending potentially ending up with less capital at the end of 4-5 years, that might be an OK trade off for you.

But in general, a dividend only approach is not recommended for most people.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by CyclingDuo »

Derivative wrote: Tue Feb 20, 2018 2:01 pm Thank you so much for all of your responses. Any additional insight(s) would be greatly appreciated.

What do you guys think about this guy: "ppcian" who invests for cash flow and dividend checks and not capital appreciation? He seems to have a robust business and investing background and lots of experience with dividend stocks.

His strategy and philosophy is to buy and hold forever. He never intends to sell and says that he will definitely achieve his goal of living off his dividend passive income stream.

CRUSHING The S&P 500 Index With Dividend Growth Stocks (Dividend Stocks Vs. Index Funds): https://www.youtube.com/watch?v=6rhvz8-0TDY

Dividend Cuts, Economic Recession, & PANIC: My Perspectives As A Dividend Stock Investor: https://www.youtube.com/watch?v=j_DJLLmpi74

http://www.ppcian.com/i-invest-for-divi ... l-freedom/

I am guessing there are many people here who do not have any experience or knowledge of dividend stocks whatsoever and would just brush off any other forms of investing without having researched them in depth. Please do not give advice if that is the case as that would be the same as telling someone to not become a doctor or invest in self-storage/hotels because it's "too hard."
He's not sharing any new things that investors don't already know about dividend growth investing. There are many well established websites and blogs devoted to it, there are gurus on television every day talking about it, there are mutual funds and ETF's dedicated to it, there are model dividend portfolios to mimic, and the strategy is what it is.

Strategically placed, you could invest your $100K and produce a dividend stream of about $6K a year. The most utilized strategy would be to reinvest those dividends in additional shares (using DRIPs or buying more shares of your choosing with the dividends when opportunities arise) for quite a few years to grow the portfolio. This, in turn, increases the amount of dividends as the number of shares you own increases (as well as if you buy or add other company stocks to your dividend portfolio). Not as tax efficient in the accumulation phase if the stocks are held in a taxable account, but a well known strategy for those a decade out or so from retirement who might want to begin building an income stream.

The example I cited above is the Fill The Gap Portfolio from Seeking Alpha. It currently would cost you $511K to buy all of the stocks to match what is in it for the $31K annual dividend income. I haven't seen the update on number of shares and dividends since the November update of the number of shares was in an online article, but I don't subscribe to the Seeking Alpha service that began this portfolio a few years ago. I do track it (for fun) at Yahoo to see the fluctuation in share price. It was designed to reinvest dividends in building up additional shares over a number of years (began in 2014 or 2015 with an initial purchase price of $411K) to produce a dividend stream of $25K for a hypothetical couple entering retirement to couple with their Social Security income stream. The portfolio has surpassed the $25K income stream desired, so I believe the author/creator of the portfolio uses the excess dividends beyond $25K to purchase additional shares. This is all in an effort to illustrate this particular strategy for a hypothetical scenario and track it for a number of years.

Image

The guy you link above, Ian, is using a similar strategy. And it looks like he began his collection of dividend stocks in 2009 and talks about his dividend yield based on initial cost. I think we would all be happy purchasing a portfolio of quality dividend stocks at bear market lows in 2009, and would have no difficulty blogging and creating videos on YouTube to talk about how great our strategy was for creating a stream of passive income. :mrgreen:

If the timing of a bear market works out before we retire, and we have the capital sitting around waiting to be deployed - sure, we'd pounce on a few hundred thousand dollars worth of shares at fire sale prices that would eventually bounce back and produce a stream of passive income in our retirement. Probably pounce on VTI and VXUS while we were at it.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Tyler Aspect »

You can look at this historical performance comparison from year 2006 to 2009. The chart represents a four year period, so you can imagine year 2006 as the first year of college, and year 2009 as the fourth year of college. The performance comparison is between Vanguard Equity Income (dividend approach), and Vanguard S&P 500 (stock index).

https://www.portfoliovisualizer.com/bac ... ion2_2=100

You can see the impact of the last recession on the fund values. Both funds suffered a maximum draw-down of around 50%. The dividend approach does not magically protect you from a stock market down-turn. The worst case is that the recession arrives on the first year of college; the less severe cases have a recession arriving on the third or fourth year of college. However, a late recession can impact your job search.

You can examine various historical scenarios using PortfolioVisualizer. For example, enter a $8333 monthly expense to simulate a steady withdrawal.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by rkhusky »

If you don't care about principal and intend to keep your stocks forever, go ahead ahead and purchase a basket of high dividend stocks. Since you don't care if the value of your stocks go down, the main remaining risks are that the companies, whose stocks you own, will decrease or eliminate their dividend, or they will go bankrupt. If you own a sufficient number of different stocks, you can reduce these risks.

Vanguard has a High Yield Dividend fund, but it's yield is currently only 2.71%, meaning you would need to invest $200K to approach the lower bounds of your desired income. It currently has 397 stocks, which helps reduce risk through diversity. On the other hand, if you reduce diversity by owning fewer higher performing stocks, you will have a better chance of earning a higher return with a smaller initial investment.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by bhsince87 »

CyclingDuo wrote: Tue Feb 20, 2018 4:05 pm
The guy you link above, Ian, is using a similar strategy. And it looks like he began his collection of dividend stocks in 2009 and talks about his dividend yield based on initial cost.
And this is the verbal/mathematical twist that makes this approach sound so appealing!

Not completely dishonest, but not very meaningful either.

By this "metric", I own some Apple stock that is currently yielding 110% per year!!!!
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by GibsonL6s »

By this "metric", I own some Apple stock that is currently yielding 110% per year!!!!
[/quote]

Agreed, what matters is the going forward total yield, which is impossible to know 8-)
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by randomizer »

Not a huge fan of dividends from a taxation perspective. Give me long term capital gains instead.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Derivative »

What about investing the Bogleheads way and then selling some of the share for "passive income." How would this compare to investing in dividend stocks? Would this be the best of both worlds if you desired to have some kind of passive income to cover living expenses? Does this beat NOT investing the cash you have while you are in school for 4-8+ years?

I am not just looking at stocks for passive income but will probably be starting selling on Amazon and kindle ebooks soon. These options do not tap into my capital much at all, however. I just am looking at ways to use my money during the time I am in school/residency to grow it to use for living expenses (so I don't have to borrow) and so the capital will be preserved.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by TropikThunder »

Tyler Aspect wrote: Tue Feb 20, 2018 4:11 pm You can look at this historical performance comparison from year 2006 to 2009. The chart represents a four year period, so you can imagine year 2006 as the first year of college, and year 2009 as the fourth year of college. The performance comparison is between Vanguard Equity Income (dividend approach), and Vanguard S&P 500 (stock index).

https://www.portfoliovisualizer.com/bac ... ion2_2=100

You can see the impact of the last recession on the fund values. Both funds suffered a maximum draw-down of around 50%. The dividend approach does not magically protect you from a stock market down-turn. The worst case is that the recession arrives on the first year of college; the less severe cases have a recession arriving on the third or fourth year of college. However, a late recession can impact your job search.

You can examine various historical scenarios using PortfolioVisualizer. For example, enter a $8333 monthly expense to simulate a steady withdrawal.
Perhaps more relevant to OP, here is the same portfolio, same time frame, but with the investor taking the dividends in cash:
https://www.portfoliovisualizer.com/bac ... ion2_2=100

In this case, the Equity Income fund is the clear loser.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by bhsince87 »

Derivative wrote: Tue Feb 20, 2018 9:11 pm What about investing the Bogleheads way and then selling some of the share for "passive income." How would this compare to investing in dividend stocks? Would this be the best of both worlds if you desired to have some kind of passive income to cover living expenses? Does this beat NOT investing the cash you have while you are in school for 4-8+ years?

I am not just looking at stocks for passive income but will probably be starting selling on Amazon and kindle ebooks soon. These options do not tap into my capital much at all, however. I just am looking at ways to use my money during the time I am in school/residency to grow it to use for living expenses (so I don't have to borrow) and so the capital will be preserved.
Yes! This is the path with the most likelihood of success. You can sell some shares if/when you need cash, or keep reinvesting it. It also allows you to better manage taxes.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by Northern Flicker »

Trying to fund short-term liabilities with a portfolio that is 100% stock has a significant risk of failure, whether index funds or dividend stocks. Specifically matching short-term fixed income investments to the liabilities and investing the remainder in stock is a good way to establish the most efficient mix of stocks and fixed income investments.

When the liabilities are prefunded in that manner, the stock gains do not need to be harvested and can be allowed to grow to replace some or all of the fixed income asset that is spent down. If stocks don’t do well, the liabilities are still funded. This is much safer than depending on dividend-oriented stocks to maintain their dividend if there is a downturn or negative outcome for an individual company. This was the subject of my previous posting.

You only have to look at GE to see what can go wrong with a blue chip, reliable dividend producer.
Last edited by Northern Flicker on Thu Feb 22, 2018 2:22 am, edited 1 time in total.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by azanon »

Derivative wrote: Tue Feb 20, 2018 9:11 pm What about investing the Bogleheads way and then selling some of the share for "passive income." How would this compare to investing in dividend stocks? Would this be the best of both worlds if you desired to have some kind of passive income to cover living expenses? Does this beat NOT investing the cash you have while you are in school for 4-8+ years?

I am not just looking at stocks for passive income but will probably be starting selling on Amazon and kindle ebooks soon. These options do not tap into my capital much at all, however. I just am looking at ways to use my money during the time I am in school/residency to grow it to use for living expenses (so I don't have to borrow) and so the capital will be preserved.
I can get you to "close enough" without suggesting something reckless. Admittedly having only skimmed the thread, the key things I'm seeing is "4-8 yrs" is your time horizon, and you really want passive income, so what I'm hearing is that your preference would be to not have to sale shares for that income.

That being the case, I'd suggest you use the fund I'm using for one of my taxables; Vanguard Global Wellesley. Why? It's only ~ 35% stock, and I really wouldn't recommend a stock percentage higher than about 40% for time horizons under 10 years. Secondly, because Global wellesley's stock is value tilted, and its bonds are optimized for higher yield (mostly corporates), then you're going to get in the neighborhood of 3% yield annually (paid quarterly) instead of, say, 2% from VG lifestrategy conservative growth. Now is this as tax-friendly as the lifestrategy funds? Nope. But you want higher dividends so you have to make tax optimization secondary if that's what's more important to you.

And note ~ 3% yield on 100K is only 250/month. 6% yield just ain't gonna happen unless you take way more risk than a 4-8 yr time horizon would recommend.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by ChinchillaWhiplash »

Here is a list of ticker symbols for you to research. Might be worth the risk if you don't mind gambling. I wouldn't put all my $s into these if I were you, but might be worth putting a small % in. So, if you are dead set on getting enough dividends to live off of, these might work. Lowest yielding fund is around 8%. If you have some time to let these DRIP, your holding size will grow quickly.

EOD
GGN
MCN (CEFs)
MGF
PNNT

PFLT (floating rate capital BDC)

CHMI
NRZ (mREITs)
DX

If you want super high yields and maximum risk, try these highly leveraged funds

AMZA.( MLP ETF)
CEFL
MORL ( 2x leveraged ETNs these follow BDC and REIT indexes and have relatively low ER)
Last edited by ChinchillaWhiplash on Wed Feb 21, 2018 12:56 pm, edited 1 time in total.
mega317
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by mega317 »

ChinchillaWhiplash wrote: Wed Feb 21, 2018 11:55 am Here is a list of ticker symbols for you to research. Might be worth the risk if you don't mind gambling. I wouldn't put all my $s into these if I were you, but might be worth putting a small % in. So, if you are dead set on getting enough dividends to live off of, these might work. Lowest yielding fund is around 8%. If you have some time to let these DRIP, your holding size will grow quickly.

EOD
GGN
MCN
MGF
PNNT
PFLT

CHMI
NRZ (mREITs)
DX

If you want super high yields and maximum risk, try these highly leveraged funds

AMZA.( MLP ETF)
CEFL
MORL ( 2x leveraged ETNs)
I'm sorry but this is just reckless advice. Also contradictory--if you DRIP, then you aren't getting 500-1000 per month to pay for expenses like the OP wants.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by ChinchillaWhiplash »

mega317 wrote: Wed Feb 21, 2018 12:04 pm
ChinchillaWhiplash wrote: Wed Feb 21, 2018 11:55 am Here is a list of ticker symbols for you to research. Might be worth the risk if you don't mind gambling. I wouldn't put all my $s into these if I were you, but might be worth putting a small % in. So, if you are dead set on getting enough dividends to live off of, these might work. Lowest yielding fund is around 8%. If you have some time to let these DRIP, your holding size will grow quickly.

MEOD
GGN
MCN
MGF
PNNT
PFLT

CHMI
NRZ (mREITs)
DX

If you want super high yields and maximum risk, try these highly leveraged funds

AMZA.( MLP ETF)
CEFL
MORL ( 2x leveraged ETNs)
I'm sorry but this is just reckless advice. Also contradictory--if you DRIP, then you aren't getting 500-1000 per month to pay for expenses like the OP wants.
I stated that there is a lot of risk here. You can get a lot of money from dividends NOW if you put enough in and don't drip. The drip would just make it better. Just throwing out food for thought from a different perspective than the BH mindset. And for the record, I have almost all indexed funds with low ER and wide diversification :sharebeer

I did the math on $100k worth of PNNT at a price of $7.15 per share for 1 year. You would earn an average of $839 a month. This trades like a stock and has no ER. This does not take taxes into account though.

100k worth of NRZ would pay over $1k month at current prices.

$100k of MORL at $14.50 share would pay out $1905 a month even after taking out the 0.40% ER!


All of the things I listed will meet the goals of the OP, although not with the BH approach. If you don't take the risk, it is not possible without investing a lot more $s. Also, don't expect a lot or any capital appreciation with these either. You could hold a portfolio with a mix of these for diversification. Pretty much any combination of these would still provide a yield paying $500+ a month.
Last edited by ChinchillaWhiplash on Wed Feb 21, 2018 2:39 pm, edited 8 times in total.
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Re: What do Bogleheads think of Passive income through Dividend Stocks

Post by rkhusky »

Derivative wrote: Tue Feb 20, 2018 9:11 pm I just am looking at ways to use my money during the time I am in school/residency to grow it to use for living expenses (so I don't have to borrow) and so the capital will be preserved.
If you are not willing to risk principal, there is no way you can earn 6%. The only (nearly) risk-free investments are money market or savings accounts or CD's. Even a bond fund has the risk of losing a few to tens of percent, depending on the duration. There is no getting around the risk vs. reward function of passive investing. If there were, other would be piling in. People have been looking to replace low bond and savings yields for 10 years. You either get high rewards for high risk or low reward for low risk, unless you are willing to put in sweat equity, such as getting a job, starting a business, or becoming a landlord. And the latter two also have risks, which you can reduce somewhat by diversifying and working harder.
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