How should I invest $50k for maximum monthly cash flow?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
Kronodeus
Posts: 3
Joined: Tue Jan 14, 2020 9:25 pm
Location: San Diego, CA

How should I invest $50k for maximum monthly cash flow?

Post by Kronodeus » Tue Jan 14, 2020 9:56 pm

Hi folks,

I'm getting a bit bored with my current investment strategy, having maxed out my 401k and Roth IRA contributions and also depositing 10% of my income into a diversified, moderately aggressive portfolio of mostly index funds.

Lately I've been curious about more dividend-focused strategies, and I have about $50k in cash that I am looking to invest and would like to try putting it into "dividend growth stocks" (just parroting that phrase I read somewhere online) because the idea of having a secondary income stream sounds pretty neat. I also like the idea of implementing a DRIP strategy and being able to buy partial shares with the returns.

Anybody have experience getting a decent secondary income stream through dividends? Would you recommend it? How would you recommend I go about researching dividend-paying equities? Aside from some new terminology, is picking an equity for its dividends any different than the traditional approach?

Thanks
-R

Update:

I've learned that dividend payouts are not actually profit, since the stock price decreases by an equivalent amount, making it basically a partial sale of the stock. With that knowledge I will certainly not be pursuing a dividend-focused strategy. :happy
Last edited by Kronodeus on Tue Jan 14, 2020 10:38 pm, edited 1 time in total.

User avatar
LadyGeek
Site Admin
Posts: 58830
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: How should I invest $50k for maximum monthly cash flow?

Post by LadyGeek » Tue Jan 14, 2020 10:03 pm

Welcome! See this discussion: Dividend investing vs. index investing
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
Topic Author
Kronodeus
Posts: 3
Joined: Tue Jan 14, 2020 9:25 pm
Location: San Diego, CA

Re: How should I invest $50k for maximum monthly cash flow?

Post by Kronodeus » Tue Jan 14, 2020 10:34 pm

LadyGeek wrote:
Tue Jan 14, 2020 10:03 pm
Welcome! See this discussion: Dividend investing vs. index investing
Thanks for sharing! This thread contains some important information I was not aware of, like the fact that dividend payouts are accompanied by an equivalent share price drop. Makes me wonder why anyone would favor dividends unless they (like me) thought it was actual profit. :oops:

venkman
Posts: 1108
Joined: Tue Mar 14, 2017 10:33 pm

Re: How should I invest $50k for maximum monthly cash flow?

Post by venkman » Tue Jan 14, 2020 11:06 pm

Kronodeus wrote:
Tue Jan 14, 2020 10:34 pm
Makes me wonder why anyone would favor dividends unless they (like me) thought it was actual profit. :oops:
When you're in the withdrawal phase, having dividends sent to cash is an easy way to withdraw from your portfolio without needing to sell anything. Plus, dividend income tends to be a lot more stable than stock prices during periods of volatility.

BogleMelon
Posts: 2250
Joined: Mon Feb 01, 2016 11:49 am

Re: How should I invest $50k for maximum monthly cash flow?

Post by BogleMelon » Tue Jan 14, 2020 11:13 pm

Buy GE 😈
Seriously though, read this: https://www.etf.com/sections/index-inve ... nopaging=1
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

User avatar
Topic Author
Kronodeus
Posts: 3
Joined: Tue Jan 14, 2020 9:25 pm
Location: San Diego, CA

Re: How should I invest $50k for maximum monthly cash flow?

Post by Kronodeus » Sat Jan 18, 2020 1:25 pm

venkman wrote:
Tue Jan 14, 2020 11:06 pm
When you're in the withdrawal phase, having dividends sent to cash is an easy way to withdraw from your portfolio without needing to sell anything. Plus, dividend income tends to be a lot more stable than stock prices during periods of volatility.
In terms of total return, there is no difference between getting a dividend payout and selling an equal dollar amount of shares. So I don't see the advantage of not "needing to sell anything" when it's effectively the same as selling except you're at a greater tax advantage with the latter.

Also any semblance of stability is an illusion because the underlying value of the asset has nothing to do with the dividend payout. You are also less diversified by targeting dividend-oriented equities.

You can create an even better illusion without the downsides if you just sell shares on a regular schedule (less often is probably better to take advantage of compounding), deposit the cash into a savings account, then withdraw a fixed amount monthly. With that system you'd have maximum control over cash flow since you are basically paying yourself dividends.

User avatar
LadyGeek
Site Admin
Posts: 58830
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: How should I invest $50k for maximum monthly cash flow?

Post by LadyGeek » Sat Jan 18, 2020 2:23 pm

I removed an off-topic post. As a reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters. Attacks on individuals, insults, name calling, trolling, baiting or other attempts to sow dissension are not acceptable.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

venkman
Posts: 1108
Joined: Tue Mar 14, 2017 10:33 pm

Re: How should I invest $50k for maximum monthly cash flow?

Post by venkman » Mon Jan 20, 2020 11:40 pm

Kronodeus wrote:
Sat Jan 18, 2020 1:25 pm
In terms of total return, there is no difference between getting a dividend payout and selling an equal dollar amount of shares. So I don't see the advantage of not "needing to sell anything" when it's effectively the same as selling except you're at a greater tax advantage with the latter.

Also any semblance of stability is an illusion because the underlying value of the asset has nothing to do with the dividend payout. You are also less diversified by targeting dividend-oriented equities.

You can create an even better illusion without the downsides if you just sell shares on a regular schedule (less often is probably better to take advantage of compounding), deposit the cash into a savings account, then withdraw a fixed amount monthly. With that system you'd have maximum control over cash flow since you are basically paying yourself dividends.
If a recession comes and the market drops in half, you'd have to sell twice as many shares to get the amount you were getting before (or you'd have to sell off bonds). While dividend income would likely also decline, it would probably decline much less than 50%, since most companies only cut dividends when they absolutely have to.

I'm a fan of a 5% cash bucket as part of ones fixed income allocation in the withdrawal phase. At a reasonable withdrawal rate (~3%), you don't even need to tilt toward dividends. A globally diverse balanced portfolio should produce at least 2% in dividends a year, giving you 5 years to draw down the cash bucket--a generous amount of time to let the markets rebound.

EfficientInvestor
Posts: 269
Joined: Thu Nov 01, 2018 7:02 pm
Location: Alabama

Re: How should I invest $50k for maximum monthly cash flow?

Post by EfficientInvestor » Tue Jan 21, 2020 12:03 am

If you are familiar with options, you could consider the following:

Buy 100 shares of SPY for $33,195
Buy 100 shares of TLT for $13,802
Sell covered calls against both holdings

The base portfolio would be 70% stock and 30% long term treasury. Between dividends and bond yield, you would get about $80/month. If you sell .30 delta calls, you could currently get about $80/month for TLT and $170/month for SPY. The income from the calls will help smooth out returns over time but also limit your upside since you’re setting a cap on your holdings each month. This would also require some ongoing management to make sure your shares don’t get called away from you and that you are rolling out to the next month as needed. You also wouldn’t be able to count on that cash flow every month because there will be some months when the calls you sell are under water (in the money) and you have to buy them back at a loss so that you can roll them up and out to the next month. It may be more effort than it is worth, but covered calls are a fairly standard cash flow solution.

Post Reply