Wednesday, May 10, 2006

More concrete goal

Well, my goal of finding high yielding investments isn't concrete enough for me to make measurable progress. So I'm refining my goal.

My current base salary is $170K not counting bonus and stock options. With my current cash on hand of $800K, I want to generate enough cash flow to replace my base salary. So I'll set a cash flow target of $200K per year. Of course 25% return a year is impossible without high risk (unless I buy lots of high-yielding tax lien certs??), so I will need to grow the $800K first. I may change my parameters if I come across any good deals.

Since I posted my starting point net worth a week ago, my stock portfolio has already made some significant gains. But I don't want to count any capital gains towards this $200K figure, I only want to count pure cash flow.

Outside of my salary, bonus, and stock options, I currently have virtually no positive cash flow. All I have are fed and state tax-free muni bond interest (with yields of 2-3%, even $470K of muni bonds doesn't generate much cash flow), taxable CD interest yielding > 5%, and some dividend payers like DVY which pay measly dividends. We'll see how the out-of-state real estate development goes later this year.

Wow, this means that for the cash-flow generating portion of my current portfolio, $470K (munis) @2.5% tax-free + $250K (CDs) @ 5% + 50K (real estate development) @ 22% = $770K (total) is projected to generate only $35,250 in passive income annually, before taxes! Setting a goal of $200K passive income from a new cash injection of $800K seems too aggressive, especially when I anticipate making some mistakes, but I'll run with it for a month or two...


pyroracing85 said...

Good luck...

800k.. Wow you seem to have a lot of cash!!.. Don't you think that is just a waste of an asset?

Rags 2 Riches said...

Yes, it's definitely a waste. That's why I'm working on putting it to use. But I definitely don't want to invest it all at once, it's best to dollar cost average.

In the meantime, it's collecting ~5% interest in the brokerage where it's sitting.