Investing For Specific Goals

“She wanted to earn enough money to cover the rent of the apartment for the rest of her life.”

A Poster on a popular Money Forum I follow had asked for advice. She had just sold her home and had $225,000 in proceeds to Invest. Her dilemma was that her Financial Advisor seemed to be less than enthusiastic about helping her. She was selling the home and moving into an apartment. The apartment’s rental rate was

e$1,300 per month. She wanted to earn enough money to cover the rent of the apartment for the rest of her life. Wisely – She didn’t want to be told “Invest in Bonds” or Invest in an Index Fund because she knew it would not give her the Income she needed to cover her rent.

I knew I could help her. I had recently been through a similar experience. So I shared with her on how I would handle the problem.

First thing to be done is to determine how much of a yield would be required to generate the $1,300 a month in rent.  So doing a quick check shows that she needs to earn a 7% yield from her investments in order to the required $1,300 per month.

Here was my advice:

Buy individual stocks. Use the Dividend Income Method. That is stocks that pay higher yields than most because she needs income today – not twenty years from now.

For Diversity and risk mitigation we identified 27 stocks of various yields that would help reduce the risk of losing large amounts of money should the unthinkable happen. This came out to an average  amount of $8,333 per stock. I did end up weighting the higher yields slightly to ensure she met her goal.

So what I ended up with is: 10 Stocks @ $9,000 each, 16 stocks @ $8,000 each and 1 stock @ $7,000.

Here are my choices:



So as to not bore anyone, here is the results ( Okay I admit it, I tried several times to add a table here but I am new to this so I finally was forced to give up !)  At this mornings rates the average yield I achieved was 7.06 %. The yearly income was $16,006 and the monthly income was $1,333 per month.

This System not only will meet her objective but has a built in “cushion “ of $33 per month.

In addition –

Under this plan she  can expect her Income to actually rise each year. Since she has  a small amount of “extra” income being generated she can buy more stocks each time her account reaches say $500  or $1,000. In addition you can expect at least half of these stocks to increase their Dividend amounts on a yearly basis. I would conservatively estimate the Income generated to rise about 2% each year. Based on this assumption her Income would be :

1st Year – $16,326 or $1,360 per month

2nd Year – $16,659 0r $1,388 per month

3rd Year – $16,992 or $1,416 per month

4th Year – $17,331 or $1,444 per month

5th Year – $17,677 or $1,473 per month

So as you can see Investing for specific goals can be achieved. In this example not only does her goal get met but she can be assured that her income will help keep pace with inflation. She also has the option of putting more money into higher yielding stocks to increase her income if need be although it would increase her risk slightly.

Another thing I would like to point out is that you may notice that this is a mix high yield stocks with safer lower yielding stocks. You may also notice I used a heavy amount of REITS but consider that REITS can be as different from one another as other stocks. For instance REITS can cover Health Care, Shopping Malls, Outlet Malls, Commercial Properties, Apartment Buildings, and many other sectors.

So now that you know you can do it – What goals do you need to plan for?

Please Comment below and let me know what you think!


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