The totaled:
- $1,830 from dividends
- $1,426 from interest
- $1,810.36 from real estate
His total was $ 5,066.95. Very impressive when you think about it - actually, it's excluding his blog income - which can't be too shabby with all the big media references he gets.
His networth is $317,504 as of 12/31/2006. Since this figure excludes interest and dividends in his retirement accounts, you can't calculate his return on assets with simple division, rather you need to back out his retirement assets from his networth.
Here's a quick and dirty analysis:
$119k in cash and non-retirement brokerage accounts (excluding employer spp, retirement, etc...) plus $43k in rental house equity. That's $162k in assets, which yields a 3% passive income return on assets - it's important to consider that this does not include unrealized capital gains. Really, it's not that bad.
Here's the rub, $2M admits that he wouldn't feel financially independent with only $5.1k in passive income. He would need at least 10 times that amount. Makes sense to me. Personally, I would need about 24 times that amount.
But are 10 and even 24 times accurate estimates. I don't think so. Here's why:
Historically, much of long term stock market gains is actually derived from reinvestment of dividends. Without reinvesting dividends, the long term performance drops quite a bit. Read Bernstein's 4 Pillars for a good discussion of the topic. If I still had my copy, I'd quote you the percentage.
The important fact is that you investments would grow (appreciate) very slowly if you did not reinvest the dividends. Unless they've reached a point where you no longer need them to grow, but rather, grow a little bit more than inflation, it will be very hard to live off of dividends.
But what about the 4% approach. Can't I live off 4% of my assets each year? You can - and you're not likely to run out of assets - but the better question is 4% enough for you to live on? The Trinity study had a very important assumption - that 4% of assets from the time someone retired - the critical presupposition is that they would not retire until 4% was enough to meet their daily needs.
So how much passive income do we need to be financially independent? That all depends upon where you are? If you're like $2m or myself (being in my late 30s), we are at the asset accumulation stage and can't rest on our laurels for a very long time - at least until we could comfortably live off of 4% of our assets - that would be about $2k/month for me - once sixth of what I need.
Regards, makingourway
