Mike the Meat’s story and how it helps
Mike was a successful, self made man. He built his meat wholesale business over many years and retired at 58, when he sold the business for a pretty penny. He bought a nice house for himself and his wife, big enough to have all the grandchildren come to stay. He put the rest of the money he made from the sale of his business in the bank and lived off the interest of that money. So what happened next?
Mike retired in 1990 when interest rates were 14.25% per annum. This provided Mike with an income sufficient for a comfortable, although not flamboyant, lifestyle. Mike approached me in 1993 after interest rates had dropped rapidly to 5.75% to see what help I could give him, as he was starting to become desperate. His lifestyle, which was programmed for
14.25%, was in danger, but worse, he was eating into his capital at a significant rate each month just to pay his bills.
Mike was an excellent businessman but had not done any personal planning whilst running the business. This is actually not unusual for people running their own business. The story ended well because I was able to help him with his budgeting and build a portfolio of income producing investments that kept him out of trouble. By taking a little less income at the start it was even possible to build in some income growth for the future to help him offset inflation in later years. After all Mike was only a youngster and his money had to last him a long time.
Which brings us to your quiz before we look at how this story is still true today, and especially for those of us living in Catalonia.
What is your magic number?
Find your magic number by simply subtracting your age from 85. For example, Mike’s magic number is 27 (85-58). This is how long you will need to provide yourself with an income as 85 is the average life expectancy. Think about this for a moment. Whatever your income is, multiply that by your magic number. The result is possibly bigger than you realised.
Let your magic number help you
What did Mike do? He put part of his money into a stable and steady investment that could meet most of his income needs. The balance he put into dividend income funds. These funds helped Mike get the result given by his magic number.
How do dividend income funds work?
Dividends are paid by companies when they make a profit. The amount they pay depends on that profit. If profits increase over the years, the dividend goes up. Here is why they can be very useful, offering value which is often overlooked when considering investments.
Price when you buy is £100.
Dividend is 3.16% or £3.16
The dividend is a percentage of the CURRENT price. So when the price goes up this happens
New price is £120
Dividend 3.16% now £3.79 (3.16% of £120)
It has not cost you any more since your original investment, but the return for you this year is now 3.79% of your original investment. (£3.79/£100)
If your magic number is 5 or more, this can be a very useful way of providing for yourself for many years.
Here are the figures for changes in the price over longer periods.
New Price £150 at 3.16% dividend gives 4.74% on your original investment
New Price £175 at 3.16% dividend gives 5,53% on your original investment
New Price £200 at 3.16% dividend gives 6.32% on your original investment
Prices of the funds do go down as well as up, so this strategy should only form part of your investment.
Exchange rates have had the same effect for us as interest rates had for Mike. We have had in the past an exchange rate of up to £1 = 1.45€ but now have £1 = 1.11€. This gives the same effect as the fall in Mike’s interest rates. However, using the dividend income funds is a very useful way of countering the fall. Especially as we also have VERY low bank interest rates.
Dividend funds as part of a portfolio can help with returns, changing from a bank rate of virtually zero to perhaps 3.16%, giving the potential for increasing income during the years of our magic number.
P.S. Mike never ran out of money!
Please feel welcome to email or Whatsapp me if you wish to discuss using dividend income funds at +34 645 257 525 or email email@example.com