||[Apr. 4th, 2006|07:18 pm]
The Veritable TechNinja
|||||Nortec Collective - Polaris||]|
Investing is fun, see:
Say you're 30, and you start taking $50 out of each check and putting it in a money market account. Say that money market account pays a 2.79% APR, compounded monthly. At the end of the year, you've got $1441.52. The taxman takes $60.38 of it (assuming you're in the 25% tax bracket), leaving you with $1,381.14. You take that and buy a "no-brainer buy-and-hold" stock like a bigass bank. That stock pays 5% in dividends annually. When you buy that stock, you specify that you'd like dividend reinvestment. You do that for five years. After that, you up your per-pay contribution to $100, because you're 5 years older and hopefully making more. You keep following that pattern until you retire at 65. Mind you, you should diversify, which just means buying several stocks from different industries that all pay similar dividends.
Guess what? You have a total investment worth of $415,970.07. When you retire, you start taking the dividend payout instead of reinvesting. Your portfolio now pays you $20,756.91 a year just for holding it... And that's assuming you're totally investment brain-dead and never even touch your portfolio. Let's say you at least review every five years, and sell out the crap to assure that your dividends are still paying as they should. While we're at it, let's throw capital gain in the mix. If you manage 10% capital gain per year, which you should be able to do if you can manage to pay attention for more than 4 hours every 5 years, you get $845,115.99 which pays you $42,255.80 a year. Now this is _all_ after a gouging 25% tax rate on all liquid cash paid out in your name. Dividends, capital gains from selling your stocks, all put in to the equation. That's all post-tax, as in what you actually get to hold in your hand.
Oh, and I did my math all wrong. Long-term capital gains tax is 20%, not 25%. D'oh. No idea what the dividend tax rate is, so I'm guessing it's 25%.
$415,970 + $20,756/yr if you're a total dumbass.
$845,115 + $42,255/yr if you're marginally intelligent.
Not bad, eh?