I've also moved temporarily to a very cheap COL country so that I can focus on some more side projects to pull in extra sources of income before I return to the work force.
Question: how do index funds (or any kind of stock, really... in fact this question isn't really about index funds) "pull in the rest"? Do you actually manage to sell them when they're high and buy when they're low again? Or do you get stocks with dividends and just make money using the dividends? Obviously merely possessing stock of high value is kind of moot if it doesn't turn into cash somehow, so I'm curious how people usually do this. (I don't know much/anything about finance.)
Ah, so no actual income then? Just stocks going up in value? As in, at some point you'd have to sell before you actually have any income from it, right?
But even if a company doesn't pay dividends, it will often make a profit that ends up on the company's books. A part of this profit, proportional to your ownership, belongs to you who own the stock.
In an index fund, the stocks contained in the index will on average pay out a certain dividend and turn a certain profit that isn't squandered on worthless projects.
This last part is what makes stocks increase in market value long-term, and which also makes it reasonable to sell a small proportion of your shares every year as a passive income.
If the dividends and your sales constitute less than 3-4% of your funds' total market value each year, you can expect your portfolio not to decrease in value long-term.
> But even if a company doesn't pay dividends, it will often make a profit that ends up on the company's books. A part of this profit, proportional to your ownership, belongs to you who own the stock.
You're totally missing my point. I'm saying, even if your stock is "worth" $1 trillion, if you don't actually ever sell it, you haven't earned a single penny from it. It's only money when it's actually money. So my question was whether the OP was ever selling the stock or not.
This part of your statement is incorrect: "It's only money when it's actually money."
Stocks in major corporations are generally considered a liquid asset - i.e., they can be easily converted to cash. [1]
Don't confuse liquidity and risk exposure. The money is still subject to the risk of the market when it's still being held in stocks, but it's approximately as good as money.
Index funds tend to have some dividends, because while not all stocks yield dividends the dividends from the ones that do still get distributed to the holders of the fund.
If you sell you pay taxes on the gains, so you are probably better off borrowing against your investments if you need cash, since borrowing isn't a realization event for tax purposes.
Investments that pay dividends aren't as good for individuals since the dividends are taxes at ordinary rates.
Also, wouldn't this mean you have to pay interest on the ENTIRE amount of the loan, as opposed to tax on just the gains? So if you have $1000 that means at 2% interest (I assume that's yearly) you're paying $20/year, whereas if your stock went up 5% (= $50), that means you'd be paying (say) 25% of that, which is $12.50. So it should be only better if either have a high tax rate or your stocks /really/ increased in value (not just kept pace with inflation).
That requires 110k$ and you can't just take money with that rate, it's margin. So you should have more than 110k$ to take some of that money and replace them with margin.
You would borrow from the bank, using your stock holdings as collateral. Not as easy as he makes it sound, but not unheard of if you have even a meager amount. Say, at least 50k.
I chose Sofia, Bulgaria. I pay about $500/mo for all my expenses. It's true that I could find that in the US as well, but I'd be hard-pressed to find something that isn't deeply rural.
In Sofia, I'm in the capital. There's lifestyle necessities like grocery stores, fast internet, etc. Plus I won't need a car because of the excellent metro. If I want to catch an American movie or a show, there are malls/theatres. It really has just about everything I need.
p2p lending is hit or miss for me: 3-10%
Index funds pull in the rest.
I've also moved temporarily to a very cheap COL country so that I can focus on some more side projects to pull in extra sources of income before I return to the work force.