Can Dividend Investing Lead You To The Top 1%? #OWS

By: ispeculatornew
Date posted: 10.19.2011 (4:44 am) | Write a Comment  (3 Comments)

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These days, the top 1% vs. bottom 99% debate has continued to rage on as Occupy Wall Street (#OWS) continues to spread around the world. Its interesting but I think the debate often becomes a bit out of touch with reality. Bill Gates is not the typical 1% person, far from it. The typical 1% earner makes less than a half million per year which can seem beyond reach at times but it’s not as impossible as you might think.

I thought the interesting question of course was:

“How much would a passive income investor need to hold in order to be in the top 1% of earners with only a dividend portfolio?”

Given that I’m told that the top 1% barrier is located at $347,000 per year in the US and assuming a dividend portfolio that yields 5%, you would need a portfolio worth $6,940,000 in order to be part of that elite group. I know, it seems so far off!

Steps To Get There

Knowing that you can start a dividend portfolio with as little as $5000, and you would ideally be looking to build a sustainable dividend portfolio in a similar way to what we did a few weeks ago in the Ultimate Sustainable Dividend Portfolio. In case you forgot, this portfolio currently yields 2.86%, we will assume that the portfolio returns 8% per year (including dividends) which will all be reinvested into the portfolio. Let’s assume that the holder has a good job (100K?) and can reinvest $2000 per month into that portfolio (increased 2% per year to account for inflation).

From the start, this $5000 portfolio yield $143 per year…gotta say, it’s not encouraging!

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At this point, you could probably switch into a higher yield dividend portfolio that would grow more slowly but would yield much more. You could target a 6% dividend yield which would yield you over $226,000 in annual income.  In terms of assets however, that would clearly put you in the top 1%.

There Is A BUT

I know, I know, I am talking aboout 30 years down the road and those dollars are likely to be worth a lot less than today’s dollars. I would still argue that most would be very happy with a $226K annual passive income from their dividend portfolio. Let’s start by looking at what is required to get to this point.

Let’s Recap What You Need

#1-$5000 initial investment (fairly easy?)
#2-A monthly contribution of $2000 (I know, this is tricky and will be a challenge for most, the trick is to increase it over time)
#3-A 8% annual return (seems reasonable, especially with a model such as our sample portfolio)
#4-Consistency over 30 years (like so many other things in life, consistency is key).

Is it a challenge? Absolutely, but it’s certainly possible right?

Taking It To The Top 1%

In order to get to that 1% (225K only gets you to the top 2% or so), you would need to increase your assets and income by

Taking More Risks (especially when you can afford to do so in the middle to late years)
Starting New Ventures such as building a business (which will help you not only accumulate your 2K but can be sold for a significant amount down the road.
Real Estate: Once you are able to get enough assets, you could leverage those to buy property that will generate cash flows down the line and possibly be sold.

Is The Top 1% Really That Far Out Of Reach?

I’m not saying it’s easy by any means, far from it. But I think that in this digital age, there are a number of ways to get there, it is mostly about having a clear plan, working towards that goal and being systematic over a long period of time. It’s not easy by any means but it’s certainly not out of reach either. I’m glad to see that most Americans agree that that it is within reach:

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  1. Comment by Jack — October 20, 2011 @ 2:07 pm

    Interesting post.

  2. Comment by awake — October 23, 2011 @ 12:03 pm

    belief is just that… beleif.

    the fact is the american dream is not what it used to be and it is getting harder for middle america to cope.

    that being said, its a relief to see its close to being attained with this post.

  3. Comment by IS — October 24, 2011 @ 7:39 pm

    @Jack and @awake – Thanks for the good words, I like to think that while challenging, the American dream is still very much possible.

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