- June 21, 2020 at 11:46 am#47266Nathaniel MillerCaptain@politicaltrucker
I was just wondering where you get your passive income from to be able to sail al the time. Looking into this for myself.June 22, 2020 at 2:15 pm#47279
It’s a very good question. I touched on on it during the last episode (202).
We receive rental income from our flat in London and this is what we did right from the start. The only way we were prepared to stop working and start this adventure was to have some bricks and mortar behind us from which we could derive a regular income. We have no savings, shares or pension
I sold my house and we pooled our resources to buy a small flat (apartment) with no mortgage. We did consider commercial properties and residences outside London, but we went back there in the end because London gives the best rental return on property and I had lived there all my life so knew it well.
When it came to paying for the refit, we were able to borrow against the property and are now repaying a small mortgage.
We bought the flat purely for income and don’t have anywhere else to live other than Esper, so if we go back to the UK it is to stay with family and friends.
Hope that helps? x
Peace and fair winds!June 26, 2020 at 7:33 am#47293David JohnstonBosun@davidj
I’m not sure if you want advice or options from others, but here goes:
Besides real estate, a good source of passive income is dividend-paying stocks. A quick way to get exposure to dividend paying stocks without having to micro-manage individual investment allocations is to purchase ETFs that focus on dividend returns (they may also mention “Dividend Aristocrats”). The income you’ll derive from that sort of investment varies, but currently they’re in the 2%-3% range.
You can also do “fixed income” (bond) investing, though I would say at this particular time that yields are so low they are not very attractive.
Annuities are another possible options, but they suffer from the same low returns as bonds right now and given the fees and complications involved with them I don’t think I’d ever personally use one.
If you don’t mind eating into your principal/selling assets in order to fund yourself (hopefully the growth of your overall account outpaces the amount you sell!), one of the best ways to “set it and forget it” from an investing perspective is to use a so-called robo-advisor. These are platforms where a computer automatically invests your money into a diversified portfolio (usually of low-cost ETFs) and automatically keeps it balanced in a well diversified portfolio while reinvesting dividends and additional contributions. Robo-advisor options include M1 Finance, Axos Invest, Wealthfront, and Betterment (there are a lot more). I have personally used the first three and they are all good.
Two final thoughts:
June 26, 2020 at 11:51 am#47294Shawn RappFirst Mate@vboost-6000rpm
- If you do start investing into ETFs (or mutual funds) or use a robo-advisor (or human advisor), beware of fees. ETF fees can vary significantly (but they tend to be low), as can robo-advisor fees. I have seen everything from “free” (it’s a long story, but basically true…though you do still pay fees on the ETFs they purchase and hold in your account) to over 0.4% of your assets under management (again, on top of the fees charged by the underlying ETFs).
- Many people recommend a “safe withdrawal rate” of 3-4% of your invested assets for retirement on an indefinite basis. Using a 3% “SWR”, you would need $1.67M invested for every $50,000 you wish to spend on a yearly basis. At 4%, you can cut that to $1.25M. It’s a lot of money, but that is a very conservative approach. It also does not account for additional income you may have from a pension, Social Security, part time work, etc.
We’re planning on retirement exclusively – we have a retirement planner, and with no kids been just dumping all excess income into it. Saving and investing is an oft overlooked source. That said it’s a retirement plan, not something you can swing at 40.June 27, 2020 at 1:59 pm#47307
a good source of passive income is dividend-paying stocks.
Wow, David, thanks for the useful explanation, that’s an area I know absolutely nothing about!
It seems to me that at the moment the return on savings and shares is pretty low, so you need a large lump to invest?
How about investing in a pension, does that make sense? A lot of cruisers we know live off their pensions.
Peace and fair winds!June 27, 2020 at 2:10 pm#47308June 29, 2020 at 11:24 am#47325Shawn RappFirst Mate@vboost-6000rpm
It’s a person. We gathered up all our stuff from jobs and such, and transferred it over to her, and then (after meeting budget and skimming a bit to a savings account) dump everything thing else to her every month. Stocks are a risky business – big gains, and big losses. Our planner balances everything through funds that are for US and International, and all that stuff. I don’t understand any of it, really.July 1, 2020 at 7:00 am#47327David JohnstonBosun@davidj
a good source of passive income is dividend-paying stocks.
Wow, David, thanks for the useful explanation, that’s an area I know absolutely nothing about! It seems to me that at the moment the return on savings and shares is pretty low, so you need a large lump to invest? How about investing in a pension, does that make sense? A lot of cruisers we know live off their pensions. Cheers.
Yes, dividend paying stocks–at least the high quality ones–tend to have pretty low yield, especially these days when they’re competing with bonds, money market accounts, etc. that pay ever-closer to nothing. The thing about dividend-paying stocks is that they are still stocks and therefore your principal is at risk…it can go up or down. Since stocks tend to go up over time, it’s likely that in addition to the dividend payouts, your actual money invested will grow. Of course, that’s a generalization and doesn’t apply to any particular stock over any specific time period (nobody knows what’s going to happen in the market, and if they do they are both very rich and not going to tell you!).
If a pension is available to you, that makes a ton of sense. You’ve got that money coming one way or another, so you may as well use it living the life you want. Combining multiple income streams is really the best bet. Then you’re not wholly dependent on any one of them.July 2, 2020 at 1:12 am#47329
On the “pension” question, what you are talking about is usually referred to as a “life annuity.” In particular, if you have a 401(k) or similar convention (i.e., a tax sheltered retirement account) you can usually use that resource to purchase an “annuity,” which then provides a series of cash payments for as long as you live. Of course, the company underwriting that contract has to operate profitably, so there will be a cost associated with converting a single sum into an annuity – i.e., the expected value of the annuity is, across the population, going to be less than the lump sum you are giving up. The calculations are driven by current interest rates, time value of money, life expectancy, etc., all rolling into actuarial estimates.
The only reason you would want to do that is to hedge against the risk you will outlive your current savings. So, if you have a strong family history of good health and longevity, you might come out ahead on the game. If you have smoked for 50 years, have a family history of heart disease, and none of your parents or grandparents lived past 60, you probably will be the person that evens out the probabilities for the underwriter (and the undertaker, to add a dark spin to it all – well, I guess that was already there, eh?)
So, in a nutshell, and simplistically, that’s what “pensions” are all about. Well, other than the defined benefit plans one might have if living in a country that offers its citizens such a thing (e.g., social security is much like that in the U.S.) or working for a company for which you earned a “pension” (and most of those have disappeared except in government jobs.)
Probably much more than you wanted to know.July 2, 2020 at 1:27 am#47330
I’m going to throw one more thing out there, too. In today’s climate of low interest rates, you can’t expect to see much of a return on investments unless you are willing to take risks. And even then, the “risk adjusted rates of return” are still going to be low. Anyone who tells you otherwise doesn’t really know what they are talking about (and market efficiency relies on those people… 🙂 )
One can think of bonds or other debt instruments as relatively low risk; however, returns will be tied to timing of maturities (i.e., you can get higher returns if you are willing to take on more extended maturities.) The problem with that kind of investment in the face of low interest rates is there is a high interest rate risk attached to that. In other words, if rates go up, the market value of those investments will retreat because the present value of those maturities will be more deeply discounted. And again, you can avoid that risk by investing in shorter term, held to maturity securities; however, you have to expect a lower return attached to the lower risk.
I hope all that makes sense (and is somewhat useful.) You can always shoot me an email if you want to talk about specifics.
–davidJuly 2, 2020 at 1:29 am#47331July 6, 2020 at 2:40 am#47371Raynor Shaun BowkerCommodore@rays
Hi all, being a New Crew member I’m extremely interested in this exact topic. Before being a FTBMATES, I frequent the internet and watched numerous YouTube sailing channels discussing similar topics but none as detailed as whats been provided by David Johnson.
Unfortunately, like Shawn Rapp, the sound advise given is way too late for the likes of me. I’m sure what I’m about to write isn’t new and hopefully taken positively. We all know there are all kinds of people in the world, rich-poor, cautious-risk takers, young-not so young…you get the picture.
Anyway, when I was young I was told by a very wise person that when you get older and look back in life, its not the achievements you reflect on but the regrets for the things you didn’t do. No doubt with the growing idea of sailing the world many people are considering this lifestyle including me and therefore hope to fulfill this dream.
Coincidentally, as a young man I was also advised to start saving, plan for the future, all sound advise and if I was able to turn back the clock I may have done some things differently but one cant regret one’s past. We need to stay positive…
So, unlike some who are in a position to rely on savings or have a sizable pension, what are the alternatives for those not as prepared? What about working whilst sailing, having specialized skills that is useful in the yachting world, I’m sure not all boat owners have knowledge and or interest is maintaining their own boats. Jobs like plumbing, sail repairs, electrical, etc. There’s a a lot of books available to help those interested in brushing up on these skills. This alternative means of earning income I’m sure is doable and one I’m certainly going to explore. Thoughts please and if someone reading this has personal experience in what I’m suggesting please share your thoughts and experience?July 6, 2020 at 7:06 am#47373
My first recommendation would be to take a look at a couple of the younger crew sailing channels. More often than not they are in the kind of situation you are in with relatively little saved but willing to do everything they can to make it work. One that comes to mind off the top of my head is “Sailing Kittawake.” They actually spend quite a bit of time talking about it.
Another recommendation I might make is pick up a specific skill or two that would be readily marketable in the cruising community. For example, junior colleges and tech schools almost always have programs like diesel mechanics and electronics. You could probably pick up the appropriate skills necessary to work on boats in a year. I probably don’t need to say any more about that.
Then, there are quite a few books out there that talk about costs and making ends meet while sailing. Lin and Larry Pardy have a book on it and anything they write is worth reading. I’ve read quite a few others, and while there isn’t one that comes to mind, together, they give pretty good parameters on what’s realistic and what’s not.
Good luck. My biggest obstacle is convincing the person vacuuming the room behind me right now that she, in fact, has a subconscious (deep subconscious, mind you) desire to untie the lines (she wouldn’t even get that reference. 🧡 That’s for her, by the way – not you.)
Good luck.July 8, 2020 at 11:11 am#47416
What about working whilst sailing, having specialized skills that is useful in the yachting world, I’m sure not all boat owners have knowledge and or interest is maintaining their own boats.
Good to see you on the forum and welcome to FTBMates. We’re a little late to answer questions because there’s been a lot going on in our lives. But today is a good day, good internet connection and blue skies. I’ve got my iPad up and running (finally) so am able to sit and talk without draining the batteries.
This is a good theory, but from our experience over here cruisers are a tight bunch. They prefer to do everything themselves and when they can’t they’ll barter (Eg. you help them with the engine, they’ll help you with electronics/rigging/sails etc). The most you’ll usually get from other yachties is a case of beer for your help…
The other problem is that local contractors get very angry when they know cruisers are ‘working’ their patch, so it pays to get a work permit and do it properly otherwise you might end up in trouble.
One way that some of our friends use to supplement their income is to do yacht deliveries. You get paid, you spend nothing and you go sailing. Other suggestions are to do part-time work either locally or back home. Teaching English as a foreign language might be an option, but will mean basing yourself somewhere about a year minimum.
We have met yacht instructors who have managed to teach from their boats to give wannabe sailors their first taste of sailing. That can be pretty lucrative (again, be careful of treading on the toes of locals). Or charter your boat (with similar corollaries) for a few weeks of the year. There are companies you can join who will advertise your boat along with others.
Of course, the best way is to work remotely from your boat on your laptop. If you have skills which would allow you to do this, you’re laughing. After COVID-19 and the rise of Zoom, it seems lots of people are planning to work from home, so why not from a boat anywhere in the world?
An alternative might be to work part of the year and sail the rest of the year. We know lots of people who do this. There’s usually an ‘off’ season, so working while the boat is tucked up safely somewhere might be an option.
Come to SE Asia, the cost of living is much cheaper here than anywhere else and you and you can pretty much anchor anywhere at any time. I’m not sure where you’re based, but buying a boat out here would avoid you having to get it across an ocean…
If anyone has any other suggestions about how to make an income, please let us all know. Cheers!
Peace and fair winds!
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