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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: Re: Probably just a stupid question... Date: 12/19/2011 12:17 AM
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I think that would call for investing a lot of money (say $100k) in a given stock for a dividend to actually help with your annual costs.

Well, the best dividend return you should plan on today is about 4%. So $100k would get you about $4k a year in dividends. I think you're looking at investing more like $500k to $1 million to replace your annual income.

Further, you don't want to invest that amount - or even your $100k - in a single stock. Something like 10 or so stocks is more like it. That way, when (not if, but when) one of them goes south, it won't take your entire retirement with it.

However, the up side is that your dividends should grow with inflation, as should the value of the underlying stocks. And if you start investing well before retirement, what was a 4% return on your investment to start might grow to be more like 10% or more of your initial investment when you start needing the income.

As has already been pointed out, buying real estate for rent is really running a small business. It will demand your time on a very regular basis - and not always when it's convenient for you. There's nothing necessarily wrong with that. It just what it is. On the other hand, a portfolio of stocks needs your time as well. But you have much more control over when to devote your time. You invest the time on your schedule, not when the investment (the rental property) demands it.

It's also been mentioned that if you get uncomfortable with a stock, you can usually sell it today (or the next day the market is open). If you get uncomfortable with your real estate, you really don't know exactly when you can sell it. All you can do is list it for sale and wait for a buyer. Of course, you can improve your odds for a quick sale by the price you choose. But even in the best case, it takes a month or more to get from a decision to sell to having cash in the bank.

Stocks or real estate - or both - can get you to your retirement goals. They just have different pros and cons. It's up to you to decide which set of pros and cons suit you and your needs better.

--Peter
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