Using the $480,000 of investment capital computed above, and you decide to accumulate that amount through savings alone, this is how long it takes.
Accumulation method #1 through savings:
Assume every month you can save $3,000.
You will take about 14 years to accumulate $480,000.
Workings: $480,000 ÷ $3,000 = 160 months = 14 years (rounded up)
In comparison, if you attempt to accumulate the investment capital you need to build a dividend portfolio through other forms of investments, here is how it will look like.
Accumulation method #2 through investments:
Assume you can save $3,000 a month and you put all of that to investing in the S&P 500. You have also already separately set aside sufficient emergency funds.
You started investing initially with $10,000 and top up the $3,000 every month to passively invest in an ETF that tracks the S&P 500 such as SPY.
Using an average annualised return of 10%, you will take approximately 9 years to accumulate $480,000. That is a lot faster than if you depend on just savings alone to accumulate the $480,000 that you need!
If you learn to properly stock pick, you may even be able to generate a higher ROI which translates to a shorter period of time required to build up that $480,000 of funds.
Just tweak those numbers around according to your own lifestyle and expenses and you would be able to have a rough target to work towards. These calculations will give you a better idea on how things work in practice and how much time and money you would require.
View Comments