Since posting about
my 30 cent per meal pressure cooker creations, I've mentally tied this into my pursuit of passive income. Basically, I got to thinking how much capital I would need in various types of investments to fully fund eating this way with the resulting passive income for one year.
If I were to literally eat nothing but these simple recipes three times a day for one full year, the total expense would come to $328.50 (30 cents x 3 x 365 days). Monthly this works out to roughly $27.38 (this is ingredients only, of course; not included are power expenses, cookware purchases, etc).
To generate this cash flow from passive income investments, how much capital is required?
If I use
my USD/TRY/CAD hedged carry trade method, which is presently earning 72% annually, I would need about $912. (At this interest rate, I would need $456 invested, and to provide plenty of defensive available margin I'm simply doubling that total).
If I invested in a very high yield stock to generate this amount annually, such as
Annaly Capital Management, presently yielding 15.4%, I would need about $2133 worth of the stock.
If I went with
Verizon stock instead, an equity that may have a safer, solid yield when compared to Annaly Capital Mangement's, which is presently 7%, I would need about $4693 worth of the stock.
If I went with 10 year U.S. treasury notes,
which yielded 3.02% as of Friday, July 23rd, I would need $11,000 (the actual amount needed would be $10,878, but U.S. 10 year t-notes are $1,000 apiece, so you would need eleven of them).
I've arrange these in order of most risk to least. As such, the capital required to come up with $328.50 each year increases dramatically (risk vs. reward) as you move down the list. It would seem that one should go with the highest yielding option in any case, but I don't think that's true, especially since high yielding investments can falter and become lower or non-yielding investments.
What I am doing is starting with the highest yielding option in my own portfolio, but as this offsets certain expenses that I otherwise pay for through wages, I direct the resulting surplus into less aggressive investments. As the income from these investments begins to offset more expenses, I further dial down the risk of my subsequent investments. At some point when I have decided I have traveled as far down the risk spectrum as I care to go (I doubt I would ever actually bother with t-notes; blue chips are where I'm likely to draw the line) I will invest only in this portion of my portfolio from then on. As further investment in the "lowest rung" of my investing ladder brings it to a point where it alone covers all of my expenses, then as this income rises past that point I will use that surplus to offset
reductions in the riskiest assets in my portfolio. Eventually when I am satisfied with the highest and lowest risks in my portfolio, I will simply let its income grow through further investment at the low end (new capital and dividend reinvestment) and increasing dividends.
Risk is a relative concept, of course, and I'm not suggesting that something is always a safer investment simply because it yields less (one must always do the required homework before making an investment!). That said, let me now also state that
I am not making any investment recommendations, I'm just thinking out loud about what I am doing (also, for the sake of disclosure, I am long shares of Annaly Capital Management).
What all of this aims at, ultimately, is to seek to reduce and "lock in" certain expenses at low levels such that they can be offset with passive income investing requiring the least amount of capital possible. Doing so leads to surpluses sooner rather than later, which if used to further said passive income investments would lead to the ultimate goal faster: financial independence.
Is eating a lot of beans and rice worth doing to achieve that?
I believe that it is.
