Choices for income from an amount of money, pension, inheritance, gift,savings..

Over the next few installments to this blog we'll consider..

What might be some investment tools and thinking one should consider if..
One needs to survive by taking money from an accumulated cash amount for retirement purposes or independence from working 9-5.

Let us say you have a sum of money like $200,000 and you are about to contemplate the action of giving up your day job without replacing the stream of income one would have from that job.

So, you would firstly look at how long the $200,000 would last if you did simply spend $4000 per month if you had to as a worst case scenario. So, $200,000 divided by payouts of $4000 = 50 months. 50 months divided by 12 months per year = 4.17 years.

The strategy then is to find a tool that will in the best of all worlds allow the $200,000 to be left alone, but at the same time will pay you a return every month of $3000 to $4000. Is this possible to attain?

In order to find out, we must explore tools that can do so or at least come as close to the goal as possible while also reflecting your "willingness to take on certain risks".

The tools you must look at to replace "earned income" while attempting to preserve the original capital are - for the most part- as follows*:

GICs (guaranteed investment certificates), Bonds and bond like products, Annuities, Dividend Stock / preferred shares, REITs (Real Estate Income Trusts) and Mutual Funds that provide a monthly distribution from Dividend producing stock and REITs some of which may use the Tax friendly methods of ROC (return of capital).

So today let us just touch on GIC thinking.

GIC: It used to be, that these bank products would save your principal and pay out minute amounts of interest in accordance with the latest bank rates of interest available. And back in the 1970-80 years, the interest rate was very high.You would in effect lend you money to the bank and they would guarantee to pay you back in a certain amount of time with a payment of interest, which would be taxed at your highest tax rate as income.

Nowadays, you have some GICs that are very interesting as they link their returns to the stock market. But that is only effective if the market is going up. Generally speaking GICs must be left alone by the client.

The risk on a GIC is that while you may have a very nice interest rate payout at the maturity or completion of that specific GIC contract, if you then renew or purchase a new contract, there is no guarantee that the high interest rate will be given to you.

These days, the interest rates being paid out hardly cover your actual cost of living. Every dollar you have at maturity is worth less than when you began. Therefore, what you could buy with your money before, now costs a lot more due to rising gas prices and higher prices at the grocery store.

So generally you would have to have a lot of money tied up in GICs of varying time spans (duration) to ensure you get income on a regular basis while keeping the value or purchasing power of the $200,000 intact.

Bonds
bonds are very much like GICs in that they pay interest at the end of a set date. You can get some at higher payout rates than GICs and still protect your principal or capital. Yet like GICs, they would be tied for periods or time and also the risk is to protect purchasing power of your money when inflation or the cost of living is the same or higher than the interest rate paid to you.

There are various kinds of bonds which are an entire study in themselves. Some will give privileges like being able to convert from a bond into a stock at a given price and value. Also some bonds can be taken back from you . That is, they are "callable" or can be "called". The bond market is so huge that it dwarfs the stock market.

To achieve your goals with bond, you would create what is referred to as a bond ladder. This is when you buy a number of bonds to come due next week, then some for next month and then others for next year and then some for further stretches of time at higher interest rates, so that as you go on in time, you always have bonds with their payouts of interest coming due. A good bond broker would set this up for you at a cost. The big question is could $200,000 principal provide regular income and for how long before your needs exceed the set payouts. This would require a certain amount of administration on a regular basis, which again would have a cost.
Consult your advisor on who would be best to provide a bond ladder for you and what it would provide in income.

Next entry we'll consider preferred shares, stock REITs and Mutual Funds with monthly payouts and the two ways of applying ROC (return of capital).

This Blog Purpose for Investment as a "Tool to Attain Specifc Result" in your life.

Investments are largely seen by many as a method of gain or loss almost as in gambling. The popularity of this point of view, I believe, is due to movies and books which popularize the stories of those who have put small amounts of money into "a play" and had the good fortune to sell when this position has taken off to stellar heights.

But there is another more practical way of seeing investment, less as a gamble and more as a tool. So in this blog, I avoid the gamble approach and stick to the practical, since with tools, one can attain a more consistent and reliable outcome.

So in future entries, I will continue presenting different tools which can be used for specific situations in life that most us have or will encounter.