How much money would you need invested in mutual funds to get a decent "monthly" return?
July 21st, 2010
I’ve been trying to add some assets to my life. Is it possible for the average joe to earn an income off of mutual funds, or would I need to have multi hundreds of thousands invested?
I’m not trying to live off investments alone, but I’m curious what kind of fortune I would need to have invested to make a couple hundred dollars a month.
Thanks to those that offer help!
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Tags: assets, average joe, couple hundred, fortune, hundreds of thousands, investments, mutual funds
There are many variables to look at, but let’s just say for argument’s sake that you want a fairly conservative corporate bond fund. Those are yielding between 5-6% right now. Assuming 5.5%, you would have to have about $43,600 invested in order to earn $200/month in income.
One of the other answerers said something about municipal bonds, which distribute income that may be tax free (depending on your tax situation). This is true, but that is also why the yields on those bonds (and funds) are lower. If you are in a high tax bracket, the lower yield of muni bonds may still be a better deal for you (after tax).
Some mutual funds do pay dividends monthly. Some are even tax free as they invest in muni bonds. If you want $200 a month, multiply by 12 giving $2400 a year. Then divide by 0.07 which is what some of them actually pay giving about $34,000 to $35,000. There are funds that actually pay considerably higher than that put they are very speculative and you might wind up loosing your investment. You actually might wind up loosing some of that amount even if investing at only 7%.
Remember that mutual funds are instruments designed for long-term investing – not for "dependable" monthly income. There can be periods (like the past year) when MF returns are deeply negative in the short term. For "dependable" monthly income, you’d probably be better off owning bonds.