Tuesday, May 29, 2012

How to Get Rich - Learn the 50 - 12 Rule

Have you ever heard of the 50 - 12 Rule for Income Investing ?

Chances are, if you haven't been a frequent reader of this blog, you never have !

 Read on and discover it's magic !

Income Investing Basics

Investing for income means quite simply investing in securities that will provide your portfolio with a regular and increasing flow of income. Less emphasis will generally be placed on the ups and downs of the markets. The main focus is on the amount of income you will receive each month or quarter.

This form of investing is designed particularly for the individual investor who wants to retire from the workforce at an early age. It will not be as advantageous for the high income individual where taxation becomes a major drawback. However, even the high income individual can see benefits if they wish to consider early retirement.

The 50 Part

The 50 part of The 50 - 12 Rule is basically investing in a particular security in a way to generate $50.00 per payment frequency of the investment. An earlier posting entitled ( How to Get Rich -  Convert Saving to Income Part Two ) will show you more about how to go about achieving this goal.

This $50.00 per payment frequency investment will become a building block component for assembling whatever desired level of income you wish to have. Now let me explain the 12 Part.

The 12 Part

The 12 part of The 50 - 12 Rule is basically investing in a way to generate an income to your portfolio every month of the year, hence the number 12. In this way, once your portfolio is built to a sufficient level, you will be able to meet all of your committed monthly expenses without working. The first step towards considering retiring from the workforce.

Combine the Parts

Now your first step is to combine the parts in order to provide your portfolio with a monthly income of $50.00 . You can do this by purchasing one investment that has a payment frequency of once per month or you can purchase 3 individual investments that have a payment frequency of once per quarter.

You will now have set up your first 50 - 12 component of your portfolio. To reach your desired income level, simply divide your monthly income needs by 50 and that will be the number of 50 - 12 components you will need to build.

Tailor to Your Needs

This building block approach to income investing can be tailored to each individual's income needs. It will automatically provide good portfolio diversification as each component will be limited to just a portion of your monthly income. For your favorite investments you can even double up to provide $100.00 per month income as long as you realize this will reduce your diversification and potentially increase your level of risk.

As always, I welcome your comments and suggestions for future topics.

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