I'd invest it all in dividend growth stocks. There's a number of companies out there that have consistently increased their dividends over the years, and some of them are quite decent. With $1.8 million invested wisely, you could make enough in dividends to live on, if you had your house paid off.
That's pretty much the thought that started my other thread, heh.
$1.8M is absolutely F-U money. You do not NEED to work another day in your life if you have that kind of money. You can, in order to afford luxuries, but you've got financial security locked up assuming you're capable of living like a normal person instead of landed gentry. To me, the definition of "F-U money" is the ability to say "F you, I quit" at any moment if your job situation becomes intolerable. And absolutely $1.8m is enough to do that. Even at 3%/year that's $54k and if you can't cut enough to live on $54k/year you've got problems. Your taxes would be very low. Federal would be 0% if you're married, 0% on $40k of it if not, then 15% on the bit betwen $40,401 and $54k. You also pay no social security tax on capital gains. So your take-home from $54k/year in capital gains is going to be higher than your take-home from $54k in wage income.
@infinitenexus: Dividends are a bit of a misleading thing. Functionally they're no different from being forced to sell a bit of your stocks every quarter. The share value is lowered by the amount of the dividend, and then that amount is transferred to you to do with as you please. (Ie, a $100/share stock paying $1 in dividends is now $99/share stock and you have $1 cash in your trading account.) That can be useful but it's also not "free money" like some people think.
In reply to dculberson :
$54k a year in some areas is a house payment and groceries. This is what a $35k house payment gets you in a Baltimore suburb, it's not the mansion FU money buys.
In reply to Steve_Jones :
You do not need to live in a mansion to say "F U."
FU money doesn't even mean that you have enough to retire. It means that you have enough that, should the need arise, you can say "FU" and walk away from whatever it is you're saying FU to.
dculberson said:Dividends are a bit of a misleading thing. Functionally they're no different from being forced to sell a bit of your stocks every quarter. The share value is lowered by the amount of the dividend, and then that amount is transferred to you to do with as you please. (Ie, a $100/share stock paying $1 in dividends is now $99/share stock and you have $1 cash in your trading account.) That can be useful but it's also not "free money" like some people think.
huh? I've never heard this before.
Are you making an argument that the dividend that is paid out by the company would otherwise be kept as cash or assets of the company that would then raise the value of the company and therefore the share price by same amount if they did not pay dividends?
I think it often happens because the stock is worth more to people immediately before the dividend date and then it is worth less immediately after, but you are only looking at the deflation after the ex date in your description and not the 'false' inflation before the ex date. If you average both, the dividend is working as expected, which is that the shareholder is paid a certain $ per share, and they own the same number of shares before and after.
Example, company pays annual dividend, everyone who owns a stock on March 15th gets the $2 per share dividend for the year. Yes, you might see the drop by exactly the dividend amount, but my point is the rise immediately before the drop is also due to the dividend ex date. If you only count the drop you are not accounting for the whole picture.
Jan 1 share value = $100
March 14 share value = $101 (because some investors feel they can own the stock for just a couple days and get the dividend and resell to make a quick buck)
March 16 share value = $99 (because people buying now will no longer get the $2 per share for the year)
July 31st share value = $100
In reply to Robbie (Forum Supporter) :
The dividend is cash taken out of the value of the company, and the value of the shares is immediately reduced by the amount of the dividend by the stock exchange they are listed on. Yes, shares can go up and down centered around the ex-dividend date as well but that's separate from the reduction in value of the company that a dividend entails. The share price returning to the pre-dividend value is not a given, while it going down due to the dividend is a given. It's something I learned AFTER buying a bunch of dividend focused stock way back in the day; I seem to learn more by doing and it wasn't a painful lesson but was an eye opener.
A little googling and I came up with these:
https://finance.zacks.com/long-need-own-stock-dividend-payout-1761.html "Stock Price on Ex-Dividend Date: Stock market specialists will mark down the price of a stock on its ex-dividend date by the amount of the dividend. For example, if a stock trades at $50 per share and pays out a $0.25 quarterly dividend, the stock will be marked down to open at $49.75 per share."
https://budgeting.thenest.com/paying-dividend-cause-stocks-price-down-29217.html "Ex-Dividend Values: On the ex-dividend date, the share price drops by the amount of dividend to be paid. This price drop actually maintains the investment value of the stock. Consider a stock with a share price of $50 the day before going ex-dividend with a $1 dividend to be paid. On the ex-dividend date, the share price will open at $49. The investor who owned the shares the day before now owns shares worth $49 and will receive the $1 dividend for a total value of $50 per share."
dculberson said:In reply to Steve_Jones :
You do not need to live in a mansion to say "F U."
True, but we all have different versions of FU. My version is more than just existing to exist. $1.8M is a very nice chunk, but not crazy money like it used to be. A $20 bill is the new $5 and a $100 bill is the new $20.
In reply to dculberson :
I still think that is not including the additional "false" value that the stock gains shortly before the dividend date simply because the stock is about to pay a dividend.
I agree that a dividend does come straight out of the value of the company, and it is already pegged at a per share price.
But isn't it also basically the only point of ever owning a share? That you hope that one day the company shares a percentage of it's profits across all owners? In the short term you may want your company to focus on growth so it can make more profits later, but if a company never plans to deliver profits to it's owners, then I don't see much value in that stock.
I'll take the blame for the "FU money" disconnect, since I first (mis)used it here. Apparently my (and I don't seem to be alone) definition of FU money was not the 'official' definition being used by others here.
It would seem that technically FU money is basically just the next step beyond an emergency fund. Enough that you could survive longer-term, but not particularly comfortably. All of the needs, but few of the wants.
When I said FU money, I guess I was more talking enough for complete financial independence. An FU to financial insecurity. Living the life I want to live, in the place I want to live it. Not just FU to working for my basic needs, but also FU to working for my non-extravagant (IMHO) wants... Which includes a comfortably sized house in a safe neighborhood for my family, in a good school district for my kids, in a scenic and temperate region, with the additional space (and funds) to dive deeper into more non-income-generating hobbies with all of that non-working time. Also included is post-secondary education for my kids, modern primary vehicles, and yes an increased amount of vacationing too.
$1.8M may cover the former for many (most?) people in many (most?) parts of the country, but it does not cover the latter... At least not for me.
In reply to Driven5 :
100% agree. FU money means I can do what I want, when I want without thinking about it at all. It's more than a nice house and cool cars. The main thing to remember is the life you're living at the moment is a FU lifestyle to some, and a "poor schlub" lifestyle to others.
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