See an example of a portfolio to live on with an income of R$5,000 a month – 07/05/2023 – From Grain to Grain

The moment is very propitious for those who have already reached the stage of retirement and intend to live on income. The financial assets that provide what is commonly called passive income still have very high rates of return. However, the scenario is about to change. Therefore, whoever takes advantage now will be privileged.

The market already forecasts a 2% drop in the Selic rate before the end of the year. Thus, in December, we should see the Selic rate fall to 11.75% from 13.75% per annum. With this, the gain of more than 1% per month that can be obtained today by investing in the CDI is ended.

By the end of 2024, the Selic rate is already expected to be below 9% per year.

In the wake of these falls, the returns of all other assets should also fall.

Therefore, those who are retiring at this time have an almost unique opportunity. Lock your portfolio yields at an average rate of more than 6.5% per year corrected by the IPCA and exempt from income tax.

With the IPCA correction, you guarantee that your monthly income will maintain purchasing power over the years.

The portfolio to guarantee this income must be composed of at least three basic elements:
1 – A liquidity reserve;
2 – A well-diversified portfolio of IR-exempt private securities;
3 – A portfolio accompanied by real estate funds.

Consider that the liquidity reserve is applied to IPCA-linked fixed income funds that follow the IMA-B5. This can be done through investment in ETFs or open funds. The net income tax return on these products is around IPCA+3.5% per year.

As the return is much lower than the target of 6.5% per year, the percentage allocated to this portion should be low. For example, from just 10% of the portfolio.

The fixed-income portfolio of corporate bonds, rated A+ or higher, indexed to the IPCA and exempt from IR, must present an average return greater than IPCA+6.5% per year.

You must ensure that no issue represents more than 2% of your total portfolio. With a 60% portfolio allocation in this tranche, you should have at least 30 issuers. Thus, the average allocation per issuer would be adequate.

The third part could be made up of a portfolio of real estate funds. I believe that even a well-diversified portfolio must be monitored. Therefore, I would suggest following the recommended portfolio of a review team. In this way, you can avoid failures in your investment decision and you will have an indication of the best time to enter and exit each asset.

A portfolio of real estate funds is capable of generating a return on dividends equivalent to IPCA+7.5% per year, exempt from income tax.

This portfolio can have a weight of 30% in your total portfolio.

Realize that this is a portfolio for those who are already receiving income and not for those who are still forming the assets to live on income. I have already explained in the past the difference between these two wallets.

If you weigh the returns on this portfolio, you will arrive at an income of 6.5% per year, exempt from income tax and corrected by the IPCA.

In order to have an income equivalent to R$ 5,000 a month net of income tax in your pocket with this portfolio, you would need an asset of R$ 923,000.

Note that in this portfolio, you only withdraw the interest of 6.5% per year. Therefore, the principal continues to be corrected by the IPCA and would be left as an inheritance.

If you want an income of R$ 10,000, you would need twice as much equity, that is, R$ 1.85 million.

I reinforce that I mentioned only three asset classes, but your portfolio can be even more diversified. However, it is important to reformulate the composition in search of the target return. I cited these three classes because they are the most traditional for the purpose of living on income.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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