Investing

How much passive income does a typical growth oriented investment portfolio generate?

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  • Jul 19th, 2020 9:07 pm
[OP]
Deal Expert
Mar 23, 2009
21002 posts
7347 upvotes
Toronto

How much passive income does a typical growth oriented investment portfolio generate?

OK, I realize this is an extremely vague and n00bish kind of question with a ton of variables, but nonetheless I'll ask it, just because.

Passive income would be based on total interest and dividends, but only 50% of realized capital gains, so I'm thinking a growth oriented portfolio without hyperactive stock trading could get pretty large without generating a whole lot of passive income.

I'm curious, for say a typical privately managed medium risk growth oriented portfolio, ballpark how much passive income would be generated on a percentage basis of total assets? 1% per year? 2%? Obviously I'm not talking about buying all blue chip dividend stocks to achieve say a 4% yield, nor am I talking about buying a few growth stocks that generate no dividends and holding them until the end of time. I'm just trying to find out what to expect for an average growth oriented portfolio.
4 replies
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Dec 14, 2010
6736 posts
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Not much, since growth stocks typically returns most of their growth in capital gains. Many (if not most) growth stocks don’t pay dividends or interest. Cash flow are reinvested back in the business. The few growth ones that pays dividends typically pays less than 1%.

The scenario changes and becomes the exception once a growth company matures enough to start paying dividends with a more reasonable yield, and you have been invested with them for a while. If they are too big and can’t find other ways to grow, then cash is returned to shareholders in form of dividends. Other than that, they are not the best type for passive income.



Rod
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[OP]
Deal Expert
Mar 23, 2009
21002 posts
7347 upvotes
Toronto
rodbarc wrote: Not much, since growth stocks typically returns most of their growth in capital gains. Many (if not most) growth stocks don’t pay dividends or interest. Cash flow are reinvested back in the business. The few growth ones that pays dividends typically pays less than 1%.

The scenario changes and becomes the exception once a growth company matures enough to start paying dividends with a more reasonable yield, and you have been invested with them for a while. If they are too big and can’t find other ways to grow, then cash is returned to shareholders in form of dividends. Other than that, they are not the best type for passive income.
Thanks. I guess I should further explain that I'm looking at this from the perspective of an investor not wanting to generate passive income, but also not wanting to go to extreme lengths to achieve that goal.

It would be with the expectation that there would be a number of trades for rebalancing, etc. and some small dividends and/or small amounts of interest income as well, all as part of a mid-risk growth portfolio. In that context, would the expectation be say that around 1.5% to 2% in annual taxable passive income (including interest, dividends, and 50% of realized capital gains) is a reasonable guesstimate? Or would it still be closer to the 1% you mentioned? Those with the small business tax deduction get the deduction clawed back if it makes too much passive income.
Deal Addict
Nov 9, 2013
4709 posts
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Edmonton, AB
Probably less than 1%. Most growth companies prefer to reinvest their earnings at high rates of return (hence how they grow) rather than pay it out to investors.
Keep calm and go long
[OP]
Deal Expert
Mar 23, 2009
21002 posts
7347 upvotes
Toronto
treva84 wrote: Probably less than 1%. Most growth companies prefer to reinvest their earnings at high rates of return (hence how they grow) rather than pay it out to investors.
OK thanks. Good to know.

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