Work ennobles man, said Max Weber, a 19th century sociologist. But over time, the fatigue ends up strengthening the will to live on the income of the money saved years and years in the sweat of the brow. Now, after the first meeting of the Monetary Policy Committee (Copom) of 2023, held on Wednesday (1), it could be an opportunity to take a look at the value of what has been saved so far.
The decision to keep the base interest rate – the Selic – at 13.75% per annum was already awaited by the financial market. But the increasingly evident signs that the Central Bank intends to keep it at that level for a long time is almost an invitation to think about investments.
Reaching the first million reais has always been seen as a symbol of financial independence. If you have already managed to add this value, congratulations. Today it is still the golden dream of many investors. But is it possible to live with interest on an investment of R$ 1 million?
Let’s go to the accounts. According to Fernando Zetune Marrocco, CFP of Braúna Investimentos, there are two ways to calculate and conclude whether it is possible to live on R$ 1 million: consume part of that sum every month or spend only the income it generates.
Relying only on the income, without changing the capital (the same million reais), has the advantage of allowing this to be a sort of “perpetual contract”, providing a monthly income as long as the person needs it.
The counterpart is an income lower than that obtained by those who count, in addition to income, even with a small share of capital each month. In this second case, however, the investor would eventually run out of money, consuming the entire R$ million (and not just the interest).
But how big is the difference in practical terms? Marrocco calculates that an annual rate of 13.75% corresponds to a nominal monthly return of 1.08% – rounding to 1.10%. Calculations of this type, however, require the discounting of inflation, as it erodes purchasing power over time and ignoring this effect can mislead investors.
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Thus, at current levels, a Selic-linked investment offers a real yield of approximately 0.69% per month, discounting inflation of 5% per annum. Over BRL 1 million applied, this would result in a perpetual monthly income of BRL 6,898.
If instead he decides to consume the entire capital in five years, the investor would obtain a monthly income of R$ 20,409. If the option were to spend all the money in 20 years, the monthly income would reach R$8,538.
This account assumes that the investor would get a return equal to the current Selic rate over the entire period. However, this may not happen. If you could only get investments with a nominal return of 0.60% per month (or a real return of 0.19% per month), the income without consuming capital would be R$1,918 per month. By spending a small fraction of the R$1 million each month, the income would reach R$17,660 a month for five years or R$5,203 a month for 20 years.
“If the investor does not touch the initial amount, the monthly income is lower, but the money does not end. It is very important to pay attention to this type of information, so that the resources last as long as the person thinks they do,” Marrocco points out.
Find out how much it would be possible to receive a living income with a savings of R$ 1 million:
|Nominal return (per month)||0.50%||0.60%||0.70%||0.80%||0.90%||1%||1.10%||1.20%||1.30%|
|Actual yield* (per month)||0.09%||0.19%||0.29%||0.39%||0.49%||0.59%||0.69%||0.79%||0.89%|
|Monthly income without consuming capital (perpetual)||BRL 922.11||BRL 1,918.05||BRL 2,913.99||BRL 3,909.94||BRL 4,905.88||BRL 5,901.82||BRL 6,897.76||BRL 7,893.71||BRL 8,889.65|
|Monthly income consuming the capital in 5 years||BRL 17,139.66||BRL 17,660.05||BRL 18,190.31||BRL 18,730.42||BRL 19,280.33||BRL 19,840.00||BRL 20,409.38||BRL 20,988.41||BRL 21,577.01|
|Monthly income that consumes capital in 10 years||BRL 8,806.73||BRL 9,337.08||BRL 9,887.09||BRL 10,456.61||BRL 11,045.42||BRL 11,653.26||BRL 12,279.80||BRL 12,924.68||BRL 13,587.51|
|Monthly income that consumes capital in 15 years||BRL 6,031.92||BRL 6,574.94||BRL 7,147.26||BRL 7,748.39||BRL 8,377.68||BRL 9,034.30||BRL 9,717.31||BRL 10,425.63||BRL 11,158.11|
|Monthly income that consumes capital in 20 years||BRL 4,646.63||BRL 5,202.94||BRL 5,797.96||BRL 6,430.57||BRL 7,099.31||BRL 7,802.41||BRL 8,537.82||BRL 9,303.33||BRL 10,096.63|
|Monthly income that consumes capital in 25 years||BRL 3,817.15||BRL 4,386.94||BRL 5,004.52||BRL 5,667.83||BRL 6,374.16||BRL 7,120.31||BRL 7,902.77||BRL 8,717.83||BRL 9,561.76|
|Monthly income that consumes capital in 30 years||BRL 3,265.57||BRL 3,848.87||BRL 4,488.66||BRL 5,181.53||BRL 5,923.09||BRL 6,708.32||BRL 7,531.89||BRL 8,388.46||BRL 9,272.92|
|Monthly income that consumes capital in 35 years||BRL 2,872.78||BRL 3,469.54||BRL 4,131.06||BRL 4,852.13||BRL 5,626.26||BRL 6,446.28||BRL 7,304.93||BRL 8,195.28||BRL 9,111.08|
|Monthly income that consumes capital in 40 years||BRL 2,579.24||BRL 3,189.35||BRL 3,871.99||BRL 4,619.74||BRL 5,423.62||BRL 6,274.11||BRL 7,162.05||BRL 8,079.19||BRL 9,018.54|
|Monthly income that consumes capital in 45 years||BRL 2,351.85||BRL 2,975.17||BRL 3,678.28||BRL 4,451.07||BRL 5,281.79||BRL 6,158.55||BRL 7,070.49||BRL 8,008.42||BRL 8,964.99|
|Monthly income that consumes capital in 50 years||BRL 2,170.78||BRL 2,807.14||BRL 3,529.96||BRL 4,326.09||BRL 5,180.78||BRL 6,079.88||BRL 7,011.16||BRL 7,964.89||BRL 8,933.80|
- Discounting an estimated 5% annual inflation
Where to invest in 2023: get an e-book and discover the expert’s point of view on the best choices of the year
Source: Fernando Zetune Morocco
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Jorginho Guinle’s “Syndrome”.
“If the investor does the math, he will live with quality. It is useless to plan until 60, spend the money and live until 90 with financial problems. You cannot live with Jorginho Guinle syndrome ”, explains Clayton Calixto, portfolio specialist at Santander Asset, recalling the story of the playboy who died poor at the Copacabana Palace, a hotel in Rio de Janeiro that had once belonged to him.
Shortly before he died at the age of 88, Guinle said in an interview that the money ran out because he planned to live on his own until he was 75.
Calixto points out that it is best to opt for inflation-linked assets, with maturities in the five-year range. In this way it would be possible to diversify taking into account the “novelties” of the Brazilian economy.
He gives advice: with strict budget control, the investor can manage to live on only a portion of the monthly income, reinvesting the rest, which is profitable and helps ensure a financially promising future.
It’s not worth its weight
Considering the HICP of recent years, BRL 1 million currently has the same purchasing power as approximately BRL 500,000 in early 2011. “To compare you to a millionaire at the time, a person would have to have just over BRL today,” says Lucas Queiroz, Fixed Income Strategist for Individuals at Itaú BBA. “This fact serves to remind us that nominal values cannot be compared over years, just as millionaire status must also be adjusted depending on the comparison period “.
The specialist recalls the points that must be taken into account when asking whether life would be resolved with interest alone on an investment of R$ 1 million: it depends on the extent of the costs, the amount needed as income and the time horizon in which the resource is intended to be used.
Queiroz considered an ideal income of R $ 60,000 per year or R $ 5,000 per month. Taking into account that the resources are invested in an instrument that annually yields inflation plus 4%, already net of taxes, the amount could be enjoyed over a period of approximately 26 years. However, this horizon is reduced to something like ten years if the required monthly income is R$10,000 (or R$120,000 per year).
“In both cases the resource would be completely consumed in a given period. The logic is simple: the simulation predicted that the resource would grow by 4% in real terms, but the withdrawal was 6% (R$ 60,000 is 6% of R$ 1 million) and 12% (R$ 120,000 is 12% of R$ 1 million) in real terms,” he explains.
Maintaining the real interest rate in the example, the investor could have an infinite horizon – in which the money would never be fully consumed – if the withdrawals were lower than the profitability obtained. “In this case, it would be possible to maintain an income of R$3,000 a month in perpetuity, correcting this value each year for inflation,” he says. “Whether investment is the only or most relevant source of income, conservatism is needed. The positioning, in this case, is very different from an investor who is building his own capital to enjoy it only in the future”.
The Itaú BBA specialist indicates that a mix of government bonds linked to inflation and interest rates is one of the alternatives for investors, respecting liquidity needs.
Sigrid Guimarães, financial advisor and founding partner of Alocc Gestão Patrimonial, echoes Queiroz. “To live on an income of R$1 million, the cost of living cannot exceed the income of this application, discounting inflation. Ideally, a three-year equivalent safety cushion should be separated from the investor’s cost of living and allocated to securities with immediate liquidity and low credit risk, such as federal government bonds, credit-free DI funds, first-line CDBs , among others. . The surplus can and should be diversified for greater efficiency,” she points out.
For those who fear the risks that increase with long investment terms, Sigrid says that if you avoid portfolios with high concentration of credit risk and low liquidity, “an event like that of the Americans becomes of little relevance in the fixed income segment”.
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