I am still shooting to create $1000 a month passive cash flow by January 1st, 2009 and then to be out of the rat race by December 27th, 2009 with passive cash flow of $3000 a month. We are aiming to include rental income in the composition of this cashflow.
ICF is an encompasing REIT ETF, thus, it gives me exposure to real estate but it is important to note, it is still correlated to the stock market. Some will tote REITs as a way to get into real estate without the headaches and hassle of tenants and property management. This is not completelely true. I would say it is somewhere in the middle of owning a fund of small stocks and owning an apartment building. In general, a REIT is still going to go down when the market does - perhaps not as much. A REIT is still a step in the right direction if you are aiming to diversify away from strocks and generate cashflow. Also, as an ETF, the expense cost is miniscule at .35 - since it is a closed end fund management can concetrate on managing the fund instead of buying a selling shares at the end of the day.
Current yield according to Morningstar: 7.06
BDV is a dividend index ETF, indexed to the mergent stock index - an index of dividend payers that have increased their dividend over the past 10 years. Blackrock then takes the top 60 to 80 dividend payers and buys them, thus BDV. They shoot for a yield of 6%. The only catch to this is that they will aim for the benchmark come rain or shine, thus they could potentially dip into principal to pay the dividend yield. But, having evaualted them on a tax basis as compared to DVY (the leading dividend index fund), Blackrock still comes out on top.
The goal of this index is to provide total return through a combo of current income and capital appreciation. In essence this means they can pay out in dividend, capital gain, principle and REIT gains but, again, having evaluated them on their tax cost ratio and after-tax return (2.41 and -5.90 three year respectively), Blackrock returns still beat DVY at -6.24 5 year after tax returns, all figures according to Morningstar.
After examing them on a tax basis, the potential for principal pay-out was a risk I was willing to take in return for higher yield.
Current yield according to Morningstar: 8.71
ETFs are great for their low expense ratios, .82 for BDV and .35 for ICF, but is important to note, since they are a closed end basket of stocks that trade like a normal stock, a commission must be paid for each transaction making it harder to dollar cost average. Thus, you must make sure you are buying in large enough amounts to justify a commission of say $10.95. At $1000 purchases, this would eat away 1.01% of your total return.
Total dollars invested: approx $2000
Avg yield earned: 7.89%
Approx monthly cash flow created: $15.77
Total passive monthly cash flow: $141.57
Goal: $1000 passive monthly cash flow by January 1st, 2009.
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