Monthly dividend of 2,000 Euros from top-performing ETFs: the savings you need to accumulate
Investors seeking to generate a substantial passive income through exchange-traded funds (ETFs) may find themselves drawn to high-yielding options that offer attractive returns. Here, we examine three such ETFs and assess their potential to provide a monthly dividend income of €2,000 over three decades.
The Contenders
The three ETFs under consideration are the iShares STOXX Global Select Dividend 100 UCITS ETF (WKN: A0F5UH), the Vanguard FTSE All-World High Dividend Yield UCITS ETF (WKN: A1T8FV), and the WisdomTree Global Quality Dividend Growth UCITS ETF (WKN: A2AG1D).
Estimating Dividend Yields
Typical dividend yields for similar dividend-focused ETFs range between 2.5% and 4.0% annually. Historically, the iShares STOXX Global Select Dividend 100 has yielded around 4%, while the Vanguard FTSE All-World High Dividend Yield and WisdomTree Global Quality Dividend Growth have yielded around 3%–3.5% and 2.5%–3%, respectively. Assuming a conservative blended average yield of 3% annually for a diversified portfolio of these ETFs is reasonable.
Calculating Portfolio Size
To generate €2,000 monthly in dividends, one would require a portfolio of approximately €800,000 invested in these ETFs at that yield level. This figure can be calculated using the formula:
[ \text{Portfolio size} = \frac{\text{Annual dividend income}}{\text{Dividend yield}} ]
Considering Compounding and Investment Growth
Assuming an initial investment (P_0), investing for 30 years with an average total return (dividend yield + capital growth) of around 7% per year, with dividends reinvested, the required initial capital to end up with €800,000 depends on your periodic contributions.
- With reinvested dividends and 7% growth, the required initial capital to end up with €800,000 euros depends on your periodic contributions.
If investing a lump sum today aiming for €800,000 in 30 years with 7% annual growth:
[ P_0 = \frac{800,000}{(1 + 0.07)^{30}} \approx \frac{800,000}{7.612} \approx 105,100 \text{ euros} ]
So, an initial investment of approximately €105,000 today growing at 7% annually would reach €800,000 in 30 years.
Alternatively, if you plan to save monthly, the monthly investment needed can be calculated using a savings calculator, such as the Invesco ETF savings plan calculator.
Additional Notes
- Dividends are typically taxed, so after-tax income should be considered, meaning a slightly larger portfolio might be needed.
- Accumulating ETFs reinvest dividends to benefit from compounding without immediate tax implications and may be preferable for accumulation phase of your investment.
- The dividend yield can fluctuate over time; this estimate assumes yield remains stable.
- Capital growth rate is an estimate; actual returns may vary.
Comparing the ETFs
| ETF | Dividend Yield | Annualized Return (5 years) | |-------------------|---------------|---------------------------| | iShares STOXX Global Select Dividend 100 | 5.05% | 6.7% | | Vanguard FTSE All-World High Dividend Yield | 2.96% | 9.1% | | WisdomTree Global Quality Dividend Growth | 1.59% | 12.4% |
Conclusion
To live off €2,000 in monthly dividends in 30 years, one needs to invest approximately €105,000 today growing at ~7% annually or save periodically to reach approximately €800,000 invested in dividend ETFs in 30 years. Adjust further for taxes and yields specific to your ETF choices.
For instance, to achieve the same goal with the Vanguard FTSE All-World High Dividend Yield UCITS ETF, one needs to invest €426.95 per month, given its 2.96% dividend yield and 9.1% annualized return over the last 5 years.
The WisdomTree Global Quality Dividend Growth UCITS ETF, with both high return and dividend yield, requires €451.92 in monthly savings over 30 years to reach the same target. It is essential to consider the unique features of each ETF, such as its focus on dividend growth or total return, including price gains, when making investment decisions.
Personal finance enthusiasts interested in generating a passive income through investing may find the following ETFs promising: iShares STOXX Global Select Dividend 100 UCITS ETF, Vanguard FTSE All-World High Dividend Yield UCITS ETF, and WisdomTree Global Quality Dividend Growth UCITS ETF. In a scenario where investors aim to accumulate a portfolio of €800,000 in 30 years to yield €2,000 monthly, an initial investment of €105,000, assuming 7% annual growth and reinvested dividends, would be sufficient. Alternatively, for the Vanguard FTSE All-World High Dividend Yield UCITS ETF, monthly savings of €426.95 could help reach the same goal over 30 years. It's essential to consider taxes, yield fluctuations, and unique features of each ETF when making investment decisions in personal-finance planning.
