Retire Early With Dividend Investing and Geo Arbitrage
For many of us, we can not envision working into our late sixties or even seventies.
Retiring early might sound like a pipe dream to most.
Hang on a minute though, lets dig a little deeper.
Once we know how much we need to be financial free plus a little extra spending money. What then?
Well, once we have built up a healthy dividend portfolio that can pay our monthly expenses then we have made it, we are financially free.
Hold your horses though. What if you have not built your dividend portfolio to the levels that it does cover all your monthly expenses. Plus a little extra spending money each month.
Do not panic just yet.
Firstly, you could at this point evaluate your current job. Do you need to be working 40-60 hours a week anymore? Whatever it may be.
Could you reduce your hours considerably or take another part-time job to make up the difference between your dividend income and your expenses?
For a lot of people, this is exactly the option they choose. Working just a couple of days a week in a basic stress-free job.
This would likely be tax-free as well as your income would be under the personal allowance. Hopefully, all your investments and dividends would be inside an ISA so that is also tax-free.
That is assume you have no other income sources.
There is another option though. Geo Arbitrage.
What Is Geo Arbitrage?
I know what you are thinking. What on earth is geoarbitrage?
It is just a fancy word for essentially earning money in one currency/country and then living in another country where your money goes much, much further.
The term arbitrage is actually an investing and finance term. Here is the definition. source
“Arbitrage is the purchase and sale of an asset in order to profit from a difference in the asset’s price between markets. It is a trade that profits by exploiting the price differences of identical or similar financial instruments in different markets or in different forms.”
A real world example of Arbitrage I come across almost daily.
When I do my Matched Betting with Odds Monkey I use their oddsmatcher. So, sometimes I can place a trigger bet (to unlock the free one) and actually make a profit.
The difference in price is normally minimal, and only a few pence profit is made.
However, I’m not looking to take advantage of ‘arbs’. Those that do would BACK and LAY large sums of money and extract a profit for nothing.
Hopefully, you can now see where and why the term geo-arbitrage comes from.
Rent Out Your House and Geo arbitrage
Let us imagine your dividend portfolio is covering your expenses but you would like a little extra.
Even if your house is not yet paid off you likley would be able to rent it out for a decent chunk more than your mortgage repayment.
As an example, a friend of mine is now renting out his first house for around a £250 net profit after living in it for around 7 years.
This is fully managed by an estate agent as would be necessary to perform geo arbitrage.
A healthy bump to your passive income! Even living in the UK.
An extra £250 as in my example, plus your dividend portfolios monthly income. Now it is sounding like geo arbitrage is a no brainer!
Maybe those with children would disagree, but for those without.
Living costs in south-east Asia as the go-to place for geo arbitrage are normally around £850 a month for a single person. Most of the information is in US dollars but $1000 seems to be a comfortable life.
Add a little more on for a couple, say 30%.
That is for everything, including spending money.
Apartments are normally fully furnished with all amenities and internet etc, even televisions are included.
Prices obviously vary wildly but, a nice place seems to be around £300 a month!
Keeping expenses like a car out of the way would be key.
Who needs a car when you just choose a city located near a beach. Best of both worlds.
Rent a car for the odd time you may need one.
How Much Money Do I Need To Do It?
Assuming the examples outlined above.
£250 per month is coming from renting our house out (adjust to your own liking)
So, we need to be drawing £750 a month from our portfolio (assuming we do not have any other sources of income, which we should!)
Hopefully, our dividend yield means we do not need to sell anything at all.
Firstly, take the £750 and multiple it by 12 to give £9000 yearly expenses to make up.
£9,000 multiplied by 25 = £225,000 in your ISA or pension pot. This would be a 4% withdrawal rate.
What about if we do not mind a little risk?
Let’s draw 5% instead as it is unlikely most would retire for good in another country.
A few years away, maybe 5-10. We should be able to handle a 5% withdrawal.
All we need to do is take our £9,000 and multiply by 20 = £180,000.
In an ideal world, we would always draw 4% or less if possible. Hopefully, we have other sources of passive income to provide a buffer if the market is not looking good.
The numbers described may seem huge but if you investing consistently for 20 years or so then I think you would be surprised.
Have a play with my compound interest calculator and adjust to your needs.
I Want To Come Home – Moving Back Home After Trying Geoarbitrage.
Finally, what about if you try living in a cheaper country for a while and decide it is not for you?
Just move back home.
Your house is still there and hopefully has also appreciated since you have been away.
You must of course give your tenants and or the estate agent the required notice.
Remember though, you are now down £250 a month in cash flow but are no longer paying rent. So pretty much breaking even here. If not a little gain being back home.
However, you are now paying UK living costs again and likely would want a car again etc.
A part time job may be required as mentioned earlier.
Lots of options. Retiring early with the correct mindset and investing consistently should not only be possible but an eventuality.
I hope this has inspired some of you to follow your dreams and goals whatever they are.
Waiting until you are no longer tied to a job and 67 at my current state retirement age is not one of mine!