Global stock markets have been on a bull run now for almost 12 years and whilst I'm a massive fan of "Buy & Forget" passive investing, as a new retiree, I'm a bit worried that the gravy train might be coming into the station.
I'm certainly not planning to pull all my money out of the stock market but I am looking for alternative opportunities to make my money work for me in a place where it is going to be less susceptible to a sudden market crash or global event.
My thought process is that now I'm essentially living off my investments I really don't want to be in the position where I'm selling my stock at discounted rates and putting my future at risk. However, with interest rates where they are, just keeping cash in the bank a simple Money Market Fund or a bond linked ETF seems sensible but is probably going to bring me in the region of a 6-8% annual return. With 4.5% inflation where I live in South Africa, it's going to give me a net increase of 1.5-3% on my savings. If you've been following my story, you'll know that my plans are based on the 4% rule (read more about that here) and to de-risk that , I need a 5% return after inflation or around 9.5% before.
I also have to consider that as I'm 44 now, if I can have a couple of years of living expenses that are accessible and not linked to the market, I can pretty much weather most storms and leave the lion's share of my wealth invested in the market, as over the long run, I know that will get me 10%-12% return which is more than I need.
So the challenge is clear:
Objective: Generate An Income Stream With Returns Of At Least 9.5% That Is Not Directly Affected By Financial Markets
How hard could it be?
So I set to work scouring the internet for opportunities. My immediate thought was look at investing in a business so I started searching for Angel Investor sites, I'm a great fan of Shark Tank and Dragon's Den and after 25 years in business, I should be able to sniff out a deal.
I quickly realised that the investment is big, the risk is super-high and the returns whilst potentially big, may take several years to materialise. I also sensed there are a lot of people looking for funding for things that won't work, to get themselves out of a hole or simply have no idea how much more money they'd need down the line. I'm going to need a better plan with lower risk.
So then my mind turned to crowdfunding, I'd had some luck a few years back with social peer to peer lending and still held a small interest in a business to business crowdfunding site that I'd pretty much forgotten about. I went and logged on and found that over the years as the market has saturated, the loan rates have come down to 6-7% and the bad debt was going up as more people were over stretching themselves. Less risk but not a high enough return.
Still on the crowdfunding route I found a site that lets you make an equity investment into startups in the tech space. As a fully qualified geek I started to look at what was on offer but just couldn't get excited about the companies currently pitching, it was all Facebook-alikes or Whatsapp-copies and you don't need to be a genius to figure out the chance of success is pretty small against anything that competes with the mighty FAANG (Facebook, Apple, Amazon, Netflix & Google).
I was starting to wonder if I was looking in the wrong place but then I came across a podcast interview with a company called Fedgroup who had introduced a social farming app and were selling Beehives, Blueberry Bushes and Solar Panels which you could purchase and they would manage the asset for you and you get a return. Fedgroup takes a small management fee, you create a job for someone to look after your asset and when the Honey or Blueberries are ready, you get the profit from their sale less costs. Sounds great!
And it actually turns out it is!
I now own over 50 blueberry bushes which provide a 12% IRR (Internal Rate Of Return) which is similar to a 12% interest rate only you receive less at the beginning and more towards the end of the investment as your bush produces more blueberries and inflation increases the price over time.
IRR is a mathematical head bender so it's worth a google but put simply, if you were to buy $1000 of bushes for 3 years at an IRR of 10% and then got paid back yearly $200, $400 and then $650 you would be close to a 10% IRR when in fact your total return over 3 years would be 25%.
Confusing I know, but this is because your getting paid back every year, you're not waiting to the end of the term to get your money back, you could invest your $200 in year 1 into something else and get another return on that. IRR is a whole post on it's own but if you don't understand IRR, its a very useful thing to get an understanding of so I recommend taking the time.
Blueberry bushes have a lifetime of 8 years so it's a fairly long commitment but I like that I start getting money back in year 1. I also bought 6 beehives and 15 solar panels. Beehives have a 14% IRR over a 10 year lifetime and Solar Panels have 10% over 20 years so all 3 of these purchases meet the 9.5% minimum return I'm looking for. The solar panels although they have the lowest IRR, they have the longest term which means even though your getting your money back slowly, knowing you will have that income stream for 20 years is pretty appealing. The other factor that attracted me to Solar panels is that they pay out monthly, whereas honey and blueberries are harvested twice per year. This means that I get a little bit back that I can re-invest somewhere else every month and compound those returns into a decent side-hustle salary.
Its important to be clear that this is not investing as such, it's the equivalent of starting a business, you are effectively buying an asset, you own it, and they you're leasing it out (in the case of the beehive, to the beekeeper) who is then paying you rent for it (Which he obtains by selling the honey). This is what's known as "Buy To Lease" and is not massively different to buying a house to rent out. The good thing about this is that you have zero involvement, all the work is done for you.
It does mean depending on where in the world you live the income you receive may be taxable as income rather than as a Capital Gain which most stock market investments are subject to and what is also often at a lower rate than income tax. As I currently have close to zero taxable income, that actually works for me rather than against me as I will be in the lower brackets for tax and will smash the granny out of capital gains allowances this year.
It's been a few months and I've been pretty happy with Fedgroup, I get paid each month and the app works well. Fedgroup are a big financial organisation so that gives me some comfort they're not suddenly going to disappear. I've even bought a solar panel as a gift for my friend's newborn and told him to keep re-investing the profits until his son Connor is 20 and the first solar panel is at the end of it's life, by then he should be a full on farmer with loads of bees and blueberries to give him an income for life. that's a better gift than a teddy!
Unfortunately as Fedgroup transact in South Africa Rand, it's a a bit more complicated if you're outside SA but if you know your way around your banking app or are used to transacting in different currencies, I suspect it might be achievable (but you might want to check with Fedgroup first).
So that's non-stock market income stream number one created. And it gives you a nice fuzzy feeling that you're creating jobs, helping global warming and making a tidy return at the same time; win, win, win.
This experience has really got me pumped and I'm on the hunt for more opportunities just like this. Subscribe now to be the first to know when I find them.
Until then, keep living.