Katie Price has been declared bankrupt at the High Court in London, and it saddens me to be reminded how so many people who acquire significant wealth appear not to possess the ability to manage it.
The model formerly known as Jordan had failed to stick to the terms of an arrangement previously made with her creditors for an an Individual Voluntary Arrangement repayment plan. At one stage she was, apparently, worth more than £40m. What did she do with so much cash that she’s being chased by creditors?
What a waste
I’ve no idea, but I do keep hearing of wealthy people making disastrous choices with their money. I met a guy a few years ago who’d put a lot of work into his own company, building it up to success, and he eventually sold it for a sum that was more than enough to live on very comfortably for the rest of his life. But he decided to invest it all in the stock market, and piled into high-flying tech stocks… as you’ve no doubt guessed, just before the bubble burst.
Then again, on a long-haul flight once I was sat next to a retired businessman who’d also founded and built up his own company. And he’d sold it too, but had taken a very different approach. He’d worked out what income he and his wife needed to have a couple of far-away holidays every year, and to do the things they enjoyed doing in between. He reckoned that interest on a savings account was more than sufficient to provide that, and that there was no need to take any risk beyond that. Though my preference would be safe dividend-paying FTSE 100 shares, I couldn’t fault his logic.
What to do?
But what would I have done with Katie’s £40m?
I wouldn’t get into any debt, so I’d never have bankruptcy as a possibility – not a penny of debt, not even for a mortgage. And I wouldn’t even spend a single penny of the capital – I’d invest it all and live on the income.
The FTSE 100 is currently on an expected dividend yield of 4.8%, so spreading the cash across all of the companies in the index, I’d snag myself a total dividend income of £1.92m per year. I think I could live on that. In fact, it’s significantly more money than I’d need, so I’d end up reinvesting a lot of it.
But could I do even better? Well, at the time of AJ Bell‘s latest Dividend Dashboard, a full 26 stocks in the Footsie were offering dividends of 6% or better, with an average among them of 7.8%. So if I spread the money across those 26, my dividend income would get me £3.12m per year.
No risk
But what if, like my fellow airline passenger, I decided I needed to take no risk at all and just put the money in the bank? You’d do well to get 1.5% interest even in a Cash ISA these days, but that would still earn £600,000 per year.
On balance, I’d go for FTSE 100 shares, in an ISA – which I do even without having £40m.