The US Stock Market fell towards the end of the month but ended up higher than at the beginning; the S&P 500 gaining 1.5% during the month for a total of 2.6% year to date. There were the usual concerns about possible actions from the Federal Reserve, the price of Oil, the upcoming Brexit vote in June and a million other things happening around the world. But tuning out all the noise, how did my Income Fund do?
The following chart shows the cumulative dividend income so far this year compared to previous years.
With total income of $2,386 so far this year, I continued to beat last May’s total ($2,169) and make steady increases over last year.
The chart below shows a breakdown of the $401 I received this month.
Individual stocks contributed $98 or 24% of the total this month. The two Vanguard bond funds paid distributions for a total of $297 (74%) and interest from my Income Fund cash reserves made up the remaining $6.
Dividend income from stocks
9 stocks paid dividends this month as detailed below.
Last May my individual stocks paid $76 from 8 stocks. Since then I’ve added $768 of LNT last November. RTN didn’t show up last year as I included their dividends in April, not in May.
I’ve included the dividend growth of each stock on a 1-year trailing basis in the table. Dividend growth is calculated from the last 4 payouts compared to the 4 before that. The yield calculations are annualized, or extended forward a year, based on the current dividend payment against the market value.
On average, dividends of the stocks I hold have increased by nearly 6% over the last year. T and PG have the lowest dividend growth of less than 3%. Top performers are AXP and RTN this month with double-digit increases over the year; their yield is lower however.
Income from funds
I received income from two Vanguard bond funds this month as shown below. The stock funds I hold won’t pay dividends until next month.
|Fund||Income ($)||TTM Div Growth(%)|
|High-Yield Corporate Bonds (VWEAX)||254.67||-2.67|
|Long-Term Investment-Grade Bonds (VWESX)||42.05||-3.53|
The two bond funds pay their distributions monthly and these are taxed as normal income – not the lower qualified dividend rate that dividends receive. Income decreased since they’re bonds and are linked to interest rates; but I gained more shares during the year so there was a slight increase in income overall.
Here’s my Income Fund asset allocation as of May 2016.
Compared to last month, cash has decreased by 6% and stocks have increased by 6%.
The following table shows the detailed asset allocation.
I’m still slowly rebalancing to my target asset allocation. My long term plan is to limit individual stocks to 10% of the total, but I’ll be achieving this for the most part by adding new capital to the mutual fund components rather than selling individual stocks.
Likewise the bond funds are targeted for a 15% total weight.
Fund Purchases & Sales
I added $2,560.48 of new money to the Fund this month; all leftover income that isn’t used for Living Expenses, Savings and my Emergency Fund is transferred into the Fund’s cash account first, and I then purchase investments from the Fund’s Cash account.
This amount includes an automatic monthly $2,000 purchase of VHDYX ($1,100), VIHAX ($600), VWESX ($100) and Cash ($200) along the lines of my target asset allocation. The Cash will be used to buy individual stocks from time to time. I also bought $550 of VIHAX because it was under-performing VHDYX by the end of the month.
In addition, I spent down some of the Fund Cash reserves. I bought 12 shares of LB for $808 and as I mentioned last month, I also bought $13,166 of VHDYX. These purchases caused the Cash allocation to drop from 11.6% to 5.8% this month.
My Income Fund increased in value from $242,392.87 to $245,254.41 this month, a new record high, helped largely by the stock market although I added $2,560 of new capital.
The new capital I added ‘purchased’ 25.2127 shares of my Income Fund and the end of month share price increased by $0.1144 to $102.7813, the highest it’s been.
|Date||Price ($)||Change||YTD Change||Value||Cost Basis||VTSAX YTD|
I’ve been tracking my fund performance like an Index Fund since the beginning of the year and the underlying monthly investment performance in May was 0.11%. I’m comparing this price performance to VTSAX which gained 1.77% in May, excluding dividends. My Year to date increase is 2.78%, compared to 2.91% for VTSAX.
The growth percentages only reflect price changes, not total return. Total Return is higher since I pay a monthly dividend from the Income Fund, which lowers the price and thus the growth percentage. A Total Return calculation would include the dividend plus the capital growth of the shares purchased with that dividend.
Just for fun here’s a typical “growth of $10,000” chart with my investments compared to VTSAX, (this data excludes re-invested dividends).
VTSAX has a different composition than my portfolio so I expect different results. It contains US-only stocks and includes small-cap stocks whereas my investments contain US large-value stocks, international value stocks and (volatile) US bonds. Over the long-run a 100% stock allocation should always beat an 85:15 stock/bond allocation. I’ll add dividend payments to this chart too once more have been paid out – my fund’s dividend payments are much smaller than VTSAX’s.
Does the relative performance matter? Not to me; it just puts a boundary on the results to put it into perspective. VTSAX, being a total stock market fund, indicates the average performance that can be achieved by the US Stock Market.
I made my large $13,000 purchase of VHDYX via an automatic purchase on a pre-determined date; it’s not worth trying to manually pick the best day to buy. As it happened, my purchase was on a more expensive day of the month although the price has still gone upward from there. The reality is that a small percentage delta in the price now will have little overall impact in 30 years’ time; and that subsequent purchases will, on average, balance out more expensive / cheaper purchases.
Both VHDYX and VIHAX are at their targeted 2:1 ratio with respect to each other. Keeping the funds at their target ratio allows me to put more money into whichever fund performs worse each month, so I’m automatically buying more of the ‘cheaper’ fund.
I’ll be exchanging another $3,000 of Fund Cash into stock funds this month as I draw down my cash reserves. I want to keep as little Cash in the Fund as I can but I do need to keep a certain buffer for smoother cash-flow.
I’m continuing to withdraw $540 each month from Fund Cash which goes towards my Living Expenses. Although I’m ‘withdrawing’ money, it just means that I can put more of my paycheck towards investing; it’s really the same thing but gives me practice in managing the Fund Cash flows since my paycheck will stop when I reach Financial Independence.
Steady progress this month again. Dividend income was up a little. Most of my purchases of late have been in the stock funds so I won’t see higher income from them until June – I’m expecting a bigger than average increase since the majority of my purchases over the last two months will contribute to higher income next month.
How was your May? Are you one step closer to Financial Independence?
Quote of the Day
A tragic irony of life is that we so often achieve success or financial independence after the chief reason for which we sought it has passed away.