It’s time for my November Income Fund update for 2016. It was a good month for the stock market as a whole, despite the unexpected US election results.
Total income from my Income Fund in November was $387, a 1.6% increase compared to the $382 I received this time last year in November 2015. I’m actually surprised to have made a gain over last year to be honest so the small increase was welcome.
The limited increase is from selling stocks that happened to pay dividends in October/November in favor of buying VHDYX which pays dividends in September and December. So most of any increase in income this quarter should come in December.
The following chart shows the cumulative dividend income so far this year compared to previous years.
The great thing about this month is that I managed to beat last year’s total income a month early, in November! Actually this is four years in a row now, but it’s harder to do each year as the portfolio increases since contributions become a smaller proportion of the total market value.
With total income of $6,890 so far this year, I’ve beaten last year’s total of $6,792. I’m relying on a large December payment to beat my target of $7,800, as there’s still $910 to go.
The chart below shows a breakdown of the $387 I received this month.
Individual stocks contributed $95.89 or 25% of the total this month. The two bond funds (VWEAX and VWESX) paid a total of $290.60 or 75%. Finally interest from the Income Fund cash reserves made up the remaining $0.76; it’s a very small percentage (0.2%) which was rounded to 0%.
Dividend income from stocks
9 stocks paid dividends this month as detailed below.
JPM also paid dividends last year in November, but this year they paid last month instead.
Overall the total cost basis of stocks that pay dividends in November has decreased by $1,401 to $9,314 over the year. I didn’t add to the companies listed above.
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 paying dividends this month have increased by nearly 3.4% over the last year. AXP and RTN were the biggest increases with over 8%. PG had the lowest dividend growth of 1.5%.
Income from funds
I received income from the two Vanguard Bond funds which pay monthly distributions this month as shown below.
|High-Yield Corporate Bonds (VWEAX)||250.06|
|Long-Term Investment-Grade Bonds (VWESX)||40.54|
The two bond funds pay their distributions monthly and are taxed as normal income – not the lower qualified dividend rate that dividends receive. Income decreased by $3 this month compared to last month. Together both bond funds had a total of $35 more income at this time last year compared to this year. Despite the decrease they still pay a good yield (4+%).
Here’s my Income Fund asset allocation as of November 2016.
Compared to last month, the US stock fund allocation increased from 38% to 39% and Cash decreased to 1%. The Long-Term Bond fund decreased 1% too. Overall the Income Fund is at a 74:26 Stocks:Bonds allocation (counting cash as bonds).
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 (it’s at 16.5% currently, up from 16.3% last month), but I’ll be achieving this for the most part by adding new capital to the mutual fund components.
Likewise the bond funds are targeted for a 15% total weight; however I’m going to be changing this target allocation in December.
Fund Purchases & Sales
I added $4,060 of new money to my Income 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. I had some extra income this month which I invested.
Some of the purchases were automated as I have an automatic monthly $1,800 purchase of VHDYX ($1,500) and VIHAX ($300) set up. This purchase is paid for by an automatic monthly transfer of cash of $2,300 into the account, leaving $500 for discretionary purchases.
I transferred $600 from Fund Cash into my Living Expense account. This is an automatic payment and represents about 13% of my Living Expenses that my Fund pays every month.
Fund Cash is now at $3,397.08 with $1,392.04 of that reserved for distributions, a sub-account which is being filled by dividend income. This leaves $2,005.04 available for new purchases.
Cash has decreased $1,380.66 since last month. I transferred $4,060 into the Fund but spent $5,060 on purchases for a net $1,000 spend.
The additional $380.66 decrease is because the $600 Distribution I withdrew was offset by dividend income of $219.34. This is a partial amount of the full dividends I earned this month. The remainder won’t reach my account until early December.
My Income Fund increased in value from $262,889 to $270,307 this month, a new record high. This includes $4,060 of new capital.
I’ve been tracking my fund performance like an Index Fund since the beginning of the year and the underlying monthly investment performance in November was 1.27%. The new capital ‘purchased’ 38.2951 shares of my Income Fund and the end of month share price increased by $1.3367 to $106.2217.
I compare this price performance to the Vanguard Wellington Fund (VWENX) which increased 2.22% in November, excluding dividends. VWENX has a similar stock to bonds ratio as my Income Fund: two-thirds stocks, one-third bonds. My Year to date increase is 6.22%, compared to 6.63% for VWENX.
The growth percentages only reflect price changes, not total return. A Total Return calculation would include the dividend plus the capital growth of the shares purchased with that dividend.
This month the Wellington Fund (VWENX) overtook my fund. The Wellington Fund’s asset allocation is much closer to mine although favors higher quality bonds. You can see the lower volatility effect that bonds have on the price – the VTSAX stock fund is more volatile than both my Income Fund and the Wellington Fund but also has better performance. See my Portfolio page for more details on the numbers.
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 by doing nothing other than buying more shares. Average doesn’t mean bad in this case – even average performance beats the majority of active investors over the long-term.
I’m a little underweight in VIHAX at the end of November. So I’ll buy proportionately more in December to balance it out. Trying to keep the two stock funds at their target ratio allows me to put more money into whichever fund performs worse (is ‘cheaper’) each month.
I’ve been reviewing the benefits of keeping bond funds as part of my Income Fund. I’m still inclined to go with a 100% stock asset allocation but a sudden switch out of the bond funds would mean lower income, so I’ve settled for a compromise going forward. I’ll write this up in a post later.
I think it’s been another pretty solid month all in all and I’m one step closer to FI although it still looks very far away. However I’m on track to easily reach $8,000 dividend income this year and beat my goal of $7,800.
How was your November? Are you one step closer to Financial Independence?
Quote of the Day
The secret of getting ahead is getting started.