July 2017 Income Fund update

July 2017 income fund update report graphicRead on to see my July 2017 Income Fund update.

Dividend Income

Total income from my Income Fund in July was $354, a 9% increase compared to the $324 I received this time last year in July 2016.

The following chart shows the cumulative dividend income this year compared to previous years.

This month’s results put me ahead of the total reached through September last year, two months early. It even looks like next month’s results will beat November from last year.

Income breakdown

The chart below shows a breakdown of my income this month.

The bulk of income this month comes from the two bond funds I hold. Together they paid $319 or 90% of the total.

Individual stocks contributed $33 or 9%. The majority of my individual stocks pay dividends in the last month of the quarter, so will be higher in September

Finally, interest from the Income Fund cash reserves made up the remaining $2; it’s a very small percentage which was rounded to 0% in the chart above.

Dividend income from stocks

4 stocks paid dividends this month as detailed below for a total of $33.05.

Last July my individual stocks paid $32.98 from 5 stocks. Since then, I’ve sold CB. This means that the organic dividend increases offset the loss of the CB payout.

Dividends this month increased by a simple average of 6.9% over the last year all on their own. JPM had the biggest increases with 9%. KMB had the lowest dividend growth, with a reasonable 5%.

I’ve included the dividend growth of each stock on a 1-year trailing basis in the table. The yield calculations are annualized, or extended forward a year, based on the current dividend payment against the market value.

Income from funds

I received income from two Vanguard funds in my portfolio this month.

Fund Income ($)
High Dividend Yield (VHDYX) 0
International High Dividend Yield (VIHAX) 0
High-Yield Corporate Bonds (VWEAX) 237.77
IT Investment-Grade Bonds (VBILX) 81.37

VHDYX and VIHAX both pay out on a quarterly schedule (March, June, September and December). VIHAX being an international fund has a tendency to pay higher dividends in June and December as some international companies pay on an annual or bi-annual basis. Distributions from both funds are usually qualified which means they are taxed at the lower 15% dividend rate.

The High Yield Bond Fund (VWEAX) was the largest bond contributor with $237.77, down from $244.15 last July. I sold some VWEAX shares in December last year when I adjusted my asset allocation.

This time last year, I had significantly higher cash (about $10,800) in my Income Fund which provided $4.35 in interest. I was also holding VWESX, a Long-Term bond fund which had a higher yield. Together they paid $47.

In switching both to the more stable Intermediate Term Bond Fund (VBILX) for my Emergency Fund strategy late last year, I’m earning a little more income – $81.37 this month vs $47. The IT Bond yield is higher than the average yield of the old LT Bonds + Cash position I was holding last year.

The two bond funds pay their distributions monthly and are taxed as normal income (marginal rate 28%) – not the lower qualified dividend rate that dividends receive.

Asset Allocation

My Income Fund asset allocation as of June 2017 is shown below.

Compared to last month, the percentage changes to asset allocation are mostly hidden by rounding. The US Stock Fund increased from 43% to 44%. I’m trying to hold the IT bonds and International stocks at 10% and 20% respectively.

Cash is virtually zero as I just have a small amount left to manage cash-flow.

Overall the Income Fund is at a 75:25 Stocks:Bonds allocation (counting cash as bonds) which is closing on my overall target of 80:20.

Detailed Allocation

The following table shows the details plus my target asset allocation.

The bond funds are targeted for a combined 20% total weight, with a target 10% in each of the Intermediate-Term and High-Yield funds.

I’m still under-allocated to VHDYX, so the majority of new money is going towards that, with a little towards VBILX and VIHAX to keep them in line. It’s gradually closing in on the target but very slowly.

Fund Purchases & Sales

I added $2,810 of new money to my Income Fund in July. $2,300 of this was the standard contribution I make from my salary. I’m confident this amount is at least always left over after paying for Savings and Living Expenses. I also added a further $510 which was left over from my salary.

Fund purchases

Total purchases this month were $1,510 in VHDYX, $600 in VIHAX and $700 in VBILX for a total of $2,810.

Funds sold

None.

Stock purchases

None.

Stock Sales

None.

Distributions
I transferred $800 from Fund Cash into my Living Expense account. This is an automatic payment and represents about 20% of my Living Expenses that my Fund pays every month.

Money is fungible, so a dollar in one account is no different than a dollar in another account. The distribution from the income fund allows me to invest $800 more of my salary than I otherwise would be able to. Withdrawing money gives me experience in managing cash-flow from the Income Fund however. One day I won’t have a salary after all.

Fund Cash
Fund Cash is now at $2,055, most of which ($2,050.20) is reserved for future distributions, a sub-account which is being filled by dividend income. The remainder ($4.8) isn’t invested yet.

Cash has increased by $415 since last month.

Portfolio Performance

My Income Fund increased in value from $368,324 to $376,848 this month, a new record high. This increase includes $2,810 of new capital.

Outlook

I’m ‘withdrawing’ $800 a month towards my living expenses, this amount is paid for by dividend income. I keep three months’ worth of withdrawals in cash, (3 x $800 = $2400). The buffer smoothes out monthly payments since some months pay less than $800 in dividends. Any money above that threshold is re-invested.

It’s likely that I’ll increase monthly withdrawals to $850 or so starting in October. I’ll wait and see how September goes first but it looks like $850 a month should be a sustainable amount.

Beating my 2017 goal of $9,925 income this year should be a cakewalk as I’m already nearly two thirds there. The final FI destination is still looking far away however.

Summary

Overall this was steady progress in July. Nothing too exciting which is always good when investing. The market increased again this month and added about $5,800 to the total balance

How was your latest month? Are you one step closer to Financial Independence?


Quote of the Day

A wise man can learn more from a foolish question than a fool can learn from a wise answer.

24 thoughts on “July 2017 Income Fund update”

  1. Ciao DL,
    You are holding 25% in bonds right now, aren’t you afraid of rising interest rates that are going to put pressure on prices (and of course to funds like the ones you own)? I have been wanting to “get back in bonds” in the past year but so far I see a rather overpriced market…
    Either than that it seems like you’ve had a good month, still no action on the single stocks but i I remember you are going to shrink that section of your PF in the future, right?
    Ciaociao
    Stal

    1. Hi Stal,
      Haven’t seen much impact on the bond funds yet – both have increased in capital gains this year (although VWEAX is still a little under water). I am evolving my position on bonds – I think eventually I’ll get rid of the high-yield fund entirely and just stick with maybe 10% or so in intermediate term. I haven’t made that move yet as it’ll reduce income but it’s something I want to do.

      No single stock action this month; I’m mostly just letting the allocation fall by buying in other areas. I’m aiming for around 10% or so for individual stocks and may concentrate them a bit more than the ~30 I have currently.

      Thanks for stopping by!
      Best wishes,
      -DL

  2. Hello. We have very similar portfolios. One piece of advice. You may want to switch VBILX to VWIUX. VWIUX is tax exempt and has a yield that is .20% higher. You also may want to add: VDADX it balances out VYDYX and will help you keep up with inflation. Good luck and please do more updates. I enjoy readying them.

    P.S. aren’t you afraid of rising interest rates – I been hearing that for at least 15 years.

    1. Hi Dave,
      That’s a good point, thanks for mentioning that. I do need to reduce my tax footprint, although I see VWIUX has lagged VBILX quite a bit in returns over the last 10 years. I’ve always been a bit worried about tax-exempt funds because of potential exposure to the AMT, but that may just be undue worry on my part. VWIUX has a $50,000 minimum, so it may have to be VWITX in the short term unless I switch once I reach $50k.

      VDADX is an interesting thought too – I’ve been considering adding another fund to the mix but I’m circling around total stock to be honest.

      Not worried about increasing rates – who knows what the future will bring? I am switching away from looking at bonds for income and more for rebalancing in a correction though.

      Thanks for the feedback and helpful comments!
      Best wishes,
      -DL

      1. Even VWITX is .10% more yield (tax free which makes a huge difference) and a great place to have a emergency fund parked. VBILX has better returns because of the fed buying bonds (pushing down yields and increased the bond values) that program is winding down and I believe VWITX will outperform moving forward. Would not worry about AMT until you get closer to it. Later you can all ways switch to another fund. Appreciate your reply. Good luck to you!

      2. DL I see I forgot to add:

        VWIUX is 100% exempt from AMT. That is why I use it for my emergency fund. Like another IRA that you have access to immediately without penalties.

        1. Great. I know there’s one of the Vanguard funds which isn’t 100% exempt so it’s good that it’s not this one. I’ve been doing quite a lot of thinking on the whole bonds in taxable though and I’m evaluating making space for the bond portion of my income fund in my T-IRA.
          I’ve not included my IRA holdings as part of my Income Fund metrics but I’m starting to get more bothered by the tax inefficiency lately. I can get access to the money if needed by selling stock in taxable and exchanging the bonds for the same stock in the IRA.
          Thanks for your comments on bonds in general as it’s made me evaluate my IPS more closely.
          Best wishes,
          -DL

      1. Hi Dave, yes that’s true. However I’m actually okay with the additional cost of the fund over the ETFs because it’s so much easier to automate transactions and withdrawals than with the ETFs. I agree this is a ~ 7 basis point burden and hopefully Vanguard will get the costs down as usually the ETFs are charged at the Admiral rate. ETFs tend to be more tax efficient too however I understand Vanguard have a patent in this area so their funds which have an ETF aren’t that bad for throwing off capital gains.
        Appreciate your comment, thank you!
        Best wishes,
        -DL

  3. Not bad DivLife…9% isn’t something to be upset about!

    I had a record July thanks to some rental income, and about a 50% YoY increase, thankfully. Still behind on my goal though. Keep it up!

    Passive Income Dude

    1. Hi Dan,
      Thanks, yeah any step forward is still a step forward 🙂

      Congrats on your record July results plus a 58$ year on year improvement! That’s pretty awesome! And four rental properties now? My uncle suggests I do something with real estate but I prefer the liquidity of investments to be honest. Hope you have a great Sept / Dec to help catch up on your goals!

      Best wishes,
      -DL

  4. That’s a very nice amount to bring in on a “quiet” month. Like you, I will also put up single digit year over year gains. A little let down after after a June high but I’m still on pace for a good 2017. Your portfolio is always interesting to see as it is more than just individual dividend paying stocks. Greta job for the month with your stocks and funds.

    1. Thanks DivHut! Yes this month and next month are quite boring but I think that’s a good thing really 🙂 It looks like you had a solid month too for July when you account for the payout schedule change in KHC. I do wonder why companies do that and I almost prefer companies which are rock steady on their payout dates. But on a yearly basis it’s all the same.
      Best wishes,
      -DL

    1. Hi DFG,
      Quiet is good I think. Investing is supposed to be boring. Congrats on your July results as it looks like you’re back on track again.
      Best wishes,
      -DL

    1. Thanks Doug, I’m definitely curious how September will look like. I think a lot of the growth is from adding more capital as I’m not a true DGI investor, but it’s all good in my opinion.
      Best wishes,
      -DL

    1. Hi IH, it’s definitely motivating to see the numbers tick higher! I hope you had a great month too.
      Best wishes,
      -DL

    1. Hi titm,
      Yes it’s a quiet month although the bond funds lift the numbers a bit as they pay monthly. It looks you had a great month with 20% increase over last year.
      Best wishes,
      -DL

  5. That’s an awesome report dividend life. I’m relatively new here. Despite single digit returns year to year in dividends, you’re still reporting positive numbers all around. I love your break down of what you’re invested in. Looking forward to more reports.

    1. Hi Dividend Portfolio,
      Welcome to the blog 🙂 I’m not a true DGI investor as I’m too lazy but seeing everyone’s individual journey to FI is interesting. Congrats on your July income – a journey of a 1000 miles starts with a single step and it’s no different with investing. Time is on your side and will do most of the work if you let it.
      Best wishes,
      -DL

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