Read on to see my July 2017 Income Fund update.
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.
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.
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.
|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.
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.
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.
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.
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 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.
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.
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.
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.