January 2018 Income Fund Update

January 2018 income fund update report graphicDoubling down on the term, “it’s better late than never”; here’s my January 2018 Income Fund update, following on from last year’s December update.

Dividend Income

Total income from my Income Fund this month was $37, an 88% decrease compared to the $300 I received in January 2017. As low as it is, it manages to beat the lowest income month of last year which was $36.79 from October 2017.

So that’s not a whole lot of income from a $420,000 portfolio but the decline is easily explained since this time last year I was owning high-yield bonds which paid out monthly income. In moving that money to stock funds, most of the dividends I receive now are paid in the third month of each quarter.

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

January’s 2018 result barely registers on the chart and my new 2018 Target of $13,760 looks far away. But this is the new normal of my portfolio now – it’s more tax efficient and it should have higher total return over time since it’s all stocks. I smooth out the monthly income by holding higher cash reserves in the fund.

Income breakdown

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

The largest contribution came from individual stock holdings – together they paid 94% or $35.

There was no income from any of the stock funds I hold since they pay out in the third month of the quarter.

Finally, interest from the Income Fund cash reserves made up the remaining $2; I keep a little cash aside to smooth out ‘withdrawals’.

Dividend income from stocks

Four stocks that I hold paid dividends this month for a total of $35 as detailed below.

Last January my individual stocks paid $32 from five stocks. Since then, I’ve sold out of CB and put the proceeds into VHDYX instead.

Dividends increased by a simple average of over 7% over last year all on their own. JPM and ADP had the biggest increase with 50% and 29% respectively. WMT had the lowest increase with 2%.

Income from funds

None of the funds I hold paid out dividends or capital gains in January.

Asset Allocation

My Income Fund asset allocation is shown below.

I’m now holding 100% stocks in my Income Fund which is held entirely in Taxable accounts. This is a much more tax efficient than before when I was holding bonds.

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

Detailed Allocation

The following table shows the details plus the new asset allocation for my Income Fund.

Individual stocks are a little over my target and US Total Stock and International stocks (VIHAX) are a little under. I’m not that worried about getting them exactly in line; I’m just putting a bit more money to the under-target assets each month.

Changing the allocation ratio via new capital takes a lot of time because of the size of my contributions vs the total value. Eventually it may not even be feasible. However I don’t plan on selling any assets to re-balance faster.

Fund Purchases & Sales

I added $2,017.27 of new money to my Income Fund in January. This is lower than the $2,300 I’ve being adding in the past. I’m now maxing out my 401(k) contributions and saving a bit more this month so net income is lower.

Fund purchases

Total purchases this month were $1,070.44 in VHDYX and $607.27 in VTSAX.

Funds sold

None.

Stock purchases

I bought 6 shares of DAL on the 2nd January for $56.26 per share. Total cost including the $2 commission was $339.56. Delta Airlines is one of my more speculative holdings as they’re not a defensive dividend growth stock. However I think they are a well-managed company at a good valuation and it doesn’t hurt that I spend a fair amount of money each year on their services. This purchase increases the number of  DAL shares I hold to 46.

Stock Sales

None.

Distributions

I transferred $850 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 more of my salary than I otherwise would be able to. Withdrawing money gives me experience in managing cash-flow from the Income Fund. One day I won’t have a salary after all.

Fund Cash

Fund Cash is now at $2,006 and held in the VMFXX money market account which is where all dividend distributions are paid into. All of this amount is reserved for future distributions of $850 a month.

Cash has decreased by $720 since last month since I withdrew $850 but received some dividend income this month. This figure includes some additional dividends which were reported last month but took several days to reach my main brokerage account. All cash is considered fully invested this month.

Portfolio Performance

My Income Fund increased in value from $420,93 to $441,077 this month, a new record high. This increase of $20,174 includes $2,017 of new capital.

Outlook

For this quarter I’m continuing to withdraw $850 a month. This money pays some living expenses and allows me to invest more of my paycheck.

Going forward, I will set my monthly withdrawal rate for the next three quarters of the year to the average monthly income from the first quarter. The first quarter is usually the lowest income of the year since I invest throughout the rest of the year and because the stock funds I own tend to pay more dividends in Q2 and Q4.

Shifting focus

I plan to start a position in Vanguard’s Total international Fund (VTIAX) and stop funding VIHAX. My tables above include references to the investor class of that fund (VGTSX) which has a $3,000 minimum purchase limit compared to the $10,000 limit of the cheaper admiral class fund.

I am moving towards a total market portfolio with a small tilt to high-yield (value) plus some individual stocks.

Summary

January has been a very small step forward in terms of the dividends received this month. Hopefully income will pick up a bit in the next two months.

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


Quote of the Day

Talk low, talk slow and don’t say too much.

 

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