September 2018 Income Fund Update

June 2018 income fund update report graphic

Here’s a catch-up of my September 2018 Income Fund update, following on from last month’s August update. Click on for the details…

Dividend Income

Total income from my Income Fund this month was $3,157, a 25% increase compared to the $2,534 I received in September 2017.

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

Total dividends received so far this year in 2018 are $9,708 compared to $9,324 in 2017.

This time last year I held high-yield bonds which paid monthly distributions. In September 2017 I exchanged these for stock funds which pay quarterly at a much lower yield.

So the dividend payments should start increasing each month from now on since the year-on-year comparisons are all 100% stocks going forward. What’s not visible from the chart is that I’ll have a slightly lower tax bill since much more income is taxed at the lower qualified dividend tax rate.

But with only three months to go, reaching my 2018 Target of $13,760 looks extremely unlikely because of the lower yield.

Income breakdown

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

The largest contribution came from the US stock funds paying $1,972. International funds came next paying $936 with individual stocks paying $247.

Interest from the Income Fund cash reserves made up the remaining $3. I keep a little cash aside to smooth out ‘withdrawals’ and the interest rate on this money market account has increased a little.

Dividend income from stocks

Eighteen individual stocks paid dividends this month for a total of $247 as detailed below.

Last September my individual stocks paid $211, also from eighteen stocks. Although I no longer own BMS shares, the final dividend was paid this month and is reflected in the table above. Some partial shares from 2017 were sold when I consolidated all the stocks at Vanguard, but despite that dividend income is higher.

UPS paid dividends in September 2017 but paid them in August in 2017. Their presence this year is offset by DAL who did the opposite and paid dividends in August this year vs September in 2017.

Dividends increased by a simple average of 8% over last year all on their own. UNP and HD had the biggest increase with 21% and 18% respectively. LB and EMR had the lowest increases of 0% and 1%.

Income from funds

Here are the contributions from each fund along with a comparison to September 2017.

I sold all of my bond holdings in September 2017 but some residual income was received. Since last year I’ve also added the Total International fund to my Income Fund.

The Organic Increase column shows the change in the trailing four quarters from September 2017 and 2018. On a monthly basis, VTIAX paid out 10% less this month than last year, but on an annual basis distributions increased by 10%.

Fund 09/18 09/17 Organic inc
US Total Market (VTSAX) $480 $306 +7%
US High Dividend Yield (VHDYX) $1,492 $1,255 +6%
Total International Stock (VTIAX) $68 +10%
High Dividend Yield International (VIHAX) $868 $697 +21%
High Yield Income (VWEAX) $38
Intermediate Bonds (VBIIX) $13
Total $2,907 $2,308  

Asset Allocation

My Income Fund asset allocation is shown in the chart below.

I hold 100% stocks in my Income Fund which is held entirely in Taxable accounts.

Cash is virtually zero as I just keep a small amount to smooth out quarterly distributions.

Detailed Allocation

The following table shows the details.

Individual stocks are a little over my target. International stocks are a little under. Not enough to worry about however.

Purchases & Sales

I added $2,930.48 of new money to my Income Fund in August.

Fund purchases

Total purchases this month were $3,205.36 in VTIAX. International stocks are still a little below my target asset allocation.

Funds sold

None

Stock purchases

None

Stock Sales

None

Distributions

I transferred $875 from Fund Cash into my Living Expense account. This is an automatic payment and represents about 21% 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 (although an argument can be made that tax-deferred money is different). The withdrawal from the income fund simply 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 because one day I won’t have a salary. There’s no additional tax impact since the money is already in a taxable account.

Fund Cash

Fund Cash is now at $3,066 due to the high dividend income this month and held in the VMFXX money market account which is where all dividend distributions are paid into. $2,625 of this amount is reserved for three distributions of $875 a month for the fourth quarter. The remainder is spare and not yet invested.

Cash increased by $2,007 this month due to the incoming dividends and cash that I added to the Fund outpacing the purchases. This was intentional to rebuild the three month buffer that I use for withdrawals.

Portfolio Performance

My Income Fund increased in value from $465,422 to $470,859 this month. This increase of $5,438 includes $2,930 from new capital so overall, capital growth was $2,508.

Retirement Accounts

Although most of the financial information I describe is about my Income Fund, I should point out that I consider this one piece of the bigger picture. Ideally I’d like to reach Financial Independence based solely on my taxable accounts which is 100% stocks, but I still have Retirement accounts in case I can’t.

I am maxing out my 401(k) contributions to reach the full $18,500 contribution this year. It’ll be the first year I’ve done this since I arrived in the US in 2000.

Outlook

I’m looking forward to a large dividend payment next month when the funds make their quarterly distribution.

Summary

So a good month all in all with a modest portfolio increase. I don’t see how I’ll reach my 2018 income target now but in the meantime I’m continuing to invest as much money as I can.

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


Quote of the Day

It’s not the daily increase but daily decrease. Hack away at the unessential. – Bruce Lee

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