October 2018 Income Fund Update

June 2018 income fund update report graphic

Here’s a catch-up of my October 2018 Income Fund update, following on from last month’s September update. This month there’s a stock purchase and some stock selling shenanigans! Oh, the excitement! Click on for the details…

Dividend Income

Total income from my Income Fund this month was $51, a 37% increase to the $37 that I received in October 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 $9,759 compared to $9,360 in 2017.

So I’m inching ahead of last year’s result but not much movement in general since only a few individual stocks are paying dividends this month.

What’s not visible from the chart is that I’ll have a slightly lower tax bill since nearly all income is at the lower qualified dividend tax rate. But with only two more 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 individual stocks paying $48.

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

Seven individual stocks paid dividends this month for a total of $48 as detailed below.

Last October my individual stocks paid $35.23 from the same four stocks. Some partial shares from 2017 were sold when I consolidated all the stocks at Vanguard so the basis decreased a bit. I also added five more shares of KMB in June 2018

The JPM shares were the main reason behind the increase this year. However dividends increased by a simple average of almost 10% over last year all on their own. JPM and ADP had the biggest increase with 14% and 12% respectively. KMB had the lowest increase of 3.7%.

Income from funds

No stock funds paid dividends this month. They pay quarterly so won’t show up until December.

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. I’m favoring buying International stock funds at the moment since they’re a little more underweight.

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

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 much about however.

Purchases & Sales

I added $3,120 of new money to my Income Fund in October.

Fund purchases

Total purchases this month were $550 in VTSAX and $2,300 in VTIAX.

Then towards the end of the month I sold all my VTIAX shares at a loss and bought $15,181.42 in VFWAX, Vanguard’s FTSE All-World Ex-US fund, instead!

Funds sold

I sold all 581.441 of my shares of VTIAX for $26.11 per share for a total of $15,181.42. This resulted in a net capital loss of $1,849 against the cost basis of $17,030.

Stock purchases

I bought 12 shares of GIS on 5th October for a total of $522.20 including $2 commission. General Mills manufactures branded food, cereal and yoghurt and has recently expanded into organic pet food with its Blue Buffalo acquisition.

April 2019 Update: GIS is one of the companies I question holding in my individual stock portfolio. It’s not helped that the DL household has moved away from branded cereal to cheaper store branded cereal, and if we’ve done that, who else will? But regardless, I’m going to hold onto my shares and stick with them. People have to eat something after all.

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 $1,990 and held in the VMFXX money market account which is where all dividend distributions are paid into. $1,801 of this amount is reserved for two more distributions of $875 a month for the remaining two months of the fourth quarter. The remainder is spare and not yet invested.

Portfolio Performance

My Income Fund decreased in value from $470,859 to $446,916 this month. This decrease of $23,843 includes $3,120 of new capital so overall, the effective capital loss was $27,063.

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.

Financial Independence

Here’s a chart of my living expenses as a percentage of income. As income from my investments increases, the living expense percentage decreases. However other factors such as changes in net salary or salary deductions affect the results too.

My income in October 2018 was lower than in 2017 due to social security contributions that weren’t applicable in 2017.

Outlook

The capital decline this month exceeds the effective $21,138 loss I had in February 2018. But aside from banking some capital loses, I’m just looking forward to being able to buy some cheaper investments going forward.

April 2019 Update: I’m writing this with the clarity of hindsight so I know what’s coming up (or should that be going down?) in December! But aside from that, next month looks pretty ordinary.

Summary

I was able to bank some capital losses this month from my sale of VTIAX. Replacing those shares with VFWAX should result in fairly similar performance and I plan to exchange back into VTIAX some time after the 30-day wash sale period expires.

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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