The last few weeks have passed so quickly – it’s hard to believe that winter is nearly gone and Spring is just around the corner. Which means it’s time to post another monthly update and describe my Income Fund update for February 2017.
The following chart shows the cumulative dividend income this year compared to previous years.
Currently, my income so far this year is about $30 behind what it was at the end of February 2016.
The chart below shows a breakdown of the income this month.
Most of the income this month was from the two Vanguard bond funds that pay out monthly distributions. Together they paid $256 or 73% of the total.
Individual stocks contributed $95 or 27% of the total this month.
Finally, interest from the Income Fund cash reserves made up the remaining $0.79; it’s a very small percentage (0.2%) which was rounded to 0%.
Dividend income from stocks
Eight stocks paid dividends this month as detailed below for a total of $94.80. That’s a 2% decrease over this time last year.
Despite the sale, the total value of stocks paying dividends in February increased by $509 to $11,400 over the year. I have not bought any new shares in these companies over the last twelve months.
Dividends this month increased by an average of 5% over the last year all on their own. RTN, AXP and GIS had the biggest increases over 7%. PG and VZ had the lowest dividend growth, both coming in under 2%.
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 of the Vanguard funds in my portfolio this month.
|High-Yield Corporate Bonds (VWEAX)||213.48|
|IT Investment-Grade Bonds (VBIIX)||42.48|
This time last year, I had significantly higher cash (about $36,000) in my Income Fund which provided $8 in interest. I was also holding VWESX, a Long-Term bond fund which had a higher yield. Together they paid $48.
In switching to the more stable Intermediate Term Bond Fund (VBIIX) for my Emergency Fund strategy late last year, I’m earning less income – $43 vs $48. Although income is lower, it allowed me to put more total money into my Income Fund since I no longer have a separate Emergency Fund account.
The two bond funds pay their distributions monthly and are taxed as normal income – not the lower qualified dividend rate that dividends receive.
My Income Fund asset allocation as of February 2017 is shown below.
Compared to last month, Individual Stocks decreased from 15% to 13%. High-Yield Bonds decreased two percent to 17%, both US and International stock funds decreased 1%.
The decreases were caused because I added a large amount of my former Emergency Fund into Intermediate-Term bonds. This increased the IT bond allocation by seven percent from 3% to 10%. Cash is virtually zero as I just have a small amount left to manage cash-flow.
Overall the Income Fund is at a 78:22 Stocks:Bonds allocation (counting cash as bonds) which is close to 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.
Fund Purchases & Sales
I added $39,398.23 of new money to my Income Fund this month. $2,300 of this was the standard contribution I make from my salary. I also added a further $150 from my monthly income.
$1,000 of the purchases were bought using existing Fund Cash.
I transferred $700 from Fund Cash into my Living Expense account. This is an automatic payment and represents about 18% of my Living Expenses that my Fund pays every month.
The distribution allows me to invest $700 more of my salary than I otherwise would, but it gives me experience in managing cash-flow from the Income Fund. One day I won’t have a salary after all.
Fund Cash is now at $1,922.98 which is all reserved for future distributions, a sub-account which is being filled by dividend income. Cash has decreased by $1,375.38 since last month.
My Income Fund increased in value from $291,833 to $337,959 this month, a new record high. This includes $39,398 of new capital.
I’ve been tracking my fund performance like an Index Fund since the beginning of the year and the underlying monthly investment performance in February was 2.22%. The new capital ‘purchased’ 354,5379 new shares and the end of month share price increased by $2.4228 to $111.7110.
I compare this price performance to the Vanguard Wellington Fund (VWENX) which increased 2.67% in February, excluding dividends and capital gains. VWENX has a fairly similar stock to bonds ratio as my Income Fund: two-thirds stocks, one-third bonds. My price increase since December 2015 is 11.71%, compared to 10.01% for VWENX.
The growth percentages only reflect price changes, not total return. A Total Return calculation would include the dividend plus the capital growth of the shares purchased with that dividend. I haven’t had time to include this calculation yet.
Just for fun here’s a “growth of $10,000” chart with my Income Fund compared to VTSAX as well as to VWENX. This data excludes re-invested dividends so it’s a growth of price, not total return. I used Price Return for now as it’s easier to calculate.
This month, my Income Fund lost ground against both the Wellington Fund (VWENX) and Total Stock Market (VTSAX, ). You can see the lower volatility effect that bonds have on the price – the VTSAX stock fund is more volatile than both my Income Fund and the Wellington Fund but also has better performance. See my Portfolio page for more details on the numbers.
I include this comparison just for fun as it puts a boundary on the results to put them into perspective. VTSAX, being a total stock market fund, should have better performance over the long term since bonds, having a lower expected return act as a drag but also smooth out some highs and lows.
As I mentioned above, I decided to speed up the conversion of my former Emergency Fund cash into my Income Fund. I’ll be completing the rest of the conversion this month, in order to simplify monthly management of my accounts. The value of having a simple portfolio seems to increase for me every month.
I’m not planning to buy individual stocks for a while. Not because of high valuations or a fear of a correction, but simply because they’re over-allocated in my target allocation. I’ve resisted selling any so far in favor of trying to meet my allocation with new money, but I may choose to sell one or two smaller positions to get there faster.
I am confident of beating my 2017 goal of $9,925 income this year. Although the final destination is still looking very far away, slow and steady wins the race.
I was expecting another month of lower income since I’ve moved from a higher yield bond fund into a lower yielding one.
On the plus side, most of the new money I’ve invested has gone into the two stock funds which pay out in March. I expect that March income should be proportionately higher and put me back on track.
Also at the end of March, I’ll have a better idea of my new income and if I’ll be able to invest more money each month. I’m currently going to withhold more taxes and pay more into my 401k. I’m not sure what impact those changes will have on my paycheck at the moment.
How was your February? Are you one step closer to Financial Independence?
Quote of the Day
Knowing others is wisdom, knowing yourself is Enlightenment.