December 2018 Income Fund Update

June 2018 income fund update report graphic

The last update of 2018. How did the month’s wild market ride affect my Income Fund? Did I make my 2018 income target? Here’s my December 2018 Income Fund update, following on from last month’s November update. Click on for the details…

Dividend Income

Total income from my Income Fund this month was $3,357, a 24% increase to the $2,697 that I received in December 2017.

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

Total dividends received in 2018 were $13,257 compared to $12,159 in 2017.

So despite a strong finish, I was about $500 below my 2018 Target of $13,760. But I’m happy with the results and I’ll be paying less taxes on the money as a result of more qualified dividends and lower yield than in 2017.

Income breakdown

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

The largest contribution came from US stocks funds paying $2,153. International stock funds paid $949 with $250 coming from individual US stock holdings.

Interest from the Income Fund cash reserves made up the remaining $4. 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

Seventeen individual stocks paid dividends this month for a total of $250 as detailed below.

Last December my individual stocks paid $238 from eighteen stocks so income increased 5% year on year.  Not much has changed since then although I added to EVRG (August 2018), sold BMS (August 2018) and I tax-loss harvested LB (March 2018) before buying them back a month later.

The lower than expected year-on-year increase this year was mostly caused by DAL which paid dividends in December 2017 but paid them in November in 2018. This was offset a little by UPS who did the opposite and paid out in December this year instead of November. However dividends increased by a simple average of almost 9% over last year all on their own. UNP and HD had the biggest increases with 21% and 18% respectively. EMR the lowest increase with a token 1% increase to avoid ruining their lengthy dividend growth history. LB didn’t increase their dividend at all.

Income from funds

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

The Organic Increase column shows the change in the trailing four quarters from December 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 12/18 12/17 Organic inc
US Total Market (VTSAX) $502 $385 +10.7%
US High Dividend Yield (VHDYX) $1,651 $1,361 +11.1%
Total International Stock (VTIAX) $186
High Dividend Yield International (VIHAX) $763 $711 +14.2%

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 as usual. International stocks are a little under. Not enough to worry about however.

Purchases & Sales

I added $3,650 of new money to my Income Fund in December.

Fund purchases

Total purchases this month were $4,000 in in VTSAX and $1,000 in VTIAX. I spent down some of the cash I forgot to invest last month.

Funds sold

None.

Stock purchases

I bought 6 shares of AXP for $541.94 including a $2 commission. This brings the total number of shares owned to 15.

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 $3,191 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 to cover the first quarter of next year. The remaining $566 is spare and not yet invested.

Portfolio Performance

My Income Fund decreased in value from $461,882 to $428,069 this month. This decrease of $33,813 includes $4,000 of new capital, however, and so the overall  capital loss was $37,813. I think that’s the highest monthly drop since I started investing in 2013.

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 net income in December 2018 was higher than in 2017 due to higher net salary and investment income. So the percentage of my living expenses to net income reduced to 35% from last year’s 38%. This is a new record for me. Overall I saved or invested 51% of my income in 2018.

Outlook

I didn’t meet my target income limit this year. My target is a projection of what’s needed to retire at 59 using my taxable Income Fund alone. Changing the Income Fund asset allocation to be more tax efficient in 2018 has reduced the amount of income generated from dividend growth and new capital due to lower yields. It will be interesting to see how 2019’s results compare since the comparison will be based on the same allocation.

At this point, the two levers available to improve my savings rate are:

  1.  Reduce living expenses
  2.  Earn more money

But I think I’m going to see how 2019 goes first before I make any changes to my planned living expense increases.

Summary

A drop of almost $40,000 in one month is quite exciting! But I don’t keep any “dry powder” (and I really hate that phrase let alone the concept) since I’m almost always fully invested. The most important thing to do is keep holding on and enjoy the ride.

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

Quote of the Day

In your actions, don’t procrastinate. In your conversations, don’t confuse. In your thoughts, don’t wander. In your soul, don’t be passive or aggressive. In your life, don’t be all about business.

2 thoughts on “December 2018 Income Fund Update”

  1. Hi DividendLife,

    Nice passive income in December. It was really to close the year with a good flavour. Good luck with the 2019 incomes and I hope you to catch your target this year.

    All the best.

    Cheers!

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