March 2019 Income Fund Update

March 2019 income fund update report graphic

Here’s my March 2019 Income Fund update, following on from last month’s February update. Click on for the details…

Dividend Income

Total income from my Income Fund this month was $3,153, a 24% increase to the $2,545 that I received in March 2018.

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

The red bar for this year finally makes a more significant appearance and beats the cumulative income received through May 2018.

Most of the income this month is from index funds which pay out in the third month of the quarter. Income in the other months is purely from individual stock dividends.

Income breakdown

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

The largest contribution came from US stocks funds paying $2,129. International stock funds paid $754 and individual US stocks paid $269. Interest from the Income Fund cash reserves made up the remainder. 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 stocks paid dividends this month for a total of $269 as detailed below.

Last March my individual stocks paid $244 from eighteen stocks so income increased 10% year on year. Since last year I’ve added to existing positions in DAL, EVRG, MAR & UPS. I sold my BMS shares which paid dividends last year when it was acquired by Amcor.

The average organic increase was a little over 10% despite poor performance from LB which cut its dividend by 50%. The trailing growth percentage in the table above only includes one quarter with the lower dividend so only shows a quarter of the decline.

UNP, MAR and HD all had large dividend increases greater than 20%.

Income from funds

All stock funds that I hold paid out dividends this month. There were no capital gain distributions.

Fund Q1/17 Q1/18 Organic inc
US Total Market (VTSAX) $365 630 18%
US High Dividend Yield (VHYAX) $1,356 $1,498
Total International Stock (VTIAX) $7 $92 -1.4%
High Dividend Yield International (VIHAX) $571 $662 14%
Total $2,299 $2,882  

I’m including the trailing 12 month dividend increase in the table above. This is the change from the last 4 dividend payments vs the 4 payments before that. The income from VTIAX actually decreased but is offset by additional contributions that I made in buying new shares.

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 manage cash-flow.

Detailed Allocation

The following table shows the details.

Individual stocks are a little over my target as usual. International and US stock funds are a little under. Not enough to worry about however.

Purchases & Sales

I added $5,275 of new money to my Income Fund in March, an amount helped by a tax refund payment.

Fund purchases

Total purchases this month were $575 in VHYAX, $15,585 in VTSAX and $1,900 in VTIAX. I don’t usually add to VHYAX, but decided to increase the portfolio yield by a tiny amount to get some more income.

Funds sold

I sold all shares of the Tax Managed Small Cap fund (VTMSX) which I included into my Income Fund earlier this year in January. This raised $13,935 which was exchanged into VTSAX.

The cost basis was $13,831 and so I incurred a capital gain of $104. The sale was before the dividend declaration date and so no dividend was paid.

The reason for selling was to put the portfolio back to its asset allocation. Originally this fund was part of a long-term savings bucket but I’ve now folded those assets into my Income Fund.

Stock purchases

I bought 5 shares of MAR for a total of $622.05 on 3/25/19. This increases the number of shares to 10 for a total of $16.40 in projected income.

I chose MAR because it was the stock holding with the lowest projected income in my portfolio. With this purchase that honor moves to ADP who has $12.64 of projected income. This simple selection is due to my new stock purchasing rules.

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 $3,313 and held in the VMFXX money market account which is where all dividend distributions are paid into. $3,300 of this amount is reserved for three distribution of $1,100 to cover the next quarter. The remaining $13 is spare and not yet invested.

Portfolio Performance

My Income Fund increased in value from $496,809 to $505,216 this month. This increase of $8,406 includes $5,275 of new capital and a distribution of $875 however, and so the overall  capital gain was $4,006.

In terms of market value, the portfolio has now reached another all-time high, beating the previous high of $496,809 from February 2019.

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 $19,000 contribution for 2019.

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 March 2019 was the same as 2018 but fortunately higher investment income decreased the percentage of my living expenses from last March’s 41% to 40%.

Outlook

A Pay Raise!

I like to base my monthly cash withdrawal amount from my Income Fund on the average income from the first quarter in the year. The first quarter usually has the lowest income and so it should be a safe amount.

This year the total first quarter income I received was $3,316 and so I will be taking $1,100 each month as a distribution for the next twelve months. Compared to the $875 distribution from last year, this is a 25% raise which is great! It’s still a long way from my monthly living expense budget but it’s getting closer.

Summary

March was another good month and things are moving along nicely. How was your latest month? Are you one step closer to Financial Independence?

Quote of the Day

Choose not to be harmed — and you won’t feel harmed. Don’t feel harmed — and you haven’t been.

6 thoughts on “March 2019 Income Fund Update”

  1. Can you please update faster, I am very interested in your progress? Also, there is no way your total yield of 1.14% is correct. Notice that VIG is now crushing VYM? I mentioned it would be good to open that instead of continuing to invest in international funds about 10 months ago.

    1. Hi Dave,
      Yes I’m sorry about the slow updates – I’m trying to fix that. Thanks for pointing out the total yield value which was a typo – I’ve removed it entirely as I’m not sure there’s any point in calculating an overall yield from partial dividend income vs total value.

      And you were right about VIG over the last year too but I guess the point of keeping an allocation in international stocks is that they should have periods of under/over performance. My Income Fund has a higher international allocation than my retirement accounts so overall I’m at a 20% allocation to International. There’s certainly an argument to avoid international stocks entirely but, excluding bonds, I’m hedging my bets with a tilt to the US with ~75/25 US/International vs Total World which is 60/40 US/International.

      Best wishes,
      -DL

  2. Thank you for the reply. As you build up a big portfolio you are going to want 100% QDI income. I understand the international thesis but a fund like Large Cap VV (expense ratio .04%) has enough international exposure and still receive 100% QDI income. It is easier to do this for you now instead of waiting until the tax hit starts to crush you, like it started to do with me. My portfolio crossed $25M this year. I had huge holdings in VEA and VGK and had to sell it last year due to taxes.

    1. Thanks Dave, that’s certainly a good point. I guess I’ve considered the foreign tax credit aspect of holding international in taxable to be a plus (assuming that the asset class will at some point bounce back) but I can certainly understand that large cap US companies have a big exposure to foreign markets and currency.

      At this point I need to wait for a correction before I can seriously consider exchanging funds so I can research the topic more in the meantime. Have you ever considered the active tax-managed funds (VTCLK / VTMSX) vs the passive VV/VB ETFs?

      While I’ll never reach the 8-figure club, I’m still in the 24% tax bracket but am hopefully approaching the 32% bracket in the next couple of years so I have been looking more and more at the tax impact. Do you hold any (non-muni) bonds in your accounts?

      Best wishes,
      -DL

      1. Thank you for the reply. I don’t own of Vanguard’s Tax Managed funds because they are shooting for 100% QDI but do no guarantee 100% QDI. Their funds such has VIG, VYM, VV have mutual funds where they can heartbeat trades so they can achieve 100% QDI: https://www.investopedia.com/how-vanguard-patented-a-system-to-avoid-taxes-in-mutual-funds-4686985 Also, VV owns a lot of small/mid cap stocks. The Tax Managed Capital Appreciate fund is basically VV, Tax Managed Balance is 50% VWIUX – you are better off own VV and VWIUX – that way you will get 100% QDI.

        At the 24% tax bracket you should look at investing in muni funds – 40% of my portfolio is VTEB, VWIUX, VWALX. I live in a state income tax free state to avoid state tax. Not sure which state you live in. I am 40% equities, 40% muni bonds, 20% cash (whenever I see a good CD deal, I jump on it – two weeks ago I was able to put $250K in a 18 month 3.5% CD). I ensure the 20% cash is built up first. I am not investing much right now but add at least $500 a week into VWIUX with the dividends that is thrown off from the 40% equities. VWIUX has not AMT so the yield is 2.71% totally tax free – does not sound like a lot but when you consider you don’t pay the 24% fed tax – it is a great yield. Good luck.

        1. Hi Dave, thanks that’s some great insight. Potential capital gains from the tax-managed funds is a good point. I notice lately too that Vanguard has been pushing ETFs over mutual funds which is interesting.
          I have started investing in muni funds this year (VWITX) but that’s money outside my “Income Fund” so isn’t really covered in my monthly progress. I tend towards a lot of mental accounting and eventually want to get to a unified financial model, but don’t want to lose the historical metrics of my income fund as it stands either. All my bonds for “retirement” are in tax-deferred accounts with 80/20 stock/bond allocation on the whole.
          I am in a state paying income tax (6%) but ideally would like to move before I retire.
          Thanks for answering my questions 🙂
          Best wishes,
          -DL

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