Some define passive income and portfolio income differently. For simplicity, I’m considering them one and the same – income NOT “earned” via a paycheck from my employer. Here is our passive income breakdown as of month-end. We use Personal Capital to track our net worth, assets vs. liabilities, and cash flow.
May 2018 Update
Following great feedback from prior month updates, I attempted to continue with the “face lift” to the primary month-over-month summary table. Additionally, I’ve left the previous month’s account type perspective to highlight taxable vs. non-taxable accounts on a quarterly basis. I’m still playing with additional charts or graphs, but I prefer tables for the time being because I like to see actual numbers. More to come soon.
I also attempted to reorganize some of the content. Overall, I greatly appreciate your continued comments and feedback.
Don’t also forget to checkout the revised 2016 passive income summary, as well as our 2016 vs. 2017 year-over-year (YoY) comparison from a few posts ago.
Let’s now dive further into May’s results.
Background
I had a change of heart toward retirement in October. Nothing changed significantly in May, but we made some decisions in December that will continue to impact our outlook in 2018. Our continued motivation comes from reaching an average of $1,000 a month in passive income. Additionally, we took a further look at how we’re leveraging different account types. This is near the forefront of our investment decisions.
We are taking active measures to increase our earnings or income to invest additional capital. But tax considerations and account allocation can have a significant impact on one’s returns. Again, we consider this an important factor, but not the primary driver of what type of assets we consider.
Related:
Balanced Dividends Shopping: 4 Considerations for February
2018 Goals Overview: What Do You Want To Do This Year?
Tax Reform & Your PFUI: Applying the 10 Heuristics
Key Monthly Highlights
After a killer month in December with record income across our various accounts, the prior four months brought about both “routineness” and dividend hangover. But May continued to show initial signs of progress beyond our retirement accounts.
1) Maturing Investment Opportunities
Our initial contributions into Fundrise weren’t made based on which month potential distributions are paid out, but it is nice to see some passive income occur in a different month each quarter. While January contained our second distribution from Fundrise, we also brought our total investment to over $11,000 last month as we looked to diversify our existing REIT holdings in my Roth IRA.
We might explore other individual holdings or opportunities that pay on a different frequency, but I don’t think we’d solely consider a particular investment just because of its payout frequency. Fundrise currently pays our distributions out in the first month of each quarter (January, April, July, and October). We continue to reinvest all proceeds.
Overall, we received $73.60 in passive income from Fundrise in April – a 32.6% increase from the last payout in January. Nothing new in May from Fundrise otherwise.
However, we did receive our second dividend from AT&T (T) in our taxable Robinhood account for $150 – a 650% increase from February’s payment ($20). This is due to our ongoing purchases of T.
2) Steady Stalwart Continues to Stall (Still!?)
Related to real estate exposure, my Roth IRA’s REIT Index holding paid out an impressive $1,233 in tax-free income in December, which totaled $3,389 for 2017. While I’m very happy with this figure (especially considering it’s tax-free via the Roth account), December’s payout was down a few hundred dollars vs. December 2016’s figure. I covered more of this in the YoY comparison.
We’re not focused on our Roth contributions right now, but further dips in price does make us consider buying. Overall, we received just over $700 in passive income in March 2018 in my Roth IRA. We have not yet contributed to our Roth’s this year as we continue to focus on our taxable accounts.
Related: Balanced Dividends Passive Income Analysis: 2016 vs. 2017
3) Dividend Growth Domination Diversification
My traditional, pre-tax rollover IRA – which composes the bulk of our net worth – had a great month in December. We received just over $3,900 in December alone – and over $7600 for the year. As mentioned previously, we’re not actively contributing to our IRAs. So this tree continues to grow up strong on its own!
In January, we chopped off a few branches and did a rebalance of nearly $60,000 from a primary dividend fund to another fund that focuses more on growth AND income. This decision was tough emotionally, but easy methodically; we were due to rebalance our winners.
February was quiet last month, but March paid off! We received $2235.8 in passive income within my rollover IRA. April was quiet as well. But in May, we reallocated ~$40,000 in my current employer’s 401(k) from a bond fund into a balanced fund (~40% equities / ~60% bonds) to take advantage of dips in the market.
4) New-Year (Non) Boosts
Our taxable accounts paid out a combined $247 in December bringing our total to $670 in 2017. Comparatively, our non-taxable accounts paid out a combined $5,484 in December, for a total of $11,593 in 2017. Clearly, December is by far the largest contributing month.
January 2018 came, returning a measly $56. February was down slightly to $35, but up 59% year-over-year (YoY). March returned an impressive $3,041 in passive income – a 59.6% YoY increase. April and May were quiet – but won’t remain so for long.
However, ~94% of our passive income is still coming from retirement accounts. Growing taxable account passive income will continue to be a priority in 2018. Diversification remains key.
Related:
3 Lessons Why “Assumption Is The Mother of All F*ck Ups”
FTW! Is it Possible to Invest for Today AND Tomorrow?
BD’s (Semi-) Automatic Ecosystem
Passive Income & Portfolio Updates
Summary of Results
As we didn’t launch Balanced Dividends until mid-2017, here is a retroactive review of 2016’s Passive Income. We use Personal Capital to track our net worth, assets vs. liabilities, and cash flow.
Reminder – Emergency Savings vs. Retirement Investing
In mid-2014, I switched employers after being with my first company out of school for nearly 7 years. My wife and I had very little cushion between each pay check. Not because of excessive spending, but rather from saving anywhere from 15-25% of my take-home pay in retirement accounts for several years. This included a mix of (1) pre-tax or traditional 401(k) contributions and (2) Roth contributions – both 401(k) and IRA.
There are a number of articles and opinions on the benefits of contributing to a traditional IRA or 401(k) vs. a Roth IRA or 401(k), but I’ll perhaps explore that another day. In general though, we found it more difficult to contribute to a Roth IRA or 401(k) as we’re putting away money that has already been taxed (vs. a traditional IRA or 401(k) where money has NOT yet been taxed). We ultimately went for a balanced approach.
A few months after starting my new job, a former colleague experienced an abrupt, unforeseen medical issue. Fortunately, he had insurance to cover the costs of a necessary procedure, but he also had to pay a few thousand dollars out-of-pocket. Reflecting at what had happened, I realized that we would have been unable to cover the sudden out-of-pocket costs.
So for about 18 months, we reduced our retirement contributions to the minimum in order to build up our taxable account investments and savings. We now have roughly 4 months of expenses covered, which is spread out between a few different taxable accounts.
Related: BD’s Apps & Tools
Staying the Course – Still Planting Seeds and Growing Trees
All of the passive income in all of our accounts – both retirement and non-retirement – currently gets reinvested. As retirement dividends currently account for nearly 94% of our passive income, we’re just beginning to increase the number of sources of passive income in taxable accounts and from other sources.
Our traditional bank checking and savings account are considered “high-yield”, and we love Ally Bank which has competitive rates and great service. We’re not holding a large amount of assets in checking and savings accounts at the moment though due to the still relatively low-interest rate environment. We began funding an Acorns investment account and Robinhood investment account within the last year to begin increasing our taxable investments.
We’ve also looked at peer-to-peer lending and other crowd-sourcing investment platforms, but haven’t decided to invest (yet). We might also start a CD ladder if interest rates increase again; January brought about reminders for the importance of fixed income. February was no different.
Related: BD’s Apps & Tools
Investment Portfolio Allocation
This includes our retirement and non-retirement investment accounts. Here is our high-level portfolio allocation as of close of business 1-June-2018 (we’ll look to continue to provide quarterly updates on actual allocations). Due to timing, we anticipate this content continuing to change after the SECOND month of each quarter in 2018.
We use Personal Capital to track our net worth, assets vs. liabilities, and cash flow. It’s free and a great tool. The above shows our allocation from an asset class perspective. Here is an overview of each respective asset level as well as a summary of key changes from the prior quarter:
Key Changes From Last Quarter
- Reallocated entire current employer 401(k) balance from US Total Bond Market Index Fund to US Balanced Fund via inner 401(k) transfer
- Began semi-monthly investments into US Balanced Fund via 401(k) contributions
- Subsequent investments into eREITs and eFunds via Fundrise
- Topped off investment in AT&T(T) to 400 shares in taxable account
Cash: This includes cash across holdings in our investment portfolio – NOT bank accounts, etc. We don’t have much control over the cash figure held inside our INVESTMENT accounts once we’re invested in a fund; we’re primarily invested in Vanguard Mutual Funds and many funds hold a small percentage of cash in order to cover redemptions or withdrawals.
International Bonds: We’re still very, very light in this area (as of now). If we do seek to gain additional exposure, it will likely be via an index fund held if a retirement account. At the moment, we do not hold any individual bonds.
US Bonds: We hold a portion of our short-term emergency savings in a corporate-grade bond fund (which also has check-writing privileges). The rest of the US bond allocation had been made up from a balanced fund that we hold in a taxable account.
Alternatives: Roughly 24% of our portfolio is now in alternatives, of which the vast majority is real estate exposure via a real estate investment trust (REIT). This particular REIT holding is currently 100% of my Roth IRA account. The remaining ~1.0% of our alternatives allocation is composed of various non-real estate holdings across a number of funds we hold in retirement accounts. As noted above, we also completed the initial and subsequent investments into eREITs and now eFunds via Fundrise; we’ll likely consider to continue to increase our holdings in the coming months.
International Stocks: We’re still currently under weight from where I’d like to be in this area, so my current 401(k) contributions are all going toward a single, low-cost international index fund. This area will continue to grow with the semi-monthly contributions. My wife’s workplace retirement account contributions are also going toward an international fund (small-cap index). Our international exposure is all held in retirement accounts.
US Stocks: Currently our largest allocation, US stocks form roughly 50% of our portfolio. Over the last 2 years, I’ve consolidated the majority of our pre-tax retirement savings into large cap value and large cap core equities seeking moderate income with growth.
As mentioned, we had tapered back our retirement contributions in US Stocks with the aim of increasing our taxable investments. However, we still wanted to purchase additional shares via reoccurring dividend distributions within the retirement accounts. We’re looking to increase our exposure to mid- and small-cap companies in our retirement accounts – as well as in a few individual securities in a taxable account (still less than 1-2% of our net worth due to the concentrated risk in a limited number of securities).
Summary
Overall, we’re still extremely light on fixed income (i.e., bonds), but we plan to continue to gradually increase holdings in the coming years – this quarter’s shift to approximately now 12% (up ~2% from last quarter) of our portfolio had been planned.
We also had saved very aggressively during the financial crisis toward retirement, and we’ll continue to make retirement a priority; however, we’re attempting to find a balance between short, medium, and long-term goals.
We’re also working to understand the importance of leveraging different account types, diversifying across & within asset classes, and working to create multiple streams of income.
Readers, how are you progressing on your financial journey? What plans do you have? Any detours or potential sprints along the way?
Related:
5 Ways to Balance Account Types To Balance Life’s (Un)known Milestones
How We Got To Averaging +$1,000 a Month In Passive Income
FTW! Is it Possible to Invest for Today AND Tomorrow?
BD’s (Semi-) Automatic Ecosystem
Passive Income & Portfolio Updates
Our favorite free financial tool is Personal Capital. We use it to track our net worth, manage our spending & savings, and to monitor our investments. It’s simple and free to use.
That’s an insane amount of detail Mike. It looks very difficult / time intensive to me to maintain all your different assets / allocations on your different accounts. Let alone to make the best decision based on your specific situation.
Good on you for educating yourself and taking advantage of your knowledge.
Thanks for the comment! It took a while to build out this series’ design and content. I made a major overhaul of the tables several months ago, but they’re much easier to maintain now.
Personal Capital certainly helps as well in terms of the aggregation of data and the tracking. Thanks again! – Mike
Mike, I think I say this every month, but it just keeps getting better so I will say it again. I am very happy to see for the first time in many years the cash being paid by our high yield savings account and our short to mid term bond funds throwing off more and more cash. It’s been such a drag on our passive income growth over the past 10 years. I am a big fan of this economic environment of 2-3% inflation accompanied with a slow and steady rise in interest rates. I don’t want it to choke off lending and economic growth, but for now I will take it.
Did I miss it, or have you made that 2nd stock purchase yet to add to T?
Tom
Thanks Tom – maybe not EVERY month, but I do recall seeing the comment before 🙂 . It is good to see more on the fixed income front. As I’m still 33, I guess I didn’t notice the difference until a few years ago when we looked to reallocate a portion of our non-retirement savings (both short-term / emergency and mid-term taxable) to fixed income from equities.
On T, we topped up to 400 shares last week…haven’t yet pulled the trigger on that 2nd individual name. Likely later this week or early next week. Thanks again for the comments. – Mike
Hi mike,
Another good month! I’m with Tom and like to see interest rates rise a little for our fixed income investments. Until recently I was 100% in equities but now I am getting closer to retirement I am more conservative. Nice overview thanks !
Thanks Steve!
Agree with you and Tom on the rates…it’s nice to see a slightly stronger return on fixed income investments; however, I do enjoy the strong bull market we’ve had for the last several years.
Thanks again – Mike
That’s quite the report! Nice work! I like the use of the personal capital charts. Those guys are great (minus the weekly calls). What kind of account do you have that allows you to both hold bonds and write checks? Sounds interesting!
Hi Dividend Pig – thanks!
Agreed – Personal Capital is really good. I actually haven’t got the calls in quite some time (I just adjusted my marketing preferences in the settings).
On the bond fund, as part of our tiered emergency fund, we use Vanguard’s Intermediate-Term Investment-Grade Fund Investor Shares (VFICX) for a portion of our emergency savings. Fund Details are here: https://investor.vanguard.com/mutual-funds/profile/VFICX
There is a lower cost version available if you qualify for their Admiral Shares, but it requires a higher balance. I’m also not sure if any thing has changed with the check writing minimum, but I believe our’s is for at least $250. But we rarely touch this account or write a check…if we need access to cash, we’ll first utilize one of our online savings accounts. This bond fund is meant to give us a little bit more return but without as much risk as say a stock (but, of course, there is still risk as this is NOT a savings account, etc.).
Thanks again for reading! – Mike
Mike – Congrats on the great month my man! Keep up the great work.
Bert
Thanks Bert! Appreciate it!
I love the fact that you’re aggressively saving for retirement Mike. I do agree with the above comment regarding how detailed your plans and considerations are. Hoping it all works out and I will continue to follow your progress along the way.
Hi Glen –
Thanks for your input. On the plans & considerations, there are many. At this point, the time spent managing and actually implementing is only a couple of hours a month. And I enjoy this part.
Where I probably spend additional time – and what I enjoy even more – is the researching & learning. I’d say 80% percent of what we do (and also roughly the same percentage of our net worth), is quite simple and effectively on auto-pilot. The bulk of what we do is still in passive index investments and/or very low cost active mutual funds – especially our retirement savings. It’s the other 20% where I spend a little more time being hands on and look to do something different (building out our taxable portfolio further with single names, Fundrise, etc.).
Thanks again for the comments. – Mike
Wish I owned that many shares of T. With a 6% yield. Probably gives you around $200 every quarter which would DRIP another 5 or 6 shares or 20ish per year. Love dividend growth. By itself, gives you an extra $50 per year minimal. More over time as it builds. Dividend math is fun haha. Keep up the good work.
Hi DD –
Thanks for your comment. It did take us a while to get to 400 shares of T. We threw a lot of available capital at it over the last several months during market dips – covered here: https://www.balanceddividends.com/balanced-dividends-shopping-update-t-and-me-myself-and-i/
And agreed – dividend math is fun! Thanks again – Mike
Nice to see the T and TWX deal finally go through. Will be interesting to see how that plays out. I think it should be great for them in the long term.
Nice month and I like the detailed posts. Thanks for sharing. I recently crossed the $1k/mo dividends average myself which is a huge milestone, congrats on that. You have a nice diversified stream of income.
Hey Brent – thanks for your comments.
Congrats to you as well on hitting the $1k average mark! It takes a while, but it’s nice to see sustained progress. We’re still a ways from receiving an actual $1k in the first and second month of each quarter, but that third month certainly helps.
Thanks again for stopping by. – Mike