January 2018 Portfolio Review

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Dividend FIREman’s grand experiment in creating passive income through his various Cash FIREhoses is now underway – almost two months under my belt so far.

Let’s take a look at my five (5) Cash Firehoses as of January 31, 2018, to see how we are doing so far from an income standpoint.

The total equity value of all investments on January 31, 2018 was $1,446,853.

The total income from the portfolio in January 2018 was $1,697.94.

Here is how the January 2018 income breaks down:

CASH FIREHOSE                              VALUE           JANUARY 2018 INCOME
 
Hard Money Real Estate Loans     $114,928      $570.64
 
Dividend Account                            $371,613       $586.64
 
Mutual Fund Account                     $738,494       $366.17
 
High Yield Savings Account          $130,818       $138.09
 
Rental Homes                                  $91,000           $36.40
 
TOTALS                                             $1,446,853      $1,697.94

All of this income will be reinvested until I reach FI.

Note that I am still in the accumulation phase, so this portfolio is not designed for maximizing monthly income.

I am using the “multiple buckets” approach, and at FI each of these Cash FIREhoses will produce its own income stream which will likely be tweaked for higher income. For example, the rental homes are producing no income at present (because I am using profits to pay down the mortgages), but they should be paid off within 10 years, at which time the income return should be roughly 6 percent of the home values (currently $365,000 or so).  Also, the “emergency cash” will likely be moved to a high quality corporate bond fund with a higher rate of return, and a chunk of the mutual fund portfolio will be moved into a high-yield dividend fund.

However, it is nice to see that even with the portfolio I have assembled here, the investments generated almost $1700 income for January 2018.   This is income that is truly passive – I don’t have to lift a finger to get it, and it would continue forever without ever touching principal. Presumably the principal will also grow, which would in turn increase the monthly income as time goes on.  It will certainly be much higher in months where more companies pay dividends.

I expect the annualized income to be $34,000 in 2018, based on my current account values and the predictions of the companies with whom these monies are invested. This would be a return of 2.35 percent on the entire portfolio.

However, the income return on the cash I invested (not including investment gains) is almost 3 percent. Not too bad for a portfolio that is only 5.5 years old and is still growing.

Using my actual return of around 2.35 percent (yielding an income of roughly $34,000 in 2018), we can compare this portfolio to some standard income portfolio formulations. By way of comparison:

Using the “4 percent rule,” the yearly income would be roughly $58,000.

At 3.5 percent, the yearly income would be roughly $50,600.

At 3.25 percent, the income would be roughly $47,000.

At 3 percent the income would be roughly $43,400.

My return of 2.35 percent is obviously much lower and yields a much smaller income. However, it compares favorably when we consider that the portfolio is not really designed for income at present, and that I am still in the accumulation phase of my investing. Moreover, a chunk of the money is in real estate, which right now does not yield significant income returns.

As I continue to learn more and track my performance, I may tweak or change parts of this portfolio.   Dividend FIREman is still learning and (hopefully) growing as an investor.   However, I am enjoying the ride, and I am enjoying sharing my experiences with you.

What do you think of this portfolio?   Are you doing something similar? Is there anything you would do different? As always, I appreciate your comments. Happy investing!

-Dividend FIREman

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9 Comments

    • admin

      Hi PCI – thanks for your comment. That is an excellent point about ETFs. I️ have been researching them, specifically the lower fees. Thanks much for the tip. Happy investing!

  • Hey FIREman. Nice work. You may be learning, but I have been doing this a while longer and we think alike. You say this in your post, but I will give you my perspective. Your 2.35% annualized yield is pretty good. There is more income potential if you chose to re position your assets to achieve it. I started focusing on generating income in 2004 from my investments. I’m not sure what my portfolio yielded then (maybe 1-1.5%), but it typically yields 2.75-3% now. The yield is lower than it could be because I hold a fair amount cash and short term bonds to mitigate risk and portfolio volatility. I think 3-3.5% is realistic if either of us wanted to take on a little more risk with more equities and medium term bonds and reduce non income paying assets. Good stuff, thanks, Tom

    • admin

      Thanks Tom. It’s great to get the perspective of someone who really knows this and has experience with it. It is gratifying to hear that the portfolio is on track.

      My goal is around 3 percent income generation across the portfolio, but it will take time to get everything in place to realize this income. I also want to keep things positioned for diversified growth during this late accumulation phase.

      My hope is that when the rental houses start to cash flow, the returns will increase.

      Thank much for your comment!

  • I like that you have your passive income diversified over multiple different income streams. Depending on the economic conditions, you can focus or shift your efforts to certain streams to optimize your income generating potential. Thanks for sharing.

    • admin

      Hi DD. Yes that is exactly what I am trying to do – create a varied mix of different income streams. It is just taking a very long time to develop them! 😄

      I’m cautiously optimistic about the real estate, although those investments also take a number of years to yield significant cash flow.

      Thank much for your comment.

  • Hi DF. Do you foresee Social Security as being another cash firehose for you in the future? Or are you not accounting for it in your plans at this juncture?
    Also, do you think you can get to a point where you can live off just the income from the cash firehoses (and not touch the principal), or is the plan to make 3-4% withdrawals as you’ve outlined? Obviously, the latter method reduces your cash firehoses income as time goes on.
    I’m looking forward to hearing more about your plans… take care.

    • admin

      Hi ED. Sorry for the delayed response. I definitely foresee Social Security as being another FIREhose. I will start taking at 62, and that will be another chunk of money every month.

      My hope is to not touch the principal, but it will depend on how much I can save, and the amount of income that the principal generates.

      I will do a future post on my expenses, which are unfortunately high for a number of reasons. So I may be working for a while!

      Thanks for your comment. I’m interested to know your plans on this front.

      • Hi, DF.
        I’d like to hold off on taking SS until I’m 70 in order to maximize the payout. However, there’s no guarantee the amount of money I think I might get at that point will be available to me then. The government can always change the rules! So that’s one concern. Also, who knows if I even make it to 70, although I suspect I will. I’d hate to delay taking the money, only to never see any of it.
        Let’s assume I make it well beyond 70 for the sake of this discussion, and I wait to take SS until then. Assuming I quit working long before the age of 70, I perhaps see me leaving my taxable portfolio alone (so the dividend income is stable) and withdrawing from my pre-tax retirement accounts to provide the additional income I need until I can take SS payouts. I know I can tap my pre-tax accounts at 59 1/2, or maybe as early as 55 from my work 401(k) if I keep working until then. I like the idea of withdrawing from these pre-tax accounts after I quit working, and before I take SS, as my income will be lowest then. Waiting to withdraw from pre-tax accounts until I have to take RMDs seems like it will present big tax headaches.
        I believe me and the Mrs. would have the day-to-day expenses covered, but the concern here is the big ticket expenses that will occur over time – healthcare, home repair, maybe a replacement vehicle, and hopefully a vacation or two or three. My biggest concern is healthcare costs once I no longer get coverage through work…. a big unknown!
        I’m still developing this plan, but those are my current thoughts. I’ll probably look into a one-time visit with a financial planner at some point, to help me formulate a plan for the days after I quit working. I’ll probably need the re-assurance before making the leap to living off my savings, as opposed to a biweekly paycheck.

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