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!