My Cash FIREhoses

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I have five main Cash FIREhoses (sources of passive income):

  1. Brokerage account with a dividend portfolio
  2. Mutual fund portfolio
  3. Online high-yield savings account
  4. Hard money real estate loans
  5. 3-home rental portfolio.

Here is a breakdown of each account, with holdings and totals for each account:

Investments (these are my Cash FIREhoses) Account Balance/Equity  Dividend/Interest Estimated Earned in 2017 (dollars flowing from my Cash FIREhoses) Rate of Return (cash flow)**
Dividend portfolio $347,525.87 $8,140 2.44%
Mutual fund portfolio $726,225.61 $15,100 2.18%
High Yield Online Savings Account $130,818.10 $818 1.5%
Hard money real estate loans $114,081.86 $4,100 6.6%
Rental Homes (3 so far, leveraged with 25 percent downpayments) $91,250 $50 (just started this project in December 2017) -0-
Totals $1,409,901.44 $28,208 2.00%

 

Many financial professionals will tell you that you should have several different “buckets” of income, so that if one “bucket” runs dry or underperforms, you can draw from the other “buckets” until things improve. My “buckets” (I prefer to call them “Cash FIREhoses”) should perform independently, with the exception of some redundancy between my dividend account (mostly established large cap companies with solid dividends) and the mutual fund accounts.   But the dividends in the dividend account should remain steady, even in the event of a market decline or long bear market, given that my stocks are mostly established, large cap companies with a long history of paying dividends.

I have linked to the details of my dividend portfolio here.   This link will show you the specific stocks I own, the total invested in each company, and the current dividend yield. You will see some stinkers in there.  Early on, I bought a penny stock on the recommendation of a lawyer friend of mine, and (predictably) it has tanked.  Early on, I also got caught up in the 3D printing craze, and bought the two leading companies at their highest values.  Other than these idiotic purchases (on which I have lost thousands of dollars, although the losses are not realized yet because I still own the stocks), the other stocks have done OK, with the notable exception of GE.  Despite their dividend cut, I am holding on (against the advice of many wiser dividend investors) hoping for a turnaround.  Overall the portfolio has shown good gains, but this is likely due to the unprecedented bull market rather than my investing prowess (a rising tide lifts all boats).  One final point – there are a few stocks with very low holdings.  These were the product of mergers that issued stock in the new entities to existing shareholders.  If I don’t particularly like the new entities, I keep the shares but don’t add to the positions. You may correctly observe that at present I lack a viable selling strategy, which is something I need to address going forward to avoid holding on to poor investments.

My mutual fund portfolio consists of four mutual funds:  a total US market stock fund, a total international market stock fund, and a total US bond market fund, and a total international bond fund.   It is roughly 24 percent bonds, with the remainder split fairly equally between US and international stocks.  My thinking is that the international markets are a couple of years behind the US markets, such that returns may be muted in the US and stronger in the international markets over the next several years.  Time will tell.  Most of my money goes into these mutual funds.

The hard money real estate account consists of roughly 57 separate $2,000 loans, at interest rates ranging from 6 percent to 8 percent or so, with loan to value ratios of 75 percent or less on each loan.  Each loan is made to borrowers who are using the money to flip houses or otherwise invest in real estate projects.   So far none of the loans have failed, although the idea is that if one or two loans fail, I have dozens of others such that the entire portfolio should remain healthy.  This is a risky account, because if the real estate market turns south, these investors may be unable to pay these loans.  I have  invested only a small amount of my overall net worth.  The idea here is to juice up my returns a bit without endangering my overall portfolio.   Some would say (and have said) that I am taking too much risk given the relatively low returns on these loans (I am averaging about 6.6 percent return so far).  Again, time will tell on this, but I am cautiously optimistic that the favorable loan to value ratios will protect the portfolio even when the real estate market turns south.

My rental homes were all purchased within the last two months or so.   I put 25 percent down on each house, and I am using property managers to manage the rentals for me (in return for a percentage of the rents, they manage the houses for me – collect rent, arrange for repairs, market the homes, etc.).  On paper the homes should each be cash-flow positive from the start, and I am cautiously optimistic that this will work out over time.  The total portfolio is worth about $365,000, but I mortgaged roughly 75 percent of that value.  Again, I am using a fairly small percentage of my net worth to try this out, with the idea that I am diversifying away from having all of my money in a traditional “stocks and bonds” portfolio.   The goal here is a 6 percent return once the houses are paid for.  I will probably keep them for 9-10 years and then evaluate what to do with them when I retire.  At that point the homes should have equity and I should have options, and the rents should have increased by then.  The total owed (about $275,000) is small enough that I should be able to pay off the remaining balances of the loans when I retire in 9 to 10 years.  With only a little appreciation (appreciating from $365,000 to $400,000 over the next 9-10 years) and with enough cash to pay them off when I retire, those homes could yield roughly $24,000 per year at that time (6 percent of $400,000) in today’s dollars.  This does not take into account rising rents, which should increase the overall return.

The online account is just a place to park cash.  The interest rate is very low, but compared to traditional banks it is very high.   I would like to build this up to around $250,000 or so, which for me would be roughly one year of expenses banked (yes, I hear the howls of protest that my family spends $20,000 per month, but I will detail these costs — and you will see they aren’t as crazy as they look when alimony is included — in a future post).

I will update these accounts each month.  I am also going to have a future post on taxes and how to minimize them, but this is something I am still researching, and I don’t currently have a clear idea of how to best address taxes in my overall FIRE strategy.

-Dividend FIREman