Investment income – September 2016

chart-clipart-k9589268When I read other financial blogs one of my favorite type of post to read is the breakdown of investment income. Watching other people’s passive income rise is my second favorite thing (the only thing better is watching my own passive income rise!)

This report includes income from dividends and my rental properties. However, it doesn’t (yet) include any of the income in tax-deferred accounts (401(k), IRAs, and Roth IRAs), as that income isn’t going to help me retire early. Although I don’t own any now, if I have other sources of passive income in the future (CDs, bonds, etc.) I’ll include them here as well.

Dividend Income

The equity portion of our portfolio is roughly 50% index funds and 50% individual stocks. The mutual funds are from when I started investing. I was much more interested in simplicity and a low time commitment so I could focus my time on my career. As my investing philosophy as evolved over the last few years I converted some of my index funds into individual stocks. However, I’ve owned the index funds long enough that selling them would generate a substantial tax burden. As a result, I’ve decided to hold the index funds and direct all new investment money to my stock portfolio.

Here’s how my portfolio did last month:

Ticker Name September
AFL AFLAC Incorporated $200.29
BBL BHP Billiton plc (ADR) $8.68
BP BP plc (ADR) $468.86
CVX Chevron Corporation $333.79
COP ConocoPhillips $82.07
INTC Intel Corporation $64.84
IBM International Business Machines Corp. $128.25
JNJ Johnson & Johnson $409.42
LMT Lockheed Martin Corporation $89.58
MCD McDonald’s Corporation $244.30
MSFT Microsoft Corporation $57.85
TGT Target Corporation $355.13
V Visa Inc $109.98
WFC Wells Fargo & Co $183.88
VMMXX Money Market $42.61
VEMAX Vanguard Emerging Markets Stock Index Fund Admiral Shares $994.53
VEUSX Vanguard European Stock Index Fund Admiral Shares $405.72
VIMAX Vanguard Mid-Cap Index Fund Admiral Shares $963.25
VSMAX Vanguard Small-Cap Index Fund Admiral Shares $923.40
Total $6,066.43

A few notes – first, as mentioned above, about 1/2 our investment are in the 4 index funds listed above. Unfortunately, these funds don’t pay out a regular amount of money, nor do they pay on a regular schedule. As a result, I can’t rely on payouts from these sources.

When the index funds DO pay dividends, it’s in the last month of the quarter.

I’m not sure about the rest of you, but the last month of the quarter is always great for me and I look forward to it eagerly. Pulling in over $6k in dividends is pretty awesome. If only that was the result EVERY month, right?

Rental income

This category includes net income from the 4 rental properties that my wife and I own, plus 50% of the income from 4 rental properties that we own with my mom.  We bought these properties in 2012 and 2013 because real estate prices were ridiculous low. I did the math and projected these would be cash cows, and so far that’s proven to be correct.

Note that this number is just the cash flow from the properties (rents minus all expenses, including management fees, mortgage, insurance, repairs, etc.) This number does not include appreciation of the properties or the decrease in the mortgage balance.

Total rental net income = -$1,121.91

This number is not only negative, but quite negative this month due to repairs needed on 2 of the 8 properties. One of the properties needs some roof work done, and one of the properties needed a substantial amount of work done after the tenants moved out (above and beyond what the deposit would cover). That’s the downside of real estate – the income is much lumpier than with dividends or bond interest.

Total passive income

September, 2016 passive income = $4,944.52

Annualized passive income based on last 3 months of income = $ 41,551.56

The first and second month of each quarter are significantly lower than the third month in each quarter, as the third month in the quarter is when my index funds pay their dividends. As a result, I think that looking at the last 3 months of income and annualizing it is the most accurate way to predict income for the next year.

How did everybody else do with their passive income this month?

10 thoughts on “Investment income – September 2016

  1. That’s some real deal passive income earned. Nice to see a handful of companies in common paying us for the month. Everyone loves those end of quarter months. I can see why. One day, these end of quarter results will become monthly results. Something to look forward to down the road. Thanks for sharing your results.

    1. Oh, man, I can’t wait until those quarterly numbers become the monthly numbers! My long-term goal is $10,000/month of passive income (rent + dividends). At that point (and once my mortgage is paid off) I’ll have all the income I need for any practical purpose.

      Plus, imagine having $10,000/month of passive income and having it grow at even just 5%/year. That means:

      Year 1 – 10,000/month
      Year 2 – 10,500/month
      Year 3 – 11,025/month
      Year 4 – 11,576/month
      Year 5 – 12,115/month

      That’s an additional $2,000/month of income in just 2 years! And that’s assuming no additional investment and a pretty low dividend growth of just 5%. Once you get to that point things get really fun.

  2. Passive income is always nice way to supplement one’s income. Mine is around $60k annually, mostly from dividends. I’ve tried being a landlord in the past, but didn’t like dealing with tenants much. I must confess though, I sometimes wonder someone who has over $100 million and above, what their interest and dividend payment must be like. I suppose eventually people just adjust to it and don’t think it’s all that much, similar to a new college grad believing six figure income is tons of money and then realizing it isn’t all that much after a short while.

    1. I think you’re right, and I think a big part of being happy is finding ways to prevent yourself from adjusting to whatever level of income you have. See my recent post on Hedonistic Adaptation for more info on this.

      BTW, $60,000/year of passive income is a huge achievement. Do you consider yourself financial independent at that level?

      1. I would consider myself quasi financially independent, but not FU type of money($5 mil and above liquid, excluding primary residence, in my view). My passive income derives almost all from the dividends from AT&T and Verizon in my taxable accounts. When interest rate went to zero, I wanted consistent income and put majority of my investible money and continue to add my savings into those two stocks. In retrospect, I probably should’ve bought the high tech growth stocks, but I wanted more stable investment with much less downside risk. At least I have some tech stocks in my 401k, but at much lower level.

          1. I’m sort of worried about the overall market cratering and taking down those two stocks in process, but not really about having a concentrated position. My personal view is that both companies are more of a utility type of company these days, so not much growth, but more of an income play. I can sell and switch to cash only, but 1% online savings doesn’t appeal much to me. I have bought some options against my position as an insurance against a sudden drop though.

  3. I am just starting out in building a dividend portfolio and still deciding whether I should put most of my cash in a Roth IRA or taxable brokerage account. My main aim is to build dividend income that eventually would help pay my day to day expenses and in case of an emergency I could tap into that extra cash. So I am leaning towards a taxable account. Is the above portfolio in a taxable brokerage account and how do you offset taxs

    1. Spiderdad – Great question! Although I have retirement accounts (which I list in my net worth monthly statements), I don’t include them in my income statements. My thinking is that only the income in my taxable accounts (what is listed above) will enable me to achieve early retirement (anytime before 59.5, which is when tax deferred accounts can be withdrawn).

      In general it’s best to max out your tax deferred accounts then invest any additional money in a taxable account. The tax deferred account will ensure you can have a comfortable retirement, and the taxable account allows you to retire early.

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