Month: December 2015

2015: Year-end Review

/ humblefi / 1 Comment

2014 is when I started my journey towards Financial Independence. I did not have a formal set of goals, but I did define what Financial Independence means to me (here).

2015 was the first year where I had a formal set of goals. For 2015, I the following goals to get me closer to my financial independence goals (here). End of 2015 has arrived and it is time for the year-end review.

One word before that. I got amazing support from the Financial blogger community during this year and my humble thanks to all who took the time to drop a comment and/or drop in an encouraging word and/or drop a suggestion. It is truly appreciated. Thank you.

Back to the goals, I managed to reach some goals, exceed some and not reach some.

  1. Max out 401K contributions ($36K) for both me and my wife.
    1. Done: 12/31/2015
    2. Reached this goal…same goal for next year.
  2. Contribute $16K (goal stretch $24K) to Passive Income Streams
    1. Done 09/30/2014
    2. Exceeded this goal big time….very happy about this.
    3. Same 16K goal for next year
  3. Contribute $4800 to 529 College Fund
    1. Done: 12/31/2015
    2. Exceeded this goal as well by about $1000….I am happy about this too…though the goal seems to be stuck at $30K…it is like two steps forward and three steps back.
    3. Same goal for next year though
  4. Deposit maturing CDs into passive income streams
    1. Done 01/17/2015
    2. This was a one-time cash inflow…I used some CDs I had set aside for home down payment…since I did not see that happening this year, I moved them to my passive income streams. I am very happy I did this as well.
  5. Keep scouting for a possible home
    1. Not Done: 12/26/2015
    2. This goal is not looking so good. The prices in 2015 were even more crazy than 2014. So, 2016 is not looking good either. There were some discussion about moving to a lower cost area that *forced* its way into the family’s conversation. But, no decision yet.
  6. Start and finish Estate Planning
    1. Not Done: 12/26/2015
    2. There were some changes within the family which delayed this goal a bit. I was thinking about appointing my brother’s family as a guardian for my kid, but some instability has crept into my brother’s family and I wanted to give him time to work things out…so, I need to rework my strategy and timing a bit more. Family is family…so, I am hoping this issue can be resolved. And of course, I spent way too much time on setting up the passive income streams.
    3. Will add this goal to next year’s goals
  7. Get a more stable job.
    1. Not Done: 12/26/2015
    2. I am struggling with this goal due to a serious lack of will power. I keep starting my preparations and then it gets bogged down after a few days. I think I am mentally tired of working and preparing for interviews and the rest of the things that has to happen in family life. But, doing this when out of a job is not a good idea.
    3. Will add this goal to next years goals but I will come up with some form of tracking to keep me honest.

Summary

Overall, 2015 has been a reasonably good year. I achieved 4/7 goals I set for myself.

  • Average monthly dividend has reached $702 per month…still way below my target of $4000, but much closer to my intermediate target of $1000 per month. I read somewhere that the pace of compounding will visibly increase once you hit $1000 pm in dividends. For next year, I would like to make a serious dent in the goal towards $1000 pm in dividends.
  • Goals 6 and 7 will be done next year for sure.
    • For 7, I need to build up my confidence and will power and beat the heck out of this goal.
    • For 6, I just need to make some difficult decisions along with my wife.
  • W.r.t Goal 5, I am going to keep accumulating small amounts of money towards the home down payment, but I do not anticipate meeting this goal in 2016.

More on this in 2016 yearly plan. Once again, thanks for all the amazing support. I really appreciate it.

2015 Goals and progress updates

/ humblefi / 6 Comments

NOTE: Updated quarterly; latest update is on 12/26/2015 

I started my humble journey towards Financial Independence in 2014. I did establish what Financial Independence means to me and what the goals were. But, I really did not have any yearly goals for 2014. I just wanted to come up with a plan and create multiple passive income streams and let them fly, protect my family with life insurance, etc. I believe that I have accomplished all the goals I implicitly had for 2014. For 2015, I wanted to be a little bit more formal about goal setting and I will document my 2015 goals in this post, updated quarterly. Monthly Progress Report is tracked here.

The Financial Independence criterion for me are:

Financial Independence Criterion
Emergency Fund $72K
College Fund $80K
Passive Income Streams $4000 per month
Retirement Fund $900K
Roof for our Family $1 million
Medical Fund $100K
Life Insurance Done initiating.

For 2015, I have thought about the following goals to get me closer to the above financial independence goals. The updates are quarterly for each goal.

  1. Max out 401K contributions for both me and my wife.(Done: 12/31/2015)
    1. 2015 401K limit is $18000 => $36K worth of 401k contributions.
      1. 03/31/2015 $13K/$36K done       $23K remaining
      2. 06/30/2015 $26K/$36K done       $10K remaining
      3. 09/30/2015 $32K/$36K done       $4K remaining
      4. 12/26/2015 $36K/$36K done        $0K remaining
  2. Contribute $16000 to Passive Income Streams (stretch goal of $24000) Done (09/30/2014)
    1. VCAIX, VTMFX, VDIGX, VHDYX, VTCLX, VTMSX, VTMGX, VMMXX.
      1. 03/31/2015 $4K/$16K done         $12K remaining
      2. 06/30/2015 $8K/$16K done         $8K remaining
      3. 09/30/2015 $25K/16K done         $0K remaining
      4. 12/26/2015 $37K/16K done         $0K remaining
  3. Contribute $4800 to 529 College Fund (Done: 12/31/2015)
    1. Vanguard 529 Plan
      1. 03/31/2015    $1200/$4800          $3.6K remaining
      2. 06/30/2015    $2400/$4800          $2.4K remaining
      3. 09/30/2015    $3600/4800            $1.2K remaining
      4. 12/26/2015    $4800/4800            $0K remaining
  4. Deposit maturing CDs into passive income streams Done(01/17/2015)
    1. VCAIX: $35K   $30K
    2. VTMFX: $10K $20K
    3. VDIGX: $10K  $15K
    4. VHDYX: $5K   $10K 
  5. Keep scouting for a possible home (Not Done: 12/26/2015)
    1. A paid off house is a must for financial independence.
      1. 03/31/2015         No progress
      2. 06/30/2015         Finished mortgage analysis, finally!
      3. 09/30/2015         Scouting properties….not much luck.
      4. 12/26/2015         Prices way out of reach. Some discussions on relocating to a different state…not sure yet
  6. Start and finish Estate Planning (Not Done: 12/26/2015)
    1. Will, POD beneficiaries, Caretaker for our child, etc
      1. 03/31/2015        No progress
      2. 06/30/2015        No progress
      3. 09/30/2015        No progress
      4. 12/26/2015        No progress…definitely for the coming year
  7. Get a more stable job. (Not Done: 12/26/2015)
    1. Current job is on very shaky foundations
      1. 03/31/2015        No progress
      2. 06/30/2015        Interview preparation started!!
      3. 09/30/2015        Interview preparation slowed down 😦
      4. 12/26/2015        No resolution yet…need more will power 😦

Financial Independence Progress Report for December 2015

/ humblefi / Leave a comment
12/25/2015
Emergency Fund ($72K) 100.0% 100.0%
College Fund (80K) 38.05% 38.08%
Passive Income Streams ($4000 pm) $297.68 pm (12/2014)% $621.24 pm (12/2015)
Retirement Fund ($900K) 58.31% 57.76%
Roof for our Family($1 mil) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways

I am going to wrap up a little early in this last month of 2015. I want to gain some time to plan for 2016. There is both good news and bad news in this last month of 2015. Lets tackle the bad news first.

  • Retirement Fund
    • Lost almost 0.5% of my portfolio this month.
    • In the same interval,
      • S&P 500 lost 0.16%
      • DOW Jones lost 0.29%
    • Nevertheless, looks like there is no Santa Claus boost for my retirement fund this month. The astute reader may notice that there are  still 3-4 market days left in December…miracles can happen you know 😉
  • 529 plan
    • Last month, through my kid’s graciousness, money set aside for the birthday party went unused and that went into the college fund. Inspite of that, the 529 barely eked out a positive gain. So, overall, no Santa Claus rally for this investment too.

Now for the good news.

  • Dollar Cost Averaging
    • Around Dec 21st, DOW had a nice dip of 300+ points. I took advantage of this and boosted my investments to dollar cost average VDIGX, VHDYX and VTMGX.
  • Passive Income Streams
    • Passive income for December 2015 continued the winning trend vs December of last year.
    • I compute Passive Income per month as (total passive income in this year) / number of months completed this year.
      • Total passive income is a sum of dividends + capital gains distributions.
      • December Passive Income = (total passive income in this year) / 12 == $621.24
      • Doing it this way keeps the monthly passive income more realistic because I can instantly know which of my monthly expenses are covered by this amount. I keep a separate tracker for this which I will write about at a later date.
    • My final goal for passive income is $4000 pm. This is going to take a while. So, my intermediate goal is to get $1000 pm in passive income first.
      • At the end of November, passive income was at $515 pm.
      • A nice amount of dividends from Dec 2015 has led me to $621 pm.
      • Assuming a 3% dividend return and 0% dividend growth, it will probably take me at least 3 more years to reach $1000 pm with a chunky sized investment each year. After reaching that, I plan to pretty much leave the investments on auto pilot. Wish me good luck 🙂

DIGIT savings….2015 year end update

/ humblefi / Leave a comment

In February of this year (2015), I stumbled on a new way to save some additional money. That new way was called DIGIT…my first post on DIGIT is here. It is a new way of squeezing out some extra cash from my bank account. My goal was to squeeze some leftover money after accounting for all the budgeted categories (expenses, savings and investment goals). Every time the DIGIT savings account accumulated to a couple hundred bucks, my plan was to withdraw it and apply towards my Financial Independence goals….more specifically, my home down payment fund. I had a few monthly updates that  I wrote about here here. But, once the savings picked up steam and became regular, I stopped the monthly updates….why bore people hey 😉

That said, this is the end of year 2015 already. So, how well did DIGIT save money for me this year?

  • $184.34        Dec
  • $440.51        Oct + Nov
  • $280             September
  • $302.06       August
  • $654.03        July
  • $296.64       June
  • $161.86        May
  • $238.29       April
  • $2692.51     Total for 2015

The amazing thing is that this is money, all $2692.51 of it, that I did not know I could save! In fact, I am pretty sure I would have spent it on something if it were to remain in my checking account. This is almost $2600 towards my home down payment fund without as much as batting an eyelid.

DIGIT savings is an opportunistic savings vehicle for me…in addition to my planned monthly savings towards home down payment. I am really glad I signed up for DIGIT in 2015 and will continue for the next year as well!

PS: If you want to sign up and try it out, go directly to Digit’s website here at https://digit.co/

Link to Yahoo Article: http://finance.yahoo.com/news/29-old-invented-painless-way-170000170.html

Dollar Cost Averaging…my way :-)

/ humblefi / 6 Comments

I was reviewing the performance of my portfolio for 2015 when I realized that I had used Dollar Cost Averaging (DCA) quite a bit this year. The markets have fluctuated wildly in the last few months and my anticipation is that it will be the same in 2016 as well. Dollar Cost Averaging (DCA) is what I used to smooth out the fluctuations in 2015. I have a couple different ways of implementing DCA…so, I thought it would be nice to write about it and see if my blog friends have any input.

DCA Type 1

My path to Financial Independence is to generate multiple passive income streams using a diversified set of mutual funds (link). For example, VCADX, VTMFX, VDIGX, VHDYX , VTMGX, VTCLX and VTMSX. Investments into the different funds are automated and are withdrawn on the first of every month. Regular investments, irrespective of the short term market fluctuations was my initial plan for DCA.

But, I realized that when the market went through downward dips, my DCA plan was found a bit lacking. For example, if the dips were spread across many days in the month, my DCA plan of investing at the beginning of every month would miss out on loading up quality investments at lower prices.

So, I spread my mutual investments into two pieces for each mutual fund, and spread across many non-overlapping days in the month. Since Vanguard does not charge me a fee to invest into mutual funds, I felt that this spread captured the market ups and downs better. For example

  • VCADX           9th and 28th
  • VTMFX           6th and 27th
  • etc

DCA Type 2

But, I saw one more pattern in the  market. Market dips in the downward directions were followed by upswings the next couple of days. For example, if DOW dropped 300 points on one day, it is rare to have a similar drop on the next day as well i.e. consecutive market dips were rare. On the days the DOW (or S&P) dipped badly, there were opportunities to invest in my chosen high quality mutual funds at a lower price.

Every month, there used to be some leftover money in the budget for unused items. For example, if we did not use the entertainment portion of the budget completely OR if my kids school was off leading to less frequent visits to the gas pump, etc. I decided to pool up the leftover money and keep the cash ready. When ever the DOW dropped, I pushed the money into one/many of my investments. Here is the algorithm I followed:

  • DOW drops 100                                   Invest $100
  • DOW drops 200                                   Invest $250
  • DOW drops 300                                   Invest $500
  • FTSE 100 drops 100                         Invest $200

Since I invest in mutual funds, the smart reader may ask how do I know what the NAV will be before the marker closes on that day? An ETF or a raw stock trade will guarantee as close to the instantaneous market price as possible…a mutual fund cannot. Here are some lessons I learnt assuming the Market closes at 100pm Pacific Standard Time

  • DOW dips 100 at 900 am, I invest $250 and DOW rises by 200 by 100 pm i.e. I invested $250 at a higher price than what my intention was.
  • DOW dips 300 at 1100 am, I invest $250 and DOW rises by 200 by 100pm i.e. DOW is still down -100 and my investment pays a lower price.

The reader might have guessed. My basic idea is that “higher the DOW dip, the earlier in the I can invest and still come out with a lower NAV price than the previous day”. I.e.

  • If DOW is only down 100 points, I buy late say around 1200 pm.
  • If DOW is down 300 points, I buy earlier say around 1100 am.
  • Any investment after 1230pm or so is moved to the next day.

This method of DCA has proven very beneficial to me to acquire quality assets at much lower prices…inspite of using mutual funds. Some people might say that I am using market timing and it is bad. But, since my investments are quality investments, chosen conservatively, I do not lose even if I paid a higher price because my purchase timing did not meet my expectations.

Conclusion

As per my 2015 Goals (link),  my Passive Income Streams goal for 2015 was $16000 with a stretch goal of $24000. Using a combination of DCA types 1 and 2, I have managed to exceed the stretch goal also with a total investment of $28,000 approximately. Believe it or not, I did not know that all the DCA Type 2 investments would add up to so much more money at the end of the year. This indirectly means that my budget is tuned for the worst case money consumption and some more fat can be extracted from it. But, hey, who is complaining  😉