Financial Independence Progress Report for October 2016

October was a big down month! There was enough volatility in the month to show some RED in the nos. There were deals to be had in the early part of the month and I thought I made out good….until the later part of the month wiped out the gains ūüôā¬†Let us see what the numbers say for October.

Emergency Fund $60K 100.0%
College Fund (80K) 45.65% 47.95%
Passive Income (2015 vs 2016) $628.60 (10/2015) $551.80 (10/2016)
Retirement Fund ($900K) 66.36% 63.44%
Roof for our Family($750K) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways this month

  • College Fund Portfolio Increase (in green above)
    • I got some extra money left over after September and pushed that money ¬†into the college fund. Even though October was a down month, the additional cash offset it.
  • Retirement Fund
    • This portion of my portfolio took a good solid hit in October. I lost almost 3% and the way early November is looking, it is not done going down.
    • Major reason is the increased uncertainty from US elections and the interest rate increase/decrease uncertainty from the FED.
    • I am definitely continuing to invest and am picking up stocks at lower cost i.e. Dollar Cost Averaging full speed ahead! So, all good for now.
  • Passive Income Stream
    • Passive Income for October¬†2016 ($551.80) is appx 14% lower¬†than October¬†2015¬†($628.60).¬†This is a big reduction but an expected one.
      • I sold some stocks from a previous company’s ESPP and spread the money into different funds. These funds do not distribute dividends like my ESPP stocks in Jan, April, July and October. So, all these months will show a reduction in 2016. But, the overall dividends for 2016 will increase and will show up in December of 2016 when all the other funds declare their dividends.
    • Additional Investments
      • VTMGX (Developed markets across Europe, Canada and Australasia)
        • Just like last month, I continued to increase my exposure outside the US using VTMGX.¬†Definitely lowered my cost per share via Dollar Cost Averaging this October.
        • If you want more details on VTMGX, please get it directly from the horse’s mouth: VTMGX.
      • VWELX (Vanguard Wellington Fund)
        • Bought into this fund also quite a bit this month.
        • I already have another balanced fund in my portfolio: VTMFX: 50% stocks and 50% tax-efficient bonds.¬†VWELX is another competitor for my balanced fund dollars…I always have atleast two funds competing in the category…manager diversification and hence risk diversification as well.¬†
        • VWELX is not as tax efficient as VTMFX since the bond portion is not tax-efficient. But I want risk diversification more….
    • My 2016 goal is to reach $750 pm in passive income by end of 2016…October¬†is done…and my per-month dividend¬†is¬†at $603.04 pm.
      • Target Dividend:¬†$9000 pa
      • Current Dividend (year to date):¬†$7321
      • Balance to make up in the next 3 months
        • $9000 – $7321 ¬†=> $1679 over the next 2 months
      • Unless¬†a black-swan event happens in the next two months, it looks like I will make it…hurrah!!
    • I had kept some cash aside to invest in a dip….the temptation to get to $750 in passive income per month was very high in September and I could could not resist and burnt some of it. In October, I used up the rest of the money to buy the dip. October is historically volatile…and it did not disappoint this time…so, the purchases this month will help in the coming year!
    • I anticipate another volatile month in December 2016…post the FED’s decision on interest rates….scrambling to accumulate some cash for that. Lets see…

How to fund my Retirement?

I learnt about Financial Independence in early 2014 (here). I spent a lot of time studying the different blogs that talk about Financial Independence and came to a definition of what Financial Independence means to me. I also realized that there are two different kinds of retirement…early and real retirement phases. Since I wanted to gain financial independence by year 50 (wish me luck), I decided that my retirement will have two phases.

  • Early Retirement (50-70yrs)
  • Real Retirement (70-100yrs)

Now, with my health issues, I am sure I will not live until 100. But, I do not want my family to run out of money. So, I am going to plan assuming retirement lasts until 100…if we have a few down years in the market, this additional planned period should help compensate.

The next question is: how do you fund the two retirement phases? Here is my high level design

  • Early Retirement (50-70 yrs)
    • Funded by Passive Income Streams
  • Real Retirement (70-100 yrs)
    • Funded by 401k and IRAs

Early Retirement Funding (50-70 yrs, $50000 pa)

Having decided that passive income streams will fund my early retirement years, the following questions come next.

  • Why Multiple Passive Income streams?
  • What kind of Passive Income?
    • My choice are Interest from cash and Dividends from stocks and bonds.
    • Details here
  • What are the core principles I should follow for my Passive Income Streams?
  • How should I implement the passive income design principles?

I established multiple passive income streams in 2014 and let them fly. In 2015, I would like to put the investments on auto pilot and let the investments compound from all the automatic investment amounts and the dividends that each investment produces. The progress of these investments are tracked here.

Real Retirement Funding (70-100 yrs, $30000 pa)

For real retirement, I wanted to use the traditional funding vehicles like 401k and IRAs. To support 30 years of $30000 pa, I would need at least $900K in my retirement fund. Since I had 401Ks from multiple companies, I decided to combine my previous employers’ 401Ks into one single Vanguard IRA. The next important question was how to invest the money inside the IRA.

There are a few main ideas I wanted to follow for my IRA investments

  • Automated rebalancing
    • I.e. Target retirement funds
  • Spread the risk across 5 year time periods
    • Lets take a 2030 Target date retirement fund.
    • This fund will get super conservative as it approaches 2030 i.e. sell stocks and move that money to bonds and cash.
    • If there was a 5 year bad stretch of the market preceding 2030, then all the stock investments sold will be at a loss.
    • So, I wanted to make sure that not all the money is invested in 2030…some in 2035, some in 2040, some in 2045, etc. This will spread the risk of a bad 5 yr market performance across many 5 year periods.
    • In addition, this will keep the IRA money in buckets with different conservative basis i.e. there will be a growth component as well for some of the funds.

Considering the above main ideas, I have spread the IRA money into different 5 year buckets:

  • Vanguard Target Retirement 2030 Fund (55 yrs of age)

  • Vanguard Target Retirement 2035 Fund (60 yrs of age)

  • Vanguard Target Retirement 2040 Fund (65 yrs of age)

  • Vanguard Target Retirement 2045 Fund (70 yrs of age)

The goal is that when I reach 70 years of age, the above four funds would have reached their most conservative state and be ready for consumption during the retirement years.


My expectation with the two pronged attack (early and real retirement funding) is that a combination of the passive income streams and the retirement fund should provide a reasonably comfortable money pool for each month spent in retirement.