Financial Independence Progress Report for April 2018

April is usually a dull month, post March dividends. But, this time, I did a rework of my portfolio to cash out profits from my equity funds and move them to MUNI funds. Dividends for rest of the year and going to look totally different than prior years. So, excited to see how the changes work out rest of this year. Let us see how the numbers look for April 2018.

5/03/2018
Emergency Fund 83.33% 20.83%
College Fund ($80K) 64.54% 65.61%
Passive Income (2017 vs 2018) $450.13(4/2017) $911.81 (4/2018)..cheating!
Retirement Fund 82.79% 78.08%
Roof for our Family($750K) 00.00%
Medical Fund (via HSA) 9.77% 9.77%
Life Insurance Done (term life insurance policy)

Main Takeaways this month

  • Passive Income Stream
    • My passive Income for April 2018 is 100% higher than April 2017 🙂
      • I know I know….this is cheating a bit.I sold funds which distribute dividends quarterly and bought funds which distribute dividends monthly. Details below.
      • The June, September and December dividends are going to be much less. The total dividends for the entire year should be the same OR slightly higher though.
  • Additional Investments
    • Investments in taxable accounts
      • I sold some more stocks…primarily international funds, captured the gains and moved the money into my MUNI funds. Why?
        • Tax equivalent yield for MUNI funds are close to 4%
        • VTMGX and VEMAX yield is roughly 2.5 to 2.75% and I get taxed on top of that. It is possible that VTMGX and VEMAX might add some capital gains….but I am okay with this risk.
        • When the prices drop later this year, I will invest back into these funds…lets cross that bridge when we get there.
      • In addition, I took a bunch of money from my house down payment fund and deployed them as well….a house purchase does not seem to be on cards this  year….so, why let the money sit idle?
      • I also took a bunch of money from my emergency fund and invested them as well. If I need money, I would have to sell some bond funds….hopefully the funds do not lose too much value in case such a case comes….touch wood to avoid taking such a loss.
    • Investments in tax-deferred account (IRA)
      • In the last few months, I have taken some profits and set up a a cash fund to take advantage of the next investing opportunity. Unlike 2008, I want to have a cash fund ready to take advantage of lower asset prices in the next bear market!!
      • I bought some VEIPX (Vanguard Equity Income Fund).
        • Every fund in my tax-advantage portion is earning money for me: stocks and bonds and REIT funds. The stocks are primarily International funds.
        • I am slowly going to dollar cost average into US equities using VEIPX with the cash fund I have developed over the last few months.
        • Basic strategy is that I can get access to entire vanguard funds inside my IRA. A generic total market fund is easy to get from any 401K provider….so, I will add more US equities via my 401k using a total market fund.

Financial Independence Progress Report for March 2018

March 2018 is done and with that, the first quarter of 2018 is done. March is one of my favorite months because almost all my funds send me dividends on a quarterly basis. Lets see how the numbers look for March 2018.

Caveat: Though then March numbers look green all over, note that the numbers got murdered in February….perhaps I need a year-to-date number….will think about it.

3/31/2018
Emergency Fund 83.33% 83.33%
College Fund ($80K) 63.66% 64.54%
Passive Income (2017 vs 2018) $1254.31(3/2017) $1396.05 (3/2018)
Retirement Fund 81.63% 82.79%
Roof for our Family($750K) 00.00%
Medical Fund (via HSA) 6.17% 9.77%
Life Insurance Done (term life insurance policy)

Main Takeaways this month

  • Passive Income Stream
    • My passive Income for March 2018 is 11% higher than March 2017. Not much of a gain, but it is greater than average inflation percentage of 3%.
    • I was considering the Rule of 72…the rule that predicts when your money will double. If I continue at 11% (caveat in next point), my money will double in 7 years….wouldn’t that be nice for FI 🙂
    • Anyways, 11% increase was achieved more by new investments than dividend returns and additional investments are drying up this year. But, nice to think about it hey…more on this coming later!!
  • Additional Investments
    • Investments in taxable accounts
      • I sold VHDYX, captured the gains and moved the money into my MUNI funds. Why?
        • Tax equivalent yield for VCADX is 4.5%.
        • VHDYX yield is 2.75% and I get taxed on top of that. It is possible that VHDYX will add some capital gains but it looks like we are almost done with the bull market…so, we can discount this.
        • When the prices drop later this year, I will invest back into VHDYX…lets cross that bridge when we get there.
    • Investments in tax-deferred account (IRA)
      • In Dec 2018, I took some profits and set up a a cash fund set up to take advantage of the next investing opportunity. This month, I cashed out profits from a couple more funds and added to the cash fund.
      • Unlike 2008, I want to have a cash fund ready to take advantage of lower asset prices in the next bear market!!
      • I also bought some more of VGSLX…a REIT fund….REITs have dropped almost 10% this year….so, seemed like a good time to buy into this and dollar cost average down my REIT investments.

Financial Independence Progress Report for January 2018

It is already end of January 2018 and a new year is well underway and I just realized once again how time flies. I started writing this blog in July of 2014. My first page was this (About) and my second was this (What is Financial Independence to Me). I had just then started thinking about Financial Independence and freedom from the rat race!

Surprisingly, even after 4 years, the initial goals have not changed at all….which means I was thinking some things correctly 🙂 Every month of new dividends flowing in gets me closer to my goals and motivates me to get every dollar working hard for my freedom. Best of luck for my fellow travelers in the journey of financial freedom…..make every dollar work for you!

That said, lets look at the numbers for January, 2018.

2/4/2018
Emergency Fund 100.00% 83.33%
College Fund ($80K) 62.50% 64.47%
Passive Income (2017 vs 2018) $441.42 (1/2017) $755.14 (1/2018)
Retirement Fund 81.03% 82.17%
Roof for our Family($750K) 00.00%
Medical Fund (via HSA) 6.17% 6.17%
Life Insurance Done (term life insurance policy)

Main Takeaways this month

  • Emergency Fund
    • I saw an opportunity to reach my funding target in one of my MUNI funds (VCADX) and just could not resist it. So, I took some of my emergency funds and bought into the fund. It was a momentary weakness to dip into my emergency fund…but hopefully the new dollars will bail me out later in time.
    • More on this later.
  • Passive Income Stream
    • My passive Income for January 2018 is a couple hundred dollars higher than January 2017. This is mostly the result of a push towards adding to my MUNI funds through 2017 and a bit in Jan 2018.
  • Additional Investments
    • Investments in taxable accounts
      • As mention earlier, I invested some emergency fund cash into purchasing MUNIs (VCADX). This fund is both federal and state tax free.
    • Investments in tax-deferred account (IRA)
      • In Dec 2018, I took some profits and set up a a cash fund set up to take advantage of the next investing opportunity. Still in a holding pattern….

Financial Independence Progress Report for December 2017

December is here and time to party 🙂 My best wishes for a wonderful holiday season! Hope everyone is geared up for a relaxing holiday break. My break starts this weekend and I am looking forward to a couple days off from the rat race.

December is the second highest dividend producing month of the year for me…..June takes the crown for the most dividend producing month. But, add the dividends to the good feelings of Christmas holidays and it sweetens the pot a bit in favor of December. So, I like December more than June 🙂

It is also a time of introspection regarding the goals set at the beginning of the year. But, yearly review is for another post. For now, lets look at how the numbers look for December 2017. Bit early in the month, but most of the dividends are in….

12/22/2017
Emergency Fund $60K Done
College Fund (80K) 61.36% 62.50%
Passive Income (2016 vs 2017) $2007.76 (12/2016) $2098.37 (12/2017)
Retirement Fund 80.86% 81.03%
Roof for our Family($750K) 00.00%
Medical Fund (via HSA) 6.17% 6.17% (login fails to new provider)
Life Insurance Done (term life insurance policy)

Main Takeaways this month

  • Passive Income Stream
    • My passive Income for December 2017 is approximately $100 higher than December 2016. Not much of an increase, but my total dividends for the year are almost $2000 higher in 2017 compared to 2016. I.e. the dividends are distributed to me differently on 2017 due to some investment changes.
  • Additional Investments
    • Investments int taxable accounts
      • I invested the last of my cash fund into purchasing MUNIs (VCADX and VWIUX). Basically, I emptied my money market funds in a final push for 2017. This will pay dividends in 2018….especially VCADX since it is both federal and state tax free.
    • Investments in tax-deferred account (IRA)
      • I captured some gains in two target date funds in my IRA and moved the money into a money market fund for now. I want to have a cash fund set up to take advantage of the next investing opportunity. But where? See next point.
      • In my IRA, the percentage of International stocks is more than that of US stocks….by a slight margin. The reason for this strategy is that US stocks have extremely high valuations. So, my theme for 2018 is to add to US stocks when their valuations become more reasonable. How will I achieve this?
      • I will pile up on US stocks over time in the following ways:
        • Tax deferred accounts
          • Periodic 401K investments are always dollar cost averaging into US stocks (70% of money goes into US funds)
          • I will use my cash fund that I have accumulated in the last few months (via capturing gains) into mainly US stocks and pick them up at cheaper valuations.
        • Taxable accounts:
          • Dollar Cost average into dividend funds that mainly buy US securities….
            • VHDYX (current dividends),
            • VDADX (dividend growth),
            • VDIGX (bit of both)

Financial Independence Progress Report for August 2017

August has come and gone and it is time to look at the numbers for August 2017.

09/08/2017
Emergency Fund $60K 85.34% 87.32%
College Fund (80K) 56.83% 57.59%
Passive Income (2016 vs 2017) $391.93(08/2016) $535.78(08/2017)
Retirement Fund 76.87% 77.79%
Roof for our Family($750K) 00.00%
Medical Fund (via HSA) 4.14% 4.18%
Life Insurance Done (term life insurance policy)

Main Takeaways this month

  • Passive Income Stream
    • My passive Income for August 2017 is approximately 36% higher than August of 2016. Past investments in VCADX (CA MUNIs) and VWUIX (National MUNIs are the main reasons for the increase.
    • But, since I re-distributed the sale proceeds to other funds that follow the regular quarterly payout cycle, my total dividends for 2017 year-to-date is higher than that for 2016 at the same time. So. nothing to worry!
  • Additional Investments
    • Captured gains in taxable account and paid off car loan
      • Sold rest of Tax managed Balanced fund (VTMFX) to capture capital gains and add to my cash fund.
    • Paid off our car-loan
      • I did not find any deals worthy of investing among the mutual funds I own….out here in the US and outside. So, instead of keeping it in the bank and/or a money market fund, I repaid the remaining portion of our car loan! Now, every month, I will have some extra savings to be applied for home down payment and/or to replenish the emergency bucket.
    • Investments in tax-deferred account
      • Last month, I sold portions of some funds to capture accumulated capital gains and created a cash fund inside my IRA.
      • I deployed some of the cash in the cash fund to buy two international mutual funds…the US funds have not come down from their super expensive valuations.
        • VTIAX: Vanguard Total International Stock Fund
          • Lower expense ratio
          • Covers the entire international market (large, medium and small caps)
        • VIHAX: Vanguard International High Dividend Fund
          • Higher expense ration
          • Covers a portion of the international market only (mainly large caps)
      • The curious reader may ask: why not just invest everything in the cheaper VTIAX?
        • I am following my old rule of risk diversification….in the same class of mutual funds (international market), I always have two funds compete for your money.
      • So, both VTIAX and VIHAX will now compete with each other to make more money for me 🙂
  • Add to the cash fund..details 
    • I started a small cash fund accumulated a couple months back to take advantage of any market dip(s) in the US market. This month, I again captured some gains in a couple of my investments to add to this cash fund. 
    • Now, the waiting game begins for a significant stock dip. What is a big dip? I will wait to employ my cash fund at least until the NAV drops 10% on any of my passive income streams.

Dollar Cost Averaging…my way :-)

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  😉