Financial Independence Progress Report for September 2016

September was another slow month. History says that September is more often than not a volatile month. But, I did not see enough volatility and hence no deals to take advantage of. Let us see what the numbers say for September.

09/03/2016
Emergency Fund $60K 100.0%
College Fund (80K) 44.92% 45.65%
Passive Income (2015 vs 2016) $1036.87 (09/2015) $1176.74  (09/2016)
Retirement Fund ($900K) 65.01% 66.36%
Roof for our Family($750K) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways this month

  • Portfolio Increases (in green above)
    • As blog readers last month pointed out, many numbers are green this month also! I am thankful for that.
  • Portfolio changes
    • No portfolio changes this month….still adding to the cash fund I set up July. I did spend some of this money on VTMGX and VWELX (Vanguard Wellington) on a small dip in Financials but no major buy as the markets were more or less flat.
  • Passive Income Stream
    • Passive Income for September 2016 ($1176.74) is appx 10% higher that September 2015 ($1036.87). Where is the additional money coming from?
      • A decent portion of the increase is from VTMGX (Vanguard Developed Markets Index Fund) dividend payout.
    • Why VTMGX?
      • I started diversifying my passive income streams across geographies last year and boosted it a lot more this year. The world is much more volatile nowadays and it is hard to predict where the next problem will come from.
      • So, I wanted to spread my portfolio’s risk across many countries of the world. 15% of my passive income investments is outside the US….when I see some good deals, I will increase my exposure outside the US but I will choose a different fund…I want another fund diversify fund risk and fund manager risk as well.
      • But, this will come later. If you want more details on VTMGX, please get it directly from the horse’s mouth: VTMGX.
    • My goal is to reach $750 pm by end of this year…September is done…and my monthly dividends are still at $557 pm.
      • Target Dividend: $9000 pa
      • Current Dividend (year to date): $6770
      • Balance to make up in the next 3 months
        • $9000 – $6770  => $2230 over the next 3 months
      • It all depends  on December being a good month….crossing my fingers!
      • I have 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…..But, I will wait this month for a market dip. October is historically volatile…so, maybe there will be an opportunity.

Financial Independence Progress Report for April 2016

April is a slow month for dividends in my portfolio. But, after a couple months of no paychecks, seeing regular paychecks in April was such a joy! In celebration of that, I pumped a couple hundred dollars into making sure that future paychecks via dividends are a certainty 🙂

Lets look at the numbers now.

04/30/2016
Emergency Fund ($72K) 100.0% 100.0%
College Fund (80K) 39.33% 41.25%
Passive Income Streams ($4000 pm) $544.13 pm (04/2015) $509.15 pm (4/2016)
Retirement Fund ($900K) 57.96% 61.08%
Roof for our Family($750K) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways this month

  • Portfolio changes continues this month….
    • I wrote about my Capital Gains gut check here. As part of that exercise, I divested all my holdings in VTCLX (Vanguard Tax Managed Capital Appreciation) and VTMSX (Vanguard Tax Managed Small Cap).
  • Additions to my new investment vehicle…
    • Last month, I initiated a position in Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX). I wrote about it in my March Progress Report.
    • I took all the money from the sale of VTCLX and VTMSX and moved them into VWITX.
    • The gains are Federal Tax free and AMT (Alternative Minimum Tax) free as well. I would still have to pay CA state tax for VWITX though.
  • Dollar Cost Averaging
    • Did not have cash to dollar cost average (DCA) my funds this month…but I did boost my investments to dollar cost average VTMGX (Vanguard Developed Markets Index Fund….my non-US exposure mutual fund). I want to have some of my passive income streams to not come from US companies. VTMGX diversifies my passive income streams to include companies from Greater Europe, Greater Asia and Canada.
  • Passive Income Stream
    • Passive income for April 2016 ($1016.87) broke the positive trend of current year month winning over previous year’s month as April 2015 ($544.13). Hmm….
      • ….this was expected as my portfolio changes led to a some days where my money was not working for me…a gap of a couple days between closing of accounts and moving them into new accounts.
    • 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.
      • April Passive Income = (total passive income in this year) / 12 == $201.98 which beat the 2015 April number ($172.40 per month)
      • 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 intermediate goal is to get $1000 pm in passive income first. My estimation for 2016 is that I will reach $750 pm. Lets see if I can push it some more 🙂

Financial Independence Progress Report for March 2016

March is the first quarterly dividends month i.e. month of good news. And some more good news on the job front….I got one 🙂 After a month of hard fought interviews, I have started on a new job. Learnt a lot of lessons in the period of unemployment…will put these lessons to work this year. But, March has been a super positive month for me!!

Lets look at the numbers now.

03/31/2016
Emergency Fund ($72K) 100.0% 100.0%
College Fund (80K) 37.11% 39.33%
Passive Income Streams ($4000 pm) $744.05 pm (03/2015)% $1016.87 pm (3/2016)
Retirement Fund ($900K) 57.76% 57.96%
Roof for our Family($750K) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways this month

  • Unemployment Induced portfolio changes
    • Unemployment lead to almost two months of no income 😦 But, some good came from this. I had almost $40K invested in one company stock…part of an Employee Stock Purchase Plan from one of the companies I had worked in the past.
    • I wanted to de-risk this  investment by selling it and moving it to a fund of many different stocks but could not for fear of capital gains and resulting tax inefficiency.
    • In the two months of no income, I sold half of the $40K bundle. This keeps the total income the same. I distributed the money into a couple different mutual funds and hence reduced the risk of $40K riding on one company’s stock.
  • New investment vehicle
    • I took part of the de-risking money from my ESPP sale and put some unused money in my checking account into Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX).
    • My design of passive income streams is based on 6 key design principles. The second of the five is: For each risk bucket, have a minimum of two investment vehicles….get some competition going you know 😉
    • For the MUNI bucket, I already have an investment in VCADX, the California only muni fund. I wanted to add some competition and also diversify the MUNI bucket by adding a National MUNI fund (no federal tax). I would still have to pay CA state tax for VWITX, but the CA munis  have gotten so expensive that it is crazy to invest in it now. So, I am diversifying with a National MUNI fund.
  • Dollar Cost Averaging
    • Did not have cash to dollar cost average (DCA) my funds this month…but I did boost my investments to dollar cost average VTMGX (anguard Developed Markets Index Fund….my non-US exposure mutual fund). I want to have some of my passive income streams to not come from US companies. VTMGX diversifies my passive income streams to include companies from Greater Europe, Greater Asia and Canada.
  • Passive Income Stream
    • Passive income for March 2016 ($1016.87) continued the winning trend vs March 2015 ($744.05).
    • 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.
      • March Passive Income = (total passive income in this year) / 12 == $156.62
      • 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 intermediate goal is to get $1000 pm in passive income first. My estimation for 2016 is that I will reach $750 pm. Lets see if I can push it some more 🙂

Financial Independence Progress Report for January 2016

Happy new year everyone! May 2016 bring you closer to all your goals, with a good helping of peace and prosperity.

01/31/2016
Emergency Fund ($72K) 100.0% 100.0%
College Fund (80K) 38.08% 37.11%
Passive Income Streams ($4000 pm) $557.78 pm (01/2015)% $592.90 pm (1/2016)
Retirement Fund ($900K) 57.76% 56.02%
Roof for our Family($1 mil) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways

2016 started off with a bang huh…;-) Yes…just like the whole world, my entire stock portfolio took a beating in January…college fund, retirement fund, and passive income mutual funds…all of them got beat.

In addition, the company I worked in got bought over and the buyer decided to conduct a massive layoff. I was impacted as well. Losing to job to start the new year, with no severance to boot, is definitely not the way I wanted to start the new year….but, hey, life has to move on right? Onto the next job. Thankfully, I had two weeks of vacation left over and I got paid for that. This event has reinforced my decision to reach for Financial Independence and I am now more motivated to reach FI now.

Now, for some good news.

  • Surprise winner for January
    • The only surprise winner that stayed positive in all of this, inspite of the Fed raising interest rates, was VCADX…my California MUNI bond fund that is part of my tax efficient passive income streams. Looks like the fear of stock market tanking is driving the bond fund up. Anyways, I am not selling this fund now but if I did, I would get decent capital gains 😉
  • Dollar Cost Averaging
    • Since the market had huge dips of multi-hundred points on many days, I took full advantage of this and boosted my investments to dollar cost average VDIGX, VHDYX and VTMGX. I contributed all of my vacation payout from my job loss towards this. Infact,   I contributed more towards VTMGX (Vanguard Developed Markets Index Fund….my non-US exposure mutual fund). I want to have some of my passive income streams to not come from US companies. VTMGX diversifies my passive income streams to include companies from Greater Europe, Greater Asia and a bit from Canada.
  • Passive Income Streams
    • Passive income for January 2016 ($592.90) continued the winning trend vs January of last year ($557.78).
    • 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.
      • January Passive Income = (total passive income in this year) / 12 == $49.41
      • 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 FI goal for passive income is $4000 per month (pm). This is going to take a while. So, my intermediate goal is to get $1000 pm in passive income first. How close am I to $1000 pm?
      • I ended last year with a monthly passive income of $621 (averaged out).
      • Assuming a 3% dividend return and a conservative 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 🙂
      • Imagine taking the $1000 passive income per month and investing it back into the passive income streams….income compounding will kick start in a hurry….eagerly waiting for that day!

Financial Independence Progress Report for December 2015

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 🙂

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  😉

Financial Independence Progress Report for November 2015

11/30/2015
Emergency Fund ($72K) 100.0% 100.0%
College Fund (80K) 36.52% 38.05%
Passive Income Streams ($4000 pm) $226.42 pm (11/2014)% $515.17 pm (11/2015)
Retirement Fund ($900K) 58.03% 58.31%
Roof for our Family($1 mil) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways

Markets made a small move on the positive side and the following portions of my portfolio definitely saw some benefit from it.

  • Retirement Fund
    • Moved some more of my gains from my Vanguard IRA into VGSLX (Vanguard REIT Index). This moves my VGSLX % to 6% of my IRA holdings….final goal is to have it be 10% of my IRA and add a solid dividend stream in my IRA account.
  • 529 plan
    • Money set aside for a birthday party for my kid went unused and that went into the college fund. So, positive markets and the small funding boost, courtesy my kid’s generosity, helped propel the 529 fund.

I did take advantage of some down days in VTMGX (Developed Markets International fund) and boosted my investments to dollar cost average my investment in VTMGX. I am hoping for some decent dividends from the International fund…mainly to diversify my dividend income stream across many countries.

The passive income portion of my portfolio is chugging along nicely. Passive income for November 2015 continued the winning trend vs November 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.
    • November Passive Income = (total passive income in this year) / 11 == $515.17 pm.
    • 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. Right now, I am at $515 pm. But, next month is December….the biggest month for dividends for me and possibly for most people. I am expecting monthly passive income to reach $600 pm. Can’t wait to get to the end of this month.