Monday, May 22, 2017

Account changes and additional buys

I am closing my Roth IRA and converting all the funds into my taxable account.
My contribution base is around $13,000 and my capital gains is $1500 so I will pay a bit of tax on the $1500. The $13000 I will withdraw without any problem because the Roth IRA allows you to withdraw your contributions.

The Roth IRA is a great way to accumulate wealth without tax penalty given one is old enough to enjoy the money. However a big problem with the Roth IRA is the limit on how much you can contribute each year. My contribution limit to the Roth IRA is $5500 a year at the moment. This is a very small amount compared to the contributions I make to my 401k and my taxable account. There is a management overhead for me to keep track of all the accounts and statement records and tax documents used for filing taxes. Another big problem is that my income is higher than the Roth IRA limit, so I have to do the backdoor Roth which is even a bigger hassle.

Adding $5500 in a tax sheltered account that I have to jumps hoops to contribute to, and which I cannot use until I have white hair just is not worth it to me. I plan to retire in my 30s or 40s and I want to use my money how I want without any withdrawal rules. For others it may be worth it if $5500 a year is around the scale one is contributing to one's investments. But since I am contributing many multiples more than $5500 a year, I will pass.


My Roth IRA held the following this morning. As of now it's all cashed out:

Ticker Market Value Shares Share price
O $8,786.36 162.11 $54.20
VZ $2,044.81 45.02 $45.42
MO $3,462.76 48.84 $70.90

I sold all the shares so that I can liquidate and transfer all the cash into my taxable account. Since "O" is not a tax friendly investment since its dividends are taxed as ordinary income due to its REIT status, I bought around $9500 worth of O in my 401k, increasing my total position in O by around $750. My 401k already held O so the position got a lot larger in that account. 

To fund this large "O" purchase in my 401k I had to sell my large stake of around $8800 in Home Depot (HD) in my 401k and buy that Home Depot position back in my taxable account .... I know complicated. I ended up adding $9350 of Home Depot in my taxable account so I increased my total position in HD by around $550.

I also bought $3800 of MO in my taxable account, so I increased my total position in MO by around $400.

Finally I sold VZ and bought AT&T in my taxable account. I bought roughly the same dollar amount of AT&T as I sold Verizon. I am more favored towards AT&T's business model than Verizon and am not a fan of Verizon's acquisition spree and debt.


At the moment I still have around $30k in investable cash. I keep $11k in a savings account for a rainy day or for my future mortgage deposit (that is if I ever decide to settle down). A lot of money is swashing around between accounts as I close one account to open another. I closed my Capital One Investing taxable account in favor of my Merrill Edge which combined my Bank of America account with my brokerage account. Merrill gives me 100 free trades a month since my account size is large enough to qualify for the offer, so I took the leap to basically free trades ... For a dividend investor 100 trades a month is way more than enough.    And soon , I will be closing my Fidelity Roth IRA account and moving all the funds to the Merrill taxable account where I will be able to enjoy using my cash in commission free trades. Everything then will all be combined into one account which will make managing and paperwork much simpler.

If my account size becomes super large to the point that it may be risky having all of my money invested under one account, I may consider opening several taxable accounts just in case one of the brokerage firms go under. Merrill Edge which is Bank of America is quite reputable, so I am quite happy with the broker and the security features and customer service so far.

Thursday, May 18, 2017

April 2017 Portfolio Summary

I'll post data for the end of April by using data from May 12, since I was busy on a trip around the beginning of May.

A lot of things happened in April. As shown in the previous post, the dividends I received was a record high totaling $844 in April. The portfolio dollar growth has been steady for a while now but the annual dividends amount continues to climb ever higher.

The purpose of this portfolio is income accumulation. The portfolio on its own is outputting around 2.7% yield. So every $100 invested gives me $2.7 per year in cash. I use this money to either live off of or buy more investments.

Below is a treemap chart of my portfolio. I have placed very large bets on tobacco, Home Depot, JNJ, Realty Income, Becton Dickinson, Visa, and Pepsi. As you can see, most of my investments are in the Purple or Consumer Staples sector as they all pay very generous dividends and are one of the most predictable businesses around.

I have reduced my cash position for my housing down payment and allocated more funds to buy shares. I still do have around $40k or so in cash that I can buy if I need to, but I like to keep a decent cash position for emergency or opportunities.


I hold 40 stocks in my portfolio. This is a bit more than I like but all have passed my screening criterias and I will not hesitate to add more if any of their prices drop. I have been adding predominantly to positions I already hold, and have not added new positions. The latest new position was ITW which is a dividend aristocrat industrial.

Positions listed below with Green highlighting are my core positions. Yellow are supporting and red are speculative. Core positions are the ones I am most comfortable on holding. Companies with their names bolded indicate core positions that have the highest quality metrics determined by S&P and Value Line. Only a feel positions are bolded and also highlighted by me in Green as Core positions. I will likely hold these types of positions for life and add on every dip possible.


My favorite sector is the consumer staples. I tend to hold as many companies I can in sectors that have predictable cash flow. Companies that are boom bust like oil and raw materials are not my style. Nor are companies that constantly have to spend billions to innovate like Technology. I primarily hold boring companies people don't like to talk about as they are not "sexy". These include products like toothpaste, cereal, bottled water, shampoo, toilet paper, cigarettes, ketchup, soda, or electric utilities.

In terms of my progress, my goal to achieve $1,000,000 is on track. My net worth is now exceeding $350,000. 

The periods going forward will need to rely more on the portfolio supporting its own growth in order for me to meet my goal in the schedule shown below. In the early days, my portfolio growth was primarily due to my periodic contributions. However, I hope in the future my portfolio can grow faster on its own without my help.


Since price of shares is not predictable and prices are often at the whims of the irrational market, I prefer to look at how much passive income my assets are generating for me every year. Below is my plot of my forward annual income from my investments. The graph has climbed quite a bit upward in the last month as I have invested heavily in new shares. Each share I buy will pay me dividends. My portfolio is only composed of dividend paying stocks as I want to be paid in cash for every company I own.

Dividends are steady and predictable as long as the business fundamentals are intact. When share prices declined in 2008-2009, nearly all of the businesses I hold today either held or increased their dividends despite the economic recession. This is because these companies continued to make profits despite the recessionary environment. These are the types of companies I like to hold since I want my dividend to always be increased or at least be held flat year after year. I tend to value more on a company's ability to pay and maintain the dividend instead of focusing so much on the share price. I welcome a share price decline of 50% but will not tolerate a decline in the dividend.


Tuesday, May 16, 2017

Money does grow on trees

There is a popular phrase that money does not grow on trees. The saying suggests that money is something that needs to be worked for, and it is not easy to acquire. Under this thinking, one should spend sparingly since money is not abundant.


I agree with this statement when an investor is in his or her early stages of accumulation. While starting out from scratch, an investor does not have any capital that can generate even more capital. In the early stages, the only way a person can generate money is by performing work and getting paid for the time and energy spent. This is a linear process and is dependent on one's hourly rate and the hours spent. Money during this early period is scarce and the "money does not grow on trees" feels completely true.

The frugal and "money is hard to find" mindset completely changes once one has sufficient capital. Capital can be deployed to generate more cash. Examples are rental houses or apartments and ownership of private or public enterprises. Conservatively, asset holders can also receive income from bonds by becoming a lender. In rental property, one can generate income from the rent the renter pays. In company ownership, the shareholders are the people who own the company, and any excess profits are distributed to the shareholders. Becoming a lender allows one to receive interest income from the borrower. This blog focuses on ownership is companies that pay excess profits to shareholders. For public companies this is called dividends. I look for increases in this dividend every year as the company grows and increases profits.

Money does grow on trees once a person owns sufficient assets that generate cash. Ownership of businesses and property is similar to owning a "money printing machine". Businessmen want to own as many "money printing machines" as possible, and it costs money to buy each machine. The asset generates cash to the owner every month or quarter. This payment of cash to the owner doesn't just come out of thin air. The cash comes from customers or clients who pay for the service or product that the business provides.

Over time money begins to flow like a river. The cash supply is limitless and there is no more of a need to grow money linearly through an hourly rate and hours spent. Eventually the cash received from simply being a business owner exceeds the money one needs to spend to live. Once capital generates capital, the process becomes exponential. A businessman or investor can harvest the cash the company he owns and then deploy that capital on "machinery" that can print even more cash. This positive feedback loop is a very powerful way to generate more and more cash. The initial steps to create this machinery is painfully slow and life will be frugal. But after the machinery is set in place, money is limitless. Eventually the small river of money becomes a large torrential flood of money, continuously being added to one's bank account in the form of reoccurring checks.

Owning shares of companies is not merely owning a piece of paper. Owning shares is equivalent to owning parts of the business. If the business generates money, that money will eventually flow into the hands of the business owner. It took me a while to finally understand the inner workings of our capitalist economy, and this realization is what sparked me in investing my excess earnings full time when I was 23.

Saturday, May 13, 2017

April 2017 Dividends Received

April was a productive month. I received $844 across my three brokerage accounts. With over $800, I can easily cover my basic living costs (excluding rental). Food and drinks and eating out is no longer a problem. Filling up my Prius for a long road trip doesn't bug me too much anymore. Nor does paying for the electric bill or cell phone bill.

Ticker      Total    Taxable    Roth IRA         401k
MO $370.65 $325.90 $44.75
PM $165.54 $120.15 $45.39
KMB $60.92 $39.25 $21.67
KO $45.32 $45.32
O $41.60 $34.21 $7.39
MKC $34.73 $15.27 $19.46
XEL $32.65 $32.65
VZ $25.68 $25.68
ADP $24.46 $24.46
Interest $20.00 $20.00
MDT $12.17 $12.17
SYK $11.24 $7.41 $3.83
$844.96 $630.41 $59.89 $154.66

Jan, April, July, October are my best paid months.
February, May, August, and November are light due to what I hold in my portfolio.

I monitor my income from the companies I own on a quarterly basis. Below shows the dividends received for each month back to the time I started building my passive income. The blue line is the 3 month moving average.

For the coming May month I am expecting $350 and June I am forecasting $740.

Wednesday, May 10, 2017

Recent buy: O, ADP, BDX ...

I purchased several shares of companies yesterday. Here are the amounts:

In the 401K:
O: $2145

In the taxable account:
ADP: $1162
MO: $1059
V: $919
PM: $1684
CLX: $1322
PG: $1295
BDX: $1813

A total of $11,399 was invested which will add nicely to my annual dividend income.

My 401k charges $8.95 per trade but my taxable account has 100 free trades a month so 7 of my trades were free and 1 was charged.

Thursday, May 4, 2017

Recent buy: CL & CLX

I bought some Colgate and Clorox today. These two have sold off a bit so I thought I'd put some now and I'll buy more as it continues to decline. I like both companies a lot and like the types of products they sell.

Clorox: $1302
Colgate: $1771

So $3k was invested this week. These two don't yield super high but it's still a reasonable mid 2% yield. They are also dividend aristocrats with strong track records.



Happy investing
-YD