Internal Struggle of Dividends Vs Growth Income Investing

I have this internal struggle that I’ve been dealing with ever since I started investing. It’s a simple question.

Growth Dividends or Growth Income

(Obviously you wouldn’t choose something that’s not growth until I only need income but some dividends just pay and don’t look for growth in price and these are the terms I’m working with.)

When I started investing, I was very focused on getting dividends. Mainly because dividends are the easy way to get yourself excited for investing. WOW! I actually got paid for doing this! It is a sort of crack that you can utilize to keep going. And from the start, about 2 years ago, I bought all dividend stocks or funds where I got my monthly income up to around $40-50 a month average. Not a bad amount for 2 years.

As soon as I started doing well with dividends and my reading gets me more involved (2 years of reading) I start to hear that study after study after study shows that the pure numbers put index investing ahead in the long run. Well shoot. I may have made $50 this month, but other people are getting market gains that are way greater in that same month! All of my friends and all of my sources are starting to state that index is boring but efficient. So I tweaked my portfolio (only a bit) to have some more index funds. and then some more. Now a good portion of my portfolio is index funds and less of it is anything else.

Technically, I can say that I have had higher gains as an mostly pure index investor than my dividends would have gained, though with reinvestments, it might be close. And this is only a year. But I keep going back to questioning it. I mean, I love the gains. I like seeing my overall account balance higher, but I read an article where the author mentioned that taking lump sum distributions from their retirement funds would be hard for them because they tend to spend and spend when they let themselves. That control they thought was easier to manage if they invested more for cash flow than for overall balance growth. I think I connect with this more closely.

Obviously (again) I don’t plan to only do one of these and neglect the other. They both have sound data and both of them have purposes.

The index investing has the most studies done that prove that they are effective in being the best account balance gainer, but they don’t produce more shares. When you go to sell, you sell a big share and then the shares that are left have more impact on your portfolio when things move around in the market.

Dividends and cash flow on the other hand are constantly paying you out. On a taxable or Traditional account distribution, you would get taxed on this amount, which is a lower amount than income tax, but then you could increase the amount of shares you own, and possibly spread out your risk by having more shares that you can sell if needed. The added benefit is that when you need that money, it gets paid as a dividend and you don’t shrink your share amounts every time you need money. Your share amount stays the same. And if you don’t need all of it or any of it, which happens while you are accumulating your wealth (also known as the accumulation phase) then that money goes back into the market as buying more shares. With dividends, each share pays you a certain amount. And if you buy more shares with this payout, you are effectively increasing the amount you get paid by these companies EACH AND EVERY TIME you get paid! That is exciting!

But is that really enough or worth it if index investing has the best chance to grow the fastest? Wouldn’t it make sense to just throw this all into a few index funds and forget about it?

I guess that is the point of this post. I feel like I’m in camp two as much as I feel like based on numbers, that I should be in camp one!

I think I am going to try out a little bit of both. I mean, in all honesty, if I do well with one or the other and I get to a point where I can retire earlier than 65, say, 40 or 45, I am probably still going to try and find something to work on. And at some point I will probably make money. Whether that is side work or some sort of simple income generator to be able to max out my IRA for the year, I’m sure I’ll find something. (I’ve always thought about working part time at a pizza shop or part time at a cookie shop.) Doesn’t take up all my time and I get some free pizza or cookies and it gets me a bit more to spend on. As long as it doesn’t impede on my time control. That would be the one kicker. So maybe I’d have to open my own shop if I can’t choose my hours. Oh well.

January 2020’s Post: Young Budgeteer Investing: Week 5-6 trades… And 7-8, portfolio income, and Account funding for 2020

What a good couple of weeks it’s been. Not only did the year end with some good results but it was great talking about what things I want to do this year as far as investing.

If you don’t remember last post, I talk about my goals for 2020 as far as how investing will go for our family this year. I set a few ideas of goals. Now that the new year is here and I’ve set my numbers going forward, here is what it will look like for the next handful of months.

I promised my that we would save for a good vacation and that we would list some items out and replace and upgrade a few items of our house. (Sometimes you have to give a little so you can keep going on your big goals.)

As for as investments for the year, I’ve upped my Roth 401K amount that comes out each paycheck. Originally I was just trying to get the match, but I’ve decided to re-look at how much I want to contribute to investing this year as well as other items and our mortgage pay down.

This year, having paid off all of our consumer debt last year, I plan to invest about $1,000 a paycheck which should result in about $26,000 plus whatever company match I aquire (somewhere around $2,000) invested between my Roth 401K, my Roth IRA, my taxable account, and our mortgage.

My wife has the ability to put in some from her paycheck but we haven’t discussed this amount or where it would go yet. For now, she put away about 40% of her paycheck into an FU fund that will give her the ability to take a few months break from her job to find something that suits her better.

Now the exacts of how I plan to break up this amount is as follows currently:

Roth 401K: $350

Roth IRA: $400

Taxable Account: $250

For an even $1,000.

Now this will change pretty quickly once I max out my Roth IRA which has a limit of $6,000. Any extra money I have left over each month usually gets thrown in here to max it as soon as I can. With my estimates, I will max it around the end of April! Or sooner. This will free up that amount to either, help me max my Roth 401K or up my taxable account to around $650 a paycheck or around ~$1400 a month.

Onto the investments!

With my Roth IRA, I keep it simply to 5 funds in my portfolio and if you’ve already read an article of mine, you’ve seen these before.

SPHD – high dividend low volatility stocks

LQD – corporate bonds

BNDX – international bonds

VYM – high yielding stocks low cost fund

VNQ – good yielding REITs

Right now I think my portfolio yields on average about 3.6% which is exactly where I like to see it. Simple, good yield, not a lot of work.

Roth 401K – with this one being tied to my companies broker, I only get a few funds to choose from, all of them are growth funds and I assume they will work similarly to the market. I have a good amount in both Fidelity and Vanguard growth funds with a few target date funds and that is about all I can choose there.

Taxable Account

This account is fun to work on, tweak, see go down, see go down more, buy a little more. I started this last year in August and kind of just funded it at $100 and left it while I figured out my other investments. Right now it sits around $450 and I’d like to get it up to a few thousand this year depending on if we decide to put some towards our house. $3,000-$4,000 would have my dividends paying me around $100 a year or almost $10 a month. (Fun! That pays for Hulu!)

As small as the actually funding is on this account, because I am using M1 Finance to broker the account, I am still able to try out a handful of companies and get a feel for what works and get to the point where I have companies paying me out every week or so.

In my portfolio I have 22 companies. Some are big power houses, some are a touch speculative but they have monster yields, others, are companies I like and understand very well. All of them pay dividends. I think around 30 is when I will stop and wait to add any more til I understand the ones I have fully. These are usually companies that are either really solid companies that have paid dividends for years, continue to make revenue and increase their dividends, those that have moats in their industry, and those that consistently pay high dividends that will help to fuel the purchasing of my stocks. (Where M1 Finance has an auto-invest feature that starts at $10.)

To name a few, if not all, from memory:

LQD

BNDX

SHY

SPG

VNQ

KEY

RY

WFC

WBA

JNJ

AT&T

VZ

COST

HD

TGT

MMM

WM

ET

SPHD

NRZ

VYM

XOM

Nice! I got them all from memory!

See anything you know? Anything you don’t know? Feel free to ask me in the comments and I’m happy to share my reasonings or talk about my thought on a company. Obviously I am not a financial advisor so take everything with a grain of my opinion salt.

Young Budgeteer Investing: Week 4 Trades, More Passive Roth IRA, Tracking

Hey guys,

Welcome back to round 4 of this investing thing. I think this week one of the biggest things that hit me while looking into my Roth IRA, Between that and a few other investment accounts like my work 401K. My company has spent a lot of focus in the past few weeks highlighting us on our benefits at the company and the potential payout for staying there for 10, 20, 30, or 40 years. It definitely made me feel a little bit better about my finances in the short term and the potential into the future.

What does this have to do with this Portfolio and investing ideas? Well, when you have less need to go into riskier items, you can forego a bit of the returns in the market to in order to have more preservation and control over what you are getting back consistently.

So while my regular portfolio is going to keep all of the companies that I have been investing in, I made a decision to move my Roth IRA funds from 14 securities down to just 5 that I had as a trial run for the past month or so. This has given me a good idea of how these funds work and some stability in the growth. It also making tracking annual income for that portfolio to be much easier.

As well, with a Roth IRA, I will only be able to contribute about $6,000 a year effectively capping the amount that I can build the portfolio which will push me to go other routes to build my passive income. This will mean (as far as choices I would start to funnel funds into) I could up my 401K contribution amount. I could pay down our house, possibly refinancing it to lower our monthly payment. I could also save up for a rental property. All not terrible possibilities.

But at some point once you can max your Roth IRA, you will have to funnel your funds into another investment vehicle in order to continue growing your retirement possibilities. Pretty much that is my next move in the coming year.

Roth Portfolio Breakdown

Roth Portfolio

I will go into each of these “Slices” / Securities and why I think they are a great way to start investing as well a great way to have passive income build in a simple understandable way. I am trying to keep about a 60%/40% split between equities/bonds.

SPHD: Invesco S&P 500 High Dividend Yield Low Volatility ETF : 40%

If I had one investment to put into, this would be the one. I will only share a few technical numbers but I think the underlying principle of what stocks this fund holds is enough to convince any person to feel safe investing in them.

This fund includes ~50 companies from the S&P 500 that have the highest. It starts with the 75 from the S&P 500 with the highest dividend yields and then cuts out the 25 that they deem have the highest volatility leaving you with 50 companies that both perform well, pay good dividends, and are risk adverse. It is not to say that they can’t be stopped or beaten up but consistency, good pay and low volatility seems like a decent choice of whether its your job paying you or a dividend fund you employ dollars to.

They have currently about a 4.13% dividend yield which is a current payment of $0.1547 per share and they pay monthly so annually around $1.80. Great for compounding and as soon as I get this one high enough, when they pay out each month, it will be enough to reinvest each month ($10 on M1 Finance). That is pretty sweet!

LQD: iShares iBoxx $ Investment Grade Corporate Bond ETF : 25%

What a name. Okay, so let’s put out a definition of what iShares is.

iShares is a family of exchange-traded funds managed by BlackRock. The first iShares ETFs were known as World Equity Benchmark Shares but have since been rebranded. Most iShares funds track a bond or stock market index, although some are actively managed.

So basically this company, just like Invesco, just created an Exchange Traded Fund to follow a group of Investment Grade Bonds, bonds that are held by pretty stable companies and therefore are pretty safe bets.

They have a dividend yield of about 3.29% and an annual payout of $4.22 which paid monthly is about $0.35 cents per share. At the current price of $127, they are a pretty solid investment to pad the bond section.

BNDX: Vanguard Total International Bond ETF : 15%

This rounds off my bonds. Again, I am working to keep this really simple. This is a Bond ETF put together by Vanguard that tracks a group of international bonds. This one has $24B under management so that means that they have a pretty good idea about what they are doing.

They have a dividend yield of about 2.87% and an annual payout of $1.67 which paid monthly is about $0.0499 cents per share. Cheaper to pick up shares at $58 but this one is a defensive bond that takes in international companies and that is enough for me.

VYM: Vanguard High Dividend Yield ETF : 10%

This is also known as the Whitehall Dividend Yield ETF, unless they changed the name recently. This is Vanguard’s take as pulling in High Dividend Yield Companies so as to attract investors.

It has a payout of $2.80 and a Dividend Yield of 3.04% but instead of paying out each month, it pays out quarterly but still the same amount as is if paid each month. Each share gets paid $0.7864 which adds up quick and is a nice addition to my portfolio, and was actually one of my first investments.

I assume they will announce in the next week that they are paying out for the month of December. That should be a good chunk for me. Currently I only have about 4.6 shares, but that means $3.59 unless they announce an increase in which I will get even more!

VNQ: Vanguard Real Estate ETF : 10%

That makes 100% of my portfolio! Now this one is pretty self-explanatory. Vanguard put together a group of REITs that they feel will attract investors such as American Tower Corp, Simon Property Group, and Welltower Inc.

They bring with those nice REITs a nice payout. 3.43% dividend yield, an annual payout of $3.14, which quarterly is about $0.744. I am also waiting on them to announce their dividend for this month and might see an increase here as well. They go along with VYM pretty similarly but hold no similar stocks in their funds. $0.74 X my ~4.6 will be another $3.42. Add that to VYM and the other monthly payers that happen near the end of the month and I’ll hit that $10 reinvest minimum!

Now, you might be wondering…

What Happened With My Portfolio When I Made These Sells? Aren’t I afraid of tax-implications?

This is one of the greatest tricks to use when you are just getting into investing is to use a Roth IRA.

Usually when you sell stocks in a normal taxable account like Stash Invest or any account that isn’t a Retirement or Tax-advantaged account, you will get taxed on the gains on that stock.

Example: I bought 5 Ford shares a couple of years ago at about $10.25. I sold those later at a price of ~$13.

During that time, Ford also paid me dividends for each stock. $0.15 X 5 = $0.75.

So essentially I made $0.75 from dividends and $13.75 in market growth.

Now, I don’t remember if I held the stock long enough to be taxed at a lower amount but this is the part about a Roth IRA. It doesn’t matter in the Roth IRA. Any gains or dividends that I made in the Roth IRA during a sell of a share or through payouts is completely tax-free!!! That’s right.

So while I made 10 sells of shares in today’s trading window that netted me a little bit of a gain (especially with a 5% gain and huge dividends from Johnson & Johnson), I won’t pay any tax on any of that gain. And all of the gains and sold shares went back into those other 5 stocks I mentioned above.

Again, I am keeping my taxable at the same percentages that I had for these companies so I am not selling out of these companies completely. I am just moving my Roth IRA into a more simple grouping that allows me to focus my time and energy in other places which is eventually my overarching goal with this entire investing strategy.

Tracking Annual Projected Income and Monthly Income Actuals

I thought these would be an interesting group of sheets to share that I have started since I started investing. I have changed them up a lot of times and I have taken ideas from a handful of YouTubers and other investing sites that I follow and watch.

For now, the two that make the most sense to share screenshots of are my monthly income tracker and my expected forward annual income breakdown and totals.

The Forward Income Breakdown and Totals shows me what I can expect to be paid in a typical year. This just takes in what the annual payout and multiplies it by my shares and charts it.

Income Tracker

All I have to do at this point and update my share amounts each time I buy and then it will let me know my expected income in the next 12 months! Obviously $150 a year isn’t much but in the terms of $12.50 I’ve essentially paid for a small gym membership, or I could cover a ticket to the movies. It’s a start for sure and each paycheck will start to add more and more.

For example: by 11/28, I had $125 and then I added $700 on 12/12 and added $25 to my forward income. I am still paying off a small car loan which eats some of my fun income but adding $25 every 2 weeks isn’t bad. By the way, $700 put in, making $25 a year is about a 3.57% yield. And that doesn’t include any growth that my portfolio could have. I don’t know any High Yield Savings Account that is giving you that much.

The Monthly Income Tracker allows me to track what actually comes in each month. I just take in all of my gains for the month in my monthly statement and I put it into a line chart to see my monthly income growth. This follows a lot of people who show their income from these dividend companies. The goal of the whole of my portfolios is to cover my monthly expenses without sacrificing the capital in it through selling.

Currently, I am following Joseph Carlson and using a simple excel created graph he made. Major credit to him and his YouTube Channel. If you want to see a portfolio that is a bit bigger than mine and see these effects a year or so ahead of mine, check out his channel. He is great to listen to and tends to add some good laughs in his channel as well. Eventually I will make my own version and make a few changes that relate to my investing type.

Monthly Income

This looks pretty dismal, doesn’t it? Well, for a long time I was tracking dividend income from three portfolios (Stash, Fidelity, and my High Yield Savings Account, HYSA) and I didn’t really have a lot of money in any of them. So when I moved to M1 Finance, I made a goal to deposit more each month starting in August.

And what happens is that dividend paying companies, you usually have to have a stock for about 2 months before they announce their dividend, give a date for when you need to hold the stock by, and then pay you out on another day. So my chart is just a few months behind seeing my Forward Income. I assume that December will be a nice record paying month for my portfolio (as it is for a lot of people) and then it will continue to trend upward from there!

In any case, these next few weeks will be exciting! As always thank you so much for reading, if you made it to the end of this article, I appreciate you taking your time and hopefully those give you some tips on your own journey. You can catch me on Twitter or Instagram at @ youngbudgeteer. Until next time.

Young Budgeteer Investing: Week 3 Buys and Sell, MMM, and Black Friday

It was Thanksgiving last week and everyone got so excited by Black Friday. I suppose I should have been out buying things but I made some good buys on Wednesday (stocks) and I did purchase my wife something online at 74% off. I think that is enough shopping. Besides, I don’t care to be hit over the head with a waffle iron by a lady 4 times my age that have more fervor than I do.

I actually had some decent activity in my portfolio this week. I let go of two companies that I thought were interesting but really, I didn’t feel good about in the long term and it is a good early learning experience. Those two companies were Ford (F) and Annaly (NLY).

There was a lot of hype about the new Mach-E electric Mustang these past couple of weeks and I think that is what kept pushing me to hold my Ford stock but I realized during the process, after reading both good reviews and bad reviews of the car, lots of people saying, 50K is a good number of orders. 140K is what they need to survive. 30K is enough. I really just didn’t feel like owning a company that sucked me in with all that. And yes, you do get over informed when you read a lot of articles, but really, I think I saw the automotive industry as such a flashy, attention pushing sector where sales may not be consistent, car dealerships are not places that generally leave a good taste in your mouth. I think it was good time to go.

Selling that Ford stock of around $142.63 allowed me to purchase more of some companies that I think are a little more stable, all happening through my auto-invest:

T: $13.29
SHY: $3.72
NRZ: 28.58
WM: $8.03
VNQ: $32.81
BNDX: $14.52
SPHD: $11.06
SPG: $11.23
LQD: $16.98
VZ: $1.78

Getting rid of NLY was probably a long time coming. It was in there as a riskier investment mainly because it comes with a higher yield and a big pay out that I was hoping would help to get me over that $10 auto-invest number sooner so my money could compound. They only held a 5% stake in a sector that had 25% share of my portfolio so really only about 1-2% of my full portfolio. I sold it for $1.76 and that got put into my NRZ company, another higher yield company but one that I am a little more confident in as they are still profitable and have been consistent in dividend growth a bit since their inception not too long ago.

Even though Black Friday was tempting, I was able to add about $450 to my portfolio this week. AAAANND because I have my portfolio take care of the investing for me after I choose my companies, I had 11 buys that took up $450.62 (because I still had some cash left over in my cash balance from the last time.) Really cool stuff.

One of the positions I added to was 3M or MMM company. At first, I was thinking, nah, everyone has them and everyone says to get them or not to get them. I finally just realized that I have some much stuff at my office that is from MMM that I just decided to look into their company facts:

Why 3M:

Here are the main things I look at when picking a company.

  1. Does one of my favorite investors on YouTube own it? (Just kidding, that’s not real)
  2. The real #1, Do I know that company or the things they do? And do I like them? (Usually this is a big indicator if I am willing to trust them with my money or if I feel that the values of the company align with my goals.) 3M: 55,000 Products
  3. Does that company pay a dividend and how high is that dividend yield? Is it low? is it abnormally high? (is there a reason? Ex. Visa has a low Div Yield. Costco has a low Div Yield. AT&T has a high Div Yield.) 3M: 3.38%
  4. What is the company Payout Ratio? Usually you hear that below 60% is great. Other REITs can be around the 70-90% range because they have special tax advantages. Most of my companies have around 30-60% payout ratio such as Costco and Disney. 3M: 63.72%
  5. Have they been paying dividends for long? If so, have they increased their dividends? If not for long, have they increased them since they started. I usually only go with companies that have been around a while, and therefore, have a standing record. JNJ, one of my favorite holdings, has been paying for 57 years. 3M: 61 years of Growth.
  6. P/E Ratio. I really just want this number close to 15. Usually if it’s too far under, I am questionable about what is going on in the company, and if it is way over, I don’t feel safe looking into it mainly because I don’t have as much knowledge and this is a good indicator about a company. 3M: 20.12
  7. The last thing I really look at is if they have dropped from their 52 high and what percentage. Sometimes, a company will fall a bit just because of the general market fear or something like McDonald’s (MCD) where the CEO creates a problem that isn’t really reflective of the company’s future growth. If a company is near the top of their all time high, I get nervous getting in mainly because I don’t know enough to predict that other investors will want to go even high hoping someone else will go even higher. So I put together a list of Watchlist companies and then I compute their % drop from their 52 week high. This could mean they are good buy… this could mean that they are on a down hill slide. I will never pick a company based on this but it could be a good supplementary item if the rest of the company looks pretty good. 3M: 29.65% Drop from 52 Week High.

Conclusion

So really, I think getting into 3M was a good idea. The stock is relatively low priced compared to before, plus it is a good strong dividend company and I expect to be paid dividends for a long time from them.

It seems that holidays are always shorter weeks for actual buying but great weeks to listen in and hear about different companies and add to my knowledge so I am better at making decisions when the time comes. Until then, I will probably keep these companies for now in my Roth IRA and just see what happens. As I move into next year, I will probably cut down the companies in the portfolio and go a bit more broad in a few funds and go more finite in my other accounts. Thanks for reading and until next time.

Week 2: More Buys on M1 Finance

Looks like we’ve done a lot of things this past week. I wanted to add a bit about my portfolio this week as well as talk about a few things that happened on the platform that are worth mentioning if you are looking into investing with M1. As you can see, my portfolio is a lot closer to being close to that smooth dotted line that indicates if a sector has more than its allocation or less. Right now Health Care (JNJ right now) has a bit more because I lowered the sector to make room for some other sectors.

The Situation

First of all, if you haven’t checked out Joseph Carlson on YouTube and at JosephCarlsonShow.com, he is a great person to watch, to take ideas from and to get a bit more news as well as backing up the whys of the portfolio and the whys of picking certain stocks. It is a great place to find a few stocks. I have taken a handful of picks from him but catered them to my portfolio size.

The two things I want to hit in this article:

  1. Transferring from something like Stash with a small portfolio balance
  2. More buys on M1 and how I changed up the porfolio/but also didn’t do any hard work
  3. Upcoming Dividends

Transferring from Stash

So after a week of trading with M1 Finance with my Roth IRA, I decided that I liked it a lot better than my current situation with Stash. Yes, Stash is great and it has fractional shares and I can see what percentage of my portfolio each stock is, I can auto invest, but I didn’t feel the same control on what I had chosen there and the $1 monthly fee for a portfolio my size just felt like I was paying a lot of having less than $1,000 in there. In essence, I was pay $12 a year to take care of $800 which is an expense ratio of 1.5%. That is a lot of management fees.

With that money in M1, I have no fees and I have a bit more control over the make up of my portfolio instead of the “idea” ETFs that were really the only thing when I started my Stash. Plus, when I get dividends now, it will automatically invest those in the items that have lost a bit of value, therefore giving me my same stock (and for that matter, the same amount of dividends) at this lower price than paying to get that same dividend for a higher price. That is a great deal.

Now I will say something I was hesitant about. When I sent my information to the transfer team at M1, they told me that specific to my situation with just so relatively little in my account, that it would be more beneficial to me to just sell my positions/stocks in Stash, deal with the few sale tax items at the end of the year and then just pull the money out, and put it into M1. I thought that was really cool of them and I definitely felt like they are very personalized and are trying to get you the best value for your loyalty.

More Buys!!!

So with the $1,000 that I got, I rewarded myself a little bit. I had contributed about $800 and had gained about $100 (~10% gain) which comes to about $900 coming out of my Stash account. I put half of it towards a car loan that we are still working on, put $100 towards my normal taxable account at M1 to get it started, and then I put the rest into my Roth IRA so I can move that towards the $6,000 limit. I probably won’t reach it, but my thought process is that I am limited to that amount for the Roth IRA which is tax free growth while the other is taxed on any gains I realize (or get paid for.)

So with that extra ~$275, I added a few companies that I think are strong companies and the rest went towards rebalancing my portfolio to get it closer to those even percentages.

These are the purchases it made: (12)

Waste Management (WM): $114.37
Costco (COST): $114.37
Vanguard REIT Fund (VNQ): $15.47
SP500 High Div/Low Volatility (SPHD): $11.16
Corporate Bonds (LQD): $6.25
Vanguard International Bonds (BNDX): $4.74
Simon Property Group (SPG): $3.09
AT&T (T): $2.39
Treasury Bonds (SHY): $1.13
Annaly Reality (NLY): $0.96
New Residential Investment Corp (NRZ): $0.66
Verizon Communications Inc (VZ): $0.50

That is pretty cool. and what happens is that it works to balance my overall sectors. If Real Estate is at 30% and it’s supposed to be at 25%, it’s not putting money there until after it bumps up other things. If Telecom is at 5% and it is supposed to be at 10%, then it will put some in there. How much it puts there depends on if other items drop in value or if I allocated them higher in between.

Upcoming Dividends

Seeing the next dividend or seeing what dividends I am expect to earn and which ones I am to be paid in the next month is something that M1 Finance has talked about implementing.

But for now, I just have a spread sheet of the different companies that I have and roughly when they will pay their dividends throughout the year. This lets me know what dividends will be earned in the next months. It is really rough but it is a work in progress.

For now, I can see that I have one more dividend to earn from JNJ in November.

In December I have 9:

WM
VYM
SPHD
NLY
NRZ
VNQ
LQD
BNDX
SHY

I haven’t done out the math yet mainly because some of these haven’t announced how much they will be paying out, but I think I will be upwards around that $10 mark for December in dividends. Although, these are the just the dates that I have to have the stock. The date they get paid out could be anywhere from 1 week to 4 or 6 weeks. I think by the end of 2020, I want to be at the point where a set of dividends in a day will put in enough that it will get reinvested automatically without me helping it with my paycheck each pay period.

Conclusion

Anyways, that’s a start. If you have questions about what these stocks are, one of the best places that I’ve gone to for information is seekingalpha.com. The website is free to use. If you set up an account, which is free and I’m not like sponsoring it for money, you can set a watchlist of stocks. I’ve really liked it. I really don’t know much  about other places like Yahoo Finance but besides a specific list of my next dividends, it seems to have everything I am looking for.

Feel free to reach out @youngbudgeteer on Twitter or comment below. What is your goal with all of this? Do you like the idea of investing? Do you just want something easy and does a pretty good job without work? Let me know and have a great weekend!

Emergency Funds and Next Year’s Goals

You might be wondering why there is some wood planks in the header picture. This relates to my Next Year’s goals that I am setting. We bought our first home about 6 months ago in May and when we went to use the almost-brand-new oven they had in the place, it smoked out the entire the house. This has led to 6 months of ripping out our entire kitchen and installing new cabinets, flooring and countertops and while the insurance on our new home helped, it didn’t cover everything and we had to do quite a bit out of pocket. That kind of puts a damper on savings lots of money but we are finally through it all. But that is a side note. Let’s get to the interesting parts.

The Situation

Recently I read an article that talked about emergency fund needs. This link goes to a writer Early Retire Now who talks about the necessity for a $1,000 or a 3-6 month’s of savings saved in a emergency fund account. Only for emergency funds. I feel that this article falls a bit away from those who are struggling and leans more towards those who have good credit card limits, Lines of Credit available against their houses, and good cash flow to be able to pay everything off rather quickly if their cash account doesn’t have enough. But nonetheless, it shouts a few great points that I will sum up during this Portfolio Update article.

  1. Most “emergency” expenses, you have some lee-time before you actual pay the bills. Ex. If you have a car repair you know has to get done soon, or you have a medical something happen, you have an idea that the issue is there as well as with medical, it takes some time to get the bills out so you can save for it.
  2. The interest rate that you are usually getting on your savings accounts are usually pretty low. They mention about 0.50% which I think is pretty low compared to some High Yield Savings Accounts that offer around 2% but just lowered to about 1.85% or so. They comment that it isn’t hard to beat that in the market and that you could be sitting on several multiples of what you would have earned once you have to pay for it.
  3. The money that you have sitting around in a emergency fund is usually pretty sightly and makes you feel like you have more than you need. Often times, you move towards spending when such a high amount is sitting in your bank account.

I think I agree with all of these. It was pretty cool to read and you should definitely read deeper into the article when you have a chance. While there are good points, I also think that there are some good counterpoints.

  1. There is a sense of security to having your money close and readily available. For those who aren’t able to stash away a lot of money into investments that payout, build tons of equity in a home or having the cash flow to pay off credit cards or HELOCs quickly, the idea of paying for something big can be scary and we don’t all have the confidence that our investments will grow or be available to fill that security blanket idea.
  2. While I don’t think Dave Ramsey’s plans work well for all people, I do feel that if you are deep in the ruts of debt or you have never had any education on finance, that this is a great start. build up a thousand dollars. That teaches you to spend less than you make and to put it somewhere and don’t use it in case you need it. Then you move on to bigger principles.

The Verdict

Because of this article and others, as I’ve been contemplating how to better fund my retirement as well as be prepared for life changes such as my wife leaving work to be a mother or to find a different job, I have made a few changes that I think are better for the overall health of our family.

We have been aggressively paying down my wife’s student debts. Easily 25% of our paychecks go to putting out that forest fire. We were down to about $2,200 and on our usually pay day, I decide to take a bit of Dave Ramsey’s advice and use extra cash beyond my emergency fund to try and finish off all consumer debt. I sent my wife enough to cover pretty much everything left and she covered the remaining balance. Now, a week later, when we get out paycheck next week, we will have a lot more extra cash flow going forward as well as much peace of mind. As well, once the debt is paid off, the real fun begins. Positive growth instead of combating negative interest.

The second change I made involved the part of the article that mentioned spending habits when you have a large sum number in your account. Now I am already very frugal and.. well, my wife already knows that I don’t like spending money on much. But I decided to drop my emergency fund down to the basics. Now my High Yield Savings Account (HYSA) has a minimum balance of $1,000 so it doesn’t make sense to drop it to $1,000 if I can’t use it in emergencies because of that. So I dropped it to about $1,500. And I took the remaining amount (which would be the extra that puts us up to around 3 months of bills) and I invested it.

What I think pushed me to take this lump sum and toss it into my investments was the fact that my Roth IRA can only be funded to $6,000 a year. That amount even if I maxed it out each year, would still not be a lot of money. And while I am not going to hit that this year, I think it is important to make up as much ground each year as I can so that I don’t lose out due to the limit to maxing it out each year. So I will be behind a bit this year but I feel great in knowing that I upped my amount closer to the maximum amount. Next year I will max it out for sure.

The best part of throwing in the extra money is that once it showed up and pending a transfer of cash, the M1 Finance account already had allocations to put it into. It took all my percentages and it divided it up to even things out. I was so happy and it takes the stress off of trying to buy exactly what is the least valued stock in my portfolio and then make a stock order, leave some money left over because I can’t buy another full stock… I am loving my experience here so far.

So here are my financial goals for next year:

  1. Finish paying off our car. I could technically do it now or significantly dent the debt, but our payment is so low at $78/month that we won’t accrue more than about $274 in interest over the life of the loan except that we will probably pay it off after about a year of owning it. That should mean only like $80 of interest which is worth us getting the loan and getting a $4,000 price cut on this used car which we needed to replace.
  2. Max out my Roth IRA. With a $6,000 limit, you have to put in about $500 a month for 12 months. $500 x 12 = $6,000. That means that I will set up a recurring deposit for 2 days out of the month and that should satisfy everything I need for that account.
  3. Pay down our house a bit. We got a mortgage this year for our first home. We only had to put down 3% because we are living in the home and we went with a loan type that works well with how we feel about the housing market. Right now, we are at about 95% loan to value which means we have about 5% equity in the house. Obviously, this is because for the first several years, you pay a lot of the interest part of the house and then later, you pay more principle.One trick that we use to build up extra to put towards principle, and therefore equity, is that we have a separate account that is just for the mortgage. Each paycheck we each put in what we talk about to cover the mortgage but it doesn’t always line up as 2 paychecks every month, sometimes, it is three. We also have auto-pay for our mortgage with our credit union. This usually ends up with us having a bit of leftover in the account after the auto-pay happens. Currently it is a few hundred bucks. After some months of paying it, there is sometimes up to $1,000. Once we are around $1,000 in the account, I usually just put that towards the principle. While this is a good move, I’d love to up that amount and get down to maybe around 90% equity by the end of next year and then hit that 80% equity number in 2021 so we can take off the PMI that we pay each month. It isn’t a lot that we pay for it, but it reduces our monthly expenses we need to cover by about $70 and that is a nice relief.
  4. Start contributing more to my 401K at work. hopefully about 10% as opposed to 6%. Currently I put in enough to get my company match and then I put my money in other places like my Roth IRA, paying for countertops, big car repairs, emergency fund. Next year should only have a few big items.. like possibly a baby and possibly a dog. Yeah, I know. Those are pretty big. I will try to make this all happen.
  5. Start investing in a taxable brokerage account. Yep. As much as I’d love to max out my 401K and my Roth IRA, if I am going to retire early, I will need income that can cover my expenses before I hit 55. Probably about 10-15 years worth. Enter the taxable account for dividends that will pay for expenses through distributions and payouts.
  6. Possibly save up for a down payment for a rental property. The Rental Property market isn’t the best right now, but some recurring income could be better than none. And while I may not be able to fully build up a 20% down payment with all of my other goals, I can sure work towards it. Even having 2 rentals when I retire could be enough to cover most of my expenses if we are able to pay off our house.
  7. Save for a baby and a dog. Ha. These will eat into everything. We don’t have either of these, but the eventuality will happen and it will be good to save for. Luckily, I have 9 months to save for any baby that might show up. The dog could happen any time though.

Conclusion

Hopefully these give you good simple ideas of what you might save for in the future. I think most of these will be doable now that we have thrown almost everything we have at my wife’s student debts.

What is/are your big 3 goals next year? Replacing a car like we did this year and you need to pay that off? Starting to invest? Don’t know how to open a Roth IRA? Here is my link for M1 Finance. https://mbsy.co/CLlcW. If you have any questions about the process, feel free to comment or to reach out to me on Twitter @youngbudgeteer. Always happy to help and I appreciate all of you who read this. Have a great night!

Transfer Complete: Getting Into M1 Finance

Finally it happened!

Yesterday I finally finished the transfer process from Fidelity to M1 Finance. I saw the balances come over into my accounts in M1 and then that same day I got an email that asked me if I had any questions before they turned my investing on.

I asked one question which I know a lot of people will ask when they are starting in M1 or thinking of it. I had made some target %s for my portfolio. Simple just a few 20%s, a 10% and a 5%. Obviously having bought full shares in my other brokerage, I didn’t have that already set up in my portfolio as my targets. So when I first put money into it, it looks like one of those squishy balls that you squeeze and it expands on one side. Definitely some of my companies were not what I thought were evened out by sector. So I asked my question. “When you turn on the investing, and when I put money it, will it sell anything, like these hugely over target items, to get to my target allocation?

The answer: “On the M1 platform, nothing is sold without a manual process on your end, which includes the following activity:

1) Removing a slice from your portfolio – this triggers a liquidation and the proceeds are automatically reinvested into your portfolio.
2) Using the rebalance button – this will sell your securities that are overweight (the securities with percents above the target you set) and buy back into the underweight securities.
3) Entering sell orders – you can place a sell order for an individual stock at anytime.”

And then they proceeded to say that I could adjust after the funds came in to fit the target amounts to what came in if I wanted.

That’s cool!!

So what happens:

I had created some sectors of securities of what I wanted to start my M1 Finance experience with. Some of them were the stocks that I already had and the others were some that I wanted to add. So I had a portfolio void of actual cash that was broken into percentages for different sectors of what I thought was stable and had good growth, and then in some of those sectors, I had several securities.

For example, I don’t own an AT&T or Verizon but I thought to add a Telecom sector and add 90% AT&T and 10% Verizon. Now when I put in $100, it tried to help my Telecom sector to get to the 10% allocation that I set for it. So, with a few other items I was trying to get into, it put ~$38 into Telecom, then took 90% of that $38 and put it into AT&T and then put 10% of the $38 and put it into Verizon! HOW COOL IS THAT???? So, though I don’t have any % in Telecom, it evenly put the investments to those to work my Telecom closer to that 10% but also inside of Telecom, it is perfectly to my allocation!

So you will see my at the top, and after some massaging through the investing, my pie is getting closer to balanced. And what’s even better is that because the investing will only buy securities, it will just keep buying to evenly allocate all of my items. When I get paid dividends, those will pay back in and buy my lower percentage items and things that have dropped so that I am getting them at better prices than I previously bought them.

I guess I will let it go and you will find out more in the next two weeks!

Thanks for reading!

P.S. Also I will mentioned. I talked about mentioning my portfolio buys.

I added $100 and I had $6.58 in my cash balance. At Fidelity, I would buy a stock or two and then I would have some amount left over.

With this amount, it invested $106.55 of my money. I will share what percentage my portfolio has and then what percentage each of the slices in these sectors are of that sector.

Bonds – 20% of full portfolio
LQD – 50% – $35.52
BNDX – 40% – $28.42
SHY – 10% – $7.10
Telecom
T – 90% – $31.96
VZ – 10% – $3.55

Excited for next week!

M1 Finance: 7-10 Day Transfer of Roth IRA Balances

So what’s been happening with my portfolio has been a bit weird this past weekend. I initiated a change of brokerages from Fidelity to M1 Finance and they mentioned it would be about a 10 day process. As of Saturday all of my funds in my Fidelity account are gone. The account is now at $0 and my net worth in my Mint account went down with the funds missing.

I am a bit eerie and just kind of feel nervous inside. Luckily in the M1 Finance emails they state that this will happen for about 2 days and then everything will show up, they will pause my accounts in M1 Finance until it is set up how I like and then turn them back on. I thought this was a good note to add. It literally states, “DON’T WORRY!” and then explains the gist of why those account numbers will be gone for a couple days. I am really hoping to see them by tomorrow so I can figure out how this whole auto-investing work as well as the pie slices and having sectors.

Basically I have an okay understanding that it will place my other securities into my portfolio here and then anything else I have in these pies I have set up, it will buy those when I put in money until it balances things how I have allocated. I have not heard at all that it will sell items I have in order to get to my %s. So like, for instances, I have some REIT ETFs, one being VNQ and I placed another slice/company called Simon Property Group into my Real Estate slice. I have VNQ at about 70% of the pie and SPG at 30%. I am really hoping that it doesn’t sell my VNQ and then use 70% of that money to buy VNQ  and 30% of that money to buy SPG. From what I understand, I don’t think it will. I think it will only buy to get me to where I am balanced out. I have Telecom companies in this pie/portfolio that I don’t have in my other portfolio and I’m really hoping it doesn’t sell other items in order to buy a % portion of them.

I guess I will let you guys know later this week. Just thought I would give a short update for those of you that are thinking of doing something similar and wanted the mindset of someone who is going through it. I’ll get back into the better parts of the journey next week. Have a great weekend and remember those serving our country this Veteran’s Day!

The Battle of the Brokerages and Why I’m Transferring to M1 Finance

Hi!

The Situation:

I thought this would be a good item to talk about. With a shift in tech industries turning out lots of new ways to invest, there comes a decision in how to choose what investment platform and if some of the newer places have been around long enough to be as stable as the long time goers such as Charles Schwab, Fidelity and Vanguard. Recently, one that has interested me has been M1 Finance. I’ve heard a lot of good rap about it and I haven’t heard a lot of bad rap about it. When all of the controversy was going on around Charles Schwab cutting trading costs and trying to steal market share from robo-advisors like Robinhood, Betterment, and Stash, M1 Finance had this understanding a year or two before and dropped their investing fees to $0 in anticipation of changing tides in the Battle of the Brokerages.

I have been using Fidelity for the entirety of my Roth IRA investing experience. Granted that that is only 4 months, I haven’t been super impressed with the age of the platform and the level of output that I get as an investing helper. The accounts were SUPER EASY to set up. I think I had my account set up within a day or two. And once I figured out and understood the issues with funding my account, I was up and running.

After that, everything was very… excel. There are a few graphs but you have to search for them to find the right ones which are scattered around. As a data person, I am very organized and feel like you can chart out a lot of things very easily. There’s so much that investors want to know before they give their money to a company. I just felt like Fidelity lacked on that. All my stocks were just in a sliding view of basically an excel sheet that slides for most of the items.

The mobile app is nice and very simple. It has the stock price chart and then a bunch of drop downs that give you your different key items such as dividends and ratios and what not. Very simple. If that was all I felt I needed, I would probably stay with Fidelity.

What I think is the three hard parts for me with Fidelity are that M1 Finance does:

  • No ability for fractional shares (I’m sure they’ll add this at some point)
  • Weighting of your portfolio
    I feel like I just have stocks and securities but I have no idea if I buy more of a certain stock, how much does that change what percentage of risk it puts me in. Am I really heavily weighted towards Real Estate, Bonds, Tech Companies? Do I have to buy 10 shares of Apple to be even with my 1 stock of Amazon?I’ve seen someone complain about this before and I just don’t get it. They were upset that if you took Facebook, Amazon, Microsoft and Google and put 25% into each, why don’t you just invest 25% of your portfolio into each of these. And maybe if you are choosing those 4 stocks as your portfolio basis, this may sound dumb, but even in that situation, buying a share of Amazon throw off how you are balanced. I also think that if this is your entire portfolio you should probably not invest in individual stocks because having 100% of your stocks in tech does not protect you from issues in the market.
  • Dividend reinvesting based of under-weighted securities
    This one takes your dividends and then when you have enough in your cash balance (usually about $10) it will invest bits and pieces into the pieces of your portfolio that dropped in value. This method will give you a lower dollar cost average for each stock and ultimately try to get you towards your goals of evening out your profile to the percentages that you set. When you are focused on investing for dividends, this allows you to get paid the same amount of dividends per share as you did before, but you now get to have more dividends for less $$$.

My Experience Transferring to M1 Finance

I started the M1 Finance process on Friday, it is now Wednesday. Their support is definitely growing and lacking a bit. I definitely understand that. They have spent the majority of their growing business on deepening their development of their platform instead of marketing their products as they are. I’m sure at some point, they will put more into marketing, but as I’ve learned about them at this point without having been marketed to, I am glad to know that they are not out to make a quick buck. There are good long term goals in the platform and I’ve really liked what I’ve seen so far.

Account Set Up Experience

When they go to open your accounts, they first start you off with a Taxable account that is required for every person. I wasn’t as interested in this. I am going to see how they deal with my Roth IRA and then I might move everything else over.

They asked for me to send my driver’s license and a utility bill to their email address. That was a bit nerve-racking but I sent it in, got a quick response that they were processing, that it might take 2-3 days to do so and then within the end of the day, I got that account set up and ready to fund.

I actually read into their transfer process first. I emailed the transfer team that does the Roth IRA transfers and they weren’t able to transfer until I had opened a Roth IRA with M1. In order to do that, I had to get my regular account authenticated and I had to wait for that.

From Friday until today, I have gotten my first account opened, authenticated and gotten my second account open and authenticated. I am not just waiting for them to tell me that they are getting all the transfer items done. It is usually a 7-10 day process with a day or two where I won’t see my funds from my other institution. They mention they in the documentation and that was relieving that they understand and let you know so you don’t worry.

I think the Transfer Process will be pretty simple and then I will have all of my items set up. They tell you that while you wait for them to get your balances transferred, you can set up your Pies (how you want to break up your investing securities.) The best way that I’ve come to learn how to do that is to: Create a pie of each type of stock or security that you want, and then create a bigger portfolio holder pie.

For Example:

I created a:

Tech Sector:

Energy Sector:

Consumer Sector: Includes Johnson & Johnson

Real Estate: Includes O: Reality Income Corporation

Bonds:

Automotive: Included Ford

Financial:

Healthcare:

Industrial:

You get the point.

Each item in the different pies has a different % and each pie has a different % in the overall pie. This allows me to weight my portfolio with the idea of 20% bonds and 80% equities.. or however I want but I get the exact control of how it works. Then in each pie of Real Estate or Consumer, I can focus on companies that are more what I want, but not letting any of those take over my entire portfolio with a single purchase or with a single weighting.

You may think this sounds dumb if you are looking for that “low” or worrying about buying it quick on the up and selling it quick on the high. I guess. That kind of investing is for speculators and in the end, speculation doesn’t win out. Just like going to a casino doesn’t. The house always wins.

Dividend investing is all about the long term and gradual growth. Warren Buffet will opt for dividend payments over buying at a discount for a high sell value. He keeps all of his Coca-Cola stock. And they pay him millions and millions each year. I feel like M1 Finance understands this better side of dividend investing and helps its investors in this way while also cutting out the need to create development of their platform for things like day trading.

Update: I just got an email from the Transfer team today. They said that started the review process (yesterday) and that today they are starting the transfer. 7-10 days but I assume it will be a touch faster. The account team also reached out today and sent in my small deposits to verify that I was the right person. They did this for both my regular account and my Roth IRA. Both bank connections were smooth as butter.

I will be back to update when I get my accounts set up to see how it puts my Roth IRA account balance to work and we’ll go from there!