Status update of my income account investments vs. regular investments

Some folks have been asking how my income account has been doing overall, especially in comparison to the market. If you remember, I wrote about setting this up back in May of 2017. Using the concepts outlined in Ben Stein’s book “Yes you can be a successful income investor”, I created an account specifically designed to throw off dividends, in an attempt to see if one could create a retirement with this sort of setup. The hope was that the account would throw off sufficient income, and still grow to match inflation.

So how has it done for the last several years? Because it’s an inherited IRA, I have to take money out of it every year, based on my age at the time my father passed away. I will factor that in. I’ll compare the performance to my overall investments in one of my IRAs (which contains a mix of 52.5% stocks, 17.5% REITs, and 30% bonds).

Year Strech IRA Dec Strech IRA Yield Strech IRA Growth % Vanguard Dec Vanguard Yield Vanguard Growth % US inflation rate
2016 $129,811 3.42% 0.00% $262,985 2.20% 0.00% 2.10%
2017 $139,119 3.37% 3.80% $298,748 2.42% 11.18% 2.10%
2018 $136,583 3.62% -5.44% $234,647 3.22% -24.68% 1.90%
2019 $146,994 3.75% 3.87% $273,917 2.33% 14.41% TBD

Overall, the stretch IRA’s allocation of 25% dividend stocks, 25% REITs and 50% bonds have thrown off an average of 3.58% dividends annually, and has grown from Dec 2016 to July 2019 at a rate of 2.50% (pretty much keeping up with the US’s low inflation rate).

The Vanguard account has had a dividend yield of around 2.66% (not too shabby), but due to the bad 2017, it has grown at a negative -3.81% for the same time period. However, its growth over the last ten years has probably put the dividend account to shame. If you look at the spreadsheet above, the Vanguard account beat the stuffing out of the Dividend account in 2017 (and appears to be doing it in 2019)

The question comes down to are you willing to have some “low points” like 2018, to get the higher growth periods, or do you want more stability, where it doesn’t crash as much (compare 2018’s -5.44% drop in the dividend account versus the -24.68% in the Vanguard account!). I’d like to think that you could get by with the dividend account once you hit FI and want to follow the 4% rule, but like most folks, I’m very concerned about inflation. The Weimar republic is a brutal lesson, and the US continues to spend way more than it takes in.

For folks who want to know, here is a quick rundown of my dividend account:

Chevron Corp CVX  $               124.44 50.0
Cisco CSCO  $                  54.73 150.0
Healthcare Realty Trust HR  $                  31.32 250.0
Hospitality Properties Trust HPT  $                  25.00 300.0
Ishares Preferred PFF  $                  36.85 455.0
Realty Income Corp O  $                  68.97 100.0
UMH Properties Inc UMH  $                  12.41 600.0
Verizon VZ  $                  57.13 100.0
Vanguard Total Bond Index VBTLX  $                  10.93 2984.6
Vanguard Int-term Bond index VBILX  $                  11.70 2802.4

Hopefully, this is useful to folks. I’ll continue to monitor in the years ahead and provide regular updates.

Have a great summer!

Mr. 39 Months

Mid-Year Update: July 2019

July 2019

Well, its early July, halfway through the year, and a perfect time to compare my goals for 2019 to what I’ve actually done, both financial and personal/other. A lot of folks don’t like to do this sort of thing, but as an engineer and amateur financial junky, I actually love taking a look at these sort of things. Even when I’ve had a bad quarter (or bad year) I like to look at the numbers and see what my situation is, and the future outlook.

Ok, I’m a numbers geek.

So how am I doing in comparison to my goals for 2017 (the ones that I listed on April 30th)?

My Goals for 2019 (some financial, some not):

  1. Put in $75,000 in tax-advantaged accounts throughout the year. Grade A. I have put in over $55K this year so far, and I am on track to put in close to $80K by December.
  2. Put in $5,000 in regular accounts: Grade A. Took my rollover from my inherited IRA and put that into my brokerage in first quarter.  
  3. Increase dividend income from our investments to $27,000/year (and reinvest them): Grade B. I have $13,298 in dividends so far this year. Going to be touch and go to see if I hit this, but I usually get a big dividend “bump” in 4th qtr.  
  4. Get Passive income up to 40% of living expenses: Grade C. I am currently at 36.9% with dividends vs. an assumed $72k annual spend. To hit the goal I have to hope for some major dividend payouts in December.  We do continue to keep our living expenses low, though we did have to spend some money on home repairs which bumped it up a bit.
  5. Beat at 6% growth rate on our net worth: Grade A. With the market upswing, we are hitting this out of the park. Looks like we might go as high as 10% increase for year, which will make up for the poor showing in 2018, where we actually lost net worth.
  6. Continue attending local real estate investment association meetings, to learn about and begin preparing for real estate investing in 2018: Grade F. I chose to discontinue this, as I was not looking to do any investing like this in the near future, and wasn’t gaining a lot of knowledge from the meetings at this time. May revisit in the future.
  7. Double number of Blog visitors from 2018. Grade D. I had 6,000+ visitors in 2018, but only 4,100 visitors so far in 2019. Not sure if I’ll hit 12,000
  8. Write/Publish HS graduate book. Grade F.  I have only written 2 additional chapters in 2019. Other things have jumped onto the radar, keeping me from working on this
  9. Fitness: Increase weight lifted by 10% over the year. Grade D. Due to work trips, vacations and other life instances, I haven’t been able to push beyond my current lifting level. Need to concentrate on this.
  10. Average 2 hours of cardio each week. Grade F. Still only averaging around 1 hour.
  11. Take part in at least one long bike ride: Grade n/a. Maybe will do MS bike-a-thon in September
  12. Backpack over 100 miles on Appalachian Trail. Grade C. I have done about 81.5 miles this year, and unfortunately, it doesn’t look like I’ll be able to do any new miles this year. The problem is that I’ve done all the trail within a 5-hour driving distance, so any additional miles are difficult to do for a weekend. May have to cut my goals for 2020 and beyond till I retire
  13. Continue volunteering at Pennsbury Manor: Grade A. Been going fairly regularly
  14. Reduce weight by 20 lbs from Jan 2018: Grade F. Haven’t lost any weight. Any weight lost during backpacking has been gained back
  15. Read at least one new book each month: Grade A. Five books in 2nd qtr. Going to read a lot more later this month at the beach
  16. Visit one national park. Grade n/a. Haven’t visited one yet. May visit the Smoky Mtn park in October.
  17. Visit Family in TN/VT/NY: Grade A. I’ve visited NY and TN so far, and plans in place to hit VT in August and TN again in October.
  18. Weekend at the beach: Grade A. Visiting the beach this month for a week. Hope to spend time relaxing instead of having a frantic, running from site-to-site vacation (our typical one)
  19. Visit Ellis Island: Again, job situation hurt this. Have never been to Ellis Island, so may try for this.
  20. Go on an international trip. Grade n/a. Wanted to do something bigger this year, but Mrs. 39 months job situation killed chances for larger trip.
  21. Visit Asheville area: Grade n/a. Plan is to visit in October. This is a potential retirement location, so this is more research.

So in looking at this, I think I am tracking well for the first half of the year. Still got some work to do (especially in terms of personal fitness).

How were your first six months of 2019?

Mr. 39 months

It still appears the 4% rule is valid

It still appears that the 4% rule works out, based on a recent review of Kiplingers

The article provides a lot of “qualifiers” and notes that this is a backwards looking analysis (i.e. its looking at past performance, and you can’t guarantee it will work). Still, the original 4% analysis done by William Bengen, covering a wide range of 30-year periods, including the great depression.

From Investopia: “The 4% rule was created using historical data on stock and bond returns over the 50-year period from 1926 to 1976. Before the early 1990s, experts generally considered 5% to be a safe amount for retirees to withdraw each year. Skeptical of whether this amount was sufficient, financial advisor William Bengen conducted an exhaustive study of historical returns in 1994, focusing heavily on the severe market downturns of the 1930s and early 1970s. Bengen concluded that, even during untenable markets, no historical case existed in which a four percent annual withdrawal exhausted a retirement portfolio in less than 33 years.”

My personal opinion is that the 4% rule is still valid, and you can probably go 4.5% or even 5% if you are sure to invest in equities.

What is your opinion?

Mr. 39 Months

Re-balancing: make it regular and timely

Its July, and as folks know, I tend to re-balance on a time schedule (ex. Every six months) versus on a percentage “out of balance” where you check your investments and when they are a certain % out of whack, then you re-balance.

African elephant female and her baby elephant balancing on a blue balls.

If you remember, I wrote about re-balancing back in January, and there, I ended up selling off my bonds (and some REITs) who had been more successful (or less sucky) than stocks. The result was that I sold high, and bought stocks at basement prices. Since then, stocks have shot up dramatically, and the result has been some accounts out of balance again.

By rebalancing now, I can sell off some stock winners when high, and buy some bond/REIT losers.

My standard allocation is:

  • 30% Index Bond funds
  • 17.5% S&P 500 Index
  • 17.5% Small cap Index
  • 17.5% International stocks index
  • 17.5% REITs index

When I reviewed my numbers, I found that my S&P500, International and Small Cap stocks have shot up, and the bonds/REITs have not done as well. So I’ll be selling off about $11K in stocks and re-investing in bonds, mostly in my TRowePrice accounts. Plan is to do that work this week, so its done by early July.

Remember to consider rebalancing, so you can “buy low and sell high” yourselves.

Have a great 2019!

Past Posts on Re-balancing

Mr. 30 Months

What, I go away for a week and the market explodes?

Talk about “stay away from May” and ignoring the market! Actually I think the phrase is “Sell in May and go away” and reflects the idea that the period Nov-April has significantly stronger stock market growth than other months. I guess it has a small point. If you sold the S&P 500 on May 1, it was at $2,923.73. At the time of this writing, its at $2,957.15 – only up 1.14% in 2 months.

Still, this smacks a great deal of market timing, and there is no guarantee (either way) that the market will stay frozen from July 1 – Oct 31. We will see. For me, June was a tremendous “up” month, and we are back to pushing new records in the US market. I’ll keep my skin in the game and my money on the table, and see what comes up. For the year, I am up 13.0% for the year, and 3.93% for the month of June alone.

Only 12 Months to go to FI! One year left!

Retirement Accounts: Remember, my allocation for these is:

  • 30% Bond Index Fund
  • 17.5% S&P500 Index Fund
  • 17.5% International Index Fund
  • 17.5% Small Cap Index Fund
  • 17.5% REIT Index Fund

For the month, I am up about +4.4%, erasing all the negative of May. The rally was widely based, with every asset class going up somewhat. The items in my allocation that help to even out the stock swings (REITS and bonds) were up, but not as much as the stocks. They did what they were supposed to do, and continue to “balance out” the portfolio

  • S&P500: +7.0%
  • Small Cap: +7.0%
  • International: +5.8%
  • Bonds: +1.2%
  • REITs: +1.7%

My 401K/Deferred account at work is up a similar amount, and came in at around +4.4%.

Dividend Income Account: Allocation:

  • 25% Dividend Stocks
  • 25% REITs
  • 50% Bond Index Funds

This is up 1.2%, and the dividend stocks are what really drove it up (Chevron rose 9.3% alone). My individual REITs suffered, which drove down the overall performance (as did the 1.1% growth in my bonds, which are 50% of the overall allocation. I think I’ll do some more in-depth study of the dividend portfolio in a later article this month – to see if I’ve learned enough to move on.

Value Investing Account: My value investing portfolio is up around 7.2% for June, erasing the down month I had for May. I found a new ETF I want to pursue, aimed at pet owners and companies that support them. Its sticker symbol (no kidding) is PAWZ. I bought 25 shares in June, and its up 1.9%. I figure with so many people having pets instead of kids, this could be lucrative. I’ll probably buy some more and see how it goes.

Again, I’m up 13.0% for the year, which equals about $126K in returns – for just the first six months. Its more than Mrs. 39 Months and I made in salary for the first six months, which is a good sign. We are on track and moving forward – as I hope all of you are.

Mr. 39 Months

Longevity – how do you predict how long you will have to pay for retirement?

The retirement answer man podcast has been talking about longevity this month, with lots of useful information in it. As part of that, they mentioned and interesting link to a website and calculator – the Living to 100 calculator.

The calculator uses a series of about 40 questions to get a good baseline on how much longer you will live, based on current actuarial tables and risk factors. Filling it in takes about 5-10 minutes, and then you will be able to download a readout that provides your expected life expectancy, and (based on your answers and current science) ways that you could extend that expected lifespan (like visiting the doctor annually for a checkup, regular flossing, diet, etc.).

It is actually cool, with some interesting results based off it. Obviously, it cannot take into account a lot of your genetic makeup (the area where they are making tremendous steps in extending life). I thought it was useful, and it does show me some of the things I could do in order to further extend my life. As many of you know, I am shooting for 97, where Mrs. 39 Months and I will celebrate our 75th wedding ceremony. I am not too worried about her hitting 99, as she has a lot of longevity in her family (aunt hit 102 before she passed, etc.).

Right now, my life expectancy is 86 years old (31 years from now). Things I could do to extend my life (in years):

  • + 0.5 You noted that you do not manage your stress as well as you could. Do a better job and you could add half a year to your life expectancy
  • + 0.75 Brain strengthening activities can help you delay or escape memory loss and perhaps Alzheimer’s disease. While you are already doing some, increasing your frequency of brain-challenging activities to twice a week could add three-quarters of a year to your life. Lifestyle
  • + 0.25 Moving to a place where the air quality is better could add a quarter of a year to your life
  • + 1.0 Minimizing or cutting out your caffeinated coffee consumption completely could provide you with about a year more in life expectancy
  • + 1.0 if it is ok with your doctor, taking an 81 mg aspirin every day improves your heart and brain health and could help you delay or escape a heart attack or stroke. Taking an aspirin each day, preferably in the evening, could add 1 year to your life expectancy.
  • + 0.25 Ultraviolet rays present in sunlight and tanning beds greatly increase your risk of skin cancer, including melanoma. They also increase wrinkles. You are already providing some protection for yourself. Further minimizing your sun exposure could add a quarter of a year to your life expectancy
  • + 0.5 There is a clear link between the inflammation of gum disease and heart disease. Do a good job of flossing daily and you could add half a year to your life expectancy. Nutrition
  • + 1.0 Getting your weight down so that you are no longer overweight could add an additional 1 year to your life expectancy
  • +0.25 The more you can get fast foods out of your diet the better. While you are already doing a pretty good job of doing so, completely removing fast foods from your diet could add a quarter of a year to your life expectancy
  • + 0.5 Osteoporosis (brittle bones) is a terrible disease that becomes more common with older age. Among the important ways to prevent osteoporosis, it is important to have adequate amounts of calcium in your diet. Add more dairy products to your diet or take 1500 mg of calcium a day. Doing so could add a half a year to your life expectancy.
  • + 0.5 You are already making an effort to cut back on your carbs. Further cutting back the carbs in your diet (basically anything white and French fries) to a serving every other day could add half a year to your life expectancy
  • + 1.0 Iron is likely an age-accelerator and increases risk for age-related diseases. Stopping your iron supplement could add a year to your life expectancy
  • + 0.5 Being more active in your leisure time, other than exercising, could add half a year to your life expectancy
  • Medical
  • + 0.75 Examining yourself for cancer could add three-quarters of a year to your life expectancy
  • + 1.0 Increasing your good cholesterol (called HDL cholesterol) to a normal or even higher level could increase your life expectancy by a year
  • + 0.25 it is wise to keep a record of your laboratory tests and other health data that might be hard for you to remember. Doing so could add a quarter of a year to your life expectancy.
  • + 0.5 Decreasing your systolic blood pressure (the first of the two numbers) to 120 or even lower could add half a year to your life expectancy
  • + 0.25 Decreasing your diastolic blood pressure (the second of the two numbers) to less than 80 or even lower could add a quarter of a year to your life expectancy

That is a total of 10.75 years – which gets me right around 97!

Not sure I will do all of them, but it gives you ideas on things to do to help! With medical science making improvements all the time, this is only the beginning.

Do you have your emergency kit setup?

The FIRE community is very big on self-sufficiency and taking care of yourself, not just financially, but with a host of other things. Some folks have embraced farming (Frugalwoods, etc.), some energy independence (solar, wind, etc.), others have embraced RV/small home living. I have written before about farming/growing your own food. We all seem to want to reduce our living expenses/effort and to reduce our footprint on the planet. It is a noble goal.

Well as June starts to wind down and July starts to hit, Hurricane season starts in the Eastern US. Depending on where you live, this could be a minor, or a major cause for concern. In May I traveled to Texas, during my time there, they had torrential rainstorms, and a tornado touched down about 12 miles from where I was. The Midwest has been having severe flooding, and of course, the state of California is always trying to kill you (wildfires, earthquakes, mudslides, etc.). If we are concerned about self-sufficiency, we also need to be concerned about how we handle ourselves with life’s emergencies.

Most folks do not realize that FEMA (US Federal Emergency Management Association) states that folks need to be prepared to take care of themselves for the first 72 hours of an emergency. This makes sense, as it takes time to get the emergency machine in gear and materials on site. I will not forget when hurricane Sandy hit the New York/New Jersey area. We had several days’ notice, but some folks decided to stay in their homes, and there were people who 12 hours after the storm passed were on TV complaining that they did not have any food, any power, any gas, etc. What were they doing for the 2 days prior to the storm hitting?

You owe it to yourself to be prepared for things that might pop up. The internet and numerous books are full of information on what to do in survival situations, but I thought I would cover a few.

Things you will need to plan on

  1. Ways to stay warm. If your body drops below a certain temperature, you die – plain and simple. Depending on where you are, you will need to plan to either stay in place/living in your current domicile, without power for heat. If you have to flee, you will need blankets or sleeping bags, and a structure (car, tent, etc.) to live in.
  2. Water: So much of our world revolves around this liquid, and many people are unaware. Not just to drink, but to prepare meals, wash dishes and clothes, and to flush the toilet. If you are going to stay in place, before the disaster hits, fill your tub (the one you shower in) with water. You can use it to drink, wash and flush. If you have to leave, make sure you bring plenty of water for drinking/sanitation purposes. Estimate a minimum of a gallon per person, per day.
  3. Food: Stock up on non-perishable foods (i.e. do not have to be refrigerated). Assume you will lose power, or will not be able to refrigerate on the road while fleeing the scene. Plan to be able to subsist for at least a week. Have an alternative way to cook. Mrs. 39 Months and I have a camper stove that works on both propane and unleaded gas.
  4. First Aid Supplies: You probably cannot plan for everything, but basic first aid kits (for bumps, bruises, minor injuries, etc.) will be necessary. One thing many people forget is to make sure they have sufficient supplies of the medicine they need.
  5. Other: Do not forget your pets for supplies (food, water, medicine) as well as for warmth and transport (pet carriers) if you have to flee. In addition, toys for the kids and anything else you might need to help keep everyone calm.

Again, the internet is full of ideas on how to deal with potential issues. Take the time to do some basic preparation, and you will feel a lot better in the months ahead, as the news tries to scare the dickens out of you.

Mr. 39 Months

Investment update for June 2019

Only 13 Months to go! Two-thirds of the way there from where I first started the blog.

The market definitely took a downturn, with trade issues and recession discussions causing concerns with investors (can you say “Inverted Yield Curve”). Like so many of us in the FI community, I’m ignoring these issues and just continuing with the plan – investing as much as I can (around 50% of gross pay) and keeping my allocations. I’m up a decent amount for the year, even if the month of May wasn’t that good to me, so I continue to “plod along” as I close in on FIRE.

Retirement Accounts: Remember, my allocation for these is:

  • 30% Bond Index Fund
  • 17.5% S&P500 Index Fund
  • 17.5% International Index Fund
  • 17.5% Small Cap Index Fund
  • 17.5% REIT Index Fund

For the month, I’m down about -3.6% (ouch!). The big losers were the S&P 500, Small-cap and international – the same funds that have been going like gang-busters for most of 2019. The two underperformers in 2019 – Bonds and REITs, were up, which is further proof on the benefits of allocating and rebalancing.

  • S&P500: -6.4%
  • Small Cap: -7.2%
  • International: -5.5%
  • Bonds: +1.8%
  • REITs: +0.1%

My 401K/Deferred account at work is up a similar amount. Since it doesn’t have REITS, it performed a little worse (-4.5%) for May, but it also has performed better for 2019.

Dividend Income Account: Allocation:

  • 25% Dividend Stocks
  • 25% REITs
  • 50% Bond Index Funds

This is up 0.1%, primarily because I am so heavily weighted in bonds and REITs. The dividends they throw off are nice, but at times, they just don’t grow much. My dividend stocks (Chevron, Verizon, etc.) were down more. I continue to use this to learn/experiment with dividend investing, so I’m not too disappointed.

Value Investing Account: My value investing portfolio is down around 7.0% for the month of May. Since its 100% stocks and stocks got beat up in May, I understand. Its done well for the year so far, so no major changes here.

So for the year so far, I’m still up, about 8.94%, and I have put over $42K into the accounts since the beginning of the year. On track to put about $75K for the year.

How was your May?

Mr. 39 Months

Book Review – The Happiness Trap by Russ Harris

This book was recommended (and purchased for me) by Mrs. 39 Months. Followers of the blog may have noticed a little manic/depressive streak in some of my writings. While I have often chosen to take the happy road in life and avoid unhappy/depressive thoughts, I can get into a “funk” at times. I also have quite a temper (inherited from my Dad’s side of the family) that was probably pushed further when my parents got divorced when I was very young. Now, any time that I (or both of my siblings apparently) feel things are not in their control, we tend to go bezerk and overreact. My younger brother has broken things, as have I (and I suspect my older brother has as well). This also leads to some very aggressive driving at times, which is not good for anyone.

Mrs. 39 Months has been tolerant at times, though she has often expressed either concern or anger at how I overreact. I assumed this was why the book was purchased.

The general thesis of the book, however, is that the desire to be happy all the time is not only impossible, but also fly’s in the face of our natural selection process. The humans that survived were the ones that were cautious, careful, and who assumed the worst (and were surprised when it worked out). Those who assumed things were good when they were eating the berries got an unpleasant surprise when the lion jumped out and ate them.

Thus, we have been bred to plan for the worst, to look out for potential pitfalls, to worry, and to make plans to overcome problems/issues in case they pop up. That is why it is impossible for us just be happy for any extended time. Strike any bells for those FI people who have retired?

The book has three parts:

  1. How you set the happiness trap: Goes through the reasons we can’t “just be happy” and how we smack ourselves around when our natural instincts get in the way of just being happy
  2. Transforming your Inner World: Detailed steps on how to deal with unhappy thoughts and feelings. Here the author uses Acceptance and Commitment Therapy (ACT) to show how, instead of suppressing your unhappy feelings and worries, you can allow them to exist and to work with them, and continue to work towards your goals. There are over 23 methods discussed, and the author urges you to try them and go with the methods that work for you
  3. Creating a Life worth living: A series of exercises that will be very familiar to FIRE folks. The exercises help you identify your values, set long and short-term goals face fears and move on towards a meaningful life.

I have to say, after reading through it, I identified many of the issues that kept me from being happier and moving towards my goals. Following some of the methods in chapter 2, I have been able to come to terms with my anger and let a lot more “roll of my back.” It has been very helpful and Mrs. 39 Months has noticed the difference.

I am just starting to dig into the third part (I have read it, but have not done any of the nine exercises yet). Looking forward to seeing how matches up with some of the work I have already done.

I would rate it an A, and a good book for those interested in why they “can’t just be happy.”

Mr. 39 Months