Freedom Fund Update – June 2013

Well, the time has come to update the Freedom Fund once again as we start another month. The Freedom Fund is my portfolio, and I think it’s aptly named. My portfolio is my way to freedom; freedom from a job I don’t desire to purchase goods I don’t need to impress neighbors I don’t care about. This journey is all about freedom and flexibility. One day the dividend income this portfolio generates will fully replace my day job’s income and my time will be completely my own. What could you possibly want to own more than your time?

I feel extremely fortunate and thankful that I’m able to post these updates every single month which shows the power of monthly contributions to investments because of the high savings rate I maintain. It shows how a relatively large sum of money can be built through the power of time, patience and perseverance.

It’s important to keep in mind that while updating the overall value of my portfolio is important for historical reference and for purposes of keeping track of total return, my main focus is on the rising dividend income stream the Fund provides.

The Fund didn’t have a particularly active May. I just didn’t see that many opportunities over the last 30 days to deploy capital. I do of course believe in purchasing ownership positions in high quality companies through all market cycles and continued that mantra as I made a purchase on the last day of the month. I initiated a position in Realty Income Corp. (O) during the last two minutes of trading on the last day of the month of May. It wasn’t pretty, but I still put a little capital to work for myself into what I believe is a high quality company trading for a fair price. This holding provides a very attractive entry yield in this rather expensive market (4.78%), and also provides monthly dividend income which I can use to reinvest back into the Fund via further ownership stakes in wonderful companies.

The current market value of the Freedom Fund stands at $112,842.62. This is an increase of 2.1% over last month’s published value of $110,508.00, which is rather low due to the the simultaneous effects of a less active month (in terms of purchasing equities) and a rising fund value. The larger the value of my fund, the harder it will be to make meaningful impacts to the value in terms of percentages. This increase was mostly due to the fresh capital infusion, with which I used to make the purchase I listed above.

I’m excited for what the next month brings us. The market took a nice tumble on the last trading day of May, and some are speculating this may be the start of something larger. Who knows? I know I certainly don’t. I only know to focus on the things I can control: ignoring all the noise out there and sticking to what I’ve been doing over the last three years.

I’m currently invested in 33 companies. This is an increase since last month as I initiated a new position as discussed above.

These updates are mainly designed to show the increase in the value of the underlying equities I’m invested in, but the main purpose of investing in dividend growth stocks is for the rising stream of dividends over time. So with that said I don’t put too much emphasis on these monthly updates on the value of my portfolio. I think it is a good idea, however, to keep track of the rising (or falling) value of one’s securities and be aware of where they are in terms of the marketplace and whether or not certain stocks are attractively priced. It proves to be a useful exercise, for me at least, to update the values monthly. It gives me fresh perspective on which equities are performing well and which aren’t, and from there I can make educated decisions (based on further due diligence) on which stocks I’d like to add fresh capital to (while considering portfolio weight as well).

Full Disclosure: Long O

Thanks for reading.

Photo Credit: Vichaya Kiatying-Angsulee/FreeDigitalPhotos.net 

Comments

  1. Onassis says

    Since March 2011, the Dow Jones has risen from about 12,000 to 15,500 today. This is an increase of about 30 percent.
    This growth is also reflected in your Freedom Fund!

    But if we become a bear market, your Freedom Fund will shrink, because the whole market is shrinking.

    I think that will be psychologically a tough time!

    It may even happen, that your Freedom Fund fall down UNDER 100,000 USD. That will be a very hard time!

    But I’m in a positive mood!
    I want to see 120,000 USD! :-)

    Good luck, Jason!

    Onassis

    • says

      Onassis,

      You’re absolutely right. The growth in the S&P 500 is definitely reflected in the rise my portfolio value. I’m certainly grateful that I started investing when I did, but still wish I could have started even earlier. Earlier is always better. :)

      However, I actually wouldn’t mind at all if the market corrected and my portfolio value fell below $100k. Cheaper shares allows my limited capital to go further and buy more dividend income, which really gets me closer to my goal. My early retirement will not be predicated on a portfolio value, but rather a dividend income tally. That’s what I stay focused on.

      Good luck to you too! And I’ll eventually reach that $120k mark, but if I reach it too soon that means stocks are too expensive. :)

      Best wishes!

  2. says

    Awesome Jason, even considering overall valuation isn’t the primary concern with a DG portfolio! As you have said, I am totally with you on not worrying about the value of the underlying stocks with the exception of wanting them to go down at the moment.

    As an aside, big fan of the late day snag of Realty Income Corp. I have been eyeballing them with the recent drop in price over the last week. We will see what the next week holds.

    • says

      w2r,

      Thanks for the continued support! Appreciate it. :)

      I think O is fairly valued here, but decided to dip my feet in and get a little exposure to real estate. When taking a look at the equity REITs that are dividend growth stocks, O stands out for me. Great tenants and solid management history.

      Best wishes!

  3. says

    Jason,

    You are keeping the eye on the prize. Dividends for the stocks you have, and entry point for cash to be deployed. Wash, rinse, repeat. Good luck. I will be following. Go Freedom Fund.

    • says

      Second Half,

      Wash, rinse, repeat. Definitely! I couldn’t agree more. The road to building real wealth is relatively straightforward, but isn’t quick. It takes patience and consistency, and I hope that these Fund and income updates inspire others!

      Best regards.

  4. says

    Hey DM, another great month of dividend income! Wow $112k is quite impressive, I’m sure I’ve read this before but how much did the you initially start the portfolio out with?

    Cheers,
    CD

  5. Spoonman says

    The dividend income is definitely the focus of the strategy, but as you say keeping track of the principal does bring valuable perspective. It’s no easy feat to cross the century mark, so keeping track of the principal will remind you of that.

    For me, the first 100K will always seem like the most epic part of the battle. It just seemed like such a long battle uphill. Anyway, don’t forget that if they principal takes a beating we will probably be celebrating the buying opportunities.

    • says

      Spoonman,

      Thanks for stopping by. You got it right! Keeping track of the principle, and the individual positions, does help keep perspective.

      I sure hope you’re right about the first $100k being the most difficult part. That’s what everyone says (most famously: Charlie Munger), and if that was the hardest part then I’m on my way. :)

      Let’s hope we get some of those buying opportunities!

      Best wishes.

  6. says

    I think that O was a good addition this month. Kind of a shame that there aren’t more attractively valued positions out there. Just keep pushing forward and making the best investments that you can. I think that you’ll reach your goal sooner than you think.

    • says

      MFIJ,

      Thanks! Glad you liked the purchase. I think O is a very solid company with an excellent operational history.

      I’ll take your advice and just keep pushing forward. I hope we all get an opportunity to deploy some capital this month and continue striving for our goals!

      Take care.

  7. says

    Hi Jason, nice job building the FF.

    Do you mind explaining something to me though? The S&P 500 was up 3% in May, so shouldn’t your FF go from $110,508 + 3% + your $1,600 contribution = ~ $115,000. Just wondering whether something happened or if my calculations are off.

    Thx, Sam

    • Chad says

      Your calculations are off. Since he only has 33 positions and not 500, his rise or fall in value for the month will never be what the S&P does. If he was fully invested in Vanguard’s S&P fund, then yes he should be around 115k. Hope this explains it.

    • says

      Sam,

      You and Chad are both right.

      My portfolio will not completely track the S&P 500, and is not built to do so. However, you are correct in that it under-performed this month. It isn’t that surprising, as I anticipate lagging the broader market when the market is up, and I anticipate doing slightly better when it’s down due to the nature of the companies I’m invested in (and their low beta).

      From the best I can tell, one large factor for my under-performance was my large weighting in Philip Morris International, Inc. (PM). It’s my largest position and didn’t have a great May, and so that affected me. I stopped buying shares a while back, but loaded up as it ran up to $90.

      Hope that helps!

      Best regards.

    • says

      Financial Samurai,

      A dividend growth strategy is going to outperform the market overtime, but not every day/month/year. However, outperforming the market is not going to give you as much comfort as a rising dividend stream will. But to each their own.

      I certainly hope we get lower prices on quality dividend stocks from here as well, as I would likely not have significant amounts to invest until about 6 -8 weeks from now.

      Dividend Growth Investor

    • says

      DGI,

      Great thoughts there. If I wanted to match the S&P 500 lockstep I would simply invest in an index funds that aims to do so.

      My goal is not really to outperform the S&P, but rather to build a large stream of dividend income that rises at a rate that outpaces inflation to a comfortable degree, while still receiving a satisfactory total return.

      I share your hope for a drop in the broader market and the valuations on some of the high quality dividend growth stocks we both track. I’ve noticed a significant dip in REITs and so that’s where I’ve focused my attention lately, but am excited to seek out even more high quality opportunities as the prices warrant.

      Best of luck out there!

      Take care.

    • says

      Makes sense Jason. I guess I have a different investment philosophy than you as I’m looking for principal outperformance in my younger years (20-45ish) and then lower beta, dividend stocks.

      Let’s say you get a 3% dividend yield, even if you have a $500,000 portfolio, it’s hard to live off $15K/year. And the problem is getting to $500,000, $1 million, $2 million in the time frame you are looking for via established companies which are not reinvesting in their own business.

      For example, this past May I invested in Chinese internet stocks with no dividends. But the investment returned 10% or $40,000. To get $40,000 in dividends on my IRA portfolio would take about 3 years at a 3.2% clip as my IRA is only about $440,000. Of course the dividend stocks can also go up during that time period, but so will my non dividend stocks potentially so that factor is canceled out. And of course my stocks can and will lose money as well. My IRA isn’t even my primary equity investment account b/c for 13 years it was boxed in my company’s 401k with set funds.

      Something to think about as you’re still young, if you believe in the stock markets at these levels, and if you want to build your nut sooner.

      Sam

    • says

      Sam,

      When you buy dividend growth stocks yielding 3%, you are also going to get capital gains as well. Your total return is not limited to the dividend.

      If trading Chinese Internet Stocks works for you, that’s great. I hope you are achieving your goals and objectives.

      Best Regards,

      DGI

    • says

      DGI,

      I definitely agree with the “whatever works for you” attitude. Different folks have different risk tolerances, capital, etc.

      Can you share your story about your portfolio size, experience, years left for work etc to gain more perspective? I left a comment on your site, but I think it’s in spam.

      Thanks,

      Sam

    • gibor says

      Chad, if DM hold 500 S&P500 , return wouldn’t be like index anyway :) as he shoudl’ve held excatly thae same $$$ in every of 500 . To have this index performance (minus MER) , he needed to hold only 1 equity = SPY :)

    • says

      Sam,

      Well, you have to consider risk in the risk/reward relationship. Certainly there is the chance for outsized returns on, say, your Chinese internet stock. But there is also incredible risk there as well. I take capital preservation very seriously.

      I consider myself actually as an “older” investor because my journey to retirement is only 10 years away. So, my investment philosophy might actually match someone that’s 55 years old better than a typical 31 year-old. I could take huge risks to grow my capital, but if I suffer a major loss I don’t have a lot of time to catch up before I hit 40.

      If I actually had 30-40 years before retirement like most folks my age I might be more inclined to take some capital on the side and see what I could really do with it, but I prefer the slow and steady approach because I need to live off the dividends my capital investments provide in less than a decade.

      Hope that clears things up a bit.

      Best regards.

    • says

      DM and myself invest very similarly. The only exception is that I drive a car and do not live in sunny Florida.

      All jokes aside, i think he has a good point about risk – it is not volatility as a risk but permanent capital loss that could ruin/postpone retirement.

      Btw Sam, I responded to you on my site with the question you asked there ;-)

    • says

      DM – Can you remind us of your target nut and income stream by 40 again?

      I understand the conservativeness as a person about to retire in 10 years, but take it from a guy who is already retired and went through the various strategies and math.

      If you’re focused on dividend investing with a $110,000 portfolio with only 10 years to go, it is going to be very hard to build a sizable nut to live off the income . Your income has to either go way up to save more absolute dollars, or you’ve got to go farther on the risk curve.

      Let’s forget a $500,000 portfolio in 10 years and say your portfolio grows to $1,000,000 from $110,000 with $100,000 a year gains from savings and returns every year. I think you can probably get to $1 million in 10 years given that’s what it seems like most people here have done. However, With a 3% dividend yield, is $30,000 a year enough in future dollars (maybe $25,000 in today’s dollars)?

      Just trying to help you do the math here as it’s chicken or the egg. I think dividend investing is GREAT. But there has to be enough capital behind it to make the income worthwhile. I think you’ll enjoy my post on Friday about this subject.

      Cheers,

      Sam

    • says

      Sam,

      Well my target passive income stream right now is about $20k in today’s dollars. That would require somewhere around $500,000 at my current portfolio’s yield to sustain an annual payout like that without having to sell any positions.

      I don’t think it will be that hard to get to a portfolio/income stream of that size within 10 years. I just used a quick compound interest calculator and assuming $30,000 in annual additions and a modest 6% rate of return I get to about $625k in 10 years. Taking it down to 9 years (I’ll be 40 in 9 years) gets me to $560k. I think if I’m able to keep my current savings rate I’ll get to where I need to be.

      Again, the thing to keep in mind is that my means and your means may be quite different. My lifestyle requires very low overhead and so due to that I don’t need to invest very aggressively. I can be very conservative in my investment decisions and assumptions because I’m so aggressive on the savings side. And I can be aggressive on the savings side because of my aforementioned low overhead. And I know I can live comfortably on less than $20k/yr because I’m doing it right now, happily.

      Hope that helps!

      Best wishes.

  8. says

    Sounds like you had another great month. I’m with you on the fact that the market seems to be a bit overpriced. With the S&P up over 15% already this year it’s tough to find much value in stocks. That being said, if you are in it for the long haul then you’re still better off investing rather than holding.

    • says

      Jake,

      Definitely tough to find value, but those of us who are aiming to one day live off our passive income have to continue to find ways to invest fresh capital and get it working. It’s tough, no doubt about it.

      I take solace in the fact that I know that many of the companies I’m buying today will be worth much, much more than they are today and so small fluctuations in the short term don’t really bother me.

      Stay focused and have fun!

      Best wishes.

  9. says

    This is my favorite series you write. I don’t know why, but I find your approach very inspiring. It makes financial freedom feel so attainable! It’s good to not obsess on the total portfolio value and stay focused on the income, but I do like that keeping an eye on that number gives you great perspective. I love watching this fund grow!

    • says

      Pretired Nick,

      Hey, glad you like the Fund updates! I enjoy writing them. :)

      Thanks for the kind words and the support. Very glad to have it. I hope that you continue to reach all of your goals too!

      Best regards.

  10. says

    I agree there aren’t many opportunities in this market so saving up some cash is probably a good idea. I haven’t done a lot of research into O but I do like their history. I just wonder what will happen as interest rates start to rise. They already seem to be trending higher. Anyways, great month and keep up the good work!

    • says

      All About Interest,

      Definitely not many compelling opportunities right now. I’m doing my best to deploy cash selectively and make the most of it. We’ll see how it goes.

      I’m not sure about interest rates. I try to refrain from trying to predict such things (when they will rise, by how much, what will happen), and rather try to focus on the quality of the business and the likelihood that they’ll continue to produce appealing results. O has operated in environments with much higher interest rates and delivered great results, so we’ll see!

      Keep up the great work!

      Best wishes.

  11. gibor says

    DM, just checked your holdings… not surprisingly I hold 13 out of those 33 …
    As far as I remember, you mentioned that you almost fully invested in Canadian banks….but you have just 2.6% + 3.2% WFC… Don’t you think it’s light? In Canada every dividend investor has pretty heavy allocation in Canadian “big 5″ …
    Also was surprised to see that your allocation to telcos very small. btw, have you been checking BCE and RCI? – both have nice yield and div. growth….

    P.S. Today had 2 limit buys for CVX and SO (don’t have exposure to US utilities at all, and this one looked good), but nothing got executed….maybe later this week.

    • says

      gibor,

      I don’t think I quite said I was fully allocated to Canadian banks, but rather fully allocated to the financial sector (I have holdings with AFL, WFC, TD, BNS). I don’t want to go too crazy with this sector, as it has a history of blowing up every generation or so.

      I looked at BCE and RCI. I posted an article on some Canadian companies a while back. I love RCI’s assets (very diversified, especially with the sports ventures), but they have a very high debt load. The debt turned me off. BCE looks okay. Great entry yield, although the dividend growth is very erratic.

      My allocation to telecoms is low because they are basically a commodity at this point. A lot of competition and very capital intensive. There are really few competitive advantages at all, so I like to keep a low allocation. I do own VOD and T in this space.

      Good luck with CVX and SO. I think CVX is pretty attractive here and SO has come back down to earth over the last month or so.

      Take care!

    • gibor says

      Not really true regarding Canadian banks, I read that they didn’t cut dividends since WWII.
      I personally hold 2 telcos: T.N, RCI.B, BCE. What I like about RCI and BCE -> low PE ratio – both less than 15, low payout ratio and nice dividend growth… BCE last 3 years increases dividends twice per years, RCI once per year , but by double digits.
      ….and I don’t agree with you that they are “commodity” , I think they are “utilities” :)

    • says

      gibor,

      My main concern with Canadian banks is the Canadian real estate market. There has been some compelling evidence that you guys are in a bubble up there. Now, I’m not usually inclined to pay much attention to macroeconomic events and so I still like the banks, but that does give me pause from taking big positions in any bank.

      As far as telecoms being a utility, that’s true. They act very utility-like in that they provide a service most people “require”, have lines that run right to most homes, are heavily regulated and also have intensive capital needs due to infrastructure (usually higher debt loads as a result).

      However, they are also like a commodity in that there is nothing keeping one from switching to AT&T from Verizon or visa versa…or switching to Sprint. They offer a service that has been basically turned into a commodity. There is nothing inherently “better” about one service or another. It’s simply who can offer service in one particular area for a cheaper price. It’s not like you like Coca-Cola better than Pepsi or your employer sticks with ADP because of high switching costs. Hope that clears it up a bit!

      Best wishes.

    • gibor says

      DM, yeas, I’ve heard about REIT bubble in Canada, but hope it won’t happen… we don’t have sub-prime mortgages, to get mortgage was always uneasy here…. also banks in Canada very strongly regulated by the government… yes, home prices rose pretty goog here, on the other hand (my personal example) – we bought our house 13 years ago fro 240K, now it cost around 500K – increase 100%, but in 13 years … so just 7% annual increase, OK , not bad, but “bubble”? I don’t know.
      Regarding telcos…yes, everyone can switch from AT&T to VZ and vice versa…, than hold both stocks and you in win-win situation…. people cannot live without those utilities anymore….
      Nor sure about market in US, but in Ontario (the biggest province) we have practically monopoly of RCI and BCE (Telus here is pretty weak)… every year Canada gets 250,000 new immigrants (with 31 mil population), majority going to live in Ontario and everyone will need Internet, cellphone, Cable etc… switching from BCE to RCI?! no problem…. I hold both…
      Also don’t agree with about price…. for better and more reliable traffic , I’m willing to pay a little bit more.
      BTW, imitiated small CVX position today at $122.50

  12. Anonymous says

    my dad was born in 1905 he did what you are doing he told all us kids to do what he had done he was a school teacher and made about $30500 in todays dollars because of investment income (dividends) he put all 6 kids in collage and we all have a degree.he gave us all a car at 16 as well it was dividends that did it. I tell you this to tell you it works he started it in 1915 and it still works today

    • says

      Anonymous,

      Great story there! Glad to see your dad had a plan and stuck to it. Putting 6 kids through college and taking care of a family is a big feat on a modest income like that, so I’m guessing the investment income helped out quite a bit.

      It helps to start early and be consistent.

      Thanks for sharing!!

      Best wishes.

    • says

      Gareth,

      Seeing the balance go up is psychologically appealing, but seeing the fund value go down means there are probably attractive opportunities ready for the buying. I guess I win either way? :)

      Thanks for the support. I hope your road to freedom is proving to be extremely fruitful!

      Take care.

  13. Anonymous says

    Love this blog. Before you bought O did you look at NLY. Thinking I’m going to buy more if/when a dividend cut happens. Just curious if that was on your radar and if not why? (with that said I do like O just don’t want too much REIT, I own NLY)

    PS-also love the comment above about the dad putting 6 kids through college. My Step-dad has gotten me into Dividend investing and can relate to that comment.

    PSS- also I would love a blog post on your top 5 “watch stocks” those that are high on your radar. I know we get alot from the comments but I think that would generate alot of discussion.

    -Jersey Jerry

    • says

      Jersey Jerry,

      Glad you enjoy the blog! I hope you stick around and I continue to provide content you enjoy. :)

      As far as NLY, I do not invest in, or like, mREITs. There is typically no dividend growth history to speak of (usually cuts instead, as NLY did recently) and the returns are dependent to a great deal on interest rates. I’m no expert on this stuff so I stick to what I can understand. I like equity REITs because they actually own physical buildings and lease them out to high quality tenants. It’s old school stuff that I know makes money. I like keeping it simple.

      I do like to post watch lists and will usually post one at the end of every month titled “What Are You Buying?”. I’ll try to get one out this month. :)

      Stay in touch!

      Best wishes.

Join The Discussion!