Generating Consistent Income From Investments

One of my accounts (Da Vinci, 2 Units) is an HSA account. I want to invest these funds in a way that they generate consistent income so that I can use the income to fund small medical bills. So far, I have relied on JNK for the purpose - a nice 6.7% yield. However, dividend payouts in JNK has been dropping every month; there is talk of a bubble in junk bonds - and I think I am losing the opportunity for capital growth by keeping JNK long term. So I want to diversify my holdings here.

I have four constraints while diversifying here. First - I would like to get some emerging markets exposure since I think I am under-invested in emerging markets currently. Second - I would like to get some real estate in the mix since right now I don't have any. Third - I would like all assets in this account to be high yield with preferably monthly dividends. Lastly, to avoid trading costs, I would like to only include ETFs from TD Ameritrade's commission free ETF list, as far as possible.

After searching far and wide - this is my tentative list:

1. JNK - nothing beats the high yield and monthly payout. I will reduce the size of this holding significantly and focus on building it back up using dollar cost averaging so as to minimize capital risk.
2. RWX - International real estate. Very high yield (6.49%) and emerging markets plus REIT exposure.
3. DEM - International dividend paying stocks. This is not part of TD's commission free ETFs - so I would make a one time significant purchase of DEM and then let that be.
4. VYM - US dividend paying stocks.

I will start by re-allocating my portfolio to have JNK 10%, RWX 10%, DEM 40% and VYM 40%. Any dividend will be pushed into JNK or RWX, unless they are needed for current medical bills. Holding in DEM and VYM will be left along for long term portfolio. VYM will be sold first in case of larger medical bills (no-commission) and DEM will be the last to be sold, if needed.

I think this is a good plan. I will implement is around end of the month when JNK moves out of the 30-day window for commission free trades.

Today's art is another of Rome's spectacles - The Trevi Fountain - a sight to behold, especially at night.

HSA Account Fees - Horrible!

I like HSA Accounts. They are great for saving taxes and paying for essential medical services with pre-tax money. I have an HSA Account - Da Vinci - and I have a good bit of money there - 2 Units at the last Taking Stock post.

Now the problem - LGB (Little Grey Butterfly, AKA my spouse and partner-in-crime) is no longer employed at the company that had the kind of insurance plan required for HSA. So we can't make HSA contributions any more. Fine. However, the problem is that the HSA Bank, the organization that runs our HSA Account, starts charging all kinds of fees the moment you are an independent account (compared to one still working with the company they have a relationship with).

Here is a list of fees by HSA Bank: Stupid Fees!

The two that hurt the most - mostly because a user has no control on them - is the Monthly Maintenance Fee of $2.50 and Monthly Investment Fee of $3.00. So $5.50 in fees every month just to have that account and to invest the balance in the account.

To avoid the fees, I would have to keep $5,000 balance in the HSA base account. The balance in the investment account does not count. Now, it would have been no trouble if the account gave a decent interest rate - but of course that is not the case. The current interest rate on balances below $15K is 0.65%. So if I keep a balance of $5K in HSA, then I would make a monthly interest of $2.71 while I would forgo an investment income of $20.83 (assuming a 5% return - which is conservative given that my current holding of JNK is returning close to 7%). So the choice is clear - keeping $5K balance is a loser by (20.83 - 2.71 - 5.50) = $12.62 per month. I am keeping ALL of my HSA Balance (except a couple hundreds to take care of medical bills as they arise) in the investment account - monthly fees be damned!

Today's Art: the ceiling of St. Ignatius' Church in Rome, Italy (since I will be there in just a couple days!). Where do the walls end and the painting begin - it is wonder.

Taking Stock: Jan 2013

First month of 2013 is done - and what a month it was! Stocks did pretty well. My stocks did pretty well and I feel good about my investment decisions. Here is where things stand at the end of Jan - in the usual Taking Stock format:

Total Portfolio Value: 48.4 Units

Van Gogh: 12 Units. My largest account is currently sporting a 15% Bonds and 85% Stocks asset allocation. I have reduced my bonds holdings in anticipation of the coming bond crash. Bond holdings are equally distributed between long term treasuries, long term investment grade bonds and developing countries bonds. The 85% Stock allocation is divided between developed countries (25%), emerging markets (25%) and US market (35%). US market is further divided into NASDAQ Index (10%), S&P 500 Index (10%) and mid-caps and small caps (15%). This allocation is my stock-heavy allocation since I anticipate stocks to outperform bonds in next 3 months. I will adjust allocation in next rebalancing if I expect the relative performance expectations to change.

Bernini: 11 Units. Hope the professional folks are taking care of this. I am currently budgeting a 3% growth rate in this account. I hope they will prove me wrong.

El Greco: 11 Units. This account is my bet on professional money managers. Currently in a stock-heavy allocation of 10% long term investment grade bonds and 90% stocks. Fidelity Contrafund, Vanguard Wellington and American Euro-Pacific Growth each gets 20%, 20% to Developed Ex-US to bring some geographical diversity and 10% to S&P 500 to absorb the reduction on bond allocation.

Klimt: 4 Units. My safest account - a fixed rate fund that is currently paying close to 5.5%. The bad news is that this yield is going down every month. I will think about shifting this out once (and if) the yield goes below 5%.

Durer: 3 Units. Target Retirement Fund with 2050 target. It is currently 90% Stock (67% US, 23% International) and 10% Bonds. I have an IRA ready to absorb this old 401K account - will do the transition as soon as the current bull run in stocks seem like done. Right now this fund is just tracking stocks and doing quite well.

Bruegel: 3 Units. I have EPI, FXI and INTC here. All are long term holdings for me - all good so far. INTC is a little weak - but with 4.5% dividends - I have no complaints.

Monet: 2 Units. I am holding EWP and F here. Both are on a nice upswing. F took a bit of hit after the numbers last quarter - but is still fine. They are again long term holdings - so who cares - let them mature.

Da Vinci: 2 Units. JNK is showing some weakness along with the rest of the bonds world. This, however, I am going to hold steady. The plan is to just put back the monthly dividend (currently a healthy 6.78%) into JNK and increase the number of shares I have. I am not going to worry about the share price - it will get dollar averaged every month anyways.

Renoir and Turner: 1 Unit each in DEO and VZ. Both doing fine. In addition, I am holding various amounts of DVY in different accounts to hold small sums accumulated through dividends.

Growth Since Last Taking Stock

The Dec 2012 Taking Stock had the total account value at 46.6 Units - so we are looking at a growth of 1.8 Units - 3.86% in a month. A part of the growth is because if new contributions of course. It is likely that we will reach 50 Units of total portfolio value next month - that will be something to celebrate.

Artwork of the day - not really one artwork - but the place that holds Bernini's masterpiece - Santa Maria Della Vittoria Church in Rome. This is of special significance - since I will be visiting Rome soon and will be staying at a hotel right next to this magnificent building.

Taking Stock: Dec 2012

Closing the year with the last Taking Stock post of the year. It is coming a little late because of my year end vacation. Much of my investments were in auto-pilot past few weeks - so not much to report except year end larger contributions and usual market fluctuations. I also converted an non-deductible IRA into a ROTH IRA - actually combined with an existing ROTH IRA.

Total Investment Portfolio: 46.6 Units

VanGogh: 11 Units in an aggressive asset allocation model - 70% Stock (30% US, 20% Developed Non-US, 20% Emerging Markets), 30% Bonds. I am waiting for the next rebalancing opportunity to reduce my bond exposure - especially with long term treasuries.

Bernini: 11 Units, in a conservative asset allocation model - 53% Stock (28% US, 25% International), 33% Bonds, 14% Real Estate and Others. It is on auto-pilot - it will go where it will go. I am assuming a nominal 3% growth rate for this account.

ElGreco: 10 Units in an aggressive asset allocation model - 70% Stock (40% US, 30% International), 30% Bonds. I will be moving these to a selection of actively managed mutual funds pretty soon.

Klimt: 2 Units in a fixed rate bond fund.Currently yielding 5.67%. Ahhh... the satisfaction of getting perfectly predictable yields. I will think about moving this when the yield goes below 5% - right now I am happy with flat 5.67% yield with no principal fluctuations.

Durer: 3 Units in a Target Retirement Fund with 2050 target. It is currently 90% Stock (67% US, 23% International) and 10% Bonds. I am looking to move these out to an IRA so that I can have more control over this account.

Bruegel: 3 Units, current holdings EPI, FXI and INTC. INTC is struggling to break free but has a decent dividend return. EPI and FXI are looking rather good recently.

Monet: 2 Units, I am holding EWP and F here - and they are both going gangbusters.

DaVinci: 2 Units in JNK for steady returns.Currently yielding 6.89%. There has been some principal appreciation there too - but I am sure that is not going to last for long.

Renoir and Turner: 1 Unit each in DEO, VZ.

Growth Since Last Taking Stock

Last Taking Stock had total portfolio value of 41.6 Units. End of Dec 2012, we stand at 46.6 Units. This shows a pretty solid 12.02% growth in a little more than a month. Of course, similar to last time, much of the growth is because of year end contributions to tax saving accounts.

Taking Stock: Nov 2012

This is the first of the hopefully-regular, end of each month, Taking Stock post. It is essentially a recap of the changes in my investment portfolio over the past month. So, lets get to it:

Total Investment Portfolio: 41.7 Units

 

Bernini: 10 Units, in a conservative asset allocation model - 53% Stock (28% US, 25% International), 33% Bonds, 14% Real Estate and Others.

VanGogh: 10 Units in an aggressive asset allocation model - 70% Stock (30% US, 20% Developed Non-US, 20% Emerging Markets), 30% Bonds. Will be moving to a 80-20 model at the next re-balancing.

ElGreco: 8 Units in an aggressive asset allocation model - 70% Stock (40% US, 30% International), 30% Bonds. Will be moving to 80-20 model at the next re-balancing.

Durer: 3 Units in a Target Retirement Fund with 2050 target. It is currently 90% Stock (67% US, 23% International) and 10% Bonds.

Klimt: 2 Units in a fixed rate bond fund.Currently yielding 5.67%.

DaVinci: 2 Units in JNK for steady returns.Currently yielding 6.89%.

Monet: 2 Units, 1 kept in cash and 1 in EWP.

Dali: 2 Units, currently kept all in cash.

Bruegel, Renoir and Turner: 1 Unit each in DEO, VZ and INTC.

Growth Since Last Taking Stock

Last Taking Stock had total portfolio value of 37.1 Units. End of Nov 2012, we stand at 41.6 Units. This shows a pretty solid 12.13% growth in less than a month. Of course, my portfolio did not return that much. Much of the growth is from additional contributions made in tax saving accounts as the end of the year is closing in. The End of Nov figure (41.6 Units), the first end of month figure, will be taken as the base value for all growth and return calculations going forward.

Renoir, Two Sisters (On the Terrace), 1881; the pride and joy of the Art Institute of Chicago

JNK for Regular Income

Today's investment decision - I am buying 2 Units worth of JNK for the account DaVinci.

JNK averages around 7% yield, paid monthly. I am really not expecting any capital appreciation here - just a steady yield.

I intend to hold this for a very long time - so the price chart is not important. Hopefully when I exit this position, I will exit at the same price I went in at. What is important is the dividend history - and here it is - a steady monthly payout at a reasonable rate.

With this trade, my level of available, investable cash is declining rapidly. I now only have 2 units left in Dali. As I like to keep a trade order of minimum 1 unit, I can take short term positions in only two stocks now. Not a bad thing - just that I might come across opportunities and might not have any cash to take advantage of them.

We are talking Da Vinci, so of course, we can't run away from Mona Lisa for too long:

DaVinci

A 2 unit account currently held in cash and looking to find a home.

Da Vinci - Lady with an Ermine

Taking Stock: Starting Point

Here is where things stand (all values rounded to the nearest integer Unit, except for the total). I am giving code names to all my accounts to maintain some level of confidentiality.

Total Investment Portfolio: 37.1 Units

VanGogh: 9 Units
Bernini: 8 Units
ElGreco: 7 Units
Durer: 2 Units
DaVinci: 2 Units
Monet: 2 Units
Dali: 2 Units
Klimt: 2 Units
Bruegel: 1 Unit
Renoir: 1 Unit
Turner: 1 Unit

Details of how I am managing each of the accounts will follow in subsequent posts.

In the first week of each month, I will post a Taking Stock post and update the numbers above.