June 2007 Score Card — Part II: Passive Incomes
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In addition to price appreciation, the other investment objective we have is to generate passive incomes from our investments. To that end, I have been investing quite heavily in dividend generating stocks and funds. Last year, our investments brought us more than $9,000 in interests, dividends, and capital gains. For the first half of 2006, we have the following passive incomes:
| Name | Income | Name | Income |
| ING | $12.09 | LFC | $14.31 |
| EmigrantDirect | $81.63 | MSFT | $40 |
| HSBC | $399.52 | PGJ | $81.35 |
| IGBanking | $525.55 | PID | $50.67 |
| FNBO | $318.78 | PHO | $19.39 |
| 4-Week T-bills | $420.55 | PEY | $152.79 |
| ADVDX | $233.38 | PFM | $19.35 |
| DODGX | $209.68 | DRIP Stocks | $43.42 |
The total dollar amount is $2,622, of which more than $1,758 are interests earned from several high-yield online savings accounts (which is bad because of the high tax rate for interests). The overall number is far from exciting and falls short of my expectations. The reason is most of our fund investments only distribute annually at the end of the year. Thus, the whole year passive incomes will be much higher than the first six months’ earnings have indicated.
My short term goal for the next two years is to generate an average of $1,200 in passive incomes every month, which represent an increase of 50% from what we earned in 2006. While I can keep playing the credit card arbitrage game to get free money, the focus will be on increasing earnings from dividend-paying stocks and funds. Though most of our investments indeed pay dividends, the main theme is growth rather than income. Among our investments, I consider DRIP stocks (MO, PGN, PG, and BAC), ADVDX, PEY, and PFM as main income generators. However, except PEY and ADVDX, they are all in very low quantities and, thus, the incomes they generated are quite small. Currently, I buy $100 of ADVDX, PEY, and PFM every month, but only $50 for each DRIP stocks.
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What do you do with your passive income? You say it’s for growth, not necessarily income, so it all your passive income reinvested?
Sun,
Looks great. Good luck on getting the number to five figures this year.
Another source you may want to consider is municipal bonds from your state of residence. These are often triple tax free - no fed, no state, and no local taxes. In the past year, I have found some municipal bonds at 4-4.5%. That’s like getting 6% from a taxable investment.
Sun,
Your networth is very impressive. Any chance you could share with us how you accumulated so much money? Was it because of investments or job or others?
Flexo: Except bank interests and dividends from some stocks held at Scottrade which doesn’t support dividend reinvestment, all the dividends and capital gains are reinvested. Since all the distributions are in small quantities now, I feel taking them as cash isn’t the best strategy right now. I want to accumulate more shares for bigger distributions later.
Super Saver: A couple of years ago, I indeed bought some NJ municipal bonds from T. R. Price at Scottrade, but sold all the shares after Scottrade started to charge fees. I am a little reluctant to invest in bonds in taxable accounts, but if it’s triple tax free, I think it’s worth considering.
MoneyNing: Actually, it’s a little of both, the investments and incomes from our day jobs. I have set up automatic investment plans for most of the mutual funds I invest in so we just keep adding shares as long as we have our jobs, and this has paid off. In our investments in taxable and retirement accounts, about 30% of the total market value is from appreciation and reinvested distributions.
Yes, I may write something about how I do it.
Sun,
It sounds like you bought a municipal bond mutual fund from T Rowe Price.
I like to buy the actual bond (as you do with T bills) and hold it until maturity. That way I know the principal amount to be returned and there are no additional fees after the intial commission.
Sun:
Have you ever considered going into a closed end fund like Eaton Vance’s ETO? I’m just curious what you’d think about it as an investment in a tax-deferred account vs a non-tax deferred account. It actually pays a monthly dividend.
DB
Great to hear that as much as 30% is from appreciation. (Even greater that you know this probably off the top of your head!). Maybe I should keep track of this somehow too!
Please do share your investing strategies and history when you get a chance so we can all learn from you!