An Easy to Execute Income Portfolio
The following post is going to lay out a very simple liquid diversified income portfolio that you can scale up in very small increments. Based on the time of writing this post, for every ~$650 invested you can generate over $2.00 of income a month.
In full disclosure I am or have been invested in the investments below. I’ll explain why I go in and out of these investments from time to time below. I have built out and refined this portfolio over time as I have continued to research the best investments for this portfolio. If I find a better one I’ll let you know!
Disclaimer: You should consult a financial advisor or tax professional before making investment decisions to understand all risk factors.
This portfolio hits on a number of topics I have already written about which may be best to read first:
- Making $1 a month for life – but why stop there?
- Investment Income From Public SEC Regulated Vehicles
- The Framework: Your Life as a Profit and Loss Statement and Balance Sheet
Investment Objective
The goal of this portfolio is:
- Monthly Income
- Stable Overall Principle
- Liquidity – all of the investments are zero transaction fee funds at Fidelity so I can get in/out of these funds at no cost. If you are not at Fidelity, your firm likely has ETFs that are similar that are no transaction fee.
The goal of this portfolio is NOT:
- Capital Appreciation… if it happens, it’s a great side effect and that’s it
- Trying to be Tax Efficient…. I want Income now! But this drives taxes
- Trying to build income over time…. I want Income now!
The Investments – in Chart Form
The Investments – A Discussion
The first item I would call attention to is the range of values over the past 5 years. By being publicly traded we have price discovery of how volatile or not volatile each of the investments above are. The conclusion? All investments move and you need a diversified portfolio. I’ve seen the portfolio as a whole swing up and down +/- 2% over the years but it has always reverted to the mean for me. As no surprise to me – the price today is almost dead center between the low and the high price. Why does this happen? The portfolio has both bonds and equity – typically when one is up, the other is down. Over the past 5 years we have seen bond prices go down while equity prices have gone up due to macro economic factors.
The second item I would call out is the fact that I have shown a portfolio with 1 share in each ETF. Given that transaction fees are zero, buying a few shares at a time is not a big deal and you can slowly build or lower positions with very small investments (which is awesome)…as low as $25!
The third item I would point towards is scalability… you can use this portfolio for $25 to $1M and build your position over time little by little.
The fourth and most important one for me over time is the fact that all of these ETFs have $1B+ in net assets value. This speaks to a healthy ETF that won’t be discontinued and is very liquid. A lot of these new funds that come out have less than $100M in assets and eventually close…if they are successful I’ll consider them down the road.
Myth Busting
It should be evident above but I’ll call it out…. you can buy 1 share at a time! Which means with even less than $50 you can start building your portfolio. No transaction fees are critical of course to execute which I highly recommend you ensure you are getting before building a position. When in doubt – try buying a security and before you hit the submit button to verify there is no charge.!
Year End Tax Harvesting
In the US, you are allowed to deduct up to $3,000 of investment losses a year. At the end of every year I always sell anything that is a loser to get the tax deduction if it’s $50+. I use the proceeds from the sale to double down on one of the “winners”‘ in my portfolio for 60 days to avoid buying the same security and running into the wash sale rules the IRS has. After 60 days I rotate my portfolio back to the original allocation.
Variations
A portfolio is obviously your money which allows you the option to have as many variations of this portfolio that you like.
Got lucky and bought in at the right time and all of your investments went up? I would invest all new dollars you save into the higher yielding investments to drive up raw dollar income. I have done this and my yield has consistently been above 5%.
Need to sell for liquidity reasons? I typically see if I have any tax losses I can harvest and sell those. If I have none, I typically sell a little of everything or exit one investment entirely for a period of time. For me I typically have exited out of SLQD as it has the lowest yield and I am addicted to the income.
Raw Dollar Income
This portfolio’s goal is to make raw dollar income…. it’s not the point to check your portfolio everyday and see how your investments have moved and you shouldn’t even care. It’s the raw dollar income that matters. The prices will move – I guarantee it!
If you are with fidelity – on your statement monthly they will project out your cash flow for the next 12 months which can be a helpful judge of how well you are doing.
If you aren’t with fidelity, you’ll at least see your income for the prior month on your statement so you can judge your performance.
Time Commitment?
This is true passive income… my time commitment with these investments is only sweeping my income out each month and that’s it. I obviously read and look for new investments to add to the mix but that’s it.
In Conclusion
Passive income from an investment portfolio is one of the time tested passive income strategies and I have laid out above my portfolio that has treated me well. I have seen this portfolio stay stable overall but there have definitely been some dips in the international equity positions but I haven’t realized any material losses here as I haven’t sold (except for some Tax harvesting).
Disclaimer: You should consult a financial advisor or tax professional before making investment decisions to understand all risk factors.
Given how well this portfolio has done for me – I always personally evaluate any new get rich scheme against it and remain convinced I shouldn’t put my money anywhere else…. yet. I am always reading!
