Thursday, June 27, 2013

Covering Expenses from Passive Income

With the run-up in stock prices since the beginning of 2013, I've been much more selective when making additional investments over the past six months.  This means we have a lot of cash ready to deploy but not much more invested than we had at the end of 2012.  I've been somewhat frustrated because most of the names on my watch list are trading far above the price I'm willing to pay for them.  I guess I need to remain patient.

One thing I did notice, however, is that the amount already invested is making a subtle difference in our cash flow.  We try to put as many purchases as possible on our credit cards, so we can take advantage of the 2-5% cash back.  However several of our utility bills can't be paid by credit card (without tacking on enormous "service fees" which wipe out the cash back and then some).  Therefore I pay all of these using the bill payment service in our brokerage account.  These bills include electricity, water, sewer, and natural gas.

Our brokerage account is also where dividends accumulate from our investments.  I noticed that the amount of dividends received year-to-date exceeds the amount we've paid out to the utility companies from the brokerage account.  So you could say that our passive investing has allowed us to cover our basic utility expenses on an ongoing basis.  Not a huge milestone, but certainly not a bad thing either.

If/when the prices of some stocks fall back to more reasonable levels, we'll be willing buyers.  I'm looking forward to the opportunity to deploy more of our cash and boost our future cash flow.

8 comments:

  1. I was pleased when I saw your post arrive at the top of my blogroll. Good to hear from you.

    Couple of thoughts...Why use your dividends to pay any bills? Why not let them accumulate and with added new monies make a larger new purchase or add to existing when appropriate?

    You might look at LINE (Linn Energy). They are an MLP offering a juicy 8.8% (Soon to go to 9.10) They've just decided to go the route of O and pay monthly instead of quarterly. They got hit with a few concerns questioning their ability to cover their distributions, but it appears to be overblown. The shares are discounted and a very good buy along with some REITS is this market. LINE is strong and has a good distribution history. Worth a look.

    You're portfolio looks impressive to me. I appreciate the patience factor. When you're buying income, it's harder to wait for the right pitch (for me anyway). But they do eventually come.

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    1. We're not necessarily "using" the dividends to pay bills. All of our extra cash hangs out in the brokerage account, including a very small bucket which is earmarked for the utility bill payments. In principle the dividends should only be used for future investments, but in practice all of our cash gets slushed together in that single account. Still, it was interesting to note that moneys coming in from dividends was exceeding moneys going out to pay those utility bills.

      Thanks for the suggestion on LINE. I've been hesitant to invest in any MLPs at this point because I'd rather avoid the extra steps when filing taxes. However this may change at some point in the future. However I do agree that some REITs are looking good right now.

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  2. I made a priority order list of all my expenses recently. 4% SWR currently covers renewing my passport, condo insurance premiums, and property taxes. Next on the list is HOA dues, which I expect to hit sometime next year. (I'm assuming that the mortgage is paid off at the point where I'm living off of my investments or that would probably be second after the passport renewal.)

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    1. Passport renewal, interesting. Isn't that an every-10-year expense? I wouldn't have even thought to include that. But I guess it's something to consider.

      A paid off mortgage really helps cut down on the expenses, doesn't it?

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  3. It is motivating when you see the income off your investments begin to cover some expenses.

    It really has not been a "buyers" market this year eh?

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    1. No, it has not. At this time last year I had so many ideas and not enough cash to cover them. Now it's exactly the opposite.

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  4. Last year was definitely a better time to invest in (who knew?). Lately, I've been entertaining the idea of day-trading. Some stocks like ACN and QCOM seem to fall of the cliff every now and then, and then bounce right back. I know, this isn't investing for the long term, but there's just not really many deals out there right now. I've made a few hundred bucks doing this... I guess that's better than nothing...

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    1. There is no reason that a bit of speculation can't supplement a reasonable income-producing portfolio, whether it's in the form of option trading or short-term trading of equities. However I wouldn't want this to be the core part of my own investment strategy.

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