Welcome to our monthly passive-income portfolio (PIP) update—#18 in the series! Before we get to the December (2019 End-of-Year) update, I wanted to take a moment to look ahead at 2020 and touch on a critical fundamental of long-term investing success… staying out of no man’s land!
As with the start of any year, we all have those lofty resolutions that we are planning on achieving this year. Since you’re on our site (and hopefully a frequent visitor), I’m going to assume that dividend-growth investing is somewhere on your list—whether it’s stepping-up your investing game or finally taking the plunge and getting started!
While a little new year motivation is a good thing, it is important to not let raw, unbridled desire get you into an investing pickle. If I had one piece of advice, it would be stay out of investing no man’s land!
(As always, feel free to skip down to the portfolio update and then come back and read this month’s message!)
Before we examine what exactly investing no man’s land is and why you should avoid it like the plague, it’s important to establish what is going to be required of you if dividend-growth investing is on your list of resolutions—the proverbial “where the rubber meets the road” stuff. Here are three simple things to keep in mind:
First, you are going to need to be realistic. Set achievable goals. The quickest way to fail is to set goals that are entirely too lofty. This can quickly lead to discouragement… followed by abandonment of the goals all together. Investing is a great goal—one that I want you to be successful at over the long run. As I always say, the key to long-run success in anything is sticking with it. Set goals that will challenge you… but that are achievable and will keep you in the game.
For our public portfolio, one of our primary goals for the new year is to hit $100 in average monthly dividend income by the end of 2020. That will be challenging but we are confident we can hit that goal!
Second, be mechanical in your funding approach. Make it super easy on yourself to be successful. This means automating your deposits into your investment account. My rule—one that has served me well over the years—is always pay yourself first! Expenses will come—expected and unexpected ones. If you wait to pay yourself (invest) until the end, you’ll likely find that there is rarely enough left to fully meet/fund your goals. Automate your investment funding! You’ll thank yourself twelve months from now!
Note: Even if you don’t want to auto-invest (i.e., you want to actively mange where your funds go and when), you should still automate your funding and just let it build your cash reserves. That way it’s there—ready and waiting—when you identify an investing move you want to make. If you’re not prepared, the cash won’t be there!
Third, and this is critical, be accountable and responsible for your investing—and your entire sphere of personal finances for that matter. This entails taking control of your money and investments, which leads us into a discussion of no man’s land…
As I noted, my free advice to you for 2020—whether your starting from scratch or looking to up your game—is stay out of investing no man’s land!
Part of (1) being realistic and (2) taking responsibility for your investing is understanding and accepting the level of time and energy you can devote to your investing.
Obviously, I favor taking an active role in building portfolios—and encourage our readers to do the same. However, this requires a certain degree of effort. You must be both (1) willing and (2) able if you are going to go that route.
There is no middle ground when it comes to investing. You either need to be (a) an active or (b) a passive investor. Bad things happen when you find yourself positioned (or caught) somewhere in the middle—known as investing no man’s land!
Be honest with yourself. If you don’t have the desire or time to dedicate to managing a growing portfolio of individual stocks (or units), then there is absolutely no harm or foul in taking a passive approach—simply invest in indexes (or funds). Yes, your results will mirror whatever the broader market does… but over the long-run you’ll be just fine (and a whole lot happier).
There is a certain je ne sais quoi—call it a romantic allure—to active investing that draws folks in. However, that allure can be a siren’s song if you’re not prepared to put in the work to make it happen. To better understand the challenge you face, I recommend reading our articles The Brutal Truth about Dividend-Growth Investing and Caution: Dividend-Growth Investing Is NOT for Everyone.
Managing a value, income, or dividend-growth portfolio is a grind—one that requires a proper mindset and the discipline to persevere. Whether you put in 3 hours a day or 3 hours a week managing it, you will have to consistently put that time in. Again, be honest with yourself—the last thing you want is to start building an active portfolio… only to have to liquidate it as reality sets in and you decide to shift to passive instruments! That’s reason #1 you want to avoid no man’s land.
If, however, you have an appetite for study, analysis, and learning (and embrace the grind), then the sky is the limit with taking an active approach to your investing! Just understand that, if you are going to find yourself in a position of success twelve months from now, you are going to have to commit to the process and the mindset!
This is also why I don’t pick or recommend stocks. If you are going to be an active dividend-growth investor, then you need to select your own holdings and manage your own portfolio. You need to understand your strategy, process, and investing theses. To learn more about this, I highly encourage reading my article Why You Should Never Buy a Fish!
If you don’t own the process and do your own homework, you can quite easily (1) suffer loss/failure and (2) become dependent on others (i.e., quasi portfolio managers). This is reason #2 you want to avoid no man’s land—you surrender control and don’t own your investing process.
Passive Investing = Control (Limited)
Active Investing = Control (Complete)
No Man’s Land = Zero Control
That’s what Wicked Capital is all about—helping you develop your investing knowledge, skills, and abilities so you can invest for yourself! My expectation for our readers is that they own their investing!
Trying to be an “active” investor by merely following the picks of others is a recipe for disaster. Stay out of investing no man’s land! Your either all in for the win… or stick to passive (index) investing.
Having said that, I believe anyone who is willing to dedicate themselves to the investing pursuit can be successful. Furthermore, regardless of the degree of success you may achieve, it will be a far more rewarding experience!
As I discussed in our previous update, we’ve continued to make some final year-end adjustments to our portfolio as part of our annual review and trimming process. Let’s take a look under the hood of our passive-income portfolio and recap both the month of December and 2019!
As we close out the month of December and our 42nd week, we currently have a portfolio value of $5,233.44—up from our starting value of $500 on March 13th.
In terms of market performance, we are up 8.1% since inception (our 2019 result), up +7.7% over the past quarter, and up 6.2% over the past month.
This compares well with the S&P 500’s performance of 14.7% and the Dow’s 10.7% for the same period (3/14-12/31). Remember, we started the public fund from scratch with $500—it takes 1-3 years to build-out that initial portfolio.
Furthermore, a passive-income portfolio will typically slightly underperform the broader market during strong up periods… but outperform during weak and/or down periods. The goal it to outperform in terms of total return over the long-run (not just over one amazing year). As this portfolio fills-out, I’m confident that we will achieve our targeted annualized total return of 10-15% long-term (and do so with less volatility).
Finally, this portfolio is predicated on a value approach to DGI. This inherently requires more discipline and patience but can payoff nicely—boosting annualized total returns over the long run.
If you’re new to dividend-growth investing (or even a seasoned investor), I encourage you to take annual returns with a grain of salt. I know that’s tough when the market is ripping higher… but you really need to focus on your total annualized returns over a five-year (or greater) period of time!
After all, as great a year as it was for the markets, the S&P 500 has an annualized return of roughly 9.5% over the past five years—right around its historical average of 9-10%. And over a 13-year period (January 2000 to January 2013) the S&P had a total annualized return of zero!
In fact, over the past 20 years—from January 2000 through December 2019—the S&P 500 has produced an annualized return of around just 4.1%.
As a long-term investor, you always need to keep things in perspective!
The pace of our portfolio capitalization growth has remained slow (though it picked up a bit in December). As I noted last month, this is due to two interrelated factors: (1) great opportunities have become more challenging to find given current valuations and the market’s PE expansion and (2) we have increased our cash position on the sideline—waiting for the right opportunities to materialize in 2020.
We are absolute investors. If great valuations are not available, we’ll patiently wait (while slowing building existing positions). We will not settle for relative opportunities based on the potential for continued multiple expansion—possibilities that can quickly evaporate in a game of musical chairs. We have a system and a process—and we stick to it long-term just as we encourage you to do on our website!
As we always emphasize, this is both (1) an income-investing portfolio and (2) a long-term investing portfolio. As such, capital gains/losses are only a secondary performance metric. Your focus should always be placed primarily on income metrics!
With a DGI (passive-income) portfolio, our primary goal is to build passive income. Market volatility should simply be viewed as potential opportunities to deploy your capital more efficiently and generate more income over the long run.
Here’s where we are at in terms of income metrics…
We have earned $180.16 in dividends since inception, $100.38 over the past quarter, and $29.28 during the past month.
Dividends continue to trend in the right direction with basically 56% of our earned dividends coming in the last quarter (representing 29% of the portfolio’s lifespan).
In terms of dollars, here’s a look at our paid-dividends trend:
We are excited to announce that we hit our year-one goal of $100 per quarter in passive dividend income. As I mentioned in the earlier discussion, our 2020 goal for the Wicked Capital public portfolio is to achieve an average of $100 per month in dividends by the end of the year!
Our yield-on-cost (YOC) has increased to 8.6%, while our current yield is at 8.9%.
Below is a graph of our YOC and current yield since inception. From a portfolio-level perspective, anytime YOC is below the current yield, it’s a targeted buy zone—there is opportunity to increase our capital efficiency (i.e., raise our YOC).
We’ve maintained a narrow yield variance, which indicates that we are deploying our available capital about as efficiently as possible with this portfolio.
As we always note, ceteris paribus (e.g., underlying fundamentals), we utilize an opportunity-focused portfolio allocation approach—one that seeks to deploy capital (both new and reinvested) with the greatest efficiency possible.
Below is a chart of our portfolio’s current yield-variance distribution—showing where we currently have opportunities to deploy new capital.
To wrap up, here are our current allocations (post trimming) by holdings, capitalization, asset type, position size, and sector:
Additionally, here are our allocations for our two sectors that include additional industry/type subsets:
As you can see, we (1) closed a number of smaller positions and (2) initiated a new position in EPR Properties (EPR). This REIT is focused on experiential properties, which fits nicely with our Carnival Cruise Lines (CCL) position and underlying thesis that folks are increasingly focused on spending their discretionary income on experiences.
The closed positions represented the remainder of our small developmental positions that simply exploded over the past nine months—before we could fully build them out.
The proceeds from the sales went into three buckets: the new EPR position, additions to current positions (where we could lower our cost basis), and our war chest (cash fund) for the public portfolio.
We hope you’ve enjoyed this month’s update on our public-view dividend growth portfolio and my always-opinionated (but usually valid and hopefully beneficial) discussion!
When setting your investing goals for the new year, remember to:
You can always view our Wicked Capital dividend growth portfolio at https://m1.finance/1zUclN2JL
If you’re interested in starting an M1 Finance portfolio, please consider using our referral link https://mbsy.co/sZVS3 and we’ll both get some free cash!
That’s just one more reason to start your dividend growth investing today! It’s never too soon to start working towards your financial freedom!
If you’re interested in dividend growth investing—you’re in the right place! We focus exclusively on helping others be as successful as possible with this approach and we hope you’ll continue to return to our site to learn, grow, sharpen your skills, and find effective and positive ideas and motivation!
Soak it all in, take and use what you want, modify it to fit your unique situation, and keep building that portfolio with a solid process and winning mindset!
Always remember, investing involves substantial risk of loss and is not suitable for everyone. The valuation of investments may fluctuate, and, as a result, you may lose substantial amounts of money. No one should make any investment decision without first consulting his or her own financial adviser and conducting his or her own research and due diligence.
You should not treat any opinion expressed on the Wicked Capital website as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion for entertainment purposes.
The opinions are based upon information we consider reliable, but neither Wicked Capital nor its affiliates, partners and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such.
Past performance is not indicative of future results. Wicked Capital does not guarantee any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed on this website.
As noted above, strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested.
Investments or strategies mentioned on this website may not be suitable for you. The material presented does not take into account your particular investment objectives, risk tolerance, financial situation, or needs and is not intended as recommendations appropriate for you. You must always make an independent decision regarding investments or strategies mentioned on this website. Before acting on information provided on this website, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own licensed financial or investment adviser.