The Portfolio page on my blog has been updated as of June 30th, 2017. This page outlines my portfolio of taxable investments and the income generated on a yearly and average monthly basis. Click here to access all previous updates.
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High Yield Alternatives to Stocks
This quarter I increased my exposure to real estate via real estate crowdfunding (REC) sites. Real estate investing isn’t new, but the way we can access it is. You can now invest in real estate from your computer without landlording or dealing with contractors, and without the bloat and debt that comes with traditional REITs.
In addition to my rental property, I’m now investing on three different REC platforms and earning 8%-11%. These investments are helping to accelerate my forward income at a rapid pace. Though mostly passive, due diligence is required when you initiate an investment in any real estate fund or deal on these platforms.
The three platforms are:
Fundrise is available to all investors for a minimum of $1,000. It’s easy to start investing and diversification is built into the platform. Your money will be mostly invested in a diverse array of apartment complexes around the country.
RealtyShares enables you to make debt investments into individual single family fix-and-flips or larger equity investments into commercial deals or apartment complexes. See my review of RealtyShares here. The minimum investment is $5,000 and it’s only available to accredited investors for now.
PeerStreet mostly focuses on debt investments on residential fix-and-flips and cash-outs. The minimum investment is $1,000 and it’s only available for accredited investors for now. My first investment should complete next quarter.
The 8%-11% returns on these platforms are on par with long-term returns of stocks. But the returns aren’t correlated to stocks. Plus these investments are backed by assets (the real estate property), so I see REC as safer than peer lending which is non-collateralize consumer lending.
I have plenty of assets in stocks, index funds, and ETFs, so my net worth (and dividend income) is heavily correlated to stocks. I’m comfortable with that and will hold stocks through the next downturn. And I’m still buying stocks, but less than real estate at the moment.
These real estate platforms are a good way to diversify away from stocks if your portfolio needs it. One caveat, investing in REC is less liquid. Expect your money to be tied up for 1-5 years, depending on the type of deal or fund.
Investment Income Received In Q2 2017
The S&P 500 index settled at 2,423.41 on June 30th, up 2.57% for the second quarter of 2017 and 8.24% year-to-date.
Here are the numbers for investment income I received in Q2 2017:
|Income Stream||April||May||June||Q2 Total||2017 YTD|
|Interest on Cash||$18.23||$20.40||$20.04||$58.67||$117.66|
Compared to Q2 2016, my investment income decreased slightly from $1,980.45 to 1948.25. This is a little disappointing as I’m always looking for growth. However, the fall is mostly attributed to diminished Lending Club returns which are declining due to a batch of bad loans. I’ve pulled some money out for other uses, but still have about $10,000 on the Lending Club platform.
As some of my newer real estate investments start to pay out, I expect larger year-over-year gains in the coming quarters.
Summary of Investment Activity for Q2 2017
By adding $9,962.50 in new working capital to my taxable investment portfolios, my forward 12-month investment income (F12MII) increased to $9,035.62 or $752.97 per month. This was a $840.70 and 10.3% increase over last quarter, and a $1,345.60 and 17.5% increase year-over-year.
I consider the $9,035.62 in F12MII the most important number because it represents an estimated amount of money I would earn via investment income if I stopped working today.
Here’s a chart tracking my progress as of June 2017:
Fundrise is the easiest real estate crowdfunding site to get started on for a few reasons. First, there are only seven funds available for investors. These funds are regulated by the SEC so there’s plenty of documentation for due diligence. Each fund is transparent with the real estate holdings.
Second, you don’t need to be an accredited investor. Any U.S. based investors can get started with as little as $1,000.
Lastly, Fundrise has implemented a new feature that basically chooses what funds are best for you based on your investment objectives. Meaning with $1,000, you can have a broadly diversified portfolio of real estate with very little effort.
After starting with $3,000 split between the East Coast, West Coast, and Heartland eREITs, I added another $1,000 to each this quarter, plus I opened two new positions in the Income eREIT and the Growth eREIT. These were previously fully subscribed at $50,000,000, but they modified their SEC filings to open them back up to more investors.
I now have $10,000 invested in Fundrise which is estimated to pay me about $860 in dividends annually, all of which is being reinvested. I won’t be adding any more new capital to Fundrise this quarter so I can focus on building my portfolios with RealtyShares and PeerStreet. Both take more time for analysis, and the best deals can fill up quickly. I expect one of the three to emerge as a favorite, but for now I’m impressed with all of them.
Loyal3 and Stockpile
For the past few years, I had an account with the no-fee broker called Loyal3. I also recommended this account to many readers and IPO investors over that time.
Well, Loyal3 was purchased in April by FolioInvesting which created a new platform called FolioFirst for Loyal3 account holders. After the announcement, I transferred all of my shares over to TD Ameritrade because I wanted to consolidate my dividend stocks and I didn’t like the subscription model of FolioFirst.
I later became aware of a company called Stockpile that operates similar to Loyal3, but charges one dollar for trades and has more than 1,000 stocks and ETFs available for purchase. They also make gifting stock as simple as buying a gift card. I’ll be looking further into this broker in the future but it looks like a suitable replacement for Loyal3. That $1 fee should make the business model more sustainable.
Use this link to take a look at the platform and to get a $5 credit to buy stock on Stockpile.
TD Ameritrade is the primary broker for my taxable holdings. I purchased three new stocks for my account this month.
The first is Cardinal Health (CAH). CAH is a drug distribution company that is a Dividend Aristocrat, having paid and increased its dividend for the past 32 years. The purchase further diversifies my dividend stock portfolio by adding a more recession-proof healthcare related company.
The second purchase I made was Costco (COST). I love everything about Costco. It’s been on my “must buy” list for a while. I finally made a purchase when the stock tumbled in response to Amazon (AMZN) buying Whole Foods (WFM). I liked that deal as a WFM shareholder, but it’s hardly a Costco killer. Costco stock fell from $180 down to $158 in a few days.
As a customer I love the free samples, beer prices, wide aisles, constantly changing products, nice selection of organics, and treatment of employees (they all get healthcare and annual raises). The investor in me likes the impressive inventory control, excellent balance sheet, propensity for special dividends, 14-year dividend growth streak, high average ticket price, and the fact that annual membership dues provide 80% of annual profits.
Lastly, I transfer my shares from the Myomo IPO over from the underwriter. I wrote about the Myomo deal in the post about speculative investments. I sold half my position for an 111% profit and I’m letting the rest ride for now.
Dividend increases grow my annual investment income with zero effort. These increases are the basis for dividend growth investing which is the primary investment strategy I deploy with my taxable investments (non-IRA/529/401k).
My goal is for each company in my portfolio to increase their dividends every year.
Of the 45 dividend paying stocks in my taxable portfolio, 12 companies increased their dividend payouts by an average of 11.25% in Q2 2017. That makes 20 companies so far this year.
Below is a list of dividend increases in my portfolio announced in Q2 2017:
- AAPL: 10.5% to 2.52 annual
- BAC: 60.0% to 0.48 annual
- CLX: 5.0% to 3.36 annual
- CSX: 11.1% to 0.80 annual
- FLO: 6.3% to 0.68 annual
- GIS: 2.1% to 1.96 annual
- IBM: 7.1% to 6.00 annual
- JNJ: 5.0% to 3.36 annual
- PG: 3.0% to 2.758 annual
- TGT: 3.3% to 2.48 annual
- UL: 15.5% to 1.64 annual
- UTX: 6.1% to 2.80 annual
There’s a definite shift happening in my portfolio toward real estate crowdfunding. I like creating multiple income streams, and REC is a perfect choice for being accessible, high-yield, and backed by hard assets. It’s not risk-free, but I like the long-term prospects. My overall portfolio has plenty of room to diversify into real estate.
I’m not selling stocks. But putting money into these new real estate platforms now should help to spread my risk and diversify my income streams. My exposure to stocks is very high among various taxable and tax-advantaged accounts. A major downturn will be painful regardless.
Lending Club is taking a back seat for now as I wait to see if my loan performance can recover from mispricings in 2016.
I expect to invest more money into RealtyShares and PeerStreet in the second half of the year. The debt deals on those platforms are shorter-term (6-18 months), meaning the money is more liquid and you can ladder your investments (space them out evenly for consistent income).
The higher yields attainable through REC should help approach the $10,000 in F12MII mark by the end of the year. $10,000 of passive income is a major milestone where compound interest should start to take off. Lots of work still to do, but I’m achieving good progress this year compared to a flattish 2016.
At the time of writing, the author was long all stocks mentioned on this page except AMZN.