One of the things I like about participating in the Grow Your Dough challenge is that it forces me to look at my portfolio every month. While there is such a thing as looking at your portfolio too often, I do like this regular check of how things are going. I can go months and months without so much as thinking about my retirement account at Betterment, or without checking the taxable investment account that I use as my emergency fund.
Technically, my challenge income portfolio is along the same lines. I really shouldn?t need to check it every month, because like my other accounts, it?s composed mainly of funds. My Challenge portfolio contains dividend paying funds, but it?s still mostly funds (with the exception of my shares of Sysco). The main difference is that my other accounts allow for the automatic reinvestment of dividends, while I have to manually reinvest any cash I end up with.
I used some of my cash from dividend earnings and the leftover sale of shares of another asset within the portfolio to buy cheap shares of something else that yields dividends. (Everything in this challenge portfolio brings dividends.) I wanted to pick something cheap because it allows me to buy more shares faster, since I don?t have a ton of shares to result in lots of dividend earnings.
As you can see, my portfolio is beating the S&P 500, which is encouraging. The fact my biggest holding is an international S&P fund probably helps, and it also probably helps that I include bonds, real estate, and commodities. Plus, as more dividends come in over the year, it helps my overall returns. Reinvesting the dividends further compounds the gains. There?s a reason that so many people like to reinvest their dividend earnings.
It?s worth noting that the chart shows my performance dating back to 2012, when I originally opened the account. However, as you can tell, I did nothing with the account, until January 2014, when I began the challenge.
Foundation for an Income Portfolio
It?s true that the $1,000 I started with for this challenge isn?t going to provide me with enough in dividends to replace my income. However, my main goal with this challenge is to get practice managing my income portfolio and to build a foundation.
In order to be truly effective over time, you have to use dollar cost averaging as part of your efforts. As you keep adding to your portfolio, your dividend payments get bigger, and your reinvestment, as a result, is also bigger. With a solid start, and with continued additions, you can start to build up a portfolio big enough that the dividends can eventually provide you with a decent income. But this can take up to 10 years or more.
The Grow Your Dough challenge has been a great way for me to see how I can adjust my investing (or keep it the same) in order to see dividend income. Since the rules prevent me from adding new outside money to my account, I can?t use dollar cost averaging right now to keep boosting the account. However, after the year ends and the challenge is over, I am likely to start adding money to the account regularly so I can better build my income portfolio.
For May, I?ve got a couple of monthly dividend payments coming, so I?m hoping that I?ll be able to buy another share of my cheap asset with the high dividend yield.