Friday, 13 January 2017

Goal for 2017 - Chasing more Passive Income ...


Despite my views on goal-setting I expressed last January, I do actually have one for this year, although it's financial rather than lifestyle and so I'll allow it ...

I've been tracking all the passive income I've received over the last three years.  This includes dividends, bond coupons, index-linked growth, interest, premium bond prizes and any other such distributions.  

In the past, I haven't necessarily been seeking yield as a primary objective, but there's no doubt it's a nice warm feeling every time a deposit turns up in the accounts, money for which I haven't had to work. 

The passive income I've received has grown naturally with the portfolio valuation, and indeed the sums I received in 2016 were 36% higher than in 2015.  However, I think it's time to push it a little further and see if we could cover a greater proportion of our living costs from investment income alone.  

If I take the 2016 year-end passive income figure and divide it by the 2015 year-end combined portfolio value, the income return on the total assets was only 2.3%, which just seems quite low to me.   Whereas the total return in 2016 on the assets held at the end of 2015 was 15.7%, i.e. including capital growth but excluding any of the 2016 additions to the pot.

But back to the goal - beginning with the total sum I received in 2016, I'm going to try to double this passive income value (in nominal cash terms) by the end of 2017.  The passive income I'm tracking is a 'net' figure, i.e. after the deduction of all platform fees etc taken by the various providers, which effectively means that we're starting out in negative territory...

So let's baseline our personal 'Passive Income Index'.  To construct it, we're going to ignore all passive income prior to 2016 and use cumulative values from the start of that year.  So the total income received in 2016 corresponds to an index value of 100.

The index number at any time in the future will be the cumulative income received divided by the income total for 2016 and multiplied by 100.   It follows therefore that if our 2017 income should be identical to that of 2016, the index will increase to 200.

In this way, provided we have positive net income in the period (which is highly likely) then the index will always show an increase at every review point.

To double our passive income in 2017, we will therefore need to increase the index to 300 by the end of the year.    Is it achievable ?  Maybe not, given that I don't intend to buy equities in what seems an overheated market simply for the sake of acquiring more dividend payments - return of capital is as important as return on capital.  

So perhaps the title of this post is not quite correct - I'd like the additional income but I don't want to chase after it at the expense of the total return !

However, 2017 is very young and so let's see how things pan out by its end...

I'll report the passive income progress on a quarterly basis, within my regular Investment Review of the combined portfolio.




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