Portfolio Two Updated January 2017 – Tax Time

Portfolio 2 is our second longest lived fund, at over 14 years.  This fund has transitioned from individual stocks to an ETF and CD mix.  The beneficiary contributed $7000 and the trustee $14,000 for a total of $21,000.  The current value is $32,151 for a gain of $11,151 at 53% or about 5.5% / year when adjusted for the timing of cash flows.  You can see the spreadsheet supporting this at the link on the right or download it here.

The fund contains 4 ETF’s and one CD.  The $10,000 CD earns 1.55% and will redeem in July, 2018.  This investment is essentially risk free (if the issuer goes under the FDIC will pay out the accrued interest and return the principal).

The largest ETF is VTI, which covers the US stock market on a capital weighted basis (that is to say that the largest market capitalization stocks comprise a larger portion of the index).  Since we have had a rally in Technology (prior to the election) and financials and commodities (mostly since the election), this ETF has done well.

There are two non-US ETF’s, the VEU (all world non-US, unhedged) and HEFA (major non-US markets, hedged against the dollar).  Surprisingly, these two funds mostly performed alike in terms of returns, even though the dollar rose during this period.  This is something I will investigate further in the future when I have some more time.

The fourth ETF is IBB, a NASDAQ bi0technology ETF.  This one was kind of a bet on future growth since it had been pummeled in the period before we purchased it.

In general, these ETF’s are low expense and overall the portfolio has a decent yield at 1.9% comprised of dividends and interest on the 1.55% CD.  This is a nice cash addition in an era of zero yields on short term cash and when even some large issuances have negative yields over a ten year span (in Europe).

I noted that the ETF HEFA (the hedged fund) had a small capital gain.  This is rare for ETF’s (they are common for mutual funds).  Since it is immaterial it is listed as a dividend on the report.

Due to the fact that these trust funds are “subsidiaries” of my account, typically they don’t pay any fees on transactions for individual stocks (essentially zero expenses every year).  Since ETF’s do have expenses, this portfolio will incur implicit expenses (they come out of the returns of the ETF’s so you don’t see them directly).  About $70 in implicit expenses hit the portfolio during 2016 (the CD is free of all expenses).

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On Investing

Investing has changed significantly during the 25 or so years that I have been following both the market and also the tools available for an investor to participate within the market.  The following trends are key:

  • The cost of trading and investing has declined significantly.  Trades used to cost more than $25 and now are essentially free in many cases.  Mutual funds used to have “loads” of 5% or more standard when you made an investment, meaning that $100 invested only went to work for you as $95.  These sorts of up-front costs have almost totally been eliminated
  • ETF’s have (mostly) replaced mutual funds.  ETF’s “trade like stocks”, meaning that you can buy and sell anytime (mutual funds traded once a day, after being priced with that days’ activity) and they don’t have income tax gains and losses unless you actually make a trade (mutual funds often had gains due to changes in the portfolio that you had to pay taxes on even if you were just holding the fund)
  • CD’s and Government Debt are all electronic.  You used to have to go to a bank for various governmental bond products or to buy a CD.  Now you not only can buy all of this online, you can choose from myriad banks instantly rather than settle for whatever your main bank (Chase, Wells Fargo, etc…) offers up to you
  • Interest Rates are Near Zero.  One of the key concepts in investing is “compound interest”, where interest is re-invested and even small, continuous investments held for a long time can end up amounting to large sums (in nominal terms, because inflation often eats away at “real” returns).  However, with interest rates basically near zero, you need to earn dividend income or take on more risk (i.e. “junk bonds”) in order to receive any sort of interest income.  There is no “safe” way to earn income any more
  • Currency Fluctuations Matter.  When the Euro initially came out it was $1.30 for each US dollar, and then it went to 70 cents per dollar, and now it is about $1.10 per dollar.  At one point the dollar fell 30-40% against many currencies world wide (when “commodity” currencies like the Canadian and Australian dollar were surging).   For many years currencies were relatively stable against one another but that era seems to be ending, and thus the change in relationship between the US dollar and their currency can be much greater than the return that is earned on the international investments
  • Active Trading Has Mostly Been Beaten By Passive Trading.  While there are many exceptions, initially the majority of investments were “active”, but over the years many of the “active” managers have substantially under-performed the market, wilst charging investors more in fees (it is cheaper to run a “passive” index).  As a result, there has been a massive shift away from active investors to passive investors like Vanguard
  • Correlation Among Stocks and Investment Classes Is Much Higher.  Correlation means that stocks or asset classes tend to “move up” together or “move down” together.  It is not unusual for me to look at a portfolio of 20 stocks and 19 or 20 of them have all gone up or down on a single day.  This is related to active managers being unable to “beat” the market (see above)
  • The “Risk Premium” for Lower Quality Debt is Small.  The amount of extra interest required for low quality borrowers over the US Treasury benchmark is very small.  Investors are taking on a lot of risk to just earn a few more percentage points of return.  If there is a downturn in the economy (such as what happened only recently in US oil companies), there are likely to be significant declines in junk bond values that wouldn’t justify the modest risk premium you receive for holding these types of assets
  • ETF’s Provide an Easy Way to Participate in Commodity Markets.  It was more difficult to buy and invest in commodities like gold and crude in the past, and it was often limited to relatively sophisticated investors or those willing to hold on to physical commodities like gold (which can be risky since they need to be stored and protected due to high value and inability to trace once stolen).  Today you can easily buy a liquid ETF to participate in the commodity markets for key areas like precious metals (gold and silver) and crude oil / natural gas
  • Fewer Companies are Going Public and the Market is Shrinking (in terms of issuers, not total value) – It is easy for start up companies to access private capital (venture funds) and they tend to “go IPO” at high values, making a further upside (after the initial IPO) more difficult.  The total market is shrinking in terms of listings due to M&A (companies buying other companies) faster than the new IPO’s and many companies are “buying back” shares which also reduces the total value of the public markets
  • Bonds have had a Gigantic Bull Market that is Nearing It’s End – Bond prices move inversely to yield; thus if you held on to a 5% low risk bond (which would have been available everywhere in the early 2000’s), that bond would currently be priced at much more than 100 cents on the dollar today.  Interest rates peaked around 20% near 1980 and now are not far from zero; in this sense bonds are part of an enormous “bubble market” that has not yet peaked.  But given how low rates are (they are even negative), it seems like this bull run is about to come to an end
  • Ensure That You Include Dividends and Total Return.  A common mistake is to look at performance just in terms of stock or asset prices, and avoid including the compounding impact of dividends received, especially since dividends often rise each year.  Dividend income can make up a significant portion (25% and up) of total return, so selecting assets that provide dividend income is critical.  Finally, dividends provide favorable tax rates when compared to interest income

What does all of this mean?  I would sum it up in two ways:

  1. It is easy for individual investors to set up a simple and low cost way to track the market – the “basic plan” that I set up as a simple example can be used by anyone and it does what it says.  Here is a second plan that also includes some hedging of the non-US investment
  2. You will need to save much more (or take on more risk) because interest rates are low – with near zero interest rates, you can’t make much money on low risk interest bearing products (like CD’s, savings accounts, and simple government debt).  If you are earning risk income, you likely are taking on substantial risk of default because there is no “free lunch”.  As a result, you need to put more cash into stocks in order to earn dividends or see real returns, but this also could lead to significant losses if there is a market crash like 2008-9.

I try to promote financial literacy and have helped many friends and some family members when they ask questions.  Ideally we would actually drive financial literacy through school and into the university.  Even those who have a degree in finance or accounting often lack practical advice on personal finance and don’t know how to approach these issues.

One key concept is “net worth”.  Net worth isn’t how much you earn in salary, it is what remains in savings after taxes (or through long term deferral of taxes).  The only “assets” that count are those that you can turn into cash if needed, and they are “net” of the debt (such as on your house).  Most people have a negative or near-zero net worth, which is also linked to the concept that they are essentially a couple of missed paychecks away from very bad outcomes such as having to take out a payday loan or borrow money from relatives.

Another key concept is trying to avoid excessive student debt.  Unlike all other forms of debt (loans on your house, your car, or credit card debt) your student debt cannot be discharged through bankruptcy.  You essentially have no options except to repay your loans, and if you miss payments or fall behind the fees and penalties will greatly increase your balance due.  Student financial literacy is critical because they are making decisions that will impact themselves and their families for the rest of their lives and they must be made thoughtfully and with the end in mind (if you are taking out all of this debt, you must be driven in your career to make money in order to pay it off and get on with building net worth).

Cross posted at Chicago Boyz

Transition for Portfolio Two

Portfolio Two is transitioning to ETF’s and CD’s.  This is aligned with the “basic plan” that I refer to here.  The portfolio has $28,781 (all in cash) as of December, 2015.

At a high level our investments will consist of:

  • $10,000 in the lowest risk interest rate products (Federally insured CD’s bought through a brokerage, go here if you want to learn more)
  • $9000 low-cost ETF tracking the US stock market
  • $4500 low-cost ETF tracking the non-US stock market, unhedged
  • $4500 low-cost ETF tracking the non-US stock market, hedged

CD Investment:

In the old days you used to need to call a broker to buy a CD or physically visit a bank.  Now you can buy CD’s online through your brokerage account.  To avoid more complicated tax issues with gains and losses I am sticking to “new issue” CD’s which are always issued at par (100 cents on the dollar).  When you are buying existing CD’s (the secondary market) they have gains or losses implied as they do not sell for 100 cents on the dollar and this causes additional tax issues that aren’t significant but I want to keep this simple and at this purchase level it is easier just to buy new issues.  For each CD there is a minimum bid quantity – for the highest yielding 2-3 year CD selected below, the minimum bid quantity is 10 at $1000 or $10,000.

Goldman Sachs bank USA CD 1.55% due 7/6/2018 paid out semi annual (audited by PWC).  Thus it is a CD that will pay back the $10,000 in 2 1/2 years from now.  Here is the link to a page that shows which external firm audits each entity.

The CD is semi-annual so it pays 1.55% * 10,000 / 2 = $78 every 6 months, or $155 / year.

There are no expenses (on buy, sell) and no fees with this holding.  By contrast a money market fund pays about 0.2% (or $20) after fees.

If we need cash we can sell this in the secondary market and there will be a small gain or loss depending on how interest rates have moved since the purchase date, and likely a bit of slippage in the buy / sell.  If for some reason the bank goes bankrupt (highly unlikely since this is Goldman Sachs) the government will pay back our $10,000 and accrued interest through the last date.  This did happen to me back in the 2008-9 time frame when a number of banks were taken over by FDIC as they became insolvent and deposits were guaranteed.

Stocks:

We will put half the remaining in US stocks and half in foreign stocks.  The US stock will be in the Vanguard ETF VTI.   Vanguard is audited by PWC.

VTI has a yield of 1.91% (dividends).  We will invest $9000 in this fund.  It has an expense ratio of 0.05%.

We will put half the remaining in an overseas stock fund.  We will put $4500 in VEU which is the Vanguard all-world index except the USA.  It is not hedged.  The yield is 2.96% and fees are 0.14%.

Will put the other $4500 remaining in a hedged overseas stock fund.  We will put put $4500 in HEFA which is an overseas ETF that is owned by Blackrock (iShares).  It has a yield of 2.35% and fees of 0.36%.

Blackjack (iShares) is audited by Deloitte and Touche.

Fees and Expenses

History of Fees and Expenses

When we first started these trust funds twelve years ago, investing in stocks was expensive.  It cost $25 to buy a stock or to sell a stock (although we rarely sold, since we were and still are trying to “buy and hold” more often than not), and they issued portfolio fees of $30 / year just to have an account.

At the time there were TV commercials about “Stuart” from E-Trade who was helping his boss to learn to trade himself, online.  Up until this time sales were mainly made by calling your broker who would put in an order on your behalf.  It seemed “space age” to purchase stocks this way, and potentially dangerous.  The internet was in its infancy (for the general audience), and it seemed better to talk to a person and get back your information in a printed statement.

Cost of Trading in These Portfolios

A recent article in the NY Times called “Give Fees an Inch, and They’ll Take a Mile” describes the impact of fees on long term investing:

Fees may seem inconsequential at first “but over time they can have a very profound effect on investment returns.”… a 1% annual fee on a $100,000 portfolio that grew 4 percent annually over 20 years.  Without any fees whatsoever, the portfolio would have grown to $220,000… a 1% fee subtracts $28,000 from the portfolio… and the lost return on the $28000 devoured by fees… is $12,000.  All told, then, 1% in annual expenses would have eaten up roughly $40,000, or about one-third of the total $120,000 return on your investment.  Ouch”

Note that this 4% return is BEFORE TAXES, which can take a nominal amount (if you are a kid and don’t have earned income) or as much as 40%+ if you live in a high cost state and are in an upper tax bracket.  And then there is inflation, which is likely running at more than this in “real terms” (when you factor in health care, college costs, etc…).  So there isn’t usually that much left anyways, and fees / taxes / inflation are the three horsemen that you try to minimize (although you can’t do anything about inflation except for debt / purchase changes which are far beyond the scope of this post).

The cost of online trading and setting up an account has plummeted over the years.  Due to the way these funds are set up (they are kind of a subset of my accounts), they receive up to 25 free trades a year, which is a number that is many more than we will ever need per account, so trading is effectively free.  And while they issued fees on the accounts ten years ago, they don’t do that any more, either.

Your mileage may vary depending on how your brokerage account is set up but these portfolios are effectively being run at zero cost.  The brokerage firm offers very low interest rates (near zero) on cash held in money market accounts, but this is the norm in the entire industry.  I can proudly say that on at least one dimension of investment returns – fees and expenses – these trust accounts for the beneficiaries beat (or tie) everyone, everywhere at a cost of zero.  Funds 4, 5 and 6 have never paid any expenses at all and funds 2 and 3 paid a minor amount.  Fund 1 paid some early on but hasn’t paid in many years so this is adding up to a smaller and smaller portion of total assets under management (as we average many years of zero expenses against the early years).

Only a lunatic like me would pore through the funds, looking for every single expense, and calling them out.  Researching the brokerage statements and essentially designing newer, more useful ones is what I have been doing – most statements don’t tie dividends to the respective stocks that are providing the dividends, nor due they keep tabs on sales for many years’ after they’ve occurred (a sometimes painful introspective process).  Everything that happens on your statement has a purpose and a reason for existing, and I find it interesting to look at all of the costs and money moves along the way.

The stock providers don’t make it easier (the firms) by doing things like stock splits and attempting to buy up the “odd lots” which are less than 100 shares.  Over time as some of the portfolios (like one) get larger and where it is possible I am buying in rounder units like 50 or 100 shares if possible but the fact that there are odd lots is a problem for the firm, not for me.  100 shares times $20 / share means a $2000 single purchase so that won’t happen for most of my stock buys.  In addition, we have stocks with values of more than $100 / share in the portfolio which means an odd lot is anything less than $10,000.  Stock splits are a general annoyance, since they cause the basis for tax to change and then you  need to adjust prices.  Often when there is a stock split there is a small purchase of fractional shares but they are too negligible even for me, the nit-picker of financial statements, to track.

I can also quickly and easily see the portfolio performance using Google Finance.  it is quick to set them up with pricing and transactions and then market moves are reflected when you look online at a glance.  You just need to track dividends separately and do the buys / sells and adjust the cash but that doesn’t take long (you probably can let Google Finance do this for you but I don’t).  This is usually how I find out about stock splits because Google Finance automatically adjusts for these items.

Taxes have also gotten much simpler.  The firms now track “cost basis” when you purchase stocks, so when you make a sale, it will calculate your gain or loss and classify it for you as short or long term.  This only applies to stocks purchased in the last few years, although they will go back and put in the rest of your portfolio if you bug them (they did for me, at least).  Although only an eagled-eyed nut like me would go back and look at the purchase price of a stock that had been split; my records didn’t match with their cost basis; likely they took the “end of day” price for that date when determining my cost basis rather than the actual price paid for the stock divided by 2 (it was a 2/1 stock split).  But we will go with their number the difference is nominal.  I like finding issues like that because it shows that I am learning more about this process in detail.

What You Get With the 1% Elsewhere

What isn’t included in these portfolios is compensation for me, the person that researches the stocks, recommends when to trade, and puts together the detailed analysis that you can see in the spreadsheets in the links to the right tied to each portfolio.  I estimate that I put in about 25 hours / year into work on these portfolios, which actually is a significant portion of my time that is available after work which usually bleeds into the weekend, as well.  It would probably be reasonable for me to charge a 1% “portfolio fee” each year to account for this, which would be about $800 / year or so and rising as these portfolios hopefully total up to closer to $100,000 over the next few years.

However I don’t have a current intention of charging my time to these portfolios, since I set them up with the purpose of raising interest in stocks and investing to my nieces and nephews, and it has had a salutary positive effect towards that goal.   It is useful for me to think about these services and to look at how I perform them vs. other options that we could have for these funds.  You could also think of it as part of my “contribution” to the beneficiaries, along with the investment and match which occurs annually.

ETF’s and Mutual Funds

Another alternative is to go to ETF’s or mutual funds.  Individual stocks are very cost and tax efficient because if you are smart you can match the buys / sells together to minimize capital gains and do this explicitly.  If you get free trades in your brokerage account, you can essentially do all of this for zero costs.

You can trade ETF’s like stocks, but there is a fee embedded within your ETF.  This lets you time sales and determine gains and losses but some of the modern ETF’s on broad markets have fees that are less than 10% of 1% or 0.001.  At this point the fees are very low and almost negligible.  Other ETF’s have much higher fees, but sometimes that is the only way to get exposure to broad indexes or certain foreign countries.  Certainly you need to understand what value you are getting for ETF’s.  We may recommend some ETF’s as “stocks” in these funds in the future; one year we recommended the South Korea ETF (it is hard to buy most of their companies by ADR and I didn’t want to trade directly in South Korea, although I might some day) but no one bought it that year.

As far as mutual funds, I have some but they are old.  I might consider some for debt but they are not efficient investing vehicles because they throw off gains and losses and have other issues.  New mutual funds have very low fees, however, in some cases so it is not very material.  But I would never recommend buying new mutual funds if there are ETF alternatives.

Conclusion

Expenses matter, especially in an era of low expectations for returns.  This SEC example cited above in the NY Times article assumed a 4% return; if this article was written in the 1990’s they’d probably assume 10% returns in their example.

For these portfolios we have been able to get expenses down to near zero due to the way the brokerage account gives out free trades and how we trade some, but not a lot, in our accounts.  Finally I provide services to the portfolios but don’t charge that you’d probably need to pay unless you just went straight with simple ETF’s and left them there.

Inadvertently Pushing Out Long Term Shareholders

Companies in the US have long decried the “short term” orientation by shareholders and analysts, and encouraged long term participation in markets. The tax code attempts to foster this as well, since “short term” gains are taxed at a higher rate than “long term” gains, which are for stocks held longer than 12 months.

While we are not exclusively “buy and hold” investors here at Trust Funds for Kids, we do attempt to hold stocks for the long term, and not sell based on short term market signals. We generally sell stocks that seem to have entered a terminal decline, or whom have benefited from giant share point rises which do not seem sustainable into the future.

Thus I was more than a bit irked by this letter received from my brokerage, which came to them from the issuing company. The company is “offering” me the “opportunity” (in quotes, because this is a bad offer) to liquidate my position, ostensibly because my small odd-lot holdings (less than 100 shares) may cost them more to administer than a typical share holder would.

dumb_letter

There are two main things wrong with this offer…
1. Comcast wants to CHARGE ME for the PRIVILEGE of selling these shares. If they really want to get rid of these odd-lot shares, they would PAY ME or at minimum NOT charge me to incent my behavior
2. We are long-term shareholders. Likely odd-lot holders are more likely to “buy and hold” than any other type of investor (I can’t prove that without a lot of research, but it makes sense that the odd lot holders are not buying and selling in rapid fire fashion). Companies are SUPPOSED to like those sorts of share holders

In any case we aren’t selling. We usually buy in units of $750 – $1200 per stock. In order to not be an “odd lot” customer, you’d need to buy 100 shares minimum, which would mean that we couldn’t buy shares that cost more than $7-12 / each. This artificially limits our stock options (none of the 8 selections for 2013 were at $12 or below). As long as they don’t significantly penalize me for buying in odd lots, I will continue to do this for the beneficiaries of my trust funds.

Stock Selection Notes

We just completed stock selections for the six portfolios. It takes a few weeks, from the time the stock selections are posted, collecting the $500 contribution from each beneficiary, matching the $500 and contributing $500 more, and then following up to actually get the selections from each beneficiary.

These decisions to pick stocks are not taken lightly. This represents a significant amount of money for each beneficiary, and it is a lot of babysitting or mowing lawns or saving allowance to save up for the purchase.

The results of the stock picks were…

Yahoo 4 (selections)
Yandex 4 (selections)
Cliffs Natural Resources 1 (selection)
Devon 1 (selection)
Seaspan 3 (selections)

This totals 13 instead of 12 because portfolio five sold Alcoa (endless Chinese competition) and purchased 3 stocks instead of 2.

No one picked:

– Philip Morris, cigarette manufacturer (they only sell overseas)
– Infosys, Indian software developer / outsourcer
– IBA, a Mexican poultry producer

It makes some sense because cigarettes seem socially awkward to buy and the Indian outsourcer and Mexican poultry producer don’t seem very exciting. In the future I will work a bit harder to “promote” some of these investments better. However, in the end, it is their money and their stock selection (from the list).

Fees and Expenses:

It is amazing how cheap it is to setup and run these portfolios. They are under the trustees “umbrella” account so they each get a number of free trades each year (far more than they actually use, since we mainly “buy and hold” unless there are exceptionally large gains or losses). The portfolios have been free to set up and run the last few years, and many of them have ZERO expenses since inception (OK, there is an SEC fee on purchases or sales, but that is a few cents).

From an expense perspective you can’t beat these portfolios. The “real” expenses that they pay is as close to zero as it comes.

On the other hand, the funds essentially earn no interest. Many months it rounds to less than one cent. They don’t even send the 1099-int (interest) because it isn’t needed if you have less than $10 or so (this is from 2008, maybe it has changed a bit). There is nothing to say anymore about “compounding” interest. Thanks to ZIRP interest is effectively nil and irrelevant on checking and savings accounts, along with money market accounts (unless you buy bonds, in which case it usually is just very low).

Tools To Select Stocks:

The tools to purchase and select stocks have gotten immensely easier to use. It was originally primitive to purchase stocks online and when you sold it didn’t even tell you how many shares that you were selling on the “sale” page (you had to remember from the previous page). The purchases didn’t “net” against your available cash so you had to check manually to see if you were going to exceed available funding.

We started these trust funds right after 9/11 and it has just gotten better and better over the years.

Dividend Portfolio Final Results

Since interest rates are so low I didn’t want to just renew my CD bond “ladder” and decided instead to take those funds and invest them in a portfolio of dividend stocks. Currently stock dividends are returning more than government debt, which is a very rare occurrence.

Thus I selected a dozen stocks with reasonable yields (between 2% and 5%, I wanted to avoid extremely “distressed” stocks) and with reasonable performance (not a large run up or decline in the last year). The portfolio began in July, 2012.

I could have just bought an ETF that focused on dividends but many of these ETF’s were in the 0.4% or more in terms of expenses, especially since I was looking at a substantial percent of international stocks and it is difficult to find an ETF that covers all of this. Since I had a number of free trades that I had accrued with my brokerage firm, the effective expense ratio of this effort was zero. That saved me about $500 on an annual basis, which is significant when the “net” return is around 1% – 2% on any sort of debt right now that is near risk-free.

What I learned immediately is that dividend stocks are extremely volatile, as are all stocks. Since I was not attempting to select stocks for gains, I made a rule that if stocks went up 15% or down 10%, I’d sell, and then re-buy something else to replace it in the portfolio. This rough rule of thumb said if you got 15% return that was 5 years worth of dividends at 3% / year, which was a gain to take off the table. On the other hand, you didn’t go into this to lose significant amounts of money (remember, this is my CD ladder money as noted above) so I would sell as a “stop loss” rule.

Based on this rule I had very high turnover. In the first 5 months I had sold off 2/3 of my original stock picks. This level of turnover is high for a portfolio that is supposed to earn income, not yield gains or losses.

For a baseline, I used the BND ETF from Vanguard. This isn’t just a baseline, I actually did invest roughly the same amount into that ETF as a core holding at the same time. I plan to keep the BND ETF indefinitely.

Come mid March 2013, I decided to end this experiment. Here are the results:

– for the stocks, a return of about 18% annualized, of which about 85% was capital gains (net of losses)
– for the EFT, a negative return of about (2%) annualized, which is due to a decline in the price which more than offset the returns

The specific stocks are listed on the links sidebar or you can go here.

What did I learn?

I learned that dividends are a relatively small component of a stock portfolio and that return is often dwarfed by other market forces. During this time there was a stock run-up in value so that is what the portfolio move was driven by. It is a fools’ errand to view stocks and income (dividends) from stocks as a replacement for income from an instrument such as a CD, bond, or ETF / mutual fund.