Tax Refund Portfolio
For as long as I can remember, my wife and I have had a large tax return every since we got married. In years past, we have used our refund to help save for our kids college education by investing in 529 savings plans.
Now that these plans have been established and are growing, the focus has shifted to building dividend income. Starting this year, for the first time we have decided to invest the majority of our tax refund into dividend paying stocks.
We are not chasing high yield stocks, but rather following a process to select only the top companies that pay consistent dividends. Our stock screening process helps us identify which companies meet our investment criteria for things like dividend yield, payout ratio, and dividend growth.
All of the dividend income stocks that we invest in can be found on the Money Sprout Index. Those that were purchased from our tax refund dollars are a small subset of the overall index.
As a way to show the power of investing, we are breaking out the stocks we have invested in from our tax return. While these stocks will still be highlighted in monthly dividend income results and the Money Sprout Index – we want to focus on this subset by providing monthly updates.
After realizing that we could increase our future dividend income by $200 per year by investing our tax refund – we were sold.
Then we calculated out that if we continued to invest our tax refund for 20 years ($5K per year), we would eventually build out a nice annual income stream of just under $7,000!
All that analysis has resulted in what we are calling the – Tax Refund Portfolio. This page will serve as a central location to track our progress.
Each month we detail the status of the tax refund portfolio by giving updates on the value of the portfolio. More importantly, we detail the dividends collected thus far from the portfolio and project future dividend cash flow.
Tracking our $5,000 over many months and years will highlight the importance of investing over a long period of time.
Year #1 Updates (May 2015 to April 2016)
- Update #1 (May 2015) – $5,025.88 (up 0.50%)
- Update #2 (June 2015) – $4,992.76 (down 0.14%)
- Update #3 (July 2015) – $4,768.80 (down 4.62%)
- Update #4 (August 2015) – $4,422.54 (down 11.6%)
- Update #5 (September 2015) – $4,523.69 (down 9.5%)
- Update #6 (October 2015) – $4,771.01 (down 4.6%)
- Update #7 (April 2015) – $5,298.11 (up 5.9%)
There will be some months that are down while other will be up. As long term investors, we are not focused on the overall value of the stocks as much as building a solid foundation of future dividend income.
The key to building wealth is to start investing early while taking advantage of discounted stocks whenever possible – which we plan to do.
We will continue to track the status of our original $5K investment for as long as it seems relevant. In addition, we have plans to continue investing our future tax refunds – assuming that we are going to receive one next year. Each of those additions will be included in our updates.
Our goal is to show the power of investing a rather small amount of money annually – in this case $5,000.