Goal Achieved – $2000 Passive Income

I started off this year with a goal of achieving $2,000 in passive income and I finally reached that goal this week. This came as a surprise as I was not expecting to reach my goal until November after my healthcare mutual fund decided to pay out its annual distribution in October instead of the usual December. As expected, I am ecstatic that I was able to meet and will be surpassing this goal by a few hundred dollars, thanks to my ever increasing investments in dividend paying stocks and addition of other sources of passive income this year.
I hope all my readers are achieving their goals and I wish them the best. I am yet to set a goal for 2014, which I should be finalizing in the coming weeks.
For an update on my past, present and future goals, click here.

Recent Trades – CUD, OHI, VXUS, XLP

This has been a busy week with numerous trades. Over the week, I added to my positions in Omega Healthcare Investors Inc (OHI) and Vanguard Total International Stock ETF (VXUS). I sold all my positions and exited from Consumer Staples Select Sector SPDR (XLP). I partially sold my positions in Claymore S&P US Dividend Growers ETF (CUD).

Partial Sell: Claymore S&P US Dividend Growers ETF (CUD)

I decided to take some profits after the new all-time highs from this fund which has seen significant capital appreciation over the year. As of today, the ETF is up 24.5% YTD and yields 1.64%.

Addition: Omega Healthcare Investors Inc. (OHI)

I decided to double my stake in OHI from 50 to 100 shares. OHI recently raised its dividend (4th one of the year) for the 26th time since 2004. The new dividend payout will be $0.48/quarter. With this addition, my annual dividend from OHI rises from $96 to $192. My current YoC is 6.05%.

Addition: Vanguard Total International Stock ETF (VXUS)

I decided to add to my position to VXUS. With the current exuberance of the US market, I think there are more opportunities for growth in the international markets – especially with EU looking a little bit more stable now that Spain has finally exited the recession (source).

Closed: Consumer Staples Select Sector SPDR (XLP)

I have nothing negative to say about the Consumer Staples ETF. It is still a great defensive play on the market in case of downturns. This trade was purely some profit taking after the recent all time highs.

Chatter Around the World – 17

Chatter Around the World is a weekly link update of economics, investing, dividends and personal finance articles that have caught my eye. In these weekly updates, I also capture my blog updates and news related to my holdings.

New blog posts

Let dive into the links that caught my attention this week.

Updates from My Portfolio Holdings

The Best Way to Buy Annuities for Retirement

Securing your future financially can be an overwhelming task. Although saving is crucial for all of us, it is especially important for those us of getting ready for retirement. Buying an annuity is one way to make the saving process easier.

annuities

The best way to buy annuities is to know as much about them as you can to make an informed decision. Here is what you need to do before buying an annuity for your retirement:

Shop Around

Don’t commit to the first insurance company you contact about buying an annuity. Ask to speak to someone about the type of annuity they could offer you, what it would cost you and its advantages and disadvantages. Let the company know you will be in touch, and gather between three and five quotes from different companies and compare your options.

Compare interest rates, commission fees, surrender charges and other fees that would apply in the event that you need to withdraw from your annuity early or sell your annuity in the future.

In the event that you need to forgo the annuitized payments and you decide to cash in your annuity for a lump-sum payout, each company may penalize you differently. Make sure you know the terms and conditions of each contract and decide which one is the right one for you.

Know How Much You Need for Retirement

Look at your current lifestyle and project what you would need from retirement income. Factor in other sources of retirement income, such as Social Security, to determine what your long-term financial goals are for your annuity.

This will give the insurance company a better idea of what kind of annuity is right for you, and you can make a more informed decision if you know what you expect to invest in a certain amount of time.

Buy From a Reputable Company

Insurance companies that buy and sell annuities are not created equal. A referral from one of your friends may be a good place to start, but what works for your friend may not work for you. Make sure the insurance company you buy your annuity from is highly rated by a financial institution rating agency, such as Standard & Poor’s, Fitch, AM Best or Moody’s.

You can obtain a professional rating by calling the insurance company directly or by visiting a financial institution rating agency’s website.

Know the Terms and Conditions Before You Sign

This shouldn’t be a problem if you buy your annuity from a reputable company, which will go over the contract in detail with you, but it is always good to read the contract in its entirety and ask questions about anything you don’t fully understand. You can even have your contract reviewed by a financial adviser to make sure there are no hidden fees or fine print.

Annuity terms and conditions may vary depending on the insurance company you are working with, but here a few general things you should know:

  • All annuities grow tax-deferred.
  • You cannot withdraw from an annuity before you reach age 59½ without penalty.
  • All annuities provide options during the income phase based on how you want to receive your money.
  • There may be fees involved if you withdraw early or sell your annuity in whole or in part.

Purchasing an annuity should give you some financial relief for your future. To ensure you make the best decision for your retirement, be informed on your decision before you sign on the dotted line.

Kaitlyn Fusco is a content writer for Annuity.org. She combines her interests in writing and overcoming debt to inform the public about issues related to credit, debt, annuity and personal finance.

Should You Invest in Berkshire Hathaway?

Berkshire Hathaway (BRK.A, BRK.B) is the holding company that wholly owns Geico, BNSF, Lubrizol, Dairy Queen, Fruit of the Loom, Helzberg Diamonds, NetJets and many other companies; owns half of Heinz; owns stakes in Mars, American Express, Coca Cola, Wells Fargo and IBM.

Dividends

Berkshire Hathaway does not pay any dividends – so the stock is not a dividend play. That removes Berkshire Hathaway from contention as a source of income in my dividend portfolio. Warren Buffett, Berkshire Hathaway’s CEO, in his 1985 Shareholder Letter (and has reiterated multiple times since), outlined that dividends make sense only when managers can’t generate adequate returns by keeping money in the business. Berkshire didn’t pay a dividend because it had been able to earn above-market rates on retained profits. The same investing and dividend philosophy has existed to this day, 28 years later. However, there have been some hints by Warren Buffett that paying out dividends in the future may ease his successor’s path (source).

Performance

Warren Buffett’s advice to individual investors is to stick to low cost index funds. Due to the leverage Berkshire can use when they buy businesses and make other deals with public and private companies, individual investors can forget about getting similar deals in trying to mimic their behavior. Even Berkshire has trouble beating the market sometimes (see 5-yr performance comparison chart below) and Buffett himself always talks about the market index being the yardstick.
The blue line shows the S&P500 index and the red line shows the performance of Berkshire.

Berkshire Hathaway
1-Year Performance
Berkshire Hathaway
5-Year Performance
Berkshire Hathaway
10-Year Performance

Management

The company is headed (Chairman, President and CEO) by Warren Buffett, one of the all time best investors to have ever lived. The Vice Chairman is Charlie Munger, who is also a great investor. However, both Warren Buffett and Charlie Munger, aged 83 and 89 respectively, will sooner or later retire and the person taking over is not clear to the public yet, although a successor has been chosen internally. A lot of shareholder confidence rests in them steering Berkshire for profits and beating the market. Will this continue after they leave? Once they step down, Berkshire may well be in great hands, but will they be able to keep the flame going?
The beauty of index funds is that it is not dependent on the performance of a few individuals, but the overall health of the economy which is why I have stuck to index funds. What are your thoughts on Berkshire? Do you invest in Berkshire Hathaway?