Hey there, fellow reader. With another month in the books I’m glad to share with you an update on the latest financial developments and investment moves, bringing us further on our Path Toward Financial Independence by the end of 2024.

In particular I wanna show you

• our asset allocation in May,
• our savings rate,
• Passive Income Generation from our dividend paying shareholdings as well as from our Peer to Peer (P2P)/Crowdlending (CL) Investments and (we target USD 20’000 in Passive Income for 2020) and
• our recent stock acquisitions.

Finally, I want to give you a brief update on our Big Real Estate Project (acquiring rental properties in France).

Total Wealth jumped to USD 872’000 in May (April: USD 850’000), driven by strong stock market performance and robust savings

The reopeninng of businesses all around the world having been temporarily shut down amid the COVID-10 pandemig positively impacted the sentiment of international stock markets which also got a strong boost by very supportive monetary policy of Central Banks.

Let’s have a look at the pie chart showing our Cash Positon, Stock Portfolio as well as our Peer to Peer and Crowdlending (P2P/CL) Portfolio.

Our Share Portfolio accounts for 33 % of total wealth, up from 31 % (in April). The total market value of our investment portfolio increased by USD 22’000 to USD 288’000. We have over 60 stock positions which represent our FIRST PASSIVE INCOME MACHINE.

Stock markets had recovered quite nicely by the end of May which helped moving up the market value of our investment portfolio by USD USD 13’500, furthermore my wife an I invested over USD 8’500 (see lateron in this post) into new stock positions.

Our Cash Pile (money on bank accounts) grew by USD 1’000 to 541’000, representing 63 % of total wealth, more or less unchanged compared to the previous month. As said, we invested USD 8’500 into very interesting four new stock positions, these investments were mainly funded by our regular savings from day jobs as well as from our passive income of the previous month. We also made further cash withdrawals from our P2P/CL portfolio in the amout of USD 2’000.

Our P2P/CL Portfolio now makes around 4 % of total wealth, down from USD 40’000 in the previous month to USD 38’000 by the end of May. That amount represents half of what we had invested in that asset class by the end of 2019. Our P2P/CL Portfolio is our SECOND PASSIVE INCOME MACHINE and will continue to play its role. But the COVID-19 pandemic, the lock-downs and the huge recession we all face brought us to the decision to scale back our Second Passive Income Machine.

Peer to Peer – and Crowdlending represent a relativ new and extremely interesting asset class but also with substantial risks. Currently, we consider the Risk-Reward-Profile of Stocks as more attractive, that’s why we prioritize the build-up of our share portfolio over our P2P/CL portfolio.

Over the last few months – in particular since the start of the COVID-19 pandemic – my wife and I set a strong focus on increasing our cash balance while keeping investing in stocks and taking advantage of interesting opportunities.

Stock markets all over the world recovered quite a bit from their March lows. But make no mistake: we are not out of the woods, there are huge challenges and recovery will be a bumpy – and painful – road.

One reason why my wife and I like to have a large cash pile is because it gives us financial stability and flexibility amid huge uncertainties. And we want to seize investment opportunities. May was another dynamic month in terms of stock purchases. We invested USD 8’500 into three Big Tech Names plus into one more consumer staple stock. I will get into our specific share buys lateron in this blogpost.

My wife and I also want to buy real estates very soon which should be our Third Passive Income Machine.

Savings rate 50 %, down compared to the previous months

Our consumption increased quite significantly compared to March and April which showed much higher savings rates (of 73 % and 78 %). Lock-downs have been lifted and many things we had to pushed back are now possible like going to the

• dentist,
• optician,
• doctor,
• gym,
• hairdresser,
• restaurant,
• cinema,
• etc.

Interestingly, our regular grocery shopping bill was also higher in May, compared to February, March and April.

My wife and I have a very down to earth lifestyle with a very clear focus on maintaining a robust savings rate. But we also want to enjoy our Path Towards Financial Independence and are quite relaxed with regard to our pent up demand for services and products after a period of subbdued spendings due to the previous lock-down months (March and April).

A 50 % savings rate is still very robust, also given the fact that our average monthly savings rate in 2020 is still around 65 %. We extract a lot of cash from our monthly inflows, trying to live off from 35 % of our incomes while using the excess 65 % to increase our cash pile and making our stock portfolio stronger.

May Passive Income USD 2’230, down 45 % Year over Year

The COVID-19 pandemic and the lock-downs all over the world has a strong negative impact on the dividend income generation capability of our stock portfolio.

In May 2019, our dividend stocks generated over USD 3’200, compared to now USD 1’900. In fact, without incomes from our P2P/CL portfolio in the amount of over USD 300, the YoY would have been even more severe than that 45 % drop.

Income from our P2P/CL investments was lower compared to the previous month (ca. USD 300 vs. over USD 400 in April) which was due to our withdrawals from the platforms. Currently, we have around USD 38’000 invested on Mintos, Bondora, Iuvo, Evoestate, TWINO and Crowdestate.

Several of our May dividend income generators cut their payouts (e.g. BMW) or even suspended them entirely for the year (such as SIXT, Glencore, Dufry, Banco Santander).

There are also several businesses having postponed their shareholder meetings while some companies pledged to make additional payouts by the end of the year. Going through the COVID-19 pandemic while preserving cash is the right thing to do, so I am certainly not souring about these management decisions.

But of course, comparing May 2020 with the same month in the previous year is a tricky thing. The hard, cold numbers show a lower passive income in May, but there will certainly be some additional cash flows in the following months which will hopefully smooth out the YoY passive income drop in May.

We still maintain our 2020 full year Passive Income Goal of USD 20’000 which is an extremely interesting challenge. Clearly this is a “moving target” given the amount of uncertainties.

My guess would be that there is a strong potential for a recovery in the back half of the year, but of course always under the condition that there won’t be additional severe global disruptions (e.g. second COVID-19 wave, geopolitical tensions etc.). What I’ve learned in almost 20 years in investing is that despite all gloom and doom there is always plenty of room for positive developments and surprises.

Our Stock acquisitions in May

Market disruptions always provide opportunities. Prices change, things get more attractive and some businesses are now in a much much stronger position than before the COVID-19 pandemic.

My wife and I are always on the lookout of nice opportunites and in May we put the amount of roughly USD 8’500 to work by investing into following stocks:

• Amazon (USD 2’200)
• Alibaba (USD 1’800)
• Shopify (USD 2’800)
• Campari Group (USD 1’800)

Let’s start with Amazon, shall we? Well, Amazon is a real giant. The company sets its focus on e-commerce, cloud computing, digital streaming and artificial intelligence. Its strong business profile is supported by its ubiquitous brand name, its global reach and of course there is the increasing strength and profitability of Amazon Web Services (“AWS”), which accounts for the majority of the company’s operating income. Amazon Web Services offers scalable cloud computing services. Amazon is an ever growing giant, supported by its significant cash flow generation and excellent liquidity profile. This excellent liquidity is centered around nearly $20 billion of free cash flow, cash and equivalents of around $27 billion, and marketable securities of around $22 billion. From online shopping to AWS to Prime Video and Fire TV, the current COVID-19 Crisis with lock-downs all over the world has been demonstrating the adaptability and durability of Amazon’s business model as never before. And I am quite optimistic, that Amazon will continue to prosper.

Another Huge Tech Name we added to our stock portfolio in May is Alibaba Group Holding Limited, a Chinese e-commerce company, providing online and mobile commerce businesses in China and other international markets. Alibaba operates in four segments: e-commerce, cloud computing, digital media and innovation initiatives. While the company expects meaningful growth from all four segments over the medium and long term, its core commerce business is currently by far the most important one, generating almost all the earnings of the company.

Let’s come to the third and fourth stock addition in May:

Shopify Inc. is a Canadian multinational e-commerce company offering online retailers a suite of services “including payments, marketing, shipping and customer engagement tools to simplify the process of running an online store for small merchants.

In April, we acquired Alphabet (parent company of Google) and we now have a Mini-Tech-Portfolio with the additions of Amazon, Alibaba and Shopify. Through our holdings in class B Shares of Berkshire Hattaway (added last month), we indirectly also have a stake in Apple.

My wife and I are passionate Dividend Growth Investors, we like our core investments in businesses such as Nestlé, Roche, Novartis, Danone, Unilever, Coca Cola, PepsiCo etc. But we also have to face the fact that BIG TECH has become increasingly important, disrupting markets and competitors. In our view it is sensible to put a portion of our expected annual passive income (roughly USD 20’000) into TECH NAMES whenever we feel that their stock prices come down a little bit.

Then comes our last stock acquisition. Gruppo Campari is an Italian company, active since 1860 in the branded beverage industry. Camapari produces spirits, wines and soft drinks. The company has a very interesting brands portfolio, including Campari, Aperol, Appleton, Grand Marnier, SKYY Vodka, Wild Turkey etc. We had an eye on that company for years, it always showed a premium stock price with a price earnings ratio well above 30. Well, after having come down to 25 (on the basis of 2019 earnings), Gruppo Campari represents a very interesting and attracitv addition to our investment portfolio.

Preparing our trip to France for Real Estate Investments

By the end of 2019, my wife and I had made our plan to push things further and speed our Journey towards Financial Independence by building a real estate portfolio which will be our THIRD PASSIVE INCOME MACHINE, generating significant rental income in around two years.

Jumping into real estate abroad is a pretty cool project for us which of course requires good planing.

My wife and I had initially planned to be in France the first week in April. But due to the COVID-19 pandemic we temporarily had to freeze that plan.

We now plan (again) our trip to France, this time in August. As we had to postpone our projects for some months, there was plenty of time for us going more into the details to prepare the real estate transactions and of course to build our cash pile further.

We have our eyes on three apartments (one, two and four rooms) in the city Mulhouse in France. It’s quite near to the Swiss border and what we plan is to buy real estates to rent them out lateron. The amount we plan to invest in 2020 is roughly USD 150’000. The whole plan has some complexity but is also amazingly exciting.

Equally important, we have our eyes on a very nice country house with a beautiful big garden. It’s a bit early, but we want to have a look at country houses it as we are considering to build our second mainstay in France, once we achieved Financial Independence.

What about you, fellow reader, did resp. do you take advantage of recent market volatility and acquired some stocks? How was your May in terms of Passive Income?

Disclaimer
You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action

Managing our Finances amid the COVID-19 pandemic

Hey there, fellow reader, welcome to my monthly financial update where I share our progress on our Journey towards Financial Independence by

• shaping our finances to boost our savings rate and
• keeping investing in income generating assets like dividend growth stocks etc.

While in the past few years my wife and I had a very strong focus on acquiring productive assets that generate Passive Income, the COVID-19 pandemic with its health risks and its enormously negative impact on our societies and global economy had us Change our Financial Priorties.

For the next months,

• boosting and keeping our savings rate above 70 % and
• increasing our Cash Pile to well over USD 550’000 (+ 10 % compared to 31.12.2019)

shall be our Key Performance Indicators.

We want to go through this crisis in a much stronger shape and as financially flexible as possible. There are a lot of uncertainties and we want to keep our ability to continue our investment process. As Dividend Growth Investors with a very strong Buy and Hold Approach, these are extremely challenging but also quite interesting times. It is true, international stock markets – in particular US-Indices like the Dow Jones Average, NASDAQ and Standard & Poors – don’t really seem to price in a very deep global recession.

But make no mistake, there are hundreds – if not thousands – of fine businesses whose stock prices are being hammered and which will eventually recover over the next 12 to 24 months. Some of them even significantly stronger than before.

There are plenty of very nice opportunities and as we are tipping our toes into real estate investing, LIQUIDITY is KEY! Having a cash pile let’s long term oriented investors take advantage of market dynamics. That’s why we decided to raise our cash pile from USD 500’000 by 10 % to USD 550’000 WHILE AT THE SAME TIME keeping investing quite heavily into dividend paying stocks and having our eyes on acquiring real estate objects if prices make sense for us.

In April, we have been quite busy and acquired two New Stock Positions (see lateron in this post) while further reducing our Peer to Peer (P2P) and Crowdlending (CL) investments which in combination with our strong Savings Rate led to a Nice Increase of the Cash Pile.

Our asset allocation as of April 2020

Compared to the end of 2019, the pie chart showing our wealth allocation changed quite a bit over the last four months:

Our investments on Peer to Peer (P2P) and Crowdlending (CL) platforms have moved from USD 68’000 to under USD 40’000 as I withdrew almost USD 30’000 over the last weeks. We currently have investments on six platforms (Mintos, Bondora, Iuvo, TWINO, Evoestate and Crowdestate) after having exited Fastinvest in February and Grupeer in March (I have written down USD 300).

Liquidity on bank accounts (Cash Pile) grew from USD 500’000 by 31 December 2019 to currently over USD 540’000. The goal ist to build that cash pile further to at least USD 550’000 by the end of June 2020. I am more than ever ambitious to build a real estate portfolio, but given the uncertainties caused by the COVID-19 crisis we will definitively approach that goal carefully and with a massive “war chest”. We have ZERO DEBT and want to keep as financially flexible as possible.

By the end of 2019, our share portfolio with over 60 dividend paying stock positions had a market value of over USD 310’000, compared to currently USD 265’000. Over the last four months, we invested around USD 25’000 into stocks, so despite financial markets having come up from their March lows quite nicely, the fall of our stock portfolio is quite significant.

Total wealth is down from 880’000 to 850’000, a drop of 3,5 % compared to 31.12.2019.

Four months of strong savings and still total assets are USD 30’000 lower than by the end of last year.

It’s never nice to see wealth decreasing. We want to grow, our assets to climb. But don’t let’s forget, that tough and volatile markets ALWAYS show tremendous opprtunities.

78 % Savings Rate in April

After almost eight weeks in lock-down, several countries in Europe (Austria, Switzerland, Liechtenstein, Germany etc.) have slowly started to open their economies which have been severely hit.

Our consumption plummeted. Our discretionary spending in particular have fallen drastically in our household which resulted in quite high monthly savings rates (73 % in March and 78 % in April).

My wife and I luckily have job positions that are quite stable – or at least hopefully continue to be so. The COVID-19 crisis is a cruel reminder that nothing is certain. So, what we want is to “extract” as much savings from our salaries, grow our cash pile and keep investing.

As said, due to lock-down, our discretionary spendings in April have gone to almost zero. No eating out in restaurants, no meeting friends in bars after work, no short travels, no vacation etc.

As hairsalons have been closed through April, my wife cut my and our son’s hair. Our ears are still intact and we look good 🙂 So, again, there were plenty factors that gave the opportunity to save a nice amount of money.

Our grocery shopping bills in April declined as well compared to the ones before the lock-down. I guess because of the tendency to buy in bulks. I chose to make one big purchase each two weeks (not only for my family of four, but also for our parents etc.) to reduce health risks. This turned out to be extremely beneficial.

One of the advantages of lock-down is to have much more time for my family. We take our time to cook together and go for a walk etc. The really important things like spending time with our loved-ones don’t cost any money.

Costs of commuting (gasoline) have almost been non-existent due to the possibility of home-office. I drove significantly less frequently to my office.

April Passive Income down 12 % Year over Year (YoY)

Compared to the same month in the previous year, there clearly were some headwinds and some tailwinds, leading to quite a mixed passive income picture.

April 2019 showed USD 2’500 in Passive Income compared to now less than USD 2’200!

Considering the circumstances we are all in, I see it positive, that our investment portfolio generated USD 2’200 in dividend and interest income (net after taxes), supporting our savings rate. But of course, what we want to see is consistent growth of productivity for our Passive Income Machines.

Let’s first have a look at the positive factors (which increased our April passive income by almost USD 500 YoY):

• Compared to April 2019, we now have P2P/CL investments, which contributed a solid amount of more than USD 410 (see how we initiated our P2P/CL portfolio in August 2019)
• In February 2020, I’ve added tobacco giant Altria to our stock portfolio which contributed USD 29 in April in form of a quarterly dividend
• Seven of our April dividend contributor have hiked their shareholder distributions compared to the last year (see the specific increases lateron) which in combination with dividend reinvestments led to a nice passive income boost.

Unfortunately, the above described positive factors have more than been offset by following headwinds (wich decreased our April passive income by more than USD 1’000 YoY):

• Bank giant HSBS scrapped its quarterly dividends from the second quarter onwards which lowered our April passive income by around USD 100.
• Because of the COVID-19 pandemic, shareholder assemblies of Deutsche Telekom, LVMH DKSH, Covestro and Henkel have been postponed. I expect the dividend amounts to be paid out late in summer or autumn (USD 198 from Deutsche Telekom, USD 266 from Covestro, USD 40 from LVMH, USD 100 from DKSH and USD 55 from Henkel). So these “technical factors” (change of dividend payment dates) reduced our April passive income by USD 620.
• Swiss industrial company OC Oerlikon made aother special dividend in addition to its regular shareholder payout but unlike in the previous year, there was no payout made from the capital reserves, which is tax free, leading to a lower net (after taxes) dividend income (USD 476 compared to USD 554 in April 2019).
• Last year, mining giant Rio Tinto made a special dividend payment in addition to its regular semester distribution (USD 247). This year, given the cirumstances there are of course no special dividends to be expected and consequently our income from that fine business has been lower in the amount of USD 112.
• Last year, we received the dividend from British tobacco firm Imperial Brands in April whereas in 2020 we got the payment in March. So that “technical factor” (change of dividend payment date) lowered our April passive income by USD 147.

So, given these combined factors, we are still quite happy with our April Passive Income Results. 2020 will certainly be a bumpy road, with many surprises and of course dividend cuts. For the year however, I still remain optimistic to achieve our target of USD 20’000 in Passive Income.

A very mixed organic dividend growth picture

As a dividend growth investor, I want to see our stock holdings generate steadily increasing payouts over time.

Seven of our April dividend income contributors did exactly that and hiked their payouts quite nicely:

• Nestlé: + 10.2 %
• Coca Cola: + 2.5 %
• Diageo: + 5 %
• Altria: + 5 %
• Swiss Re: + 5 %
• Zurich Insurance: + 5 %
• Rio Tinto: + 10 %

British pharmaceutical company GlaxoSmithKline held its shareholder payout unchanced.

As said, bank giant HSBC scrapped its quarterly dividend payments for 2020 and with regards to the companies whose shareholder meeting had been postponed I know from Deutsche Telekom and French luxury business LVMH that there will be cuts of the payouts.

Again, 2020 is gonna be tough. So, let’s fasten our seat-belts, keeping reinvesting all the dividends and of course continue putting money to work by acquiring income generating assets.

Our stock buys in April 2020

In April, I made quite a new move by acquiring for the very first time stocks of businesses that don’t pay any dividends!

Right, I put USD 4’400 to “work” without increasing our Passive Income Generation. But make no mistake, acquiring pieces of high quality businesses that are true compounding machines at a reasonable price will give a nice boost to our wealth building process.

All right, let’s have a look at our two April stock investments in the amount of rougly USD 2’200 each.

Taking a stake in Warren Buffet Company Berkshire Hattaway

Every Dividend Growth Investor knows that giant Holding Company in Nebraska called Berkshire Hattaway.

For instance, the company wholly owns auto insurance company GEICO, the battery business Duracell, the American chain of ice cream and fast-food restaurants Dairy Queen and the US railway company Burlington Northern Santa Fe.

But in my view even as interestingly, Berkshire Hattaway has significant stakes in KraftHeinz (we all know Heinz Ketchup, right?), Visa, Mastercard, Goldman Sachs and of course my favorite positions Coca Cola and i-phone producer Apple.

Berkshire Hattaway is a huge portfolio with investments in businesses I’ve been interested in for quite a long time (for every dividend growth investor, companies like Visa and Apple are definitively worth a look).

But what I also like is Berkshire Hattaway’s huge cash pile of over USD 120 Bn!

The Corona Crisis Sell-Off in March put the B stocks of Berkshire Hattaway in a price range that caught my interest and I was more than happy to take a stake in that Wonderful Company early in April.

Investing in Google parent Company Alphabet

I am sure, each of us uses products and services of Alphabet on a daily basis.

People probably initially think of the search engine Google that gives us instant access to other websites around the world. Seventy percent of Alphabet’s revenues come from Google searches and user activity on platforms like Gmail, Google Maps, Google Play and YouTube. The vast majority of that money comes from ads.

But there is much more, like Chrome browser or the Android mobile operating system. Furthermore, Alphabet has made considerable investments in the Stadia cloud gaming system, Waymo self-driving vehicles, and other technologies.

Beside its huge economic moat, I like the company’s strong financials with a very robust profit growth while sitting on a cash pile of USD 130 Bn.

Alphabet certainly is not immune against the COVID-19 crisis as plenty of companies will reduce their ad spendings, but certainly I was happy to acquire pieces (Class A Stocks) of that wonderful business at a reasonable price.

What about you, fellow reader, did resp. do you take advantage of recent market volatility and acquired some stocks? How was your April in terms of Passive Income?

Disclaimer
You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

Hey there, fellow reader. I am glad you’re stopping by.

As the world is going through an extremely turbulent and tough period due to the Coronavirus, take care of yourself and your loved-ones. Let’s all stand together to face the challenges and let’s remain optimistic, that better days are ahead.

Re-Focusing our Financial Targets

It’s just amazing, it took only a few weeks to smash a bull stock market that had been running for over a decade and the fight against the Coronavirus brought the world economy on the brink of a severe recession.

March has been an extremely turbulent month, the worldwide lock-down and its economic consequences also impacted our personal lives, financial decisions and our projects. Just to name some of them:

• My wife and I pushed back our trip to France to the beginning of next year (!). We had initially planned to acquire appartments in France near the Swiss boarder and renting them out, establishing an additional Passive Income Machine (diversifying our income streams from our stock portfolio and Peer to Peer (P2P) investments).
• The stock bull market came to an abrupt end in March and crashed with an amazing speed. I heavily accumulated shares over the last weeks and we will continue investing over the next months which requires substantial liquidity.
• While heavily investing into stocks and planning to acquire real estate, we want to increase our cash pile – currently in the amount of USD 500’000 – by 10 %. What we want is to go with a lot of “firepower” through these turbulent times which ALWAYS show great opportunities.
• So, early in March I took the decision to substantially scale back our Peer to Peer and Crowdlending Investments and withdrew almost USD 20’000.
• Continuously investing is important for us, but when it comes to achieving Financial Independence, the savings rate is absolutely paramout. My wife and I luckily have stable active incomes and always want to “extract” as much in form of savings. And here we had been able to make great progress. Our savings rate climbed from 68 % in January to 69 % in February and litterally jumped to over 75 % in March as we were able to reduce several cost positions.
• We still aim for USD 20’000 in total passive income for 2020, but currently set our focus on increasing our savings rate and building our cash pile further.

Working on our cost structure

The savings rate shows the percentage of one’s income (take-home pay, dividends, received interests etc.) which can be “extracted” as savings. Over the last ten years, my wife’s and my active income has been more or less unchanged. Whenever we go a pay rise, we “used” that to reduce our work pensa to have more time with our children. So, in our case, the real driver in boosting our savings rate was reducing our spending positions.

We continously assess ways to

• to become more profitable,
• boost our earnings power,
• gain more financial muscles and
• become more and more flexible and build wealth

It’s a kind of virtuous cycle.

If you want to shape your finances, you must track your spendings (rent, costs for groceries, commuting, insurances etc.)  and calculate, what you keep each month! Write your savings rate down and then work on increasing it.

Tackle first the low “hanging fruits”, expense positions you can easily reduce without even feeling any disadvantage. And then immediately tackle your fixed cost block (rent, insurances etc.). Once reduced, it’s like an annuity, paying you back each year.

Our lock-down has made several things much more complicated and I hope that it will end soon, but in terms of cost structure, there are several positive effects such as

• less/no commuting to work
• significantly lower costs as almost all of our trips and holidays for the year had to be cancelled (resp. put back)
• currently no child-care costs
• no spendings for eating outside
• etc.

With a savings rate well above 70 %, cash generation and our ability to invest in income producing assets on a regular basis is strong. We want to keep – to some extent – some of these cost advantages even when the lock-down comes to an end (e.g. are we considering to become car-free etc.).

All right, let’s have a look at our passive income generated from our stock portfolio and our second Passive Income Machine – our P2P Portfolio.

50 % Passive Income jump year to date

March was a very strong month with over USD 900 in dividend and interest income, compared to over USD 600 in the same month of the previous year.

This increase was mainly due to a combination of following factors:

• We established a P2P/CL portfolio in August 2019, which is now generating interest income. This month’s P2P income was lower than the monthly expected average amount of USD 700, I will highlight the reasons lateron.
• In March we acquired a nice position in the Swiss company BB Biotech, which is a new dividend contributor for that month.
• Last year, we received the second quarterley dividend payment from British tobacco company Imperial Brands early in April, while this time the inflow happened late in March.
• March dividend contributors increased their payouts by over 6 % on average, which more than offset quite significant currency headwinds (against the Swiss francs).

Robust Organic dividend growth

Nine of our ten march dividend contributors hiked their shareholder distributions compared to the previous year.

• J.M. Smucker + 3.5 %
• Novartis + 4 %
• ExxonMobil + 6.1 %
• Chevron + 8.4 %
• Roche + 3.44 %
• Unilever + 7 %
• BB Biotech + 11.47 %
• BHP Billinton + 18 %
• Imperial Brands + 10 %

Oil and gas supermajor Royal Dutch Shell kept its payout steady.

Lower income from our P2P/CL portfolio

While interest income from our Second Passive Income machine was USD 700 in February, revenues from our P2P/CL portfolio came in substantially lower in March with “only” USD 90 which was mainly due to the write-down in our Grupeer position which I have almost completely wound down in February and March.

I reduced our whole P2P/CL positions by almost 20’000 and had stopped all automatic reinvestment programs late in February (in the case of Grupeer, I had stopped all reinvestments since August 2019).

The main reason behind scaling back our P2P/CL-portfolio is to raise our cash pile from currently USD 500’000 to USD 550’000 over the next months in order to make significant investments in the stock market and have a “war chest” to acquire real estate objects.

Late in February and early in March, I wound down our positions in Grupeer and TWINO by almost 100 % . Unfortunately, USD 300 could not be withdrawn from Grupeer, as the company announced on 25 March that they had to stop all payouts. They blamed the Coronavirus for their “temporary” difficulties. Anyway, I wrote down the remaining amount I was not able to withdraw.

Currently, we have around USD 45’000 (down from USD 68’000 by the end of 2019) invested on six platforms (Mintos, Bondora, Iuvo, TWINO, Evoestate, Crowdestate), down from nine positions by 31.12.2019.

All Right, let’s have a look, how we used the cash withdrawals to strengthen our First Passive Income Machine – our Stock Portfolio.

March was an excellent month to acquire pieces of fine businesses

I have been quite aggressively buying stocks in the last two weeks of March, putting the total amount of roughly USD 16’000 to work. Here’s our “buying list”:

• Danone (ca. USD 2’000; topping up existing position initiated in February 2020)
• Swisslife (ca. USD 4’000, bought in two tranches; new positon)
• BB Biotech (ca. USD 2’000; new position)
• Admiral Insurance Group (ca. USD 2’000 ; new position)
• Allianz Insurance Group (ca. 2’000; new position)
• Swiss Re (ca. USD 2’000; topping up existing postion initated some years ago)
• Dufry (ca. USD 2’000; topping up existing position initiated in 2019)

These additions to our stock portfolio will boost our forward dividend income for the year by almost USD 1’300, putting our full year passive income goal of USD 20’000 already in full sight!

Looking ahead

We will continue to buy stocks over the next months but presumably at a slower pace. Given the fact that share prices look quite attractive, we want to invest USD 5’000 to 10’000 each month. We’ll work very hard and save our active incomes vigourously in order to fuel our investment process.

In Addition, as said, we want to increase our cash pile from USD 500’000 to at least 550’000 over the next months to be fully in the position to take advantage of market opportunities, in particular with regard to real estates.

What about you, fellow reader, did resp. do you take advantage of recent market volatility and acquired some stocks?

Disclaimer
You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

Our path towards Financial Independence by 31.12.2024

Hey there, fellow reader. Welcome to our MONTHLY PASSIVE INCOME UPDATE.

As my wife and I are working towards our goal to achieve FINANCIAL INDEPENDENCE by 31.12.2024, we set a strong focus on increasing our savings rate and boosting our passive income by acquiring “productive” assets.

Currently, we have TWO PASSIVE INCOME MACHINES:

1. A Stock Portfolio consisting of over 60 holding positions. In 2020, our portfolio is expected to generate more than USD 12’000 in dividends (net after taxes).
2. A Peer to Peer (P2P) and Crowdlending Portfolio with roughly USD 60’000 invested on eight platforms, currently expected to generate roughly USD 600 in interest income per month.

Our short-term goal for these two PASSIVE INCOME MACHINES is to generate over USD 20’000 in 2020.

And we want to push things further by building a real estate portfolio which will be our THIRD PASSIVE INCOME MACHINE, generating significant rental income in around two years.

We have been living in Central Europe (Switzerland and Liechtenstein) for many years and are also considering to build a second mainstay in France for the time when we will have reached Financial Independence. That’s why we not only have our eyes on small appartments (buy to let) but also on residential properties.

So much about our visions and medium term plans. Now let’s get to the level of execution, where we set the basis to make things happen.

February Financial Numbers

We had a very successful month. Our savings rate stands at around 65 %, fueling our investment process while our cash pile remained quite stable slightly above USD 500’000 (see our asset allocation as of 31.12.2019 here).

Since automn 2019, we have not added any stock holding to our portfolio (except dividend reinvestments) as prices have been quite high. So, our cash position could build up nicely for a couple of months.

We started building our P2P/CL portfolio in summer 2019 and basically just invested the funds which had been “freed” from corporate bonds as roughly USD 60’000 had been running off at that time.

Having a cash pile of over USD 500’000 gives us tremendous stability and flexibility in life and sets us in a position to benefit from (market-) opportunities whenever they arise. A large portion of the USD 500’000 will be used to acquire rental properties over the next two years. Our real estate portfolio will then be our Third Passive Income Machine, diversifying our cash inflows further.

My wife and I took advantage of increased market volatily during the last week in February and acquired stocks of four businesses, strengthening our First Passive Income Machine further. And we added a new P2P platform to our Second Passive Income Machine. I will get into these additions lateron.

As you can see from the chart above, despite good cash generation from our stocks (USD 350) and our P2P/CL investments (USD 700), February showed quite a substantial loss on our Monthly Passive Income Statement in the amount of USD 2’000. This was due to the complete write-down of our two crowdlending positions Kuetzal and Envestio which both collapsed in January. I had initially planned to make the write-offs throughout the full year 2020 by evenly deduct roughly USD 300 each month. However, I took the decision to make the adjustment in one big move as I want all numbers (total wealth etc.) to be accurate.

Furthermore I find it extremeley important

• to face losses,
• analyse them,
• take my lessons to make a full re-assessment and necessary adjustments and
• then quickly move on to resume growth.

Now, let’s have a look at our current two Passive Income Machines.

USD 350 from our Stock Portfolio, a 33 % increase Year over Year (YoY)

Last year, we had three businesses paying us dividends in February in the amount of USD 264: Spanish Banco Santander, British American Tobacco and British soft drink maker Britvic. Now, we have one additional February dividend contributor: Victrex (position added in June 2019), which paid us USD 77.

Compared to February 2019, despite quite significant currency headwinds, around 10 % in additional dividend income was due to “organic growth” and reinvestments. Britivic and British American Tobacco both offer Dividend Reinvestment Programs (DRIP) and in the case of Banco Santander, one of the quarterly dividend distributions is paid in form of stocks.

Organic dividend growth of our February contributors was as follows:

• British American Tobacco: + 4 %
• Britvic: + 6.4 %
• Banco Santander: + 3 %

Victrex recently announced to keep its shareholder distribution unchanged. Victrex is the leading manufacturer of high-performance polymer which is known as PEEK. It’s a company with a broad economic moat and strong financials.

Further strengthening our stock portfolio by adding more businesses

As said, February showed very nice volatility in the markets and some stocks got hammered. Well, that’s when we get interested in acquiring pieces of quality businesses at lower prices.

My wife and I really like consumer staple companies such as Nestlé, Unilever, Heineken, Coca Cola, PepsiCo, Britvic, Nichols, Berentzen etc.. These are companies that build the backbone of our portfolio, pieces of businesses rewarding long term shareholders for their patience.

Late in February, we invested the amounts of roughly USD 2’000 (each) in Fevertree and Danone. We also pulled the trigger just a few days later to acquire stocks of British Petroleum (BP) and US tobacco giant Altria (MO), in the amount of USD 2’000 for each position as well.

So, February was a good Investment month in which we put a total of USD 8’000 to work.

Now, let’s have a look at these stock acquisitions.

Fevertree, the British producer of premium drink mixers (tonic water, lemonade, ginger beer etc.) has been on our watchlist for quite some time. The business was founded in 2004 and has shown remarkable growth. In just a matter of few years, Fevertree products surpassed sales of Schweppes (Coca Cola) to become the market leader. Fevertree’s financials are strong and I see many drivers for further growth. Our yield on cost is low, somewhat above 1 % but the company’s business model is asset light, Fevertree is highly cash generative and I wouldn’t be surprised to see very nice cash returns over the medium term. I’d be surprised to see the stock price sinking over the next two years, which will give me the opportunity to pile in more stocks of a company I like very much. Currently, our position is quite small, as we only put USD 2’000 into Fevertree, and to take advantage of further stock price pressure.

Danone S.A. is a French multinational food-products corporation based in Paris. The business has three segments:

• specialized nutritian (Aptamil)
• waters (Evian, Volvic etc.)
• dairy and plant-based products (Activia, Actimel etc.

Danone is significantly smaller and less diversified than Nestlé and Unilever but is still larger and much more international than many of its peers e.g. like J.M. Smucker. Growth has been robust over the past decades but Danone has certainly never been a “high-flyer”, which is good, stock price levels have been more or less reasonable.

Danone is a well managed consumer goods company that has a very strong focus on brand building. It’s interesting, for instance, that Danone has invested much more in marketing as a percentage of sales than many of its peers. Return on equity has consistently been in a range of 12 to 15 % in the past years and Danone has been in the process of deleveraging. The balance still looks a bit stretched, very obviously acquisitions of the past years have left their marks, I see the same with J.M. Smucker for instance, which in my view overpaid for their latest pet food acquisitions. Danone’s forward price earning comes clearly below 20. Not cheap, but I would say that we paid a fair price for a very solid business.

US tobacco giant Altria has been on my watchlist for some time. I like the strong cash generation and relatively moderate debt level of the company. Altria made an investment into e-cigarate maker Juul last year and I was quite sceptical about the price they paid (over USD 12 Bn). In my view, Altria overpaid, in particular given the problems Juul faces. I wasn’t at all surprised to see Altria write down almost 2/3 of the invested amount. I guess many investors are very disappointed how Altria handled that acquisition and it is certainly one reason for the very depressed stock price. Another reason is the declining volumes of cigarettes consumed in the US. Altria only operates in that market, in contrast to its sister company Philips Morris which produces and sells its products globally. On the other hand, Altria is the clear market leader in the US with its flagship brand Marlboro accounting for more than 40 % of the whole cigaret market. Altria’s pricing power could compensate falling stick volumes but of course this cannot going on for years. Geographically, Altria seems very focused and also vulnerable. But don’t let’s forget that the company has a significant stake in the word largest beer producer AB Inbev and investments in wine businesses. Offering a dividend yield of 8.5 %, it was just too tempting for me, that’s why I pulled the trigger during the big sell-off late in February.

Another holding, we added late in February was oil major British Petroleum currently having a dividend yield of over 8 %. I can remember, when I took a stake in Royal Dutch Shell in 2009, when there was still a market mood as the world was falling appart and of course it was only hindsight visible that the financial crisis and the market sell-off had found its bottom at that time. Today, of course things are different. But with a 8 % dividend yield due to a stock price that had been falling quite significantly, not only do I see a margin of safety but also good chances to make British Petroleum a solid long term investment. Of course it will be bumpy,road depending very much on oil price fluctuations and clearly the dividend could be cut (we have seen this in the past) but British Petroleum has also been amazingly resilient for decades.

Over USD 700 income from P2P/CL platforms, more than offset by BIG write-downs

Our two P2P flagships Mintos and Bondora performed very well in February and so did Grupeer, TWINO and our much smaller positions Evoestate and Crowdestate.

The February performance of these six platforms is quite interesting given the fact that as a reaction to the collapse of Kuetzal and Envestio and amid a major risk-re-assessment from my side, I had reduced our P2P/CL portfolio by almost 10 %, making several withdrawals (EUR 3’000 from Bondora, EUR 600 from TWINO, EUR 450 from Evoestate, EUR 200 from Mintos). I also completely wound down our position in Fastinvest (EUR 500).

The main reason for the strong performance is fact, that interest rates have been higher on Mintos and Grupeer compared to the previous months. For instance, by the end of February, net annual return on Mintos stood at 12.3 %, compared to slighlty above 10 % by the end of 2019. Grupeer now also has a lot of loans returning 14 %.

We are in the process of reducing our positions in Grupeer and TWINO by 50 % over the next months and have already started to build up a new positon in Iuvo Group, where we invested the amount of EUR 2’500 and already received a bonus (as we registered through an affiliate link) in the amount of EUR 90.

Iuvo is an Estonian P2P platform which started in 2016.

Here’s what we like:

• Iuvo Group is profitable
• loan originators on the platform are profitable
• all loans on the platform come with a buyback guarantee from the loan originators
• loan originators must keep 20 – 30 % “skin in the game” (e.g. on Mintos: usually 5 – 10 %)
• Iuvo is very transparent with regard to loan originators etc. (in contrast e.g. to Fastinvest)

Unfortunately, the buyback guarantee does not cover interest rates. So, for instance when a loan is late resp. in default, it will be bought back by the loan originator within 60 day, but in the meantime, the invested amount of course does not earn any money. And there is another aspect, which is the flipside of a less risky P2P platform: the returns are lower. I expect them to be in a range of 5 % – 8 % (Grupeer e.g. offers loans with 13 – 14 % but is the more risky platform in my view).

Some thoughts on P2P risks

The collapse of Kuetzal and Envestio taught me several very valuable lessons. Of course, it’s almost certain that these platforms have been scams and it hurts in particular, to lose money that way.

But some important lessons certainly are:

• never ever invest in a platform that offers a buyback guarantee granted by itself combined with the promise to investors to buy back loans whenever investors want to sell. This combination is a serious red flag. It’s a recipe for huge platform risks.
• Never ever invest in a platform which does not disclose its financial reports (not being profitable is not a knock out criteria, but at least the platform has to be transparent about that fact).

Kuetzal and Envestio showed not only the above noted red flags but even worse things.

The days after these platform collapsed, I started to seriously doubt on the robustness of our whole P2P/CL portfolio.

That’s good! It was the start of a self reflection process and I made a major risk re-assessment.

One major result: I concluded for myself, that I want to continue building our P2P/CL portfolio but only with established platforms such as Mintos and Bondora, and of course to become much more cautious. TWINO, Evoestate, Grupeer don’t show red flags. We will be cautious but that’s an important conclusion for myself.

For instance, TWINO issues itself loans and puts some of them on the platform, granting a buyback guarantee. The company is profitable and has several hundreds of employees. The company has a proven track record. TWINO also has a secondary market. Investors can sell their loans to other investors, but it’s not TWINO that has to buy these loans.

Kuetzal and Envestio “promised” both, buyback in case of default of loans and additionally to buy back loans in case investors wanting to exit their investments.

Fastinvest was a platform in our portfolio where we saw several red flags and had no place in our portfolio anymore. For instance, it buys back loans from investors that want to exit their investments and in case of the default of a loans, loan originators buy them back after just 5 days. This would require significant cash resources from Fastinvest and absolutely high quality loan originators with strong profitability and perfect liquidity management. Fastinvest however neither discloses its own financial reports nor the names of its loan originators. A significant lack of transparency with a huge platform risk is a combination we are not tolerating anymore after the Kuetzal and Envestio debacles.

Grupeer is not yet profitable. Grupeer discloses its loan originators which is more than what Fastinvest does. What I don’t like about Grupeer though is that there still is no secondary market and that Grupeer has a close relationship to at least one large loan originator (the founders of Grupeer have a stake in the loan originator) which could have the potential for a risk concentration. On Grupeer, loan defaults are not visible and are “handling internally”. I prefer Bondora, Mintos, TWINO and Iuvo in this respect, being much more transparent.

When it comes to P2P lending, 25 % to 30 % loan defaults are not uncommon. Today, when I hear “zero default rate”, I am super careful. Because that’s unusual. I would say that everything below 20 % is rather unusual.

“Zero defaults” in crowlending is like a stock investor saying that his resp. her portfolio never fluctuatiates by more than 3 % per month and that it has been steadily climbing for years while dividend inflows steadily increasing by 10 % annually. Really? How is that possible? We all know, that investor rewards come from taking volatility and by taking calculated risks. And we all know, that over the lifetime of an investor, he or she will see the portfolio cut in half several times and everyone knows that dividend cuts can happen from time to time. Heck, even Warren Buffet saw KraftHeinz and AB Inbev dividends being slashed.

Anyway. In the end, there is always someone absorbing the risks. And as long as I am compensated for risks I know, I am fine. Transparency is super important.

I had stopped all automatic reinvestments on Grupeer months ago and decided to sharply reduce our stake on that platform.

TWINO is profitable but had some financial problems in the past. So, here we want to be careful and reduce our position further.

Mintos and Bondora of course come with their specific risks as well. For the time being though, we decided to keep the positions unchanged (note: I already reduced our Bondora invesments by EUR 3’000 by the end of January) and let our current positions compound. The same with Evoestate and Crowdestate, here no changes for the time being.

Moving towards our USD 20’000 passive income milestone

Each year in February or March, I make my “Passive Income Projections“. I put the expected inflows from our income generating assets and assume no other investments during the year. It’s something I have been doing since 2013 and it’s amazing, how accurately these projections are. At the beginning of the year of course I don’t know all dividen hikes from our over 60 stock holdings yet, but it’s still accurate, as there can be currency headwinds or dividen cuts or other adversities.

The “Passive Income Projections” are the basis, from where we are moving upwards towards achieving our milestones by putting our savings to work.

Let’s have a look at the graph. For 2020 (blue line), the picture is particularily interesting, as in February we had a loss for the first time (write-down Kuetzal and Envestio). You can see the blue line (cummulated passive income) falling to almost minus (!) USD 2’000 but then recovering quite nicely over the next months and then in May surpassing the 2019 passive income of the same month.

Currently, I am projecting USD 16’000 in dividends and interest income from our P2P/CL investments.

In 2019 we had 14’000 total passive income, so how is it possible to be higher than in the previous year even if we didn’t invest any new funds in 2020?

This is due to two factors:

• First, several stock acquisitions we made in 2019 will pay their annual dividends for the first time in 2020 (Berentzen, Massimo Zanetti etc.) or in the case of semestrial or quarterly distributions, the whole dividend amounts will be paid in 2020 in contrast to 2019 (3M, Victrex. etc.). And of course, the stock acquisitions we made late in February 2020 contribute nicely to our forward passive income for the year.

• Secondly, our P2P/CL portfolio was established in August 2019. Now it will be running over 12 months with “full amount invested” (roughly USD 60’000 in loans will generate USD 7’200). Even taking into account the write-downs for Kuetzal and Envestio, there will be a significantly higher total interest income amount than in the previous year.

Our trip to France to visit real estate properties

My wife and I will be in France the first week in April. First, we will visit three apartments (one, two and four rooms) in the city Mulhouse. It’s quite near to the Swiss border and what we plan is to buy real estates to rent them out lateron. The amount we plan to invest in 2020 is roughly USD 150’000. The whole plan has some complexity but is also amazingly exciting.

We also have our eyes on a very nice country house with a wonderful garden. It’s a bit early, but we want to have a look at it as we are considering to build our second mainstay in France, once we achieved Financial Independence.

What about you, fellow reader, how was your February in terms of Passive Income?

Did resp. do you take advantage of recent market volatility and acquired some stocks?

Disclaimer
You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.