Mock Portfolio Investing: Income Portfolio

Keeping in line with this MOck portfolio series, this is an overview of my mock income portfolio. I made a few assumptions:

  1. I would anticipate the reasonable investor to have at least $1,000,000 in their portfolio when they retire. Hopefully you will have more, but this is a good place to start.
  2. The overall goal of this strategy is to maintain at least half of the funds invested in the market. The remaining funds will be parked in a money market account waiting for other opportunities to invest. Granted this money is making a pathetic return (1.25%), but it is safe.
  3. I have opted for a number of higher yield, relatively inexpensive stocks (on evaluation), that I consider at very good buy points. Some are dividend aristocrats*, but all are at a very good buying position.
  4. The goal for me is most certainly income generation, however, I will also take growth when I can get it.
  5. The overall income goal is 4% yield on an annual basis.
 Ticker  Shares  Price Paid  Last  Initial Investment
TGT* 1,474 $50.88 $50.88 $74,997
HBI 3,522 $21.29 $21.29 $74,983
SKT 1,929 $25.91 $25.91 $49,980
GE 2,865 $26.17 $26.17 $74,977
SYY* 1,010 $49.49 $49.49 $49,984
TEVA 2,380 $31.50 $31.50 $74,970
VDC 357 $139.90 $139.90 $49,944
BMS* 1,070 $46.71 $46.71 $49,979

The total value of this portfolio is $1,000,000 with roughly half of this invested. I think it is reasonable to purchase any investment in this portfolio in 5% – 7.5% blocks ($50,000 – $75,000). I will buy on the higher side (7.5%) when I believe these purchases can make a stronger impact on my overall portfolio through growth opportunities as well.

Ticker Shares Purchase Value Div $ Div % Annual Dividend Income
TGT* 1,474 $74,997 $2.48 4.82% $3,655
HBI 3,522 $74,983 $0.60 2.66% $2,113
SKT 1,929 $49,980 $1.37 5.35% $2,642
GE 2,865 $74,977 $0.96 3.65% $2,750
SYY* 1,010 $49,984 $1.32 2.69% $1,333
TEVA 2,380 $74,970 $1.36 4.28% $3,236
VDC 357 $49,994 $3.68 2.63% $1,313
BMS* 1,070 $49,979 $1.20 2.58% $1,284

Annual dividend income for these securities is $18,326. The remaining $500,000 should accrue $6,250 if left in the money market account (1.25%) over the next year. Income from these two sources will account for $24,576. The goal is 4% annual income from this portfolio, so based on this, we are $15,424 shy of our goal.

This is the point where risk vs reward is critical. I could place all of the funds into income seeking investments and at an average dividend rate of about 2% – 3%, we still fall short of our goal, and place this portfolio at significantly more risk. This is where the growth component comes in. I fully expect names like Target, GE, Teva and Haines Brands to grow and increase their value over the next 6 – 12 months, thus giving us additional income.

Over the next 6 – 12 months, I also expect to see some sort of market correction and we have tons of cash on the sideline to take advantage of this. Should this correction not happen (do you really think it won’t?), we still have plenty of funds available to take advantage of any opportunity the market should give us in the form of pullbacks.

As a side note, we have not discussed several very important aspects related to income investing, additional revenue sources and Social Security. We also have not discussed the amount of income needed by the owner of this portfolio.

Let’s tackle the last question first. The answer is simple, we have no idea. This is a generic exercise and everyone concerned will be different. I have based my interest in this as a method of providing income using a specific strategy. If I were reading this blog I would take from it overall concepts rather than a specific number. After all this is not investment advice to anyone, simply an exercise to improve techniques of investment and my interest in sharing and receiving feedback.

Additional revenue sources. Again, this exercise cannot account for this. Maybe Mr. Retiree works part time at the local golf course as a starter in the morning or drives a school bus five days a week and makes $10,000 in additional revenue each year, who knows. This exercise will assume no additional income other than investments, but it is worth discussing as a practical matter.

Social Security. Motley Fool wrote an article in late 2016 regarding average Social Security income for U.S. retirees. In this articles the average monthly S.S. income for males was approximately $1,500 and $1,200 for females.

We cannot assume that just because someone had been able to save and invest one million dollars over their lifetime for retirement, they had a high income job for most of their working career. This particular portfolio owner could have been the sole income generator for a family of four making a six figure salary for the last 20 years but investing poorly. This could also have been a very astute investor that made reasonable decisions and lived below their means for forty years, never making more than $50,000 as a family.

We will make no assumptions here and use the Fool’s research for additional Social Security income using $32,400 ($1,500 x 12) + ($1,200 x 12) as the Social Security annual income source. Of course having said this, I have already made the assumption that this is a two income retirement, but this appears to be the relative norm, so I’ll go with that. We have to draw the line somewhere. Please feel free to make any adjustments you feel necessary.

So there it is, we have started our income revenue portfolio. Let’s see how we do over the next several months or years, hopefully this portfolio owner can live care free for the rest of their golden years.


VOO @ 165 – 180, VTI @ 90 – 101, VYM @ 75, VNQ @ 80, VCLT @ 88, VPU @ 105, T @ 35, DUK @ 81.

Up next…….Managed Portfolio.



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