Major Changes to My Monthly Investment Plan

Just when I thought I was done fine-tuning my monthly investment plan just a few days ago, loyal3 dropped a bomb (an email) forcing me to re-do it all over again. This is a big change for me, as the illustration above summarizes how I felt. My monthly investment plan relied heavily on loyal3 for proper diversification, as Loyal3 had a great selection of consumer, technology, and financial stocks. In fact, out of $3500 monthly investment, $1900 was via loyal3. Now that loyal3 is gone, I am left with only no-fee DSPPs to choose from. I spent hours searching through various DSPPs sites, to include computershare.com, shareownerline.com, astfinancial.com, and stockplans.broadridge.com, for candidates to add to my monthly investment plan. The vast majority of stocks available either charge fees or had poor fundamentals to be investable. I did find a couple more stocks (UNP and DPS) to add to my plan. Additionally, I restarted ongoing monthly investments in GIS and BMTC and stopped ongoing monthly investment in NSC. Finally, I increased amount of monthly investment in a number of stocks. Here is the revised plan:

Ticker	Rating	DGI	Shiller P/E	Yield	Monthly Invest	Sector	Sector Total	Sector Percent
NVS	A1	B	15.26	3.74%	$200.00	Healthcare	$600.00	21.43%
SNY	A2	B	22.90	3.57%	$200.00
BDX	B+2	A	33.93	1.59%	$200.00
DPS	A2	C	36.19	2.36%	$200.00	Staples	$400.00	14.29%
GIS	B1	B	23.80	3.32%	$200.00
XOM	B+1	A	11.05	3.73%	$300.00	Energy	$300.00	10.71%
AFL	B3	A	14.69	2.34%	$300.00	Financial	$500.00	17.86%
BMTC	D	C	25.84	2.11%	$200.00
EMR	A2	A	18.84	3.30%	$200.00	Industrial	$600.00	21.43%
UNP	A2	C	27.07	2.27%	$200.00
VMI	D	D	24.54	0.99%	$200.00
YORW	D	B	46.94	1.78%	$200.00	Utility	$200.00	7.14%
SON	C2	A	24.32	2.87%	$200.00	Material	$200.00	7.14%
Total			24.16	2.64%	$2,800.00		$2,800.00	100.00%
Rating	$	%	$	%
A	$1,000	36%	$1,200	43%
B	$1,000	36%	$800	29%
C	$200	7%	$600	21%
D	$600	21%	$200	7%
Total	$2,800	100%	$2,800	100%
Rating is based on Morningstar as follows:
A=Wide Moat; B=Narrow Moat; C=No Moat; D=Not rated by Morningstar
+=Exemplary; [blank]=Standard; -=Poor stewardship
1=Low; 2=Medium; 3=High; 4=Very High uncertainty
DGI (Dividend Growth investing) as follows:
A=25+ years of higher dividends;
B=10-24 years of higher dividends;
C=5-9 years of higher dividends;
D= less than 5 years of higher dividends.

Changes implemented:
1) All the stocks from loyal3 are dropped (involuntarily). That is 13 total. 

2) DPS is added. It is a wide-moat stock and substitute for KO or PEP which I can no longer invest in.

3) UNP is added to replace NSC. UNP has shown better growth and profitability than NSC; moreover, I already have more than $14k invested in NSC so I felt it prudent to diversify into UNP.

4) GIS is added back. I stopped GIS before because it was lower in quality than other consumer staples stocks available through Loyal3. Now that Loyal3 is gone, there are not many good consumer staples stocks to choose from, so GIS would have to suffice.

5) BMTC is added back for similar reason as 4) above.

6) SNY, BDX, YORW, and SON are increased from $100 to $200/mo, while XOM and AFL are increased from $200 to $300/mo. This is done to boost overall investment level to $2800/month given the small number of stocks in the plan. 

Overall, the overall investment level of $2800/month is still lower than the $3500/month before. Number of stocks plummeted from 23 to 13. Shiller PE decreased slightly (1.1%) from 24.44 to 24.16. Yield, unfortunately, increased 8.6% from 2.43% to 2.64%. 

In the coming months, I will continue to look for no-fee DSPPs that may be added to this plan, as well as ways to lower the portfolio PE and yield.

Farewell Loyal3

I was saddened to received an email from Loyal3 yesterday (April 18, 2017) stating that they will shut down and transfer all brokerage accounts to FolioFirst on May 22, 2017, unless I either sell all shares and withdraw the cash, or transfer my account to another brokerage firm by May 15, 2017. FolioFirst supposedly offers more services including commission-free trading (up to 2,000 trades per month in twice-daily windows) in over 200 publicly traded stocks and ETFs (exactly which 200? it would not say). The catch, however, is a fixed $5 per month fee starting August 1, 2017.

While $5/month is not terrible, I can trade commission free with Merrill Edge and paying $5/month for the privilege of investing fixed dollar amount each month (currently I invest $1900/month at loyal3) is still a 0.26% expense ratio, more than I am willing to pay. Moreover, I suspect the $5/month fee is rather low for industry standards, and FolioFirst will most likely increase that to $10, $15, or even more down the road once it has acquired all the accounts from loyal3. After all, nothing prevented loyal3 from changing the rules and nothing will prevent FolioFirst from increasing its fees later on. Also, another big negative is a whopping $100 fee for full ACAT out by FolioFirst. Thanks, but no thanks. I am initiating full ACAT of my Loyal3 account to Merrill Edge today.

Loyal3 was fun while it lasted. I have been a loyal customer for 4 years enjoying no fees purchases of stocks in fixed dollar amounts every month, allowing me to use dollar cost averaging. For some time, Loyal3 even offered purchases by credit cards for no fees! No other brokers offer that. That allowed me to get a lot of cashbacks on my credit cards.

Unfortunately, all good things must come to an end. Free trades proved too good to last, and just like my first broker, Zecco, Loyal3 will cease to be a no fee broker.

Requiescat in pace, Loyal3!

Fine-Tuning My Monthly Investment Plan

It has been roughly 10 months since I last modified my monthly investment plan. I have been content with the plan and generally resisted change. The impetus for change came, however, after I did my tax return for the past year. My income puts me at the 25% ordinary income and 15% dividends tax bracket. The bite that taxes take out of my investment returns increasingly weighs on me.

Take two stocks both with 10% total return for example. If a high yield stock pays 4% dividend with a 6% price appreciation, the 4% dividend becomes 3.4% after tax, giving a total return of 9.4%. If a low yield stock pays 1% dividend with a 9% price appreciation, the 1% dividend becomes 0.85% after tax, giving a total return of 9.85%. So investing in the high yield stock means I am effectively paying a 0.45% "expense ratio"! Just as it would be foolish pay 0.45% extra expense ratio for a mutual fund that performs no better than a cheaper version, it is nonsensical to lose 0.45% to taxes. Hence, I eliminated two higher yielding stocks and increased stakes in two lower yielding stocks while adding a low yield stock. My revised plan is as below:

Ticker	Rating	DGI	Discount?	Shiller P/E	Yield	Monthly Invest	Sector	Sector Total	Sector Percent
NVS	A1	B	N	15.35	3.76%	$200.00	Healthcare	$400.00	11.43%
SNY	A2	B	N	23.59	3.46%	$100.00	Healthcare
BDX	B+2	A	N	33.65	1.60%	$100.00	Healthcare
KO	A+1	A	N	24.04	3.46%	$200.00	Staples	$700.00	20.00%
WMT	A1	A	N	16.38	2.79%	$200.00	Staples
PEP	A+1	A	N	28.09	2.67%	$100.00	Staples
BUD	A+2	C	N	21.95	3.13%	$100.00	Staples
UL	A1	D	N	25.94	2.74%	$100.00	Staples
XOM	B+1	A	N	11.21	3.67%	$200.00	Energy	$200.00	5.71%
BRK.B	A+2	D	N	26.36	0.00%	$200.00	Financial	$500.00	14.29%
AFL	B3	A	N	14.58	2.36%	$200.00	Financial
AXP	A3	C	N	19.01	1.69%	$100.00	Financial
INTC	A2	D	N	19.42	3.09%	$100.00	Tech	$200.00	5.71%
MSFT	A2	B	N	30.00	2.40%	$100.00	Tech
EMR	A2	A	N	18.73	3.32%	$200.00	Industrial	$600.00	17.14%
NSC	A2	B	N	22.30	2.19%	$200.00	Industrial
VMI	D	B	N	23.61	1.03%	$200.00	Industrial
YORW	D	B	Y	44.99	1.86%	$100.00	Utility	$100.00	2.86%
NKE	A+2	B	N	43.22	1.30%	$200.00	Discretionary	$700.00	20.00%
DIS	A2	C	N	35.03	1.38%	$200.00	Discretionary
VFC	A+2	A	N	27.29	3.07%	$150.00	Discretionary
MCD	A2	A	N	28.19	2.88%	$150.00	Discretionary
SON	C2	A	N	23.97	2.91%	$100.00	Material	$100.00	2.86%
Total				24.44	2.43%	$3,500.00		$3,500.00	100.00%
Rating	$	%	DGI	$	%
A	$2,600	74%	A	$1,600	46%
B	$500	14%	B	$1,100	31%
C	$100	3%	C	$400	11%
D	$300	9%	D	$400	11%
Total	$3,500	100%		$3,500	100%
Rating is based on Morningstar as follows:
A=Wide Moat; B=Narrow Moat; C=No Moat; D=Not rated by Morningstar
+=Exemplary; [blank]=Standard; -=Poor stewardship
1=Low; 2=Medium; 3=High; 4=Very High uncertainty
DGI (Dividend Growth investing) as follows:
A=25+ years of higher dividends;
B=10-24 years of higher dividends;
C=5-9 years of higher dividends;
D= less than 5 years of higher dividends.

Changes implemented:
1) EXC and NNN are dropped. EXC had a 3.6% yield while NNN had a 4.1% yield. NNN is the worse of the two in that it is an REIT, so its dividends are taxed as ordinary income, which generates an even higher tax bill. My total investment in EXC has also grown uncomfortably large to over $20K, so I wanted to stop adding to it. My utility sector allocation is now down to just 2.86% in only 1 stock: YORW.

2) AXP is added. This is an A-rated stock, unlike EXC (B-rated) and NNN (D-rated), which increases my overall percentage of A-rated stocks to 74%. AXP has a relatively low 1.7% yield and reasonable Shiller PE of 19. This addition also increased my financial sector allocation to 14.29%.

3) NKE and DIS investments are increased from $150 to $200 per month, each. Both are high quality low yield stocks.

Changes I considered but did not make:
1) I seriously considered replacing either INTC or MSFT with GOOGL. INTC and MSFT are slow growing/ stagnating and INTC's 3%+ dividend yield is a bit high. GOOGL is a fast grower with zero dividend. I resisted the change, however, due to GOOGL share dilutions and lofty valuations. If GOOGL's price drops some, I might take the plunge.

2) I thought about getting rid of SNY and/or NVS given their high 3%+ yields, but then I would be left with little representation in the healthcare sector. My stock selection in the monthly investment plan is limited to no fee direct stock purchase plans (DSPPs) or loyal3 (no fee to buy specified dollar amount of stocks each month). In the meantime, I will keep looking for lower yield replacements in this sector.

Overall investment level remains at $3,500/month. Number of stocks dropped from 24 to 23. Portfolio yield decreased (4.7%) from 2.54% to 2.42%. Shiller PE, however, increased slightly (1.6%) from 24.09 to 24.48. That is a good tradeoff overall.