How I created an income-generating portfolio with M1 Finance
Imagine throwing up for free money once a month. In the image above I feel like the guy on the left and I picture my portfolio as the green guy on the right.
Dollar Cost Averaging (DCA) is a great approach that the average person can take to start investing and getting exposure to the market. DCA is a method of investing capital in which investors regularly buy assets without paying too much attention to price. The idea is that solid investments increase in value over time and timed coordination the market for buying assets at the Perfect Price is not essential. Numerous studies have shown how difficult it can be for investors to outperform average market returns when taking a short-term approach to trading over long timeframes.
Hence the saying:
Market Time > Timing of the market
After the pandemic market crash in March/April 2020, I decided to open an M1 financial account and set up a small “fund” to manage. M1 makes it really easy to do this with its “pies”, “slices” and automatic investment tools. Like many others, I had started watching many of Joseph Carlson’s YouTube videos by this time, and I appreciated the way he explained how simple and effective dollar-cost-average is over the long term. M1 allows you to organize your portfolio into ‘slices’, which can then be further broken down into other ‘slices’. Let me explain how my portfolio is divided.
The image above represents the top-level slices that make up my portfolio. As you can see, I invest over nine different slices. Technology and real estate have the highest weights at 19% and 15%, respectively, while healthcare and telecom have the lowest weights at 8% and 5%, respectively. For every dollar I invest in my M1 portfolio, 19% goes to Tech. This 19% is then distributed among the individual holdings in my tech “slice”. Let’s see what that looks like:
As you can see in the image above, the 19% of every dollar I invest in my tech slice is then split across Apple, Microsoft, Cisco, NVIDIA, Broadcom, IBM and Intel at the target percentages shown to the right. The beauty of M1 is that I don’t have to make each of these trades active – they do it for me automatically!
Since its inception, I’ve put about $100 a week into this fund without paying too much attention to the price of each individual asset at the time of purchase. Why? Because I decided to invest big name, pay dividend (and dividend grows) companies that I believe will still be around ten years from now. Of course, any type of investing involves risk, and a recession or depression will take down the entire market, but that won’t stop me from building a portfolio of assets I can rely on for dividends monthly and quarterly. What I invest I can afford to live without. I will also buy during the depression and recession.
The chart below shows the monthly dividends I receive from this portfolio.
As you can see, I’m steadily building an income-generating portfolio that paid out nearly $50 in March 2022. The monthly average for the last three months is almost $33 right now. I realize this may seem small, but to me it represents free money on top of the price appreciation I experienced from holding the underlying assets. Also, I took this “free money” and put it back into the fund invested to accelerate its growth.
I’d like to see this portfolio average $1,000 per month going forward, but for now my goal is to make $100 after 3-month monthly dividend.
If you are interested in seeing the rest of my portfolio you can do so here: https://m1.finance/BL6sJra4Fhcu