Susan's Scoop

What if Your Vacation Fund Built Itself?

I hope everyone is having an amazing summer and staying cool! I appreciate Caitlin keeping the newsletter going while I was busy taking the Series 65 exam (I passed!) and then spending most of June on a road trip around Puerto Rico with my husband and our two kids.

(The whole vacation cost under $4,000 - including flights, two rental cars (Vieques and the mainland), Airbnbs (my kids refuse to share a bed now 😄), ferries, and a bunch of tours. I think I'll write an article soon on how we travel so cheaply, which is at least tangentially related to finance!)

But today I want to talk about portfolio income, which is a surprisingly polarizing topic in many investing circles, especially among the FIRE and Bogleheads communities. They're not wrong that generating dividends usually isn't the most tax-efficient or mathematically optimized way to structure a portfolio, but I'm still a big fan of having at least part of a portfolio produce income. Here's why:

PEACE OF MIND

I can leave for Puerto Rico for 2+ weeks and know that my dividends will arrive in my bank account like clockwork and cover the mortgage payment while I'm sitting on the beach with a piña colada. I don't have to spend my vacation watching the markets or deciding which stock lots to sell to pay this month's bills.

INCOME SMOOTHING

Many of our clients own businesses or work in industries where income fluctuates dramatically from month to month, and portfolio income can help smooth out those highs and lows. Knowing that an extra $500 or $1,000 will reliably show up each month to cover groceries, utilities, or the phone bill can remove a tremendous amount of stress during slower seasons.

A GUILT-FREE VACATION FUND

This is honestly one of my favorite things to help clients set up! Many of us, especially women, feel guilty spending money on ourselves. We hesitate to dip into savings or sell investments to pay for something that's "just for fun."

But what if the vacation fund built itself?

Imagine having your portfolio dividends automatically deposited into a separate vacation account. Six months or a year later, there's enough sitting there for a trip, and it doesn't feel like you're taking money away from anything else. You simply enjoy an amazing guilt-free vacation.

Of course, there are tradeoffs to income generation. You don't control exactly when dividends are paid (vs. just selling assets for income when needed), income-focused investments may not grow as quickly over time, and some dividends aren't qualified, meaning they're taxed at ordinary income rates rather than the lower long-term capital gains rates.

Even so, investing is just as much (if not more) about psychology and peace of mind as it is about the numbers and optimization.

Most of us have spent our entire working lives in a "paycheck" mindset where money flows into our accounts on a regular schedule. For many people, including me, having part of a portfolio recreate that feeling can make spending feel much less intimidating. The tradeoff may not be perfectly optimized on paper, but sometimes the best financial plan is the one that you feel most comfortable with.

If you're curious about the different ways a portfolio can generate income, I put together an Income Pyramid below that highlights some of the more common approaches. One of the things Caitlin and I help clients figure out is whether generating income makes sense for their goals, taxes, and risk tolerance - and if it does, which approach is the best fit.

There isn't a "right" answer when it comes to portfolio income. For some people, a pure growth portfolio is absolutely the best choice. For others, the peace of mind of seeing money show up every month is worth giving up a little optimization. That's why financial planning is personal.

The goal isn't to build the highest-return portfolio on paper; it's to build one that helps you actually enjoy your life. If your investments can quietly pay the mortgage while you're on the beach, fund your next vacation, or simply make life feel a little less stressful, that's a pretty great outcome!

What I'm Reading

💻 The Case for a “Good Enough” Portfolio (Morningstar)

This article really resonated with me because it reinforces my point above: the best portfolio isn't always the one that's mathematically perfect. It's the one that helps you feel confident, stay invested, and use your money to create the life you want. I’ve actually been simplifying my portfolio lately to free up more of my time and effort. "Good enough" can actually be a pretty nice place to be. 😊

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