How should I estimate my income from fixed sources like bonds, CDs and stocks?

By Ryan Barnes AAA
A:

Once investors know the approximate due dates and yields of their holdings, they can do a few simple calculations in a spreadsheet or other program to calculate thier income. Here is a breakdown of the due dates for some common fixed-income sources:

  • Bonds & CDs - Government, corporate, and municipal bonds tend to pay their interest semiannually, but exactly which months will depend on the individual issue. Information about specific bond coupons can be obtained from account statements or from a broker or advisor directly. The same semiannual schedule also applies to certificates of deposit (CDs) from a bank or other institution.

  • Money Market & Mutual Funds - Many fixed-income mutual funds and exchange-traded funds will pay their income monthly. The exact amount distributed each month will vary based on market conditions, but a current yield figure can be found online or through a broker and used to calculate a pro-rated amount that will be sent to your account each month.

  • Stocks - Common stocks that pay dividends typically distribute this income once per quarter, or four times per year. Yield figures for stocks can also be found through many media outlets or through a financial advisor. Companies generally try to increase their dividends over time, but most do so slowly, and so investors should assume a relatively constant yield over short time frames. Preferred stocks may pay their dividends quarterly or monthly, but the dividend rate is typically locked in at issuance.

A hypothetical portfolio could look like this on an income estimation spreadsheet:

Portfolio A
- Market Value Annual Yield Annual Income (est.) Payment Schedule
Bond Mutual Fund $60,000 3.50% $2,100 Monthly dividend
CD at local Bank $50,000 4.50% $2,250 June, December
Money Market Fund $20,000 2.75% $550 Monthly dividend
Stock ABC $15,000 2% $300 Mar, June, Sept, Dec
Stock XYZ $45,000 3% $1,350 Feb, May, Aug, Nov
- - - - -
Totals: $190,000 - $6,550 -

From here, you can go one step further and set up a view that shows your investment cash flows by month:

Income by Month
- Bond Fund CD Money Market Stock ABC Stock XYZ Total Income
November $175 - $46 - $338 $559
December $175 $1,125 $46 $75 - $1,421

This information can then be input into your overall budgeting plans. If there is a shortfall in the desired level of income, the investor could take steps such as seeking higher-yielding investments (which may come with higher risks) or reducing expenses.

To learn more on creating a dynamic fixed-income portfolio, see The Basics Of The Bond Ladder and Creating The Modern Fixed-Income Portfolio.

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