This is the third year that I’ve done both a financial review at the end of the year, as well as a prediction of my own passive income looking forward.  Since dividends aren’t guaranteed and can fluctuate a lot (especially last year), there’s always some uncertainty and educated guessing required to work out your own specific numbers ahead of time.

I delved into potential market recoveries in my update on 2020, as well as a preview of my expectations for 2021. In this article I’ll get into specifics on my own finances, and what I expect for 2021. (As always, these are just my personal observations – please don’t take anything here as market guidance!)

2021 Market

Market Forces

As I write this in the third week of January, 17.4 million people in the United States have had one or more doses of the Covid-19 vaccine, per the CDC tracker. That’s 5.3% of the population since the first U.S. dose on December 14, 2020, six weeks ago. It’s lower than I hoped, but better than I expected for the early phase with all of its logistical headaches. 

The S&P 500 Index rose 16% in 2020, and is presently up another 2.27%.

Unemployment remained at 6.7% in December 2020, way down from its 14.7% peak in May.

The Federal Funds interest rate remains almost zero (0.09 effective rate on 1/21/21), resulting in low interest rates for short-term borrowing and record low mortgage rates. This makes access to money easier, but drives prices higher.

Analysis

It’s unlikely the Fed will raise rates anytime soon, possibly for several years – thus far, they’ve committed to keeping them low until inflation surpasses 2% long term. The last time interest rates dropped to 0% in December 2008, they didn’t climb again until seven years later in 2015.

2020’s market already shows a V shaped recovery curve. Does that extend, or will it downturn again and turn into a W? My bet is on extend. 

Many of those who can telework have already adapted to it. As vaccinations continue, restrictions will lift, re-opening businesses and jobs for the currently unemployed in service industries. A pent-up demand for leisure activities will result in an explosion of spending in those categories in very short periods of time (restaurants, vacations, and so on).

If new strains of the virus prove resistant, and more lockdowns are needed – well, the world has been through that for eleven months now, and recovery would slow, but likely not crash. When optimism grows again, consumer spending will increase, and the market will surge back up. 

This is not to say that people aren’t suffering right now, be it from lack of food or potential of losing their homes. The sooner the economy can recover, the sooner unemployment can drop further and life can stabilize. 

2021 Dividend Cash Flow

Last year, I predicted a monthly income of $1,191 before taxes, but actual performance was 6% below that at $1,119, for an annual total of $13,400. Given all that happened in 2020, I’m happy with that. Thanks to some of the money saving measures I took, I kept my expenses quite low for the year.

In 2021, I’m predicting a monthly income of $1,162/month, which is $13,948 for the year. 

A few notations:

  • I’m not expecting CCL (Carnival) to pay out a dividend in February, May, or August, but I think there’s a chance for a reduced payout in November if things go well this summer and fall.
  • I’m expecting VNQI to recover and payout in June, despite suspending that dividend this year.
  • I may shift a few funds this year, particularly VWO, which underperformed on dividend payout despite being up in equity.
  • TSM exploded last year, so I wouldn’t be surprised if they increase their payout; however, I kept it static in my calculations.

I’m also expecting a very small amount of cash flow from my rental property this year after refinancing, around $800 for the year after all expenses. 

That’s it for 2021 predictions. I have high hopes that this year will be a great one, as people emerge a from a long, depressing quarantine and are able to resume exercise, socialization, and travel later this year. Thanks for reading.

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