Not being able to govern events, I govern myself.

Montaigne

Year in review

Exactly a year ago, in the brief quiet phase around the end of the year and in front of a Lord of the Rings film, I set out on this personal exploration of financial independence, by starting this record.

At the time, I was exactly two-thirds of my way to my target of around $1.5 million, having made conscious steps to building an investment portfolio back to 1999. Now I am here at the same time, rather surprised at the progress that has been made. Reading Nassim Taleb’s best seller Fooled by Randomness years ago has thankfully inoculated me against attributing this to any particular skill. I expect that this year will prove a more challenging environment for closing on the final goal, and pushing beyond.

My main goals for 2017 were:

1. Continue to invest in low-cost passive index approaches (mostly…see goal 5) – Achieved
2. Contribute $75 000 to my existing portfolio regularly using dollar cost averaging – Achieved
3. Achieve total interest and distributions of $28 000 – Achieved
4. Maintain an emergency fund of around 12 months of expenses – Achieved
5. Keep on experimenting at the edges of finance technology and new products – particularly with passive index-based Exchange Traded Funds – Achieved

These results are pleasing, and give me confidence to seek to be ambitious for this years investment plans and goals. I am currently reviewing my investment policy and looking at possible new goals. Before finalising these, I want to understand the shape of distributions from the end of the year, so finalising this may be a week or so away.

Over the past year my major index-based investments with Vanguard have grown by over $170 000, I have explored and used ETFs, and expanded my exposure to peer to peer lending. It’s been a year of unprecedentedly rapid progress, significant enough that I go into 2018 surer of my financial footing than at any other time. It’s also been a year of discovering the community of FI, be it active Reddit discussions, fellow Australians on the FI journey, and motivating podcasts, such as ChooseFI and the Mad Fientist.

Portfolio update

This is my thirteen portfolio update. I complete this update monthly to check my progress against my original goals.

Portfolio goal

My current portfolio objective is to reach a portfolio of $1 476 000 by 1 July 2021. My plan is that this should produce a real income of about $58 000. This is based on a real return of 3.92%, or a nominal return of 7.17%. My plan, is, however, to review this goal over coming weeks.

Portfolio summary

• Vanguard Lifestrategy High Growth – $708 727
• Vanguard Lifestrategy Growth  – $43 543
• Vanguard Lifestrategy Balanced – $76 293
• Vanguard Diversified Bonds – $103 359
• Vanguard ETF Australia Shares (VAS) – $52 647
• Telstra shares – $4 839
• Insurance Australia Group shares – $18 806
• NIB Holdings – $8 112
• Gold ETF (GOLD.ASX)  – $76 477
• Secured physical gold – $9 411
• Ratesetter (P2P lending) – $54 264
• Bitcoin – $191 250
• Acorns app (Aggressive portfolio) – $8 297
• BrickX (P2P rental real estate) – $4 383

Total value: $1 359 688 (+$58 606)

Asset allocation

• Australian shares –  30%
• International shares – 18%
• Emerging markets shares – 2%
• International small companies – 3%
• Total shares – 52.9% (8.1% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.1%
• Australian bonds – 10%
• International bonds – 9%
• Total bonds – 19.3% (0.3% over)
• Cash – 1.3%
• Gold – 6.3%
• Bitcoin – 14.1%
• Gold and alternatives – 20.4% (10.4% over)

Comments

The portfolio increased by over $58 000, and once again this gain was dominated by an increase in the value of my Bitcoin. Aside from the visceral experience of variations in value of $50 000 over a weekend, I don’t have much to say about this because in some senses it is distracting, uncorrelated noise in the context of my overall portfolio, and the last thing I want is to have this become a narrow record of cryptocurrency highs and lows.

Its variations have the unintended consequence of obscuring the progressive execution of my rebalancing towards shares and away from bonds, towards my goal of reaching a 65% allocation of equities over coming years. As an example, ignoring for a moment the Bitcoin component of my portfolio, my current allocation is actually 61.5%, pretty much exactly on target to reach the goal.

Progress

Progress to goal: 92.1% (+20.0% ahead of target) or $116 312 further to reach goal.

Summary

At this point, large market variations have the potential to wash me up on the shore of my target, or draw me back further. I am trying as best I can to remain dispassionate at the effect of these variations, and rather focus on the underlying mechanisms that brought me this close in the first place. That is, years of saving and investing, diversification of risk, and not permitting my lifestyle costs to expand to meet my income. At some point through these next few months, it’s perfectly possible I will achieve my goal. What lies beyond, then, is my current focus of thinking and reflection, of which I will share more soon.