Monthly Portfolio Update – January 2018

IMG_20180122_220323_032.jpg

My course is set for an uncharted sea

Dante

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

Portfolio goals

My current objectives are to reach a portfolio of:

  • $1 476 000 by 31 December  2018. This should produce a real income of about $58 000 (Objective #1).
  • $2 041 000 by 31 July 2023, to produce a passive income equivalent to $80 000 in 2017 dollars (Objective #2)

Both of these are based on a real return of 3.92%, or a nominal return of 7.17%

Portfolio summary

  • Vanguard Lifestrategy High Growth – $697 911
  • Vanguard Lifestrategy Growth  – $42 305
  • Vanguard Lifestrategy Balanced – $76 331
  • Vanguard Diversified Bonds – $102 436
  • Vanguard ETF Australia Shares (VAS) – $75 754
  • Telstra shares – $4 892
  • Insurance Australia Group shares – $17 998
  • NIB Holdings – $8 022
  • Gold ETF (GOLD.ASX)  – $76 331
  • Secured physical gold – $9 907
  • Ratesetter (P2P lending) – $51 663
  • Bitcoin – $140 010
  • Acorns app (Aggressive portfolio) – $9 417
  • BrickX (P2P rental real estate) – $4 288

Total value: $1 315 934  (-$43 754)

Asset allocation

  • Australian shares –  32 %
  • International shares – 18%
  • Emerging markets shares – 3%
  • International small companies – 3%
  • Total shares – 55.7% (5.3% under)
  • Australian property securities – 3%
  • International property securities 3%
  • Total property – 6.2% (1.2% over)
  • Australian bonds – 10%
  • International bonds – 9%
  • Total bonds – 19.6% (0.6% over)
  • Cash – 1.3%
  • Gold – 6.6%
  • Bitcoin – 10.6%
  • Gold and alternatives – 17.2% (2.2% over)

Comments

This month my overall portfolio has fallen with the dramatic reversal of previous gains in the price of Bitcoin. This has been the first genuine fall in my portfolio in over a year. Underlying this large headline change, however, has been no real progress in the equity elements of the portfolio, and some new investment of distributions.

For the reinvestment of the substantial distributions that came in from my Vanguard funds, I finally selected an increase in my Vanguard Australian Shares ETF (VAS) holdings. My reason for this was that I remain concerned at valuations in the US stock market, and Australian market valuations seemed less stretched. The greater tax effectiveness of franked Australian dividends was also a factor. Overall, another consideration was not seeking to increase the complexity of my portfolio with purchase of another type of ETF. Being an explorer by nature, however, I can forecast curiosity in the future overcoming this particular factor.

The new asset allocations adopted in resetting the compass at the start of the year means that I am actively looking for greater international share exposure in coming months, in as simple a format as possible. Removing the Bitcoin holdings from consideration, I am making good progress in absolute terms in moving closer to my ultimate 65% allocation target. Market movements are now playing a much greater role in affecting my allocations. At some point this will become difficult to manage through just control of new investments and distributions, leading me to potentially trigger some rebalancing sales. A decision I will need to increasingly think about is how often and when this rebalancing should occur. My current default would be twice yearly if required.

My other significant step has been to actively reconsider the level and value of life and income insurances, in light of my portfolio’s passive income record. Collectively, this has saved around $700 from two policies with AMP. All this saving required was a careful look at my own circumstances, a few emails, scanning and returning a few documents and a few follow up actions. To make sure I could see the impact of this, and avoid it being swallowed up by another expenditure category, I immediately invested the savings in my Acorns account.

Progress

Progress to:

  • objective #1: 89.2% or $160 066 further to reach goal.
  • objective #2: 64.5% or $725 066 further to reach goal.

Summary

This month has seen greater uncertainty and volatility in both my portfolio and work life, with significant but ultimately unclear changes on the horizon. My progress to date, and the strong portfolio position at the moment has made this volatility easier to disconnect from.

For example, I have found myself curiously relaxed about the fall in Bitcoin values, having perhaps never mentally locked in the large gains of last year. Rather, the steady accumulation of assets on a dollar cost averaged basis continues to underpin the growth in the underlying portfolio.

As I look back, I realise I have been awaiting an equity and bond market pull back for almost the entire length of this blog. A lesson in the risks of market timing, to be sure, however, I’m not convinced this won’t occur soon.

 

8 comments

  1. It is definitely interesting times in terms of where the markets are heading. Looking forward to following your progress.

  2. Nice work Explorer!

    Is there any reason to rebalance twice a year instead of once?

    Personally, we didn’t bother with those insurances as we deemed the other person would be just fine by themselves financially. Especially, once a decent portfolio is built up, I don’t see a lot of benefit of insurance – you can afford to ‘insure’ yourself.

    Good point about market timing. People have been calling the end of the bull market since it began. We just simply can’t know what’s going to happen, so consistent buying through all conditions seems to be the most sensible approach 🙂

    1. To be honest, I’ll need to review some of the literature on once versus twice. I think my concern would be that once may not be often enough in the face of large market movements, but from memory there is only a small difference. I’d probably aim to do it alongside major dividend payout events, which are in my case twice a year.

      I agree. My scheme had an ‘automatic’ CPI feature that increased the amount every year, so a few years of inattention, while the need was reducing, created a big opportunity for savings.

      Thanks SMA!

  3. I recently reduced my life insurance as well, given what we have now saved. I have a plan to further reduce it every 5 years until we reach FI, when I will get rid of it entirely.

    What’s going on at work? Is it a change to your job, or is it possible your employment status will change?

    1. It’s a really satisfying feeling isn’t it? I spent a lot of time comparing scenarios and methodologies, and erred on the conservative side, but once I did that, the premium savings felt close to free money.

      No change currently, more just some clouds on the horizon, and unpredictable weather ahead! 🙂 I’ll provide some details when I have them, but that may be some way off. At the moment, it feels like more interesting choices opening up, rather than a threat, but I am prone to optimism sometimes!

  4. Congratulations on having quite a substantial portfolio FI Explorer. Clearly your strategy works for you. I do wonder about the Aussie market sometimes, as an whole, earnings have gone no where over the past 10 years, and the return has reflected that. Partly this is because as investors, we have created a culture of high dividend payouts (along with franking credits) which has meant companies have less to reinvest for growth.

    I’m curious about how you developed your allocation strategy? Hard to find much that’s useful for an Aussie investor…

    1. Thank you wealthfromthirty! Yes, I have read that observation you make as well. I wonder if governments will ever really have the appetite to change the franking credits approach that is a driver. On my allocation strategy, probably a few different sources contributed over the years in particular the books: The Intelligent Asset Allocator, Four Pillars of Investing, A Random Walk Down Wall St, as well as a few Jack Bogle works. I agree, Australian data is hard to come by. Russell Investment used to release some interesting reports. One good source is the Credit Suisse Investment returns yearbook (google it, you may need to register to download, but it’s free).

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.