Monthly Portfolio Update – March 2019

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Everyone complains of his memory, none of his judgement.
La Rochefoucauld, Maxims

This is my twenty-eighth portfolio update. I complete this update monthly to check my progress against my goals.

Portfolio goals

My recently revised objectives are to reach a portfolio of:

  • $1 598 000 by 31 December 2020. This should produce a real income of about $67 000 (Objective #1)
  • $1 980 000 by 31 July 2023, to produce a passive income equivalent to $83 000 (Objective #2)

Both of these are based on an expected average real return of 4.19%, or a nominal return of 7.19%, and are expressed in 2018 dollars.

Portfolio summary

  • Vanguard Lifestrategy High Growth Fund – $732 134
  • Vanguard Lifestrategy Growth Fund  – $42 428
  • Vanguard Lifestrategy Balanced Fund – $76 692
  • Vanguard Diversified Bonds Fund – $104 802
  • Vanguard Australia Shares ETF (VAS) – $78 091
  • Betashares Australia 200 ETF (A200) – $216 609
  • Telstra shares (TLS) – $1 769
  • Insurance Australia Group shares (IAG) – $13 393
  • NIB Holdings shares (NHF) – $6 288
  • Gold ETF (GOLD.ASX)  – $83 212
  • Secured physical gold – $13 437
  • Ratesetter (P2P lending) – $26 147
  • Bitcoin – $63 947
  • Raiz app (Aggressive portfolio) – $14 491
  • Spaceship Voyager app (Index portfolio) – $1 751
  • BrickX (P2P rental real estate) – $4 621

Total value: $1 479 910 (+$40 302)

Asset allocation

  • Australian shares – 41.6% (3.4% under)
  • Global shares – 23.6%
  • Emerging markets shares – 2.7%
  • International small companies – 3.5%
  • Total international shares – 29.9% (0.1% under)
  • Total shares – 71.5% (3.5% under)
  • Total property securities – 0.3% (0.3% over)
  • Australian bonds – 6.1%
  • International bonds – 11.2%
  • Total bonds – 17.3% (2.3% over)
  • Cash – 1.2%
  • Gold – 6.5%
  • Bitcoin – 4.3%
  • Gold and alternatives – 10.9% (0.9% over)

Presented visually, below is a high-level view of the current asset allocation of the portfolio.Mar 19 alloc

Comments

This month saw the total portfolio reach and exceed the original portfolio objective set at the commencement of this journey of $1 476 000.

Since that time, portfolio goals have been updated, but nonetheless it feels as though a significant milestone has passed. Measured over the past twelve months, strong progress has resumed, that being in part a function of the dull echoes of ‘Bitcoin bubble’ of late 2017 falling out of the time period.

Mar 19 Monthly valueThe portfolio increased by a significant $40 000 this month. Part of this was new investments in Betashares A200, and a majority of this gain is attributable to the second instalment from the lowering of my emergency fund discussed here being invested. In the end, averaging two parts of this lump sum into the equity market around three months apart did not make much difference, except perhaps a mild psychological benefit. Together these moves made up the majority of the total portfolio gains. The value of the small Bitcoin holding has also increased slightly, despite its volatility having substantially reduced over the past year.

Mar 19 mnth chnge

Another milestone this month has been the finalisation of my first significant March quarter dividend from A200, which will total around $1900. This is lower than expected, being equivalent to around 0.9% for the quarter, and lower than the expected distribution rate of the broadly equivalent Vanguard VAS ETF. It is quite possible that the end of financial year results will be better, however, and on a total returns basis the A200 ETF has still tracked its benchmark closely.

With Australian equities continuing to stay close to their long term price-earnings ratio of 15, Australian equity ETFs will likely remain the primary focus of investment over the next few months. This has been one of the most dominant trends of the journey so far, with total Australian equity holdings growing from around $277 000 in January 2017, and 28 per cent of the portfolio, to around $600 000 this month, and over 40 per cent.

A small action this month has been passing up the option of further investment in Australian real estate through BrickX. Distributions had built up to a level to allow a further small fractional investment. The Australian residential debate continues in full force, however, I cannot justify even small further incremental investments at current low yields, especially given my view of the likelihood of further capital losses.

Overall, expenses continue to track at steady levels. The low red distributions line from July 2018 onwards is a product of low December half distributions, and may be able to be revised upwards once June distributions are known. This would be a welcome revision, as ‘credit card’ FI seemed to come into view through the last two years, and then disappear in a discouraging way with the December 2018 distributions.Mar 19 - Card

Progress

Progress against the objectives, and the additional measures I have reached is set out below.

Measure Portfolio All Assets
Objective #1 – $1 598 000 (or $67 000 pa) 92.6% 128.8%
Objective #2 – $1 980 000 (or $83 000 pa) 74.8% 104.0%
Credit card purchases – $73 000 pa 85.0% 118.2%
Total expenses – $96 000pa 64.6% 89.9%

Summary

This month has brought the portfolio to approximately three-quarters of the way to my Objective #2, and Objective #1 also draws appreciably closer.

Over the past month, as progress has accumulated, I have found myself meditating more fully on the nature and value of time and freedom. What has surprised is the powerful but gradual feeling of decompression that knowledge of the increasing proximity to the goals has brought. Fewer external events, daily stresses, impinge on my daily outlook.

This recent podcast from the Econtalk series, crystallised some of these thoughts, the first 10 minutes contains the best economic and empirical analysis I have encountered on the intersection of time, money, leisure and work. One of its key points – relevant for seekers of FI – is that our growing wealth over time affects how we see and value leisure time itself, and it also has some useful reflections on the concept of ‘busyness’.

This month has seen some of this more valuable leisure time used looking at the summary version of the Credit Suisse Global Investment Returns Yearbook, released last month. This provides updated data from the single best long-term series on equity and bond returns across the world. One interesting aspect of this years updated estimate of long-term historical global equity returns (of 5 per cent) is that it includes for the first time markets that suffered total losses (Russia and China following revolutions in 1917 and 1949) – addressing the issue of survivorship bias. The report argues for significant modesty in expectations of future returns.

A practical implication of this is that my conservative long-term return assumption for global equities (of 4.5 per cent) may be marginally less conservative than when it was made at the start of the year. This podcast from Bloomberg, interviewing Yale Professor of Finance Roger Ibbotson – a key figure in the collection and analysis of historical financial market returns – will provide more related food for thought.

A further intriguing crossover from recent economic literature to FI issues is the release last week of this paper The Power of Working Longer by the National Bureau of Economic Research, which studies the relationship between the decision to work for longer, compared to investing more, prior to retirement. The intriguing summary finding is that delaying retirement by 3-6 months is equivalent to the effect of one percentage point of higher wages over a 30 year working life.

The Australian FI community has also been full of interesting content this month, with Aussie Firebug laying out the basics of FI in an excellent introductory podcast, and Strong Money Australia doing a short summary of his current progress in transitioning from property investment dominated portfolio to equities. Australian investor’s benefits  from higher dividend rates also got a mention in Big ERN’s comprehensive safe withdrawal rates series. It was also great to see the appearance and progress of other new Australian FI bloggers, such a AFamilyOnFire.

With the month closed, the focus will now be shifting to awaiting and re-investing the quarterly dividends due, and contemplating that a further three months comparable to the last three – an unlikely but possible scenario – could see Objective #1 reached much earlier than my judgement had anticipated.

24 comments

  1. Hey mate. Weird but I was hanging out to read your update. As usual it’s ready first thing on 1st of the month. I love the links and will listen and read them today.

    I’ve really started to focus on FIRE literature this last month. So interesting. I love Mr Money Mustache particularly his writing style. He is a smart guy.

    I’ve slways been a big earner and someone careful with my money. But I’ve loaded it all into my home in the middle of SYDNEY which cost a bomb. So I only have small investments which I have borrowed for.

    If we downsized we would be at FIRE but I can’t let go of the beautiful home dream unfortunately which means a lifetime of work. Though I have the comfort the house could be sold at any time.

    I hope you’re well. Love reading your posts

    1. Thank you for stopping by Nathan. I’m glad you are enjoying it, and you’re very kind indeed!

      The Masters in Business podcast consistently throws up really interesting guests, keep an ear out. Understand your position about Sydney – it would be a big generation wide issue, what real estate costs have done to amount of investment capital able to flow into equity. Some maybe you’re in a way, at HomeFIRE (copyright pending, unless it’s already taken!) 🙂

  2. It’s great to see the portfolio size keep ticking upwards, a good month or two and you’ll have reached objective 1!

    Alas I don’t have an SSRN subscription, but presumably working that extra 3 to 6 months as per the NBER paper wouldn’t change things anywhere near as much in Australia given that in the US your SS payment increases if you delay it, AND it’s not means tested. In Australia there is no such increase in age pension received and working longer would in fact probably decrease whatever age pension you might get given our means testing system. Plus given you don’t receive any age pension if you have more than roughly $850k in assets (plus the family home) most of those who are planning to FIRE wouldn’t receive age pension in any case? There would of course still be the benefit of the extra money you would save while working and the effect of delaying having to draw down on your retirement savings, but I would assume the effect would be much smaller.

    1. Thank you HIFIRE!

      That is a really excellent point, and although I was aware of that component of their social security, I did not make the link that that could be a driver, as you say.

      I will try to find an ungated copy of it. It would be interesting to see exactly how much is that effect, versus increased savings, shorter drawdown.

  3. Great achievement hitting that original milestone even though you have amended it. I share similar sentiment with real estate and am kicking myself for getting into property early last year. Similar priced units to the one I bought are selling around $50k cheaper or more, but I have held onto the view that it is an investment that I will very unlikely sell and the tenant is paying rent which covers the majority of the mortgage repayments that keeps me at ease somewhat.

    1. Thank you for commenting and the encouragement easypeasyfire!

      In a way, property has some nice inflation proof properties that are valuable. It might be a tough hold, but as you say if you’re never selling, that does change things a little.

  4. Congratulations on hitting the original milestone, and being so close to Objective 1. Another month or two and that’ll be checked off your list!

    You may have mentioned it before (and apologies if I missed it), but you have quite a bit in Raiz and Spaceship. Would you consider consolidating them into one of your ETFs so as to avoid the slightly higher fees?

    I agree it’s a tough time for properties right now, especially so in Sydney and Melbourne. It wouldn’t be the right time to go into property, perhaps not for many years. We are considering selling some real estate for redirection into shares or ETFs, though I’m wary of moving too soon and potentially missing an opportunity cost.

    Thanks also for the shoutout!

    1. Thanks for leaving a comment! I hope you are right on the checking it off!

      I do, they started really as experiments and explorations in new Fintech products.
      Spaceship is 0% fee under $5000, though its mix is probably not what I would choose unconstrained. With Raiz, it’s slightly higher fee, but mostly helpful as a mental ‘bucket’, so I tend to put savings I would not have otherwise made in there (such as benefits from shopping around on insurance), as a motivational tool. To see that total $14 000 is worth something, in maintaining motivation to curb lifestyle creep. If I move to a lower tax bracket post FI, I think I would just sell and move it into ETFs. But I also believe that Fintech innovators that bring new services to market deserve to have my business, which is in part why I’m not in a hurry.

      I’m not certain what you mean about the potential opportunity cost – do you mean missing a housing price rebound?

      No problem about the shout out – it’s a very impressive looking blog you have after a short time! 🙂

      1. Thank you for your kind words 🙂

        About the opportunity cost – potential price rebound, selling the wrong property, selling too early, etc. Every investment we’ve made, we’ve always intended to hold on for the long term, and our exit strategy has been to sell off one or two immediately before retirement. We may miss the capital growth (whatever that may be) if we sold now, which makes this decision quite tough.

        1. I understand! And with potential changing tax rates in the future (i.e. tomorrow night) , future capital gains tax changes, etc it’s so hard to forecast the best move. The nice thing about ETFs is they are literally a no attention, low cost investment. He said, having calculated comparative quarterly returns between VAS and A200… 🙂

  5. If you were just beginning to invest now, would you still choose to invest a significant portion of your portfolio in bonds? If so, would you again choose the Vanguard Diversified Bonds Fund, or a different option? I don’t think there’s an ETF for that particular fund, though Vanguard does offer a few different bonds / fixed interest ETFs which would perhaps be similar.

    1. Hi Crust – good question! If I were to start again with todays products, I think I would be very tempted to just have one ETF, Vanguard’s VDHG – which still has 10% bond. The reason for this is it is a small loss of potential return for a significant diversification benefit.

      Another possible combination I might choose in those circumstances would be 60/40 split VAS/VGS, for sheer simplicity.

  6. I’ve seen it a few times but never asked.

    This
    Vanguard Lifestrategy High Growth Fund – $732 134
    Vanguard Lifestrategy Growth Fund – $42 428
    Vanguard Lifestrategy Balanced Fund – $76 692
    Vanguard Diversified Bonds Fund – $104 802

    is literally identical to this
    Vanguard Lifestrategy High Growth Fund $807 738
    Vanguard Diversified Bonds Fund $148 316

    So what is the point of having more complexity with 4 funds instead of 2 for identical underlying holdings?

    1. Excellent question, I go into this a bit in the Waypoints of the Passage post. It’s just a historical relic of a bucket strategy that’s not worth unwinding before I’m in a lower tax bracket, in terms of realising capital gains. It’s not anything more than that.

      1. Ah right .. have only read bits and pieces and was not aware you have been investing so long!
        Initially assumed it might just be some obscenely high salary, but now seeing you have actually been pushing it for a very long time. Nice to see that hard work does indeed translate into big rewards.

    1. Thanks for the question, all of the portfolio reported on in detail on a monthly basis is outside of super, not in a trust. There is some super as well, that’s picked up in the new ‘All Assets’ measure, and its also discussed a bit more in the FAQ and the ‘Shifting Tides’ blog entries.

  7. Well done in hitting your milestone! your significantly further down the FI road that I am so I’m gonna be sticking around to learn from you if you don’t mind. Nice update!

    1. Thanks very much Rohan! More time to visit places like NZ again is one motivation for FI for myself, so in that sense you’re already ahead! 🙂 Look forward to following your journey also.

  8. Hey mate, great job on the blog! May i ask a simole question about the portfolio. I see you have the vanguard lifestrategy funds are these the etfs or wholesale funds? Also how often do you add to these?

    Many thanks!

    1. Hi Nic, thanks for the comment!

      Those lifestrategy finds are all retail, and mostly just left over from a past effort to implement an overly complex “buckets” strategy. I no longer contribute to them, but selling them would unnecessarily realise capital gains. The distributions from them I direct into ETFs.

      1. Cheers for the prompt response! Im surprised you didnt get into the wholesale funds at all with lower fees?!

        I assume nowadays etfs are your major focus!

        1. Ah, yes, I built them up over time, so never had that chance. To change now would trigger tax gains. The stepped fees structure means some of the larger ones are not too bad. I’d plan to clean up the portfolio in FIRE.

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