Wealth is the number of things one can do without.

Dostoyevsky

This is my one hundred and seventh monthly portfolio update. I complete this regular update to check progress against my goal.

Portfolio goal

My objective is to maintain a portfolio of at least $3,000,000. This should be capable of producing an annual income from total portfolio returns of about $103,500 (in 2025 dollars).

This portfolio objective is based on an assumed safe withdrawal rate of 3.45 per cent.

A secondary focus will be maintaining the minimum equity target of $2,400,000.

Portfolio summary

Vanguard Lifestrategy High Growth Fund	$982,388
Vanguard Lifestrategy Growth Fund	$49,545
Vanguard Lifestrategy Balanced Fund	$85,573
Vanguard Diversified Bonds Fund	$94,830
Vanguard Australian Shares ETF (VAS)	$676,504
Vanguard International Shares ETF (VGS)	$976,970
Betashares Australia 200 ETF (A200)	$344,971
Telstra shares (TLS)	$2,601
Insurance Australia Group shares (IAG)	$9,958
NIB Holdings shares (NHF)	$9,048
Gold ETF (GOLD.ASX)	$272,257
Bitcoin	$1,866,054
Plenti Capital Notes	$84,000
Total portfolio value	$5,454,701 (+$9,064)

Asset allocation

Australian shares	26.4%
Global shares	26.1%
Emerging market shares	1.0%
International small companies	1.2%
Total international shares	28.3%
Total shares	54.7% (-25.3%)
Australian bonds	2.9%
International bonds	3.2%
Total bonds	6.1% (+1.1%)
Gold	5.0%
Bitcoin	34.2%
Gold and alternatives	39.2% (+24.2%)

Presented visually, the pie chart below is a high-level view of the current asset allocation of the full portfolio.

Comments

This month saw the overall portfolio only move marginally, rising $9,000, or around 0.2 per cent, compared to last month.

A notable feature of this month was the financial portfolio composed of traditional assets performing relatively strongly, registering gains of around $63,000. This occurred alongside falls in Bitcoin holdings, where prices declined by 2.8 per cent.

This is a continuation of a trend. The past seven months has represent the largest single period of unbroken expansion in the financial portfolio, taking the financial portfolio close to $0.5 million – or nearly 15 per cent – higher.

The chart below sets out the performance of both the full and ‘financial assets only’ portfolios since the commencement of the journey.

By far the most remarkable movements over the past few weeks have been increases – and then falls in – in the value of gold holdings. Of itself, this magnitude of monthly movements is a highly unusual event.

Gold movements over the past month have echoed those experienced in earlier periods across the mid to late 1970s, a period which featured significant global disruption, high inflation, and heightened economic uncertainty.

In some senses, these previous periods could be considered the turbulent precursors of the macroeconomic regime that last from the early 1980s to either 2008, or perhaps 2020. Features of this period were generally declining real rates, a reduction in the role of gold as a central reserve bank asset, and generally high equity returns.

What is unclear is what new regime may be being ushered into existence by, for example, the increasing pace of gold purchases from central banks, and a parallel reduction in the role of US Treasury bonds as a reserve asset, a trend accelerated by the freezing of US Treasury holdings in the Russian central bank across 2022-23.

The price changes in gold over recent month have already disrupted one long standing verity of asset allocation – with gold moving from a historically low return asset, to an asset that has, for example, clearly out-performed Australian equity markets over some substantial timeframes on a total return basis, i.e. 15 and 20 years.

By contrast, over the month, Australian equities fell marginally over the month (-0.5 per cent) while global equities advanced solidly, with appreciation of around 3.4 per cent.

This month once again a further investment in the Vanguard global shares ETF (VGS) was made, in accordance with my previously outlined strategy of gradually reinvesting excess distributions and cash across the next 14 months.

Clearing bearing: trends in financial portfolio asset allocation from 2007 to 2025

Recently a major investment bank commented on the recent rapid increases in the prices of gold and Bitcoin, labelling investors as engaging in ‘the debasement trade’.

This trade was termed in that way as a reference to investors seeking to avoid ‘fiat’ currencies or any other reproducible paper assets, and instead engaging in a scramble for truely scarce, limited assets.

Arguably, past investments in Bitcoin and gold that form part of my portfolio were partly motivated by these considerations. The increase in the value of Bitcoin holdings over time, however, can place a slightly distorted lens over the progress of the more traditional financial portfolio that was originally conceived of as the core of the financial independence journey.

This is especially the case looking at asset allocation, where Bitcoin has moved from a 1.3 per cent component of the portfolio in January 2017, to around 34 per cent more recently.

This month, amongst substantial volatility in Bitcoin, I was interested to better map the shape of the more stable underlying financial asset portfolio.

Or, to put it another way, to understand how the portfolio’s asset allocation has evolved over time if one sets Bitcoin entirely aside, and looks at only more traditional, or some might say legacy, financial assets.

From time to time, I do look at this measure, most regularly as a ‘sense-check’ on any major financial investment decisions I am considering. For these decisions, it is essentially applying the test of: what would this potential move or allocation decision look like were Bitcoin holdings to return to their original price, i.e. zero?

A second related wider question is also: what does the overall portfolio asset allocation, and trends in these allocations, look like if Bitcoin is momentarily ignored?

The chart below sets out the answer to this second question. It tracks the overall financial portfolio asset allocation on a half-yearly basis since 2007, with the shaded segment of the chart representing the period covered by this record.

From the chart there are some observations that are evident:

• Allocations to domestic and international equities expanded – total equity exposure varied across 2007, between 60-70 per cent, but broke above this range, expanding to around 83 per cent this year. This means that if (and only if) one sets aside Bitcoin from consideration, the portfolio is notionally above its target allocation of 80 per cent.
• Switching leadership between domestic and international equites across the journey – in the early part of the portfolio, international exposure was higher, driven in part by the default allocations of various Vanguard retail funds. During the ten year period from 2007 and 2017, for example, international equities made up over 55 per cent of all equities held. This reversed in late 2018 following sustained investments in 2018-19 in Australian equity ETFs (primarily A200). In July 2021, this Australian exposure topped out at 48 per cent of the financial portfolio, while international shares constituted only 33 per cent of financial assets. Gradually over time, however, the allocation between domestic and international shares closed, and they were fully equalised by 2023. Recently, as a result of the most recent adjustment to allocations, international shares have drifted slightly higher.
• Fixed interest and bond exposure waning from 2017 – through the first ten years of the journey measured in the chart, bonds and fixed interest routinely constituted 20 per cent or more of the total portfolio, rising to nearly 30 per cent in July 2014. This was mostly a product of inertia in some established automatic investments in some Vanguard funds rather than an assessment of risk and return. Following this, and associated with the start of this record, there was a conscious allocation out of bonds and fixed interest, and rebalancing across to risk assets. This process terminated in 2024, with some minor and temporary lifts in allocation due to an investment in Plenti Capital Notes.
• Relatively stable allocations to gold, with some variations – allocations in gold rose sharply with new investments in Gold ETFs across 2009-2010, and some subsequent investments. Following the last gold purchases in May 2018, variations in allocation have been driven essentially by price impacts and changes in other investment allocations.

Some of these trends can be seen at a more granular level by reference to monthly data over the past seven years.

This shows, for example, the gradual closing of any gap between domestic and global equity allocations from 2020 to 2023, as well as the gradual glide path reduction of bond and fixed interest holdings.

This graph also illustrates the extent to which recent gold price increases alone have return gold allocations within the financial portfolio to levels not seen for 5 years.

A running fix: implications for portfolio management

The question arises from this analysis: what does it signify for the portfolio management and asset allocation for the future?

Firstly, analysis of this type is a departure from the standard approach of this record, and of general practice in asset management – to view the portfolio not by reference to subcomponents, but as a single unified whole.

The counterpoint to this is reasonably obvious.

To the extent that Bitcoin may not be a permanent future asset that is high valued, or reduces in value significantly, looking at the financial portfolio can provide some ‘look through’ to this eventuality. This in turn can allow reference to be had to a more stable underlying traditional set of assets, to provide a sense-check for any decisions made at the whole-of-portfolio level.

A relevant example is evident in equities allocation.

Notionally, taking the full portfolio into account, equities make up on around 55 per cent of total assets, an apparently serious under-allocation compared to the portfolio’s equity target (of 80 per cent) of around 25 per cent. According to this metric, urgent and heavy further reinvestments and reallocations to equities should be being made.

Considering the narrower financial portfolio asset allocation discussed here, however, a completely different set of signals emerges. Viewed on this basis, there is a mild, though hardly concerning, over-allocation to equities, and potentially a need to make some minor additional investments in non-equity asset classes.

To the extent that further investments are being made in equities, it can be seen that the dominant perspective taken so far has been the holistic one – viewing the portfolio as a single portfolio incorporating both traditional and non-traditional elements.

Yet it would be foolish, in my view, to assess actions with only that single perspective.

As the future of asset prices play out in ways impossible to predict both ways of viewing the portfolio have their place.

It is also possible, though in some sense inevitably arbitrary, to further test the portfolio’s actual allocations at valuations of Bitcoin between 0 and 100 per cent of current prices for further insights. While this range may seem wide, it can be noted that 90 per cent declines in the value of Bitcoin, though rare, have some precedents.

A further implication is highlighted by the second chart, which indicates that depending on some future choices and asset pricing trends, it is possible that for the financial portfolio, gold may at some point overtake bonds and fixed interest as the major defensively focused asset.

This is an intriguing portfolio level ‘echo’ of a broader trend in central bank reserve holdings, and raises the longer-term portfolio design issue of the appropriate future role of bonds in the portfolio.

The rising tide: reviewing third quarter distributions

This month saw the finalisation and payment of third quarter distributions, from the Vanguard retail funds and the three Exchange Traded Funds (VAS, VGS and A200).

These quarterly distributions totalled $17,980.

The actual level of distributions paid were around seven percent below the simple forecasts based on past average payments.

The driver of this was consistently lower payouts from the Vanguard funds, which the ETFs each paid out at levels consistent with their past history. Interestingly, there has been some persistence in this, with similar results for the same quarter in 2024.

The chart below sets out the key components of portfolio income over the third quarter.

This chart reflects the fact that the Vanguard funds forming part of the portfolio only commenced paying third quarter distributions from 2024, following an evolution in product offerings.

The upward slope of distributions partly reflect growth in the size of the portfolio and further investments across, in particular, the period of 2017-2024.

On fact, overall, third quarter distributions have been the most reliable series of quarterly payments. Aside from a small fall in 2018 coming off an irregular bond fund capital return in 2018, they have grown steadily each year.

This can be observed in the chart below, where dark green denotes 2025 results ) with a December quarter projection also included).

By contrast variations of $20,000 in June quarter distributions have been quite common over the journey.

Despite this undoubtedly positive high-level trend, a closer reading of the data turns up that the story is not as simple as smooth, inevitable, compound growth.

Looking at the first chart, it is clear that the ETFs paying quarterly distributions have actually continued to produce relatively stable absolute levels of payouts (of between $10,000 and $14,000).

The real change observed in 2024 and 2025 is the introduction of quarterly payments of the Vanguard High Growth fund. That is, underlying part of the continued nominal increase in the absolute level of third quarter payments is best understood as stemming from payments being made in Quarter 3 and Quarter 1 that otherwise – under the prior fund half-yearly distributions schedule – would have been held by the fund and paid out in June or December.

This means, quite clearly, that historical levels of June payouts prior to 2024 have less informational or predictive value going forward, and that for example, the exceptionally high payments in 2020 and 2021 (above $80,000 and $50,000 respectively) are unlikely to be repeated soon.

This quarter around 70 per cent of income received was from the equity-based ETFs, roughly in line with their proportional role in the overall equity portfolio, with the remainder from the Vanguard retail funds. In addition, the Australian equity ETFs also produced franking credits of around $3,670.

Excluded from all the charts above are more recent temporary investments made in Plenti Capital Notes. These total $84,000 currently and are scheduled to mature and return their capital across 2027.

The notes are currently producing an income of around $600 per month, or an additional $1,800 per quarter. Thus the actual total quarterly income from the portfolio is closer to $20,000. When (or it should be noted, if) they do return their capital, this will be reinvested in equity ETFs and this anomaly will disappear.

These distributions have been added to the pool of excess capital which is being reinvested steadily with a target of being fully invested by December 2026. The same will occur with distributions earned this current December quarter, which are currently expected to be around $16,000.

Trends in average distribution, portfolio income and expense measures

This month marks some interesting inflections and changes in trends when mapping average distributions, notional portfolio income and expenses.

The chart below measures distributions against an estimate of total expenses. The total expenses figure is based on actual credit card spending, with the addition of a regularly updated notional monthly allowance for other large fixed expenses.

The chart also has an additional series or metric included, as discussed in the most recent portfolio income report. This is an estimate of available portfolio income.

This is marked in green and is calculated as the product of the financial portfolio (i.e. excluding Bitcoin) and the selected safe withdrawal rate of 3.45 per cent. This value can be viewed as the notional ‘safe withdrawal income’ currently provided by financial assets in the portfolio. To provide a smoother view through time it is estimated on a three month moving average basis.

This month average total expenses (red line) fell by a small amount for the first time in nearly two years. These expenses are currently around $8,700 per month. As a result, total estimated annual expenses has fallen from $105,300 to around $104,800.

Using the most recent estimates of the three year moving average of distributions (the blue line), paid out distributions have risen slightly to just over $7,400 per month.

This leaves a slightly reduced monthly deficit between total expenses and average distributions of about $1,300.

Using the newer ‘SWR portfolio income’ measure, however, portfolio income has grown to over $10,000 per month for the first time. This is around $1,300 per month higher than total expenses, creating a positive ‘safety margin’ that has been expanding since early last year.

An interesting feature of the recent increase in the value of gold holdings that the SWR portfolio income measure is temporarily ‘inflated’ by these rises.

In one sense, given the SWR measure is designed to be a total return based measure implying a realisation of capital gains through time, this is not a concern. An alternative perspective is that the measure is inflated and biased upwards to the extent that gold ETFs do not, by definition, produce income.

Removing this effect for this month reduced the current months ‘SWR portfolio income’ metric from $10,050 to $9,400. This is not enough to reduce the ‘safety margin’ entirely, but it does approximately halve it.

Progress

Measure	Progress
Portfolio objective – $3,000,000	182%
Financial portfolio income as % of total average expenses (3 yr average) – $104,800 pa	118%
Target equity holding in portfolio – $2,400,000	124%
Financial portfolio income as % of target income – $103,500 pa	120%

Summary

This month has seemed a month of extremes, considered purely in portfolio terms. Through this month gold has hit exceptional levels, and retreated as quickly over night. Bitcoin has likewise surged, and then retreated.

More quietly, global equities have continued to press higher, with US valuations on some metrics in particular at levels previously only seen before substantial falls. Research through this month highlighted another extreme indicator, with news that unprofitable companies on the S&P500 had advanced even more strongly than those with records of delivery for equity shareholders.

At these times, it is important to recall the substantial risk of loss that each equity market participant accepts, unknowingly, or consciously on entering into the market. At each point as a portfolio advances, I have made a habit of considering the probability and impact of a major market downturn.

In Australia’s case, the largest single day loss was around 25 per cent, implying the possibility of losing $750,000 in one day is credible. In March 2020, the entire portfolio declined around 13 per cent. Applied today, this would mean a loss of over $700,000.

More dramatically still are potential annual outcomes, periods of sustained, grinding losses.

Across 2008, for example, Australian equities declined around 43 per cent, which if matched by global equity market falls would mean a portfolio loss in equities of $1.3 million across a year. Each of these equity estimates ignore potentially associated losses in other asset class, though it is possible also diversification could to some slight degree offset these losses.

Contemplation of the potential magnitude of these losses is the unavoidable companion of an asset allocation which is tilted towards the goal of capturing the equity risk premium over a sustained period, and seeking to protect, maintain and build real, rather than nominal, asset wealth.

The asset allocation graphs in this portfolio review serve a practical purpose, therefore, of providing another lense through which to continuously assess the exposures of the portfolio through time.

A fascinating accompaniment to looking at this issue, a Goldman Sachs report on the world portfolio of investable assets and asset allocation, was recently pointed out (h/t Aussie HIFIRE).

This report is rich with findings and perspectives, but one of its primary strengths is illustrating the futility of seeking to own the ‘right assets’ at precisely the right time, and the benefits of an allocation approach that is as robust as feasible to rapid, and sometimes long-lasting, changes in investment market ‘regimes’. Portfolios which are over-optimised to past sets of conditions can perform poorly, for sustained periods.

Work such as this is a reminder that a superior long-term return from an equity dominated portfolio is not an inevitability. It is a phenomenon observed across a set of developed country markets over periods of defined time which were punctuated by other periods, in which other asset allocations turned out to be preferable choices.

The observability of equity outperformance has been such that common asset allocation wisdom, and some ‘science’ has built around the equity dominated portfolio an air of assigned authority. Certainly there are sound conceptual reasons why, over the long term, calls on the equity returns on businesses will outperform more secured debt claims. Yet this too, is a contingent claim, and voided in practice with some regularity.

A good reminder of this which I have been reading this month is 1929: Inside the Crash, by Andrew Ross Sorkin. This is a biographically and incident-focused retelling of the Wall St crash, including its immediate lead up and aftermath. It reinforces the capacity of complacency, inertia, self-interest and lack of imagination to combine to build castles in the air of seeming uninterruptible prosperity, and of the building up of geopolitical fragilities that can cascade into capital markets.

1929 as an event, however, cannot be clearly understood without an understanding of the First World War and resulting German reparations liabilities impacting on capital markets over the subsequent decade. In turn, the First World War itself cannot be fully understood with a recognition of the impacts of the Franco-Prussia war of 1870-71. And so we are drawn back into the thickets of history from a different century.

This itself poses the question – is it at all improbable that geopolitical events from the 1970s, be it changes to monetary systems, or stagflation arising from the oil shocks, or shifting great power balances should be impacting our capital markets? The question answers itself in an unsettling way.

The results of 1929, which in some cases destroyed or delayed decades of capital accumulation also highlight the constant truth that real wealth may lay in what we can live without, amidst the ephemeral rising and falling tides of market prices.

Note for readers

Over the last year, there has been a noticeable degradation in the useability of my standard blogging interface. As an alternative, and because I am not interested in becoming a coder, plug-in or website management expert, I have created a rough and ready backup Substack and imported past posts. The formatting of past posts may not be as tidy as here, but should the blog ever seem to ‘disappear’ or cease, it will likely just be a signal that I have switched entirely to Substack and started posting there.

Disclaimer

The specific portfolio allocation and approach described has been determined solely based on my personal circumstances, objectives, assessments and risk tolerances. It is not personal financial advice, or recommendation to invest in any particular investment product, security or asset, and investors considering these issues should undertake their own detailed research or seek professional advice.