Far-called, our navies melt away.

Rudyard Kipling, Recessional

This is my one hundred and eighth 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	$974,253
Vanguard Lifestrategy Growth Fund	$49,217
Vanguard Lifestrategy Balanced Fund	$85,131
Vanguard Diversified Bonds Fund	$94,711
Vanguard Australian Shares ETF (VAS)	$657,871
Vanguard International Shares ETF (VGS)	$999,852
Betashares Australia 200 ETF (A200)	$335,608
Gold ETF (GOLD.ASX)	$285,379
Bitcoin	$1,546,572
Plenti Capital Notes	$84,000
Financial portfolio value (excluding Bitcoin)	$3,566,022 (-$22,625)
Total portfolio value	$5,112,594 (-$342,107)

Asset allocation

Australian shares	27.1%
Global shares	28.2%
Emerging market shares	1.0%
International small companies	1.3%
Total international shares	30.6%
Total shares	57.6% (-22.4%)
Australian bonds	3.1%
International bonds	3.4%
Total bonds	6.5% (+1.5%)
Gold	5.6%
Bitcoin	30.3%
Gold and alternatives	35.8% (+20.8%)

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

Comments

The portfolio fell this month by around 6.3 per cent or $340,000 – the sixth largest falls in percentage terms on record, and the second largest in nominal dollars.

This was overwhelmingly due to a sharp fall in the price of Bitcoin, which fell 17 per cent, while Australian equity losses also contributed at the margin.

As a result, the financial portfolio (excluding Bitcoin) suffered its first reverses since March of this year.

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

Market movements this month have been driven by weakening confidence in future US, and Australian, interest rate easings. Another intriguing development has been the continuing unwinding of traditionally low bond yields in Japan, a phenomenon which has exerted a downward pressure on interest rates across global markets over the past decade or longer.

Australian equities fell by 2.7 per cent, and global equities also contracted slightly by 0.2 per cent. Gold continued to perform strongly, up around 4.8 per cent over the month, to the highest level recorded in the portfolio.

This month also saw some small portfolio adjustments, falling into the category of simplification and streamlining.

The smaller individual share parcels held in Telstra, IAG and NIB have been eliminated, and proceeds reinvested in the broader ETF portfolio, through an additional investment in the Vanguard global shares ETF (VGS).

While representing my first equity market investments – in the case of Telstra – the holdings were essentially immaterial compared to the rest of the portfolio, making up collectively 0.4 per cent of the portfolio by value, while representing 3 of 13 separate portfolio holdings held at the beginning of the month.

A minor effect of the changes is to effectively reduce a slight overweighting to these directly held equities at the portfolio level. As an example, the within Australian equities ETF holdings of Telstra (of around $30,000) are around ten times larger than the direct holding which has been exited.

These changes continue the journey of simplification underway for the past year, through which the total number of individually managed portfolio holdings has fallen from 17 to 10, or by around 40 per cent.

The purpose of these changes is to simplify record-keeping, portfolio tracking and management of holdings that essentially had no prospect of positively affecting risk-adjusted returns. The exercise is not costless, as an indication, the reinvestment of these funds back into even low cost ETFs will incur an additional net cost of $23 per year.

Further future simplification is possible, but will need be be considered carefully from a capital gains tax management and efficiency perspective.

Celestial fix: the ‘all assets’ perspective on asset allocation and passive income estimates

This record is focused on reporting on the goal of building and maintaining a portfolio capable of supporting a chosen passive income goal enabling financial independence over decades ahead.

Beyond the narrow financial independence portfolio, however, there are some assets which inevitably and increasingly come into view as relevant for future planning.

This makes it timely to examine from time to time the impact of a holistic view of ‘all assets’, a term used to describe the traditional financial independence portfolio, supplemented by superannuation assets held.

From 2019 to 2024, to recognise this, the regular metrics were updated to include an ‘all assets’ measure of progress. Following the achievement of the target on the core portfolio alone, this metric became less informative, and reporting it was discontinued.

Looking at the asset allocation of the ‘all assets’ and financial independence portfolio

The clearest perspective on the differences in the ‘all assets’ and financial independence portfolio is garnered from looking at the overall asset allocation of the all assets portfolio, and comparing it to the asset allocation reported above in the same pie chart format.

From this comparison it can be immediately seen that the differences are relatively limited.

Due to the large equity exposure in superannuation assets, the overall equity allocations are slightly higher in the all assets portfolio – at 64 per cent rather than 57 per cent. Similarly, the large asset total once superannuation is added leads to Bitcoin forming only 24 per cent of the overall ‘all assets’ portfolio, compared to 30 per cent of the standard reported portfolio.

Owing to a higher global shares allocation in the main superannuation fund, the overall balance between Australian and global equities is also slightly different. The all assets portfolio is just slightly tipped in favour of global exposure (at about 55 per cent of the equity holdings), than the standard reported portfolio (around 53 per cent).

Under both portfolios defensive assets such as gold, domestic and global bonds make up a similar allocation.

Impact of an ‘all assets’ perspective on estimates of the safe withdrawal rate

Looking at the broader all assets portfolio can bring to light new perspectives on traditional measurs of progress since 2017.

The chart below adds, in purple, a new indicative metric. This is the monthly ‘safe withdrawal rate’ income notionally generated by the financial independence portfolio’s traditional financial assets, combined with the superannuation assets outside of the portfolio.

That is, it sums the financial assets (i.e. excluding Bitcoin) of the portfolio with outside superannuation holdings, and applies the 3.45 per cent SWR adopted, to estimate the notional income generated by this total.

Currently, this results in an annual ‘safe’ income from these combined sets of assets of around $165,000, or around $13,794 per month.

From this chart it can be seen that:

• All assets SWR income surpassed total expenses in early 2021 – meaning that counting all financial assets, financial independence was achieved around three full years before the date of financial independence estimated using SWR income implied in the narrower set of financial assets within the normally reported portfolio.
• Growth of the ‘all assets’ SWR income measure – in the early phase of the recorded journey, counting superannuation made a significant difference, lifting notional monthly income by $1,000 compared to income from just those financial portfolio assets reported in this record. Now, this gap is much greater, exceeding $3,500 per month. Moreover, the ‘all assets’ income estimate has increased over 30 per cent since January 2024.
• Counting all financial assets creates a significant ‘margin of safety’ – while distributions are less than total expenses consistently since early 2024, and only recently has notional SWR portfolio income risen above expenses, the SWR income counting all assets is more than 50 per cent higher than expenses, a gap of $5,000 per month
• Distributions are a questionable measure of sustainable portfolio income – at times, for example 2022, the level of distributions produced by the narrow financial independence portfolio alone closely approached and exceeded the estimated safe withdrawal rate of the entire broader ‘all assets’ portfolio (i.e. including superannuation). Or in other words, the level of capital gains and income payouts from the narrow portfolio exceeded the sustainable withdrawal income of the sum of all financial assets held.

Viewed in this way, it is clear that the ‘all assets’ portfolio has a significant cushioning impact on the risks of drawing passive income for financial independence goals. In particular, this cushioning ‘margin of safety’ means that higher than historical expenses could be accommodated without significantly increasing what is sometimes termed the ‘risk of ruin’.

As an example of this, drawing the target income out of the combined financial portfolio and superannuation holdings – i.e. the ‘all financial assets’ portfolio – would represent a withdrawal rate of around 2.2 per cent – at the conservative end of safe withdrawal rates seen in a variety of global markets.

Viewed at a high level, therefore there would appear to be two broad conclusions from taking this broader view of beyond portfolio assets.

First, the addition of superannuation assets into consideration does not radically alter the overall portfolio asset allocation. That is, a similar strategy is being pursued inside the superannuation holdings as in the regularly reported financial independence portfolio.

Second, taking into account the superannuation holdings highlights a significant ‘safety margin’ in current plans, with an effective lowering of the overall required safe withdrawal rate, to nearly half of the ‘4 per cent’ rule of thumb.

A final finding is that trends in paid out portfolio distributions are a manifestly limited proxy for a safe withdrawal income stream, being capable of exceeding a safe withdrawal rate for sustained periods – around 7 years in the case seen above.

Closing angle: re-estimating the portfolio objective

This month, ahead of the ending of the year, I was curious to understand the magnitude by which the portfolio goal might shift upwards, expressed as nominal dollars, to keep pace with growth in average ordinary earnings.

As discussed here, the goal is set by reference to an annually updated measure, of, in this case, average full time ordinary earnings.

This year, that sits at a new level of approximately $108,000. This suggests for 2026 a required updating of the overall portfolio goal to $3.13 million, from the existing $3.0 million. At a target asset allocation of 80 per cent for equities, this implies a secondary goal of maintaining a minimum equity target of $2.5 million, up $100,000 over the value adopted at the start of this year.

This mechanical need for updating the portfolio goal reinforces the slippery nature of nominal targets. Depending on the approach taken to withdrawal approaches, a target of this kind becomes less relevant once the accumulation stage is over.

Trends in average distribution, portfolio income and expense measures

The discussion above has already touched on the trends in average distributions, portfolio income and expense measures at the ‘all assets’ level. The analysis below focuses on the financial portfolio only, consistent with other monthly updates.

The chart below primarily 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 of ‘safe’ portfolio income series included as already discussed above. 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) rose slightly to around $8,800 per month. As a result, total estimated annual expenses has risen to $105,500.

Using the most recent estimates of the three year moving average of distributions (the blue line), paid out distributions have risen slightly to just under $7,500 per month.

This leaves the monthly deficit between total expenses and average distributions steady at about $1,300.

Using the newer ‘SWR portfolio income’ measure, however, portfolio income has continued to grow to around $10,200 per month. This is around $1,400 per month higher than total expenses, sustaining a positive ‘safety margin’ that has been expanding since around March 2024.

Progress

Measure	Progress
Portfolio objective – $3,000,000	170%
Financial portfolio income as % of total average expenses (3 yr average) – $105,500 pa	117%
Target equity holding in portfolio – $2,400,000	123%
Financial portfolio income as % of target income – $103,500 pa	119%

Summary

This month has seen an brief intensification of project-based work, that has meant perhaps less unstructured time thinking about portfolio issues than previous month, but which has also allowed reflection and comparison of my previous situation with that currently.

What I still experience is a sense of time moving more slowly, in a satisfying way, allowing progress on personal projects, time to think and absorb new information.

This month, for example I’ve had the pleasure of finishing The Art of Spending Money, from Morgan Housel, as well as Strong Money Australia’s You’ve Got Money…Now What?, which were both excellent and thought provoking for my specific circumstances. Most reading, however, has been historical, and outside of personal financial issues (for example, Frank McDonough’s The Weimar Years).

Part of the core messages of both books is the need, at some advanced stage in the FI journey, to alter perspectives on spending and portfolio movements. To disconnect and adapt from the savings and accumulation phase, and create space for deliberative life style design and experimentation. This is a sound message. To some extent, I have felt a disconnection between portfolio values and well-being slowly introducing itself into my mental landscape for some time.

As an example, the large nominal dollar loss this month did not occupy much of my attention. Rather, I found that I observed little milestones that occur along the way. This month, one of those was the Vanguard Global Shares ETF holding moving to become the largest single asset holding in the portfolio (excluding superannuation), and indeed itself coming close to breaching the $1.0 million benchmark.

Despite being a single holding in the asset, this provides diversification across 1,300 companies operating around the world. This provides the capacity to capture the market returns across global markets, in a efficient way, to tune out the noise of global market movements (the title, in fact, of this interesting documentary on the foundations of passive investment vehicles, produced by Dimensional Funds).

Looking at the portfolio through multiple lenses also helps see certain truths more clearly.

One apparent this month is the high long-term pay-off from sustained early voluntary superannuation contributions. Another is that the financial portfolio, despite the large headline movements this month, ended up losing only around one-third of the gains made in the previous month, as global markets repriced and then pivoted again.

So far-called indeed, our navies did seem to melt away in a few days, only to re-appear sooner than may have been expected.

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.