Every man takes the limits of his own field of vision for the limits of the world.

Arthur Schopenhauer

This is my one hundred and eleventh 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 $3,250,000. This should be capable of producing an annual income from total portfolio returns of about $112,000 (in 2026 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 $2,600,000.

Portfolio summary

Vanguard Lifestrategy High Growth Fund	$995,439
Vanguard Lifestrategy Growth Fund	$50,114
Vanguard Lifestrategy Balanced Fund	$86,371
Vanguard Diversified Bonds Fund	$95,318
Vanguard Australian Shares ETF (VAS)	$699,678
Vanguard International Shares ETF (VGS)	$986,477
Betashares Australia 200 ETF (A200)	$358,037
Gold ETF (GOLD.ASX)	$324,307
Bitcoin	$1,024,255
Plenti Capital Notes	$84,000
Financial portfolio value (excluding Bitcoin)	$3,679,741 (+$47,657)
Total portfolio value	$4,703,996 (-$268,350)

Asset allocation

Australian shares	30.8%
Global shares	30.6%
Emerging market shares	1.2%
International small companies	1.3%
Total international shares	33.1%
Total shares	63.9% (-16.1%)
Australian bonds	2.8%
International bonds	3.8%
Total bonds	6.6% (+1.6%)
Gold	6.9%
Bitcoin	21.8%
Gold and alternatives	28.7% (+13.7%)

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

Comments

This month the portfolio suffered a loss of $268,000 or around 5.4 per cent.

As a single month headline result, this is the eighth largest fall in portfolio ever experienced. It is also the fourth sequential monthly loss, an event which has not occurred in the history of portfolio previously.

The loss reflected continued declines in the price of Bitcoin, of around 24 per cent over the month.

Despite this, however, the smaller underlying portfolio of traditional financial assets continued to expand, hitting the highest value ever recorded ($3.67 million). By contrast, it has grown each of the past three months.

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

Through the month, geopolitical uncertainty continues to be heightened, with possible future military conflicts in the Persian gulf.

Australian economic developments have been dominated by a re-emergence of persistent inflationary forces, resulting in a tightening of interest rates. This occurred against a positive reporting season, which appeared to support stronger Australian equities performance (or 3.8 per cent) compared to a slight capital loss in the global equities holdings (1.1 per cent).

Gold holdings fell by around 2.0 per cent from the highs experienced at the end of the last month.

The month as previously small additional new investments were made in global equities (through the Vanguard exchange traded fund VGS), in accordance with the decision to regularly reinvest excess distributions and cash holdings.

Rose of the winds: reviewing trends and developments in the equity portfolio

Five and a half years ago, I provided a systematic analysis of the equity component of the financial independence portfolio. At that time, equities totalled $1.2 million. Today, they stand at approximately $3.0 million.

With this milestone, it seemed an opportune moment in the waning of the summer months to revisit the original mapping exercise – and the shorter snapshot in August 2022 – to see how the territory may have shifted using the compass provided by the passive indexing approach employed.

Equity holdings in the financial independence portfolio

Equities remain, as they have been since the inception, the driving force of the financial independence journey.

At the time of the first detailed review of in mid-2020, the equity portfolio stood at $1.2 million. By August 2022, that figure had grown to $1.7 million—around a 41 per cent increase.

The chart below highlights the progress of the equity portfolio in nominal value terms over the past nine years.

Today, the equity portfolio sits at approximately $3.0 million, a 74 per cent increase over the 2022 figure and equity holdings have more than doubled since that first review.

Data and approach to the equity snapshot

As with the previous two reviews, this analysis of the equity component of the portfolio looks through the individual investment vehicles held to the underlying allocations they represent.

The equity portfolio is effectively held through a combination of three Vanguard retail funds and three exchange traded funds (VGS, VAS, A200), which together track four distinct underlying indices: the ASX200/300 for Australian equities, the MSCI World ex-Australia index for developed international markets, the MSCI World ex-Australia Small Cap index, and the MSCI Emerging Markets index.

These four components, noted in the chart below, together account for all equity holdings.

The data used in this review draws on updated index allocation information from Vanguard and the relevant index benchmarks, consistent with the methodology applied in 2020 and 2022.

This allows direct comparison across all three reviews. It is worth noting that the composition of these indices changes through time, to reflect changes in market capitalisation, as well as entries and exits from the indices of individual firms.

In home port – the domestic equity portfolio

The Australian equity portfolio currently sits at approximately $1.45 million, or around 48 per cent of total equities.

This is a significant shift from the 60 per cent allocation recorded in 2020 and the 54 per cent allocation at the time of the 2022 review.

The earlier rebalancing goal of achieving rough parity between Australian and international holdings has been reached. With the recent portfolio allocation decision to allow for a gradual increase in global equity holdings beyond 50 per cent, the domestic portfolio allocation might be expected to naturally reduce through time.

The sectoral structure of the Australian portfolio has undergone some shifts compared to earlier reviews, with changes in the index weightings.

As can be noted from the chart below, both the financial and material segments have expanded modestly compared to 2020. They now make up a combined 56 per cent of index weight – compared to 45 per cent previously.

Looking at the nominal dollar holdings, financials remain the dominant allocation at $460,000 or approximately 32 per cent of domestic equities. The major banks sit at the core of this exposure, as they have throughout the journey.

Materials (including mining) are the second-largest domestic sector. At $355,000 this allocation represents nearly a quarter of Australian holdings, with BHP Group the key individual holding.

Beyond these two sectors, consumer products ($145,000), industrials ($124,000) and health care ($102,000) represent the next tier of domestic exposure.

Technology remains a minor presence in the Australian portfolio at just $47,000—around only 3 per cent of domestic equities held—reflecting the structural reality that the ASX has not yet developed a significant technology sector. This has consequences for the overall portfolio that are explored further below.

One notable evolution since 2020 is the change in the portfolio’s largest individual holding.

In the original review, CSL Limited was the standout position at around $65,000. By 2022, BHP had overtaken it following the simplification of BHP’s dual-listed structure, reaching $96,000. BHP retains that position today within a considerably larger Australian allocation overall (of $133,000), noting that BHP also derives its revenue from serving a global commodities market.

The international equity portfolio – changing weights

The international equity portfolio now stands at approximately $1.56 million or 52 per cent of total equities, up from 40 per cent in 2020 and 46 per cent in 2022.

The deliberate and sustained effort to direct new and reinvested capital toward international holdings has delivered the intended result discussed further in investment policy planning at the beginning of this year.

The defining feature of the international portfolio remains its concentration in US-listed securities, as can be seen in the chart below.

In 2020, the US represented 60 per cent of international holdings and around 24 per cent of total equities, with approximately $280,000 invested. By 2022, this had grown to 66 per cent of international holdings and 30 per cent of total equities—over $510,000.

Today, as can by seen in the chart below of dollar allocation, around $1.08 million or 69.3 per cent of international holdings, and 36 per cent of all equities, is invested in US-listed firms.

This is the single most significant structural development in the portfolio over the past five years.

This US concentration was not actively chosen. It emerged mechanically from market capitalisation weighting as US equities, and American technology firms in particular, have outpaced the valuation growth of firms across the rest of the world.

A point worth noting, as it was in the 2022 review, is that pure country allocation data somewhat overstates the degree of purely American exposure. Apple, Microsoft, Alphabet and their peers are effectively US-domiciled global businesses. That is, there is a meaningful hidden international footprint within that US allocation that the headline US allocation figure does not capture.

The remainder of the international portfolio is spread across Japan ($91,000), the United Kingdom ($59,000), Canada ($51,000), Switzerland ($44,000), France ($38,000), Germany ($33,000), China ($14,000), and $143,000 across other markets.

The geographic breadth is, therefore, substantial, even if the US dominates by weight.

The international portfolio also carries the portfolio’s significant technology exposure. At approximately 26 per cent of international holdings, the technology sector dwarfs its 3 per cent presence in the Australian portfolio. The other weightings can be seen from the chart below.

In nominal dollar terms, Apple, Microsoft and Alphabet represent holdings of $65,000, $52,000 and $61,000 respectively. In 2020, the combined holding in Google, Facebook and Microsoft was around $50,000. By 2022, that figure had grown to approximately $95,000 across a wider group of firms.

As in previous reviews, the international portfolio remains largely (90 per cent) unhedged back to Australian dollars.

The portfolio’s exposure to the Australian-US dollar relationship is therefore meaningful given the scale of US holdings. Gradual accumulation and reinvestment across many years and varying exchange rate environments continues to provide some natural smoothing of currency timing risk.

Putting the components together: the full equity portfolio

At the total portfolio level, the blending of a resource and financials-heavy Australian index with a more diversified global benchmark produces a characteristic shape that has been largely consistent across all three reviews, while the magnitudes have shifted.

Financials dominate at $717,000—approximately 24 per cent of total equity. This is up from the comparable figure of 21 per cent in 2020.

This figure is substantially higher than the MSCI World’s typical 12-15 per cent financials weighting and reflects the combined effect of large Australian bank holdings and global financial sector exposure. Information technology sits second at 15 per cent, followed by materials at 14 per cent, consumer products at 13 per cent, and industrials at 10 per cent. Health care, communications, real estate, energy and utilities complete the picture.

The chart below provides a snapshot of the nominal dollar exposure of the full equity portfolio on a sectoral basis.

Comparing to the 2020 snapshot is instructive.

Then, financials and materials dominated a much smaller portfolio, technology was a minor presence at around 10 per cent, and health care—anchored by a large CSL representation in the ASX200 — was a more significant component.

Today, technology has grown to second position by dollar value, financials have increased in both absolute and proportional terms, and the health care weighting has declined as CSL’s relative dominance has been diluted by portfolio growth and new investment flows.

The geographic diversification achieved through international investing has also meaningfully changed the sectoral character of the combined portfolio.

Consumer products, industrials and communications—barely represented in the Australian index—now collectively account for around $890,000 of holdings, almost entirely through the international component.

In this way, geographic allocation, in a passive indexed portfolio, is inseparable from the question of sectoral allocation.

Holding fast: portfolio concentration and diversification

The equity portfolio is currently invested across approximately 6,400 individual holdings: 300 through the ASX200/300, 1,273 through the MSCI World index, 3,628 through international small-cap indices, and 1,196 through emerging markets.

This actually represents a reduction from the 8,100 holdings counted in the 2022 review—itself up from around 6,000 in 2020—and reflects changes in index methodology and benchmark construction rather than any conscious reduction in the breadth of the portfolio.

The diversification therefore remains broad. Holdings span more than 50 countries (see chart below which breaks down the major geographic allocations) and a dozen major sectors.

This breadth is, as noted in the original 2020 review, one of the critical advantages of modern low-cost investing, which is available for any investors at between 40 cents and $1.80 per thousand dollars invested.

Yet concentration has increased at both the individual holding and market level.

BHP Group remains the largest single position, continuing the transition from CSL that was observed in 2022. The top ten Australian holdings constitute around 45 per cent of domestic equity exposure—a figure that has been broadly stable since 2022, but higher than the 43 per cent observed in 2020. By comparison, the top ten global equity holdings only constitute around 27 per cent of all global equities in the portfolio.

At the individual stock level, a one per cent move in BHP translates to roughly $1,300 in portfolio value. A 10 per cent broad market correction now represents approximately $300,000 in potential losses.

The more significant concentration story, however, is structural.

US equities at 36 per cent of total holdings, and technology at 15 per cent—substantially concentrated in a small number of mega-cap firms—reflect the shape of global markets rather than any active positioning. The question this raises is whether such concentration carries commensurate expected returns, or whether it is simply a function of passive market exposure in a period of unusual market concentration?

That is not a question passive indexing answers in advance. While passive approaches can avoid risk-creating ‘active’ market positions, it provides no final guarantee on future returns.

Remapping the equity portfolio – reflections and trends

Looking across all three reviews—2020, 2022, and now 2026—a few observations stand out.

The most deliberate goal of this period—rebalancing from a 60/40 Australian-international allocation toward rough parity—has been fully achieved. What began as a target in 2020 and was 54/46 by 2022 is now an allocation of 48/52 respectively. The mechanism of redirecting new capital rather than selling existing holdings proven effective, tax-efficient, and involved no conscious market timing judgements.

With the shift over time to potentially greater exposure to international equities, and US equities having outperformed Australian shares over the past 16 years, there does remain a risk that this allocation trend may present a headwind to the portfolio in the short to medium term. It is possible, for example, that Australian equities will ‘mean-revert’ to a stronger relative performance than international equities, for a range of reasons discussed here.

The passive approach has also delivered, in the clearest possible terms, on its central promise of delivering growth in real after inflation terms. A portfolio that simply held the market, in proportion to market capitalisation, more than doubled in five years. It should be noted, however, that around 16 per cent of the appreciation of the portfolio in this time was nominal growth, i.e. consistent with changes in the overall CPI level through the period.

The low-cost structure chosen meant that a minimal amount of this return was consumed by fees or transactional friction through this time. The 2020 review described the ability to harness the productive energies of thousands of companies at minimal cost as a modern wonder. Six years on, there is no reason to revise that assessment.

What has changed is the shape of the market the portfolio reflects.

US equities, and particularly US technology, now loom larger than at any previous point in this portfolio’s history—and indeed in the history of global equity indices. Whether this represents a durable structural shift or a cyclical concentration that will eventually mean-revert is uncertain. The passive approach offers no view on this question. It simply holds the market and waits.

The equity component of portfolio has grown beyond what the original financial independence calculations required.

The equity proportion alone, around $3.0 million, substantially exceeds the portfolio targets set at the outset of this journey. That is a remarkable – and humbling – outcome. It clearly shows the force of more than two decades of equity purchases, reinvestments, and a period of exceptional market returns. Understanding clearly what sits inside that number—and what risks it carries—remains as worthwhile today as it was when the first map was drawn in 2020.

The compass therefore remains set. The waters ahead are, however, ultimately unknown.

Trends in average distribution, portfolio income and expense measures

Each month I consider evolving trends across average distributions, notional portfolio income and total expenses, with the analysis below focusing on the financial portfolio only, consistent with other 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 series of ‘safe’ 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. It is estimated on a three-month moving average basis.

This month average total expenses (red line) remained at around $8,900 per month. As a result, total estimated annual expenses is steady at $107,000.

Using the most recent estimates of the three year moving average of distributions (the blue line), paid out distributions have risen to around $7,600 per month.

This leaves the monthly deficit between total expenses and average distributions rising slightly to about $1,300.

Using the newer ‘SWR portfolio income’ measure, however, portfolio income has stayed at around $10,300 per month. This is around $1,400 per month higher than total expenses, representing a positive ‘safety margin’.

Progress

Measure	Progress
Portfolio objective – $3,250,000	145%
Financial portfolio income as % of total average expenses (3 yr average) – $106,800 pa	119%
Target equity holding in portfolio – $2,600,000	116%
Financial portfolio income as % of target income – $112,000 pa	113%

Summary

The portfolio has assumed a bifurcated performance over the past four months. This bifurcation arises from performance being positive, if unremarkable, if viewed in terms of traditional financial assets, but deeply and unusually negative, if viewed in terms of sustained overall portfolio losses – due to Bitcoin.

The portfolio is managed and viewed as a whole, and so it should be squarely faced that this has been the third largest nominal dollar losing period on record, and also the largest dollar value fall to date of any six month period. Quite clearly, Bitcoin repricing has been the driver.

Yet underneath this, the financial portfolio continues to grow, hitting new highs.

As noted above, the equity portfolio has also crossed the $3 million threshold, for the first time in the journey. And in the broadest possible conception, the ‘all assets’ financial portfolio, i.e. traditional assets combined with superannuation assets, also sit at all time highs.

What this points to is the differences in drivers of underlying returns between Bitcoin and other more ‘elastic’ financial assets, a concept explored eloquently here by the Acid Capitalist – who also provides an interesting discussion of the true sources of risk in this holding.

This month I have been reading The Rise and Fall of the Great Powers, by noted British historian Paul Kennedy. A consistent theme in the narrative is the role of imbalances in revenues and expenses as forcing mechanisms for revolutions in historical eras.

Geopolitical regime changes, or historical disjunctions in monetary regimes have tended to both be unkind to some asset holders. A NBER paper published this month reinforced that where geopolitical conflict leads to war, typically holders of bonds end up bearing a substantial cost, through financial repression, and ‘surprise’ inflation. Its intriguing finding is that, historically speaking, equities and other growth assets can ultimately provide superior wealth preservation than ‘risk-free’ assets during armed conflicts.

It is interesting this year to observe that a robust set of US and therefore international equity returns only really commenced from 1926 – with the University of Chicago’s Center for Research in Security Prices core sample. That is, a mere 100 years ago.

The world therefore has truly robust equity market data drawn from highly liquid markets for around 1-2 per cent of history since the earliest towns, cities and settled agricultural societies began.

For much of this past century, equities have represented the most reliable asset on which to found wealth preservation or growth. Yet even as this is relied upon, the recognition must be clear: our field of vision is limited, and the limits of the world are infinitely wider. The world will, inevitably, exercise its prerogatives to intrude into our field of vision at its choosing, not our own.

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.

Also, if you are reading this article on a website called “Geldmountain”, please be aware that this and other updates have been reproduced without any contact or permission. Please feel free to view the original site, and subscribe if you wish, here.

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.