On the gathering tide of darkness ride

The argosies of the sky,

And spangle the night with their sails of light

As the streaming star goes by.

J.R.R Tolkien The Voyage of Earendel the Evening Star

This is my one hundred and thirteenth 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	$970,555
Vanguard Lifestrategy Growth Fund	$48,659
Vanguard Lifestrategy Balanced Fund	$83,390
Vanguard Diversified Bonds Fund	$91,304
Vanguard Australian Shares ETF (VAS)	$657,749
Vanguard International Shares ETF (VGS)	$1,016,641
Betashares Australia 200 ETF (A200)	$337,076
Gold ETF (GOLD.ASX)	$285,330
Bitcoin	$1,180,875
Plenti Capital Notes	$84,000
Financial portfolio value (excluding Bitcoin)	$3,574,074 (+$103,919)
Total portfolio value	$4,755,579 (+$188,076)

Asset allocation

Australian shares	29.0%
Global shares	30.6%
Emerging market shares	1.1%
International small companies	1.3%
Total international shares	33.1%
Total shares	62.0% (-18.0%)
Australian bonds	2.7%
International bonds	3.6%
Total bonds	6.3% (+1.3%)
Gold	6.0%
Bitcoin	24.8%
Gold and alternatives	30.8% (+15.8%)

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

Comments

This past month the portfolio rebounded from the previous losses, expanding by $188,000 or around 4.1 per cent.

As a result a five month downward trend in the overall portfolio value was broken. From the perspective of the financial portfolio, movements through April partly reversed about half of the losses of the prior month.

This leaves the financial portfolio within around two per cent of its highest ever value, despite the ongoing elevated levels of geopolitical instability.

In sharp contrast, the full portfolio has only just returned to levels first reached in late 2024, due to prolonged falls in the price of Bitcoin.

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

Driving the strong performance this month has been a rebounding in global equity markets, of around 5.2 per cent, as well as growth in the price of Bitcoin (7.7 per cent), after significant falls over the past six months.

Australian equities continued to deliver small positive returns, with capital appreciation of around 1.1 per cent and payments of quarterly income of around 1.0 per cent.

The general economic picture over the medium-term is clouded by uncertainty over the full impacts of closure of the Straits of Hormuz, and the flow on ramifications to global supply chains, liquid fuels, and prices. It is possible that even as equity markets provide broadly positive signals, the effects of the crisis will persist and cascade through everyday markets and consumer experiences for months or years ahead.

Gold holdings drifted lower by around 4.5 per cent per cent, continuing a retreat since the end of January.

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.

Weather margin: the role and effects of currency exposure on the portfolio

One of the less visible elements of portfolio performance over time, which has an increasing absolute dollar impact on portfolio performance as the portfolio grows, is the effect of currency exposures.

This arises at multiple points in the portfolio.

The table below maps these out through the currency exposures and degrees of hedging that are in place across the major asset classes in the portfolio.

Table 1: Currency exposures and hedging by portfolio asset class

Australian denominated equities and bonds are included in the table for completeness, comprising the Australian equity and bond components of the Vanguard funds, Plenti Capital Notes and the Vanguard and Betashares domestic equity ETFs.

A few points can be noted from the data in the table:

• International equities are a key area of exposure: the single largest source of unhedged currency exposure is currently in international equities, where only around 11 per cent of the portfolio is hedged to the Australian dollar. The largest single element of international equities holdings, due to the market capitalisation-based index approach, is the allocation to US equity markets.
• Bitcoin is a secondary source of US dollar ‘currency risk’: Bitcoin is also, in theory, a large source of unhedged exposure, it being typically priced in US dollar terms, though notably volatility from the primary asset far exceeds any currency component.
• Bond holdings are either hedged or not exposed: international bond holdings are almost completely hedged.
• The balance of the portfolio is unhedged: in total around 61 per cent of the portfolio is unhedged, with the primary exposures being to shifts in the relative value of the Australian and US dollar

In portfolio performance terms, this means that the overall portfolio can be viewed as ‘long’ US dollars.

This means in cases where the Australian dollar weakens, performance of the unhedged component of the portfolio will be stronger. In cases of a rising Australian dollar, however, as has been seen recently, the portfolio will effectively encounter a ‘headwind’ from this development.

Figure 1: Monthly AUD/USD rate – 2017 to 2026

Since the beginning on this record there have been three periods of a significantly rising Australian dollar, including through 2017, from March 2020 to March 2021, and through 2026. Each of these will have presented some headwinds to measured returns from the portfolio.

There are some offsetting factors that should be noted.

Where a strong Australian dollar persists during a period of asset accumulation, and where the transaction is to buy an unhedged asset, a greater proportionate amount of foreign securities are effectively being purchased. That is, a holder’s ‘stronger’ Australian dollar is purchasing a conceptually greater amount of assets or future cashflow.

A second layer of offsetting is that equity holdings themselves have currency implications. For example, major export revenues of Australian mining firms forming part of the Australian equities index are often themselves effectively priced in US dollars, or have hedging arrangements of their own. In general, however, a weaker Australian dollar might be expected to lower the relative prices of Australian exports globally, and lead to stronger cashflows through expanded price competitiveness.

The conventional position discussed in much of the literature is that for Australian investors pursuit of a 100% hedging strategy – which comes with modest costs – may not be justified for those with a reasonably long-term horizon.

This reflects a historical empirical observation that currency movements over the long-term tend to cancel each other out, and be subject to some degree of ‘mean reversion’. At present, it is notable that while the recent currency movement has been relatively sharp, this places the current AUD/USD value at about its recent historical average.

So far, this has also been the approach taken in the portfolio.

The degree of currency hedging in place is entirely a functional result of prior choices made in the pre-mixed Vanguard funds, and a decision to invest in specific asset classes, rather than being a consciously chosen level of hedging. At this point, I am satisfied with this positioning. At times this will mean headwinds in the portfolio, at other times unexpected tailwinds.

My choice to invest in the Vanguard Global Shares Exchange Traded Fund (VGS), an unhedged product, while increasing the exposure of the portfolio to international equities has accelerated the overall exposure in recent years. This absolute value of the unhedged international equities has doubled over the past four years, the result of these regular investments in VGS, and the organic growth in the international equity portfolio.

An interesting minor ‘wrinkle’ emerged as the estimates in the above table were developed.

The Vanguard Retail funds asset allocations provided do not sum to a full 100 per cent, meaning that not every dollar invested in these funds falls neatly into either an equity or bond allocation. Instead, Vanguard notes that ‘cash or cash-equivalent’ instruments may be held, to manage liquidity, including presumably to account for inflows and outflows. This makes the ‘total’ figure in the table (which is only counting estimated equity and bond holdings in these funds) above very slightly different than the full reported portfolio.

The difference is small in percentage terms, with these ‘other’ instruments seemingly accounting for about 3.8 per cent of the funds value using the most recent available figures. In practical terms, this leads to the surprising finding that as a holder of the funds, there are effectively the equivalent of around $40,000 in these unclassified cash-like holdings.

First quarter distributions: Scudding on the wind?

First quarter distributions have been received this month, and totalled around $24,000.

This is about 20 per cent the median estimates of distributions – of around $19,000 – and also above the level of average payouts of the past four years.

Generally, the distributions fell within a range of expectations, with the exception of a large irregular payout from the Vanguard Diversified Bond retail fund. This has been a consistent pattern of this fund through time, with minimal distributions in most years punctuated by large one-off distributions – likely with a distributed capital gain component.

The chart below sets out the level and composition of the final paid out distributions over previous first quarters.

This chart excludes interest payments of the Plenti Capital Notes, which continue to provide additional income of around $1,900 per quarter.

The chart below sets out the full history of quarterly payments since the commencement of the record, noting that the Vanguard retail funds now owned only commenced quarterly payments in 2024.

The second quarter typically produces the largest set of portfolio distributions. For this year, projected distributions are around $30,000 to $38,000, based on past trends, with a central estimate of around $37,000.

Trends in average distribution, portfolio income and expense measures

Each month I review 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 a 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) rose slightly to around $9,000 per month. As a result, total estimated annual expenses is steady at around $108,000.

Using the most recent estimates of the three year moving average of distributions (the blue line), paid out distributions have continued their recent rise to around $7,800 per month.

This leaves the monthly deficit between total expenses and average distributions narrowing slightly to about $1,200.

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

Progress

Measure	Progress
Portfolio objective – $3,250,000	146%
Financial portfolio income as % of total average expenses (3 yr average) – $108,400 pa	114%
Target equity holding in portfolio – $2,600,000	114%
Financial portfolio income as % of target income – $112,000 pa	110%

Summary

This month has seen a partial rebounding from losses over the past few months.

Despite this, increasingly, as these monthly updates are prepared and finalised, the actual movements in the portfolio value, and even the financial portfolio value feel quite abstracted from reality.

It is not that I do not recognise the up or down drafts of market movements intellectually. Instead, it is that they no longer exert much emotional or cognitive power, if any, over my sense of progress through time. There is a rather delicate trap in this. This arises from the fact that markets, like geopolitics, can be subject to extended periods of illusion and false belief that we are in a holiday from history itself, or historical patterns.

At the commencement of the journey a single trip to the shops, some travel, or an incidental household luxury purchase could affect whether that week was a week of forward progress in the not quite yet articulated journey. The positive side of this is that a structural savings habit, combined with a smaller absolute size of market-exposed assets, made most weeks, months, and years instances of forward progress. This is in contrast to the ‘headline’ portfolio results currently, which indicate no progress since early 2025 (albeit with the slightly obscured but consequential fact that the financial portfolio grew $300,000 during this period).

The question might reasonably be raised: what is it like psychologically to experience this?

The answer to this is that a long habit of experiencing these fluctuations has removed the illusion that there are regular or meaningful patterns in these headline results. Apophenia is the formal diagnostic name of discerning patterns in randomness, and while prices of securities are not truely random, their movement from month to month, and even arguably quarter to quarter or year to year can be productively viewed ‘as if’ they were so.

Shifting portfolio updates to a different time scale, therefore, would not avoid this issue, and would also somewhat elide the issue of actually experienced volatility.

Focusing on the noticeably less volatile ‘financial portfolio’ is one component of being able to view overall fluctuations with some indifference. Yet, as mentioned, this relative stability itself may be somewhat of an illusion, and represent effectively only navigating by stars during a clear, untroubled summer spell.

With the stepping back in day to day work, I have found two superficially contradictory impulses in play. I have more time to consider the journey, and analyse elements of the portfolio – and indeed I enjoy doing so. Yet at the same time, I find it less significant, or interesting, to focus on the headline variations or obvious mechanics of the portfolio itself.

Rather, what I find increasingly meaningful is to look at what might be called the ‘sub-strata’ or underlying mechanisms that are less apparent in the monthly or quarterly procession of numbers or variables. That is, to spot and describe what is occurring that is easy to miss, or unobserved in typically ‘flattened out’ descriptions of the experience of the financial independence journey.

In this way, while quarterly movements in the distributions are intriguing to track for what they reveal about the slow journey, looking through the portfolio and understanding better how currency movements can gently or sharply nudge the bow of the ship on a different course may be of greater internal value.

All of this comes with a critical caveat: that we remain open to a view that the very mechanisms and trends we observe can change, invisibly, sometimes in a day or a week, and move to entirely different conclusions than the past 10, 20 or 50 years may have led conventional wisdom to.

This month, as the portfolio has shifted, risen and fallen, my attention was focused on some travel to view some Roman antiquities, to follow a personal interest and take some moments inhabiting some quiet moments surrounded by art and objects that have survived 2000 years of history.

Their existence is a physical reminder that no human system sits forever unchanged, that history is only held at bay awhile, and like a streaming star, while hanging in the sky for a few moments, is forever in fearsome movement.

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.