The grey tide and the sullen coast,
The menace of the urgent hour,
The single island, like a tower
Dorothy L Sayers
This is my one hundred and sixth 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 | $971,730 |
| Vanguard Lifestrategy Growth Fund | $49,066 |
| Vanguard Lifestrategy Balanced Fund | $84,845 |
| Vanguard Diversified Bonds Fund | $94,343 |
| Vanguard Australian Shares ETF (VAS) | $679,755 |
| Vanguard International Shares ETF (VGS) | $932,001 |
| Betashares Australia 200 ETF (A200) | $346,555 |
| Telstra shares (TLS) | $2,569 |
| Insurance Australia Group shares (IAG) | $10,345 |
| NIB Holdings shares (NHF) | $8,892 |
| Gold ETF (GOLD.ASX) | $261,613 |
| Bitcoin | $1,919,923 |
| Plenti Capital Notes | $84,000 |
| Financial portfolio value (excluding Bitcoin) | |
| Total portfolio value | $5,445,637 (+$125,870) |
Asset allocation
| Australian shares | 26.4% |
| Global shares | 25.2% |
| Emerging market shares | 1.0% |
| International small companies | 1.2% |
| Total international shares | 27.4% |
| Total shares | 53.8% (-26.2%) |
| Australian bonds | 2.9% |
| International bonds | 3.2% |
| Total bonds | 6.1% (+1.1%) |
| Gold | 4.8% |
| Bitcoin | 35.3% |
| Gold and alternatives | 40.1% (+25.1%) |
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 expanded strongly, growing 2.4 per cent, or around $126,000.
The one key driver of this was a remarkably sharp increase in the value of gold holdings, which increased by 12 per cent over the course of the month.
The underlying financial portfolio also expanded registering its sixth consecutive month of positive growth, to reach just over $3.5 million.
The chart below sets out the performance of both the full and ‘financial assets only’ portfolios since the commencement of the journey.
Australian equities incurred small falls through the month, with negative returns of around 1 per cent. By contrast, unhedged international equities performed better, with a capital gain of just over 1.4 per cent.
The continued outstanding performance of gold coincided with some falls in US interest rates, and increased buying from global central banks, who are steadily rebuilding their gold reserves. This has made it the strongest performing ‘traditional’ financial asset class over the past five years in the portfolio, on a total returns basis. What is playing out in gold markets is in some ways a once in a generation change in valuation, returning to real inflation-adjusted prices last experienced in the late 1970s.
Bonds continued to eke out some modest gains, with a return of around 0.6 per cent this month. Over the past two years, portfolio bond holdings have been recovering, with a return of 6 per cent each year, after earlier steep capital losses.
This month a further investment in the Vanguard global shares ETF (VGS) was made, in accordance with my previously discussed plans to gradually reinvest excess distributions and cash across the next 16 months.
The other major activity has been the rearrangement of the placement of the one year of cash reserves set aside as part of the financial independence ‘pre-conditions’ for ceasing any paid employment. After some negative changes to bonus interest conditions to Ubank’s savings accounts, these have been moved to a simpler product from another bank provider.
Parallel rules: reviewing the record of taxable investment income from 2007
This month I collated annual tax return information for the last financial year for my tax agent and submitted it.
This tax return data provides an alternate series and perspective through which to view the progress towards financial independence. Over time, I have used this as a form of loose ‘cross-check’ on other data, such as the regularly updated portfolio income record.
There is one important limitation with using tax data for this purpose, especially compared to the portfolio income data, that should be understood from the outset.
This is that it picks up income from some substantial cash holdings that are formally outside of the financial independence portfolio. This means taxable investment income measures will be biased upwards. It should be noted that the Plenti Capital Notes also produce interest income, but are part of the portfolio.
Noon sight: trends in investment income from 2007 to 2025
The chart below shows ‘pre-tax investment income’ over the past 19 financial years.
This measure is the sum of the interest, dividends, income from partnerships and trusts, foreign income tax return items. It also includes the face value of franking credits. It therefore represents a kind of approximation of a ‘pre-tax’ salary produced by current assets.
It completely excludes, however, any realised capital gains.
Thus it might be thought of as a conservative ‘income only’ measure, representing the outcome if one were to choose to solely draw on the income of the portfolio, allowing the capital to grow, to for example, offset inflation.
This year is has grown substantially – by nearly 20 per cent – over the finalised figure of last year.
Since the beginning of this record there has been a compound average annual growth of around 13 per cent in this measure. This has been quite volatile, however, with a decreases of 11 per cent in 2022-23, and growth of just over 50 per cent in 2021-22, as deferred distributions and dividends from early in the pandemic impacted period were paid out.
This years figure is the highest on record, at $106,900. This is just marginally in excess of current estimates of total average annual expenses – of around $105,000.
Finally, on this measure, a correction.
Last year at this time I seem to have made an error in reporting the previous 2023-24 figure, reporting it incorrectly at $103,000. I cannot track down, replicate or easily explain this error, but it is possible the difference reflects the movement in assessed investment income between a draft to finalised tax return, or double counting of a taxable component or item.
Variation and deviation: trends in the composition of portfolio investment income
The different components of the investment income measure reported in aggregate above have evolved significantly over time.
The chart below looks at the composition of the investment income measure, broken down by tax reporting category, and once again including franking credits (orange).
Most recently, the shifts in this composition reflect the specific set of investment vehicles chosen, in particular the use of funds and exchange traded funds that report under the partnerships and trusts component of tax returns (marked in green).
With the expansion and focusing on greater international exposure, the absolute and proportional amounts of foreign income (purple) have expanded, from FY2023 onwards. Foreign income has more than doubled across the period of this record (i.e. since FY2017) in nominal terms.
As the portfolio has expanded, and the Australian equity component of the portfolio has produced franked dividends, the value of franking credits received has grown by more than 3 times. This year the value of credits received made up approximately 12 per cent of the total investment income accrued, around the average level over the past 20 years.
An area of some greater variation is interest income (blue).
This steadily declined from FY2014, until it effectively disappeared across FY2022 and FY2023. The cause of this was the liquidation of some cash investments (in high interest savings accounts), and lower interest rates.
Since FY2023, however, interest income has quickly rebounded and moved to the highest levels ever experienced, as cash reserves designated to support approaching financial independence were built up, and due to some smaller investment in high-yielding Plenti Capital Notes.
Different sightings: examining the measure of total financial benefit
The investment income measure approximates, conceptually, an ongoing pre-tax salary income. Yet it also leaves out one important source of financial benefit – capital gains.
The chart below adds to the investment income the reported ‘net’ capital gains reported for tax purposes over the same series.
In this way, it represents a slightly broader measure of financial benefit produced by the portfolio – which has been termed here ‘total financial benefit’.
This new term should not be misinterpreted.
To the extent that the net capital gains that forms part of it contains distributed capital gains arising from fund dynamics, payouts or other anomalies, it should not be considered as marking a sustainable level of portfolio income. Withdrawing an amount equal to the ‘total financial benefit’ could well result in portfolio exhaustion over time.
Rather, it is a raw measure of the actual full financial benefit in pre-tax terms that the portfolio happens to have generated in a year, some of which may need to be re-invested to sustainably maintain the real value of the portfolio.
This ‘total financial benefits’ measure can vary substantially, as can be seen from the 20 per cent decline in the measure from FY2021 to FY2023.
What may be observed, however, is that investment income component of this measure over the period since FY2015 has never declined for two consecutive years, and it has consistently expanded through the period with new investments, and reinvestment of past distributions.
Franking credits have show some volatility, mainly confined to the period of precautionary delaying or deferral of paying out some profits across FY2021.
The record of taxable capital gains: a surging sea or a slow tide?
Similarly, the level of capital gains has shown significant volatility, while tending to grow over the period.
A closer picture of the volatility may be observed by isolating the capital gains item, and considering the reported tax measure of total capital gains (i.e. before the 50 per cent capital gains tax discount for assets held over a year is accounted for).
These measures both show that in the last financial year, in net and total terms, capital gains reached their highest level, outside of the exceptional outlier year of FY2021.
Great circle: examining the ‘real purchasing power’ and nominal trends
A critical perspective to retain in reviewing the positive trends over time is the degree to which this represents a growth in real purchasing power, or whether it reflects the impacts of inflation – including asset inflation.
Investment income over the period, as well as measures of total financial benefit, have grown at just under 12 per cent in compound annual growth terms since 2016-17, the year in which the record of this journey began.
On its face, this would appear a powerful compounding rate, but it is a nominal figure, and ignores the effects of inflation, or the growth in the number of units of account, or monetary base, through the subsequent 8 years.
Depending on the precise measure used, Australian M2 growth over the same period is between 6 to 8 per cent. In simple terms, this reflects the expansion in the number of dollars circulating in the economy, through financial holdings and credit expansion. This means that the actual genuine wealth creation over this period is likely to be in the range of 4 to 5 per cent per annum.
The chart below is an adjusted version of the pre-tax investment income chart shown earlier, but re-expressed in constant 2025 dollars.
This shows that while investment income has increased in real terms the story is less dramatic than when the nominal figures are considered. Under this measure, investment income has roughly doubled since the start of this record.
A different appreciation of the same underlying point can be gain by looking at an alternative measure – the taxable investment income produced per ordinary working hour through a year, expressed in constant dollar terms.
This chart below does this, again adjusting previous years investment income to real 2025 dollars.
Again, this shows that in real terms, investment income largely (though not exclusively) attributable to the FI portfolio has doubled since FY2017, with as noted previously a compound average growth in real terms of just under 12 per cent.
Importantly, this is not all a function of compounding, with the financial portfolio producing these returns growing substantially over this time, including through new investments and reinvestment of distributions.
As a result, over the medium term, this growth rate will like revert to a figure that broadly reflects the average growth in earnings of the relevant equity model, and fluctuating fixed income returns.
Observations on the tax record over the journey
Using the alternative data from the tax record across a long period allows a different view to emerge on the progress toward financial independence.
The reaching of a taxable investment income in excess of current total annual expenses demonstrates that at an essential level, the journey can be made. In my case, this was over a substantial period.
The graphs of nominal and real progress over time are an intriguing artefact worthy of pause. From them, it can be seen that progress has been substantially ‘backended’, towards the latter parts of the journey, especially over the last five years, since 2020-21.
In retrospect, what stands out in my own mind, however, is the feeling of rapid progress made in the five years immediately preceding this, that is, from the financial years 2015-16 to 2019-20.
Progress was slower and less dramatic, objectively speaking, at that time.
In particular, market and external events were less able to overwhelm the onward impetus of ongoing investment and reinvestment. The progress, therefore, felt more mathematically assured.
One aspect of the records that is worth close consideration, however, is the relatively modest ‘real’ (constant dollars) growth in taxable income investment from FY2021 to FY2025, of around 11 per cent over three years.
This looks impressive at first sight, however, the underlying portfolio assets were growing with new contributions through this time, so that figure does not represent organic growth in real income alone.
A reflection this data triggers is that in the world of financial independence, there is (rightly) a focus on avoiding ‘one more year’ syndrome. At the margins this can manifest in a tendency to engage in pop psychologising around people’s thinking and decision-making.
A common trope in FI content is the over-confident remote diagnosing that ‘fear’ or creeping lifestyle expectations, or simple mental unpreparedness, must be underlying people’s decision to work longer, or defer the ‘retire early’ component of FIRE.
The modest record of real growth in income distributions suggests another possibility, one that does not rely on the comfortable presumption that the accumulated wisdom of the observer is greater than that of the observed.
This possibility is that part of the explanation for ‘one more year syndrome’ is that people considering switching to reliance on passive income may have an instinctive, perhaps unconscious, but correct underlying recognition of the ‘money illusion’ created by nominal income growing over time, but this income still forming a lesser claim than expected in the realm of ‘real’ goods and services encountered every day.
Perhaps it is, at least partly, this factor which causes some pause and further consideration prior to leaving the world of nominal, often more or less annually updated, wages.
In which case, it is not clear that historically speaking, it is not – within obvious limits – the wiser course.
Trends in average distribution, portfolio income and expense measures
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 fixed expenses.
Recently the chart has also had an additional series or metric included, as discussed in the most recent portfolio income report, so as to include an estimate of available portfolio income.
This is 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.
Thus it 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 trailing average three monthly basis.
This month average total expenses (red line) continued to gently rise. These expenses are currently running at just under $8,800 per month.
Using the most recent estimates of the three year moving average of distributions (the blue line), paid out distributions have hovered at around $7,400 per month.
This leaves a continuing deficit between total expenses and average distributions of just under $1,400, which is close to the largest gap experienced to date.
Using the updated ‘SWR portfolio income’ measure, however, portfolio income is currently around $1,000 per month higher than total expenses, and this measure has been climbing since April.
Progress
| Measure | Progress |
| Portfolio objective – $3,000,000 | 182% |
| Financial portfolio income as % of total average expenses (3 yr average) – $105,300 pa | 116% |
| Target equity holding in portfolio – $2,400,000 | 122% |
| Financial portfolio income as % of target income – $103,500 pa | 118% |
Summary
The movement to a slower pace of part-time hours has had the interesting apparent effect of ‘stretching time’, compared to my past perceptions of time passing rapidly.
Quite often, through a single day, or considering upcoming weeks, I will get the (still) pleasant surprise that it is earlier than I have perceived, less of the day or week has gone by, and that all those activities I would wish to fit into that time, I can.
This is a peculiar adjustment that is still ongoing, after a period of 20 years in which there never seemed – besides holidays – quite ‘enough’ time to catch and hold in one’s hands. In part, this is probably one reason for longer recent entries in this record since June.
As an outcome, that reflects more time to write, but, interestingly, the actual amount of time thinking about, or reviewing the portfolio has not proportionally expanded. Instead, probably about the same amount of time is spent thinking about the investment issues as when work was a full-time venture.
This is true, even as some rather extraordinary developments occur, such as the systematic erosion of the US dollar’s traditional role – at least since 1971 – as the primary accumulated foreign reserve of central banks. Or traditional asset managers like Vanguard reportedly indicating a reversal of prior refusals to entertain issuances of a Bitcoin ETF.
This is somewhat of a surprise – my expectation had been that some element of extra time would find its way to portfolio-related reading, research, or analysis. Perhaps it will in future months, and the reassignment of cash reserves this month has been an effective temporary substitute for a more persistent tendency.
At least for this month, though, other activities and hobbies have filled this additional time easily. Even so, full time work leaves its ‘shadow’ across unspoken assumptions and expectations.
With the revised responsibilities, the happy reality is that fewer processes need my thought and input, and fewer emergencies find their way to my email inbox or phone. Intellectually, I know this, but an intriguing phenomenon is that long-built up habits of mind, and expectations do not disappear so easily. So almost each day I work I am surprised anew that part of the working day is not being diverted into dealing with an emergency surfacing somewhere across a previously wider range of responsibilities.
Thus, this month, I have found the menace of the urgent hour receding, replaced with a sensation of a time at half speed – still moving forward, but consciously felt and able to be better directed than perhaps any time over the past 20 years.
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.