It is great, because it is inevitable yet surprising
Balthasar van der Pol
Twice a year I prepare a summary of total income from my financial independence portfolio. This is my twentieth portfolio income update since starting this record. As part of the transparency and accountability of this journey, I regularly report this income.
My primary goal is to maintain a portfolio of at least $3,250,000 which is capable of providing a passive income of around $112,000 (in 2026 dollars), based on an assumed safe withdrawal rate of 3.45 per cent. A secondary focus is maintaining a minimum equity target of $2,600,000.
Portfolio income summary
| Investment | Amount |
| Vanguard Lifestrategy High Growth (retail fund) | $25,019 |
| Vanguard Lifestrategy Growth (retail fund) | $1,638 |
| Vanguard Lifestrategy Balanced (retail fund) | $3,719 |
| Vanguard Diversified Bonds (retail fund) | $5,424 |
| Vanguard Australian Shares ETF (VAS) | $8,191 |
| Vanguard International Shares ETF (VGS) | $8,363 |
| Betashares Australia 200 ETF (A200) | $5,070 |
| Plenti Capital Notes | $3,770 |
| Total Portfolio Income – Half-Year to June 30, 2026 | $61,194 |
The chart below sets out the distributions received on a half-yearly basis from the financial independence portfolio over the past nine years.
The following pie chart is a breakdown of the contribution of each major current investment in the portfolio in the last financial year.
Comments
In the half-year to 30 June 2026 the portfolio produced total distributions of $61,000 – or around $8,400 per month over the past six months.
This is the fourth highest level of distributions received in a half-year period across the entire journey.
As noted in previous reports, the concept of reporting half-yearly portfolio income is linked to the pattern of past investments. As the record commenced, around 70 per cent of all assets were held in legacy Vanguard retail index funds which only produced biannual distributions, at the end of June and December. This made these two points the most significant for income realisation from the portfolio.
The changed patterns of investments and the introduction of quarterly distributions for the Vanguard retail holdings now produces a much more even flow of distributions through the year.
The half-year results reported here, therefore, combine first and second quarter portfolio income.
The chart below sets out the observed pattern of quarterly distributions over the past nine years (including forecasts for the remainder of 2026 in transparent light purple).
This chart highlights that the June quarter distributions continue experience less volatile, moderating over the last four years.
A levelling off? Trends in portfolio income over 2000-2026
The end of each financial year allows for a reflection on the longer-term trends in portfolio income over the entire financial independence journey so far.
Across the full financial year just ended, portfolio distributions were $99,116 (or $8,260 per month), around 4 per cent lower than the previous financial year.
The chart below sets out history of total portfolio distributions in nominal dollars, with the green bars indicating the period covered since the start of this written record.
The red dotted line (the RHS axis) tracks the average level of the financial portfolio across each year.
As the graph includes only the traditional financial portfolio assets, and not Bitcoin, it a clearer view of how financial distributions have moved in relation to the level of underlying financial investments held.
This shows that through to around 2017, the distributions moved tightly with the level of the portfolio. Since that time, there is much greater variability in the level of distributions, compared to the quite smooth upwards trajectory of financial assets.
This last financial year in particular, distributions have stabilised at around the level experienced over the previous two years. And looking beyond, distributions over the past five financial years have generally fallen in a narrow range between $94,000 and $103,000.
There has been a moderation in the mean and average distributions also, and even some decline. As an example, the five year median annual distribution has fallen from $83,000 to $79,000, as exceptional high payments in June 2021 fall outside of the sample. And similarly, the mean average of the last five years of distributions now sits at $92,000, down from $99,500.
Despite this moderation, in real dollar terms, the impact of compounding in the portfolio is still evident. Over 50 per cent of the real value of distributions ever received has been received in the past 6 years, compared to the first 11 years delivering less than 10 per cent of total value of distributions received. Around 75 per cent of the real value of distributions has been received during this recorded journey from 2017.
The results for this and past financial years suggests that future distributions from the ETF and Vanguard funds are likely to fall in a range of between $90,000 to $96,000 per annum, but with inevitable variations across years.
Applying past median and average distribution rates from funds and the ETFs held, together with a forecast of Plenti interest income, a forward-looking estimate of portfolio income of around $98,000 to $104,000 for the current 2026-27 financial year can be reached. Last year’s estimate the 2025-26 distributions was by chance uncannily accurate, to within $1,000.
Stabilising beneath the surface: the evolving composition of portfolio distributions over 2017-2026
The composition of the portfolio distributions continues to be a stable picture, given low change in the structure of the portfolio.
From the chart below it can be noticed that the last five years have presented relative continuity, with a fairly balanced make-up of distributions from the major four funds and ETF vehicles.
It should be noted that the simplified chart above excludes the paid out Plenti Capital Note interest (around $7500 over the last financial year). These notes will mature over the course of 2027 and the capital will be reinvested in the equity ETFs listed above.
One recent significant sources of variation that can be easily observed are a relative contraction in Vanguard Global Shares (VGS) distributions since an unusual spike in FY2024. Since that time distributions have nearly halved, likely due to currency variation impacts, differing levels of paid out capital gains, and a general contraction in yields from higher US market valuations.
A second notable variation is a strong recent surge in distributions from the Vanguard diversified bond holdings.
These tend to exhibit highly variable, even episodic distributions, but in this financial year they have totalled $5,700, after several years of negligible performance. This is the third highest financial year return, and likely also reflects a similar range of factors, such as currency impacts, payment of capital gains, and the gradual impact of higher prevailing yields on the bond portfolio.
Even these variations are largely masked by normal variability within elements of the portfolio. This is illustrated by the chart below, which sets out the level of, and changes in, major components of portfolio distributions over the past 26 years.
The key feature of this chart is remains the high and variable distributions from the Vanguard High Growth fund (teal), especially across FY2021.
These included significant paid out capital gains arising from fund rebalancing to meet allocation targets, or fund redemptions, neither of which are pure investment income generation. Since the closure of the legacy retail funds and their shift to new quarterly distributing retail funds in 2024, patterns of payouts from the Vanguard High Growth fund have moderated significantly overall.
Over the past five year distributions from the VAS (purple) and A200 (blue) and VGS (light purple), exchange-traded funds have continued to grow to become clearly visible.
Trends in the long-term average distribution rate for the financial portfolio
Another perspective on the changing nature of the portfolio distribution can be provided by looking at the long-term trends and variations of the average rate of distributions as a percentage of the portfolio (i.e. an average ‘yield’ of the portfolio).
The chart below sets out the record from FY2000 to FY2026 on two different bases.
First, the red line tracks the distribution rate of the traditional financial portfolio – with Bitcoin holdings removed. The second blue line tracks the distribution rate of the whole financial independence portfolio, with the zero-yielding Bitcoin holding included.
This data shows bumpy path from year to year, but a steady negative trend in the level of distribution yields from the financial portfolio. At the commencement of the record, distribution yields of around 6 to 7 per cent were not remarkable. That has declined sharply, with the last financial year result being 2.8 per cent.
This decline has a range of causes, from movement to more efficient investment vehicles, declining bond and dividend yields, as well as a movement in the portfolio towards international equities with traditionally lower dividend yields.
The ‘hourly earnings’ perspective on portfolio distributions
A different perspective on the portfolio’s levels of distributions is provided by considering earnings on an hourly basis.
The chart below sets out the progress of annual portfolio income over the full journey, calculated in nominal dollar terms on an hourly basis, i.e. the per hour ‘earnings’ of the portfolio, counting each and every hour of a year.
As previously reported, a second way to view the same data is by considering the ‘earnings’ of the portfolio constrained to within only normal working hours.
This assumes that the portfolio only produces earnings in hours in which an ordinary worker would – so it equates to approximately the standard pre-tax hourly ‘wage’ the portfolio is able to produce.
This illustrates that over the past year, actual ‘per working hour’ earnings have been around $50, slightly down from around $52 last year.
Movements in the constant dollar value trends in portfolio distributions
Consistent with previous portfolio income updates, I have again transformed the nominal distributions per ordinary working per hour chart above into constant 2025 dollar terms using the RBA’s consumer price index (CPI) measure, with the results for FY2000 to 2026 set out below.
This broadly shows a period of slow increase through to FY2016, and then an acceleration from FY2017 to FY2022, with a more measured range bound performance since then.
The relative stability over the past five years evident from the 5-year moving average (red dotted line), after the outlier of FY2021 is passed.
This measure is best viewed as one indicator of the relationship over time between an imperfect meaure of investment earnings (distributions), compared to the nearest comparable alternative of wage earning.
The past has a different pattern: comparing distributions and the unit of measure
The measurement of ‘real’ or ‘constant dollar’ distributions can help to understand whether income received has kept pace with inflation over time.
Yet even applying a ‘real’ lense, using consumer price index data has the potential to provide a misleading picture of the actual pathway of portfolio income through time.
To illustrate this, the table below extends some analysis done last year, comparing the longer-term trends in distributions, CPI and M2 broad money supply.
M2 is known as a ‘broad’ measure of money supply, and includes cash and saving deposits, at call accounts and small term deposits. In simplest terms, this can be thought of as a measure of the absolute number of ‘money claims’, defined in Australian dollars, on goods, services or assets in the real economy.
The table below rebases distributions, price level (CPI) and M2 at FY2017, to an index of 100.
Table – Measured growth in distributions, CPI, M2 and financial portfolio (FY2017=100)
Several findings are apparent from this table.
- Distributions have grown at 5.2 per cent on average over the period, with significant volatility through the early period from FY2017 to FY2021;
- The consumer price index on average grew at 3.2 per cent through the period, meaning distributions grew in traditional purchasing power terms;
- When measured against the growth in money supply of 6.8 per cent, however, distributions failed to keep pace across the period, and in six out of the nine years;
- The M2 monetary growth across the period was around double the CPI, highlighting that even though measured inflation was relatively close to the official target, the ‘hurdle’ which nominal dollar income needs to clear to maintain its true value through time is much higher;
- The growth in the overall financial portfolio value (the last column on the right) has comfortably exceeded the M2 benchmark, by close to 9 per cent, by growing at 15.7 per cent a year;
- This performance, however, mostly represents a period of relatively aggressive savings and investment, and is not a clear case of unrealised capital gains making up for distributions failing to match the M2 benchmark.
The implications of this are mixed.
Overall, it shows that the apparent stability in distributions is masking a longer-term failure of paid out distributions to reliably overcome the average impacts of monetary base expansion.
Yet there is a more positive interpretation possible.
This is that while distributions may be falling, the financial portfolio has reached a level at which compound returns are sufficient to offset this through time. There is insufficient data to establish whether this has occurred, not least because regular new investment through the period have been made.
Only a period of no new investment, across a period of some years, would be able to provide some solid indication of this. Otherwise, the supportive force of new investments across different market conditions pushing forward the portfolio value could easily be mistaken for the miracle of compounding asserting itself.
This graph reproduced from the January monthly portfolio update provides an imperfect but approximate quantification of the potential bias introduced if new investments are ignored in considering the 15.7 per cent compounding rate through the past 9 years as given.
Sources of portfolio growth – 2014 to 2025 – Smoothed trend
In reality, as the chart shows, during substantial periods since 2017, new investment has made up 30 to 55 per cent of portfolio growth.
At present, new investments may be making up 10 per cent or less of portfolio growth going forwards. Therefore, in time, a cleaner answer to the question: ‘can a portfolio compounding in its later stages outpace monetary growth?’ may emerge.
Allocating distributions payments in a ‘post-FI target’ environment
With the finalised payouts from exchange traded funds A200, VAS and VGS and the June distributions from the Vanguard funds, there will be approximately $33,000 of capital available for use over the next two weeks.
This sum is less than the full half-year total of $61,000 reported above because March quarter distributions from a number of the funds and ETFs have already been paid.
I intend to set aside around 33 per cent of these payments in cash to meet future Pay As You Go Instalment tax liabilities.
Consistent with practice in recent I will add the remaining excess distributions to an account set aside for regular reinvestments, and reinvest this in equal monthly components through to the end of 2026. This is adopted to ensure the protection of the real value of these surplus assets over time, and somewhat mitigate sequencing risk in the period leading up to an anticipated future with no further fixed or regular paid work, and transitioning to a position closer to full FIRE.
Around $2,000 will be added to a general cash reserve that I maintain, outside of the portfolio reporting, to bring it to the level of average annual expenditure over the past three years ($109,000).
This reserve is intended to provide a ‘buffer’ to recognise the volatility of portfolio distributions, and ordinary expenses, with sufficient liquidity to meet one-off contingencies so as to not require the sale of any portfolio assets in disadvantageous market circumstances in cases of major unexpected expenses.
In addition to this general reserve is a smaller contingency fund (currently of around $23,000) designed to meet unexpected one-off expenses without compromising the functioning of the general cash reserve. Neither of these funds make up a formal part of the reported financial independence portfolio.
Observations
Portfolio income updates have over time developed different focal points.
At first, they were tangible evidence of the production of relatively dependable portfolio returns as savings and investments built up.
Since the 2024, however, an issue of increasing focus have been less the precise structure or level of distributions in any quarter or year, but the question of whether broader portfolio distribution patterns provide any evidence of being able to growth in ‘real’ terms, offsetting the impacts of inflation and growth in the monetary base.
To some degree, portfolio distributions are an imperfect measuring tool for this question, as they do not always represent a ‘clean’ view of pure investment income, which is why annually a separate analysis using taxable investment income data is performed.
Yet the analysis above is suggestive that it is by no means inevitable that a stable or even steadily growing nominal portfolio income is determinative of having arrived with full safety at complete financial independence, due to a growing passive income stream.
This stage of the FI journey is often presented as simply ‘maths’, or unimportant considering the application of whichever ‘rule of thumb’ or ‘4 per cent rule’ is used. To the extent it is referred to, the picture of this phase is often drawn loosely as an endless sunlit uplands of magically compounding portfolio returns.
Yet in questioning this framing, the ‘real versus nominal’ analysis above does raise a key teleological issue: is the the purpose of financial independence to arrive at a stable absolute level of ‘real’ or CPI adjusted level of income (or potential consumption). Or is it to arrive at a control over a given proportional slice of total societal level wealth, as defined by valid ‘calls’ upon real wealth?
The former is easy to calculate, but places one at hostage to the reality that even in a relatively stable inflationary environment, the CPI basket is moving constantly, as its composition and ultimately government determined assumptions shift through time. Governments running persistent deficits face an incentive for higher inflation, to reduce the burden of debt issued in nominal values. Simultaneously, they face a strong political incentive to minimise the apparent visible impact of inflation through CPI measurements.
Combined with methodological choices in the construction of the CPI, this can mean that underlying even a period of ‘contained’ inflation can obscure the reality that a CPI basket can resemble a ‘ship of Theseus‘ dilemma, with elements removed or substituted through time, such that it is a philosophical, rather than a mathematical question as to whether CPI meaningfully represents any stable ‘standard of living’.
The emergence of financial independence advice highly focused on being ‘flexible’ with expenses (and income generation) or regularly substituting goods and services consumed, as well as being based on eternal truths of the unchanging mathematics of living below ones means, may in part be unwittingly a function of these factors.
The second potential option is perhaps less intuitive.
It would be defined as achieving a position where one has ownership or control of a stable proportional amount of the assets or resulting income, regardless of the movement in the denominator – i.e. expansions in the number of ‘claim tickets’ or monetary base of the economy.
In this sense, this could be viewed as standing still, in relative terms, and being unaffected in real terms regardless of how monetary policy was conducted, or monetary base inflation played out.
The journey actually started with a compromise between these options, with early FI benchmarks used being tightly based on the ‘moving target’ of nominal wages adjusted each year to recognise inflation. Such an approach would have broken down over the last 6 years, which, as the OECD observed, has witnessed a significant fall in real Australia wages in after-inflation terms.
Looking through the data of this portfolio income, and the trends over the longer time there is therefore both elements of surprise and inevitability. The original remark that opened this update – by a Dutch physicist – was made of Bach’s musical compositions. The same might equally be observed, however, about the process of financial independence through time.
What still lays ahead is testing the degree to which more hidden currents have the potential to drive the unwary ship from safety to unseen shallows.
Explanatory Notes
Income distributions reported above do not include associated franking credits. My current preference is to seek to track cash actually delivered to my bank account as a tangible and easy to calculate measure. Last financial year franking credits valued at approximately $13,000 were received from all shares, ETFs and Vanguard retail funds, bringing the total half year distributions on a notional ‘pre-tax’ basis to approximately $68,000.
For analytical simplicity the composition of some distributions graphs exclude the small amount income from smaller holdings in Plenti. The total income excluded by this approach ($7,560) constitutes around than 7.6 per cent of the total income received over the period.
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 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.