Even as the sea threatens, he seeks the shore and safety
Homer, The Odyssey, Book V.297
Year in Review
This year just passed featured three main objectives to guide the journey towards financial independence.
First, a focus on maintaining the portfolio at a level above the portfolio target. A second object was achieving a minimum equity holding of at least $2.3 million. The third was reaching a cash reserve equal to typical total spending in a year.
Each of these objectives has been achieved through 2024.
They have been conditions for acting to change my working arrangements and plans. Through the last month or so, their achievement has allowed me to begin to move to do just that, and to set out a plan to step back to permanent part-time work, on an intellectually interesting project I continue to want to be involved in delivering.
The progress of the year can also be highlighted by recourse to the measures adopted at the beginning of the year. In each case, these have surpassed the target benchmark.
| Measure | Progress |
| Portfolio objective – $2,870,000 | 116%→168% |
| Financial portfolio income as % of total average expenses (2013-present) – $88,900 | 102%→123% |
| Target equity holding in portfolio – $2,300,000 | 98%→114% |
| Financial portfolio income as % of target income – $99,000 pa | 92%→110% |
The portfolio itself has grown from $3.3 million to $4.8 million through the course of this year. This leaves the portfolio at more than double its nominal value of just four years ago.
That substantial expansion over this passed and prior years clearly reflects the growth in the value of Bitcoin holdings over time, as well as, to some extent, the increases in the value of gold holdings in the past several years.
This is highlighted by the chart below, which tracks the allocation to gold and Bitcoin at the commencement of each year, beginning from the first purchases of gold ETFs in mid-2009.
This recent growth now means that the combined contribution to the portfolio of both of these assets is sitting at an all-time high of 38.8 per cent, having previously being largely bounded between 10 and 25 per cent.
Yet, the most fundamental change has probably been the expansion of the equity holdings in the portfolio from $2.24 million at the end of 2023, to now approximately $2.62 million – around a $400,000 growth.
It is this which has ultimately given the confidence to make decisions around the shape of future work.
These diversified holdings across thousands of securities, in Australia and abroad are the bedrock of the financial independence journey I have followed. It is they that should, under most circumstances, provide income and capital growth to enable the protection of purchasing power into the future.
At the end of 2024 fixed interest instruments comprise around $327,000 of the portfolio, up around $100,000 since the beginning of the year.
Almost all of this recent expansion is due to the redirection of investments and distributions into Plenti Capital Notes. These are substantially more risky than a median bond holding, or cash, as indicated by the level of offered returns, at around 9 per cent.
This expansion means that the level of fixed interest holdings sits at its highlest level in absolute terms in the journey.
An overall picture of the impact of these changes on the portfolio allocation can be seen below.
Broadly speaking, each other portfolio component has been reduced in prominence by the striking growth in Bitcoin over time, rendering the portfolio a different proposition – at least temporarily – from that which has faced any new year to date.
Reviewing the progress of the year
During this quiet part of the year I have spent time thinking about my investment journey, and the decisions made as well as those to come. I have not spent time, however, reconsidering the fundamental investment allocation and risk choices made throughout.
Previously, each year would end with a careful review of any developments in data, studies or academic literature on asset returns and volatility, to inform my future investment policy and safe withdrawal rate estimates.
This year, that seems a redundant exercise.
As the portfolio and equity goals are met, studiously reviewing the incremental data and reports is unlikely to materially shift the result of a sustainable safe withdrawal rate, or if it did, such a change would in turn be unlikely to result in a change in the overall portfolio goal.
The principal change I am likely to make is to update the portfolio goal to maintain its value in real purchasing power terms against the relevant earnings benchmark. As an illustrative example, simply assuming 3.5 per cent inflation over the past year as a placeholder, this would result in a new target of $2.97 million, and an updated secondary equity target of around $2.37 million.
As can be seen, both of these target are already met. Yet the magnitude of the increases from this process of updating should give pause.
They point the way to the substantial difficulty at the heart of reaching financial independence sustainably over time – the general advance of the price level over years.
One question I have over the set of distributions due to be finalised in coming days is: will there be evidence of the preservation of purchasing power in the distributions themselves? That is, will they be appreciably higher than, for example, two or three years ago in nominal dollar terms?
Some early estimates from the Vanguard and Betashares ETFs are that they are appreciably higher, but this is yet to be confirmed.
Unlike previous years, these distributions will not be automatically reinvested over time, and their fate is yet to be determined. When they are confirmed, however, the distributions will also again be reviewed in a separate portfolio income report.
Monthly Portfolio Update – December 2024
This is my ninety-seventh 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 $2,870,000. This should be capable of producing an annual income from total portfolio returns of about $99,000 (in 2024 dollars).
This portfolio objective is based on an assumed safe withdrawal rate of 3.45 per cent.
A secondary focus will be achieving the minimum equity target of $2,300,000.
Portfolio summary
| Vanguard Lifestrategy High Growth Fund | $910,564 |
| Vanguard Lifestrategy Growth Fund | $46,264 |
| Vanguard Lifestrategy Balanced Fund | $80,701 |
| Vanguard Diversified Bonds Fund | $91,066 |
| Vanguard Australian Shares ETF (VAS) | $551,071 |
| Vanguard International Shares ETF (VGS) | $808,937 |
| Betashares Australia 200 ETF (A200) | $319,282 |
| Telstra shares (TLS) | $2,137 |
| Insurance Australia Group shares (IAG) | $10,718 |
| NIB Holdings shares (NHF) | $6,576 |
| Gold ETF (GOLD.ASX) | $187,790 |
| Secured physical gold | $29,510 |
| Bitcoin | $1,653,703 |
| Raiz app (Aggressive portfolio) | $25,155 |
| Spaceship Voyager app (Index portfolio) | $4,337 |
| BrickX (P2P rental real estate) | $4,713 |
| Plenti Capital Notes Market Loan | $89,000 |
| Total portfolio value | $4,821,524 (+$5,888) |
Asset allocation
| Australian shares | 26.3% |
| Global shares | 25.6% |
| Emerging market shares | 1.0% |
| International small companies | 1.3% |
| Total international shares | 27.9% |
| Total shares | 54.3% (-25.7%) |
| Total property securities | 0.1% (+0.1%) |
| Australian bonds | 3.4% |
| International bonds | 3.4% |
| Total bonds | 6.8% (+1.8%) |
| Gold | 4.5% |
| Bitcoin | 34.3% |
| Gold and alternatives | 38.8% (+23.8%) |
Presented visually, the pie chart below is a high-level view of the current asset allocation of the portfolio.
Comments
This month the portfolio has only slightly grown, expanding just 0.1 per cent, or increasing in dollar terms through the month by just under $6,000.
This comes after substantial growth in past month, and falls well with the typical daily – or even hourly – variation of the value of the portfolio.
This month saw a welcome reassertion non-correlation between the asset classes, producing a balanced result overall.
Australian equity holdings returned losses of around 3.0 per cent over the month.
By contrast, with currency impacts playing a role, international equites provided a positive return of around 2.6 per cent. Bond holdings were also negative during the period (with losses of around 0.4 per cent).
Bitcoin made a small gain through the month, again likely assisted by currency impacts of a devaluing Australian dollar.
Gold holdings increased in value by grew in value by 3.5 per cent. Remarkably, this means that on average the gold ETF holdings accumulated since 2009 have outperformed all equities purchased over the same period, Australian and global.
Trends in average distributions and expenses
This month the gap that has emerged since June 2024 between total expenses and the moving average of distributions has slightly increased, albeit at a lower pace than previously.
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 notional monthly allowance for other fixed expenses.
This month average total expenses (red line) continued to rise. These expenses currently are at just above $7,900 per month.
The three year moving average of distributions (the blue line) has continued its slight recovery in the past month, to reach over $7,200.
This leaves the deficit between expenses and average distributions remaining around $700, at near the level of last month.
Progress
| Measure | Progress |
| Portfolio objective – $2,870,000 | 168% |
| Financial portfolio income as % of total average expenses (2013-present) – $88,900 | 123% |
| Target equity holding in portfolio – $2,300,000 | 114% |
| Financial portfolio income as % of target income – $99,000 pa | 110% |
Summary
This month has seen a slower pace and less of a focus on the portfolio, except in recent days, than many this year.
The formal start of the part-time role will probably occur in around February or March, depending on the fortunes of recruitment processes, but even having made and communicated the decision, there is a release of pressure. A kind of gradual partial disconnection from the direct events of a workplace, to something more akin to an interested observer.
More than at most times, this month I have been conscious of the interplay between ones personal plans and intent, and the global macroeconomic developments underway. This is not to say that they have bred fear, or a wavering of intent.
More that it is an unusual and arresting thought that one’s future consumption choices will be shaped and driven less by pure income, derived from the labour market, than a far more amorphous force.
That of, in large part, thousands of corporations working to maintain or increase their operations, or repay their borrowings. These will be buffeted by, themselves, thousands of countervailing risks, events, conditions, and actions of governments. One only needs to look around one into the headlines of newspapers to see examples of these.
Labour income is often said to have many characteristics of a bond, being fairly steady, less prone to fluctuations. And one way to think about the process of working to FI or retirement is the steady transition over a working life of this bond-like labour income deriving from human capital to an income solely sustained by capital asset returns.
The record of this journey started eight years ago, to test the proposition that this transition could be done earlier than traditionally, and sustained over time.
As this is written there is a vibrant debate about whether the US, and the globe indeed, face a moment like 1929. Many such calls and claims have been made before at different points – never to eventuate.
Yet, there have been entire lost decades of equity returns, in markets, across time – the risk is not lightly dismissed. This month has seen a significant increase in the US Federal 10-year rate, despite some easing of formal US monetary policy.
As always, the sea looks threatening, even as it provides the essential and only path for the next part of the voyage. Safety is not yet assured, or sought.
Note for readers
Over the last few months, 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.