Everything comes gradually and at its appointed hour.

Ovid

This is my nineteenth portfolio update. I complete this update monthly to check my progress against my goals.

Portfolio goals

My current objectives are to reach a portfolio of:

• $1 476 000 by 31 December  2018. This should produce a real income of about $58 000 (Objective #1).
• $2 041 000 by 31 July 2023, to produce a passive income equivalent to $80 000 in 2017 dollars (Objective #2)

Both of these are based on a real return of 3.92%, or a nominal return of 7.17%

Portfolio summary

• Vanguard Lifestrategy High Growth – $748 238
• Vanguard Lifestrategy Growth  – $43 239
• Vanguard Lifestrategy Balanced – $76 351
• Vanguard Diversified Bonds – $103 147
• Vanguard ETF Australia Shares ETF (VAS) – $78 643
• Betashares Australia 200 ETF (A200) – $16 025
• Telstra shares – $3 492
• Insurance Australia Group shares – $21 308
• NIB Holdings – $6 876
• Gold ETF (GOLD.ASX)  – $77 784
• Secured physical gold – $12 402
• Ratesetter (P2P lending) – $39 873
• Bitcoin – $95 396
• Raiz app (Aggressive portfolio) – $11 585
• Spaceship Voyager app (Index portfolio) – $140
• BrickX (P2P rental real estate) – $4 649

Total value: $ 1 339 148 (+$10 794) 

Asset allocation

• Australian shares –  35%
• International shares – 19%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 59.4% (1.6% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.5% (1.5% over)
• Australian bonds – 9%
• International bonds – 10%
• Total bonds – 18.8% (3.8% over)
• Cash – 1.3%
• Gold – 6.7%
• Bitcoin – 7.1%
• Gold and alternatives – 13.9% (1.1% under)

Comments

This entry, like last year, seems to occur at a strange ‘bridging’ time between effort and demonstrable progress. Past months have seen increases in contributions, and a steady shifting of Ratesetter funds as each loan matures towards Australian equities. Yet this progress will only seem irrevocable later in July when all distributions from Vanguard funds and ETFs are received and totalled, to reach a passive income estimate for this financial year.

So I have busied myself with some financial ‘cleaning up’, moving all of my holdings to a single broker, that I have used for the past few purchases of the Australian Shares ETF A200. A slight complication arising out of this was that I had to reconfirm all my dividend payment instructions through the couple of share registries used, as this information apparently sometimes gets lost in the transferral process.  As a result, in a couple of cases, I will be waiting by my letter box, rather than checking my bank account, for the dividends to arrive. Another ‘cleaning up step’ has been to finally put in claims to an old series of outstanding Medicare rebates that had built up, going back to 2008. This has already added around $300 to my Raiz account which I use to motivate myself to take small ongoing saving steps.

Movement in my portfolio has been limited, and generally in the direction of my target asset allocations. Bitcoin has continued its downward drift, and my recent investment in the A200 ETF has mildly pushed up my Australian shares allocation.

While waiting for distributions I also listened to renowned Nobel Prize winner Robert C Merton discuss his views on retirement planning. The conversation was fascinating, and focused in a way that is relevant for the FI community on the dangers of targeting ‘a number’ as a proxy for the actual objective of a certain income or living standard in retirement. For a slightly different view of similar issues, see this research note (pdf) which points out the potential risks of ‘income’ (including dividend) focused investing, compared to approaches that target a high, and diversified, total market return.

Progress

Progress to:

• objective #1: 90.7% or $136 852 further to reach goal.
• objective #2: 65.6% or $701 852 further to reach goal.

Summary

Looking back a year, at this time I was cautious about further investments in the Australian share market, where now I am adding additional funds every two weeks. My caution remains, but it is instructive that since that time Australian equity markets have advanced healthily and delivered strong dividends.

This is a core part of my reasoning for commencing this record, to understand in retrospect that momentary perceptions can be overtaken by market realities. At this moment, my continuing equity purchases are driven by the need to reach my portfolio objectives without seeking to time the market, so that even as I see a correction as being quite likely over the next year, I am planning to continue in this course.

As distributions are finalised for the past financial year, my focus is on what this will signal about the length and the nature of the journey ahead.

Neither should a ship rely on one small anchor, nor should life rest on a single hope.

Epictetus

This is my eighteenth portfolio update. I complete this update monthly to check my progress against my goals.

Portfolio goals

My current objectives are to reach a portfolio of:

• $1 476 000 by 31 December  2018. This should produce a real income of about $58 000 (Objective #1).
• $2 041 000 by 31 July 2023, to produce a passive income equivalent to $80 000 in 2017 dollars (Objective #2)

Both of these are based on a real return of 3.92%, or a nominal return of 7.17%

Portfolio summary

• Vanguard Lifestrategy High Growth – $734 804
• Vanguard Lifestrategy Growth  – $42 624
• Vanguard Lifestrategy Balanced – $75 539
• Vanguard Diversified Bonds – $102 960
• Vanguard ETF Australia Shares ETF (VAS) – $76 267
• Betashares Australia 200 ETF (A200) – $5 780
• Telstra shares – $ 3 732
• Insurance Australia Group shares – $20 308
• NIB Holdings – $6 564
• Gold ETF (GOLD.ASX)  – $79 125
• Secured physical gold – $12 623
• Ratesetter (P2P lending) – $41 746
• Bitcoin – $110 570
• Raiz app (Aggressive portfolio) – $10 896
• Spaceship Voyager app (Index portfolio) – $98
• BrickX (P2P rental real estate) – $4 718

Total value: $ 1 328 354 (-$8 678)

Asset allocation

• Australian shares –  34%
• International shares – 19%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 56.4% (3.0% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.5% (1.5% over)
• Australian bonds – 9%
• International bonds – 9%
• Total bonds – 19.0% 
• Cash – 1.3%
• Gold – 6.9%
• Bitcoin – 8.3%
• Gold and alternatives – 15.2% (0.2% over)

Comments

This month has been one of taking some small new actions, and experimenting with some different tools to apply my overall plan. Most significantly, I have opened and used a new low cost brokerage account, with Self Wealth, to start purchasing Betashares A200 ETF, a new very low cost (0.07%) Australian shares ETF.

The A200 is a new index ETF, similar to the Vanguard VAS ETF, though currently with lower fees, and covering the ASX200, rather than the ASX300. Self Wealth’s platform enables a flat brokerage fee of less than half my previous online brokerage account. In turn, this has made a move away from contributing to my Vanguard high growth fund as a primary destiny for new investment, into A200, more economic, at least by my calculations. So my amended approach in future will be fortnightly purchases of A200 or other low cost ETFs. An added benefit of this will be more rapid movement to my target asset allocation, as previously 10% of each Vanguard high growth contribution was effectively contributing to my bond holdings.

A further experiment has been opening a small account at Spaceship, a new app based micro-investing option. Spaceship is a new entry into the micro-investing market, currently offering no fees on balances of less that $5000. The app is simple, and the application process was relatively fast and efficient. I chose their only index portfolio, which is based on direct holdings of globally diversified large companies. While lacking some of the appeal and finish of the Raiz app, zero fees on small balances is a remarkable offering.

This month my portfolio has faced headwinds from some declines in the price of Bitcoin, which has actually recently enjoyed a period of relatively low volatility. In a further change to my alternatives allocation, now that my physical gold holdings have reached about one percent of my total portfolio, I have paused regular weekly contributions to my Goldmoney account, to focus new cashflow into Australian shares.

This has left my overall asset allocation as close as to my investment policy targets as it has been for some time. With the Australian share market closer to long term valuations than the US market, this is leading me to hold off on increasing my international diversification for now. My next major decisions in that area will be on receiving my July distribution payments.

This month the Productivity Commission released its fascinating draft report into superannuation. A focus of my thinking over this past month has also been a rough review of my ‘global’ financial position, taking into account superannuation funds, and their asset allocation. This blog covers only my accessible non-superannuation assets, because of its focus on creation of a passive income stream well before eligibility to draw on superannuation. Nonetheless, ignoring its effect would be incorrect. Currently my superannuation is invested primarily in a low cost high growth index product, and my spreadsheet experiments have focused on ensuring that my portfolio decisions don’t occur in isolation from my broader financial position.

Progress

Progress to:

• objective #1: 89.9% or $147 646 further to reach goal.
• objective #2: 65.1% or $712 646  further to reach goal.

Summary

Exploration of new products and approaches has diverted my attention from overall portfolio performance this month, in part by design. I have been focused on smaller regular optimisations I can make, and questioning choices that could result in higher ongoing costs for no benefit.

Following on from my looking at safe withdrawal literature last month, I have also come across the only Australian examination of the ‘4 per cent rule’ I have ever seen, How Safe are Safe Withdrawal Rates in Retirement? An Australian Perspective, published here (pdf). It highlights a particular humility we should have about just importing the ‘4 per cent rule’ unthinkingly from overseas studies, by pointing out the extraordinary performance of the Australian market, and the much lower safe withdrawal rates that would follow from a break in this extraordinary run. The paper is rich with insights and issues to consider for anyone investing for financial independence in Australia.

A hero perish, or a sparrow fall,

Atoms or systems into ruin hurl’d,

And now a bubble burst, and now a world.

Alexander Pope, An Essay on Man

This is my seventeenth portfolio update. I complete this update monthly to check my progress against my goals.

Portfolio goals

My current objectives are to reach a portfolio of:

• $1 476 000 by 31 December  2018. This should produce a real income of about $58 000 (Objective #1).
• $2 041 000 by 31 July 2023, to produce a passive income equivalent to $80 000 in 2017 dollars (Objective #2)

Both of these are based on a real return of 3.92%, or a nominal return of 7.17%

Portfolio summary

• Vanguard Lifestrategy High Growth – $724 062
• Vanguard Lifestrategy Growth  – $42 356
• Vanguard Lifestrategy Balanced – $75 123
• Vanguard Diversified Bonds – $102 559
• Vanguard ETF Australia Shares (VAS) – $75 389
• Telstra shares – $4 238
• Insurance Australia Group shares – $19 734
• NIB Holdings – $6 684
• Gold ETF (GOLD.ASX)  – $80 190
• Secured physical gold – $12 333
• Ratesetter (P2P lending) – $43 336
• Bitcoin – $135 720
• Raiz app (Aggressive portfolio) – $10 557
• BrickX (P2P rental real estate) – $4 751

Total value: $ 1 337 032 (+$52 169)

Asset allocation

• Australian shares –  32 %
• International shares – 19%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 56.4% (4.6% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.4% (1.4% over)
• Australian bonds – 9%
• International bonds – 9%
• Total bonds – 18.8% (0.2% under)
• Cash – 1.3%
• Gold – 6.9%
• Bitcoin – 10.2%
• Gold and alternatives – 17.1% (2.1% over)

Comments

A few weeks ago, on a sunny morning trip at Sydney airport and ahead of an all day meeting in the city, I stopped by a newsagent, and bought a copy of the April Money Magazine. I had the unusual experience of seeing the following…

Money had profiled this blog, and a number of others such as Pat the Shuffler, following call out on twitter and some follow up discussions with several Australian FI bloggers.  A special welcome to new readers!

Compared to that unique experience of picking up a magazine, and reading my own plans, the execution of them has been low key this month. The portfolio has continued to recover to previous levels, led by higher equity prices, a lower dollar, and movements in Bitcoin. Some first quarter dividends have been reinvested into the Vanguard high growth fund. In addition a gradual draw down of Ratesetter funds is occurring, as each loan matures. The BrickX platform has added an extra residential property for investment, and as part diversifying as widely as possible within this platform, I made a small additional investment.

The retreat and then recovery of the overall portfolio over the the past four months has not directly disturbed my plans, but it has increased my focus on the next substantive piece of new information in the journey. Looking ahead, this still lies some way off – in the form of July distributions. A major equity price fall continues to be within my expectation, even in spite of listening to a compelling Meb Faber podcast interview with UK academic Elroy Dimson, on the relationship between valuations and future returns.

Progress

Progress to:

• objective #1: 90.6% or $138 968 further to reach goal.
• objective #2: 65.5% or $730 968 further to reach goal.

Summary

As I near my target I am finding myself increasingly restless, thinking more and more actively around issues of safe withdrawal rates, sequence of return risks, and wanting to hear perspectives from other FI adherents who have stopped work. With potentially large future declines in Bitcoin and equities quite feasible, it feels a risky time to be taking on sequence of return risks. To some extent, I feel involuntarily ‘paused’, waiting to see the next part of the story, without yet being able to clearly read the chapter heading.

Be content to seem what you really are.

Marcus Aurelius

This is my sixteenth portfolio update. I complete this update monthly to check my progress against my goals.

Portfolio goals

My current objectives are to reach a portfolio of:

• $1 476 000 by 31 December  2018. This should produce a real income of about $58 000 (Objective #1).
• $2 041 000 by 31 July 2023, to produce a passive income equivalent to $80 000 in 2017 dollars (Objective #2)

Both of these are based on a real return of 3.92%, or a nominal return of 7.17%

Portfolio summary

• Vanguard Lifestrategy High Growth – $693 605
• Vanguard Lifestrategy Growth  – $41 574
• Vanguard Lifestrategy Balanced – $74 220
• Vanguard Diversified Bonds – $103 193
• Vanguard ETF Australia Shares (VAS) – $74 236
• Telstra shares – $4 279
• Insurance Australia Group shares – $18 910
• NIB Holdings – $7 824
• Gold ETF (GOLD.ASX)  – $80 389
• Secured physical gold – $11 612
• Ratesetter (P2P lending) – $45 954
• Bitcoin – $114 730
• Acorns app (Aggressive portfolio) – $9 953
• BrickX (P2P rental real estate) – $4 384

Total value: $1 284 863 (-$54 561)

Asset allocation

• Australian shares –  33 %
• International shares – 19%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 56.6% (4.4% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.3% (1.3% over)
• Australian bonds – 10%
• International bonds – 10%
• Total bonds – 19.6% (0.6% over)
• Cash – 1.4%
• Gold – 7.2%
• Bitcoin – 8.9%
• Gold and alternatives – 16.1% (1.1% over)

Comments

This post is a few days later that usual as I have been holidaying overseas as the new month rolled over, making the update a bit more challenging to achieve with overseas data limits to contend with.

This last four months has been a challenging one, with declines in the overall portfolio, taking it ‘back’ to levels in November. Nearly all of this represents growth, and then sharp decline, in the value of my errant Bitcoin holdings, with some falls in equity markets also. I have concentrated on placing new capital into equity markets, and seeking to move my actual asset allocation closer to my target allocation over time.

Most of my financial moves this month have been incremental changes to how I fund longer-term irregular expenses. Around two years ago I moved to a system of regular deductions into higher interest allocated Ubank sub-accounts to set aside cash for car replacement, major insurance and holiday expenses. The system has worked well, but I had not revised its assumptions and structure materially after setting it up. By making a more realistic assumption on car replacement (every 8 years rather than five), and by taking into account my growing passive income and counting it as part replacement for a conservative emergency account, I have been able to free up some more cashflow (more than $8000 per annum) for regular investment.

The only substantial moves in the portfolio have been continued falls in Bitcoin, reducing its potential to add to future portfolio volatility (in a glass half full view), some falls in equity valuations, and some advance in the value of gold securities. I am looking through most of these changes and increasingly focused on what the end of first quarter dividends payments and distributions will bring, and the reinvestment opportunities that represents.

Progress

Progress to:

• objective #1: 87.1% or $191 137 further to reach goal.
• objective #2: 63.0% or $756 137 further to reach goal.

Summary

With time away from ordinary work this month, it has at times felt like a small trial of a future potential lifestyle, a weighing of one option for years ahead. Watching a portfolio shrink even as new investments are added is difficult, but I seek to recall that I have been investing in markets that are volatile steadily over around 20 years. This has caught upswings, periods of flatness, and the Global Financial Crisis. The next signal of progress will be my March quarter passive income, rather than abstracts updrafts or downdrafts in my portfolio.