This exploration began four years ago, with an initial objective of building a passive income of $58,000 per annum by July 2021. Since that time, goals have evolved and changed enabling bringing forward the achievement of this initial goal.
Each year in early January I spend time reviewing my investment goals and how I plan to reach them.
This post explains the findings from my annual review, details my updated portfolio goal and assumptions, and discusses how I will approach my financial independence journey through 2021 and beyond.
The aim is to have a clear written record of the objectives, approaches and reasoning underlying the plan, to serve as a reference point through the year. The process also enables the updating of plans and assumptions for changes in circumstances, thinking, as well as data and evidence.
Ports of call and the future of the voyage
In the middle of December 2020 I passed the single portfolio objective I set myself in early 2020, six months earlier than targeted.
You must go by a way which is the way of ignorance.
T. S. Eliot, Four Quartets – East Coker
Year in Review
The year past has been extraordinary in so many ways, entirely separate from the progress to the goal of financial independence.
Part of the structure of the year has been seeing elements of this new reality bleed into markets and economic developments, affecting the portfolio in profound ways.
At the the broadest level, the year saw the passing of my portfolio objective, in a rapid unexpected way in December. In fact, as can be seen below, this year saw the crossing of the last two outstanding portfolio measures.
Progress against FI measures through 2020
Measure
Portfolio
All Assets
Portfolio objective – $2,180,000 (or $87,000 pa)
82%→104%
112%→136%
Credit card purchases – $71,000 pa
100%→127%
136%→166%
Total expenses – $89,000 pa
80%→102%
109%→133%
On an ‘All Assets’ basis – taking into account superannuation assets – the year saw further progress, to be well above the minimum levels required to sustain the portfolio income objective.
Course of the voyage
The progress of the year was steeped in volatility. This year saw the largest ever fall in the value of the portfolio, and also two of the largest ever monthly gains.
This volatility is clearly evidenced in the variations in the total end of month portfolio values in the chart below.
Overall the portfolio increased by over $500,000 through the full year. This is the largest rise in the value of the portfolio over a single year on record.
Quite simply, it has moved the portfolio to a different magnitude and scale of operation. The chart below of the overall value of the portfolio on a calendar year basis illustrates this alteration starkly.
It cannot be escaped that the largest single contributor to the increase over this year was a surge in the price of Bitcoin, leading to over $300,000 of the gains.
Equity markets, however, also pushed forward in the second half of the year, and the equity portfolio finished around $175,000 higher than the beginning of the year. The gold component of the portfolio also ended the year higher.
As the set out in the In Way of Harbour post two weeks ago, combined this progress resulted in the passing of the portfolio objective in mid-December.
This is my forty-eighth monthly portfolio update. I complete this regular update to check progress against my goal.
Portfolio goal
My objective is to reach a portfolio of $2 180 000 by 1 July 2021. This would produce a real annual income of about $87 000 (in 2020 dollars).
This portfolio objective is based on an expected average real return of 3.99 per cent, or a nominal return of 6.49 per cent.
Portfolio summary
Vanguard Lifestrategy High Growth Fund
$787,739
Vanguard Lifestrategy Growth Fund
$44,262
Vanguard Lifestrategy Balanced Fund
$82,197
Vanguard Diversified Bonds Fund
$109,841
Vanguard Australian Shares ETF (VAS)
$262,908
Vanguard International Shares ETF (VGS)
$88,620
Betashares Australia 200 ETF (A200)
$255,235
Telstra shares (TLS)
$1,636
Insurance Australia Group shares (IAG)
$6,525
NIB Holdings shares (NHF)
$6,168
Gold ETF (GOLD.ASX)
$108,902
Secured physical gold
$17,569
Ratesetter (P2P lending)
$6,712
Bitcoin
$281,180
Raiz app (Aggressive portfolio)
$18,793
Spaceship Voyager app (Index portfolio)
$3,061
BrickX (P2P rental real estate)
$4,454
Total portfolio value
$2,085,802 (+$186,847)
Asset allocation
Australian shares
41.0%
Global shares
22.4%
Emerging market shares
2.1%
International small companies
2.7%
Total international shares
27.2%
Total shares
68.2%(-6.8%)
Total property securities
0.2%(+0.2%)
Australian bonds
3.9%
International bonds
8.2%
Total bonds
12.0%(-3.0%)
Gold
6.1%
Bitcoin
13.5%
Gold and alternatives
19.5%(+9.5%)
Presented visually, the chart below is a high-level view of the current asset allocation of the portfolio.
Comments
This month has seen the largest ever monthly increase in total portfolio in this four year record.
The overall portfolio has increased by over $186,000, pushing past the previous portfolio values achieved at the end of January. As a result, the portfolio has grown 9.8 per cent in total from the previous month, to reach over two million dollars for the first time.
The major contributor to the overall growth in the portfolio has been rapid rises in equity markets in the lead up to, and following, the US Presidential election.
There has also been a 29 per cent increase in the price of Bitcoin which has attracted further significant media and commentary.
The fixed interest components of the portfolio have remained stable, while the value of gold holdings has fallen around 10 per cent as other markets moved upwards.
Sometimes, I feel the past and the future pressing so hard on either side that there’s no room for the present at all.
Evelyn Waugh, Brideshead Revisited
This is my forty-seventh monthly portfolio update. I complete this regular update to check progress against my goal.
Portfolio goal
My objective is to reach a portfolio of $2 180 000 by 1 July 2021. This would produce a real annual income of about $87 000 (in 2020 dollars).
This portfolio objective is based on an expected average real return of 3.99 per cent, or a nominal return of 6.49 per cent.
Portfolio summary
Vanguard Lifestrategy High Growth Fund
$728,112
Vanguard Lifestrategy Growth Fund
$41,606
Vanguard Lifestrategy Balanced Fund
$78,564
Vanguard Diversified Bonds Fund
$109,495
Vanguard Australian Shares ETF (VAS)
$231,548
Vanguard International Shares ETF (VGS)
$75,298
Betashares Australia 200 ETF (A200)
$231,199
Telstra shares (TLS)
$1,428
Insurance Australia Group shares (IAG)
$6,043
NIB Holdings shares (NHF)
$4,992
Gold ETF (GOLD.ASX)
$121,009
Secured physical gold
$19,482
Ratesetter (P2P lending)
$7,363
Bitcoin
$218,040
Raiz app (Aggressive portfolio)
$17,488
Spaceship Voyager app (Index portfolio)
$2,841
BrickX (P2P rental real estate)
$4,447
Total portfolio value
$1,898,955 (+$73,218)
Asset allocation
Australian shares
40.8%
Global shares
22.4%
Emerging market shares
2.1%
International small companies
2.7%
Total international shares
27.3%
Total shares
68.1%(-6.9%)
Total property securities
0.2%(+0.2%)
Australian bonds
4.1%
International bonds
8.6%
Total bonds
12.8%(-2.2%)
Gold
7.4%
Bitcoin
11.5%
Gold and alternatives
18.9%(+8.9%)
Presented visually, the chart below is a high-level view of the current asset allocation of the portfolio.
Comments
This month the portfolio expanded by around $73,000, continuing the strong overall pattern of recovery since March. This has resulted in portfolio growth of 4 per cent, which has taken the value of the portfolio to a new monthly high.
The portfolio was affected by small price falls across global shares, a modest increase in Australian share values, with limited movement in gold and bond holdings.
This means that the majority of gains in the portfolio have been from an appreciation in the price of Bitcoin, which in fact made up more than 90 per cent of the total monthly gains. This appears to be based on some early steps by Paypal to increase use of Bitcoin, and some recent corporate decisions by a US technology firm to seek to employ it as a corporate treasury store of value.
