Midway along the journey of our life
I woke to find myself in a dark wood,
for I had wandered off from the straight path.

Dante, The Divine Comedy: Inferno, Canto I

This is my forty-fifth portfolio update. I complete this update monthly to check my 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

Asset allocation

Presented visually, below is a high-level view of the current asset allocation of the portfolio.

Comments

The portfolio has increased in value for the fifth consecutive month, and is starting to approach the monthly value last reached in January.

The portfolio has grown over $48 000, or 2.7 per cent this month, reflecting the strong market recovery since late March

The growth in the portfolio was broadly-based across global and Australian equities, with an increase of around 3.8 per cent. Following strong previous rises, gold holdings decreased by around 2.2 per cent, while Bitcoin continued to increase in value (by 2.5 per cent).

Combined, the value of gold and Bitcoin holdings remain at a new peak, while total equity holdings are still below their late January peak to the tune of around $50 000. The fixed income holdings of the portfolio continue to fall below the target allocation.

The expanding value of gold and Bitcoin holdings since January last year have actually had the practical effect of driving new investments into equities, since effectively for each dollar of appreciation, for example, my target allocation to equities rises by seven dollars.

New investments this month have been in the Vanguard international shares exchange-traded fund (VGS) and the Australian shares equivalent (VAS). These have been directed to bring my actual asset allocation more closely in line with the target split between Australian and global shares set out in the portfolio plan.

As the exchange traded funds such as VGS, VAS and Betashares A200 now make up nearly 30 per cent of the overall portfolio, the quarterly payments they provide have increased in magnitude and importance. Early in the journey, third quarter distributions were essentially immaterial events.

Using the same ‘median per unit’ forecast approach as recently used for half yearly forecasts would suggest a third quarter payout due at the end of September of around $6000. Due to significant announced dividend reductions across this year I am, however, currently assuming this is likely to be significantly lower, and perhaps in the vicinity of $4000 or less.  Continue reading “Monthly Portfolio Update – August 2020”

Our little systems have their day;
They have their day and cease to be

Tennyson, In Memoriam A.H.H.

This is my forty-fourth portfolio update. I complete this update monthly to check my 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

Asset allocation

Presented visually, below is a high-level view of the current asset allocation of the portfolio.

Comments

The portfolio has substantially increased this month, continuing the recovery in portfolio value since March.

The strong portfolio growth of over $34 000, or 1.9 per cent, returns the value of the portfolio close to that achieved at the end of February this year.

This month there was minimal movement in the value of Australian and global equity holdings, There was, however, a significant lift of around 6 per cent in the value of gold exchange traded fund units, as well as a rise in the value of Bitcoin holdings.

These movements have pushed the value of gold holdings to their highest level so far on the entire journey. Their total value has approximately doubled since the original major purchases across 2009 to 2015.

For most of the past year gold has functioned as a portfolio stabiliser, having a negative correlation to movements in Australian equities (of around -0.3 to -0.4). As low and negative bond rates spread across the world, however, the opportunity cost of holding gold is reduced, and its potential diversification benefits loom larger.

The fixed income holdings of the portfolio also continued to fall beneath the target allocation, making this question of what represents a defensive (or negatively correlated to equity) asset far from academic.

This steady fall is a function of the slow maturing of Ratesetter loans, which were largely made between 2015 and 2017. Ratesetter has recently advised of important changes to its market operation, and placed a fixed maximum cap on new loan rates. By replacing market set rates with maximum rates, the peer-to-peer lending platform appears to be shifting to more of a ‘intermediated’ role in which higher past returns (of around 8 to 9 per cent) will now no longer be possible.

The expanding value of gold and Bitcoin holdings since January last year have actually had the practical effect of driving new investments into equities, since effectively for each dollar of appreciation, for example, my target allocation to equities rises by seven dollars.

Consistent with this, investments this month have been in the Vanguard international  shares exchange-traded fund (VGS). This has been directed to bring my actual asset allocation more closely in line with the target split between Australian and global shares.

Continue reading “Monthly Portfolio Update – July 2020”