We would rather be ruined than changed.

W H Auden, The Age of Anxiety

This is my forty-third 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

• Vanguard Lifestrategy High Growth Fund – $726 306
• Vanguard Lifestrategy Growth Fund – $42 118
• Vanguard Lifestrategy Balanced Fund – $78 730
• Vanguard Diversified Bonds Fund – $111 691
• Vanguard Australian Shares ETF (VAS) – $201 745
• Vanguard International Shares ETF (VGS) – $39 357
• Betashares Australia 200 ETF (A200) – $231 269
• Telstra shares (TLS) – $1 668
• Insurance Australia Group shares (IAG) – $7 310
• NIB Holdings shares (NHF) – $5 532
• Gold ETF (GOLD.ASX)  – $117 757
• Secured physical gold – $18 913
• Ratesetter (P2P lending) – $10 479
• Bitcoin – $148 990
• Raiz app (Aggressive portfolio) – $16 841
• Spaceship Voyager app (Index portfolio) – $2 553
• BrickX (P2P rental real estate) – $4 484

Total portfolio value: $1 765 743 (+$8 485 or 0.5%)

Asset allocation

• Australian shares – 42.2% (2.8% under)
• Global shares – 22.0%
• Emerging markets shares – 2.3%
• International small companies – 3.0%
• Total international shares – 27.3% (2.7% under)
• Total shares – 69.5% (5.5% under)
• Total property securities – 0.3% (0.3% over)
• Australian bonds – 4.7%
• International bonds – 9.4%
• Total bonds – 14.0% (1.0% under)
• Gold – 7.7%
• Bitcoin – 8.4%
• Gold and alternatives – 16.2% (6.2% over)

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

Comments

The overall portfolio increased slightly over the month. This has continued to move the portfolio beyond the lows seen in late March.

The modest portfolio growth of $8 000, or 0.5 per cent, maintains its value at around that achieved at the beginning of the year.

The limited growth this month largely reflects an increase in the value of my current equity holdings, in VAS and A200 and the Vanguard retail funds. This has outweighed a small decline in the value of Bitcoin and global shares. The value of the bond holdings also increased modestly, pushing them to their highest value since around early 2017.

There still appears to be an air of unreality around recent asset price increases and the broader economic context. Britain’s Bank of England has on some indicators shown that the aftermath of the pandemic and lockdown represent the most challenging financial crisis in around 300 years. What is clear is that investor perceptions and fear around the coronavirus pandemic are a substantial ongoing force driving volatility in equity markets (pdf).

A somewhat optimistic view is provided here that the recovery could look more like the recovery from a natural disaster, rather than a traditional recession. Yet there are few certainties on offer. Negative oil prices, and effective offers by US equity investors to bail out Hertz creditors at no cost appear to be signs of a financial system under significant strains.

As this Reserve Bank article highlights, while some Australian households are well-placed to weather the storm ahead, the timing and severity of what lays ahead is an important unknown that will itself feed into changes in household wealth from here.

Investments this month have been exclusively in the Australian shares exchange-traded fund (VAS). This has been to bring my actual asset allocation more closely in line with the target split between Australian and global shares.

Continue reading “Monthly Portfolio Update – June 2020”

Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth

Robert Frost, The Road Not Taken

This is my forty-second 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

• Vanguard Lifestrategy High Growth Fund – $727 917
• Vanguard Lifestrategy Growth Fund  – $42 128
• Vanguard Lifestrategy Balanced Fund – $78 569
• Vanguard Diversified Bonds Fund – $110 009
• Vanguard Australian Shares ETF (VAS) – $187 003
• Vanguard International Shares ETF (VGS) – $39 987
• Betashares Australia 200 ETF (A200) – $225 540
• Telstra shares (TLS) – $1 726
• Insurance Australia Group shares (IAG) – $7 741
• NIB Holdings shares (NHF) – $5 652
• Gold ETF (GOLD.ASX)  – $117 714
• Secured physical gold – $18 982
• Ratesetter (P2P lending) – $11 395
• Bitcoin – $159 470
• Raiz app (Aggressive portfolio) – $16 357
• Spaceship Voyager app (Index portfolio) – $2 492
• BrickX (P2P rental real estate) – $4 477

Total portfolio value: $1 757 159 (+$62 325 or 3.7%)

Asset allocation

• Australian shares – 41.4% (3.6% under)
• Global shares – 22.2%
• Emerging markets shares – 2.3%
• International small companies – 3.0%
• Total international shares – 27.4% (2.6% under)
• Total shares – 68.8% (6.2% under)
• Total property securities – 0.3% (0.3% over)
• Australian bonds – 4.4%
• International bonds – 9.7%
• Total bonds – 14.1% (0.9% under)
• Gold – 7.8%
• Bitcoin – 9.1%
• Gold and alternatives – 16.9% (6.9% over)

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

Comments

This month featured a further recovery in the overall portfolio, continuing to effectively reduce the size of the large losses across the first quarter.

The portfolio has increased by around $62 000, leading to a portfolio growth of 3.7 per cent. This means that around half of the large recent falls have been made up, and the portfolio sits around levels last reached in October of last year.

Leading the portfolio growth has been increases in Australian shares – particularly those held through the Betashares A200 and Vanguard VAS exchange traded funds, with both gaining over four per cent. Most other holdings remained steady, or fell slightly.

Markets appear to be almost entirely disconnected from the daily announcements of the sharp effects of the global coronavirus pandemic and the resulting restrictions. Bond and equity markets seem to have different and competing expectations for the future, and equity markets – at best – are apparently intent on looking through the immediate recovery phase to a new period of strong expansion.

On some metrics, both major global and Australian equity markets can be viewed as quite expensive, especially as reduced dividends announced have largely yet to be delivered. Yet if historically low bond yields are considered, it can be argued that some heightening compared to historical equity market valuations may be sustainable.

Reflecting this moment of markets holding their breath before one of two possible futures plays out, gold and Bitcoin remain elevated, and consequently above their target weightings.

Continue reading “Monthly Portfolio Update – May 2020”