Close Quarters – Reviewing the Portfolio Goal and Investment Plan

Posted on January 6, 2022January 6, 2022 by The FI Explorer

The roaring seas and many a dark range of mountains lie between us.
Homer, Iliad, Bk.1.155

This record of exploration towards financial independence started five 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, with the most recent target achieved through last year.

Each year in early January I spend time reviewing my investment goals and how I plan to reach them.

This post discusses the findings from my annual review, details my updated portfolio goal and assumptions, and discusses how I will approach my financial independence journey through 2022 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 to come. The process also enables the updating of plans and assumptions for changes in circumstances, thinking, as well as available data and evidence.

A journey’s end for the financial independence portfolio?

Since June 2021 the portfolio value has consistently exceeded the revised overall portfolio objective I set myself in early 2021, reaching the goal over a year earlier than originally targeted.

This past target of $2,585,000 was based around a benchmark of the portfolio producing a real annual income of $90,500 in 2021 dollars. The level was chosen because it reflected an amount equal to Australian adult full-time ordinary earnings, and was close to my (then) estimated spending of around $85,000 per annum.

Passing this target has led to a sustained reflection about the meaning and significance of the target.

For the journey up to that point, the target was a way to measure tangible progress towards the goal of financial independence. It has never, however, served as a countdown clock or trigger to immediate early retirement once that dollar value was exceeded.

Another valuable part of the process of setting a specific target has been as a forcing mechanism to help clarify what type of post-financial independence is envisaged and sought.

Year in Review and Monthly Portfolio Update – December 2021

Posted on January 1, 2022March 24, 2022 by The FI Explorer

We will not from the helm to sit and weep,
But keep our course, though the rough wind say no,
From shelves and rocks that threaten us with wreck.
As good to chide the waves as speak them fair
Shakespeare, Henry IV, Part III.v.4

Year in Review

A year, after all, is simply a collection of days. And therefore the story of this year is largely told in the record of past twelve months.

At the beginning of the year the portfolio goal was reset to provide a target goal for passive income equivalent to $90,500 per year.

At the same time, three essential pre-conditions were set for any movement from my current work arrangements.

These were:

reaching the overall portfolio target of $2.58 million;

achieving a minimum equity portfolio target of $1.93 million; and

a cash reserve of at least one year of normal expenditure.

Rapidly, in fact by March, the first of these conditions were met.

The second remains a little distance away – perhaps 2 to 18 months away should equity markets remain positive, perhaps much longer if any significant equity drawdowns occur.

The cash reserve has been started, but it is not yet near completion. At present, it sits at around $17,000 compared to the average annual spending of about $84,000 since 2013.

The broad progress made against the financial benchmarks through this year is summarised below.

Progress against FI measures through 2021

Measure	Portfolio	All Assets
Portfolio objective – $2,585,000 (or $90,500 pa)	88%→114%	105%→146%
Total average expenses (2013-present) – $83,800 pa	93%→123%	112%→157%
Target equity holding in portfolio	75%→95%	N/A

Stepping back to look at the overall portfolio performance, this year has been unlike any other on the journey.

The overall portfolio has increased by $680,000 – making the year just passed the most significant expansion in dollar terms of the entire record.

Chart - Year in Review - Portfolio Level 2007-22

Studying the course of the voyage

The pattern of this fifth year of the voyage has been distinctly different to any other. Looking back, there is a dual sense of consistency, and radical discontinuity.

The sense of consistency has come from the continued strong growth in equity markets and the continued regular investment into equity-based exchange traded funds. Strong equity returns have contributed to the equity component of the portfolio increasing by over $385,000.

In turn, this has made it the strongest year on record for the expansion of the equity portfolio.

Monthly Portfolio Update – November 2021

Posted on December 1, 2021March 24, 2022 by The FI Explorer

Prudently the god covers the outcome of the future in dark night
Horace, Odes, III.xxix

This is my sixtieth monthly portfolio update. I complete this regular update to check progress against my goal.

Portfolio goal

My objective is to reach a portfolio of $2,585,000 by 31 July 2022. This would produce a real annual income of about $90,500 (in 2021 dollars).

This portfolio objective is based on an assumed safe withdrawal rate of 3.5 per cent.

Portfolio summary

Vanguard Lifestrategy High Growth Fund	$828,192
Vanguard Lifestrategy Growth Fund	$44,284
Vanguard Lifestrategy Balanced Fund	$79,775
Vanguard Diversified Bonds Fund	$99,241
Vanguard Australian Shares ETF (VAS)	$375,442
Vanguard International Shares ETF (VGS)	$273,120
Betashares Australia 200 ETF (A200)	$287,049
Telstra shares (TLS)	$2,169
Insurance Australia Group shares (IAG)	$5,612
NIB Holdings shares (NHF)	$8,400
Gold ETF (GOLD.ASX)	$113,675
Secured physical gold	$18,243
Plenti (P2P lending)	$531
Bitcoin	$875,660
Raiz app (Aggressive portfolio)	$20,909
Spaceship Voyager app (Index portfolio)	$3,598
BrickX (P2P rental real estate)	$4,988
Total portfolio value	$3,040,888 (+$20,033)

Asset allocation

*Australian shares*	*33.7%*
Global shares	21.8%
Emerging market shares	1.5%
International small companies	1.9%
Total international shares	25.2%
Total shares	58.9% (-16.1%)
Total property securities	0.2% (+0.2%)
Australian bonds	2.4%
International bonds	5.4%
Total bonds	7.8% (-7.2%)
Gold	4.3%
Bitcoin	28.8%
Gold and alternatives	33.1% (+23.1%)

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

Comments

This month the financial independence portfolio gained around $20,000, maintaining its positive momentum over the past two months.

Though this represented modest portfolio growth in percentage terms – of 0.7 per cent – it pushed forward progress further above the recently reached threshold of $3.0 million.

The monthly movement across November means that the portfolio has advanced in 10 out of the last 12 months.

Through the month there was generally muted and offsetting movements beneath the ‘headline’ portfolio value.

Australian shares and bonds remained relatively stable through the month. The value of gold holdings increased by around 5.6 per cent to reach the highest value in around a year. Coincidentally, international equities also advanced by 5.6 per cent.

Bitcoin declined by around 3.3 per cent through the month, having briefly reached new highs early in the month.

As a result of these varying cross-currents, the portfolio generally ended up fairly close to where it began.

Monthly Portfolio Update – October 2021

Posted on November 1, 2021March 24, 2022 by The FI Explorer

Remember that you are an actor in a drama, whatever kind the playwright desires
Epictetus, Encheiridion XVII

This is my fifty-ninth monthly portfolio update. I complete this regular update to check progress against my goal.

Portfolio goal

My objective is to reach a portfolio of $2,585,000 by 31 July 2022. This would produce a real annual income of about $90,500 (in 2021 dollars).

This portfolio objective is based on an assumed safe withdrawal rate of 3.5 per cent.

Portfolio summary

Vanguard Lifestrategy High Growth Fund	$820,102
Vanguard Lifestrategy Growth Fund	$43,914
Vanguard Lifestrategy Balanced Fund	$79,229
Vanguard Diversified Bonds Fund	$98,895
Vanguard Australian Shares ETF (VAS)	$365,976
Vanguard International Shares ETF (VGS)	$248,767
Betashares Australia 200 ETF (A200)	$287,934
Telstra shares (TLS)	$2,036
Insurance Australia Group shares (IAG)	$6,081
NIB Holdings shares (NHF)	$7,944
Gold ETF (GOLD.ASX)	$107,668
Secured physical gold	$17,186
Plenti (P2P lending)	$809
Bitcoin	$905,100
Raiz app (Aggressive portfolio)	$20,771
Spaceship Voyager app (Index portfolio)	$3,461
BrickX (P2P rental real estate)	$4,982
Total portfolio value	$3,020,855 (+$260,052)

Asset allocation

*Australian shares*	*33.5%*
Global shares	21.0%
Emerging market shares	1.5%
International small companies	1.9%
Total international shares	24.4%
Total shares	57.9% (-17.1%)
Total property securities	0.2% (+0.2%)
Australian bonds	2.4%
International bonds	5.4%
Total bonds	7.8% (-7.2%)
Gold	4.1%
Bitcoin	30.0%
Gold and alternatives	34.1% (+24.1%)

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

Comments

This month the financial independence portfolio rose in value by $260,000, growing around 9.4 per cent in a single month.

As a consequence the portfolio has just unexpectedly crossed the threshold of $3.0 million, less than a year after the portfolio passed $2.0 million in value.

The monthly movement across October was the largest ever change in the value of the portfolio in dollar terms, and the third largest increase in percentage terms since this record began in 2017.

Unusually, over the month the capital value of all major traditional financial asset classes – equities, bonds, and gold – fell quite uniformly. Each declined by between 1.0 to 1.5 per cent.

In the case of Australia equities, payments from September quarter dividends meant that a small positive total return of around 0.5 per cent was achieved. This helped portfolio equity holdings reach their highest ever value this month, of about $1.75 million.

The poor recent performance of fixed interest bonds extended this month. The total value of Vanguard Diversified Bond fund holdings, for example, have declined around 10 per cent this year – noting that this also includes paid out distributions.

The unmistakeable forward motivating force for the portfolio was Bitcoin, which increased in value by 35 per cent through the month. This contributed over 90 per cent of the overall positive movement of the portfolio – or around $235,000.