Line of Position – Superannuation and the Financial Independence Portfolio

Posted on September 14, 2021September 14, 2021 by The FI Explorer

A ship should not ride on a single anchor, nor life on a single hope.
Epictetus, Golden Sayings, Fragment xvi

Setting out: looking beyond the horizon

In sea navigation, lines of position allow the fixing of the true position of a ship by helping to account for drift from wind or currents.

Each month this record regularly assesses the position reached with a relatively narrow focus on changes and trends affecting the financial independence portfolio. This is consistent with the intention of documenting a journey towards financial independence, and retirement well before the traditional age.

The primary focus on financial independence has meant that until the beginning of 2019, I did not regularly record the impact of superannuation on the achievement of the portfolio’s objectives.

From that time, I recorded a simple ‘All Assets’ measure of progress, which effectively counted the impact of superannuation on the measures. Typically, super has recently represented around 30 per cent of additional ‘buffer’ on progress against the goals set.

In this longer post, the aim is to look beyond the FI portfolio which is reported on, and provide more detail on what the whole financial asset picture looks like – taking into account both superannuation and the FI portfolio.

Measuring the changing position across the journey so far

The goal and plan has always been to target financial independence through my private investment portfolio alone, with superannuation perhaps providing an additional margin of safety.

Reflecting this, superannuation – the approximate Australian equivalent to 401K accounts in the US – has been a quietly evolving part of this financial journey in the background, since the earliest phases.

Over time, I have generally sought to contribute beyond the minimum guarantee amounts, making voluntary contributions with the approximate target of reaching an average 15 per cent of earnings in overall contributions.

This has resulted in a steady growth in the superannuation across time, as can be seen in Figure 1 below.

Clearly evident above are the impact of some market declines – in the second half of 2018, and the most recent March 2020 market falls. Yet also as apparent is the overall trend of steadily compounding returns across time.

Monthly Portfolio Update – June 2020

Posted on July 1, 2020March 24, 2022 by The FI Explorer

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.

Jun 20 - Pie

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.

Progress - Jun20

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.

Jun 20 - Monthy Chgn

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.

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