The life of every man is a diary in which he means to write one story, and writes another; and his humblest hour is when he compares the volume as it is with what he vowed to make it.

J.M. Barrie

My goal is to to build up a passive income of around $58 000 by July 2021, and this is my second passive income update since starting this blog.

Twice a year I prepare a summary of the total income from my portfolio income. As part of the transparency and accountability of this journey, I regularly report this income.

Passive income summary

• Vanguard Lifestrategy High Growth – $37 662
• Vanguard Lifestrategy Growth  – $2 280
• Vanguard Lifestrategy Balanced – $4 408
• Vanguard Diversified Bonds – $4 830
• Telstra shares – $118
• Insurance Australia Group shares – $241
• Ratesetter (P2P lending) – $1773
• BrickX (P2P rental real estate) – $29
• Acorns – $23

Total passive income: $51 363

Comments

This half-year result took me completely by surprise and is difficult to process. The passive income outcome for the half-year to June 30 has increased beyond any of my expectations or forecasts. My target for this year was $28 000, and investments have delivered nearly double this in just six months.

Taken as a past financial year, this means in theory that I more than met my financial independence target goal of $58 000 per year. This feels strange as a sentence to write in 2017, rather than in 2021, but a good dose of caution is warranted. First, past distributions have been uneven, and where there have been past upside surprises, these have sometimes been reversed in subsequent periods. Only future updates will provide more ‘signal’ against the elements of noise of recent market movements.

Yet even accounting for this, the result gave me pause for thought. It felt as though a significant threshold had been reached, beyond which a different set of issues jostled for attention. This set of distributions, for example, is larger than any salary bonus I have ever received, or am likely too in the near future. Even if there are backward movements in the overall level of distributions to come, this result seems an appreciable step towards my end goal. Taken as a monthly figure ($8560), it sits well above my current level of normal expenses.

The most immediate of the issues now pressing for attention is: how should the distributions be allocated? After some thought, I have finally pushed the button on the exploration goal of trying Vanguard’s Exchange Traded Funds, buying around $12 000 of the Vanguard Australian Shares ETF (VAS). I have also set a schedule to dollar cost average two more equal amounts in September and November. This accords with my portfolio currently being underweight in equities. Buying into Australian shares at these market levels feels like a risky move, hence the dollar cost averaging approach.  I chose the Australian shares ETF mostly because they have lower fees than Vanguard’s retail managed fund equivalent, to take advantage of franked dividends, and to simplify tax returns (avoiding the US domiciled ETFs).

I have also set aside around $12 000 of the most recent distributions into a bank account specially designated for meeting future tax liability, to recognise that this recent windfall will come with tax consequences over the year ahead.

Recently I have stumbled on a University of NSW online course on personal finance, which I highly recommend. The videos clearly and accessibly explain the ‘snowball’ effect of past savings and investments. Today, at least, it felt like I was off and rolling.