Circumstances rule men; men do not rule circumstances.
Herodotus

This is my twelfth portfolio update. I complete this update monthly to check my progress against my original goals.

Portfolio goal

My current portfolio objective is to reach a portfolio of $1 476 000 by 1 July 2021. My plan is that this should produce a real income of about $58 000. This is based on a real return of 3.92%, or a nominal return of 7.17%.

Portfolio summary

• Vanguard Lifestrategy High Growth – $699 155
• Vanguard Lifestrategy Growth  – $43 408
• Vanguard Lifestrategy Balanced – $76 170
• Vanguard Diversified Bonds – $103 574
• Vanguard ETF Australia Shares (VAS) – $51 782
• Telstra shares – $4 559
• Insurance Australia Group shares – $18 023
• NIB Holdings – $8 136
• Gold ETF (GOLD.ASX)  – $77 847
• Secured physical gold – $8 777
• Ratesetter (P2P lending) – $56 166
• Bitcoin – $141 039
• Acorns app (Aggressive portfolio) – $8 046
• BrickX (P2P rental real estate) – $4 400

Total value: $1 301 082 (+$84 772)

Asset allocation

• Australian shares –  31%
• International shares – 19%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 54.5% (6.5% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.3%
• Australian bonds – 11%
• International bonds – 10%
• Total bonds – 20.3% (1.3% over)
• Cash – 1.4%
• Gold – 6.7%
• Bitcoin – 10.8%
• Gold and alternatives – 17.5% (7.5% over)

Comments

This month the portfolio increased by over $84 000, with two-thirds of this gain being driven by the increase in the price of my small, experimental, holdings of Bitcoin. This was not really supposed to be so large a part of the journey, but has been an interesting phenomenon to witness. Bitcoin is ‘having a moment’, which means reading, listening to podcasts talk about it, and even now seeing its price quoted on the ABC new finance update some nights. It has meant a lot of thinking about where it fits into the portfolio (this Atlantic article gets to the heart of some of the different potential ways of viewing it).

As its price increased, a first instinct was to mentally discount the gains, record it an average smoothed longer-term price, or remove it from my portfolio considerations entirely. This would avoid it’s volatility driving anomalous rises and falls in apparent net worth driven only by its price movements. As an example, despite gains in the absolute level of equity holdings, including Bitcoin means mathematically that my apparent allocation to equities (and bonds for that matter) has fallen.  This in counterintuitive when my only regular investments at the moment are to equities.

This is not the approach I have taken yet, however. At the moment, my decision is to leave it in. The reason for this is because, planned or not, it would be unwise to ignore the mathematical reality that at current prices, around a tenth of my portfolio is made up of Bitcoin. Removing it from the portfolio and treating it as separate would be falling into a trap of viewing part of wealth in different in different ‘buckets’ in an artificial way. Bitcoin could fall to zero, in the future. It could continue to appreciate. The first possibility would eliminate the distorting effects, but the latter would be an important financial fact to consider, with implications for how exactly I reached my objective, and the risks taken to get there.

So for now, I wait, and try to resist asking my new Google Home too frequently what the price is on any given day. In fact, that has been the most interesting aspect of the whole episode – observing its effects on my own psychology, and considering issues such as ‘when would it make sense to sell’. Currently, my view is that it is as likely to go down as up, but that its critical valued characteristic for my purposes is its non-correlation with other assets, and so no action is warranted.

Chasing my target equity allocation continues to mean regularly contributing to Vanguard High Growth fund. An exciting development in the past month has been Vanguard releasing a series of new diversified ETFs, modelled on their existing retail funds, with low expense ratios of 0.27%, lower than on my current retail funds. This means that for large lump sums, they represent a simple alternative to holding individual sector Vanguard ETFs and rebalancing. This may well be an option when end of year distributions arrive.

Progress

Progress to goal: 88.1% (+17.6% ahead of target) or $174 918 further to reach goal.

Summary

This month reinforces that my journey can be affected by favourable winds, and currents, even as I anticipate and think about the potential for storms ahead. Dealing with luck, windfalls, and events outside of our control is an intriguing part of the journey that I had not fully considered in my conception of the journey as relatively slow and steady progress towards my target. While my recent holiday cruise did involve lots of reading and relaxing, I can’t say that I met my goal of thinking systematically about whether my current target is sufficiently ‘safe’ for potential market conditions, and how my current career and its trajectory could look over the next 2-3 years. Updating my investment policy over the summer break should provide the chance to do this.