My course is set for an uncharted sea

Dante

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

Portfolio goals

My current objectives are to reach a portfolio of:

• $1 476 000 by 31 December  2018. This should produce a real income of about $58 000 (Objective #1).
• $2 041 000 by 31 July 2023, to produce a passive income equivalent to $80 000 in 2017 dollars (Objective #2)

Both of these are based on a real return of 3.92%, or a nominal return of 7.17%

Portfolio summary

• Vanguard Lifestrategy High Growth – $697 911
• Vanguard Lifestrategy Growth  – $42 305
• Vanguard Lifestrategy Balanced – $76 331
• Vanguard Diversified Bonds – $102 436
• Vanguard ETF Australia Shares (VAS) – $75 754
• Telstra shares – $4 892
• Insurance Australia Group shares – $17 998
• NIB Holdings – $8 022
• Gold ETF (GOLD.ASX)  – $76 331
• Secured physical gold – $9 907
• Ratesetter (P2P lending) – $51 663
• Bitcoin – $140 010
• Acorns app (Aggressive portfolio) – $9 417
• BrickX (P2P rental real estate) – $4 288

Total value: $1 315 934  (-$43 754)

Asset allocation

• Australian shares –  32 %
• International shares – 18%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 55.7% (5.3% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.2% (1.2% over)
• Australian bonds – 10%
• International bonds – 9%
• Total bonds – 19.6% (0.6% over)
• Cash – 1.3%
• Gold – 6.6%
• Bitcoin – 10.6%
• Gold and alternatives – 17.2% (2.2% over)

Comments

This month my overall portfolio has fallen with the dramatic reversal of previous gains in the price of Bitcoin. This has been the first genuine fall in my portfolio in over a year. Underlying this large headline change, however, has been no real progress in the equity elements of the portfolio, and some new investment of distributions.

For the reinvestment of the substantial distributions that came in from my Vanguard funds, I finally selected an increase in my Vanguard Australian Shares ETF (VAS) holdings. My reason for this was that I remain concerned at valuations in the US stock market, and Australian market valuations seemed less stretched. The greater tax effectiveness of franked Australian dividends was also a factor. Overall, another consideration was not seeking to increase the complexity of my portfolio with purchase of another type of ETF. Being an explorer by nature, however, I can forecast curiosity in the future overcoming this particular factor.

The new asset allocations adopted in resetting the compass at the start of the year means that I am actively looking for greater international share exposure in coming months, in as simple a format as possible. Removing the Bitcoin holdings from consideration, I am making good progress in absolute terms in moving closer to my ultimate 65% allocation target. Market movements are now playing a much greater role in affecting my allocations. At some point this will become difficult to manage through just control of new investments and distributions, leading me to potentially trigger some rebalancing sales. A decision I will need to increasingly think about is how often and when this rebalancing should occur. My current default would be twice yearly if required.

My other significant step has been to actively reconsider the level and value of life and income insurances, in light of my portfolio’s passive income record. Collectively, this has saved around $700 from two policies with AMP. All this saving required was a careful look at my own circumstances, a few emails, scanning and returning a few documents and a few follow up actions. To make sure I could see the impact of this, and avoid it being swallowed up by another expenditure category, I immediately invested the savings in my Acorns account.

Progress

Progress to:

• objective #1: 89.2% or $160 066 further to reach goal.
• objective #2: 64.5% or $725 066 further to reach goal.

Summary

This month has seen greater uncertainty and volatility in both my portfolio and work life, with significant but ultimately unclear changes on the horizon. My progress to date, and the strong portfolio position at the moment has made this volatility easier to disconnect from.

For example, I have found myself curiously relaxed about the fall in Bitcoin values, having perhaps never mentally locked in the large gains of last year. Rather, the steady accumulation of assets on a dollar cost averaged basis continues to underpin the growth in the underlying portfolio.

As I look back, I realise I have been awaiting an equity and bond market pull back for almost the entire length of this blog. A lesson in the risks of market timing, to be sure, however, I’m not convinced this won’t occur soon.