Neither should a ship rely on one small anchor, nor should life rest on a single hope.

Epictetus

This is my eighteenth 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 – $734 804
• Vanguard Lifestrategy Growth  – $42 624
• Vanguard Lifestrategy Balanced – $75 539
• Vanguard Diversified Bonds – $102 960
• Vanguard ETF Australia Shares ETF (VAS) – $76 267
• Betashares Australia 200 ETF (A200) – $5 780
• Telstra shares – $ 3 732
• Insurance Australia Group shares – $20 308
• NIB Holdings – $6 564
• Gold ETF (GOLD.ASX)  – $79 125
• Secured physical gold – $12 623
• Ratesetter (P2P lending) – $41 746
• Bitcoin – $110 570
• Raiz app (Aggressive portfolio) – $10 896
• Spaceship Voyager app (Index portfolio) – $98
• BrickX (P2P rental real estate) – $4 718

Total value: $ 1 328 354 (-$8 678)

Asset allocation

• Australian shares –  34%
• International shares – 19%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 56.4% (3.0% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.5% (1.5% over)
• Australian bonds – 9%
• International bonds – 9%
• Total bonds – 19.0% 
• Cash – 1.3%
• Gold – 6.9%
• Bitcoin – 8.3%
• Gold and alternatives – 15.2% (0.2% over)

Comments

This month has been one of taking some small new actions, and experimenting with some different tools to apply my overall plan. Most significantly, I have opened and used a new low cost brokerage account, with Self Wealth, to start purchasing Betashares A200 ETF, a new very low cost (0.07%) Australian shares ETF.

The A200 is a new index ETF, similar to the Vanguard VAS ETF, though currently with lower fees, and covering the ASX200, rather than the ASX300. Self Wealth’s platform enables a flat brokerage fee of less than half my previous online brokerage account. In turn, this has made a move away from contributing to my Vanguard high growth fund as a primary destiny for new investment, into A200, more economic, at least by my calculations. So my amended approach in future will be fortnightly purchases of A200 or other low cost ETFs. An added benefit of this will be more rapid movement to my target asset allocation, as previously 10% of each Vanguard high growth contribution was effectively contributing to my bond holdings.

A further experiment has been opening a small account at Spaceship, a new app based micro-investing option. Spaceship is a new entry into the micro-investing market, currently offering no fees on balances of less that $5000. The app is simple, and the application process was relatively fast and efficient. I chose their only index portfolio, which is based on direct holdings of globally diversified large companies. While lacking some of the appeal and finish of the Raiz app, zero fees on small balances is a remarkable offering.

This month my portfolio has faced headwinds from some declines in the price of Bitcoin, which has actually recently enjoyed a period of relatively low volatility. In a further change to my alternatives allocation, now that my physical gold holdings have reached about one percent of my total portfolio, I have paused regular weekly contributions to my Goldmoney account, to focus new cashflow into Australian shares.

This has left my overall asset allocation as close as to my investment policy targets as it has been for some time. With the Australian share market closer to long term valuations than the US market, this is leading me to hold off on increasing my international diversification for now. My next major decisions in that area will be on receiving my July distribution payments.

This month the Productivity Commission released its fascinating draft report into superannuation. A focus of my thinking over this past month has also been a rough review of my ‘global’ financial position, taking into account superannuation funds, and their asset allocation. This blog covers only my accessible non-superannuation assets, because of its focus on creation of a passive income stream well before eligibility to draw on superannuation. Nonetheless, ignoring its effect would be incorrect. Currently my superannuation is invested primarily in a low cost high growth index product, and my spreadsheet experiments have focused on ensuring that my portfolio decisions don’t occur in isolation from my broader financial position.

Progress

Progress to:

• objective #1: 89.9% or $147 646 further to reach goal.
• objective #2: 65.1% or $712 646  further to reach goal.

Summary

Exploration of new products and approaches has diverted my attention from overall portfolio performance this month, in part by design. I have been focused on smaller regular optimisations I can make, and questioning choices that could result in higher ongoing costs for no benefit.

Following on from my looking at safe withdrawal literature last month, I have also come across the only Australian examination of the ‘4 per cent rule’ I have ever seen, How Safe are Safe Withdrawal Rates in Retirement? An Australian Perspective, published here (pdf). It highlights a particular humility we should have about just importing the ‘4 per cent rule’ unthinkingly from overseas studies, by pointing out the extraordinary performance of the Australian market, and the much lower safe withdrawal rates that would follow from a break in this extraordinary run. The paper is rich with insights and issues to consider for anyone investing for financial independence in Australia.