Mens fortunes are on a wheel, which in its turning suffers not the same man to prosper for ever.

Herodotus

This is my twentieth 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 – $727 907
• Vanguard Lifestrategy Growth  – $41 957
• Vanguard Lifestrategy Balanced – $75 075
• Vanguard Diversified Bonds – $100 122
• Vanguard ETF Australia Shares ETF (VAS) – $78 653
• Betashares Australia 200 ETF (A200) – $55 263
• Telstra shares – $3 785
• Insurance Australia Group shares – $20 083
• NIB Holdings – $6 768
• Gold ETF (GOLD.ASX)  – $75 509
• Secured physical gold – $12 058
• Ratesetter (P2P lending) – $38 431
• Bitcoin – $119 600
• Raiz app (Aggressive portfolio) – $12 077
• Spaceship Voyager app (Index portfolio) – $1 215
• BrickX (P2P rental real estate) – $4 711

Total value: $ 1 373 214 (+$34 066) 

Asset allocation

• Australian shares –  36%
• International shares – 18%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 59.5% (1.5% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.2% (1.2% over)
• Australian bonds – 9%
• International bonds – 9%
• Total bonds – 17.8% (2.8% over)
• Cash – 1.3%
• Gold – 6.4%
• Bitcoin – 8.7%
• Gold and alternatives – 15.1% (0.1% over)

Comments

The allocation of distributions for the last half-year has been the most significant decision over the past month. After some thought my allocation decision was to do three things:

• $1 000 investment in Spaceship index – the logic being that this has no fees, is consistent with indexed globally diversified approach, and putting a significant amount at risk will better test my views of its performance.
• $10 700 set aside for future tax liabilities – this is to avoid having to sell an investment to meet a future ‘surprise’ or higher than expected tax liability, arising from capital gains.
• $29 000 investment in A200 Australian equity ETF – this is due to this being the lowest cost vehicle for exposure to Australia equity markets, and is consistent with seeking to reach my target equity allocation. The Australian equity market continues to appear more fairly value on a dividend yield and price to earnings ratio than global markets (taking into account US valuations).

Seeing such a significant re-investment in the portfolio has felt motivating, and increased the sense that momentum is shifting. Each fortnight this has been added to by a regular additional investment in A200, supplemented by the slow draw down of Ratesetter loans as they mature.

Movement in my portfolio has been limited, aside from distributions. My reliance on A200 for recent investments is slowly building my Australian equity exposure. At some point, I will need to consider ‘how much is too much’ domestic exposure.

With past financial years distribution finalised, my curiosity also turned to the question touched on in my last post, that is, the proportion of my credit card expenses that can now be said to be notionally met by portfolio distributions. After much exploration with spreadsheets, averages, and assumptions the results are below. Whichever way the data is analysed, around September of last year I reached the ‘cross over’ point (the concept made popular by Your Money or Your Life) in terms of credit card expenses.

Credit card expenses are obviously volatile from month to month, and the distributions line is an averaged per month figure from the total annual distributions. Obviously, all of my expenses don’t occur through my credit card – though I would estimate around 80-90 per cent do. This means it is just short of a full ‘cross over point’. Nonetheless, it is an arresting and motivating fact to consider that each time I use my credit card to buy an essential item, the portfolio is notionally paying that expense.

Over the past month, I have also signed up to join the waitlist for Xinja, a new app based banking product, featuring a pre-paid card and spending categorisation. I need to study this further, as functionality seems restricted to joining a queue at the moment. Making someone join a queue for access to services seems a non-intuitive way to signal a commitment to disrupting traditional banking models, but my curiosity is still piqued. Finally, I listened to an interesting Equity Mates podcast with the founder of Raiz (formerly Acorns), who gave an insight into where that fintech product was going in the future, and the challenges facing fintech startups.

Progress

Progress to:

• Objective #1: 93.0% or $102 786 further to reach goal.
• Objective #2: 67.3% or $667 786 further to reach goal.

Summary

Looking at the graph above of credit card expenses versus portfolio income feels like a peculiarly tangible manifestation of the gradual approach of financial independence. It’s provided an extra impetus to be careful of what I purchase, and to try to keep the blue line below the red. July distributions will hopefully increase my future portfolio income, even as I continue to expect a significant reversal in capital markets over the coming year.