Truth is confirmed by inspection and delay; falsehood by haste and uncertainty.

Tacitus

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

Portfolio goals

My objectives are to reach a portfolio of:

• $1 598 000 by 31 December 2020. This should produce a real income of about $67 000 (Objective #1)
• $1 980 000 by 31 July 2023, to produce a passive income equivalent to $83 000 (Objective #2)

Both of these are based on an expected average real return of 4.19%, or a nominal return of 7.19%, and are expressed in 2018 dollars.

Portfolio summary

• Vanguard Lifestrategy High Growth Fund – $745 158
• Vanguard Lifestrategy Growth Fund  – $43 119
• Vanguard Lifestrategy Balanced Fund – $77 915
• Vanguard Diversified Bonds Fund – $105 821
• Vanguard Australian Shares ETF (VAS) – $80 408
• Betashares Australia 200 ETF (A200) – $246 012
• Telstra shares (TLS) – $1 937
• Insurance Australia Group shares (IAG) – $13 376
• NIB Holdings shares (NHF) – $8 178
• Gold ETF (GOLD.ASX)  – $85 424
• Secured physical gold – $13 652
• Ratesetter (P2P lending) – $23 262
• Bitcoin – $132 720
• Raiz app (Aggressive portfolio) – $15 130
• Spaceship Voyager app (Index portfolio) – $1 883
• BrickX (P2P rental real estate) – $4 629

Total value: $1 598 624 (+$57 037)

Asset allocation

• Australian shares – 40.9% (4.1% under)
• Global shares – 22.3%
• Emerging markets shares – 2.6%
• International small companies – 3.3%
• Total international shares – 28.2% (1.8% under)
• Total shares – 69.1% (5.9% under)
• Total property securities – 0.3% (0.3% over)
• Australian bonds – 5.5%
• International bonds – 10.5%
• Total bonds – 16.0% (1.0% over)
• Gold – 6.2%
• Bitcoin – 8.3%
• Gold and alternatives – 14.5% (4.5% over)

Presented visually, below is a high-level view of the current asset allocation of the portfolio.

Comments

The portfolio has experienced strong growth through the month, with a total increase of around $57 000.

This fifth month of continuous growth has seen an important event occur ahead of schedule. Portfolio Objective #1 – which is the ‘median income’ FIRE target that was the goal set at the start of this record in December 2016 – has been narrowly achieved.

My expectation at the beginning of this year was to reach this particular goal only at the end of 2020. This itself was shifted forward from the original goal of passing a slightly lower median income objective by July 2021. The net result of all of this is that a higher absolute portfolio objective has been reached more than two years early.

This achievement may be temporary, as it comes following the equal second longest run of monthly gains in this record. Just an average monthly fall could easily see the portfolio dip well below the objective again, and a prolonged downturn in share markets could easily lead to major declines which would take some time to recover from. At this stage, given that my final Objective #2 is still some distance away and further accumulation is planned, this prospect does not overly concern me.

The portfolio performance this month largely reflects the same drivers that have dominated performance since the journey began. These drivers have been new contributions and increases in Australian shares (through Betashares A200), particularly since the Federal election. In addition, there has been a significant increase in the price of Bitcoin. This led to a portfolio growth which was the sixth highest in the record to date.

Credit card spending has been significantly lower than average over the past month. It has been the lowest level in six years in fact. As the series below indicates, however, it is a volatile measure.Once financial year 2018-19 figures on distributions are finalised early next month, it’s likely the the red line of distributions, which currently is an estimate based on low December half year figures, will be revised up. This in turn could mean a return to distributions on average coming close to meeting credit card expenses.

Progress

Progress against the objectives, and the additional measures I have reached is set out below.

Summary

Progress over the last few months has been swift and surprising. Timelines set less than six months ago have been met, and the portfolio has entered into the ‘between’ phase of being above my minimum objective, but some distance from my ultimate goal (Objective #2).

Part of the process of adapting to this phase is understanding its true nature – its permanence or otherwise, and looking through short-term movements to try to discern the underlying picture. In short, inspection and delay.

This what lies behind recent posts seeking to analyse the income potential of the portfolio, and longer term trends in distributions and expenses. Seeking the additional data point of what this portfolio delivers currently is the reason I am straining forward to see the size and shape of the end of June distributions.

The advice commonly offered in the financial independence community at this point is crystal clear. Pay less attention to the numbers, and start exploring and building the life you desire now. The advice is so universal, and so intuitively sensible that I do not ignore it. With Australian and global equity markets poised as they are, however, I feel a resisting force going too far down this path. This is mostly stemming from a suspicion that prior to the goal being reached there might be one or more unavoidable challenges to come.

This may be linked to an increased probability of Australian interest rate reductions, and even the entry by Australian monetary authorities into some form of quantitative easing. As inflation stalls, and housing markets decline, the macroeconomic conditions appear less predictable than at any time since 2009. Some of the global financial trends and developments that are of most concern are well discussed in the most recent Incrementum AG In Gold We Trust report, which has as its theme declining trust across the global financial system.

While that outlook might suggest protective action, overall I am comfortable with the extent of my diversification across less-correlated assets. It should be remembered that I felt similar unease two years ago – and that indulging in market timing at that point would have had high opportunity costs.

In any case, more and more it is evident that the performance of the portfolio is not something that can be materially altered by one or two monthly investment decisions. Rather, it is a function of the interaction of unstable markets with the compound effect of hundreds of smaller individual investment contribution decisions taken over the past decade or so across a range of different market conditions.

Following on from my quick Bitcoin and gold correlation analysis last month, I was interested to see this ‘portfolio optimisation’ based analysis on the role of Bitcoin in a portfolio, using just seven years of historical data. Also, this What’s Up Next podcast on finding the right time to retire is a fascinating discussion of the issue of knowing when it is time to put into action FIRE plans. Finally, Aussie HIFIRE has recently pulled together a post highlighting the different voices in the Australian FIRE blogging community for readers.

As winter takes hold, the portfolio is prepared for as yet undefined challenges and storms that may emerge, and I remain intensely curious at what the coming set of distributions will disclose about the distance I still have to travel. One port gained, the next leg of the journey beckons.