Our little systems have their day;
They have their day and cease to beTennyson, In Memoriam A.H.H.
This is my forty-fourth portfolio update. I complete this update monthly to check my progress against my goal.
Portfolio goal
My objective is to reach a portfolio of $2 180 000 by 1 July 2021. This would produce a real annual income of about $87 000 (in 2020 dollars).
This portfolio objective is based on an expected average real return of 3.99 per cent, or a nominal return of 6.49 per cent.
Portfolio summary
| Vanguard Lifestrategy High Growth Fund | $716 680 |
| Vanguard Lifestrategy Growth Fund | $41 103 |
| Vanguard Lifestrategy Balanced Fund | $77 788 |
| Vanguard Diversified Bonds Fund | $111 667 |
| Vanguard Australian Shares ETF (VAS) | $202 336 |
| Vanguard International Shares ETF (VGS) | $54 872 |
| Betashares Australia 200 ETF (A200) | $230 058 |
| Telstra shares (TLS) | $1 785 |
| Insurance Australia Group shares (IAG) | $6 449 |
| NIB Holdings shares (NHF) | $5 316 |
| Gold ETF (GOLD.ASX) | $124 756 |
| Secured physical gold | $20 070 |
| Ratesetter (P2P lending) | $9 881 |
| Bitcoin | $173 010 |
| Raiz app (Aggressive portfolio) | $17 258 |
| Spaceship Voyager app (Index portfolio) | $2 619 |
| BrickX (P2P rental real estate) | $4 471 |
| Total portfolio value | $1 800 119 (+$34 376 or 1.9%) |
Asset allocation
| Australian shares | 41.1% |
| Global shares | 22.2% |
| Emerging market shares | 2.2% |
| International small companies | 2.9% |
| Total international shares | 27.3% |
| Total shares | 68.4% (6.6% under) |
| Total property securities | 0.2% (0.2% over) |
| Australian bonds | 4.5% |
| International bonds | 9.1% |
| Total bonds | 13.6% (1.4% under) |
| Gold | 8.0% |
| Bitcoin | 9.6% |
| Gold and alternatives | 17.7% (7.7% over) |
Presented visually, below is a high-level view of the current asset allocation of the portfolio.
Comments
The portfolio has substantially increased this month, continuing the recovery in portfolio value since March.
The strong portfolio growth of over $34 000, or 1.9 per cent, returns the value of the portfolio close to that achieved at the end of February this year.
This month there was minimal movement in the value of Australian and global equity holdings, There was, however, a significant lift of around 6 per cent in the value of gold exchange traded fund units, as well as a rise in the value of Bitcoin holdings.
These movements have pushed the value of gold holdings to their highest level so far on the entire journey. Their total value has approximately doubled since the original major purchases across 2009 to 2015.
For most of the past year gold has functioned as a portfolio stabiliser, having a negative correlation to movements in Australian equities (of around -0.3 to -0.4). As low and negative bond rates spread across the world, however, the opportunity cost of holding gold is reduced, and its potential diversification benefits loom larger.
The fixed income holdings of the portfolio also continued to fall beneath the target allocation, making this question of what represents a defensive (or negatively correlated to equity) asset far from academic.
This steady fall is a function of the slow maturing of Ratesetter loans, which were largely made between 2015 and 2017. Ratesetter has recently advised of important changes to its market operation, and placed a fixed maximum cap on new loan rates. By replacing market set rates with maximum rates, the peer-to-peer lending platform appears to be shifting to more of a ‘intermediated’ role in which higher past returns (of around 8 to 9 per cent) will now no longer be possible.
The expanding value of gold and Bitcoin holdings since January last year have actually had the practical effect of driving new investments into equities, since effectively for each dollar of appreciation, for example, my target allocation to equities rises by seven dollars.
Consistent with this, investments this month have been in the Vanguard international shares exchange-traded fund (VGS). This has been directed to bring my actual asset allocation more closely in line with the target split between Australian and global shares.