So we beat on, boats against the current, borne back ceaselessly into the past.

F. Scott Fitzgerald, The Great Gatsby

This is my fifty-third monthly portfolio update. I complete this regular update to check progress against my goal.

Portfolio goal

My objective is to reach a portfolio of $2,585,000 by 31 July 2022. This would produce a real annual income of about $90,500 (in 2021 dollars).

This portfolio objective is based on an assumed safe withdrawal rate of 3.5 per cent.

Portfolio summary

Vanguard Lifestrategy High Growth Fund	$829,649
Vanguard Lifestrategy Growth Fund	$45,135
Vanguard Lifestrategy Balanced Fund	$81,870
Vanguard Diversified Bonds Fund	$100,139
Vanguard Australian Shares ETF (VAS)	$307,826
Vanguard International Shares ETF (VGS)	$158,831
Betashares Australia 200 ETF (A200)	$275,311
Telstra shares (TLS)	$1,801
Insurance Australia Group shares (IAG)	$6,208
NIB Holdings shares (NHF)	$7,392
Gold ETF (GOLD.ASX)	$103,197
Secured physical gold	$16,581
Plenti (P2P lending)	$4,411
Bitcoin	$776,690
Raiz app (Aggressive portfolio)	$20,326
Spaceship Voyager app (Index portfolio)	$3,267
BrickX (P2P rental real estate)	$4,540
Total portfolio value	$2,743,174 (+$2,449)

Asset allocation

Australian shares	34.5%
Global shares	20.0%
Emerging market shares	1.7%
International small companies	2.1%
Total international shares	23.8%
Total shares	58.3% (-16.7%)
Total property securities	0.2% (+0.2%)
Australian bonds	2.8%
International bonds	6.1%
Total bonds	8.9% (-6.1%)
Gold	4.4%
Bitcoin	28.3%
Gold and alternatives	32.7% (+22.7%)

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

Comments

After the most sustained, as well as the largest, expansion in its history the portfolio has recorded a small increase over the last month.

The muted final outcome was the result of a significant correction in the price of Bitcoin, which has fallen substantially since the middle of the month, after it briefly reached all time heights.

Overall the portfolio advanced just over $2,000, despite a fall of around $70,000 in the value of Bitcoin holdings. Just as last month where the contingent nature of the achievement was discussed, this leaves the total portfolio slightly above the portfolio goal.

The slight growth in the portfolio was largely due to other portfolio assets moving in the other direction, off-setting the substantial Bitcoin reductions.

Australian equities grew by around 2.0 per cent, and the value of international shares also advanced around 2.7 per cent over the month. Gold reversed its three consecutive months of decline with around a 2.8 per cent gain.

This month also saw a profile of this blog and portfolio in Money Magazine, which had a specific feature on the Australian financial independence and early retirement community.

This interesting piece updated an earlier piece three years ago, which was the first significant media recognition of this personal journey.

The well-written piece brought significant new traffic and followers to the blog, so a warm welcome to those new readers.

A primary investment task this month was reinvestment of distributions received. Applying the asset allocation policy this month resulted in further purchases in the Vanguard global shares (VGS) fund.

This has pushed the international shares component of the equity portfolio to the highest level in around two years, though there is significant progress still to be made here before the targeted re-balancing to a 50/50 split between Australian and international shares is reached.

Growth in first quarter distributions: analysing the changing patterns

This month featured an unexpectedly large payment of first quarter distributions. First quarter distributions totalled just over $10,000 this year, which is a record high.

First quarter dividends mostly arise from two sources in the portfolio.

These main sources are the Vanguard diversified bond retail fund and the Australian shares ETFs (VAS and A200). More recently, a small contribution has come from the Vanguard global shares ETF (VGS).

The Vanguard diversified bond fund (purple) has an irregular payout schedule, which has been low across most years, but interspersed with one-off instances of much higher payments. This is likely due to the realisation of capital gains from time to time at the fund level, which is subsequently paid out.

By comparison, the equity ETFs of A200, VAS and VGS (red, blue and green respectively) have demonstrated far more stability.

The chart below shows the level and components of first quarter distributions over the last five years.

The result for the past quarter is around three times larger that any other first quarter over the past five years. It was also around double my estimate of just a month ago.

Both the VAS and A200 distributions have grown over the period, reflecting their expanding role in the portfolio since 2018.

Of total distributions in this quarter, around half are made up of these share ETF distributions, and half a one-off Vanguard diversified bonds fund payments. This comes even as the fixed income component of the portfolio is close to the lowest level ever across the journey – at under 9 per cent.

Generally, it has been satisfying to watch first quarter distributions grow from being almost entirely immaterial events, to now constituting an amount that is sufficient to reinvest as a substantial amount in ETFs.

Next year may not be so fortunate, however, with my simple model of average distributions projections indicating that a level of $4,400 to $4,800 is likely to be more in line with past results.

Measuring the incomplete equity portfolio journey

With the passing of the overall portfolio goal in recent months, and obvious question is: is the journey over?

In theory, rebalancing some gains from Bitcoin to other areas of the portfolio would deliver a ‘yes’ to this question. At present, however, my disposition is to not liquidate the Bitcoin portfolio component, and purchase equities and bonds.

Rather, the approach I am currently pursuing is to continuously seek to target the asset allocation required through new investments, rather than realisation of capital gains and the tax events this creates. This decision is specific to my individual circumstances, rather than being a recommendation or suggested strategy.

Given this approach, for the present I effectively continue to pursue a financial independence target by continuing to invest in non-Bitcoin assets. The subsequent question arises then: how far has the journey progressed when measured only in terms of conventional portfolio assets?

The graph below is a partial answer to this this question.

It measures the actual level of the equity portfolio against the final target level of equity holdings in percentage terms (i.e. given the equity target allocation of 75 per cent, this required equity target equates to 0.75 * $2,585,000, or around $1.94 million).

There are several observations that can be made about the this graph:

• To reach the half-way point of the target equity holdings has required around 18 years of regular investing in low cost index-based products
• In just over two years the equity component of the portfolio has moved from 50 per cent of the final amount required, to now over 80 per cent (or just under $1.6 million)
• This progress has been significantly driven by the strong recovery in equity values over the past year
• The journey is around 80 per cent complete, if counted only in terms of the core equity market foundation of the long-term FI portfolio.

More broadly, this shows the journey to reach the target equity portfolio still has some time to run.

Depending on assumptions around market conditions, it would appear to currently suggest that around two additional years may be required, notably a timeline slightly longer than the portfolio objective.

Trends in average distributions and expenses

The three year average of both distributions and credit card expenses fell through this past month, by about the same amount.

This means that average card expenditure is effectively ‘chasing down’ a gradual decline in distributions caused by some unusually high past distributions falling out of sample.

Over time, both credit card expenditure and distributions appear to be converging towards $5,000 per month.

The shorter-term observed falls in the three-year average of distributions has continued this month.

This arises from the three-year average now including further months of (lower) estimated half year distributions than actually experienced in 2020, and also the average still reflecting some extremely high distributions received in the first half of 2017.

From June, when the actual distributions should be known, replacing the estimates, and the early 2017 figures drop out, this provisional position is likely to change.

The record of distributions compared to total expenses in the chart below shows progress through this recorded journey, against the broader benchmark of distributions meeting total expenses.

The chart above shows that the capacity of the portfolio to support average spending over the past three years is still close to 90 per cent, with a small downward movement this month, but a longer-term upward trend.

Progress

Measure	Portfolio	All Assets
Portfolio objective – $2,585,000 (or $90,500 pa)	106.1%	134.9%
Total average expenses (2013-) – $85,300 pa	112.6%	143.1%

Summary

This month slipped away with less focus on the portfolio than normal, due to holidays involving long walks, beautiful lookouts, and gazing into a wide horizon of untouched wilderness.

As with a trip to New Zealand in mid-2018, it was an opportunity to slow down and glimpse how structuring days without work could look.

In parallel with this glimpse, Bitcoin was running up to its heights, and falling again. This period of volatility encompassed vigorous debates on the digital asset, including apparent claims from a skeptical Nassim Taleb that producing olive oil was the superior long-term inflation hedge. Meanwhile, the relative merits of Bitcoin and gold as stores of value were contested in fascinating and high profile debates (video)

Exposure to this phenomenon of price volatility since 2017 made this experience one of engaged interest, rather than abstract worry or fear. With a daily volatility around 3-6 times that of equities over recent years, it has the reverse impact than might perhaps be expected. From this vantage point, all other assets appear almost preternaturally still.

Looking out across valleys of Australian gum trees and rainforests one of the most striking impressions was of the vitality and growth obscured by the still tree canopy, suffused with blue haze. Hidden under that canopy growth, life was bursting out, playing out on scales unimaginably large and small.

There is a similar feeling looking at the surface of the portfolio. It is acquiring a dynamic life and natural force which dwarfs human action over a month or a year.

It is moving, growing, creating capital and income growth across equity stakes in around 6000 separate companies, and 2,200 different fixed income issuing entities, spread out across over 50 major economies and tens of thousands of daily transactions involving customers, lenders and borrowers. Meanwhile, more than 25 per cent of the portfolio is verified every 10 minutes across around 10,000 Bitcoin nodes.

The overall static outcome this month could be the harbinger of a future downward trend, or merely an aberration. Yet the Money Magazine update and the progress of the equity portfolio towards its ultimate target level shows that monthly variations are minor events, when compared to the boundless energy and irrepressible life beneath the still green treetops stretching across the horizon.

Regardless, the task remains the same, to push on in the direction of this first wild green promise of the future, against or with the currents.