The ship that will not obey the helm will have to obey the rocks.

Publilius Syrus

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

Portfolio goal

My objective is to achieve and maintain a portfolio of at least $2,750,000 by 31 December 2024 or earlier. This should be capable of producing an annual income from total portfolio returns of about $94,800 (in 2023 dollars).

This portfolio objective is based on an assumed safe withdrawal rate of 3.45 per cent.

A secondary focus will be achieving the minimum equity target of $2,200,000.

Portfolio summary

Vanguard Lifestrategy High Growth Fund	$733,047
Vanguard Lifestrategy Growth Fund	$38,883
Vanguard Lifestrategy Balanced Fund	$70,131
Vanguard Diversified Bonds Fund	$86,372
Vanguard Australian Shares ETF (VAS)	$370,609
Vanguard International Shares ETF (VGS)	$485,700
Betashares Australia 200 ETF (A200)	$281,250
Telstra shares (TLS)	$2,217
Insurance Australia Group shares (IAG)	$5,891
NIB Holdings shares (NHF)	$9,120
Gold ETF (GOLD.ASX)	$121,597
Secured physical gold	$19,290
Bitcoin	$386,363
Raiz app (Aggressive portfolio)	$20,535
Spaceship Voyager app (Index portfolio)	$3,266
BrickX (P2P rental real estate)	$4,480
Total portfolio value	$2,638,751 (+$30,840)

Asset allocation

Australian shares	37.0%
Global shares	31.5%
Emerging market shares	1.5%
International small companies	1.9%
Total international shares	34.9%
Total shares	71.9% (-8.1%)
Total property securities	0.2% (+0.2%)
Australian bonds	2.4%
International bonds	5.5%
Total bonds	7.9% (+2.9%)
Gold	5.3%
Bitcoin	14.6%
Gold and alternatives	20.0 (+5.0%)

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

Comments

This month the portfolio grew slowly, expanding in value around $31,000 or approximately 1.2 per cent.

The growth was primarily driven by an increase in the value of international equities, and a continued rise in the price of Bitcoin.

Global equities increases in value by around $27,000, or 3.7 per cent over the month. By constrast, Bitcoin holdings increased by around 7.5 per cent. Australian equities fell slightly over the month, by around 2.6 per cent.

This has all left the overall portfolio above its target for last year.

Amidst rising yields globally, the value of bond holdings continued to fall, decreasing by 1.8 per cent. The value of the gold component of the portfolio also was reduced, falling around 1.2 per cent.

Risk assets continue to be primarily influenced by expected future pathways of monetary policy, and reactions to market data which are perceived as giving clues on this. Significant focus remains on the ‘terminal rate’ of interest rates prior to future expected reductions.

More broadly, real rates remain negative in the Australian economy, and real after-inflation wages continue to fall, putting many households under greater cashflow pressure.

The question at immediate issue is whether the rate increases that have occurred to date will be sufficient to address inflationary pressures, or bring about an economic recession with further effects on earnings, employment and debt defaults.

Over the medium term, it is difficult to see governments being able to step away from a period of ‘financial repression’ similar in kind to the immediate post-World War two period. The dilemma faced and possible directions are covered in this excellent conversation (video) with investor Russell Napier.

This month saw continued progress towards the medium-term goal of an equal allocation in the financial independence portfolio between global and Australian equities. Regular investments this month were focused on the Vanguard international shares ETF (VGS).

Domestic equities now make up just 51.5 per cent of equities in the financial independence portfolio.

This means a relatively small divergent market movement in the value of global and Australian equities – for example, a 3.0 per cent appreciation in global shares – could bring about the equal allocation by itself.

Bearing off: a wider view of equity market country allocation

Over the next few months or year, this equal allocation within the financial independence portfolio’s equity allocation is likely to arise.

Taking a broader view of all equity assets – including superannuation holdings – however, produces an interesting finding. In fact, on an ‘all assets’ basis (the reported portfolio, adding in superannuation funds) this equal allocation has already occurred.

In fact, the allocation is slightly balanced towards global equities.

The pie chart below sets out the asset allocation of the total portfolio, in the same format as the one given in each monthly update, but instead based on the all assets including superannuation.

The main tracked financial independence portfolio makes up over 75 per cent of all investment assets owned, and so unsurprising the broad allocations look fairly similar.

One key difference, however, is that because the superannuation assets have a relatively broader exposure to international shares, measured on an ‘all assets’ portfolio global equities already slightly outweigh Australian shares.

The gap is relatively narrow in percentage terms – a 39 per cent global equities allocation, compared to a 37 per cent Australian shares allocation.

In simple dollar terms this equates to around $1.35 million currently held in global equities, compared to around $1.26 million in Australian shares.

Yet, though narrow, it is present. In turn, this has a couple of implications:

• Reaching a 50/50 allocation within the reported financial independence portfolio may be a priority, but it is not an urgent or imperative one, given the allocation has already been achieved at a broader all assets level; and

• Pursuing the 50/50 allocation within the narrower portfolio will actually drive a greater than 50 per cent exposure to global equities at an ‘all assets’ level.

So what, if anything, is to be done about this?

Right now, it is just a factor to watch and be aware of. In time, through rebalancing or future sales there might be opportunities to target an exact split at the all assets level, but this does not seem an urgent issue.

For the moment, I will continue to target the equal split within the financial independence portfolio, as it is designed to be the critical supporting resource for any early retirement decision.

If this narrower portfolio reaches an exactly even split, then at an all asset level – making some simple assumptions – I project that this would result in an allocation of 41 per cent of all assets to global equities and 37 per cent to Australian shares.

Or viewed differently, this would mean that at an all assets level, around 53 per cent of equity assets would be international, and 47 per cent domestic.

This kind of allocation still falls within the margin that might easily be expected to arise by chance and tracking error within a year, and so does not cause any particular concern.

Trends in average distributions and expenses

This month average total expenses (red line) continued to track slightly above $6,300, while the moving average of distributions (the blue line) has increased, to above $8,600.

The chart above measures against an estimate of total expenses, based on actual credit card spending, with the addition of an allwance for annual fixed expenses.

In terms of credit card spending, in nominal dollar terms the distributions received are currently estimated to have met more than 99 per cent of all past credit card expenses, stretching back to November 2013. Conceputally at least, this has left every dollar of normal employment income available for investment, rather than being required to meet daily costs.

On a trend basis distributions continue to rise, meaning the gap of around $2,200 between distributions and expenses continues to be sustained.

Progress

Measure	Portfolio	All Assets
Portfolio objective – $2,750,000 (or $94,800 pa)	96%	126%
Total average expenses (2013-present) – $85,000 pa	107%	140%
Target equity holding in portfolio – $2,200,000	86%	N/A

Summary

This month a long period of stability in current work arrangements ends, meaning possible evolution and changes ahead.

Facing this from a position of strength – with the core equity portfolio at around 86 per cent of the final target – is a different prospect than had the same situation occurred in early 2017, or even perhaps just four years ago.

Similarly, looking to the broader portfolio including superannuation assets shows that there are currently around $2.6 million of equity assets in place.

From here, should anything unexpected happen, and the quality of my working conditions be degraded appreciably, there is a viable choice to simply seek to renegotiate arrangements, or even walk away.

This makes it possible to approach the coming months with curiosity, and confidence, rather than from a position of needing a certain outcome to eventuate for absolute economic security.

Personally, as someone who has always felt ‘ambiguity aversion’ quite strongly, this feels like an interesting mental and emotional ‘puzzle’ to solve or decode. Something that added to this perspective this month was listening to the Mad Fientist’s podcast interview of Ramit Sethi.

Brandon shared how influential on his thinking Ramit’s series of interviews with people who had accumulated large portfolios, and yet who felt unable to spend at a level in any way proportional to their accumulated investments, had been. Those who had become ‘stuck’ in the accumulation stage, essentially. This podcast episode in particular was referenced.

The perspective it offered up was valuable – the concept of ‘living richly’ with a view to not being constrained through lack of experimentation and trial and error to a live a life ‘smaller’ than able.

This month the exchange traded fund A200 reduced its fees to 0.04 per cent, from 0.07 per cent, representing a savings of about $84 per year on current holdings. If there is no competitive response from Vanguard on its VAS exchange traded fund, this is probably enough of a differential to lead me to direct future Australian equities ETF investments towards A200. Indicatively, doing so up to the Australian equity target holding would result in around an additional $70 per annum saving.

Also of interest this month was this (video) elegant summary of the many individual or idiosyncratic risks facing individual equities, from prominent Bitcoin advocate Michael Saylor. The impact of many of these risks does fade with sufficient diversification, but all, inevitably, will impact an equity portfolio at some level. This NBER work on the risks to asset classes of unexpected inflation, and the specific impact of energy inflation, has also been of close interest.

Ahead lays some uncertainty, both in markets and in working arrangements. The intersection of both, unfavourably, has the potential to lead to a challenging year. Yet these risks are not necessarily linked or correlated, making a number of different outcomes possible.

The progress in the journey so far makes elements of these risks controllable, however. Practice on the voyage to date provides some confidence that the ship will obey the helm, and not be forced to obey the rocks

Disclaimer

The specific portfolio allocation and approach described has been determined solely based on my personal circumstances, objectives, assessments and risk tolerances. It is not personal financial advice, or recommendation to invest in any particular investment product, security or asset, and investors considering these issues should undertake their own detailed research or seek professional advice.