Whoever wishes to foresee the future must consult the past.

Niccolo Machiavelli

This is my seventy-sixth 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	$737,901
Vanguard Lifestrategy Growth Fund	$38,046
Vanguard Lifestrategy Balanced Fund	$71,101
Vanguard Diversified Bonds Fund	$88,334
Vanguard Australian Shares ETF (VAS)	$369,990
Vanguard International Shares ETF (VGS)	$512,253
Betashares Australia 200 ETF (A200)	$280,551
Telstra shares (TLS)	$2,251
Insurance Australia Group shares (IAG)	$5,942
NIB Holdings shares (NHF)	$8,448
Gold ETF (GOLD.ASX)	$133,066
Secured physical gold	$21,067
Bitcoin	$465,899
Raiz app (Aggressive portfolio)	$21,067
Spaceship Voyager app (Index portfolio)	$3,330
BrickX (P2P rental real estate)	$4,484
Total portfolio value	$2,763,381 (+$124,630)

Asset allocation

Australian shares	35.4%
Global shares	31.1%
Emerging market shares	1.5%
International small companies	1.8%
Total international shares	34.4%
Total shares	69.8% (-10.2%)
Total property securities	0.2% (+0.2%)
Australian bonds	2.3%
International bonds	5.3%
Total bonds	7.6% (+2.6%)
Gold	5.6%
Bitcoin	16.9%
Gold and alternatives	22.4% (+7.4%)

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

Comments

The financial independence portfolio expanded by around 4.7 per cent this month, or nearly $125,000.

This brings the portfolio just beyond its final goal of $2.75 million, which it had previously reached and exceeded over a year ago.

This progress was made principally due to a rebound in the value of Bitcoin, following a series of banking failures across the United States and Europe, which lowered future interest rate expectations while increasing the attractiveness of bearer assets, with no counterparty.

Over the same period the capital value of Australian shares declined by around 0.3 per cent. By contrast the value of global shares, held mostly on an unhedged basis, grew by around 2.0 per cent.

This month was dominated by monetary policy uncertainty surrounding the collapse of Silicon Valley Bank, and two other US-banking entities, which heightened fears around the strength of the US financial system. At the same time, the troubled Credit Suisse was sold and Deutschbank came under renewed market scrutiny.

These developments all had a flavour of mid-2007, the period just prior to the full onset of the Global Financial Crisis, and regulatory and government responses seemed to reinforce this parallel.

The general instability translated into renewal of debate over whether the ‘terminal rate’ had been reached – or in other words, whether interest rates would need to be raised further to stem inflation in the face of potential risks emerging across the US and European banking systems.

The uncertainty in the market led to a significant increase in the value of gold holdings, up around 9.3 per cent over the month, making it a material contributor to the overall increase in the portfolio.

Relatively poor performance of Australian equities, twinned with stronger performance for unhedged international equity has brought the equity portfolio close to the objective of an equal exposure to Australian and global markets.

This month foreign equities make up 49.3 per cent of the equity portfolio, and just a small increase – of 1.4 per cent – in global share prices would be necessary to close the remaining gap. As noted last month, however, looking at the broader ‘all assets’ portfolio, this threshold has already been met.

Expected first quarter distributions lower than previous years

With the end of the month comes the opportunity to look forward to a set of dividends and distributions for the first quarter period from January to March.

These are dominated by distributions from the exchange-traded funds, although at times there are also large one-off payouts from a Vanguard retail index diversified bond fund.

The projected distributions this quarter are approximately $6,600. The projections are based on announced estimated distributions for the exchange traded funds, and a past median estimate for the Vanguard Diversified Bond fund.

This is the lowest set of first quarter distributions since 2020, and a fall of almost half compared to the distributions received for the first quarter of last year.

What appears to have occurred is a fall from an unsually high payout from the Vanguard Australian Shares ETF (VAS) in the same period last year, to more normal levels.

Looking at the progression of distributions in a different way, it can be observed that first and third quarter distributions continue to grow on average, reflecting further investments in ETFs with quarterly payout cycles.

In around three months, it will be possible to see whether the trend of lower distributions in this quarter will be continued into the June quarter.

Trends in average distributions and expenses

This month average total expenses (red line) continued to track just above $6,300, while the moving average of distributions (the blue line) has continued to increase month on month, to above $8,700.

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

Since 2013, a total of around $627,000 of credit card expenses have been accrued. Across the same period, distributions have paid out more than $625,000.

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)	100%	131%
Total average expenses (2013-present) – $84,900 pa	112%	146%
Target equity holding in portfolio – $2,200,000	88%	N/A

Summary

The past month has been a mixture of change and continuity. New temporary roles have meant a greater focus on day to day work, and much less time to ponder financial independence, even as it has slightly accelerated the journey toward it.

An obvious part of the change is the returning to a portfolio which has at the headline level entirely met the revised target of $2.75 million just three months ago. The continuity is that despite some progress, equity holdings in the portfolio remain at 88 per cent, a figure not so different from that across the past three months.

Similarly, the portfolio sits at a comparable level to that which it reached two years ago, albeit in that case driven more strongly by volatile growth in the value of Bitcoin.

This has made the past two years appear to be in some senses static, even as more solid foundations have been under construction beneath the changing top-line portfolio figure.

The external environment has changed subtly over the last few months. This is perhaps most visible in the recovery of Bitcoin, and the surge in the price of gold. There is a collective intake of breath as policymakers see the impact of higher interest rates, and wonder whether sufficient work has been done to see inflation sustainably trend downwards.

Through times such as this there are potentially contradictory lessons.

The first is that at times it is possible sometimes to identify an artificial period with a strangely unreal quality prior to a significant global financial event or crisis. The second is that it is even more possible to misidentify such a period.

Through 2010-14, there were substantial periods in which markets felt especially unstable, at immediate risk or even in the process of starting multi-year declines. It would have been easy to have convinced myself to stop making investments in this period to await elusive ‘certainty’. At times, for periods, it would have even appeared prophetic and prudent.

Yet in retrospect, this period was one of substantial continued growth in the portfolio. It set the initial basis for future portfolio growth, and was part of the beginning of the slow process of compounding portfolio expansion. So it is possible to learn – or perhaps overlearn – the wrong lessons from history as well as the right ones.

Stepping back, the overriding lessons of that period was to simply keep on the path of investing as often as possible, within an asset allocation that was suited to my risk capacity and tolerance.

A further lesson was that investment through periods of decline and retrenchments in the markets can appear disheartening, in that the final balance of the investment may stagnate or fall.

But in fact, during those periods, where recovery follows, those lower cost investments can produce surprisingly sharp upward movements in the portfolio. Markets work in fits and starts as a rule, and average returns earned evenly through a year are possibly the rarest phenomenon in the real world of long-term investing.

So, consulting the past – at least – during this time may teach some lessons to help peer imperfectly into the future.

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.