But the sea, the sea in the darkness calls;
The little waves, with their soft, white hands,
Efface the footprints in the sands,
And the tide rises, the tide falls.

Longfellow, The Tides Rises, the Tide Falls

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

Portfolio goal

My objective is to maintain a portfolio of at least $2,870,000. This should be capable of producing an annual income from total portfolio returns of about $99,000 (in 2024 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 $2,300,000.

Portfolio summary

Vanguard Lifestrategy High Growth Fund	$836,087
Vanguard Lifestrategy Growth Fund	$43,023
Vanguard Lifestrategy Balanced Fund	$76,120
Vanguard Diversified Bonds Fund	$88,343
Vanguard Australian Shares ETF (VAS)	$519,490
Vanguard International Shares ETF (VGS)	$705,525
Betashares Australia 200 ETF (A200)	$300,417
Telstra shares (TLS)	$1,849
Insurance Australia Group shares (IAG)	$7,855
NIB Holdings shares (NHF)	$8,928
Gold ETF (GOLD.ASX)	$158,241
Secured physical gold	$24,981
Bitcoin	$1,143,698
Raiz app (Aggressive portfolio)	$23,177
Spaceship Voyager app (Index portfolio)	$3,926
BrickX (P2P rental real estate)	$4,549
Plenti Capital Notes Market Loan	$17,000
Total portfolio value	$3,963,209 (+$90,350)

Asset allocation

Australian shares	30.0%
Global shares	27.7%
Emerging market shares	1.2%
International small companies	1.5%
Total international shares	30.3%
Total shares	60.3% (-19.7%)
Total property securities	0.1% (+0.1%)
Australian bonds	2.2%
International bonds	3.9%
Total bonds	6.1% (+1.1%)
Gold	4.6%
Bitcoin	28.9%
Gold and alternatives	33.5% (+18.5%)

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

Comments

This month delivered a small lift in the overall value of the financial independence portfolio, with gains of around $90,000 or 2.3 per cent.

This partially reverses the losses of last month, leaving the portfolio slightly below the value reached at the end of March. The portfolio continues to be strongly ahead – by around $1 million – of its position twelve months ago.

Australian and international shares performed modestly well over the month, growing in value around 1.2 per cent.

Gold fell slightly over this month, following a strong previous performance. In fact, over the past 5 years, gold has been the best performing of the traditional asset classes in the portfolio.

Bitcoin grew in value by around 6.5 per cent, while bond holdings also mildly recovered, returning around 0.4 per cent.

For a brief period at the beginning of the month, the Australian component of the equity portfolio fell below its target level (of $1.15 million). In response, new purchases of the Vanguard ETF (VAS) were made.

The portfolio remains above its formal headline target by some margin. The financial portfolio, excluding Bitcoin, remains around $50,000 below the final target level of $2.87 million.

Length of the investment journey

The investment made at the beginning of the last month was the first made since the end of January.

Making the investment itself felt like the exercise of a well-used muscle, after a gap, a mixture of the familiar and the automatic.

This is because the investment journey has been a long one. Based on my records, it began around September 1999, with an initial tentative, and ultimately underwhelming, investment in the Telstra 2 public offering.

It gained much more regularity from February 2000 through to March 2001, a period in which I was making small but regular investments in a Colonial First State Global Shares fund, a Colonial Developing Companies fund, and an AXA Property fund. Later this was joined by a Conservative multi-asset fund, again from Colonial First State. Each of these retail offerings featured high fees.

From March 2001 onwards most substantive new investments started to flow into a passive and low fee Vanguard High Growth fund. From around July 2004, the first retail funds from Colonial and AXA were exited, and new investments were directed to Vanguard funds. In April 2009, around 15 years ago, the first investments in the gold ETF was made.

A small burst of experimentation across 2015-16 saw the addition of a few new vehicles, including the peer-to-peer provider Ratesetter (now Plenti) and BrickX.

All told, the investment journey has therefore been 24 years and 7 months, or around 8,988 days. Hardly a ‘rapid’ journey, and with lots of trial and error along the way.

Trends in average distributions and expenses

The three year moving average of total expenses and average distributions continued to converge this month.

The chart below measures distributions against an estimate of total expenses. The total expenses figure is based on actual credit card spending, with the addition of a monthly allowance for other fixed expenses.

This month average total expenses (red line) continued to rise. These expenses now exceed $7,500 per month.

Conversely, the three year moving average of distributions (the blue line) continues to decline, as it has since early 2023, to be at around $7,800.

The total ‘gap’ between distributions and total expenses is currently just under $300 per month, compared to around $2,000 per month in early 2023. Over the next two months, it might be expected that this gap would entirely close, meaning for the first time in three years average distributions would be lower than total expenses.

Progress

Measure	Progress
Portfolio objective – $2,870,000	138%
Financial portfolio income as % of total average expenses (2013-present) – $88,700	110%
Target equity holding in portfolio – $2,300,000	104%
Financial portfolio income as % of target income – $99,000 pa	98.3%

Summary

This month again saw considerable private and work-related travel, and a crowded time leaving little time or inclination to ponder portfolio developments in the abstract.

I spent some of the travelling time listening to Dave from Strong Money Australia’s excellent book, now available on Spotify, as well as reading the most recent In Gold We Trust report, which reflected on recent gold price increases. I was also pleased to hear about a new proposed FI event planned near Sydney, which shows the community continuing to grow.

A significant element of my work this month has centred on inflation volatility, the recent uptick in inflation following 2020, and the relationship with money supply growth and inflation expectations going forward.

Increasingly, I find myself thinking about the potential for perceptions about achieved investment outcomes to be distorted by the illusion of nominal dollars.

As an example, this coming July I will largely report my portfolio income in nominal dollars, and implicitly think about them as comparable to the dollars of past years. Over time, I have occasionally estimated out the ‘real inflation adjusted’ equivalent of past and current distributions. Quite understandably, I expect many do not have the time, patience or capacity to regularly perform this exercise.

Yet the concept of real returns, properly adjusted for the growth of overall money supply is important in thinking about the goal of preserving, or growing actual purchasing power into the future.

It would be easy with even small investments, for example, to observe a steady stream of growing dividends and distributions over a FI journey and not interrogate the more complex question: in a world of relatively scarce real assets and wealth, are the nominal gains being observed sufficient to offset the dilutive effect of the year on year growth in total money supply? Or to put it a different way, to avoid the subtle erosion of the call upon real resources or assets held.

It will be interesting to reflect on this question more systematically as June portfolio distributions begin to get finalised and reported over the next month and a half. Many people’s standard off the cuff response to the issue of the impact of inflation is to identify ways in which either the standard CPI does not reflect either their own circumstances, or ways in which its impacts can be offset.

This is to only deal with a portion, or a symptom of the issues, however.

One can alter one’s consumption to ‘defeat’ inflation, in the short term – it is true. And it is also true that inflation does not recognise many areas where the quality of a product or service measured for CPI purposes improves, leading to a notional overstatement of losses from reported inflation.

Yet the erosion of real wealth that occurs through the issuance of more money ‘tokens’, where the supply of real assets does not growth at the same pace is something slightly more invidious and difficult to avoid. It creates the risk of an individual with an apparently growing and healthy nominal stream of investment returns actually sliding backwards when the lense of actual calls on real assets or purchasing power is put over the nominal returns received. This backward slide can be worsened by the measured basket of goods and services within the CPI changing over time, itself at times reflecting consumers substitution arising from past inflation.

In part, this overall concern is linked the the discussion of the length of the financial independence journey, as a part of the investing journey has been ensuring that the target of a stream of income has been consistent through time, in real inflation adjusted terms. Otherwise, what is being chosen is an ephemeral, nominal income that will be consistently reduced through time, though at varying speeds.

Perhaps this has been part of the key to the length of the journey. A desire to break free both of the obligation to work, but also, guard against the effects of the sometimes unnoticed lapping tides of inflation on a future lifestyle. Those little waves, with their soft white, but insistent hands deserve our attention, and we should seek to remember what they silently efface.

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.