And therefore I have sailed the seas and come
To the holy city of Byzantium

W. B. Yeats, Sailing to Byzantium

This is my ninety-first 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	$852,923
Vanguard Lifestrategy Growth Fund	$43,791
Vanguard Lifestrategy Balanced Fund	$77,301
Vanguard Diversified Bonds Fund	$89,201
Vanguard Australian Shares ETF (VAS)	$524,203
Vanguard International Shares ETF (VGS)	$730,180
Betashares Australia 200 ETF (A200)	$303,515
Telstra shares (TLS)	$1,929
Insurance Australia Group shares (IAG)	$9,046
NIB Holdings shares (NHF)	$8,820
Gold ETF (GOLD.ASX)	$157,415
Secured physical gold	$24,605
Bitcoin	$1,009,797
Raiz app (Aggressive portfolio)	$23,565
Spaceship Voyager app (Index portfolio)	$4,011
BrickX (P2P rental real estate)	$4,552
Plenti Capital Notes Market Loan	$34,000
Total portfolio value	$3,898,854 (-$64,355)

Asset allocation

Australian shares	30.9%
Global shares	29.0%
Emerging market shares	1.2%
International small companies	1.5%
Total international shares	31.7%
Total shares	62.6.% (-17.4%)
Total property securities	0.1% (+0.1%)
Australian bonds	2.7%
International bonds	4.1%
Total bonds	6.7% (+1.7%)
Gold	4.7%
Bitcoin	25.9%
Gold and alternatives	30.6% (+15.6%)

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

Comments

This month an important series of benchmarks were narrowly passed, despite a fall in the overall portfolio headline of over $64,000.

The portfolio has now passed its target level, when only traditional financial assets are counted.

Previously – taking into account the substantial current value of Bitcoin holdings – the overall target was easily met, but from this month, even excluding the entire value of these volatile holdings, the target has been met.

In other words, assessed as a more conventional portfolio, the journey of asset accumulation has this month reached its notional end point.

It did this through some small movements in Australian shares, and through a slightly larger growth in the value of international equities (around 2.4 per cent).

Gold continued to fall slightly this month, and there was significant fall in the value of Bitcoin holdings – of around 12 per cent. Bonds produced a capital gain of around 1 per cent.

This month I invested some surplus funds, which would in the past have been invested in equity index funds, into a further purchase of Plenti Capital Notes, at an approximate yield of 9.0 per cent.

It deserves noting that yields of this kind are not offered without an appreciable risk to the capital. At this stage and in my personal circumstances, however, this is a useful relatively short-term vehicle for funds I am happy to put at some risk, and which I have no need to access.

Hammered gold – early trends in second quarter portfolio distributions

The three major exchange traded funds in the portfolio have now reported provisional distributions, allowing a clearer picture to emerge of likely portfolio income for the second quarter.

The Australian share ETFs (VAS and A200) delivered distributions consisent with their median or average results for this quarter, and look set to provide around $5,800 in income.

The unusual result was for the Vanguard international equity exchange traded fund (VGS).

It was forecast to distribute around $4,700 this quarter, but will actually pay out around $12,700. It is not clear what has produced this result, though it is likely to be at least partly due to currency movement effects, and feature some element of realised capital gains or capital returns from the underlying shares held. The same forces are likely to be at work in parts of the Vanguard retail fund holdings, which have not yet reported their distributions.

My expectations are currently for a second quarter total of distributions of between $30,000 to $36,000.

In turn, this would mean first half of 2024 portfolio income (i.e. January to July 2024) of around $50,000 to $56,000, and portfolio income of between $89,000 to $95,000 for the full 2023-24 financial year.

At this stage, these distributions will be held in cash for the short term, for potential reinvestment should the equity component of the portfolio suffer a decline that took it below the target of $2.3 million

Past or passing – progress over the 2023-24 financial year

The close of the financial year also provides an opportunity to look back over the past 12 months, and assess progress made.

Perhaps the most significant change has been the expansion of the equity portfolio, by $390,000 – or around 19 per cent – over the past twelve months. This has taken the equity portfolio from around 11 per cent below its target level, to now sitting around 6 per cent above it.

The overall portfolio has also expanded, assisted considerably by movements in the past year of Bitcoin – moving from around $2.9 million to $3.9 million.

Assessing all assets (e.g. including both superannuation and Bitcoin holdings), the total of assets held has grown from $3.8 million to around $4.9 million. This can be seen from the chart below which tracks the value of the different component parts of the financial independence portfolio, as well superannuation.

Removing Bitcoin from consideration, the total portfolio, including superannuation, has grown from $3.3 million to around $3.9 million over the past twelve months.

Trends in average distributions and expenses

The three year moving averages of total expenses and average distributions continued to ominously 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 sit at around $7,600 per month.

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 around $200 per month, compared to around $2,000 per month in early 2023. This occurred even despite expected distributions now earnt being slightly higher than expectations.

Due to the operation of the three year averaging approach, I continue to expect that this gap will entirely close in the next few months. This means for the first time in three years average distributions would be lower than total expenses.

Progress

Measure	Progress
Portfolio objective – $2,870,000	136%
Financial portfolio income as % of total average expenses (2013-present) – $88,700	112%
Target equity holding in portfolio – $2,300,000	106%
Financial portfolio income as % of target income – $99,000 pa	101%

Summary

As can be seen, for the first time in the journey all four indicators of progress indicated above are green, sitting at above 100 per cent met.

Market movements could in future months – without much trouble – return the portfolio to sitting below one or more of the benchmark measures. Progress, and notional completion, however, should be recognised and celebrated.

As a step towards the next phase of the the journey, this month I had a detailed appointment with a financial advisor as a high level final ‘check’, that I had not missed anything in thinking about a transition to a state of either no work, or changed work arrangements. This reconfirmed the growing sense of comfort I feel.

Regardless of this, one interesting psychological experience over the past few months has been ‘missing’ the act of investment. Having undertaken regular investment on a monthly or fortnightly for around 25 years, it is somewhat ingrained, as a habit. Thus, not making regular investments since the end of January has felt like a peculiar or abnormal break. Potentially not needing to reinvest the distributions I will receive over coming weeks (if the equity portfolio remains above target) will strengthen this sense of temporary displacement.

Part of the displacement has also likely just been a lower overall focus and interest in market movements, and the range of financial products available.

Earlier in the journey, between say 2008-2016, I spent considerable time exploring new financial products, trialling them, moving between multiple online savings accounts to maximise the level of bonus interest received. That has really tailed off over the past seven years, really after the systematic direction of new investments into lower cost exchange traded funds. My holdings in the smaller experimentations across BrickX, Raiz and Spaceship are likely to be be liquidated when tax effective to do so, with their holdings consolidated into simple low cost ETFs.

The time freed up from this has probably been spent a thousand different ways. It has allowed me more time to focus on the pursuit of a different set of interests and concerns. Part of these are a longer view over history.

This month I completed Victor Davis Hanson’s The End of Everything, a reflection on the fall of empires, and former centres of empires, across the Aztec world, classical Greece, and finally the fall of the Eastern Roman empire – with the sack of Byzantium in 1453, around 571 years ago.

One of the messages of this book is that each of these cities fell despite a near certainty amongst their ruling class that such a fate was inconceivable, following hundreds, or thousands, of years of relative continuity.

Even as they held faith in the impenetrability of their walls, their water defences, or their serried ranks of soldiers, a different fate was preparing itself. The unexpectedness of that fate to those it engulfed should give us pause, as we consider the economic, political and market certainties and ‘truths’ that we are sometimes advised to base our future plans around.

And so this month I have sailed to Byzantium, figuratively speaking. I have entered its harbour mouth, and looked upon its calm port. Yet the doom of those who stood on its walls 100 lifetimes ago should serve as a chilling reminder of the contingency of even apparent steadfast safety.

I have sailed the seas, to be sure, and arrived – but the question of final safety is yet hanging upon the fates.

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.