Even victors are by victories undone.

John Dryden

This is my ninety-fourth 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	$878,763
Vanguard Lifestrategy Growth Fund	$45,157
Vanguard Lifestrategy Balanced Fund	$79,693
Vanguard Diversified Bonds Fund	$92,573
Vanguard Australian Shares ETF (VAS)	$561,092
Vanguard International Shares ETF (VGS)	$724,348
Betashares Australia 200 ETF (A200)	$324,802
Telstra shares (TLS)	$2,062
Insurance Australia Group shares (IAG)	$9,325
NIB Holdings shares (NHF)	$7,152
Gold ETF (GOLD.ASX)	$171,898
Secured physical gold	$27,029
Bitcoin	$1,034,796
Raiz app (Aggressive portfolio)	$24,876
Spaceship Voyager app (Index portfolio)	$4,044
BrickX (P2P rental real estate)	$4,706
Plenti Capital Notes Market Loan	$89,000
Total portfolio value	$4,081,316 (+$162,627)

Asset allocation

Australian shares	31.2%
Global shares	27.8%
Emerging market shares	1.2%
International small companies	1.5%
Total international shares	30.5%
Total shares	61.7.% (-18.3%)
Total property securities	0.1% (+0.1%)
Australian bonds	3.9%
International bonds	4.0%
Total bonds	8.0% (+3.0%)
Gold	4.9%
Bitcoin	25.4%
Gold and alternatives	30.2% (+14.7%)

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

Comments

This month the portfolio has expanded to its highest ever level, growing to $4.08 million through an increase in value of around $162,000.

Most of this increase was an expansion in the value of traditional financial holdings, while the remainder resulted from a growth in the value of Bitcoin.

This means both the overall portfolio, and even the more narrowly defined ‘financial portfolio’ which excludes Bitcoin, remain well above the portfolio goal.

Australian equities grew by 3.0 per cent over the month, while global equities increased in value by around 0.3 per cent. Bonds also continued to recover, appreciating around 0.9 per cent over the last month.

Gold holdings performed more strongly than equities or bonds over the month, continuing an extremely strong performance of recent years. This is somewhat surprising, belying its intended role as a low variance stabilising element of the portfolio.

Gold has been the best performing financial component of the portfolio in the last year, the last two years, and has also outperformed the equity ETFs I have purchased since 2017. Over the past five years, only the international equities element of the financial portfolio has narrowly outperformed the gold holdings (16.4 per cent versus 14 per cent).

A likely factor in this change has been the increased purchasing of gold as a central bank reserve asset, and a relative decline in the willingness of a range of countries to hold US Treasuries since the sanctioning of Russian central bank US Treasury reserves in recent years.

Another significant contributor is the continued growth in the money supply, which has averaged about 5-10 per cent since 2009.

This month some excess cash was invested in Plenti Capital Notes, noting that this is a higher risk product with the return of invested capital at some appreciable risk. The regular income from this investment is being added to a contingent cash reserve, outside of the listed portfolio.

Trends in taxation-based measures of portfolio income

The month my tax returns were finalised and submitted for the last financial year.

As noted in previous years, this provides an alternative view of the course towards financial independence over the past two decades.

This year there was a growth in the measure of ‘pre-tax’ portfolio income, to a record level of around $103,000.

This measure counts income from partnerships and trusts, interest and dividends. It also includes the full value of franking credits distributed. Capital gains are excluded.

Investment income grew by around 24 per cent over the previous year, and was about 10 per cent higher than the previous high.

Looking at the components of the portfolio investment income, trends here mainly follow that of previous years, with the exception of the re-emergence of interest rate income in the past year, mainly associated with the Plenti Capital Note investments and other cash reserve holdings.

Taking a wider perspective on the overall financial benefit produced by investments made indicates the continuing capacity of these investments to produce income, capital gains and franking credit benefits of between around $100,000-120,000 over the past four years.

This is likely a mild overstatement of the portfolio’s overall income generation potential as some of the net capital gains may be generated by the structure and payout characteristics of the Vanguard retail funds.

This year I have included less detailed analysis than the equivalent entry last year, due to the trends being slower to change.

There are fewer insights to be gleaned from the data, especially as the portfolio is now typically only expanding or contracting with the ebbs and flows of markets, rather than being consciously shaped by new investments in equity ETFs, for example.

Projected third quarter distributions: potential for lower than average distributions

The end of September also sees the finalisation of third quarter distributions, which are typically paid out across early to mid October.

The movement of the Vanguard retail funds to new holding structures featuring quarterly payouts have increased the relative importance of third quarter distributions. They can be typically expected to be the second largest of the four sets of distributions through a year.

This year there appears an early trend – from estimated distributions released by the equity ETFs (A200, VGS and VAS) – of lower payments than might be expected from past historical performance.

This month I expect total third quarter distributions to reach around $17,600 based on current estimates of payouts for the ETFs, and historical averages from other portfolio components.

In this phase, when distributions are paid out through October, a proportion will be set aside to meet future tax liabilities, whilst the remainder is likely to be placed in a contingent cash reserve.

Trends in average distributions and expenses

This month has seen a small change to the recent trend of a widening gap between total expenses and the moving average of distributions.

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 notional monthly allowance for other fixed expenses.

This month average total expenses (red line) continued to rise, albeit at a slower pace. These expenses continue to be around $7,700 per month.

The three year moving average of distributions (the blue line) has flattened and started to slightly recover in the past month, compared to quite consistent declines since early 2023. It has risen to around $7,150.

This has led to a marginal reduction in the deficit between distributions and total expenses – of about $540 per month, compared to a surplus of around $2,000 per month in early 2023.

The driver of this slight alteration is the dropping out of the three-year trailing average ‘sample’ of some previous lower set of realised distributions in the second half of 2021, and their replacement by slightly higher estimated average distributions for the remainder of this year.

While distributions may not be meeting current total expenses, when summed up, distributions since 2013 have collectively met over 99 per cent of all credit card expenses in that same period.

Progress

Measure	Progress
Portfolio objective – $2,870,000	142%
Financial portfolio income as % of total average expenses (2013-present) – $88,800	118%
Target equity holding in portfolio – $2,300,000	109%
Financial portfolio income as % of target income – $99,000 pa	106%

Summary

The portfolio has strongly recovered from weakness last month to hit a higher level than experienced before. It has done so without any additional investments in equities, and the change in portfolio level each month is now just largely a product of the evolution of market valuations.

At this stage, I have found my interest in analysing components of the portfolio and their performance, and even investment theory itself, has receded a little (this paper is an exception). It is possible this is a temporary byproduct of some additional pressures of day-to-day work. Yet, it is equally possible it is just a change that will endure – a marker of the passage from the stage of accumulation to that of maintenance or management.

To some extent, this creates a slight risk of missing something which ordinarily would have garnered more attention. The stunning performance of the gold component of the portfolio is an example of this. The partial ‘re-monetisation’ of gold would be a secular financial story of immense historical significance, a change in regime potentially as important as any since the ‘Nixon shock’ of August 1971 and its effects.

A conscious design principle of the portfolio has been to seek to make it diversified, and able to adapt and thrive in a variety of future scenarios or ‘regime’ changes.

Of course, building a portfolio which is able to prosper or maintain real purchasing power across all futures is impossible, a task of Icarian arrogance or hubris. For the moment, a spreading of investments across sectors and asset types – including cash outside the portfolio – is the best that can be done.

I wrote five months ago of feeling like I was entering a liminal space, a place between alternative destinations, and this has not changed. At some point, this will end, most likely across the next four months or so – and I will have arrived at the starting point for a slightly different journey. One of deciding ‘what next?’.

The typical and sound advice is, of course, to think about this now, and plan for it. And to some extent this is occurring in quieter moments of reflection. On the other hand, other good advice is: once a change has taken place and one has more free time, to take time to breathe and decompress. Humans are reliably poor at imagining their future psychological states in advance of events.

Looking back at this record earlier today, I realised that a wholly unintended part of its benefit was the trigger or discipline it provided to optimise areas of the portfolio or daily financial life in turn, and be able to mark these small steps forward. This included movement to ETFs, or simple steps such as using a micro-investing app to invest incremental savings from daily choices.

At some point – once the broadly correct choices have been made – and time has compounded their effect, there is simply less to do and pursue, in terms of optimisations. Perhaps that point has been reached. By this mechanism then, the traditional focus of this record may have undone itself by such past small victories.

Note for readers

Over the last few months, there has been a noticeable degradation in the useability of my standard blogging interface. As an alternative, and because I am not interested in becoming a coder, plug-in or website management expert, I have created a rough and ready backup Substack and imported past posts. The formatting of past posts may not be as tidy as here, but should the blog ever seem to ‘disappear’ or cease, it will likely just be a signal that I have switched entirely to Substack and started posting there.

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.