Gold is money. Everything else is credit.

J. P. Morgan

This is my ninety-eighth 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 $3,000,000. This should be capable of producing an annual income from total portfolio returns of about $103,500 (in 2025 dollars).

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

A secondary focus will be maintaining the minimum equity target of $2,400,000.

Portfolio summary

Vanguard Lifestrategy High Growth Fund	$912,391
Vanguard Lifestrategy Growth Fund	$46,447
Vanguard Lifestrategy Balanced Fund	$81,122
Vanguard Diversified Bonds Fund	$92,183
Vanguard Australian Shares ETF (VAS)	$547,767
Vanguard International Shares ETF (VGS)	$814,942
Betashares Australia 200 ETF (A200)	$317,233
Telstra shares (TLS)	$2,201
Insurance Australia Group shares (IAG)	$10,009
NIB Holdings shares (NHF)	$8,034
Gold ETF (GOLD.ASX)	$205,966
Secured physical gold	$32,412
Bitcoin	$1,437,541
Raiz app (Aggressive portfolio)	$26,147
Spaceship Voyager app (Index portfolio)	$4,495
BrickX (P2P rental real estate)	$4,686
Plenti Capital Note and Flex Market	$89,048
Total portfolio value	$4,632,624 (-$489,042)

Asset allocation

Australian shares	27.4%
Global shares	26.8%
Emerging market shares	1.1%
International small companies	1.4%
Total international shares	29.3%
Total shares	56.6% (-23.4%)
Total property securities	0.1% (+0.1%)
Australian bonds	3.5%
International bonds	3.6%
Total bonds	7.1% (+2.1%)
Gold	5.1%
Bitcoin	31.0%
Gold and alternatives	36.2% (+21.2%)

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

Comments

Over the course of this month the portfolio experienced losses of around $490,000, contracting by 9.5 per cent in headline terms.

This movement is the single largest monthly loss ever encountered on the journey. It comes, however, after a period of sustained growth, which expanded the portfolio over $1.2 million over the prior five months.

A major part of the movement this month is attributable to a decline in the price of Bitcoin, which fell approximately 23 per cent from the end of last month.

This is significant in absolute dollar terms, due to past growth the value of the holdings, but quite unremarkable in percentage terms in its record in the portfolio. As an example, monthly losses of the comparable or greater size occur have occurred five times in the past five years.

Equity markets also experienced hesitancy and some pullbacks amidst geopolitical uncertainty, continuing inflation concerns, and market valuations appearing high.

This resulted in falls of around 4 per cent in Australian equities, and slightly smaller losses – of 2.3 per -cent in the value of global equity holdings.

By contrast, and as will be discussed in detail below, gold prices continued to increase, leading to gains of around 2.5 per cent on gold assets.

Through the month, the bond portfolio grew slightly, appreciating 1 per cent.

Gold in the portfolio: All that glitters?

Gold has been part of the financial independence portfolio for around 16 years, since initial purchases of a gold ETF in May 2009, as financial markets staggered and began recovering from the Global Financial Crisis.

In the portfolio it plays the role of a diversified, non-correlated asset, as well as a hedge against disorderly markets, currency devaluations, and geopolitical risks.

The recent market performance of gold has somewhat belied its intended role as a niche, low profile, steady portfolio component with the potential to lightly moderate negative movements in an equity dominated portfolio (pdf).

According to the portfolio plan, no prospect of a real return on gold is assumed, a position informed by the unspectacular returns performance of gold compared to other assets over multi-decade periods.

The intended role of gold in my financial independence portfolio, together with Bitcoin, was briefly reviewed around five years ago here. When that was written, gold represented about 6.4 per cent of the portfolio. It current represents 5.1 per cent.

This update looks more closely at the record of gold in the portfolio, asking the question: what, if anything, does the performance of gold over the past few years say about its role?

Gold: Good in its place, or living and brave?

It is uncommon to find gold discussed in the financial independence sphere, both in Australia and to some degree internationally.

Discussions about holding gold tend to focus on the lack of income, and its fundamental difference to other market traded asset classes. To the extent that gold has served as an inflation hedge, and provided some insurance in rare instances of market turmoil, with low or zero real returns, this treatment has appeared fully justified.

Yet, something has quietly happened over the last few years which should at least give pause for thought, and lead to a questioning of comfortable past assumptions.

In the context of the financial independence portfolio, this is that gold has registered an unusually strong period of performance. This performance is all the more surprising, coinciding as it has with well-performing equity markets.

As an example of this, gold holdings in the portfolio have:

• Outperformed all listed equity ETFs purchased and held since mid-2017, or around 7.5 years
• Produced higher returns than any other portfolio asset outside of Bitcoin over the the past 12 and 24 months
• Almost equalled the return of global shares over the past 5 years (averaging 16 to 20 per cent per annum respectively)
• Provided a capital return of 47 per cent over the last year alone

It is worth emphasising the underlying, and surprising, truth these points highlight.

This is that based on experienced returns over most periods over the past 1-7 years, the portfolio would have performed more strongly, and ended at a higher level, if the portfolio had entirely relied on gold in preference to equities or bonds.

The likely causes of these strong returns are many and varied, and discussed in passing in each monthly portfolio update. They include monetary base growth, currency devaluation, inflationary expectations, central bank purchasing of physical gold holdings following the imposition of sanctions around Russian central bank reserve holdings in the United States and Europe, and broader increased geopolitical uncertainty.

In short, what appears to be happening is a re-emergence of gold as a fundamental, recognised store of value globally. This represents a reversing a generation long trend best symbolised by a gradual sale of many central bank gold reserve holdings across around 20 years from the 1990s, and their replacement by other financial instruments, typically government bonds.

Evolution of gold holdings in the portfolio: from initial purchases to current day

The first purchases of gold in the portfolio occurred in May 2009 in the form of the listed Gold ETF, with irregular substantial purchases made through the following two years, to April 2011.

A further set of Gold ETF purchases were made from July 2014, through to a final large purchase in January 2015. Smaller increments were also purchased as part of a reinvestment of portfolio distributions in January 2016.

In total, through this six year a half year period, around $63,000 was invested in Gold ETFs, in nominal terms.

From September 2016 to October 2018, some gold holding purchases were made through the secured Goldmoney facility, totalling just over $12,000 in historical cost terms. This was a less significant purchasing program, meaning that almost half of current gold holdings were effectively purchased before 2012.

With no further investments, these collective gold holdings have grown in value over time to represent around $238,000 in 2025 dollars.

The long-term path of gold within the portfolio can be traced by looking at its relative allocation on a biannual basis from the first purchases in the middle of 2009. The chart below sets out the size of the gold position in the portfolio at 1 January and 1 July each year, up to the beginning of this year.

What can be seen from this is a general trend decline over the period, from around 2010-2012 down to around 4.5 per cent more recently. This is to be expected, given no investments have been made since October 2018, and certainly no substantive lump sum investments since mid-2015.

In some respects, it is important to understand what else might be going on in the portfolio to properly interpret this graph.

In particular, the substantial growth in the value of Bitcoin holdings, from an insignificant amount in 2017 to around a third of the portfolio value at the end of 2024, impacts the measurement of percentage allocation to gold, as much as purchases of, or changes in the valuation of, gold.

This effect can be seen by adjusting the lense, and measuring gold as a percentage of the financial portfolio (i.e. removing Bitcoin), as in the chart below.

Another, conceptually similar way to view the extend of exposure to gold through time, compared to the main anticipated wealth generating component of the portfolio, is to look at the ratio between equity holdings in dollar terms, and gold holdings.

To some degree, due to the equity focused nature of the portfolio, this clearly represents a rough inverse of the previous graph. It does, however, more directly illustrates the answer to the question: for each dollar of gold in the portfolio, how many dollars of equity holdings were in place?

What this shows is that with the ongoing purchases of equities from 2016 to the beginning of 2024, there has been fairly consistent growth in the ratio of equity assets to gold assets, interrupted only briefly by events in 2020 and some equity losses across 2022.

Since the end of 2024 gold has continued its growth as a proportion of financial assets. The chart below illustrates a shorter period just over the past six years, using month end data. This period contains no purchases, and so all variations are a function of movements in asset prices.

The significant features of this chart are a short-lived spike in 2020, and then a relatively stable period of a 6 to 7 per cent allocation to gold from 2021 to 2023, before a sustained lift across 2024 to above 7 per cent now, a level not seen for around 4 years.

Golden fetters? Implications for the financial independence portfolio

Management of the gold portfolio since 2018 might best be characterised as a process of benign neglect.

The portfolio plan has since 2019 applied a notional target of a 7.5 per cent allocation to gold, and since that time the allocation has averaged at about 5.6 per cent, or around 6.8 per cent if the volatile Bitcoin holdings are excluded and the estimate is based only on the traditional financial portfolio.

That is, if anything, the portfolio plan would have called for more gold purchasing over recent years, and would have also resulted in a gold allocation now that would sit above the target.

It is impossible to forecast what may happen from here.

During the 1970s, an exception range of factors drove an annualised return on gold of between 30 to 35 per cent, as inflation griped major developed countries and the Bretton Woods system effectively ended through the ‘Nixon shock’.

The gold position, while marginally increasing recently, is still a low proportion of the overall portfolio, on any terms.

A replication of the 1970s record would lead to gold holdings being valued at around $5.7 million, from the current $238,000. The probability of this would appear to be vanishingly small, and it is important to recognise that the shock that produced this would be likely to have highly adverse consequences for most of the portfolio, and not be in a future in which one desired to be, given any choice.

A hypothetical doubling of the price of gold holdings is more plausible.

This would take the real price of gold just beyond the 1980 peak. Yet in portfolio terms the impact would be relatively modest. This would take the gold allocation to 10 per cent of the full portfolio, or around 14 per cent of the financial portfolio.

This analysis is suggestive of several points.

• First, gold has not placed a ‘drag’ on the overall portfolio or the progress to financial independence, as might be suggested by either long-term return expectations or by common narratives around gold being a low return, fear-based or unproductive investment. Measured correctly, on a total return basis and considering its diversification benefits, it has delivered strong risk-adjusted returns, higher across a substantial set of periods than many asset classes traditionally forming a staple of financial independence portfolios.

• Second, that even while the costs of holding gold can be substantial, averaging around 0.4 per cent per year, the capital returns have been sufficient to offset this, and result in a stable allocation to gold to be maintained, even as regular significant investments in equities occurred.

• Third, the portfolio is less, in relative terms, exposed to gold than at many points in the past. That is, despite recent increases in the value of holdings, as a proportion of the portfolio it still sits at or close to its historic lows since 2009, and when only financial assets are considered, gold exposure is still lower than it was through 2020.

• Fourth, a policy of more active targeting of an allocation (initially around 10 per cent, then shifted to 7.5 per cent from 2019) would have realised substantial costs, tax liabilities, and, more recently, have led to an over-allocation requiring selling down.

Taken together, these points do not suggest an obvious need to reassess the current level of holdings.

Rather, the exceptional record of gold over the past few years suggests a need to entertain at least new possibilities.

It is possible that what is being witnessed is a remonetization of gold, at least partially, returning to global financial situation to a position closer to that prevailing to the turbulent decades from 1914 to 1980, than the period from 1981 to 2020.

The geopolitical developments underway have the potential to accelerate this process, but this does not necessarily mean one definitive pathway for gold as an asset.

In fact, the higher the gold price rises, the more conflicting and countervailing incentives different governments may have to seek remedies to this – a source itself of potential future macro-economic and market instability. This itself, may be a further reason for some to place their faith in gold, rather than credit.

Trends in average distributions and expenses

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) has continued to rise. These expenses currently are around $8,500 per month.

The three year moving average of distributions (the blue line) has continued its slight recovery in the past month, to reach around $7,500.

This leaves the deficit between expenses and average distributions at just under $1,000.

This is a marginal improvement over the outcomes last month, but it remains to be seen whether the broad trend of a growing gap between expenses and distributions since April 2024 will be consistently reversed.

Progress

Measure	Progress
Portfolio objective – $3,000,000	154%
Financial portfolio income as % of total average expenses (3 yr average) – $99,600	111%
Target equity holding in portfolio – $2,400,000	109%
Financial portfolio income as % of target income – $103,500 pa	107%

Summary

This month most attention has not been on the financial independence portfolio or its movements. There have been other aspects of life and events to fill thoughts and time.

In particular, while in dollar terms the portfolio losses have been substantial, in terms of the overall portfolio size, fluctuations of this kind in percentage terms are relatively commonplace. Assessed in terms of the financial portfolio only, there has been only a 2.1 per cent fall, while the higher headline portfolio loss is greater due to Bitcoin losses, at 9.5 per cent.

A slightly larger percentage fall occurred in June 2022, as markets faced headwinds from inflation and higher bond yields, but at the time, this led to losses of just over $280,000, rather than $490,000.

The review of gold and Bitcoin, as well as their recent performance, over the past two months has reinforced a continued source of interest both on the journey to the target, and afterward: the practicality of building an investment portfolio which offers a sustained standard of living measured in real after-inflation, and after-tax terms.

Past discussions have focused on the non-trivial challenge of this goal, in a world of higher inflation, in which nominal gains in income can disguise real declines in after-tax purchasing power.

The solution to this dilemma adopted to date in this journey is the ongoing purchase of diversified equity holdings of Australian and global firms, on the basis that these are scarce, and also that collectively over the longer-term, on average, firms will have the capacity to re-price their products in nominal dollars, and continue to produce adequate real profits to enable their equity value and dividends to be sustained over future years.

An interesting new phase has now begun, in which the portfolio and continued work (even when it is reduced in coming months) continues to produce additional cash, which is not strictly needed for the journey. Of course, this is a good ‘problem’ to have. This has been accumulating in a high interest savings account, with the intent of being invested in equity markets should substantial falls take the equity portfolio below its target of $2.4 million.

Yet this small element outside of the portfolio is also fully exposed to the cruel and additive mathematics of monetary base expansion, inflation and taxation. It earns a nominal 5.25 per cent inflation, or around 3.0 per cent if current inflation is taken into account, before taxation removes another 1.0-1.5 per cent. If the long-term growth of the monetary supply is considered as alternative measure, it already incurs a immediate loss of 1.0-2.0 per cent, before tax liabilities are considered.

In other words, holding cash for no definite purpose is a potentially expensive activity.

It may be that a future exploration is warranted, from beyond the safe shores of locating all excess funds only in constantly eroding cash instruments, to other alternatives.

The inherent challenge in this would be managing or accepting the risks of those assets themselves having a correlation to the very portfolio they are the product of, and having confidence that as a whole the excess funds had appropriate risk and liquidity characteristics.

These are choices to carefully consider, as the world seems to turn anxiously on its axis, and people and governments around the world reach in turn for credit-based and real assets, each according to their different needs and preferences.

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.