Ithaka gave you the marvellous journey.

Without her you wouldn’t have set out.

She has nothing left to give you now.

Constantine P. Cavafy, Ithaka

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

Portfolio goal

My objective is to reach a portfolio of $2,585,000 by 31 July 2022. This would produce a real annual income of about $90,500 (in 2021 dollars).

This portfolio objective is based on an assumed safe withdrawal rate of 3.5 per cent.

Portfolio summary

Vanguard Lifestrategy High Growth Fund	$839,560
Vanguard Lifestrategy Growth Fund	$45,574
Vanguard Lifestrategy Balanced Fund	$82,491
Vanguard Diversified Bonds Fund	$100,344
Vanguard Australian Shares ETF (VAS)	$321,955
Vanguard International Shares ETF (VGS)	$167,542
Betashares Australia 200 ETF (A200)	$282,670
Telstra shares (TLS)	$1,876
Insurance Australia Group shares (IAG)	$6,360
NIB Holdings shares (NHF)	$7,548
Gold ETF (GOLD.ASX)	$112,037
Secured physical gold	$17,913
Plenti (P2P lending)	$3,501
Bitcoin	$514,720
Raiz app (Aggressive portfolio)	$20,647
Spaceship Voyager app (Index portfolio)	$3,293
BrickX (P2P rental real estate)	$4,546
Total portfolio value	$2,532,577 (-$210,597)

Asset allocation

Australian shares	38.4%
Global shares	22.2%
Emerging market shares	1.8%
International small companies	2.3%
Total international shares	26.3%
Total shares	64.7% (-10.3%)
Total property securities	0.2% (+0.2%)
Australian bonds	3.0%
International bonds	6.6%
Total bonds	9.6% (-5.4%)
Gold	5.1%
Bitcoin	20.3%
Gold and alternatives	25.5% (+15.5%)

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

Comments

The portfolio has fallen by over $210,000 this month, experiencing the first negative result in seven months.

This was caused by the value of Bitcoin holdings falling by over a third on a monthly basis, and even further from their highest levels in mid-April.

This dramatic fall outweighed positive movement in other elements of the portfolio. The result of this is that the portfolio has reduced by 7.7 per cent, and moved to just under the portfolio target objective. Due to the rapid way the target was achieved, this reversal was always a possibility.

Excluding the price volatility of Bitcoin, the rest of the portfolio actually grew by around $51,000. This took the total equity holdings to 84 per cent of the final equity target, up two per cent over the month.

The value of Australian equities grew by around 2.7 per cent, and the value of international shares increased by around 1.7 per cent over the month.

This month the falls in Bitcoin lifted the exposure of the portfolio to the equity market to the highest level in half a year. Despite this, the equity allocation is still below the target allocation of 75 per cent. So to address this new investments this month were split across the Australian shares ETF (VAS) and the Vanguard global shares (VGS) fund.

The bond holdings of the portfolio continue to also lag the target allocation, by an equal dollar amount as both domestic and international equities.

In the current environment of low rates, with little headroom for capital appreciation, and a potentially muted long-term outcome for rates, it is difficult to see a compelling case to prioritise any bond purchases. The fate of bond holders in real returns terms at other times of high government indebtedness should also serve as a warning, as this New York Reserve post highlights. Rather, overcoming the much larger combined gap between the actual and target equity portfolio appears more important.

The gold component of the portfolio continued its recent reversal, growing 8.6 per cent and reaching the highest value since last year.

The annual Incrementum report In Gold We Trust was released last week, and offers an unparalleled set of data and charts tracing the recent and historical performance of gold, as well as putting the case for continued exposure. The report also highlights the longer term issues facing current monetary and fiscal policy regimes in place over the last 50 years.

Governments are increasingly being urged to focus on debt serviceability, rather than debt levels, and fiscal policy has stepped into the breach as monetary policy reaches the limits of its effects. The impacts of these developments on equity markets are not as clear as they are for bond markets.

Estimating second quarter distributions: gained on the way

As the end of the financial year approaches, second quarter distributions move closer.

Each year at this time curiosity about the shape of the future payments leads to attempts to estimate the figures, and publishing these provides some record of where expectations and reality differed.

This year my focus has been on estimating the first and second quarter distributions separately, using historical data of distributions from the Vanguard funds, and – where available – the exchange traded funds.

The chart below sets out the level and composition of second quarter distributions over the past four years, which have varied between $32,000 and $47,000, and an initial forecast for this year.

Second quarter distributions are typically dominated by the single largest distribution source, the Vanguard High Growth retail fund (blue). Compared to this, other payments from ETFs such as A200 and VAS are relatively modest.

The projected distribution for second quarter this year is $41,900.

This estimate is based on the median distributions of the ETFs holdings, and an average of the last five years in the case of the three major Vanguard retail funds. This latter approach is taken to avoid significant under-estimation, as the Vanguard Growth, High Growth and Balanced retail funds have each exhibited compounding levels of June distributions over the last decade.

Despite the conservative estimation approach taken, there is likely to be significant variation and inexactitude around the figure. As can be seen, Vanguard High Growth distributions alone have varied by more than $12,000 between years, and Vanguard’s Diversified Bond fund has no particular pattern to year on year distributions, and these can also vary significantly.

No adjustment has been made for the potential impact of COVID-19 on distributions – this is an unknown, particularly for this quarter featuring some recovery and expansion of vaccination availability. Dividends were reduced across 2020 in many sectors, with a growth in precautionary holdings from major corporates. In some cases, this has eased.

Together with the record first quarter distributions of $10,000, this forecast suggests total distributions of just under $52,000 for the half-year to June 30, which would be a record if achieved.

If the forecast is achieved, it would also mean total distributions over full financial year 2020-21 of around $95,000. This too would be a record value. With such uncertainties and approximations around the forecast, however, only time will tell.

Trends in average distributions and expenses

The three year average of both distributions and credit card expenses continued to track lower this month.

Average card expenditure is still falling, and a steady decline in average distributions continues caused by higher past distributions falling out of the moving window of the sample.

Over time, both credit card expenditure and distributions appear to be converging towards $5,000 per month.

Looking back the longer data record of distributions and credit expenses since 2013 gives a sense of the importance of compounding distributions to accelerating the journey, and offsetting regular expenses.

Over this time – around 7.5 years – credit card expenses have totalled $510,000, or around $68,000 per year.

By contrast, distributions of around $380,000 have been received, meaning that over this extended period 75 per cent of all credit card transactions have been met by portfolio distributions. This flow of distributions equates to a weekly portfolio income of $1018, or a working wage of nearly $27 per hour.

Progress

Measure	Portfolio	All Assets
Portfolio objective – $2,585,000 (or $90,500 pa)	98.0%	127.0%
Total average expenses (2013-) – $85,200 pa	104.0%	134.9%

Summary

In the past seven months, the portfolio has moved – in absolute terms – more than a million dollars. To put this in perspective, this is larger than the entire value of portfolio just four years ago, as this record began.

So the journey is changing as it progresses, bringing different vistas, different challenges and possibilities.

Dropping below the portfolio target does not feel as significant an event as might be supposed. Rather, it presents as just another part of a longer discovery of how the closing of the journey is to be experienced. A further push, or fall might lead to the line being crossed again, or falling back – with the time for reaching the goal conceivably receding into next year or even beyond.

At the moment, I can view either of these outcomes with some equanimity.

Being 98 per cent to goal simply does not feel that distinct from the experience last month of being 6 per cent above it. Yet this situation, too, may change, and a future self could have different views. So the same ingrained habits of carefully watching costs, regular investment, and watching the plan unfold continue.

In part, the distractions of the world make this easier. It is true that the long-term is by definition a series of shorter-term periods laid end to end, as this wise piece from Morgan Housel notes. Events move by, whether it is wide US budget deficits, potentially resurgent or ‘transitional’ inflationary forces, or Federal budgets.

This month a further distraction has been continuing to follow dialogues and debates in the Bitcoin realm. This has included others more recent transition from skeptic to holder, to more foundational philosophical pieces such as this Stoneridge annual letter to shareholders, this look at its current uses in developing nations, and this multi-part dialogue from author Jeff Booth and Robert Breedlove.

Time spent learning is rarely wasted, but it also currently seems like the best use of this time. One of the objects of achieving financial independence is to provide scope for more travel and learning – yet at not time in my life has travel been so restricted or impractical.

As winter approaches, the right approach is likely one of patience, taking advantage of the world of learning connected to my phone and laptop, and looking ahead.

So while Ithaca may be delayed, the journey and building up risk stores of knowledge are not. The dramatic volatility of the past months will be part of record and experience, however the voyage ends, and has been interesting for its own sake.

That this particular experience and path could not have been guessed at in the beginning is in some ways the entire point of the journey. Returning home, crossing the threshold of the harbor for the final decisive time, means more for the changes in perspective gathered since leaving. In this way, it truly always was home that has given the marvellous journey.