But here, upon this bank and shoal of time,

We’d jump the life to come.

Shakespeare, Macbeth, Act I, Scene VII

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

Portfolio goal

My objective is to achieve and maintain a portfolio of at least $2,750,000 by 31 December 2024 or earlier. This should be capable of producing an annual income from total portfolio returns of about $94,800 (in 2023 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 $2,200,000.

Portfolio summary

Vanguard Lifestrategy High Growth Fund	$754,730
Vanguard Lifestrategy Growth Fund	$39,986
Vanguard Lifestrategy Balanced Fund	$72,039
Vanguard Diversified Bonds Fund	$88,419
Vanguard Australian Shares ETF (VAS)	$374,607
Vanguard International Shares ETF (VGS)	$549,229
Betashares Australia 200 ETF (A200)	$283,322
Telstra shares (TLS)	$2,329
Insurance Australia Group shares (IAG)	$6,309
NIB Holdings shares (NHF)	$9,264
Gold ETF (GOLD.ASX)	$135,108
Secured physical gold	$21,456
Bitcoin	$490,427
Raiz app (Aggressive portfolio)	$20,965
Spaceship Voyager app (Index portfolio)	$3,433
BrickX (P2P rental real estate)	$4,482
Total portfolio value	$2,856,015 (+$92,724)

Asset allocation

Australian shares	34.8%
Global shares	31.7%
Emerging market shares	1.4%
International small companies	1.8%
Total international shares	34.9%
Total shares	69.7% (-10.3%)
Total property securities	0.2% (+0.2%)
Australian bonds	2.3%
International bonds	5.2%
Total bonds	7.5% (+2.5%)
Gold	5.5%
Bitcoin	17.2%
Gold and alternatives	22.7% (+7.7%)

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

Comments

This month the financial independence portfolio grew by 3.4 per cent, or around $93,000.

This moves the portfolio to over $100,000 ahead of the final goal, which has been reached previously, but only recently regained.

As can be seen below, in a brief period across late 2021, through to March 2022, the portfolio did reach higher levels than currently, buoyed by a higher price for Bitcoin at that time.

The progress this month has arisen from two main sources – an expansion in overall equity values flowing from a greater focus on recorded inflation declining from recent peaks, and a recovering price of Bitcoin.

The equity component of the portfolio grew by around 2.2 per cent over the month, with international shares increasing just over 3 per cent, compared to slightly lower growth of around 2 per cent for Australian equities.

Bitcoin advanced around 5 per cent over the same period.

The other strongly performing asset over the past month has been gold securities, which gained 1.7 per cent.

Rather surprisingly, since first being purchased, the gold ETF securities in the portfolio have been the strongest traditional asset in performance terms, with an average return of 14.8 per cent, compared to around 10 per cent average returns for equity exchange traded funds over the same period.

In part, this strong performance seems to have accelerated with historically large central bank purchases of physical gold in the past year or so, perhaps denoting a moving away from the traditional Keynesian sobriquet of gold as an irrelevant or ‘barbarous relic’, as discussed in this recent IMF paper.

Final distributions from the first quarter were received and reinvested this month, totalling around $6,300. A quarter of these were set aside for meeting future tax liabilities collected through a quarterly PAYG tax installment process.

In combination, these and other regular investments and market movements led to the achievement of the medium-term goal adopted in 2021 of an equal portfolio allocation between Australian and global equities.

This has meant new investments over the past 14 months being exclusively made in Vanguard’s global shares ETF (VGS), and being weighted generally toward global shares for more than two years.

The changing nature of the journey to the target equity portfolio

Last month I reflected on the seeming static nature of the portfolio over the past two years. This is mostly a function of looking only at the ‘headline’ portfolio level, and ignoring changes in its component parts.

In other ways, the portfolio is advancing in a sustained and important manner.

One measure is especially useful to show this. The graph below examines this different metric from that usually tracked.

It tracks the one-off percentage of growth in just the equity holdings in the portfolio which would be required to deliver the equity holdings in the portfolio to its target of $2.2 million.

That is, it shows changes in the height of the ‘bar’ that would be needed to be cleared through equity portfolio growth, for the final equity target to be met.

So, for example, given the equity target is $2.2 million, an equity holding of $1.1 million at any given time would require a 100% growth in equity values to achieve the target – clearly a tall order.

The graph below illustrates changes in this metric from January 2019 to the present.

What the graph shows – keeping the current equity target as a constant over the period – is that progress has been particularly rapid since the market lows of March 2020, associated with the pandemic.

The required growth to deliver the final equity target has fallen from a quite improbable level – over 100 per cent, through 20 per cent to around 10.5 per cent. There is a relatively consistent falling of the ‘bar’ required over time. This is due to both new investments and recent growth in the equity portfolio.

While equity markets rarely deliver ‘average’ annual returns, it is worth noting that on a historically averaged basis a capital appreciation in shares of at least 10.5 per cent over a year is not that unusual.

In short, the equity portfolio has gone from needing to experience historically unusual capital growth, to appreciating just somewhat around its traditional long-term average to result in the equity target being met. All with no further action from myself either implied or required.

Clearly, at any time, downward market movements could change this situation, or delay the meeting of even this lower ‘required performance’ bar. Even so, the above graph illustrates that over time, this would likely be a temporary reversal, rather than changing the overall trend.

Trends in average distributions and expenses

This month average total expenses (red line) are rising slightly to just above $6,300, while the moving average of distributions (the blue line) has also continued to increase, to be close to $8,800.

The chart above measures distributions (noting that at times these distributions have a capital payout component) against an estimate of total expenses. The total expenses line is based on actual credit card spending, with the addition of a fixed allowance for annual fixed expenses.

This month saw the formal achievement of an arbitrary but arresting metric, discussed last month.

Since November 2013, credit card expenses totalling $632,000 have been accrued. This month, for the first time, the sum of distributions since that same time has met and exceeded that level.

On a trend basis distributions continue to rise, meaning a current average gap of around $2,400 between distributions and expenses.

Progress

Measure	Portfolio	All Assets
Portfolio objective – $2,750,000 (or $94,800 pa)	104%	135%
Total average expenses (2013-present) – $84,900 pa	116%	150%
Target equity holding in portfolio – $2,200,000	90%	N/A

Summary

Over the past few weeks and months, it feels as if a series of important psychological, or perhaps more accurately gravitational, points have been reached.

On the day of publication of this update, I expect the total equity portfolio to achieve a new milestone – reaching $2.0 million for the first time. This compares to the passing of a total portfolio value of $1.0 million around 6 years ago.

Looking at the broadest equity portfolio definition – so including equities held within superannuation holdings – reveals an extended equity portfolio figure of $2.7 million, almost equal to the entire FI portfolio goal.

The reaching of the desired equal allocation between domestic and foreign equity holdings feels like another completed milestone, now requiring just regular monitoring to maintain through time. Portfolio distributions covering the entirety of credit card spending since November 2013 noted above is yet another.

Winston Churchill once remarked that we shape our buildings, and afterwards they shape us. Something similar occurs in our finances and investments. Increasingly, the financial indepence investment portfolio assumes something of the character of a welling lake, slowly pooling and accumulating at the top of a towering cliff.

For the moment, only a modest visible stream flows over.

Yet, as it pools there above out of sight, a vast potential energy is imperceptibly collecting. Its depth and energy is building, such that it will find an outlet: it will impact and shape on days to come. By physical laws alone, it is most unlikely to just dissipate without shaping anything in the course of its future flow.

In a sense, the stored energy in this pool has been accumulating since 2000 or so, by infinitely small degrees at first, but more quickly through the years.

As a crude measure, for example, the equity holdings were only 5 per cent of the final target in early 2008, and just under 30 per cent nine years later in 2017, when this record began.

Yet now that same lake is at 90 per cent of its final size. There is a sense of an inflection point, a final irrevocable push of forces that are likely to be beyond any day-to-day management. In part, the next significant demonstration of this may occur at the end of June, when on current projections based on past averages, around $55,000 of further portfolio distributions could plausibly accrue.

Of course, reverses may come also, indeed heavy reverses. This month I have finished Antony Beevor’s long history of the Russian revolution, which is the starkest reminder of what unknowable fate can visit on the outward stability of ordinary people’s lives, and indeed the lives of nations. History can catch us all unawares.

This month SBS ran a series on Seeking FIRE, and I have also been consuming Ramit Sethi’s Netflix documentary series on achieving a ‘rich life’. The documentary on Bitcoin mining, Follow the Money, by the host of the What Bitcoin Did podcast was also an enjoyable and refreshingly open piece on the physical realities of the mining process and its impacts across the American heartland.

I have been reading War and Gold, written by the erstwhile UK Chancellor of the Exchequer Kwasi Kwarteng. This is a shortened history of monetary and financial market developments over the past two centuries, focusing on the role of gold and public finance. Finally, this NBER paper on personality traits and investing has been an intriguing insight into the role of traits and disposition in asset allocation decisions.

The NBER paper focuses on a one-way analysis on the impact of personality on choices, but does not examine the reverse – the potential impact of past choices on the evolution of personal traits.

Yet to return to the analogy of the welling lake, however, the presence of this potential energy, much like any large body of water in real life, exerts a power of its own. It alters senses and perceptions in subtle ways. Or to put it another way, the building itself starts to shape our views.

And so, on this bank and shoal of time – like the unhappy Macbeth – the progress of the past and the life to come beckons, inviting a jump into uncertainty and change.

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.