The pursuit, even of the best things, ought to be calm and tranquil.

Cicero

This is my fifteenth portfolio update. I complete this update monthly to check my progress against my goals.

Portfolio goals

My current objectives are to reach a portfolio of:

• $1 476 000 by 31 December 2018. This should produce a real income of about $58 000 (Objective #1).
• $2 041 000 by 31 July 2023, to produce a passive income equivalent to $80 000 in 2017 dollars (Objective #2)

Both of these are based on a real return of 3.92%, or a nominal return of 7.17%

Portfolio summary

• Vanguard Lifestrategy High Growth – $704 616
• Vanguard Lifestrategy Growth  – $42 310
• Vanguard Lifestrategy Balanced – $74 994
• Vanguard Diversified Bonds – $102 353
• Vanguard ETF Australia Shares (VAS) – $76 562
• Telstra shares – $4 652
• Insurance Australia Group shares – $20 358
• NIB Holdings – $8 436
• Gold ETF (GOLD.ASX)  – $77 905
• Secured physical gold – $10 684
• Ratesetter (P2P lending) – $48 179
• Bitcoin – $154 110
• Acorns app (Aggressive portfolio) – $9 895
• BrickX (P2P rental real estate) – $4 370

Total value: $1 339 424 (+$23 490)

Asset allocation

• Australian shares –  32 %
• International shares – 18%
• Emerging markets shares – 2%
• International small companies – 3%
• Total shares – 55.4% (5.6% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.2% (1.2% over)
• Australian bonds – 10%
• International bonds – 9%
• Total bonds – 19.6% (0.6% over)
• Cash – 1.3%
• Gold – 6.6%
• Bitcoin – 11.5%
• Gold and alternatives – 18.1% (3.1% over)

Comments

This month my attention has been focused on the small and welcome breakout of media exposure to the Australian FI movement, including Pat the Shuffler’s ABC piece, Aussie Firebug’s followup interview, and a broader piece in Fairfax on the movement as a whole.

Another activity carried over from last month has been continuing to optimise my insurance coverage. Previously, I had faithfully paid my home contents insurance each year, resolving to test the market next year, when I had more time. Over an hour or so one weekend recently, this finally happened. Four or five quotes later, I had a offer that saved around $180 per year, for the same coverage from a major reputable insurer. Most surprising was the reaction when I phoned my current provider, and asked them to consider the competing offers, and whether they wanted to adjust their quote. They offered a nominal discount, but indicated they could and would not match even the average of other offers. So from this month, I have switched providers and invested the difference in Acorns.

Bitcoin’s recovery from it’s falls earlier this year was the most dominant element of portfolio performance this month. A slow withdrawal from both Ratesetter and a drawdown of surplus funds in my emergency fund are providing a good cashflow to consider future quarterly investments in shares, in which I am still underweight. Other parts of the portfolio have not moved significantly.  Gold securities have risen, and most share markets have partially or fully recovered from the recent sharp falls, and much heralded return to volatility

Progress

Progress to:

• objective #1: 90.5% or $136 575 further to reach goal.
• objective #2: 65.6% or $701 575 further to reach goal.

Summary

This month has felt like a calm and steady accumulation of assets, even as market, portfolio volatility has fallen away. The growth in the overall portfolio is starting to be a increasing factor in thoughts about how I spend my time in the future, at the moment providing a cushion against uncertainty. Slowly, I am beginning to have more deliberate thoughts about how I value my time, what tradeoffs I am prepared to make for how long, and what ‘next’ could possibly look like.

My course is set for an uncharted sea

Dante

This is my fourteen portfolio update. I complete this update monthly to check my progress against my goals.

Portfolio goals

My current objectives are to reach a portfolio of:

• $1 476 000 by 31 December  2018. This should produce a real income of about $58 000 (Objective #1).
• $2 041 000 by 31 July 2023, to produce a passive income equivalent to $80 000 in 2017 dollars (Objective #2)

Both of these are based on a real return of 3.92%, or a nominal return of 7.17%

Portfolio summary

• Vanguard Lifestrategy High Growth – $697 911
• Vanguard Lifestrategy Growth  – $42 305
• Vanguard Lifestrategy Balanced – $76 331
• Vanguard Diversified Bonds – $102 436
• Vanguard ETF Australia Shares (VAS) – $75 754
• Telstra shares – $4 892
• Insurance Australia Group shares – $17 998
• NIB Holdings – $8 022
• Gold ETF (GOLD.ASX)  – $76 331
• Secured physical gold – $9 907
• Ratesetter (P2P lending) – $51 663
• Bitcoin – $140 010
• Acorns app (Aggressive portfolio) – $9 417
• BrickX (P2P rental real estate) – $4 288

Total value: $1 315 934  (-$43 754)

Asset allocation

• Australian shares –  32 %
• International shares – 18%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 55.7% (5.3% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.2% (1.2% over)
• Australian bonds – 10%
• International bonds – 9%
• Total bonds – 19.6% (0.6% over)
• Cash – 1.3%
• Gold – 6.6%
• Bitcoin – 10.6%
• Gold and alternatives – 17.2% (2.2% over)

Comments

This month my overall portfolio has fallen with the dramatic reversal of previous gains in the price of Bitcoin. This has been the first genuine fall in my portfolio in over a year. Underlying this large headline change, however, has been no real progress in the equity elements of the portfolio, and some new investment of distributions.

For the reinvestment of the substantial distributions that came in from my Vanguard funds, I finally selected an increase in my Vanguard Australian Shares ETF (VAS) holdings. My reason for this was that I remain concerned at valuations in the US stock market, and Australian market valuations seemed less stretched. The greater tax effectiveness of franked Australian dividends was also a factor. Overall, another consideration was not seeking to increase the complexity of my portfolio with purchase of another type of ETF. Being an explorer by nature, however, I can forecast curiosity in the future overcoming this particular factor.

The new asset allocations adopted in resetting the compass at the start of the year means that I am actively looking for greater international share exposure in coming months, in as simple a format as possible. Removing the Bitcoin holdings from consideration, I am making good progress in absolute terms in moving closer to my ultimate 65% allocation target. Market movements are now playing a much greater role in affecting my allocations. At some point this will become difficult to manage through just control of new investments and distributions, leading me to potentially trigger some rebalancing sales. A decision I will need to increasingly think about is how often and when this rebalancing should occur. My current default would be twice yearly if required.

My other significant step has been to actively reconsider the level and value of life and income insurances, in light of my portfolio’s passive income record. Collectively, this has saved around $700 from two policies with AMP. All this saving required was a careful look at my own circumstances, a few emails, scanning and returning a few documents and a few follow up actions. To make sure I could see the impact of this, and avoid it being swallowed up by another expenditure category, I immediately invested the savings in my Acorns account.

Progress

Progress to:

• objective #1: 89.2% or $160 066 further to reach goal.
• objective #2: 64.5% or $725 066 further to reach goal.

Summary

This month has seen greater uncertainty and volatility in both my portfolio and work life, with significant but ultimately unclear changes on the horizon. My progress to date, and the strong portfolio position at the moment has made this volatility easier to disconnect from.

For example, I have found myself curiously relaxed about the fall in Bitcoin values, having perhaps never mentally locked in the large gains of last year. Rather, the steady accumulation of assets on a dollar cost averaged basis continues to underpin the growth in the underlying portfolio.

As I look back, I realise I have been awaiting an equity and bond market pull back for almost the entire length of this blog. A lesson in the risks of market timing, to be sure, however, I’m not convinced this won’t occur soon.

 

Not being able to govern events, I govern myself.

Montaigne

Year in review

Exactly a year ago, in the brief quiet phase around the end of the year and in front of a Lord of the Rings film, I set out on this personal exploration of financial independence, by starting this record.

At the time, I was exactly two-thirds of my way to my target of around $1.5 million, having made conscious steps to building an investment portfolio back to 1999. Now I am here at the same time, rather surprised at the progress that has been made. Reading Nassim Taleb’s best seller Fooled by Randomness years ago has thankfully inoculated me against attributing this to any particular skill. I expect that this year will prove a more challenging environment for closing on the final goal, and pushing beyond.

My main goals for 2017 were:

1. Continue to invest in low-cost passive index approaches (mostly…see goal 5) – Achieved
2. Contribute $75 000 to my existing portfolio regularly using dollar cost averaging – Achieved
3. Achieve total interest and distributions of $28 000 – Achieved
4. Maintain an emergency fund of around 12 months of expenses – Achieved
5. Keep on experimenting at the edges of finance technology and new products – particularly with passive index-based Exchange Traded Funds – Achieved

These results are pleasing, and give me confidence to seek to be ambitious for this years investment plans and goals. I am currently reviewing my investment policy and looking at possible new goals. Before finalising these, I want to understand the shape of distributions from the end of the year, so finalising this may be a week or so away.

Over the past year my major index-based investments with Vanguard have grown by over $170 000, I have explored and used ETFs, and expanded my exposure to peer to peer lending. It’s been a year of unprecedentedly rapid progress, significant enough that I go into 2018 surer of my financial footing than at any other time. It’s also been a year of discovering the community of FI, be it active Reddit discussions, fellow Australians on the FI journey, and motivating podcasts, such as ChooseFI and the Mad Fientist.

Portfolio update

This is my thirteen portfolio update. I complete this update monthly to check my progress against my original goals.

Portfolio goal

My current portfolio objective is to reach a portfolio of $1 476 000 by 1 July 2021. My plan is that this should produce a real income of about $58 000. This is based on a real return of 3.92%, or a nominal return of 7.17%. My plan, is, however, to review this goal over coming weeks.

Portfolio summary

• Vanguard Lifestrategy High Growth – $708 727
• Vanguard Lifestrategy Growth  – $43 543
• Vanguard Lifestrategy Balanced – $76 293
• Vanguard Diversified Bonds – $103 359
• Vanguard ETF Australia Shares (VAS) – $52 647
• Telstra shares – $4 839
• Insurance Australia Group shares – $18 806
• NIB Holdings – $8 112
• Gold ETF (GOLD.ASX)  – $76 477
• Secured physical gold – $9 411
• Ratesetter (P2P lending) – $54 264
• Bitcoin – $191 250
• Acorns app (Aggressive portfolio) – $8 297
• BrickX (P2P rental real estate) – $4 383

Total value: $1 359 688 (+$58 606)

Asset allocation

• Australian shares –  30%
• International shares – 18%
• Emerging markets shares – 2%
• International small companies – 3%
• Total shares – 52.9% (8.1% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.1%
• Australian bonds – 10%
• International bonds – 9%
• Total bonds – 19.3% (0.3% over)
• Cash – 1.3%
• Gold – 6.3%
• Bitcoin – 14.1%
• Gold and alternatives – 20.4% (10.4% over)

Comments

The portfolio increased by over $58 000, and once again this gain was dominated by an increase in the value of my Bitcoin. Aside from the visceral experience of variations in value of $50 000 over a weekend, I don’t have much to say about this because in some senses it is distracting, uncorrelated noise in the context of my overall portfolio, and the last thing I want is to have this become a narrow record of cryptocurrency highs and lows.

Its variations have the unintended consequence of obscuring the progressive execution of my rebalancing towards shares and away from bonds, towards my goal of reaching a 65% allocation of equities over coming years. As an example, ignoring for a moment the Bitcoin component of my portfolio, my current allocation is actually 61.5%, pretty much exactly on target to reach the goal.

Progress

Progress to goal: 92.1% (+20.0% ahead of target) or $116 312 further to reach goal.

Summary

At this point, large market variations have the potential to wash me up on the shore of my target, or draw me back further. I am trying as best I can to remain dispassionate at the effect of these variations, and rather focus on the underlying mechanisms that brought me this close in the first place. That is, years of saving and investing, diversification of risk, and not permitting my lifestyle costs to expand to meet my income. At some point through these next few months, it’s perfectly possible I will achieve my goal. What lies beyond, then, is my current focus of thinking and reflection, of which I will share more soon.

Circumstances rule men; men do not rule circumstances.
Herodotus

This is my twelfth portfolio update. I complete this update monthly to check my progress against my original goals.

Portfolio goal

My current portfolio objective is to reach a portfolio of $1 476 000 by 1 July 2021. My plan is that this should produce a real income of about $58 000. This is based on a real return of 3.92%, or a nominal return of 7.17%.

Portfolio summary

• Vanguard Lifestrategy High Growth – $699 155
• Vanguard Lifestrategy Growth  – $43 408
• Vanguard Lifestrategy Balanced – $76 170
• Vanguard Diversified Bonds – $103 574
• Vanguard ETF Australia Shares (VAS) – $51 782
• Telstra shares – $4 559
• Insurance Australia Group shares – $18 023
• NIB Holdings – $8 136
• Gold ETF (GOLD.ASX)  – $77 847
• Secured physical gold – $8 777
• Ratesetter (P2P lending) – $56 166
• Bitcoin – $141 039
• Acorns app (Aggressive portfolio) – $8 046
• BrickX (P2P rental real estate) – $4 400

Total value: $1 301 082 (+$84 772)

Asset allocation

• Australian shares –  31%
• International shares – 19%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 54.5% (6.5% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.3%
• Australian bonds – 11%
• International bonds – 10%
• Total bonds – 20.3% (1.3% over)
• Cash – 1.4%
• Gold – 6.7%
• Bitcoin – 10.8%
• Gold and alternatives – 17.5% (7.5% over)

Comments

This month the portfolio increased by over $84 000, with two-thirds of this gain being driven by the increase in the price of my small, experimental, holdings of Bitcoin. This was not really supposed to be so large a part of the journey, but has been an interesting phenomenon to witness. Bitcoin is ‘having a moment’, which means reading, listening to podcasts talk about it, and even now seeing its price quoted on the ABC new finance update some nights. It has meant a lot of thinking about where it fits into the portfolio (this Atlantic article gets to the heart of some of the different potential ways of viewing it).

As its price increased, a first instinct was to mentally discount the gains, record it an average smoothed longer-term price, or remove it from my portfolio considerations entirely. This would avoid it’s volatility driving anomalous rises and falls in apparent net worth driven only by its price movements. As an example, despite gains in the absolute level of equity holdings, including Bitcoin means mathematically that my apparent allocation to equities (and bonds for that matter) has fallen.  This in counterintuitive when my only regular investments at the moment are to equities.

This is not the approach I have taken yet, however. At the moment, my decision is to leave it in. The reason for this is because, planned or not, it would be unwise to ignore the mathematical reality that at current prices, around a tenth of my portfolio is made up of Bitcoin. Removing it from the portfolio and treating it as separate would be falling into a trap of viewing part of wealth in different in different ‘buckets’ in an artificial way. Bitcoin could fall to zero, in the future. It could continue to appreciate. The first possibility would eliminate the distorting effects, but the latter would be an important financial fact to consider, with implications for how exactly I reached my objective, and the risks taken to get there.

So for now, I wait, and try to resist asking my new Google Home too frequently what the price is on any given day. In fact, that has been the most interesting aspect of the whole episode – observing its effects on my own psychology, and considering issues such as ‘when would it make sense to sell’. Currently, my view is that it is as likely to go down as up, but that its critical valued characteristic for my purposes is its non-correlation with other assets, and so no action is warranted.

Chasing my target equity allocation continues to mean regularly contributing to Vanguard High Growth fund. An exciting development in the past month has been Vanguard releasing a series of new diversified ETFs, modelled on their existing retail funds, with low expense ratios of 0.27%, lower than on my current retail funds. This means that for large lump sums, they represent a simple alternative to holding individual sector Vanguard ETFs and rebalancing. This may well be an option when end of year distributions arrive.

Progress

Progress to goal: 88.1% (+17.6% ahead of target) or $174 918 further to reach goal.

Summary

This month reinforces that my journey can be affected by favourable winds, and currents, even as I anticipate and think about the potential for storms ahead. Dealing with luck, windfalls, and events outside of our control is an intriguing part of the journey that I had not fully considered in my conception of the journey as relatively slow and steady progress towards my target. While my recent holiday cruise did involve lots of reading and relaxing, I can’t say that I met my goal of thinking systematically about whether my current target is sufficiently ‘safe’ for potential market conditions, and how my current career and its trajectory could look over the next 2-3 years. Updating my investment policy over the summer break should provide the chance to do this.