Ships and sails proper for the heavenly air should be fashioned.
Johannes Kepler, Letter to Galileo (1609)
Twice a year I prepare a summary of total income from my financial independence portfolio. This is my twelfth portfolio income update since starting this record. As part of the transparency and accountability of this journey, I regularly report this income.
My primary goal is to maintain a portfolio of at least $2,620,000 which is capable of providing a passive income of around $91,600 (in 2022 dollars).
Portfolio income summary
Investment
Amount
Vanguard Lifestrategy High Growth (retail fund)
$32,182
Vanguard Lifestrategy Growth (retail fund)
$1,539
Vanguard Lifestrategy Balanced (retail fund)
$1,871
Vanguard Diversified Bonds (retail fund)
$187
Vanguard Australian Shares ETF (VAS)
$17,129
Vanguard International Shares ETF (VGS)
$3,224
Betashares Australia 200 ETF (A200)
$11,230
Telstra shares (TLS.ASX)
$43
Insurance Australia Group shares (IAG.ASX)
$76
NIB Holding shares (NHF.ASX)
$132
Plenti/Ratesetter (P2P lending)
$25
Raiz app (Aggressive portfolio)
$260
Spaceship Voyager app (Index portfolio)
$47
BrickX (P2P rental real estate)
$24
Total Portfolio Income – Half-Year to June 30, 2022
$67,968
The chart below sets out the income or distributions received on a half-yearly basis from the financial independence portfolio over the past six years.
And dark daylight already shows through long rents in the sails
Alcaeus, Fragments
This is my sixty-second 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 $2,620,000 through 2022. This should be capable of producing an annual income from total portfolio returns of about $91,600 (in 2022 dollars).
A secondary focus through 2022 will be achieving the minimum equity target of $2,100,000.
Portfolio summary
Vanguard Lifestrategy High Growth Fund
$790,086
Vanguard Lifestrategy Growth Fund
$42,487
Vanguard Lifestrategy Balanced Fund
$76,957
Vanguard Diversified Bonds Fund
$97,297
Vanguard Australian Shares ETF (VAS)
$367,311
Vanguard International Shares ETF (VGS)
$288,466
Betashares Australia 200 ETF (A200)
$274,868
Telstra shares (TLS)
$2,089
Insurance Australia Group shares (IAG)
$5,372
NIB Holdings shares (NHF)
$7,476
Gold ETF (GOLD.ASX)
$115,439
Secured physical gold
$18,425
Plenti (P2P lending)
$56
Bitcoin
$586,560
Raiz app (Aggressive portfolio)
$20,463
Spaceship Voyager app (Index portfolio)
$3,459
BrickX (P2P rental real estate)
$4,997
Total portfolio value
$2,701,808 (-$246,827)
Asset allocation
Australian shares
36.6%
Global shares
24.4%
Emerging market shares
1.6%
International small companies
2.0%
Total international shares
28.1%
Total shares
64.6%(-15.4%)
Total property securities
0.2%(+0.2%)
Australian bonds
2.6%
International bonds
5.9%
Total bonds
8.5%(+3.5%)
Gold
5.0%
Bitcoin
21.7%
Gold and alternatives
26.7%(+11.7%)
Presented visually, the chart below is a high-level view of the current asset allocation of the portfolio.
Comments
Over the past month the portfolio has witnessed its largest ever nominal dollar loss, of around $247,000.
This represents a decline of 8.4 per cent in the portfolio, which is the second largest percentage fall after March 2020. It has pushed the portfolio down to levels of around six months ago, notionally at least undoing all progress since winter.
Despite this, the portfolio still – narrowly – sits above the revised portfolio goal of $2.62 million
The story of the month was of simultaneous waves from west and east, to borrow another phrase from the Greek poet Alcaeus. Sharp falls in equity markets through January and continued falls in the value of bitcoin for most of the month contributed in nearly equal parts to the final result.
Australian shares fell around 5.5 per cent for the month. Global equity holdings also declined in value by around 4.5 per cent.
Increasing market conviction around future US interest rate rises also saw the value of bond holdings simultaneously fall, with relatively large losses incurred – of about 1.9 per cent.
The only bright spot in the portfolio was gold holdings, which increased in value by nearly 1.6 per cent to reach levels not experienced since November 2020.
Broadly, however, what can be seen in the chart below is what occurs when multiple asset classes exhibit at least short-term correlation, each responding to perceptions of sharply changed market conditions.
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 gained around $20,000, maintaining its positive momentum over the past two months.
Though this represented modest portfolio growth in percentage terms – of 0.7 per cent – it pushed forward progress further above the recently reached threshold of $3.0 million.
The monthly movement across November means that the portfolio has advanced in 10 out of the last 12 months.
Through the month there was generally muted and offsetting movements beneath the ‘headline’ portfolio value.
Australian shares and bonds remained relatively stable through the month. The value of gold holdings increased by around 5.6 per cent to reach the highest value in around a year. Coincidentally, international equities also advanced by 5.6 per cent.
Bitcoin declined by around 3.3 per cent through the month, having briefly reached new highs early in the month.
As a result of these varying cross-currents, the portfolio generally ended up fairly close to where it began.
Shakespeare, Antony and Cleopatra, Act 3, Scene 11
Introduction – why analyse taxable income investment?
Each year measuring taxable investment income produced by the financial independence portfolio has provided an alternative independent benchmark of progress on the journey to the portfolio goal.
This measure is distinct from the regularly reported portfolio distributions, through being generated entirely from annual tax records.
Generally, my portfolio income analysis focuses solely on ‘after-tax’ dollars received in the bank account as the primary data. This is reported twice a year.
Nevertheless, this separate annual series of taxable investment income can also help illustrate progress. For example, it can highlight exactly what my taxable income might be in the absence of any paid work. That is, if early retirement was taken today.
Last year some analysis showed some broad trends. More time and new data, however, now provides the opportunity for a longer and fuller view of trends in taxable investment income across the journey.
This longer read post expands the analysis from the last review. It builds into this review data from four additional years of tax records covering the earlier phases of the journey.
The theme of this analysis is how the momentum of gradual progress can build over 15 years, turning a breath of wind into a powerful force through time, and compounding as the years pass.
Along the way it also corrects some minor inconsistencies in data reporting on dividends and franking credits in earlier years of previous analysis.* It also refines the analysis through a greater focus on income from income-producing financial assets, rather than all portfolio assets.
Taxable income investment grows significantly over 2020-21
Taxable investment income for financial year 2020-21 totalled over $68,000. This is a more than 60 per cent increase from the past two financial year totals of around $42,000.
Taxable investment income is defined here as the combined totals of taxable income from the tax assessment categories of partnerships and trusts, foreign source income, franking credits and ‘other income’.
Figure 1 below shows the levels of taxable investment income for the past fifteen years. This is expanded to cover four additional earlier years, from 2006-07 to 2009-10.
![[Chart - Figure 1 - Trends in Taxable Investment Income]](https://i0.wp.com/www.thefiexplorer.com/wp-content/uploads/2021/10/TaxOctFig1.png?resize=736%2C383&ssl=1)