Monthly Portfolio Update – September 2021

Posted on October 1, 2021March 24, 2022 by The FI Explorer

…it is sweet to see the sea from the land when you don’t have to sail any longer
Archippus

This is my fifty-eighth 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	$807,844
Vanguard Lifestrategy Growth Fund	$43,486
Vanguard Lifestrategy Balanced Fund	$78,870
Vanguard Diversified Bonds Fund	$99,943
Vanguard Australian Shares ETF (VAS)	$363,435
Vanguard International Shares ETF (VGS)	$233,181
Betashares Australia 200 ETF (A200)	$291,171
Telstra shares (TLS)	$2,094
Insurance Australia Group shares (IAG)	$6,233
NIB Holdings shares (NHF)	$8,364
Gold ETF (GOLD.ASX)	$108,834
Secured physical gold	$17,413
Plenti (P2P lending)	$1,145
Bitcoin	$669,910
Raiz app (Aggressive portfolio)	$20,705
Spaceship Voyager app (Index portfolio)	$3,442
BrickX (P2P rental real estate)	$5,033
Total portfolio value	$2,760,803 (-$84,855)

Asset allocation

*Australian shares*	*36.6%*
Global shares	22.2%
Emerging market shares	1.6%
International small companies	2.0%
Total international shares	25.8%
Total shares	62.4% (-12.6%)
Total property securities	0.2% (+0.2%)
Australian bonds	2.6%
International bonds	5.9%
Total bonds	8.5% (-6.5%)
Gold	4.6%
Bitcoin	24.3%
Gold and alternatives	28.8% (+18.8%)

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

Comments

The portfolio fell in value by around $85,000 this month, declining by just over 3.0 per cent.

Despite this, the portfolio remains for the moment above the formal portfolio goal, as it has since May. Taking a slightly longer view, the portfolio is still over 50 per cent larger today, than a year ago.

The declines this month were broad-based and across almost all of the portfolio.

The value of Bitcoin fell by around 9 per cent, while remaining firmly higher than at the start of the year.

Australian equities have fallen around 2 per cent, and international equities also fell by 1.8 per cent. Partly as a result, the overall equity portfolio has declined by nearly $20,000. This leaves the equity portfolio at around 89 per cent of the amount targeted in the plan.

Amidst some evidence of rising long-term bond rates, the value of gold holdings also fell by 3.3 per cent.

Finally, adding to the negative picture, the value of fixed interest holdings in the Vanguard Diversified Bonds fund fell by 1.3 per cent. Consequently they are now at their lowest dollar level since the last major investments in that fund were made in 2014.

Line of Position – Superannuation and the Financial Independence Portfolio

Posted on September 14, 2021September 14, 2021 by The FI Explorer

A ship should not ride on a single anchor, nor life on a single hope.
Epictetus, Golden Sayings, Fragment xvi

Setting out: looking beyond the horizon

In sea navigation, lines of position allow the fixing of the true position of a ship by helping to account for drift from wind or currents.

Each month this record regularly assesses the position reached with a relatively narrow focus on changes and trends affecting the financial independence portfolio. This is consistent with the intention of documenting a journey towards financial independence, and retirement well before the traditional age.

The primary focus on financial independence has meant that until the beginning of 2019, I did not regularly record the impact of superannuation on the achievement of the portfolio’s objectives.

From that time, I recorded a simple ‘All Assets’ measure of progress, which effectively counted the impact of superannuation on the measures. Typically, super has recently represented around 30 per cent of additional ‘buffer’ on progress against the goals set.

In this longer post, the aim is to look beyond the FI portfolio which is reported on, and provide more detail on what the whole financial asset picture looks like – taking into account both superannuation and the FI portfolio.

Measuring the changing position across the journey so far

The goal and plan has always been to target financial independence through my private investment portfolio alone, with superannuation perhaps providing an additional margin of safety.

Reflecting this, superannuation – the approximate Australian equivalent to 401K accounts in the US – has been a quietly evolving part of this financial journey in the background, since the earliest phases.

Over time, I have generally sought to contribute beyond the minimum guarantee amounts, making voluntary contributions with the approximate target of reaching an average 15 per cent of earnings in overall contributions.

This has resulted in a steady growth in the superannuation across time, as can be seen in Figure 1 below.

Clearly evident above are the impact of some market declines – in the second half of 2018, and the most recent March 2020 market falls. Yet also as apparent is the overall trend of steadily compounding returns across time.

Lines of Navigation – A History of Portfolio Change

Posted on June 14, 2021March 24, 2022 by The FI Explorer

No man ever steps into the same river twice.
Heraclitus

The achievement of financial independence is often, correctly, framed as getting a few key principles and habits in place, and then repeating these consistently through time. This history of portfolio change steps beyond this valuable and instructive perspective.

This is because an exclusive focus on consistency of action conceals another fact of the journey – that constant principles and habits do not avoid change through the experience. In fact, change has been a continuous marker through the financial independence journey so far.

As the portfolio and its characteristics change, different experiences, issues and challenges emerge.

This post examines some of the major areas of change. It particularly focuses on changes since the commencement of this record in 2017, which covers the second half of the journey.

While each financial independence journey and portfolio is different, this is intended to highlight a few of the key changes I have experienced in building and managing the portfolio, for any interest and insights it offers others.

History of change in the composition of the portfolio

The most significant change – aside from the growth in the overall portfolio level – has been to the composition of the portfolio. That is, balance of actual investments held in different investment vehicles.

For most of the early part of the journey, the set of Vanguard retail funds (mainly the High Growth, Growth, Balanced funds) formed the core of the portfolio. In 2007, for example, Vanguard retail funds made up no less than 95 per cent of the total portfolio.

As the recorded journey started in January 2017, this legacy was still apparent. At this time Vanguard funds made up around 80 per cent of the portfolio, as can be seen below.

Some small gold, Bitcoin, and peer-to-peer lending had been added to the portfolio by 2017. Yet these were minor elements compared to the legacy retail funds that also received regular new investments.

The equivalent chart of the composition of the portfolio today is below.

Standing to Port – Year in Review and Monthly Portfolio Update – December 2020

Posted on January 1, 2021March 24, 2022 by The FI Explorer

In order to arrive at what you do not know
You must go by a way which is the way of ignorance.
T. S. Eliot, Four Quartets – East Coker

Year in Review

The year past has been extraordinary in so many ways, entirely separate from the progress to the goal of financial independence.

Part of the structure of the year has been seeing elements of this new reality bleed into markets and economic developments, affecting the portfolio in profound ways.

At the the broadest level, the year saw the passing of my portfolio objective, in a rapid unexpected way in December. In fact, as can be seen below, this year saw the crossing of the last two outstanding portfolio measures.

Progress against FI measures through 2020

Measure	Portfolio	All Assets
Portfolio objective – $2,180,000 (or $87,000 pa)	82%→104%	112%→136%
Credit card purchases – $71,000 pa	100%→127%	136%→166%
Total expenses – $89,000 pa	80%→102%	109%→133%

On an ‘All Assets’ basis – taking into account superannuation assets – the year saw further progress, to be well above the minimum levels required to sustain the portfolio income objective.

Course of the voyage

The progress of the year was steeped in volatility. This year saw the largest ever fall in the value of the portfolio, and also two of the largest ever monthly gains.

This volatility is clearly evidenced in the variations in the total end of month portfolio values in the chart below.

Overall the portfolio increased by over $500,000 through the full year. This is the largest rise in the value of the portfolio over a single year on record.

Quite simply, it has moved the portfolio to a different magnitude and scale of operation. The chart below of the overall value of the portfolio on a calendar year basis illustrates this alteration starkly.

It cannot be escaped that the largest single contributor to the increase over this year was a surge in the price of Bitcoin, leading to over $300,000 of the gains.

Equity markets, however, also pushed forward in the second half of the year, and the equity portfolio finished around $175,000 higher than the beginning of the year. The gold component of the portfolio also ended the year higher.

As the set out in the In Way of Harbour post two weeks ago, combined this progress resulted in the passing of the portfolio objective in mid-December.

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