A prudent question is one-half of wisdom

Francis Bacon

This page is designed to provide a brief summary of answers to some of the more frequently asked questions received in comments on posts or by contact through this site beyond what is set out in the About page.

Q: What do you plan to do afterwards?

A: That is undefined as yet, and it’s something I am hoping to use this blog to help figure out over time.

Ideally, I would like a portfolio of some intellectually interesting work, lots of time to read and travel. Essentially time to spend slowing down, and appreciating the freedom to spend more time based on my values. I have a messy, incomplete list of travel and other possibilities, that I plan to turn into a future post.

Right now, I’m busy reading many other blogs thoughts on this part of the FI journey. I do not, however, plan to grow a moustache, or travel in a campervan.

Q: Does your portfolio include your superannuation? If not, why not?

A: Yes, I do have a separate superannuation position, but I have largely treated it as a separate portfolio from what I report here in detail, for two reasons:

• it is subject to some legislative risk; and
• the preservation age at which I could access it is a long way off compared to my financial independence goal.

It is invested in an indexed fund, and does form part of loose projections about potential future income and planning, but so far as FI is concerned, it is in the background for now. This post looks in detail at the changing role and significance of superannuation for my journey.

All the investments listed in the Monthly Portfolio Updates are outside of superannuation. From 2019, I have incorporated its impact in a set of high-level ‘progress’ metrics about how far I have to go to reach FI, giving figures for both using just the FI investment portfolio, and another expanded ‘All Assets’ measure. That provides a rough sense of the total financial picture if super is included, and the new reporting is further discussed here.

The low cost index fund is high growth and holds at least 80% asset exposure to equities, both Australian and global. I monitor how my overall portfolio looks with some extra rows and columns in Excel, just to make sure no FI portfolio choices push me beyond my risk tolerances on a ‘whole of assets’ basis.

So my essential approach is to discount it for any FI plans, but recognise that it is still likely to represent a significant set of assets to help with longevity risk further down the track, so it would be unrealistic to ignore it completely.

Q: Why do you have such a large amount in Raiz?

A: I find it a quite handy ‘mental bucket’ for additional small savings I find. Seeing that grow motivates me to find more over time. I also have a genuine interest in the FinTech world, and wanted to see how it worked as a consumer of the product. Since its introduction of higher fees, I intend to liquidate it in the medium term, when tax effective to do so.

Q: Why do you have so many different types of funds and investment? It makes my head hurt.

A: It is true, there are a lot. Mostly the portfolio diversity comes from:

• some initial share purchases very early in my journey
• demutualisations (IAG and NIB)
• a curiosity to explore and try out new financial products  (Raiz, Spaceship, Ratesetter)
• the lack of availability of simple index ETFs when I started my journey (Vanguard retail funds)
• a misconceived attempt in the early 2000s to set up ‘buckets’ of different risk exposures in retail Vanguard funds, and some resulting capital gains which makes higher than efficient tax an issue if I sell
• belief in holding a small part of the portfolio which is ‘insurance’ against extreme or low probability market events (gold and Bitcoin)

There is a fuller exploration of some of the past directions of investments in my recent post Waypoints of the the Passage – A History of Portfolio Progress and this year in review.

As a policy, I have tended to seek to not incur unnecessary capital tax and transaction costs where I already own an asset by seeking to ‘tidy up’ or simplify the portfolio. There will be room for that later when it may be more tax efficient to transact.

Instead, I consider each investment against the criteria of the marginal cost of holding versus selling. For example, sales of some of the shares and funds would incur high costs, for little marginal gain in the portfolio from more theoretical ‘tidiness’.

Q: What happened to your portfolio in the Global Financial Crisis?

A: Certainly at the time, it seemed like a very big deal in portfolio terms, and I was even out of work for a brief period of the phase, so potentially had more reason for worry.

In total, the portfolio went from $152 000 in July 2007, to $228 000 in July 2009, and probably the worst of it was reflected in the portfolio only increasing $10 000 from January 2008 to January 2009.

That means that without new contributions it would have gone backwards, but I did continue to invest. The portfolio was around 60% equities during that period. On reflection, I’m glad that it happened while I still had a relatively low portfolio level compared to today.

A more detailed discussion of the impact of the Global Financial Crisis on the portfolio and journey is set out in this post.

Q: Why do you own Bitcoin – is it truly an investment?

Curiosity is the fundamental answer. I primarily purchased my Bitcoin holdings as an exploration of new fintech, driven by curiosity about how it worked, and from listening to this podcast on the Econtalk podcast series.

I invested an initial amount that I was comfortable fully losing if it had not worked out. I do not advocate the use of Bitcoin or crypto-currencies for investment purposes, or consider it in any way a necessary part of reaching for FI.

I report it in the Monthly Portfolio Updates of net worth because of its significant increase in value since purchasing, and continue to hold it as an asset that is uncorrelated to many other asset classes, and which therefore in theory should reduce overall portfolio volatility. This itself is a proposition being tested, not a proven outcome.

This post and the annual review post discusses this reasoning and approach in more detail.

Q: You have already met your portfolio target, so when are you going to quit work? Or are you suffering from ‘one more year’ syndrome?

From around March 2021 the total value of the portfolio has sometimes exceeded final portfolio target, meaning that in theory I could rebalance and sell Bitcoin, purchase equities and bonds and ‘retire’.

While sometimes attractive to an idle mind, my primary focus has been to reach the point of financial independence, with the ‘retire early’ component of FIRE being less defined. So while the portfolio goal was to have reached that point by July 2022, I did not envisage walking out of the (metaphorical) office the next day.

Indeed, a number of projects which I have responsibility for and have committed to undertake do not finish until early 2023. So that is the earliest date at which I would feel comfortable considering alternative options to full-time work.

The timing is also affected by the composition of the portfolio.

I do not currently view Bitcoin as an asset which should be traded in and out of to reach either a particular portfolio allocation, or a specific target. My preference is to continue to save and invest in a primarily equity based portfolio, until my target level of equities is reached, at a minimum. On the current portfolio target of 80 per cent allocation to equities, this means reaching an effectively equity target of around $2.3 million.

I recognise that this can easily give rise to a knowing suggestion of being an undiagnosed sufferer of ‘one more year’ syndrome. However, the reality is that the journey has progressed in a direction and at a speed – with Bitcoin’s appreciation – that I did not expect.

Given this, I am curious about its potential evolution as a technology, and doubtful of the wisdom of a strict ‘re-balancing’ approach to its treatment, given the previous application of this would under a set of reasonable re-balancing rules, meant I would never have reached the current position. This question is further discussed here and also in this annual review.

Q: Do you own your own house? Does the FI portfolio include any property?

Yes, I fully own a property that is currently lived in. I don’t anticipate moving at any point in the medium-term, and the mortgage was paid off at an earlier stage of the journey, around the end of 2006.

As a result, the FI portfolio I report on here completely excludes this personal residential property. It is focused on asset designed to support the target income over the long-term. There is a small holding in BrickX, an earlier exploratory investment in fractional property ownership.

The additional costs of any different future property would need to be funded from the portfolio income.

Q: What do you recommend? Should I base my own investment decisions off what I read?

This blog is a record of my journey and decisions, based on my circumstances.

The specific portfolio allocation and approach described in it has been determined solely based on my personal circumstances, objectives, assessments and risk tolerances.

It is provided for general information and entertainment purposes only. It is not personal financial advice, or a recommendation to invest in any particular investment product, security or asset, or adopt any specific strategy, and investors considering these issues should undertake their own detailed research or seek professional advice.