Monthly Portfolio Update – January 2022

Posted on February 1, 2022March 24, 2022 by The FI Explorer

The sea washes across the decks and maststep
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).

This portfolio objective is based on an assumed safe withdrawal rate of 3.5 per cent.

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.

Portfolio Income Update – Half Year to December 31, 2021

Posted on January 9, 2022March 24, 2022 by The FI Explorer

Do nothing for money
Periander of Corinth, Diogenes Laertius, Bk I.97

Twice a year I prepare a summary of total income from my portfolio. This is my eleventh 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)	$10,390
Vanguard Lifestrategy Growth (retail fund)	$489
Vanguard Lifestrategy Balanced (retail fund)	$756
Vanguard Diversified Bonds (retail fund)	$453
Vanguard Australian Shares ETF (VAS)	$8,199
Vanguard International Shares ETF (VGS)	$1,939
Betashares Australia 200 ETF (A200)	$5,787
Telstra shares (TLS.ASX)	$43
Insurance Australia Group shares (IAG.ASX)	$165
NIB Holding shares (NHF.ASX)	$168
Plenti/Ratesetter (P2P lending)	$59
Raiz app (Aggressive portfolio)	$191
Spaceship Voyager app (Index portfolio)	$0
BrickX (P2P rental real estate)	$42
Total Portfolio Income – Half-Year to December 31, 2021	$28,680

The chart below sets out the income or distributions received on a half-yearly basis from the financial independence portfolio over the past five and a half years.

Close Quarters – Reviewing the Portfolio Goal and Investment Plan

Posted on January 6, 2022January 6, 2022 by The FI Explorer

The roaring seas and many a dark range of mountains lie between us.
Homer, Iliad, Bk.1.155

This record of exploration towards financial independence started five years ago, with an initial objective of building a passive income of $58,000 per annum by July 2021. Since that time, goals have evolved and changed, with the most recent target achieved through last year.

Each year in early January I spend time reviewing my investment goals and how I plan to reach them.

This post discusses the findings from my annual review, details my updated portfolio goal and assumptions, and discusses how I will approach my financial independence journey through 2022 and beyond.

The aim is to have a clear written record of the objectives, approaches and reasoning underlying the plan, to serve as a reference point through the year to come. The process also enables the updating of plans and assumptions for changes in circumstances, thinking, as well as available data and evidence.

A journey’s end for the financial independence portfolio?

Since June 2021 the portfolio value has consistently exceeded the revised overall portfolio objective I set myself in early 2021, reaching the goal over a year earlier than originally targeted.

This past target of $2,585,000 was based around a benchmark of the portfolio producing a real annual income of $90,500 in 2021 dollars. The level was chosen because it reflected an amount equal to Australian adult full-time ordinary earnings, and was close to my (then) estimated spending of around $85,000 per annum.

Passing this target has led to a sustained reflection about the meaning and significance of the target.

For the journey up to that point, the target was a way to measure tangible progress towards the goal of financial independence. It has never, however, served as a countdown clock or trigger to immediate early retirement once that dollar value was exceeded.

Another valuable part of the process of setting a specific target has been as a forcing mechanism to help clarify what type of post-financial independence is envisaged and sought.

Year in Review and Monthly Portfolio Update – December 2021

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

We will not from the helm to sit and weep,
But keep our course, though the rough wind say no,
From shelves and rocks that threaten us with wreck.
As good to chide the waves as speak them fair
Shakespeare, Henry IV, Part III.v.4

Year in Review

A year, after all, is simply a collection of days. And therefore the story of this year is largely told in the record of past twelve months.

At the beginning of the year the portfolio goal was reset to provide a target goal for passive income equivalent to $90,500 per year.

At the same time, three essential pre-conditions were set for any movement from my current work arrangements.

These were:

reaching the overall portfolio target of $2.58 million;

achieving a minimum equity portfolio target of $1.93 million; and

a cash reserve of at least one year of normal expenditure.

Rapidly, in fact by March, the first of these conditions were met.

The second remains a little distance away – perhaps 2 to 18 months away should equity markets remain positive, perhaps much longer if any significant equity drawdowns occur.

The cash reserve has been started, but it is not yet near completion. At present, it sits at around $17,000 compared to the average annual spending of about $84,000 since 2013.

The broad progress made against the financial benchmarks through this year is summarised below.

Progress against FI measures through 2021

Measure	Portfolio	All Assets
Portfolio objective – $2,585,000 (or $90,500 pa)	88%→114%	105%→146%
Total average expenses (2013-present) – $83,800 pa	93%→123%	112%→157%
Target equity holding in portfolio	75%→95%	N/A

Stepping back to look at the overall portfolio performance, this year has been unlike any other on the journey.

The overall portfolio has increased by $680,000 – making the year just passed the most significant expansion in dollar terms of the entire record.

Chart - Year in Review - Portfolio Level 2007-22

Studying the course of the voyage

The pattern of this fifth year of the voyage has been distinctly different to any other. Looking back, there is a dual sense of consistency, and radical discontinuity.

The sense of consistency has come from the continued strong growth in equity markets and the continued regular investment into equity-based exchange traded funds. Strong equity returns have contributed to the equity component of the portfolio increasing by over $385,000.

In turn, this has made it the strongest year on record for the expansion of the equity portfolio.