Monthly Portfolio Update – October 2021

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

Remember that you are an actor in a drama, whatever kind the playwright desires
Epictetus, Encheiridion XVII

This is my fifty-ninth 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	$820,102
Vanguard Lifestrategy Growth Fund	$43,914
Vanguard Lifestrategy Balanced Fund	$79,229
Vanguard Diversified Bonds Fund	$98,895
Vanguard Australian Shares ETF (VAS)	$365,976
Vanguard International Shares ETF (VGS)	$248,767
Betashares Australia 200 ETF (A200)	$287,934
Telstra shares (TLS)	$2,036
Insurance Australia Group shares (IAG)	$6,081
NIB Holdings shares (NHF)	$7,944
Gold ETF (GOLD.ASX)	$107,668
Secured physical gold	$17,186
Plenti (P2P lending)	$809
Bitcoin	$905,100
Raiz app (Aggressive portfolio)	$20,771
Spaceship Voyager app (Index portfolio)	$3,461
BrickX (P2P rental real estate)	$4,982
Total portfolio value	$3,020,855 (+$260,052)

Asset allocation

*Australian shares*	*33.5%*
Global shares	21.0%
Emerging market shares	1.5%
International small companies	1.9%
Total international shares	24.4%
Total shares	57.9% (-17.1%)
Total property securities	0.2% (+0.2%)
Australian bonds	2.4%
International bonds	5.4%
Total bonds	7.8% (-7.2%)
Gold	4.1%
Bitcoin	30.0%
Gold and alternatives	34.1% (+24.1%)

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 rose in value by $260,000, growing around 9.4 per cent in a single month.

As a consequence the portfolio has just unexpectedly crossed the threshold of $3.0 million, less than a year after the portfolio passed $2.0 million in value.

The monthly movement across October was the largest ever change in the value of the portfolio in dollar terms, and the third largest increase in percentage terms since this record began in 2017.

Unusually, over the month the capital value of all major traditional financial asset classes – equities, bonds, and gold – fell quite uniformly. Each declined by between 1.0 to 1.5 per cent.

In the case of Australia equities, payments from September quarter dividends meant that a small positive total return of around 0.5 per cent was achieved. This helped portfolio equity holdings reach their highest ever value this month, of about $1.75 million.

The poor recent performance of fixed interest bonds extended this month. The total value of Vanguard Diversified Bond fund holdings, for example, have declined around 10 per cent this year – noting that this also includes paid out distributions.

The unmistakeable forward motivating force for the portfolio was Bitcoin, which increased in value by 35 per cent through the month. This contributed over 90 per cent of the overall positive movement of the portfolio – or around $235,000.

True Wind – A History of Taxable Investment Income

Posted on October 16, 2021October 16, 2021 by The FI Explorer

My treasure’s in the harbour, take it.
_{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’.

That is, the measured taxable investment income is the total of Items 13, 20 and 24 on the 2021 tax return. Capital gains under Item 18 are excluded.

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]

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.