Monthly Portfolio Update – July 2020

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Our little systems have their day;
They have their day and cease to be
Tennyson, In Memoriam A.H.H.

This is my forty-fourth portfolio update. I complete this update monthly to check my progress against my goal.

Portfolio goal

My objective is to reach a portfolio of $2 180 000 by 1 July 2021. This would produce a real annual income of about $87 000 (in 2020 dollars).

This portfolio objective is based on an expected average real return of 3.99 per cent, or a nominal return of 6.49 per cent.

Portfolio summary

Vanguard Lifestrategy High Growth Fund $716 680
Vanguard Lifestrategy Growth Fund$41 103
Vanguard Lifestrategy Balanced Fund$77 788
Vanguard Diversified Bonds Fund$111 667
Vanguard Australian Shares ETF (VAS)$202 336
Vanguard International Shares ETF (VGS)$54 872
Betashares Australia 200 ETF (A200)$230 058
Telstra shares (TLS)$1 785
Insurance Australia Group shares (IAG)$6 449
NIB Holdings shares (NHF) $5 316
Gold ETF (GOLD.ASX)$124 756
Secured physical gold$20 070
Ratesetter (P2P lending)$9 881
Bitcoin$173 010
Raiz app (Aggressive portfolio)$17 258
Spaceship Voyager app (Index portfolio)$2 619
BrickX (P2P rental real estate) $4 471
Total portfolio value$1 800 119 (+$34 376 or 1.9%)

Asset allocation

Australian shares41.1%
Global shares22.2%
Emerging market shares2.2%
International small companies2.9%
Total international shares27.3%
Total shares68.4% (6.6% under)
Total property securities0.2% (0.2% over)
Australian bonds4.5%
International bonds9.1%
Total bonds13.6% (1.4% under)
Gold8.0%
Bitcoin9.6%
Gold and alternatives17.7% (7.7% over)

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

Pie - Jul 20

Comments

The portfolio has substantially increased this month, continuing the recovery in portfolio value since March.

The strong portfolio growth of over $34 000, or 1.9 per cent, returns the value of the portfolio close to that achieved at the end of February this year.

Mnth Prog - Jul 20

This month there was minimal movement in the value of Australian and global equity holdings, There was, however, a significant lift of around 6 per cent in the value of gold exchange traded fund units, as well as a rise in the value of Bitcoin holdings.

These movements have pushed the value of gold holdings to their highest level so far on the entire journey. Their total value has approximately doubled since the original major purchases across 2009 to 2015.

For most of the past year gold has functioned as a portfolio stabiliser, having a negative correlation to movements in Australian equities (of around -0.3 to -0.4). As low and negative bond rates spread across the world, however, the opportunity cost of holding gold is reduced, and its potential diversification benefits loom larger.

The fixed income holdings of the portfolio also continued to fall beneath the target allocation, making this question of what represents a defensive (or negatively correlated to equity) asset far from academic.

This steady fall is a function of the slow maturing of Ratesetter loans, which were largely made between 2015 and 2017. Ratesetter has recently advised of important changes to its market operation, and placed a fixed maximum cap on new loan rates. By replacing market set rates with maximum rates, the peer-to-peer lending platform appears to be shifting to more of a ‘intermediated’ role in which higher past returns (of around 8 to 9 per cent) will now no longer be possible.

12 mnth - Jul 20 2

The expanding value of gold and Bitcoin holdings since January last year have actually had the practical effect of driving new investments into equities, since effectively for each dollar of appreciation, for example, my target allocation to equities rises by seven dollars.

Consistent with this, investments this month have been in the Vanguard international  shares exchange-traded fund (VGS). This has been directed to bring my actual asset allocation more closely in line with the target split between Australian and global shares.

Continue reading “Monthly Portfolio Update – July 2020”

Portfolio Income Update – Half Year to June 30, 2020

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Here, where the world is quiet;
Here, where all trouble seems
Dead winds’ and spent waves’ riot
In doubtful dreams of dreams;
I watch the green field growing

Swinburne, The Garden of Proserpine

Twice a year I prepare a summary of total income from my portfolio. This is my eighth portfolio income update since starting this record. As part of the transparency and accountability of this journey, I regularly report this income.

My portfolio goal is to build up a portfolio capable of providing a passive income of around $87 000 by July 2021 (Portfolio Objective).

Portfolio income summary

  • Vanguard Lifestrategy High Growth – $33 314
  • Vanguard Lifestrategy Growth – $2 074
  • Vanguard Lifestrategy Balanced – $2 621
  • Vanguard Diversified Bonds – $1 077
  • Vanguard ETF Australian Shares ETF (VAS) – $2 109
  • Vanguard ETF International Shares ETF (VGS) – $511
  • Betashares Australia 200 ETF (A200) – $2 325
  • Telstra shares – $43
  • Insurance Australia Group shares – $127
  • NIB shares – $120
  • Ratesetter (P2P lending) – $724
  • Raiz app (Aggressive portfolio) – $83
  • Spaceship Voyager app (Index portfolio) – $0
  • BrickX (P2P rental real estate) – $35

Total portfolio income in half-year to June 30, 2020: $45 162

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

HY Port Dist2 - Jul 20

The following pie chart is a breakdown of the percentage contribution of each investment in the portfolio to the total half-yearly income.

Pie HY Dist Jul 20

Comments

The total of half-year distributions from the portfolio was $45 162, or the equivalent of around $7 500 per month over the past six months.

This result is the third highest half-year distribution on record, breaking a two year downtrend of lower June figures. These half-year portfolio distributions are substantially larger than June last year, and around double that of June distributions of four years ago.

Continue reading “Portfolio Income Update – Half Year to June 30, 2020”

Monthly Portfolio Update – June 2020

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We would rather be ruined than changed.
W H Auden, The Age of Anxiety

This is my forty-third portfolio update. I complete this update monthly to check my progress against my goal.

Portfolio goal

My objective is to reach a portfolio of $2 180 000 by 1 July 2021. This would produce a real annual income of about $87 000 (in 2020 dollars).

This portfolio objective is based on an expected average real return of 3.99 per cent, or a nominal return of 6.49 per cent.

Portfolio summary

  • Vanguard Lifestrategy High Growth Fund – $726 306
  • Vanguard Lifestrategy Growth Fund – $42 118
  • Vanguard Lifestrategy Balanced Fund – $78 730
  • Vanguard Diversified Bonds Fund – $111 691
  • Vanguard Australian Shares ETF (VAS) – $201 745
  • Vanguard International Shares ETF (VGS) – $39 357
  • Betashares Australia 200 ETF (A200) – $231 269
  • Telstra shares (TLS) – $1 668
  • Insurance Australia Group shares (IAG) – $7 310
  • NIB Holdings shares (NHF) – $5 532
  • Gold ETF (GOLD.ASX)  – $117 757
  • Secured physical gold – $18 913
  • Ratesetter (P2P lending) – $10 479
  • Bitcoin – $148 990
  • Raiz app (Aggressive portfolio) – $16 841
  • Spaceship Voyager app (Index portfolio) – $2 553
  • BrickX (P2P rental real estate) – $4 484

Total portfolio value: $1 765 743 (+$8 485 or 0.5%)

Asset allocation

  • Australian shares – 42.2% (2.8% under)
  • Global shares – 22.0%
  • Emerging markets shares – 2.3%
  • International small companies – 3.0%
  • Total international shares – 27.3% (2.7% under)
  • Total shares – 69.5% (5.5% under)
  • Total property securities – 0.3% (0.3% over)
  • Australian bonds – 4.7%
  • International bonds – 9.4%
  • Total bonds – 14.0% (1.0% under)
  • Gold – 7.7%
  • Bitcoin – 8.4%
  • Gold and alternatives – 16.2% (6.2% over)

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

Jun 20 - Pie

Comments

The overall portfolio increased slightly over the month. This has continued to move the portfolio beyond the lows seen in late March.

The modest portfolio growth of $8 000, or 0.5 per cent, maintains its value at around that achieved at the beginning of the year.

Progress - Jun20

The limited growth this month largely reflects an increase in the value of my current equity holdings, in VAS and A200 and the Vanguard retail funds. This has outweighed a small decline in the value of Bitcoin and global shares. The value of the bond holdings also increased modestly, pushing them to their highest value since around early 2017.

There still appears to be an air of unreality around recent asset price increases and the broader economic context. Britain’s Bank of England has on some indicators shown that the aftermath of the pandemic and lockdown represent the most challenging financial crisis in around 300 years. What is clear is that investor perceptions and fear around the coronavirus pandemic are a substantial ongoing force driving volatility in equity markets (pdf).

A somewhat optimistic view is provided here that the recovery could look more like the recovery from a natural disaster, rather than a traditional recession. Yet there are few certainties on offer. Negative oil prices, and effective offers by US equity investors to bail out Hertz creditors at no cost appear to be signs of a financial system under significant strains.

As this Reserve Bank article highlights, while some Australian households are well-placed to weather the storm ahead, the timing and severity of what lays ahead is an important unknown that will itself feed into changes in household wealth from here.

Jun 20 - Monthy Chgn

Investments this month have been exclusively in the Australian shares exchange-traded fund (VAS). This has been to bring my actual asset allocation more closely in line with the target split between Australian and global shares.

Continue reading “Monthly Portfolio Update – June 2020”

Peril of Waters – Mapping the Equity Portfolio

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Ships are but boards, sailors but men.
There be land-rats and water-rats, water
thieves and land thieves, I mean pirates,
and then there is the peril of waters, winds and rocks.
Shakespeare, The Merchant of Venice

Equities have historically been the most reliable and effective wealth-generating asset class, and provide the main impetus – or centre of effort – for my current journey to financial independence.

The success of this journey relies heavily on equities continuing to provide, over the years and decades ahead, consistently high market returns on a risk-adjusted basis.

The financial independence portfolio is built on a passive index approach to Australian and global equities. This means investments in equity market index funds automatically occur in proportion to the market capitalisation of each company, sector and market.

Until recently, this led to benign neglect in the details of just what structurally made up the equity component of my portfolio. This neglect can no longer be justified – especially as the equities investments continue to make up around 70 per cent of the overall portfolio.

The exploration of the bond portfolio late last year has provided both an impetus and a model to better understand both the individual components and overall shape of the equity portfolio.

This longer read article explores the make up of Australian and global equities within the financial independence portfolio. It looks beneath the individual investment vehicles and analyses exactly how and where it is currently invested.

Here, in the equities area, the goal is to simply observe, rather than to identify areas for changes for future investment. In short, to understand broadly where the dollars in the equity portfolio are actually invested.

Continue reading “Peril of Waters – Mapping the Equity Portfolio”