Time and Tide – Estimating Distance to the Portfolio Goal

Posted on by The FI Explorer

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All models are wrong, but some are useful.

George E. P. Box

Knowing a time of arrival is key to arranging any complicated journey. An estimated timeline for reaching financial independence is no different.

It is important psychologically because knowing provides a different perspective on choices and work life into the future. Understanding potential timing is also important at a practical level as there are a range of actions it makes sense to take prior to reaching financial independence, and potentially choosing to retire early.

This exploration began over three years ago, with an initial objective of building portfolio of $1 476 000 by July 2021. Since that time progress has occurred and goals have evolved, enabling bringing forward the achievement of this first goal.

Part of the function of this record is to have a history of this evolution, to serve as a reference point through the journey. Another, more outward-facing, purpose is to discuss the specific issues encountered in the middle and later stages of the journey – which can be different from those encountered in the earlier stages.

Since the significant equity market falls across the early part of this year it has been increasingly clear that my original timeline for reaching my financial independence goal may need adjustment.

This post discusses the significant impacts of market movements, how I am approaching reviewing the expected remaining length of the journey, and shows some early results of this approach.

Continue reading “Time and Tide – Estimating Distance to the Portfolio Goal”

Monthly Portfolio Update – April 2020

Posted on by The FI Explorer
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The real voyage of discovery consists not in seeking new landscapes, but in having new eyes.
Marcel Proust, Remembrance of Things Past

This is my forty-first 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 – $697 582
  • Vanguard Lifestrategy Growth Fund  – $40 709
  • Vanguard Lifestrategy Balanced Fund – $76 583
  • Vanguard Diversified Bonds Fund – $110 563
  • Vanguard Australian Shares ETF (VAS) – $174 864
  • Vanguard International Shares ETF (VGS) – $31 505
  • Betashares Australia 200 ETF (A200) – $215 805
  • Telstra shares (TLS) – $1 625
  • Insurance Australia Group shares (IAG) – $7 323
  • NIB Holdings shares (NHF) – $5 904
  • Gold ETF (GOLD.ASX)  – $119 458
  • Secured physical gold – $19 269
  • Ratesetter (P2P lending) – $12 234
  • Bitcoin – $158 360
  • Raiz app (Aggressive portfolio) – $16 144
  • Spaceship Voyager app (Index portfolio) – $2 435
  • BrickX (P2P rental real estate) – $4 471

Total portfolio value: $1 694 834 (+$127 888 or 8.2%)

Asset allocation

  • Australian shares – 40.9% (4.1% under)
  • Global shares – 21.7%
  • Emerging markets shares – 2.2%
  • International small companies – 3.0%
  • Total international shares – 26.9% (3.1% under)
  • Total shares – 67.8% (7.2% under)
  • Total property securities – 0.3% (0.3% over)
  • Australian bonds – 4.5%
  • International bonds – 9.9%
  • Total bonds – 14.4% (0.6% under)
  • Gold – 8.2%
  • Bitcoin – 9.3%
  • Gold and alternatives – 17.5% (7.5% over)

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

Apr 20 - Pie

Comments

This month featured a sharp recovery in the overall portfolio, reducing the size of the large losses experienced over the previous month.

The portfolio increased by over $127 000, representing a growth of 8.2 per cent, which is the largest month-on-month growth on record. This now puts the portfolio value significantly above the levels of a year ago.

Monthly value - Apr 20The expansion in the value of the portfolio has occurred due to an increase in Australian and global equities markets, as well as substantial increases the price of Bitcoin. This is effectively the mirror image of the simultaneous negative movements last month.

From a nadir of initial pessimism in late March, markets have generally moved upwards as debate continues about the path of a likely economic recession and recovery from Coronavirus impacts over the coming year.

Continue reading “Monthly Portfolio Update – April 2020”

Monthly Portfolio Update – March 2020

Posted on by The FI Explorer
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Only the sea, murmurous behind the dingy checkerboard of houses, told of the unrest, the precariousness, of all things in this world.
Albert Camus, The Plague

This is my fortieth 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 – $662 776
  • Vanguard Lifestrategy Growth Fund  – $39 044
  • Vanguard Lifestrategy Balanced Fund – $74 099
  • Vanguard Diversified Bonds Fund – $109 500
  • Vanguard Australian Shares ETF (VAS) – $150 095
  • Vanguard International Shares ETF (VGS) – $29 852
  • Betashares Australia 200 ETF (A200) – $197 149
  • Telstra shares (TLS) – $1 630
  • Insurance Australia Group shares (IAG) – $7 855
  • NIB Holdings shares (NHF) – $6 156
  • Gold ETF (GOLD.ASX)  – $119 254
  • Secured physical gold – $19 211
  • Ratesetter (P2P lending) – $13 106
  • Bitcoin – $115 330
  • Raiz app (Aggressive portfolio) – $15 094
  • Spaceship Voyager app (Index portfolio) – $2 303
  • BrickX (P2P rental real estate) – $4 492

Total portfolio value: $1 566 946 (-$236 479 or -13.1%)

Asset allocation

  • Australian shares – 40.6% (4.4% under)
  • Global shares – 22.3%
  • Emerging markets shares – 2.3%
  • International small companies – 3.0%
  • Total international shares – 27.6% (2.4% under)
  • Total shares – 68.3% (6.7% under)
  • Total property securities – 0.2% (0.2% over)
  • Australian bonds – 4.8%
  • International bonds – 10.4%
  • Total bonds – 15.2% (0.2% over)
  • Gold – 8.8%
  • Bitcoin – 7.4%
  • Gold and alternatives – 16.2% (6.2% over)

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

Mar 20 MPU Pie.2png

Comments

This month saw an extremely rapid collapse in market prices for a broad range of assets across the world, driven by the acceleration of the Coronavirus pandemic.

Broad and simultaneous market falls have resulted in the single largest monthly fall in portfolio value to date of around $236 000.

This represents a fall of 13 per cent across the month, and an overall reduction of more the 16 per cent since the portfolio peak of January.

Mar 20 MPU All Jny 2

The monthly fall is over three times more severe than any other fall experienced to date on the journey. Sharpest losses have occurred in Australian equities, however, international shares and bonds have also fallen.

A substantial fall in the Australia dollar has provided some buffer to international equity losses – limiting these to around 8 per cent. Bitcoin has also fallen by 23 per cent. In short, in the period of acute market adjustment – as often occurs – the benefits of diversification have been temporarily muted.

Continue reading “Monthly Portfolio Update – March 2020”

Monthly Portfolio Update – February 2020

Posted on by The FI Explorer
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No one would have crossed the ocean if he could have gotten off the ship in the storm.
Charles Kettering

This is my thirty-ninth 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 – $772 191
  • Vanguard Lifestrategy Growth Fund  – $44 099
  • Vanguard Lifestrategy Balanced Fund – $81 139
  • Vanguard Diversified Bonds Fund – $111 360
  • Vanguard Australian Shares ETF (VAS) – $174 810
  • Vanguard International Shares ETF (VGS) – $32 294
  • Betashares Australia 200 ETF (A200) – $250 949
  • Telstra shares (TLS) – $1 844
  • Insurance Australia Group shares (IAG) – $8 083
  • NIB Holdings shares (NHF) – $5 580
  • Gold ETF (GOLD.ASX)  – $114 375
  • Secured physical gold – $18 455
  • Ratesetter (P2P lending) – $13 971
  • Bitcoin – $149 920
  • Raiz app (Aggressive portfolio) – $17 424
  • Spaceship Voyager app (Index portfolio) – $2 446
  • BrickX (P2P rental real estate) – $4 485

Total portfolio value: $1 803 425 (-$69 900 or -3.7%)

Asset allocation

  • Australian shares – 42.1% (2.9% under)
  • Global shares – 22.3%
  • Emerging markets shares – 2.3%
  • International small companies – 3.1%
  • Total international shares – 27.7% (2.3% under)
  • Total shares – 69.8% (5.2% under)
  • Total property securities – 0.2% (0.2% over)
  • Australian bonds – 4.6%
  • International bonds – 9.7%
  • Total bonds – 14.3% (0.7% under)
  • Gold – 7.4%
  • Bitcoin – 9.7%
  • Gold and alternatives – 15.7% (5.7% over)

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

Pie Feb 20

Comments

Equity markets fell significantly this month, resulting in a portfolio loss of around $70 000. This is the largest monthly fall across the three years of this record in dollar terms, and the third largest as a proportion of assets.

MPV Feb 20The falls follow a large increase in the portfolio value last month, and have occurred amidst increasing global impacts and fears from the spread of the Corona virus. The losses are mainly in Australian and global equities and have been concentrated in the last two weeks. Continue reading “Monthly Portfolio Update – February 2020”