Weathering the Storm – Investing through the Global Financial Crisis

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And once the storm is over, you won’t remember how you made it through, how you managed to survive. You won’t even be sure, whether the storm is really over. But one thing is certain. When you come out of the storm, you won’t be the same person who walked in. That’s what this storm’s all about.

Haruki Murakami, Kafka on the Shore

The Global Financial Crisis was the second significant market event I was conscious of. My investing journey began at the same time as the 2000 ‘Dot com’ bubble. I have few distinct memories of that latter event, though I do recall a work supervisor who had a sizeable investment in an actively managed global technology focused fund, ruefully reflecting on market events.

The Global Financial Crisis was different – it emerged in the early phases of my investment journey, around seven years after I started building an investment portfolio by making regular contributions, and after I had already read a number of investment books and researched some financial market history.  Indeed, By mid-2006 I had already set an early FI goal of achieving investment returns equal to average expenditure, with an ambitious deadline of December 2008. This shows how far I was from anticipating the shape of events to come.

This post results from reader questions received about my direct experience with the Global Financial Crisis. It focuses on the period of the crisis and initial recovery, from 2007 through the 2010 and aims to cover:

  • what investments were made leading up to and through the crisis period
  • the overall asset allocation of the portfolio through the period
  • the impact of the crisis of the portfolio – including overall portfolio value and distributions; and
  • how the experience of the Global Financial Crisis has shaped the rest of the financial independence journey

In short, how – or indeed was – this storm weathered?

Answering that question needs to start at the beginning, however, with a description of the context in which the crisis developed.

Continue reading “Weathering the Storm – Investing through the Global Financial Crisis”

Monthly Portfolio Update – January 2020

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The day advanced as if to light some work of mine
Thoreau, Walden

This is my thirty-eighth 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 – $813 282
  • Vanguard Lifestrategy Growth Fund  – $45 802
  • Vanguard Lifestrategy Balanced Fund – $83 162
  • Vanguard Diversified Bonds Fund – $110 472
  • Vanguard Australian Shares ETF (VAS) – $178 121
  • Vanguard International Shares ETF (VGS) – $34 965
  • Betashares Australia 200 ETF (A200) – $272 399
  • Telstra shares (TLS) – $2 046
  • Insurance Australia Group shares (IAG) – $8 970
  • NIB Holdings shares (NHF) – $6 492
  • Gold ETF (GOLD.ASX)  – $106 701
  • Secured physical gold – $17 252
  • Ratesetter (P2P lending) – $14 755
  • Bitcoin – $153 530
  • Raiz app (Aggressive portfolio) – $18 365
  • Spaceship Voyager app (Index portfolio) – $2 534
  • BrickX (P2P rental real estate) – $4 477

Total portfolio value: $1 873 325 (+$94 067)

Asset allocation

  • Australian shares – 42.8% (2.2% under)
  • Global shares – 22.6%
  • Emerging markets shares – 2.4%
  • International small companies – 3.1%
  • Total international shares – 28.1% (1.9% under)
  • Total shares – 70.9% (4.1% under)
  • Total property securities – 0.2% (0.2% over)
  • Australian bonds – 4.5%
  • International bonds – 9.5%
  • Total bonds – 14.0% (1.0% under)
  • Gold – 6.6%
  • Bitcoin – 8.2%
  • Gold and alternatives – 14.8% (4.8% over)

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

Pie alloc Jan 20

Comments

This month saw exceptional growth in the portfolio, with a net increase of $94 000 after a small fall last month.Monthly prog Jan 20This is the fastest growth in the past half year. It is also the second largest absolute increase in over three years of measurement.

As the histogram below – which counts the frequency of occurrences in a specified range of monthly value changes (with red denoting losses) – makes clear, this is one of the most positive outcomes in the three year record.

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Fair Winds and Following Seas – Income and Capital in Portfolio Distributions

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It is impossible for a man to learn what he thinks he already knows.
Epictetus

Portfolio distributions that have been tracked in the journey so far have had two important but distinct components: investment income (such as interest or dividends), and realised capital gains.

What ultimately matters for reaching any financial independence target is total returns – which are the sum of capital gains and investment income. These two components, working together, push forward progress on the voyage. Distributions through the journey, however, provide an important and tangible measure of progress.

This longer read post explores through past portfolio data the level and significance of realised capital gains I have received in regular Vanguard retail fund distributions. It also analyses the level of ‘pure’ income – that is, counting only interest and dividends – produced by the FI portfolio and discusses what this means for managing the portfolio in the future.

Analysis of the two distinct components – capital gains and income – of my Vanguard retail fund distributions helps in understanding past and future variations in the level of these distributions, and the sustainable long-term income potential from the portfolio.

How these Vanguard distributions are structured, have behaved, and what they can be expected to do in the future is an important question for my financial independence portfolio – as by value Vanguard funds currently constitute over half its total value.

Continue reading “Fair Winds and Following Seas – Income and Capital in Portfolio Distributions”

Portfolio Income Update – Half Year to December 31, 2019

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Whoever wishes to read the future has to leaf through the past.

André Malraux

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

As discussed in my recent post Between Wind and Water, my goal is to build up a portfolio capable of providing a passive income of around $87 000 by July 2021 (Portfolio Objective).

Passive income summary

  • Vanguard Lifestrategy High Growth – $9 024
  • Vanguard Lifestrategy Growth – $517
  • Vanguard Lifestrategy Balanced – $490
  • Vanguard Diversified Bonds – $86
  • Vanguard ETF Australian Shares ETF (VAS) – $2 904
  • Vanguard ETF International Shares ETF (VGS) – $299
  • Betashares Australia 200 ETF (A200) – $5 845
  • Telstra shares – $43
  • Insurance Australia Group shares – $349
  • NIB shares – $156
  • Ratesetter (P2P lending) – $862
  • Raiz app (Aggressive portfolio) – $130
  • Spaceship Voyager app (Index portfolio) – $0
  • BrickX (P2P rental real estate) – $45

Total passive income in half year to December 31, 2019: $20 750

The chart below sets out the passive income received on a half-yearly basis from the portfolio over the past three and a half years.PIU HY Bar progress Dec 19

The following chart is a breakdown of the percentage contribution of each investment type to the total half-year income.

PIU HY Dist Pie - Dec19

Comments

The total half year passive income from the portfolio was $20 750, or the equivalent of around $3 460 per month. This was around the bottom of the range of my expectations, and it continues the pattern of lower December half distributions.

This result, however, is still around a third higher than the previous comparable December half, and almost double that of three years ago.

Continue reading “Portfolio Income Update – Half Year to December 31, 2019”