If it not be now, yet it will come.The readiness is all.Shakespeare, Hamlet, Act V, Scene ii
This is my thirty-second portfolio update. I complete this update monthly to check my progress against my goals.
Portfolio goals
My objectives are to reach a portfolio of:
- $1 598 000 by 31 December 2020. This should produce a real income of about $67 000 (Objective #1) – Achieved
- $1 980 000 by 31 July 2023, to produce a passive income equivalent to $83 000 (Objective #2)
Both of these are based on an expected average real return of 4.19%, or a nominal return of 7.19%, and are expressed in 2018 dollars.
Portfolio summary
- Vanguard Lifestrategy High Growth Fund – $769 050
- Vanguard Lifestrategy Growth Fund – $43 826
- Vanguard Lifestrategy Balanced Fund – $79 826
- Vanguard Diversified Bonds Fund – $108 036
- Vanguard Australian Shares ETF (VAS) – $90 076
- Vanguard International Shares ETF (VGS) – $20 250
- Betashares Australia 200 ETF (A200) – $265 413
- Telstra shares (TLS) – $2 116
- Insurance Australia Group shares (IAG) – $15 051
- NIB Holdings shares (NHF) – $9 588
- Gold ETF (GOLD.ASX) – $95 251
- Secured physical gold – $15 309
- Ratesetter (P2P lending) – $21 070
- Bitcoin – $157 290
- Raiz app (Aggressive portfolio) – $16 358
- Spaceship Voyager app (Index portfolio) – $2 092
- BrickX (P2P rental real estate) – $4 388
Total value: $1 714 990 (-$1 713)
Asset allocation
- Australian shares – 40.6% (4.4% under)
- Global shares – 22.6%
- Emerging markets shares – 2.5%
- International small companies – 3.2%
- Total international shares – 28.2% (1.8% under)
- Total shares – 68.9% (6.1% under)
- Total property securities – 0.3% (0.3% over)
- Australian bonds – 5.1%
- International bonds – 10.1%
- Total bonds – 15.2% (0.2% over)
- Gold – 6.4%
- Bitcoin – 9.2%
- Gold and alternatives – 15.6% (5.6% over)
Presented visually, below is a high-level view of the current asset allocation of the portfolio.
Comments
The portfolio experienced a small decline this month, with a decrease of $1 700. This slight downward movement comes after six months of continuous increases in the value of the portfolio.
The fall also comes at a time in which some significant new investments were made, masking the size of the fall somewhat. A substantial likely contributor to the decline, however, is the natural impact of distributions being paid from shares, as well as ETFs and retail index funds.
In short, around $30 000 of distributions were paid out across July, decreasing the value of portfolio securities by around the same amount. Not all of these distributions have been re-invested, creating a temporary illusion that this value has been removed. A comparable effect led to a similar reduction in July 2017.
Generally movements this month within the portfolio have been relatively limited. One of the larger movements has been an increase in Australian and international shares, with Australian share markets just reaching post Global Financial Crisis highs.
A fall in the price of Bitcoin, and a smaller countervailing increase in the value of gold holdings has provided a live example of some of the issues in my last post on the potential value of non-correlated alternatives. Having said this, the fall in the price of Bitcoin is the major factor in this months downward movement. Evidently following some real estate revaluations, my BrickX holdings have also decreased in value by nearly 6 per cent since the last month. This most recent research into the actual realised returns from real estate investing suggests I should not be surprised, and usefully highlight the specific risks facing individual property investments.
This month has also seen my first investment of July distributions. These were placed in Vanguard international shares ETF (VGS). The remainder of the distributions will be placed into either into VGS, or Australian shares (A200 or VAS) over the next four months, on a dollar cost averaging approach alongside new contributions.
Reviewing of insurance needs and adjustments
Following distributions last month I have also re-examined my insurance requirements, taking into account updated portfolio values, existing savings, insurance through superannuation, and future financial obligations. This has led me to continue to reduce both my life insurance sum insured (from $315 000 to $100 000) and my income protection insurance (from $3000 to $1000 per month).
I have taken a conservative approach, and based the adjusted coverage on the goals of providing of sufficient income, at an assumed safe withdrawal rate of 3.75 per cent, to still meet my Objective #2.
In other words the target has been offering full income replacement from all assets and insurance of at least $83 000 in perpetuity. Still, this adjustment has led to a substantial savings – nearly $1 000 per annum. An alternative way to think about this is that I have lowered my ongoing expenses by just under $20 per week, reducing the final portfolio sum required to support this cost by around $28 000.
Progress
Progress against the objectives, and the additional measures I have reached is set out below.
Measure | Portfolio | All Assets |
Objective #1 – $1 598 000 (or $67 000 pa) | 107.3% | 145.3% |
Objective #2 – $1 980 000 (or $83 000 pa) | 86.6% | 117.3% |
Credit card purchases – $73 000 pa | 98.5% | 133.3% |
Total expenses – $96 000 pa | 74.9% | 101.4% |
Summary
The steady reinvestment of July distributions should give a small upward push to monthly results through to December. This is tempered by an effect of the growth in the overall size of the portfolio, and its exposure to equities.
As a simple example – a daily movement in equities of 0.5 per cent at the beginning of the journey meant a loss or gain of just over $3 000 in a day. The same movement now with the current portfolio would mean a gain or loss of nearly $6 000.
This makes the path less clear – as new contributions can more easily be swallowed into a daily market movement. The portfolio value effect has generally been – to borrow a phrase – a little akin to watching the movement of a yo-yo being used by someone walking up or down some stairs. Psychologically, it detaches effort from reward in a way that still feels relatively new in this journey.
An interesting post to think about in this context, is this from Collaborative Fund, which shows the sharp, volatile multi-year paths equities can take to reach a single destination. Usefully, it also points out the futility of many ‘fine adjustments’ to sectoral exposure, and unnecessary complexity in portfolio construction.
A further truth illustrated by the data in the piece is that general consumer sentiment, and economic growth, do not align with stock returns in any systematic way. In short, buying or selling shares because of a view that the economy or consumer confidence is strengthening, or weakening, is a futile guesswork, which has no historical basis in the past behaviour of returns.
These findings and new realities are reminders that taking the actions that support forward progress and continued regular investments are the immediate focus. This matters more than whether the portfolio sits above or below an arbitrary number on any given day. Planning and readiness for that day is the priority.