Mens fortunes are on a wheel, which in its turning suffers not the same man to prosper for ever.

Herodotus

This is my twentieth portfolio update. I complete this update monthly to check my progress against my goals.

Portfolio goals

My current objectives are to reach a portfolio of:

• $1 476 000 by 31 December 2018. This should produce a real income of about $58 000 (Objective #1).
• $2 041 000 by 31 July 2023, to produce a passive income equivalent to $80 000 in 2017 dollars (Objective #2)

Both of these are based on a real return of 3.92%, or a nominal return of 7.17%

Portfolio summary

• Vanguard Lifestrategy High Growth – $727 907
• Vanguard Lifestrategy Growth  – $41 957
• Vanguard Lifestrategy Balanced – $75 075
• Vanguard Diversified Bonds – $100 122
• Vanguard ETF Australia Shares ETF (VAS) – $78 653
• Betashares Australia 200 ETF (A200) – $55 263
• Telstra shares – $3 785
• Insurance Australia Group shares – $20 083
• NIB Holdings – $6 768
• Gold ETF (GOLD.ASX)  – $75 509
• Secured physical gold – $12 058
• Ratesetter (P2P lending) – $38 431
• Bitcoin – $119 600
• Raiz app (Aggressive portfolio) – $12 077
• Spaceship Voyager app (Index portfolio) – $1 215
• BrickX (P2P rental real estate) – $4 711

Total value: $ 1 373 214 (+$34 066) 

Asset allocation

• Australian shares –  36%
• International shares – 18%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 59.5% (1.5% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.2% (1.2% over)
• Australian bonds – 9%
• International bonds – 9%
• Total bonds – 17.8% (2.8% over)
• Cash – 1.3%
• Gold – 6.4%
• Bitcoin – 8.7%
• Gold and alternatives – 15.1% (0.1% over)

Comments

The allocation of distributions for the last half-year has been the most significant decision over the past month. After some thought my allocation decision was to do three things:

• $1 000 investment in Spaceship index – the logic being that this has no fees, is consistent with indexed globally diversified approach, and putting a significant amount at risk will better test my views of its performance.
• $10 700 set aside for future tax liabilities – this is to avoid having to sell an investment to meet a future ‘surprise’ or higher than expected tax liability, arising from capital gains.
• $29 000 investment in A200 Australian equity ETF – this is due to this being the lowest cost vehicle for exposure to Australia equity markets, and is consistent with seeking to reach my target equity allocation. The Australian equity market continues to appear more fairly value on a dividend yield and price to earnings ratio than global markets (taking into account US valuations).

Seeing such a significant re-investment in the portfolio has felt motivating, and increased the sense that momentum is shifting. Each fortnight this has been added to by a regular additional investment in A200, supplemented by the slow draw down of Ratesetter loans as they mature.

Movement in my portfolio has been limited, aside from distributions. My reliance on A200 for recent investments is slowly building my Australian equity exposure. At some point, I will need to consider ‘how much is too much’ domestic exposure.

With past financial years distribution finalised, my curiosity also turned to the question touched on in my last post, that is, the proportion of my credit card expenses that can now be said to be notionally met by portfolio distributions. After much exploration with spreadsheets, averages, and assumptions the results are below. Whichever way the data is analysed, around September of last year I reached the ‘cross over’ point (the concept made popular by Your Money or Your Life) in terms of credit card expenses.

Credit card expenses are obviously volatile from month to month, and the distributions line is an averaged per month figure from the total annual distributions. Obviously, all of my expenses don’t occur through my credit card – though I would estimate around 80-90 per cent do. This means it is just short of a full ‘cross over point’. Nonetheless, it is an arresting and motivating fact to consider that each time I use my credit card to buy an essential item, the portfolio is notionally paying that expense.

Over the past month, I have also signed up to join the waitlist for Xinja, a new app based banking product, featuring a pre-paid card and spending categorisation. I need to study this further, as functionality seems restricted to joining a queue at the moment. Making someone join a queue for access to services seems a non-intuitive way to signal a commitment to disrupting traditional banking models, but my curiosity is still piqued. Finally, I listened to an interesting Equity Mates podcast with the founder of Raiz (formerly Acorns), who gave an insight into where that fintech product was going in the future, and the challenges facing fintech startups.

Progress

Progress to:

• Objective #1: 93.0% or $102 786 further to reach goal.
• Objective #2: 67.3% or $667 786 further to reach goal.

Summary

Looking at the graph above of credit card expenses versus portfolio income feels like a peculiarly tangible manifestation of the gradual approach of financial independence. It’s provided an extra impetus to be careful of what I purchase, and to try to keep the blue line below the red. July distributions will hopefully increase my future portfolio income, even as I continue to expect a significant reversal in capital markets over the coming year.

Everything comes gradually and at its appointed hour.

Ovid

This is my nineteenth portfolio update. I complete this update monthly to check my progress against my goals.

Portfolio goals

My current objectives are to reach a portfolio of:

• $1 476 000 by 31 December  2018. This should produce a real income of about $58 000 (Objective #1).
• $2 041 000 by 31 July 2023, to produce a passive income equivalent to $80 000 in 2017 dollars (Objective #2)

Both of these are based on a real return of 3.92%, or a nominal return of 7.17%

Portfolio summary

• Vanguard Lifestrategy High Growth – $748 238
• Vanguard Lifestrategy Growth  – $43 239
• Vanguard Lifestrategy Balanced – $76 351
• Vanguard Diversified Bonds – $103 147
• Vanguard ETF Australia Shares ETF (VAS) – $78 643
• Betashares Australia 200 ETF (A200) – $16 025
• Telstra shares – $3 492
• Insurance Australia Group shares – $21 308
• NIB Holdings – $6 876
• Gold ETF (GOLD.ASX)  – $77 784
• Secured physical gold – $12 402
• Ratesetter (P2P lending) – $39 873
• Bitcoin – $95 396
• Raiz app (Aggressive portfolio) – $11 585
• Spaceship Voyager app (Index portfolio) – $140
• BrickX (P2P rental real estate) – $4 649

Total value: $ 1 339 148 (+$10 794) 

Asset allocation

• Australian shares –  35%
• International shares – 19%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 59.4% (1.6% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.5% (1.5% over)
• Australian bonds – 9%
• International bonds – 10%
• Total bonds – 18.8% (3.8% over)
• Cash – 1.3%
• Gold – 6.7%
• Bitcoin – 7.1%
• Gold and alternatives – 13.9% (1.1% under)

Comments

This entry, like last year, seems to occur at a strange ‘bridging’ time between effort and demonstrable progress. Past months have seen increases in contributions, and a steady shifting of Ratesetter funds as each loan matures towards Australian equities. Yet this progress will only seem irrevocable later in July when all distributions from Vanguard funds and ETFs are received and totalled, to reach a passive income estimate for this financial year.

So I have busied myself with some financial ‘cleaning up’, moving all of my holdings to a single broker, that I have used for the past few purchases of the Australian Shares ETF A200. A slight complication arising out of this was that I had to reconfirm all my dividend payment instructions through the couple of share registries used, as this information apparently sometimes gets lost in the transferral process.  As a result, in a couple of cases, I will be waiting by my letter box, rather than checking my bank account, for the dividends to arrive. Another ‘cleaning up step’ has been to finally put in claims to an old series of outstanding Medicare rebates that had built up, going back to 2008. This has already added around $300 to my Raiz account which I use to motivate myself to take small ongoing saving steps.

Movement in my portfolio has been limited, and generally in the direction of my target asset allocations. Bitcoin has continued its downward drift, and my recent investment in the A200 ETF has mildly pushed up my Australian shares allocation.

While waiting for distributions I also listened to renowned Nobel Prize winner Robert C Merton discuss his views on retirement planning. The conversation was fascinating, and focused in a way that is relevant for the FI community on the dangers of targeting ‘a number’ as a proxy for the actual objective of a certain income or living standard in retirement. For a slightly different view of similar issues, see this research note (pdf) which points out the potential risks of ‘income’ (including dividend) focused investing, compared to approaches that target a high, and diversified, total market return.

Progress

Progress to:

• objective #1: 90.7% or $136 852 further to reach goal.
• objective #2: 65.6% or $701 852 further to reach goal.

Summary

Looking back a year, at this time I was cautious about further investments in the Australian share market, where now I am adding additional funds every two weeks. My caution remains, but it is instructive that since that time Australian equity markets have advanced healthily and delivered strong dividends.

This is a core part of my reasoning for commencing this record, to understand in retrospect that momentary perceptions can be overtaken by market realities. At this moment, my continuing equity purchases are driven by the need to reach my portfolio objectives without seeking to time the market, so that even as I see a correction as being quite likely over the next year, I am planning to continue in this course.

As distributions are finalised for the past financial year, my focus is on what this will signal about the length and the nature of the journey ahead.

Neither should a ship rely on one small anchor, nor should life rest on a single hope.

Epictetus

This is my eighteenth portfolio update. I complete this update monthly to check my progress against my goals.

Portfolio goals

My current objectives are to reach a portfolio of:

• $1 476 000 by 31 December  2018. This should produce a real income of about $58 000 (Objective #1).
• $2 041 000 by 31 July 2023, to produce a passive income equivalent to $80 000 in 2017 dollars (Objective #2)

Both of these are based on a real return of 3.92%, or a nominal return of 7.17%

Portfolio summary

• Vanguard Lifestrategy High Growth – $734 804
• Vanguard Lifestrategy Growth  – $42 624
• Vanguard Lifestrategy Balanced – $75 539
• Vanguard Diversified Bonds – $102 960
• Vanguard ETF Australia Shares ETF (VAS) – $76 267
• Betashares Australia 200 ETF (A200) – $5 780
• Telstra shares – $ 3 732
• Insurance Australia Group shares – $20 308
• NIB Holdings – $6 564
• Gold ETF (GOLD.ASX)  – $79 125
• Secured physical gold – $12 623
• Ratesetter (P2P lending) – $41 746
• Bitcoin – $110 570
• Raiz app (Aggressive portfolio) – $10 896
• Spaceship Voyager app (Index portfolio) – $98
• BrickX (P2P rental real estate) – $4 718

Total value: $ 1 328 354 (-$8 678)

Asset allocation

• Australian shares –  34%
• International shares – 19%
• Emerging markets shares – 3%
• International small companies – 3%
• Total shares – 56.4% (3.0% under)
• Australian property securities – 3%
• International property securities 3%
• Total property – 6.5% (1.5% over)
• Australian bonds – 9%
• International bonds – 9%
• Total bonds – 19.0% 
• Cash – 1.3%
• Gold – 6.9%
• Bitcoin – 8.3%
• Gold and alternatives – 15.2% (0.2% over)

Comments

This month has been one of taking some small new actions, and experimenting with some different tools to apply my overall plan. Most significantly, I have opened and used a new low cost brokerage account, with Self Wealth, to start purchasing Betashares A200 ETF, a new very low cost (0.07%) Australian shares ETF.

The A200 is a new index ETF, similar to the Vanguard VAS ETF, though currently with lower fees, and covering the ASX200, rather than the ASX300. Self Wealth’s platform enables a flat brokerage fee of less than half my previous online brokerage account. In turn, this has made a move away from contributing to my Vanguard high growth fund as a primary destiny for new investment, into A200, more economic, at least by my calculations. So my amended approach in future will be fortnightly purchases of A200 or other low cost ETFs. An added benefit of this will be more rapid movement to my target asset allocation, as previously 10% of each Vanguard high growth contribution was effectively contributing to my bond holdings.

A further experiment has been opening a small account at Spaceship, a new app based micro-investing option. Spaceship is a new entry into the micro-investing market, currently offering no fees on balances of less that $5000. The app is simple, and the application process was relatively fast and efficient. I chose their only index portfolio, which is based on direct holdings of globally diversified large companies. While lacking some of the appeal and finish of the Raiz app, zero fees on small balances is a remarkable offering.

This month my portfolio has faced headwinds from some declines in the price of Bitcoin, which has actually recently enjoyed a period of relatively low volatility. In a further change to my alternatives allocation, now that my physical gold holdings have reached about one percent of my total portfolio, I have paused regular weekly contributions to my Goldmoney account, to focus new cashflow into Australian shares.

This has left my overall asset allocation as close as to my investment policy targets as it has been for some time. With the Australian share market closer to long term valuations than the US market, this is leading me to hold off on increasing my international diversification for now. My next major decisions in that area will be on receiving my July distribution payments.

This month the Productivity Commission released its fascinating draft report into superannuation. A focus of my thinking over this past month has also been a rough review of my ‘global’ financial position, taking into account superannuation funds, and their asset allocation. This blog covers only my accessible non-superannuation assets, because of its focus on creation of a passive income stream well before eligibility to draw on superannuation. Nonetheless, ignoring its effect would be incorrect. Currently my superannuation is invested primarily in a low cost high growth index product, and my spreadsheet experiments have focused on ensuring that my portfolio decisions don’t occur in isolation from my broader financial position.

Progress

Progress to:

• objective #1: 89.9% or $147 646 further to reach goal.
• objective #2: 65.1% or $712 646  further to reach goal.

Summary

Exploration of new products and approaches has diverted my attention from overall portfolio performance this month, in part by design. I have been focused on smaller regular optimisations I can make, and questioning choices that could result in higher ongoing costs for no benefit.

Following on from my looking at safe withdrawal literature last month, I have also come across the only Australian examination of the ‘4 per cent rule’ I have ever seen, How Safe are Safe Withdrawal Rates in Retirement? An Australian Perspective, published here (pdf). It highlights a particular humility we should have about just importing the ‘4 per cent rule’ unthinkingly from overseas studies, by pointing out the extraordinary performance of the Australian market, and the much lower safe withdrawal rates that would follow from a break in this extraordinary run. The paper is rich with insights and issues to consider for anyone investing for financial independence in Australia.