Monthly Portfolio Update – February 2018

Posted on by The FI Explorer

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The pursuit, even of the best things, ought to be calm and tranquil.

Cicero

This is my fifteenth 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 – $704 616
  • Vanguard Lifestrategy Growth  – $42 310
  • Vanguard Lifestrategy Balanced – $74 994
  • Vanguard Diversified Bonds – $102 353
  • Vanguard ETF Australia Shares (VAS) – $76 562
  • Telstra shares – $4 652
  • Insurance Australia Group shares – $20 358
  • NIB Holdings – $8 436
  • Gold ETF (GOLD.ASX)  – $77 905
  • Secured physical gold – $10 684
  • Ratesetter (P2P lending) – $48 179
  • Bitcoin – $154 110
  • Acorns app (Aggressive portfolio) – $9 895
  • BrickX (P2P rental real estate) – $4 370

Total value: $1 339 424 (+$23 490)

Asset allocation

  • Australian shares –  32 %
  • International shares – 18%
  • Emerging markets shares – 2%
  • International small companies – 3%
  • Total shares – 55.4% (5.6% under)
  • Australian property securities – 3%
  • International property securities 3%
  • Total property – 6.2% (1.2% over)
  • Australian bonds – 10%
  • International bonds – 9%
  • Total bonds – 19.6% (0.6% over)
  • Cash – 1.3%
  • Gold – 6.6%
  • Bitcoin – 11.5%
  • Gold and alternatives – 18.1% (3.1% over)

Comments

This month my attention has been focused on the small and welcome breakout of media exposure to the Australian FI movement, including Pat the Shuffler’s ABC piece, Aussie Firebug’s followup interview, and a broader piece in Fairfax on the movement as a whole.

Another activity carried over from last month has been continuing to optimise my insurance coverage. Previously, I had faithfully paid my home contents insurance each year, resolving to test the market next year, when I had more time. Over an hour or so one weekend recently, this finally happened. Four or five quotes later, I had a offer that saved around $180 per year, for the same coverage from a major reputable insurer. Most surprising was the reaction when I phoned my current provider, and asked them to consider the competing offers, and whether they wanted to adjust their quote. They offered a nominal discount, but indicated they could and would not match even the average of other offers. So from this month, I have switched providers and invested the difference in Acorns.

Bitcoin’s recovery from it’s falls earlier this year was the most dominant element of portfolio performance this month. A slow withdrawal from both Ratesetter and a drawdown of surplus funds in my emergency fund are providing a good cashflow to consider future quarterly investments in shares, in which I am still underweight. Other parts of the portfolio have not moved significantly.  Gold securities have risen, and most share markets have partially or fully recovered from the recent sharp falls, and much heralded return to volatility

Progress

Progress to:

  • objective #1: 90.5% or $136 575 further to reach goal.
  • objective #2: 65.6% or $701 575 further to reach goal.

Summary

This month has felt like a calm and steady accumulation of assets, even as market, portfolio volatility has fallen away. The growth in the overall portfolio is starting to be a increasing factor in thoughts about how I spend my time in the future, at the moment providing a cushion against uncertainty. Slowly, I am beginning to have more deliberate thoughts about how I value my time, what tradeoffs I am prepared to make for how long, and what ‘next’ could possibly look like.

Monthly Portfolio Update – January 2018

Posted on by The FI Explorer

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My course is set for an uncharted sea

Dante

This is my fourteen 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 – $697 911
  • Vanguard Lifestrategy Growth  – $42 305
  • Vanguard Lifestrategy Balanced – $76 331
  • Vanguard Diversified Bonds – $102 436
  • Vanguard ETF Australia Shares (VAS) – $75 754
  • Telstra shares – $4 892
  • Insurance Australia Group shares – $17 998
  • NIB Holdings – $8 022
  • Gold ETF (GOLD.ASX)  – $76 331
  • Secured physical gold – $9 907
  • Ratesetter (P2P lending) – $51 663
  • Bitcoin – $140 010
  • Acorns app (Aggressive portfolio) – $9 417
  • BrickX (P2P rental real estate) – $4 288

Total value: $1 315 934  (-$43 754)

Asset allocation

  • Australian shares –  32 %
  • International shares – 18%
  • Emerging markets shares – 3%
  • International small companies – 3%
  • Total shares – 55.7% (5.3% under)
  • Australian property securities – 3%
  • International property securities 3%
  • Total property – 6.2% (1.2% over)
  • Australian bonds – 10%
  • International bonds – 9%
  • Total bonds – 19.6% (0.6% over)
  • Cash – 1.3%
  • Gold – 6.6%
  • Bitcoin – 10.6%
  • Gold and alternatives – 17.2% (2.2% over)

Comments

This month my overall portfolio has fallen with the dramatic reversal of previous gains in the price of Bitcoin. This has been the first genuine fall in my portfolio in over a year. Underlying this large headline change, however, has been no real progress in the equity elements of the portfolio, and some new investment of distributions.

For the reinvestment of the substantial distributions that came in from my Vanguard funds, I finally selected an increase in my Vanguard Australian Shares ETF (VAS) holdings. My reason for this was that I remain concerned at valuations in the US stock market, and Australian market valuations seemed less stretched. The greater tax effectiveness of franked Australian dividends was also a factor. Overall, another consideration was not seeking to increase the complexity of my portfolio with purchase of another type of ETF. Being an explorer by nature, however, I can forecast curiosity in the future overcoming this particular factor.

The new asset allocations adopted in resetting the compass at the start of the year means that I am actively looking for greater international share exposure in coming months, in as simple a format as possible. Removing the Bitcoin holdings from consideration, I am making good progress in absolute terms in moving closer to my ultimate 65% allocation target. Market movements are now playing a much greater role in affecting my allocations. At some point this will become difficult to manage through just control of new investments and distributions, leading me to potentially trigger some rebalancing sales. A decision I will need to increasingly think about is how often and when this rebalancing should occur. My current default would be twice yearly if required.

My other significant step has been to actively reconsider the level and value of life and income insurances, in light of my portfolio’s passive income record. Collectively, this has saved around $700 from two policies with AMP. All this saving required was a careful look at my own circumstances, a few emails, scanning and returning a few documents and a few follow up actions. To make sure I could see the impact of this, and avoid it being swallowed up by another expenditure category, I immediately invested the savings in my Acorns account.

Progress

Progress to:

  • objective #1: 89.2% or $160 066 further to reach goal.
  • objective #2: 64.5% or $725 066 further to reach goal.

Summary

This month has seen greater uncertainty and volatility in both my portfolio and work life, with significant but ultimately unclear changes on the horizon. My progress to date, and the strong portfolio position at the moment has made this volatility easier to disconnect from.

For example, I have found myself curiously relaxed about the fall in Bitcoin values, having perhaps never mentally locked in the large gains of last year. Rather, the steady accumulation of assets on a dollar cost averaged basis continues to underpin the growth in the underlying portfolio.

As I look back, I realise I have been awaiting an equity and bond market pull back for almost the entire length of this blog. A lesson in the risks of market timing, to be sure, however, I’m not convinced this won’t occur soon.

 

Resetting the Compass – New Goals and Portfolio Income Update – Half Year to December 31, 2017

Posted on by The FI Explorer

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Men are slower to recognise blessings than misfortunes.

Livy

A year ago I set out on a voyage to build a passive income of around $58 000 by July 2021. As outlined in my recent year in review post, I have come quite close to the absolute portfolio target, and so have spent the past few days reviewing my plans and objectives. Resetting the compass for the future. The passive income update below also indicates that for this past year at least, I have achieved the income objective.

Setting a new course

To recognise this, I have decided to move to having two complementary objectives.

The first is to reach the original goal of $1 476 000 by 31 December 2018. This recognises that while measured in income terms, I have arguably met this goal, this has been from a portfolio level which is still below the target.

The second is a longer term goal of receiving a passive income equivalent to $80 000 in 2017 dollars. This is the approximate equivalent of average Australian full-time earnings, and my annual credit card liability. This will be derived from a new portfolio objective of $2 041 000 by 31 July 2023, keeping the long term real return assumption of 3.92 per cent.

The second goal is designed to reflect a more ‘business as usual’ lifestyle, rather than more of a ‘leanFIRE’ concept , at least in my current phase of life, of $58 000. After reflection, it is closer to the level of expenditure at which I personally would likely truly become indifferent to working or not. Looking back at all of my past investment plans, all have been couched in terms not of quitting work, but building a second passive income stream. No doubt partially this was because not much conscious thought went into what happened at ‘the end’. The closest the policy comes is a ‘review’ following completion.

I have taken a new approach of setting the timeframe of this goal on an average of my past portfolio’s growth over the past few years. In my first plans I would laboriously calculate out new contributions, expected returns, and the effect of compounding. Each method has its drawbacks, however, with a good record of past actual savings and portfolio growth, I have decided that past actual history, with its inexactitude, is likely to be a better guide than forecasts with average return assumptions.

In setting the second objective, one of the factors I’m conscious is that any number of important life and external economic events could intervene. The target is about 2030 days away, based on averages, and cannot reflect how circumstances could change. Nonetheless, I like the focus of a tangible goal.

Following the course

In actually carrying out the new plan, I have made some small refinements. The first is the adoption of specific asset allocation sub-targets, beyond the broad initial equity/bond and alternatives categories. These are:

  • 65 per cent equity based investments
    • 30 per cent international shares
    • 35 per cent Australian shares
  • 15 per cent bonds and fixed interest holdings
    • 5 per cent Australian bonds and fixed interest
    • 10 per cent international bonds and fixed interest
  • 15 per cent gold and commodity securities and Bitcoin
    • 10 per cent physical gold holdings and securities
    • 5 per cent Bitcoin
  • 5 per cent property securities
    • 1 per cent Australia residential holdings
    • 4 per cent general Australian and international property securities

Currently, the portfolio is some distance from this ideal allocation, as it will inevitably be at any given time. My plan is to use new contributions and distributions over time to dynamically target the desired allocations. Unfortunately, I have not been able to find much good data to support individual asset allocations in an Australian context. The split between Australian and international equities reflect a balance between international diversification and the tax-advantaged nature of Australian dividends. The role of Bitcoin is primarily as a non-correlated financial instrument.

Passive income summary

As noted my first goal is to to build up a passive income of around $58 000 by 31 December 2018 and $80 000 by July 2023.

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

  • Vanguard Lifestrategy High Growth – $23 062
  • Vanguard Lifestrategy Growth  – $1 370
  • Vanguard Lifestrategy Balanced – $1 376
  • Vanguard Diversified Bonds – $233
  • Vanguard ETF Australian Shares (VAS) – $1 119
  • Telstra shares – $118
  • Insurance Australia Group shares – $371
  • NIB shares – $180
  • Ratesetter (P2P lending) – $1 964
  • BrickX (P2P rental real estate) – $38
  • Acorns – $68

Total passive income: $29 899

Distributions 2 - Jan 18

Comments

This half-year result was about double the level I expected, due to higher than expected distributions from Vanguard funds. I have tended to base my expectations on a rolling four year average, but this has broken above that forecast. December distributions tend to be systematically lower than June payouts, and so on a conservative basis, I have more than met my investment objective #1 this half-year.

As I await the distributions I have been considering the question of where to reinvest. Vanguard’s new diversified ETFs are strong contenders, as is increasing my holdings of Vanguard’s VAS Australian shares ETF. Mindful of my target allocations above and current allocations, I would also like to increase my international equity holdings, however, the level of the US share market, and valuations that approach those in September 1929 currently restrains my enthusiasm. The heavy exposure of Australian shares indices to banks and the continuing property slowdown, however, also makes selecting VAS potentially risky. The so-called ‘everything’ bubble makes it a challenging time for asset allocation decisions.

Monthly Portfolio Update and Year in Review – December 2017

Posted on by The FI Explorer

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Not being able to govern events, I govern myself.

Montaigne

Year in review

Exactly a year ago, in the brief quiet phase around the end of the year and in front of a Lord of the Rings film, I set out on this personal exploration of financial independence, by starting this record.

At the time, I was exactly two-thirds of my way to my target of around $1.5 million, having made conscious steps to building an investment portfolio back to 1999. Now I am here at the same time, rather surprised at the progress that has been made. Reading Nassim Taleb’s best seller Fooled by Randomness years ago has thankfully inoculated me against attributing this to any particular skill. I expect that this year will prove a more challenging environment for closing on the final goal, and pushing beyond.

My main goals for 2017 were:

  1. Continue to invest in low-cost passive index approaches (mostly…see goal 5) – Achieved
  2. Contribute $75 000 to my existing portfolio regularly using dollar cost averaging – Achieved
  3. Achieve total interest and distributions of $28 000 – Achieved
  4. Maintain an emergency fund of around 12 months of expenses – Achieved
  5. Keep on experimenting at the edges of finance technology and new products – particularly with passive index-based Exchange Traded Funds – Achieved

These results are pleasing, and give me confidence to seek to be ambitious for this years investment plans and goals. I am currently reviewing my investment policy and looking at possible new goals. Before finalising these, I want to understand the shape of distributions from the end of the year, so finalising this may be a week or so away.

Over the past year my major index-based investments with Vanguard have grown by over $170 000, I have explored and used ETFs, and expanded my exposure to peer to peer lending. It’s been a year of unprecedentedly rapid progress, significant enough that I go into 2018 surer of my financial footing than at any other time. It’s also been a year of discovering the community of FI, be it active Reddit discussions, fellow Australians on the FI journey, and motivating podcasts, such as ChooseFI and the Mad Fientist.

Portfolio update

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

Portfolio goal

My current portfolio objective is to reach a portfolio of $1 476 000 by 1 July 2021. My plan is that this should produce a real income of about $58 000. This is based on a real return of 3.92%, or a nominal return of 7.17%. My plan, is, however, to review this goal over coming weeks.

Portfolio summary

  • Vanguard Lifestrategy High Growth – $708 727
  • Vanguard Lifestrategy Growth  – $43 543
  • Vanguard Lifestrategy Balanced – $76 293
  • Vanguard Diversified Bonds – $103 359
  • Vanguard ETF Australia Shares (VAS) – $52 647
  • Telstra shares – $4 839
  • Insurance Australia Group shares – $18 806
  • NIB Holdings – $8 112
  • Gold ETF (GOLD.ASX)  – $76 477
  • Secured physical gold – $9 411
  • Ratesetter (P2P lending) – $54 264
  • Bitcoin – $191 250
  • Acorns app (Aggressive portfolio) – $8 297
  • BrickX (P2P rental real estate) – $4 383

Total value: $1 359 688 (+$58 606)

Asset allocation

  • Australian shares –  30%
  • International shares – 18%
  • Emerging markets shares – 2%
  • International small companies – 3%
  • Total shares – 52.9% (8.1% under)
  • Australian property securities – 3%
  • International property securities 3%
  • Total property – 6.1%
  • Australian bonds – 10%
  • International bonds – 9%
  • Total bonds – 19.3% (0.3% over)
  • Cash – 1.3%
  • Gold – 6.3%
  • Bitcoin – 14.1%
  • Gold and alternatives – 20.4% (10.4% over)

Comments

The portfolio increased by over $58 000, and once again this gain was dominated by an increase in the value of my Bitcoin. Aside from the visceral experience of variations in value of $50 000 over a weekend, I don’t have much to say about this because in some senses it is distracting, uncorrelated noise in the context of my overall portfolio, and the last thing I want is to have this become a narrow record of cryptocurrency highs and lows.

Its variations have the unintended consequence of obscuring the progressive execution of my rebalancing towards shares and away from bonds, towards my goal of reaching a 65% allocation of equities over coming years. As an example, ignoring for a moment the Bitcoin component of my portfolio, my current allocation is actually 61.5%, pretty much exactly on target to reach the goal.

Progress

Progress to goal: 92.1% (+20.0% ahead of target) or $116 312 further to reach goal.

Summary

At this point, large market variations have the potential to wash me up on the shore of my target, or draw me back further. I am trying as best I can to remain dispassionate at the effect of these variations, and rather focus on the underlying mechanisms that brought me this close in the first place. That is, years of saving and investing, diversification of risk, and not permitting my lifestyle costs to expand to meet my income. At some point through these next few months, it’s perfectly possible I will achieve my goal. What lies beyond, then, is my current focus of thinking and reflection, of which I will share more soon.