Monthly Portfolio Update – August 2017

Posted on by The FI Explorer

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The truth is, we know so little about life, we don’t really know what the good news is and what the bad news is.

Kurt Vonnegut

This is my ninth 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%.

Portfolio summary

  • Vanguard Lifestrategy High Growth – $630 261
  • Vanguard Lifestrategy Growth  – $40 998
  • Vanguard Lifestrategy Balanced – $73 030
  • Vanguard Diversified Bonds – $105 335
  • Vanguard ETF Australia Shares (VAS) – $24 325
  • Telstra shares – $4 892
  • Insurance Australia Group shares – $16 187
  • NIB Holdings – $7 200
  • Gold ETF (GOLD.ASX)  – $76 559
  • Secured physical gold – $6 781
  • Ratesetter (P2P lending) – $57 655
  • Bitcoin – $59 549
  • Acorns app (Aggressive portfolio) – $6 901
  • BrickX (P2P rental real estate) – $4 487

Total value: $1 114 160 (+$54 131)

Asset allocation

  • Australian shares – 31%
  • International shares – 20%
  • Emerging markets shares – 3%
  • International small companies – 3%
  • Total shares – 55.7% (5.3% under)
  • Australian property securities – 4%
  • International property securities 3%
  • Total property – 6.7%
  • Australian bonds – 12%
  • International bonds – 11%
  • Total bonds – 23.2% (4.2% over)
  • Cash – 1.5%
  • Gold – 7.5%
  • Bitcoin – 5.3%
  • Gold and alternatives – 12.8% (2.8% over)

Comments

This month the portfolio increased by over $54 000. This in part is inflated by my ‘averaging’ in another contribution to Vanguard’s Australian Shares ETF, after strong distributions in July.

A significant component of the increase also comes from appreciation of Bitcoin holdings, which now quite unexpectedly makes up more than five per cent of the portfolio. Originally, because the amounts were small I folded this allocation into a ‘gold and alternatives’ category, but I have broken it out this update, so that I have better visibility on what is happening to both the gold and Bitcoin components. This reveals that my gold allocation remains under my benchmark of 10 per cent. An issue I have to think about is how much these two assets move together, or actually ‘covary’ (i.e. move in different directions, dampening volatility). Psychologically, I’m not sure if I really regard the Bitcoin gains as real.

This month I moved to a less costly online broker (directshares), which has halved the cost of buying ETFs. It’s not the least cost provider, but due to my banking set up, was a good compromise for ease of access and speed of moving funds. As a portfolio monitoring  device, I have also stumbled onto Sharesight, which I have yet to explore fully. It’s free for small simple portfolios and seems a really smooth and polished way to understand portfolio returns, and their capital and dividend parts.

Equity markets continue to hold up, which means that even if I take account of a further Vanguard Australian shares increment still to be fed into the portfolio, my equity allocation is still sitting below my target, at market highs. This is not a comfortable position to be. To date I have always relied on new contributions to slowly readjust my allocations back to target. At some point, though, this becomes mathematically problematic, because the new contributions simply won’t ‘shift the dial’ enough.

This uncomfortable truth is currently meekly sitting alongside another, my dislike of transaction costs and triggering tax events. Increasingly, equity market conditions – especially in the United States, has made me consciously start playing out in my mind what a sharp turnaround might practically look like in my portfolio. My base case is a potential halving of equity markets (in the short term), knocking out around $300 000 of equity value.  The difficult question – would this be good news or bad news at this point in portfolio accumulation?

Finally, the Brickx real estate platform has recently expanded to offer an Adelaide property for investment, so to maintain and enhance diversification I have made a small expansion in holdings. So far the portfolio has produced total returns of 5.5 per cent and delivered total distributions of $39.

Progress

Progress to goal: 75.5% (+4.2% ahead of target) or $361 840 further to reach goal.

Summary

Passing the 75 per cent milestone has been a significant surprise, and focused attention on just how definable and potentially close is my investment target. Four years ago, if I had been measuring, this figure would have been 33 per cent. Barring a major external market event, reaching my goal within two, three or four years is beginning to sink in as a concept.

 

Monthly Portfolio Update – July 2017

Posted on by The FI Explorer

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Life is not an illogicality; yet it is a trap for logicians. It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait.

G K Chesterton

This is my eighth 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%.

Portfolio summary

  • Vanguard Lifestrategy High Growth – $619 834
  • Vanguard Lifestrategy Growth  – $40 712
  • Vanguard Lifestrategy Balanced – $72545
  • Vanguard Diversified Bonds – $104 665
  • Vanguard ETF Australia Shares (VAS) – $12 093
  • Telstra shares – $5 465
  • Insurance Australia Group shares – $16 661
  • NIB Holdings – $6 888
  • Gold ETF (GOLD.ASX)  – $73 240
  • Secured physical gold – $6 108
  • Ratesetter (P2P lending) – $57 251
  • Bitcoin – $34 125
  • Acorns app (Aggressive portfolio) – $6 276
  • BrickX (P2P rental real estate) – $4 166

Total value: $1 060 029 (-$37 729)

Asset allocation

  • Australian shares – 31%
  • International shares – 20%
  • Emerging markets shares – 3%
  • International small companies – 3%
  • Total shares – 56.6% (4.4% under)
  • Australian property securities – 4%
  • International property securities 3%
  • Total property – 7.0%
  • Australian bonds – 13%
  • International bonds – 11%
  • Total bonds – 24.2% (5.2% over)
  • Cash – 1.6%
  • Gold and alternatives – 10.7% (0.7% over)

Comments

The absolute level of the portfolio fell this month, by over $37 000. This is largely a result, however, of the distributions from the previous financial year, and choices made around those payments. Around a quarter has been set aside for meeting the likely tax liability, arising from the distribution. Another quarter has been invested in a Vanguard ETF (VAS). The remaining half is set aside for two further investments in ETFs, on a dollar cost averaging basis over the next six months.

Holding funds outside of the portfolio affects the measured equity component of the asset allocation, slightly understating the future equity holdings (which would otherwise sit at around 58% closer to my target).

My leap into Vanguard ETFs was one of my primary investment goals for the year, and has been easy to execute so far. The choice of VAS (Australian shares) was based on low fees, access to tax-advantaged dividend payments and exposure to Australian dollar denominated equity assets. Future ETF purchases are likely to be in that same security, or an internationally exposed Vanguard ETF. Valuations in equity markets still appear stretched, making me comfortable with a more cautious averaging in approach. Wildness does seem to lie in wait, a sense only enhanced by my current post-apocalyptic audiobook fare, The Mandibles.

Aside from the payments of dividends, and reduction of the capital value of fund assets, there have been only minor changes in valuations. There has been some further volatility, and further appreciation of the Bitcoin holdings in the portfolio, while new available properties on the Brickx real estate platform has meant a small expansion in holdings.

Progress

Progress to goal: 71.8% (+5.5% ahead of target) or $415 971 further to reach goal.

Summary

Last month I hoped that distributions payments would provide signposts of how far I still have to travel. The large distributions didn’t really clarify that, as they were so far above expectations that it is hard not to discount their reoccurrence. Positively, however, they provide the interesting opportunity to trial equity ETFs, and continue my goal of exploring different investment vehicles.

Portfolio Income Update – Half Year to June 30, 2017

Posted on by The FI Explorer

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The life of every man is a diary in which he means to write one story, and writes another; and his humblest hour is when he compares the volume as it is with what he vowed to make it.

J.M. Barrie

My goal is to to build up a passive income of around $58 000 by July 2021, and this is my second passive income update since starting this blog.

Twice a year I prepare a summary of the total income from my portfolio income. As part of the transparency and accountability of this journey, I regularly report this income.

Passive income summary

  • Vanguard Lifestrategy High Growth – $37 662
  • Vanguard Lifestrategy Growth  – $2 280
  • Vanguard Lifestrategy Balanced – $4 408
  • Vanguard Diversified Bonds – $4 830
  • Telstra shares – $118
  • Insurance Australia Group shares – $241
  • Ratesetter (P2P lending) – $1773
  • BrickX (P2P rental real estate) – $29
  • Acorns – $23

Total passive income: $51 363

Passive - Jun17

Comments

This half-year result took me completely by surprise and is difficult to process. The passive income outcome for the half-year to June 30 has increased beyond any of my expectations or forecasts. My target for this year was $28 000, and investments have delivered nearly double this in just six months.

Taken as a past financial year, this means in theory that I more than met my financial independence target goal of $58 000 per year. This feels strange as a sentence to write in 2017, rather than in 2021, but a good dose of caution is warranted. First, past distributions have been uneven, and where there have been past upside surprises, these have sometimes been reversed in subsequent periods. Only future updates will provide more ‘signal’ against the elements of noise of recent market movements.

Yet even accounting for this, the result gave me pause for thought. It felt as though a significant threshold had been reached, beyond which a different set of issues jostled for attention. This set of distributions, for example, is larger than any salary bonus I have ever received, or am likely too in the near future. Even if there are backward movements in the overall level of distributions to come, this result seems an appreciable step towards my end goal. Taken as a monthly figure ($8560), it sits well above my current level of normal expenses.

The most immediate of the issues now pressing for attention is: how should the distributions be allocated? After some thought, I have finally pushed the button on the exploration goal of trying Vanguard’s Exchange Traded Funds, buying around $12 000 of the Vanguard Australian Shares ETF (VAS). I have also set a schedule to dollar cost average two more equal amounts in September and November. This accords with my portfolio currently being underweight in equities. Buying into Australian shares at these market levels feels like a risky move, hence the dollar cost averaging approach.  I chose the Australian shares ETF mostly because they have lower fees than Vanguard’s retail managed fund equivalent, to take advantage of franked dividends, and to simplify tax returns (avoiding the US domiciled ETFs).

I have also set aside around $12 000 of the most recent distributions into a bank account specially designated for meeting future tax liability, to recognise that this recent windfall will come with tax consequences over the year ahead.

Recently I have stumbled on a University of NSW online course on personal finance, which I highly recommend. The videos clearly and accessibly explain the ‘snowball’ effect of past savings and investments. Today, at least, it felt like I was off and rolling.

 

Monthly Portfolio Update – June 2017

Posted on by The FI Explorer

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The dangers of life are infinite, and among them is safety.

Goethe

This is my seventh 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%.

Portfolio summary

  • Vanguard Lifestrategy High Growth – $658 142
  • Vanguard Lifestrategy Growth  – $43 422
  • Vanguard Lifestrategy Balanced – $77 463
  • Vanguard Diversified Bonds – $109 494
  • Telstra shares – $5 731
  • Insurance Australia Group shares – $16 936
  • NIB Holdings – $6 900
  • Gold ETF (GOLD.ASX)  – $74 678
  • Secured physical gold – $5 955
  • Ratesetter (P2P lending) – $56 747
  • Bitcoin – $32 365
  • Acorns app (Aggressive portfolio) – $5 998
  • BrickX (P2P rental real estate) – $3 927

Total value: $1 097 758

Asset allocation

  • Australian shares – 30%
  • International shares – 21%
  • Emerging markets shares – 3%
  • International small companies – 3%
  • Total shares – 56.7% (4.3% under)
  • Australian property securities – 4%
  • International property securities 3%
  • Total property – 7.1%
  • Australian bonds – 13%
  • International bonds – 12%
  • Total bonds – 24.3% (5.3% over)
  • Cash – 1.6%
  • Gold and alternatives – 10.3% (0.3% over)

Comments

The overall portfolio is up around $5 000 this month from a combination of new investments and downward market movements.

Looking back to the last update, the significant changes have been a further appreciation of the Bitcoin holdings in the portfolio, some declines in the value of gold ETFs, and further expansions into the Brickx real estate platform, as new properties were offered.

As can be seen, the portfolio allocation to equities continues to be below target. This is despite regular significant investments to the Vanguard high growth fund (itself around 90 per cent equities). This is challenging, because despite the allocation remaining underweight, I am not confident that the Australian equity market is not over-valued. The other driver to the misallocation is my experimentation with Ratesetter, which effectively shows up in an above target allocation to fixed interest and bonds.

For the past three years I have been comfortable with this slight imbalance, however, the issue will become pressing when distributions for the half year just past are paid. This, in many ways, feels like far more  significant ‘information’ about my journey to my objective than the absolute level of the portfolio. It will determine if the year target of $28 000 was unrealistic, and provide, crucially, more guidance on what is a dependable level of passive income from the portfolio.

My current intention is to either slowly feed these distribution into the Vanguard high growth fund, or potentially take the leap into Vanguard ETFs. This will force a choice between lump sum investing, or dollar cost averaging, a long-standing investment and FI debate centred on psychology versus historical experience to date. In short, do I give weight to the darker clouds, or the sun seeking to shine through?

Some developments in personal circumstances this month means that some uncertainty over my future investing capacity and plans has receded. This means that should the darkening clouds start to break, there is a better chance of investing aggressively through a market decline.

Thinking about this made me curious about my past record of investing during challenging periods. Instead of speculating about it, or worse, discovering the truth only halfway through a decline, I decided to track back through my records and find out. This turned into a bit of project (of more later), but they showed that across 2008-2009 my contributions into markets were about $50 000 each year. Which is not too bad, especially considering that in 2009 I changed jobs, and spent some time without any earned income.

Progress

Progress to goal: 74.4% (+10.0% ahead of target) or $378 242 further to reach goal.

Summary

Writing this update – and ending the financial year – without finally knowing the level of my passive income over the past six months makes this feel incomplete. I will provide my half yearly passive income update in the next few days, as the data becomes available.

The sensation of markets kept aloft, not offering good clear information on value, and being precarious remains strong. Perhaps this is why I am so eagerly looking forward to the concreteness, the reality, of distributions as a signpost of how far I have still to travel. The resolution of uncertainty, as well as lots of reading and listening to other FI bloggers, such as Adventures with Poopsie, Aussie Firebug, and Retire Before Dad have been keeping me motivated for the next stage of the exploration.