Everyone complains of his memory, none of his judgement.
– La Rochefoucauld, Maxims This is my twenty-eighth portfolio update. I complete this update monthly to check my progress against my goals.
Portfolio goals
My recently revised 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) $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 – $732 134 Vanguard Lifestrategy Growth Fund – $42 428 Vanguard Lifestrategy Balanced Fund – $76 692 Vanguard Diversified Bonds Fund – $104 802 Vanguard Australia Shares ETF (VAS) – $78 091 Betashares Australia 200 ETF (A200) - $216 609 Telstra shares (TLS) – $1 769 Insurance Australia Group shares (IAG) – $13 393 NIB Holdings shares (NHF) – $6 288 Gold ETF (GOLD.ASX) – $83 212 Secured physical gold – $13 437 Ratesetter* (P2P lending) – $26 147 Bitcoin – $63 947 Raiz* app (Aggressive portfolio) – $14 491 Spaceship Voyager* app (Index portfolio) – $1 751 BrickX* (P2P rental real estate) – $4 621 Total value: $1 439 608 (+$40 302)
Asset allocation Australian shares – 41.6% (3.4% under) Global shares – 23.6% Emerging markets shares – 2.7% International small companies – 3.5% Total international shares – 29.9% (0.1% under) Total shares – 71.5% (3.5% under) Total property securities – 0.3% (0.3% over) Australian bonds – 6.1% International bonds – 11.2% Total bonds – 17.3% (2.3% over) Cash – 1.2% Gold – 6.5% Bitcoin – 4.3% Gold and alternatives – 10.9% (0.9% over) Presented visually, below is a high-level view of the current asset allocation of the portfolio.
Comments This month saw the total portfolio reach and exceed the original portfolio objective set at the commencement of this journey of $1 476 000.
Since that time, portfolio goals have been updated, but nonetheless it feels as though a significant milestone has passed. Measured over the past twelve months, strong progress has resumed, that being in part a function of the dull echoes of 'Bitcoin bubble' of late 2017 falling out of the time period.
The portfolio increased by a significant $40 000 this month. Part of this was new investments in Betashares A200, and a majority of this gain is attributable to the second instalment from the lowering of my emergency fund discussed here being invested. In the end, averaging two parts of this lump sum into the equity market around three months apart did not make much difference, except perhaps a mild psychological benefit. Together these moves made up the majority of the total portfolio gains. The value of the small Bitcoin holding has also increased slightly, despite its volatility having substantially reduced over the past year.
Another milestone this month has been the finalisation of my first significant March quarter dividend from A200, which will total around $1900. This is lower than expected, being equivalent to around 0.9% for the quarter, and lower than the expected distribution rate of the broadly equivalent Vanguard VAS ETF. It is quite possible that the end of financial year results will be better, however, and on a total returns basis the A200 ETF has still tracked its benchmark closely.
With Australian equities continuing to stay close to their long term price-earnings ratio of 15, Australian equity ETFs will likely remain the primary focus of investment over the next few months. This has been one of the most dominant trends of the journey so far, with total Australian equity holdings growing from around $277 000 in January 2017, and 28 per cent of the portfolio, to around $600 000 this month, and over 40 per cent.
A small action this month has been passing up the option of further investment in Australian real estate through BrickX. Distributions had built up to a level to allow a further small fractional investment. The Australian residential debate continues in full force, however, I cannot justify even small further incremental investments at current low yields, especially given my view of the likelihood of further capital losses.
Overall, expenses continue to track at steady levels. The low red distributions line from July 2018 onwards is a product of low December half distributions, and may be able to be revised upwards once June distributions are known. This would be a welcome revision, as 'credit card' FI seemed to come into view through the last two years, and then disappear in a discouraging way with the December 2018 distributions.
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) 92.6% 128.8% Objective #2 – $1 980 000 (or $83 000 pa) 74.8% 104.0% Credit card purchases - $73 000 pa 85.0% 118.2% Total expenses - $96 000pa 64.6% 89.9%
Summary This month has brought the portfolio to approximately three-quarters of the way to my Objective #2, and Objective #1 also draws appreciably closer.
Over the past month, as progress has accumulated, I have found myself meditating more fully on the nature and value of time and freedom. What has surprised is the powerful but gradual feeling of decompression that knowledge of the increasing proximity to the goals has brought. Fewer external events, daily stresses, impinge on my daily outlook.
This recent podcast from the Econtalk series, crystallised some of these thoughts, the first 10 minutes contains the best economic and empirical analysis I have encountered on the intersection of time, money, leisure and work. One of its key points - relevant for seekers of FI - is that our growing wealth over time affects how we see and value leisure time itself, and it also has some useful reflections on the concept of 'busyness'.
This month has seen some of this more valuable leisure time used looking at the summary version of the Credit Suisse Global Investment Returns Yearbook, released last month. This provides updated data from the single best long-term series on equity and bond returns across the world. One interesting aspect of this years updated estimate of long-term historical global equity returns (of 5 per cent) is that it includes for the first time markets that suffered total losses (Russia and China following revolutions in 1917 and 1949) - addressing the issue of survivorship bias. The report argues for significant modesty in expectations of future returns.
A practical implication of this is that my conservative long-term return assumption for global equities (of 4.5 per cent) may be marginally less conservative than when it was made at the start of the year. This podcast from Bloomberg, interviewing Yale Professor of Finance Roger Ibbotson - a key figure in the collection and analysis of historical financial market returns - will provide more related food for thought.
A further intriguing crossover from recent economic literature to FI issues is the release last week of this paper The Power of Working Longer by the National Bureau of Economic Research, which studies the relationship between the decision to work for longer, compared to investing more, prior to retirement. The intriguing summary finding is that delaying retirement by 3-6 months is equivalent to the effect of one percentage point of higher wages over a 30 year working life.
The Australian FI community has also been full of interesting content this month, with Aussie Firebug laying out the basics of FI in an excellent introductory podcast, and Strong Money Australia doing a short summary of his current progress in transitioning from property investment dominated portfolio to equities. Australian investor's benefits from higher dividend rates also got a mention in Big ERN's comprehensive safe withdrawal rates series. It was also great to see the appearance and progress of other new Australian FI bloggers, such a AFamilyOnFire.
With the month closed, the focus will now be shifting to awaiting and re-investing the quarterly dividends due, and contemplating that a further three months comparable to the last three - an unlikely but possible scenario - could see Objective #1 reached much earlier than my judgement had anticipated.
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