“The only answer that I give to you is doing it,” he said.

Dante, The Divine Comedy

Twice a year I prepare a summary of the total income from my portfolio. 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.

My goals are to build up a passive income of around $58 000 by 31 December 2018 (Objective #1) and $80 000 by July 2023 (Objective #2).

Passive income summary

Vanguard Lifestrategy High Growth – $34 923

Vanguard Lifestrategy Growth – $1 823

Vanguard Lifestrategy Balanced – $1 985

Vanguard Diversified Bonds – $3 140

Vanguard ETF Australia Shares ETF (VAS) – $1 659

Betashares Australia 200 ETF (A200) – $31

Telstra shares – $146

Insurance Australia Group shares – $350

NIB Holdings – $108

Ratesetter (P2P lending) – $2 275

Raiz app (Aggressive portfolio) – $125

Spaceship Voyager app (Index portfolio) – $0

BrickX (P2P rental real estate) – $125

Total passive income half year to June 30, 2018: $46 606

Comments

This half year passive income result was another positive surprise, at $46 606. Prior to my Vanguard distributions being posted, I had anticipated around $24 000 in distributions, but the result has been nearly double this.

This means that in the past financial year I have achieved a passive income from investments of over $76 000. This has actually exceeded my first investment objective (of $58 000 per year) and come close to meeting my second (of $80 000 per year) as well, from distributions. Note that these distributions do include some realised capital gains from within the Vanguard funds, the result of automatic rebalancing in the retail funds to stay within target allocations.

I have long expected a ‘reversion to the mean’ to take overall distributions back to 2015-2016 levels, but this has not occurred. This could mean that I have moved to an interesting new position of having substantively achieved Objective #1 in practical income terms, even where my portfolio has not reached the target level.

Whether this has occurred will only really be knowable from December 2018 and beyond, as I see the level of the next six months of passive income. It does pose a dilemma, though, as to whether I should believe in the target number, which are based on concepts of long term average returns, or an established pattern of actual observed income flows over multiple years.

The half year result mean that in effect distributions are enough on pay each months average credit card bill, which include most of my daily household expenses. This means in turn that almost my entire salary can be considered as being able to be invested through the year.

This is quite a surreal prospect, and continues to be difficult to fully process. It does increasingly contribute to a sense of calmness, and gratitude as I go about my daily life, as well as a quiet underlying feeling of enhanced financial strength. It is a feeling of having at least some notional extra protections against inevitable financial or life uncertainties.

Over coming days I will be waiting for the Vanguard distributions and other dividends to arrive, and then turning to how to reinvest them. At the moment my main considerations are continuing to reach my target equity allocation, and so I am likely to seek to direct them to the Betashares A200 ETF, with potentially some expansion in my very small investment in the Spaceship app. This latter has the benefit of no fees for investments under $5000, but its interface and transparency around distributions has not been impressive compared to more expensive established alternatives such as Raiz.

While overall I continue to have caution around market levels, the Australian equity valuations are currently close to 35 year averages, something that cannot be said for global shares (in particular, US equities). In the meantime, I’ve been trying to keep the focus on long-term investing, reading the Russell Investments/ASX Long Term Investing Report 2018, which contains some interesting data on 10 and 20 year average returns. I have also enjoyed this very tough review by LadyFIRE of BrickX.

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