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.

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