We may by care and skill be able to trim our ship, to steer our course, or to keep our reckoning; but we cannot control the winds, or subdue deceitful currents, or prevent disasters.
The Sailors’ Prayer Book: A Manual of Devotion for Sailors at Sea (1852)
This is my thirty-fourth portfolio update. I complete this update monthly to check my progress against my goals
My objectives are to reach a portfolio of:
- $1 598 000 by 31 December 2020. This should produce a passive income of about $67 000 (Objective #1) - Achieved
- $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 per cent, or a nominal return of 7.19 per cent, and are expressed in 2018 dollars.
Total value: $1 729 662 (+$17 325)
- Vanguard Lifestrategy High Growth Fund – $767 282
- Vanguard Lifestrategy Growth Fund – $43 936
- Vanguard Lifestrategy Balanced Fund – $80 318
- Vanguard Diversified Bonds Fund – $109 802
- Vanguard Australian Shares ETF (VAS) – $124 643
- Vanguard International Shares ETF (VGS) – $24 276
- Betashares Australia 200 ETF (A200) – $263 829
- Telstra shares (TLS) – $1 870
- Insurance Australia Group shares (IAG) – $13 777
- NIB Holdings shares (NHF) – $8 760
- Gold ETF (GOLD.ASX) – $101 214
- Secured physical gold – $16 292
- Ratesetter* (P2P lending) – $19 140
- Bitcoin – $131 280
- Raiz* app (Aggressive portfolio) – $16 657
- Spaceship Voyager* app (Index portfolio) – $2 184
- BrickX (P2P rental real estate) – $4 402
- Australian shares – 42.0% (3.0% under)
- Global shares – 22.6%
- Emerging markets shares – 2.5%
- International small companies – 3.2%
- Total international shares – 28.3% (1.7% under)
- Total shares – 70.3% (4.7% under)
- Total property securities – 0.3% (0.3% over)
- Australian bonds – 5.0%
- International bonds – 10.1%
- Total bonds – 15.0%
- Gold – 6.8%
- Bitcoin – 7.6%
- Gold and alternatives – 14.4% (4.4% over)
Presented visually, below is a high-level view of the current asset allocation of the portfolio.[Chart]
This month the portfolio grew by just over $17 000 in total, following two consecutive months of small declines.[Chart]
The total equity component of the portfolio has grown, including through new contributions and another part of the June distributions being 'averaged into' equity markets. The only major reductions in the portfolio has been the result of a sharp downward movement in the price of Bitcoin.
Lower credit card expenditure and the gradual increase of the trailing three year average of distributions paid has helped sustain a sense of momentum this month. Together they have continued to narrow the gap between distributions paid and credit card spending to less than $500 per month.
The complete closure of the remaining gap is within sight. Assuming no sustained reversals in the absolute level of distributions through time, this could happen in the next 12 months.
Some added progress towards this goal should come from pending quarterly distributions from the Betashares A200 ETF and Vanguard's Australian shares ETF (VAS). These are currently being finalised. The draft distributions guidance indicates that for A200 and VAS these quarterly distribution should total around $4 700, approximately double the absolute level of the same quarterly distributions a year ago.
New investments this month have been higher than normal due to a work bonus and the staggered reinvestment of June distributions. They have been directed predominantly to Vanguard's Australian Shares ETF (VAS), with a small recent allocation to Vanguard's international shares ETF (VGS). Following the recent fee reduction in VAS, I have directed Australian purchases through to this ETF, preferring the (slightly) wider exposure it delivers through following the ASX300, compared to the Betashares A200's slightly narrower holdings. The end of 'the big rebalance' into Australian equities
The reason for the split between Australian and international equity purchases is that this month has seen the effective end of 'the big rebalance' - that is, the gradual movement to a 60/40 split between Australian and international shares.
This was first targeted in my January 2019 review of portfolio targets and allocations. Previously my Australian and international equity allocation was largely just an unconscious and purely mechanical outcome of the splits in various Vanguard retail funds, and a number of smaller side Australian shareholdings.
The last nine months - by contrast - has seen a concentrated direction of new funds and distributions into Australian shares to achieve the targeted balance. The shift has been significant, with the value of Australian shares only overtaking international holdings in the second half of 2018. International shares have fallen from more than a third of total portfolio assets at this start of this record to closer to a quarter.
At the same time Australian equities now make up 42 per cent of total portfolio, and have just reached 60 per cent of the equity portfolio. All this has occurred as the total equity portfolio has grown from $630 000 at the start of this journey, to over $1.2 million this month.
The main vehicles for this expansion over the past two years has been Betashares A200 and Vanguard's VAS ETFs. More recently, as mentioned, I have added Vanguard's global share ETF (VGS) to allow an avenue to keep within the targeted split with future contributions. Measuring investment income from tax returns
This month also saw completion of my tax return, including explaining my tax position to a brand new tax agent. The tax assessment from this past financial year provides an additional data point about the taxable investment income being generated by the portfolio.
The graph set out below updates the series published last year on taxable investment income. It is taken from the return items for partnerships and trusts, foreign source income and franking credits (i.e. items 13, 20 and 24 on the return, and not including capital gains) over the past nine years.
This shows that taxable investment income has risen only around five per cent over the past financial year. This likely reflects the decline in higher interest payments from a slow rebalance away from Ratesetter towards equities. Taxable investment income is still well short of both the original objective, and even further short of Objective #2.
As previously outlined, there are a range of factors that likely account for the mismatch between tax return income and received distributions. These could include timing differences, capital gains realisations, and potentially even small errors in how I have added in individual return items in past years. I have also continued to seek to avoid double counting and so understatement is also a possibility, given the formats and labelling of tax returns are not always particularly clear.
Progress against the objectives, and the additional measures I have reached is set out below. MeasurePortfolio All Assets Objective #1
– $1 598 000 (or $67 000 pa) 108.2% 147.5% Objective #2
– $1 980 000 (or $83 000 pa) 87.4% 119.1% Credit card purchases
- $73 000 pa 99.3% 135.4%T otal expenses
- $89 000 pa 81.5% 111.1%
Forward progress has resumed, with the growing warmth and life of spring. The last few months has been a continual reminder that the fickle direction of market winds may play a greater role than sheer saving and investing efforts at this point in the journey. Focusing on the process, rather than the short-term outcome is therefore almost forced upon one - which perhaps is no bad thing after all. Indeed, increasingly I have wondered whether these now ingrained habits and processes will themselves be difficult to break out of, even as I definitively pass some FI benchmarks in future months and years.
The varying winds will also increasingly dictate where additional contributions are to be made. This is the automatic result of targeting an asset allocation with new contributions rather than active rebalancing through selling existing holdings. In fact, it probably constitutes one of the more difficult tests for a chosen risk allocation, as it will tend to result in buying unspectacular portfolio 'laggards', rather than assets that have recently moved up, without the consolation of taking these new funds from locked in profits elsewhere in the portfolio. This can lead to signals that are easier to follow in theory than in practice.
As an example, currently Australian government bond yields are close to historical lows, and potentially heading lower. This is highly relevant to FI planning, as there is some academic evidence
that the 'four percent rule' has a higher failure rate in low bond rate environments.
There is also a strong possibility that bonds are close to the end of a forty year decline in yield - and have nowhere to go. The increasing spread of negative yielding government and corporate bonds around the world, however, also holds out equally plausible but very different possibilities, at least in the short term.
This is more than a hypothetical issue and uncertainty. Through the next 12 months it is possible that my target asset allocation will start signalling a need to buy bonds. This would involve a need to find the right investment vehicle to access this asset at least cost.
On the same topic, this month saw an excellent explainer piece from Aussie HiFIRE on bonds
, and also a good discussion from Kurt at Pearler on how to put the modern portfolio theory to practical work in FI portfolio design. Youtube content on FI and portfolio issues seems to be improving all the time as well, including this short video on thinking about the role and value of dividends
.All such guidance represents a way of keeping a reckoning on the unfolding horizon, its dangers and subtle deceits
.The post and full charts can be seen here
For Trading February 6th PELETON MISS, DIS & QCOM BEAT
CHINA STOCKS REVERSE ON LIES
Even ENERGY Recovers
ISM better than expected.
Today’s market was off to the races from the start on the third day of China manufacturing money it does not have to buoy their markets (a move that never works long term) and after telling the world things were better, they spilled the beans that it just isn’t true. While it helped BABA trade up to $230 premarket, by 10:30 -11:00 it was $217.54 and while it did regain a bit, it still finished $22.22, well off the highs, same thing for BIDU about $5 off its high. We closed at new highs in NASDAQ and S&P 500, while the DJIA missed by a bit, but did close near the high of + 501 with a finish of +483.22 (1.68%), NASDAQ +40.71 (.43%), S&P 500 +37.10 (1.13%), the Russell +25.16 (1.52%) and the DJ Transports +145 .81 (1.35%). Market internals were strong, but not excessive at 3:1 on NYSE and 2:1 on the NAZ. The DJIA was 4:1 with the big losers, DIS -23 and MRK -17 DPs while we had the biggest winner, UNH +100DP’s, BA +79, IBM +49 and MMM +35. All in all, a very strong day. Questionable news, but the result positive. Energy, healthcare and financials were higher and real estate and communication services were lower.
Just a quote I happened to come across in what I call “beach reading” by James Patterson, that really hit home in this current political season, by Plato, “One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors.”
Our “open forum” on Discord, which allows me to interact with subscribers and others to allow direct questions and chart opinions on just about any stock, continues to grow with more participants every day. It is informative and allows me to share insights as the market is open and moving. The link is: https://discord.gg/ATvC7YZ
and I will be there and active from before the open and all day. It’s a great place to share ideas and gain some insights.
SECTORS: Other names in the news: The big news the initial lies from China, later admitted to, that yesterday was the biggest number of new cases of just over 3,100. Today, as it turns out is +2900 or so, and an admitted death number of just under 600. Really? I’m not a believer. The number is still 10X what they admit.
DIS had great numbers last night even with the closure of both Shanghai and Hong Kong, the big surprise was the number of participants in Disney’s streaming service. The original estimate was for 30 million by 2024, and the actual number is already 28.6 million. The stock had been up just under $135 a week ago, but it also had 3 gaps higher, and as I mentioned when we shorted RAD, that is almost always an “exhaustion” and causes a pullback. I don’t think we can compare RAD and DIS, but I wouldn’t be surprised if the selloff from $147.30 to a low of $138.57 will give us a reasonable entry point. IRBT reported a soft Q4 but a great year and the stock rallied from a close of $49.11 to hit $60.90 before falling back to $50.34 + 1.23. Peloton (PTON) beat on revenues but missed on earnings. The company’s attitude of growth “at all costs” is not something that Wall Street is tolerant of these days and the stock, which fell from its IPO to a low of $20.46 and then moved back $37 had closed $32.70 fell to $27.30 and is currently $30.10 -2.60. On the IPO front, Casper (mattress) CSPR, was originally to be priced from $17-19, and lowered to $12–13 was priced @$12, and will start trading tomorrow. One of the biggest gainers was BIIB, who won its case with MYL over the patent for Tecfidera, its blockbuster MS drug, which produced revenues of $4.4Billion in 2019. Also on the schedule for FDA approval is Aducanumab, their investigative Alzheimer’s treatment. The stock was $332.87 +49.58 (17.5%) after trading as high as $374.99 during the day.
BIOPHARMA: was HIGHER with BIIB +49.96 (see above), ABBV +2.74, REGN +16, ISRG +2.49, MYL +.65, TEVA +.03, VRTX +1.90, BHC +.24, INCY + 2.12, ICPT +.31, LABU +4.02 and IBB $122.25 +3.70 (3.12%).
CANNABIS: stocks were MIXED TO LOWER with TLRY -.52, CGC -.88, CRON -.15, GWPH +.56, ACB -.03, PYX -.13, APHA -.14, NBEV +.08, ACRGF -.09, CURLF -.20, KERN +.10 and MJ $16.72 -.24 (1.42%).
DEFENSE: was HIGHER with LMT +4.41, RTN +2.43, GD +4.44, TXT +.03, UTX +2.63, NOC +5.99, BWXT +.98, TDY +1.82, and ITA $234.89 +3.78 (1.64%).
RETAIL was HIGHER with M +.98 (on new store closings), JWN +2.16, DDS +2.42, KSS +2.78, JCP +.01, WMT +1.68, TGT +2.35, TJX -.94, RL -1.17, UAA -.06, LULU -3.50, TPR +1.19, CPRI +2.55, and XRT $44.86 +1.03 (2.35%).
FAANG and Big Cap: were MIXED with GOOGL +.64, AMZN -8.67, AAPL +2.95, FB +.27, NFLX +.29, NVDA +3.67, TSLA -156.07 (17.59%), BABA -1.63, BIDU -.61, IBM +6.89, DIS -3.37, BA +11.06, CAT +3.93 and XLK $99.80 +.68 (.69%).
FINANCIALS were HIGHER with rates and GS +2.91, JPM +2.33, BAC +1.09, MS +1.08, C +2.32, PNC +3.13, AIG +1.83, TRV +4.20, AXP +2.08, and XLF $31.09 +.63 (2.07%).
OIL, $50.75 + 1.14. Today’s action was a rally off the lows below $50, closing near the highs. The stocks were HIGHER with the oil market, even XOM +2.79, and XLE $55.21 +2.28 (4.31%).
METALS, GOLD: $1,562.80 +7.30 after breaking out and tried overnight to make it back over $1,600, but failed and closed near the low of the day. We ran into some excessive supply at $1,598.50 and turning prices back today. We bought the GLD 2/149 calls @ $1.10 and got stopped out yesterday @ $ .55 on the 50% Down Rule.
BITCOIN: closed $9,830 +575. We broke to the upside last week and managed a close on the highs and continue today, touching $9,995. We are back into the supply around the round number @ $10,000. We own 750 GBTC with an average of $8.89. GBTC closed $11.51 + .97 today.
Tomorrow is another day.
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