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Upon the Fortune of this Present Year | Monthly FIRE Portfolio Update - November 2019

My ventures are not in one bottom trusted, Nor to one place; nor is my whole estate Upon the fortune of this present year Therefore my merchandise makes me not sad
Shakespeare, The Merchant of Venice (1596)
This is my thirty-sixth portfolio update. I complete this update monthly to check my progress against my goals.
Portfolio goals
My objectives are to reach a portfolio of:
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.
Portfolio summary
Vanguard Lifestrategy High Growth Fund – $797 618 Vanguard Lifestrategy Growth Fund – $45 218 Vanguard Lifestrategy Balanced Fund – $81 294 Vanguard Diversified Bonds Fund – $109 367 Vanguard Australian Shares ETF (VAS) – $158 769 Vanguard International Shares ETF (VGS) – $28 471 Betashares Australia 200 ETF (A200) – $268 114 Telstra shares (TLS) – $2 057 Insurance Australia Group shares (IAG) – $9 996 NIB Holdings shares (NHF) – $8 100 Gold ETF (GOLD.ASX) – $98 376 Secured physical gold – $15 868 Ratesetter (P2P lending) – $16 915 Bitcoin – $128 630 Raiz app (Aggressive portfolio) – $17 535 Spaceship Voyager app (Index portfolio) – $2 377 BrickX (P2P rental real estate) – $4 418
Total portfolio value: $1 793 753 (+$33 713)
Asset allocation
Australian shares – 43.2% (1.8% under) Global shares – 22.9% Emerging markets shares – 2.4% International small companies – 3.2% Total international shares – 28.4% (1.6% under) Total shares – 71.6% (3.4% under) Total property securities – 0.2% (0.2% over) Australian bonds – 4.8% International bonds – 9.8% Total bonds – 14.6% (0.4% under) Gold – 6.4% Bitcoin – 7.2% Gold and alternatives – 13.5% (3.5% over)
Presented visually, below is a high-level view of the current asset allocation of the portfolio.
[Chart]
Comments
This month the value of the portfolio increased again by around $33 000 in total, building on the previous two months of growth.
[Chart]
The equity part of the portfolio has grown by around $50 000 to now reach over $1.25 million for the first time. This increase includes new contributions and the last part of the previous June distributions being 'averaged into' equity markets. The equity component of the portfolio has increased by around 40 per cent this calendar year.
The only other major movement in the monthly value of the portfolio has been a sharp downward movement in the price of Bitcoin, and a small increase in the value of bond holdings.
[Chart]
The contributions this month went entirely into the Vanguard Australian shares ETF (VAS.ASX), to reduce the gap to both the overall target equity allocation, and to achieve the target split between Australian and global shares. From this month onwards I expect more regular variations in whether new contributions go to either Australian or global shares, based on keeping this target allocation constant.
Charting errors and wrong bearings - the nature of long-term returns
Over the last month, as the end destination starts to appear a little clearer in the distance, the issue of the nature of long-term returns has been front of mind.
There is a strong literature and body of academic work around long-term equity return expectations. Much of this has informed my thinking, and has over time found its way into the corners of financial independence movement through the avenues of the so-called Trinity and Bengen '4 per cent' studies (pdf), and a range of calculators that use historical data to help guide investors expectations around feasible future returns.
Yet, as I have noted before, future states of the world are not drawn from the same distribution as the past - or as the British writer G K Chesterton evocatively put it - 'wildness lies in wait'. Most often this issue is glided over neatly (including by myself) with assured sounding phrases such as 'based on history'.
The works of Nassim Taleb, most particularly Fooled by Randomness, and The Black Swan, provide a fuller perspective on these issues. Recently though, reading a 2017 paper Stock Market Charts You Never Saw provided a unique and arresting view of their application to long-term return projections.
The paper is long and detailed, but makes some fundamental points for consideration. It provides a challenging perspective on investment returns that falls almost completely out of mainstream discussions of the topic in the financial independence arena.
To summarise, the paper highlights that:
As the paper notes:
"When investment advisors counsel that stocks are the best bet for a long investment horizon, they should append the acknowledgement: “if my market timing is good.” When advisors argue for stocks over bonds, they should append the caveat “as long as you are not French, or Italian, or Japanese, or Swiss, and provided that the 20th century is a better guide to the future than the 19th century.” For real investors with their limited time horizons, who may reside anywhere in the world, there have been times when both stock recommendations were bad."
The issue of the primacy of total returns, compared to income returns is also bracingly challenged with reference to the drawdown phase:
Once portfolio accumulation ceases with retirement, portfolio income must be spent to live. Under those circumstances real price return, over short periods lasting two or three decades, becomes an important metric. By that measure, an investment in stocks has been dicey indeed.
Usefully, the paper sets out (at the end) both conventional charts, and alternative representations of the same returns data, aimed at illustrating the hidden biases and properties of standard charts of market returns.
In short, the paper poses challenges to many conventional investment tenets assumed to be true and widely repeated within financial independence discussions. Often these tenets are promoted with the sound and well-meaning goal of reducing new or existing investors caution or level of worry around possible falls in equity markets. The question this work implicitly poses is, in the process, are distorted expectations unintentionally being promoted?
Drawing out the lessons - understanding and responding to risks
What are the practical implications of this? The most obvious is to look closely at how data is presented and to think carefully about how the assumptions implicit in that presentation line up against ones own situation.
Some other implications include:
In other words - to paraphrase Shakespeare's Antonio - not trusting ones ventures to one ship, place, or a fortune upon the present year.
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) 112.2% 153.0% Objective #2 – $1 980 000 (or $83 000 pa) 90.6% 123.5% Credit card purchases - $73 000 pa 103.0% 140.4% Total expenses - $89 000 pa 84.5% 115.1%
Summary
As the year begins to draw to a close, a restlessness to see its final outcomes, in dividends and portfolio growth presses itself forward. It is in fact a small echo of one of the strong temptations of the middle of the FI journey - a desire to wish away time itself.
Some potential upcoming changes and uncertainties in work situation have added force to this temptation, forcing some thoughts about different potential balances between work and other elements of daily life could be.
By distance, the intended journey is around ninety per cent over. At times this introduces both an elegiac quality to, and a premature desire to mark, possible 'lasts' along the journey.
Yet the extraordinary current state of financial markets gives pause. Policy makers and advisors casually discuss negative rates and their implications, even as Australian and US equity markets hit new highs. In a sense, it feels a more psychologically testing time to be closer to my higher target allocation for equities than any time before.
The diversification in the portfolio can be thought of as a series of small hedges against different potential futures playing out. By far, the largest probability (or potential future) at 75 per cent, is that the historical dominance of equity as a generator of real returns continues to function.
The remainder of the portfolio can be seen in some ways as a offsetting hedge against large equity market falls, or some other disturbance in financial markets with negative implications for equity. At base, however, I remain comfortable with the 'balance of probabilities' implied in the target asset allocation.
This month saw a new (v)blogger Mx Lauren join the Australian FI scene, as well as the suggestion by Money Magazine of a new 'simplified' retirement rule of thumb to consider.
A further piece of fascinating reading was this piece by Ben Carlson in Fortune Magazine, explaining the key role of earnings growth in recent US market return. It posits that the recent strong performance of US equities is attributable to fundamental earnings growth, rather than simply an unjustified expansion in the price investors are willing to pay for that growth.
This - in addition to Shakespeare's pre-modern enjoinment to diversify - is potentially another reason to not confine considerations to one market, and one place, as December distributions slowly drift into sight.
The post, links and full charts can be seen here.
submitted by thefiexpl to fiaustralia [link] [comments]

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Earlier this year, the service Expensify enabled Bitcoin payments, taking a huge step to help and endorse cryptocurrency. 7. Nassim Nicholas Taleb. This Lebanese American essayist, scholar and statistician – who always focused his work on problems of randomness, probability and uncertainty – is a major Bitcoin supporter. Nassim Taleb, the author of Skin in the Game, got into a small Twitter feud in which he explained that most investors can’t understand the nuances of a cryptocurrency such as Bitcoin ().. According to a tweet posted by Nassim Taleb on Sunday, Bitcoin is a good idea, but “almost all bitcoiners are total idiots.”. Taleb was exchanging posts with self-described “Bitcoin maximalist ... Nassim Taleb, nel suo lavoro editoriale con lo stesso titolo, ha inventato il termine "antifragile" per descrivere qualsiasi fenomeno che diventa più forte quando incontra la volatilità. La "morte imminente di bitcoin" è probabilmente l'unica cosa che è stata predetta ancor più della "morte imminente di Internet", un tema ricorrente ricorrente negli anni '90. Bitcoin is exciting, and bitcoin users are interesting people! Whether you want to use bitcoins to buy something online, accept Bitcoin payments for your business, or even develop your own software on top of the Bitcoin network, there's a vibrant community of motivated people that would love to help you. Since Bitcoin is such a new concept, there are many new applications and use cases that ... Many books on the subject such as Nassim Taleb’s are great at the philosophy but light on details. The complex system of financial markets and our portfolios is the area where we stand to benefit most from a little more antifragility. One outgrowth of this was a deepening interest and research on cryptocurrency and Bitcoin.

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Nassim Nicholas Taleb vs David Birch on The Bitcoin Standard - Bitcoin News

Naseem Nicholas Taleb, one of the world's most famous philosophers who predicted the economic downturn of the year 2008, said the value of Cryptocurrency Bitcoin could reach $ 100 million, or ... Nassim Nicholas Taleb in an interaction with Ami Shah of ETMarkets.com on the sidelines of Times Network India Economic Conclave talks about what makes him b... BITCOIN and the STOCK MARKET DE-COUPLE during 10K PUSH. Will IT LAST? + IBM & Stellar XLM - Duration: 29:18. ... Nassim Taleb - "The Black Swan" - Duration: 1:06:00. Woodrow Wilson School of ... Nassim Taleb, author of “Skin in the Game”, got into a small Twitter feud in which he explained that most investors can’t understand the nuances of a cryptocurrency like Bitcoin. Nassim Nicholas Taleb vs David Birch on The Bitcoin Standard - Bitcoin News Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency, as the system ...

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