As this year is almost over, it’s time for another portfolio update.
The last update was back in July, and man, things have changed since then!
I’ll share how our investments are going and what we’ve been buying in the last few months, as we continue building our share portfolio and passive income.
Alright, let’s get stuck in, starting with the current breakdown of where our savings are stored.
Current Portfolio Allocation
In the below chart you can see the basic breakdown of our net worth in percentage terms.
And for those that are curious, without super, the breakdown is: 52% shares. 30% property equity. 14% cash. 4% P2P lending.
Our super is still 100% international shares, while our personal portfolio is mostly Aussie shares and property.
Our share portfolio has become larger due to regular purchases and the market recovering. Plus, a couple of our properties I have adjusted higher (based on similar recent sales).
So super, cash and our peer-to-peer lending have become slightly smaller in comparison.
Speaking of which, our peer-to-peer lending investment with Plenti has actually been one of our best performing investments over the last 4 years, returning a reliable 8-9% income per year. Interest rates are lower now, unfortunately, but that’s true across the board.
If you were interested in trying out peer-to-peer lending, you can sign up using this link to get a $100 bonus when you invest $1,000 (or more) in the 3 or 5 year market. That’s like an instant 10% return.
The 3 year market rates are currently 5% per annum, and the 5 year market is paying 6.9% per annum. Read more about how Plenti works in my article here. They just reached $1 billion in loans funded, which is quite an achievement.
In what seemed unthinkable earlier this year, the US and Aussie sharemarkets have both had strong recoveries to date. The US market is now at all-time highs, and the ASX is getting close.
Unfortunately, when I wrote my article “My Thoughts on the Current Sharemarket Crash” back in March (days from the bottom), many people were sceptical the market would recover.
In fact, some suggested it was reckless to keep buying! Better to wait until the market was firmly in recovery mode and heading back up they said.
I urged readers to keep buying, and buy more if they could. Not because I knew the market would recover so fast. But because investing regularly is pretty much always the most sensible thing to do.
On the flipside, timing the market requires more effort, more stress, more time, and is unlikely to deliver a better outcome! Especially so when you have a goal like financial independence in mind.
Property market review
In the last few months, property markets in most cities have started to improve. Here in Perth seems to be one of the strongest!
After being a laggard for the last half-decade, it’ll be good to see Perth have its time in the sun. And of course, owning multiple Perth properties, we have a huge financial bias swaying that opinion 😛
Jokes aside, it does look like our properties should fare reasonably well in the next couple of years. And we still have plenty of cash so we probably won’t sell another property until 2022.
All signs are pointing to rents increasing strongly here in Perth too. This will help our cashflow as we’re still forking out for principal & interest on each mortgage (which is fine since reducing debt is a form of saving).
What we’ve been buying
Since the last update in July we’ve topped up all our holdings at various times. Quite often I look at which of our shares have lagged in the previous month and then buy that one. Recently that’s been our international index fund, VGS.
You might remember last year we owned some real estate investment trusts (REITs). I ended up selling these for large gains and reinvesting elsewhere as they became (in my view) vastly overpriced, trading well above the value of their property portfolios.
Well, this year the opposite has occurred. REITs were hammered during the market crash and some now look very attractive. And I’ve actually bought one for our portfolio. It’s a diversified office REIT if you’re curious. Yes, I’ve read “the office is dead” stories. I don’t buy it.
“Wait, what happened to keeping it simple?”
That’s true, I’m kind of breaking my own rule. But this still feels simple. I was actually looking into unlisted real estate funds, after thinking more about having a long term allocation to commercial real estate as our portfolio gets bigger. That’s when I noticed some REITs are now much cheaper than before.
Also, it’s fair to say I’m not ready to be a 100% passive investor. I’ll likely continue with a mix of index funds and active choices in our portfolio.
The overall goal remains to steadily increase our investment income over time, while building a diversified portfolio of investments that are easy to understand and require little effort.
The only challenge will be deciding whether to keep REITs if they become stupidly overpriced again, or reinvest the cash elsewhere.
Current share portfolio
Here’s the latest breakdown of our share portfolio for H2 2020.
As you can see, still mostly Aussies shares with our LICs and index fund, VAS.
Our holding in VGS is bigger than last time, and will slowly continue to grow. And as mentioned, a real estate holding has been added.
Looking ahead, I can see us buying more international shares (VGS) and real estate to increase those parts of the pie over time.
That said, I do like to top up whatever seems good value at the time, relative to the others.
Yes, it’s now time to take a look at my favourite metric.
This chart shows our portfolio’s income from the 2019-20 financial year. The figure includes dividends, franking credits and interest from peer-to-peer lending.
If you’re interested in what I use to keep tabs on our Annual Investment Income, you can get it below…
Sadly, I do expect this pretty chart to lose its winning streak this year! There’s still a while to go for the current financial year, but dividends have definitely taken a hit. It’s difficult to make enough money to pay fat dividends when the economy shuts down I guess 😉
Income from our LICs have held up reasonably well so far. QVE hasn’t cut its dividend at all. Milton and Argo have both cut dividends by around 10%.
There may be more drops to come this year, but with the economy firmly in recovery mode, things should improve from then on.
For new readers: You might be wondering how we consider ourselves ‘retired’ if our passive income of $25k isn’t more than our household spending of $40k. I explain exactly how it works in this article.
You can also find a detailed article on how we’re turning our equity into income, using my property-to-shares transition strategy.
Just like the above, I’m aiming to increase the amount we donate to charity each year. In fact, I secretly hope it becomes our biggest household expense. Eventually!
We’ve only been going for a few years, but in 2020 we managed to increase our donations by almost 4%. Depending on how things go with our finances, we may ramp it up faster, but the main goal is to keep the streak going.
Granted, these aren’t huge numbers. But this is a long term focus and I’m happy with the direction it’s heading. And if you’re wondering where it goes – mostly animal welfare and environmental causes.
Some notes on tax
I’m aware of some people avoiding ETFs since the tax statements are, shall we say, a dog’s breakfast? The dividends (distributions) come with many different components and are not fun to read.
But this doesn’t really matter. Because Sharesight tracks all of it, with me only needing to casually check it during end of year tax preparation.
Sharesight gets the data directly from the share registries and fund managers and inputs all the complicated stuff. This article explains exactly how they do it. Of course, you should always double check it, but this is so freaking good.
I don’t want to sound like an advert, but if you’re not using Sharesight, then you should be. It costs nothing if you have 10 holdings or less. For larger portfolios, you do need to pay, but there are lots of extra features alongside.
You can connect your Sharesight account with most brokers, so that trades are automatically imported. It saves much wasted time and headaches, so you can focus on other things. That’s why you’ll see my affiliate link around this site, and on my recommendations page. It’s something I use, enjoy, and would recommend regardless.
So there’s no reason to avoid ETFs because of their complicated tax statements.
The more I talk to people about investing in shares, the more obvious it is that our psychology and emotions account for 90% of our results (because that determines our behaviour). Knowledge is really only about 10% of the equation.
With that in mind, if you (or someone you know) is struggling to get comfortable with long term sharemarket investing, because they’re a newbie or maybe a religious property investor, direct them to this post. It should calm many of their fears.
Well, that’s the latest peek into what’s happening with our investments. It’s hard to believe how strongly the sharemarket has recovered in recent months. And while I’m not waiting for it, there will be another wobble at some point.
Either way, I’ll be investing every single month – rain, hail or shine!
How have your investments fared in 2020? What have you been investing in? Let me know in the comments below…
Note: Since I use both, I’ve signed up this blog as an affiliate for Plenti and Sharesight. If you decide to sign up using the links provided, this blog may earn a referral fee. I never recommend anything I don’t use myself or genuinely approve of.