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It’s about time for another portfolio update.
There’s a fair bit to share today, with the main news being we’ve sold off another investment property as planned.
I’ll get into that, plus share our updated investment income chart for financial year 2020-21, and of course, chat about what shares we’ve been buying and how it’s all going.
Let’s get stuck in.
Current wealth allocation.
Below is the current breakdown of exactly where our savings are located. It’s a bit different to last time! You can read my last portfolio update here.
Cash has increased a lot due to the property sale, from 8% to 20%.
Shares are roughly the same. Property equity has reduced from 26% to 17%, with our remaining properties increasing in value in the last few months or so.
Peer-to-peer lending is also continuing to slowly get smaller as we spend the repayments elsewhere.
The interest rates on offer are just way too low for my liking these days at around 3-4%. Our cash was invested a few years back when rates were 8-10%!
Anyway, back to the big change…
We sold an investment property.
The IP we chose to sell was a townhouse close to Brisbane. We decide which property to sell depending on which one has the most equity tied up in it.
It’s not really a bet on which market or property is going to do the best. It’s more about extracting the valuable equity so we can invest that into shares.
For example, a property with zero equity has essentially no opportunity cost, and there’s also little to gain financially by selling it. Unless it’s costing you money of course.
Anyway, the sale went smoothly and we got a pretty decent price – slightly more than I was expecting 🙂
Our cash will be used to cover repayments on the remaining mortgages as well as continually investing in shares every month. I usually try to work it so we exhaust the cash within a few years and then we sell the next property, continuing our steady transition from property to shares.
I explain roughly how we manage our cash during early retirement in this post.
Share market update.
How about those markets ey?
If you haven’t been paying attention, stocks in Australia and the US – the two markets most relevant to Aussies – have been really strong this year.
Both markets are up about another 10-15% in the last 6 months, after the huge recovery during the second half of last year.
I’m sure something will spook the markets at some point, but it’s an impressive run. But far more importantly, profits are now roaring back (and so are dividends) after a sharp drop.
Property market update.
Aussie property in most locations – when we’re not in lockdown – is also performing really well.
Prices are rising with huge demand from homebuyers and cheap mortgage rates. And rents are rising too, thanks to low vacancy rates and low demand from investors for the last few years.
We’ve been lucky to score some nice rental increases here in Perth.
As soon as that happens, of course, the media jumps all over it with hysterical articles about rental affordability. Yes, rents are up. But for context, rents are still lower than they were 7-8 years ago!
For example, we have a couple of villas which rented for $500 per week back in 2013. Those same properties today (after the recent increases) are achieving rent in the low $400s.
Buying a home without a new loan.
After speaking with our mortgage broker a little more about the idea of security substitution, it sounds like it would suit our situation.
This would involve selling a Perth investment property and us buying a home (to live in) at the same time.
Given we plan to buy at some point in this particular location, slowly offload our properties, and aren’t in the position to get a new loan, this should work out well. Especially since this won’t affect our ability to continue building our share portfolio.
In fact, pretty much everything would stay the same. We’d just have an owner occupied property instead of an investment property.
Our cashflow may even improve a little. So on the off chance something which fits our criteria comes up on this little strip, we’ll look to utilise this strategy.
It could take quite a while because we want a block with a fair bit of open space – not paved over with pool, shed, patio, and a huge sprawling house as seems to be the popular style.
I also want it to be in a good position relative to the lake, so we can continue doing our bit to help the local turtles 🙂
What shares we’ve been buying.
Since the last update, we’ve been topping up our holdings. Mainly our international index fund, and also the two REITs we own.
The real estate trusts have jumped in value recently, as I guess the market realised that offices aren’t going to disappear and we can see some light at the end of the tunnel with the vaccine rollout.
It was nice to buy up this commercial real estate at a 10-20% discount to the value of their portfolios, but that opportunity has now disappeared. So now we’ll kick back and enjoy the healthy income stream they spit out.
Our current share portfolio.
Here’s how our share portfolio looks at the moment.
Our international shares portion is slowly getting bigger as we add to it on a semi-regular basis.
Not much else is going on. Argo has been trading at a premium so I haven’t added much to it for a while.
Our value-focused fund QVE which focuses on small and medium sized companies continues to underperform while still paying a nice income.
I wonder if value investing will ever have its time in the sun again? I’ve seen logical arguments on both sides. Time will tell.
Annual investment income.
Here is a chart of our passive income from investments over the financial year ending in June.
This includes dividends, franking credits, and interest from peer-to-peer lending.
You might remember in my last update I flagged that our passive income growth streak wasn’t going to continue.
But this result is actually better than expected, given the last financial year was a pretty rough time for dividends.
Companies were rightly conserving cash to stay alive through the 2020 lockdowns. With light at the end of the tunnel and company profits coming back, many businesses now have a ton of extra cash.
This is likely to result in bigger dividends for shareholders over the next year or so. In fact, banks, miners, and a bunch of other companies have already announced some healthy dividend increases.
As someone who loves receiving income from investments, I’m looking forward to seeing those payments roll in!
For new readers: If you’re wondering how we consider ourselves ‘retired’ if our passive income isn’t higher than our household spending, I explain how that works in this article. Short answer: we use cash from offloading property.
It’s quite surprising how much our portfolio has increased since the corona crash last year.
If you’re a new investor, please understand that returns this strong are not normal! Markets don’t go up in a straight line forever.
We’ll experience another downturn at some point, and if you’re building your portfolio right now that’s exactly what you should hope for!
Now, I don’t recommend waiting because we don’t know when that’ll happen. But it’s definitely something to keep in mind, and even look forward to.
Anyway, that’s enough from me. How have your investments been going in 2021? Let me know in the comments below.