It’s time for my mid-year portfolio update.
Seems like ages since the last one back at the end of Feb!
So let’s peel back the curtain again and you can see what’s been happening behind the scenes.
There have been a couple of small changes to the portfolio since last time, which I’ll share with you.
I’ll also reveal my favourite chart which has just been freshly updated – our passive income for the financial year just ended. Let’s dive in.
Below, you’ll see the latest breakdown of our net worth at the time of writing. Figures are in percentages rather than numbers for privacy reasons. I’m not anonymous like many bloggers and other than that, it’d just feel weird.
As flagged last time, I now include superannuation in these updates. I mentioned it previously and you all agreed it was a good idea. Thanks for your feedback on that!
Super wasn’t really part of our FI strategy, but it has continued to grow in value (and therefore importance), as part of our long term wealth, that will come in handy later.
Given this money won’t be touched for a good while, it will continue to become a bigger part of our net worth (and probably yours too!) over time.
What’s changed? Well, I marked down the value of a couple of our properties in Perth, after browsing similar properties for sale to get a feel for what they might sell for.
But the market value of our shares and super has also taken a hit. So all up, the allocation is quite similar to last time.
My last update was right at the beginning of the coronavirus market crash. And that turned out to be a huge deal for basically everyone!
The economy was more or less shut down. Sadly, many people have died. While others started working (and doing everything else!) from home. It’s pretty clear that company earnings and dividends are getting hammered due to the sheer level of disruption from the shutdowns.
This means things could be looking sparse on the income side of things for the next year or two, while things slowly get back on track. We’ve never lived through anything like this, so it’s pretty crazy to watch it play out!
Having said that, it’s unlikely that the next 50 years has changed all that much from how it looked in January. Trends are still unfolding (perhaps accelerating), technology keeps evolving, and the world keeps turning.
While it’s far from ideal, there are plenty of positives we can choose to focus on too.
Property market review
From my reading, residential property in Perth and Brisbane (where our remaining properties are located) was performing solidly until corona hit.
People have called a false Perth recovery for so many years I’ve lost count! While it’s early days, sales have picked up and now seem strong in Perth. I’ve also read that prices are starting to rise in parts of Brisbane. Irresistibly low mortgage rates will tend to do that 😉
From a rental perspective, the vacancy rate in Perth has been falling for years as building and investment has largely dried up. In fact, the vacancy rate has fallen from a peak of 5.5% in 2016, down to a low of 1.5% today, according to SQM Research.
That’s a huge drop and the lowest it’s been in more than 6 years. Rents now appear to be on the rise. Maybe we can claw back some of the steep losses from a few years ago!
What we’ve bought and sold
As with most crises and fast-moving sharemarkets, there were opportunities available for those paying attention. I engaged in some behaviour which could be considered a bit naughty for a supposedly laid-back, do-nothing style investor.
You already know that LICs can trade at large premiums and discounts from time to time. Despite what some like to believe, LIC pricing is not always efficient.
I witnessed swings in premium/discount for the same LIC go from +12% premium and -8% discount, in just a week or two. And to be clear, no news was announced and nothing fundamental had changed with the company.
This happens in times when the market moves quickly. People are slow to account for this when buying LICs. I’d say that, right or wrong, it’s because many LIC buyers don’t even consider NTA versus the share price.
Anyway, these are the kinds of pricing differences I took advantage of. I trimmed some of our Argo holding (when it was trading at 12% premium to NTA) and topped up our Aussie index fund VAS.
Not because my view on Argo has changed. But because I could turn $1 of assets into $1.12 of assets by doing so. For basically no cost and no risk. This move means we own 12% more underlying shares than before (along with the earnings and dividends).
Differences this wide is typically not common with old LICs, which trade close to NTA (or within a few %) most of the time. By the way, my podcast partner Pat created a handy LIC Premium/Discount Estimator for a few of the popular LICs.
I also did the same thing with BKI, which was also trading at a huge premium. Except as part of simplifying our portfolio, I decided to exit it altogether.
This time, I used the funds to top up VAS, as well as Argo and Milton which were both trading at decent discounts by the time of purchase (5-8%). I chose to keep Argo and Milton over BKI as they both have a larger number of stocks in their portfolios (which I prefer), plus they’re internally managed.
There was no tax payable on these sales. Instead, there were losses which I can use to offset future capital gains. We ended up with roughly the same exposure, one less holding, and have increased our underlying ownership and future income stream by taking advantage of these price differences.
This isn’t something I agonise over, but if a large opportunity pops up, it can be worth making changes.
The record keeping would normally be a nightmare with this sort of thing. But I’ve been using Sharesight for the last 5 years, so all gains/losses for tax purposes are taken care of. If you’re not already using Sharesight, check it out here – it’s completely free for up to 10 holdings.
To be honest, if I didn’t use Sharesight, there’s almost no chance I would’ve taken advantage of the above opportunities. I’m just too lazy to spend my time calculating gains and losses on all the different parcels of shares! Haha!
Current share portfolio breakdown
Here’s how the portfolio looks right now. You might notice a new addition 😉
Well well well, look what we have here! Yes, as mentioned recently, we’ve decided to add international shares to our portfolio earlier than planned.
We’ve chosen to do this with an index fund (VGS), as it’s a simple, highly diversified and low cost choice. We’ll steadily add to this over time, as with our other holdings.
There’s no mad rush to have it reach a certain percentage of our portfolio anytime soon. But you’ll see it slowly increase in size over time.
VAS is getting quite large these days, which is fine with me. Although as dividends fall this year, the effects are fully felt with an index fund, whereas the old LICs may be able to cushion the blow somewhat.
I’m half-expecting my LICs to have little change in their dividend payouts. But we’ll see what happens when they report their earnings in the next month or so.
In fact, QVE has already announced they’ll be paying the same dividend for the next 18 months, unless things meaningfully deteriorate further. As someone who enjoys a nice income stream, I won’t complain about that!
Below is the passive income stream received from investments for the most recent financial year. I just updated this the other day!
So you know, this chart includes franking credits and also includes interest earned from our peer-to-peer lending investment.
By the way, I created an easy-to-use spreadsheet to keep track of our portfolio. It gives me a running estimate of our annual income from investments after every purchase. You can download it free below…
Well, the portfolio’s income is still heading in the right direction. But something tells me this lovely trajectory won’t be sustained over the next year or two!
As mentioned previously, it will be slow going from here, since we’re now paying P&I on our remaining investment mortgages. We’ll still be adding to our shares each month or so, but less than in the past.
But instead of focusing on the negative, I’ll just sit back and enjoy the chart as it stands for now! 😀
Another positive is that, given our spending in 2019 was less than $40,000, this means our passive income of $25,000 gives us a ‘coverage ratio’ of over 60%. And as we steadily move more savings from property to shares, this will continue to increase and the two will overlap.
It’ll be fascinating to see how the next 12-18 months pans out. Honestly, I wouldn’t be surprised if our dividend income falls in the short term, despite adding to the portfolio. But we’re playing the long game here, so bumps in the road are expected from time to time.
Overall, the portfolio continues to move in a direction that we’re happy with – spitting out steadily increasing amounts of cash. I look forward to bringing you the next update, either late this year or early next year.
In the meantime, how’s your portfolio doing this year? Have you hit any passive income or net worth milestones? Share with me in the comments!
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