And coming events cast their shadows before. Thomas Campbell, Loichiel’s Warning (1802) submitted by
This is my thirty-fifth portfolio update. I complete this update monthly to check my progress against my goals. Portfolio 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. Portfolio summary
Vanguard Lifestrategy High Growth Fund – $773 028 Vanguard Lifestrategy Growth Fund – $44 094 Vanguard Lifestrategy Balanced Fund – $80 383 Vanguard Diversified Bonds Fund – $108 964 Vanguard Australian Shares ETF (VAS) – $139 698 Vanguard International Shares ETF (VGS) – $27 138 Betashares Australia 200 ETF (A200) – $259 380 Telstra shares (TLS) – $1 860 Insurance Australia Group shares (IAG) – $13 847 NIB Holdings shares (NHF) – $8 412 Gold ETF (GOLD.ASX) – $98 755 Secured physical gold – $15 979 Ratesetter* (P2P lending) – $17 791 Bitcoin – $147 130 Raiz* app (Aggressive portfolio) – $16 931 Spaceship Voyager* app (Index portfolio) – $2 240 BrickX (P2P rental real estate) – $4 410 Total value: $1 760 040 (+$30 378) Asset allocation
Australian shares – 42.0% (3.0% under) Global shares – 22.6% Emerging markets shares – 2.4% International small companies – 3.1% Total international shares – 28.1% (1.9% under) Total shares – 70.1% (4.9% under) Total property securities – 0.3% (0.3% over) Australian bonds – 4.8% International bonds – 9.9% Total bonds – 14.7% (0.3% under) Gold – 6.5% Bitcoin – 8.4% Gold and alternatives – 14.9% (4.9% over)
Presented visually, below is a high-level view of the current asset allocation of the portfolio.
This month the portfolio grew by just over $30 000 in total, building on the previous month of growth.
The 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 other major changes in the monthly value of the portfolio have been the result of gains in the value of equity holdings and a sharp upward movement in the price of Bitcoin.
This month marks the notional passing of one of the additional FI benchmarks set at the beginning of the year - 'Credit card FI'. This benchmark is estimated on the basis of reaching a portfolio value where the annual assumed real return of 4.19 per cent could in theory fully meet average annual credit card expenses of $73 000.
This benchmark is notionally met in that sense, and it is also close to being met on a far more practical and tangible basis also. The actual gap between a trailing average of distributions paid and card expenses has now fallen to less than $300 per month.
Even so, it is important to note that this narrow gap could stabilise or modestly rise once forthcoming December distributions form part of the average, replacing a higher placeholder assumption based on June's figures.
Quarterly distributions from Betashare's A200 ETF and Vanguard's Australian shares ETF (VAS) were paid this month. These distributions, in addition to another staggered reinvestment of June distributions were invested in the market.
They have been mostly placed into VAS, to obtain the benefit of accessing a slightly wider range of holdings at a comparable fee, as well as to reduce any (admittedly small) risk and volatility in future returns and payout levels between A200 and VAS.
To maintain the target balance for international (40 per cent) and domestic equities (40 per cent), a smaller additional investment was also made into Vanguard's International shares ETF (VGS). Sighting harbours and early arrivals - revising the FI target date
A focus of thought in the two months ahead will be the expected timing of reaching my FI Objective #2.
This goal is current set to July 2023. In setting this original target timeframe I used approximate and conservative estimates, based on previous average total portfolio increases over the past five years.
This method effectively ignored extra contributions arising from any above average portfolio distributions, or any return impacts, given the relatively short time until both targets. As such, it represented a clear simplification of reality. Achievement of the target - I reasoned at the time - would inevitably be impacted by market fluctuations and this meant constructing spuriously exact yearly forecasts of the impacts of average returns would not be worthwhile.
What has become clear since meeting Objective #1 more than 18 months earlier than expected is that more rapid progress was also being made towards Objective #2. To understand and explore this progress further I have applied a few estimation techniques to start understanding possible revised trajectories.
These estimate approaches included:
- simple extrapolation from past progress over a long time period
- using the median monthly progress since 2017; and
- assuming no investment returns at all, and reliance just on contributions.
The results of the different estimation approaches being applied were broadly consistent, with projections of Objective #2 being reached at least two years ahead of schedule. A further interesting fact was that average assumed investment returns alone would be sufficient to carry the portfolio to the original target level by mid-2023. Indeed, even if the portfolio suffered a one-off 33 per cent fall in equity values tomorrow - as is quite possible - modelling suggested the target would still be likely to be met early.
With two months to go until a full portfolio review, this indicates that it may be useful to reset this target to an estimate that more closely aligns with progress to date, whilst still retaining a respectful regard for the critical role that market variations can have in this phase of the journey. Casting the shadow before - a better approach for estimating distributions?
At this time of year December distributions begin to cast their shadow forward, as the previous July distributions recede.
Seeking to estimate the approximate level of future distributions has been an ongoing interest, and has been looked at previously in both the Set and Drift and Wind in the Sails posts. The level of distributions is a solid and important marker of how far the journey has progressed.
This month I found time to fully develop an expanded data set to allow a better estimate of likely distributions. From the website of the relevant Vanguard retail funds, as well as the sites for the ETFs VAS, VGS and A200 I was able to download the available histories of distributions.
These stretched back a decade for some funds, and five years for VAS and VGS, but substantially shorter for A200. This enables the estimation of average payouts (in cents per unit) to be reached. In turn, this allows an estimate to be made of the level and components of the December distributions, using average values. This is set out below.
There are significant boundaries of uncertainty around this estimate, and some simplifications. For example, it excludes Ratesetter and smaller individual shareholdings (which represent about 10 per cent of the holdings). It also assumes for simplicity equal ETF payments through the year.
With these caveats and using this approach, the total December distributions are estimated to be around $19 500, out of an annual forecast distributions of $49 800. 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) 110.1% 150.0% Objective #2 – $1 980 000 (or $83 000 pa) 88.9% 121.1% Credit card purchases - $73 000 pa 101.1% 137.7% Total expenses - $89 000 pa 82.9% 112.9% Summary
Coming events do cast their shadows before them. Even an initial review of progress towards my remaining financial objective has left me with a sense of time foreshortening, and the shadow reaching out towards the present. At some point this shadow will start inevitably and undeniably reaching into and touching my daily life.
At the same time as this sense grows, markets feel delicately poised, with risks of bubbles, and unusual events such as required US Federal Reserve support for the inter-bank market, and a rare failure of a recent tender of short term Australian Treasury notes to reach its target issuance. Despite these types of events and historically low bond rates globally surveyed investor equity expectations remain at elevated levels.
It often pays dividends at times such as this to look to the past. This is an opportunity provided by listening to Yale University's Robert Shiller in this recent podcast as well as by reading his new work Narrative Economics focused around the historical and continuing role of stories in markets and finance.
Stories - such as a 'clear' link between a countries' economic growth and share market performance - can often be plausible, commonly held, and incorrect. Another informative podcast was an interview with the Head of Product Strategy for Vanguard Australia by Equity Mates. Further interesting insights into the development of modern portfolio theory and efficient markets theory can be accessed in these Youtube videos with interviews of Markowitz and Eugene Fama. The latter makes the point that the growth in indexing is likely to lead to active managers facing higher competition from more skilled investors, as the less skilled depart, making outperformance tougher rather than easier.
This month I was pleased to be mentioned in this short but practical piece on Australian FI seekers, alongside Aussie HIFIRE and Aussie Firebug. For a striking visual tool around planning for FI and safe withdrawal rates, this US-based calculator also occupied some of my time. It gives a unique and simple demonstration of the different probabilities and tradeoffs that can be embedded in reaching FI. Ordinary Dollar here in Australia has some similar calculators. Without seeing coming events, they represent a useful way to look further over the horizon. The post, links and full charts can be seen here.
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https://preview.redd.it/g0ha0awkfjh21.png?width=1392&format=png&auto=webp&s=9f52f92094dba11cca82e9bf1f65b9231f10dca7 Investing in Cryptocurrency
Some say that cryptocurrency is the most disruptive financial instrument to hit the capital markets in the last decade. Not since the mortgage-backed securities derivatives of a decade ago has anything caused so much conversation, controversy, and hype, or created so many financial winners and losers. Despite the latest downturn, many savvy investment experts suggest that there’s a strong case for adding an allocation of cryptocurrency to a traditional investment portfolio.
Research has shown that cryptocurrency has no correlation with stock and bond markets, so it offers an extra layer of diversification to an otherwise well-balanced portfolio strategy. A recent study by Yale suggests that up to 6% of one’s portfolio should be invested in cryptocurrency because it has no exposure to the factors that affect most common stock market, macroeconomic, currency, or commodity values. Another study suggested that a 5% allocation of Bitcoin in a traditional portfolio mix of 60% stocks and 40% bonds more than doubled the returns of the portfolio over a four-year period, while reducing the maximum drawdown of the portfolio in the same period, with only a minor impact on total volatility.
However, while the merits of cryptocurrency investing are positive, for retail investors looking to get exposure to the cryptocurrency and blockchain market, the investment options are extremely limited. In addition, the burden of formulating the proper investment strategy rests solely on the back of the individual investor. When changing just a single variable, such as cryptocurrency selection, can have a staggering impact on the gain or loss of the portfolio, the expertise of the investor is crucial, and few retail investors are likely to have it.
Cryptocurrency investing is not for the faint of heart. This year alone, from the peak of the market in January through the first week of September, the industry has shed nearly 80% of its market capitalization. In addition, crypto investing can also be quite an ordeal. Though over the course of the last year there have been over 1,000 new and promising cryptocurrency projects launched and listed on the world’s exchanges, the mechanism for investing remains cumbersome and restrictive. Those who wish to access the crypto markets are left with a single platform for investing — the cryptocurrency exchange. Investors are required to determine by themselves which coins to buy, when they should enter the market, which exchange(s) they use, which kinds of wallets they will need to obtain, and how to configure their stop losses.
Because of this, there exists a massive global market of retail investors (those that invest in stocks, bonds, and mutual funds) who currently have no exposure to cryptocurrency or blockchain markets. Around the world, there is estimated to be a pool of over 1 billion potential investors representing some $69 trillion in equity value that is going largely untapped. They desperately need a simplified approach to “smart” investing — one that is akin to the growing trend toward index investing, but is not limited to only the very wealthy “accredited” investors to whom index investing is currently available.
Snowball is determined to fill this void. By democratizing professional crypto investment knowledge through what it calls its “Smart Crypto Investment Automation (SCIA)” platform, Snowball provides simplified access for everyone to a curated selection of regulatory-compliant cryptocurrency indices.
Why Indices and Not Individual Coins?
Before most investors move into a new market, there’s a warm-up period that involves understanding a particular asset class and how it might fit into your financial picture. With cryptocurrencies and blockchain instruments, there are additional layers of complexity, including the notion of cryptography, miners, blockchains, tokens, hashing and proofs. For the uninitiated, there’s a great degree of unfamiliarity and complexity associated with cryptocurrencies, and yet the everyday investor is expected to jump onto an exchange and start trading, even if they’ve never traded anything in their entire life.
Hand picking cryptocurrency investments is a challenge. Cryptocurrency markets are highly volatile, and even the oldest are still really in their infancy stage. In addition, the selection process for token listings varies widely between exchanges and is currently not well regulated. Selecting winners from losers or trying to time the market has proven to be incredibly difficult. A study by Bitwise spotlighted the value of diversification because of the extreme variability in the returns of even the top ten coins.
Active vs. Passively Managed Indices
There is plenty of evidence that actively-managed portfolios underperform. From a technical feasibility perspective, Snowball’s approach to index investing is relatively straightforward, with a set, hold, and rebalance approach. This eliminates the infrastructure requirements of building a complex set of algorithms and trading strategies. Indices are also very easy to replicate, since the published portfolio composition is not expected to change, allowing Snowball the ability to build its own infrastructure and mirror the top crypto funds within its own platform.
Snowball also sees that actively-managed funds charge fees that are likely detrimental to total performance, and often do not succeed in generating market alpha. In fact, active fund management can actually magnify the value slump seen with certain cryptocurrencies.
Nobel laureate Eugene Fama and Kenneth French performed a study which concluded that a portfolio of low-cost index funds is likely to perform about as well as a portfolio of the top 3% of actively managed funds, and better than the other 97%. Although cryptocurrency markets are thought to be less efficient, less regulated, and may benefit from more active management, so for the results have been contradictory or at least revealed the potential magnifications of the actions of the cryptocurrency markets.
The indices Snowball prefers follow a fixed methodology that involves purchasing a basket of underlying assets without any “active” management or trading other than periodic rebalancing. Most of the work is in creating the initial composition of the index, including the performance of research, analysis, back-testing, and the application of the experience and knowledge of the team.
However, not all indices are created equal, and that’s why Snowball is dedicated to eliminating the confusion and reducing the individual due diligence required to evaluate all the available choices. Snowball uses a powerful portfolio selection methodology and then shows you popular funds based of your investment goals.
Additional Benefits of Passively Managed Indices
Taxes: Because these indices are occasionally rebalanced rather than actively managed, there will likely be fewer taxable events. Snowball will document all trades for simplified and convenient tax reporting.
Fees: By investing in passively managed indices, the overhead of research teams, quantitative analysts, and traders is eliminated, as are the trading fees that result from the buying and selling of positions. We anticipate that this will translate into reduced fees for the investor.
Risk: Indexes are generally comprised of multiple cryptocurrencies, so as we’ve discussed above, a combination of cryptocurrencies provides diversification and should reduce the risks of investing in any individual currency.
Snowball constantly observes the cryptocurrency market, looking for new entrants into the index space. The team performs the necessary fund evaluation and selection process to bring new indices onto its platform. These carefully-made decisions are based on a combination of factors including the fund’s strategy, regulatory compliance, independent certifications, and minimum assets under management.
When recommending possible fund investment choices, Snowball carefully takes into account each investor’s objectives, time horizon, and aversion to risk. Its platform also allows for each investor to screen the various options, enabling a greater level of control and selection for more experienced investors who desire that. It will also feature industry-leading comparison tools, and will provide detailed information on each and every fund.
The Snowball platform then provides investors the ability to use fiat money to fund their portfolio by linking their bank account directly to their Snowball account. US dollar wire transfers are also supported. Lastly, Snowball is very proud of its intuitive, user-friendly interface. While feature rich, it is still simple and straightforward to use and navigate, employing the latest in user experience design. So don’t miss out on this incredible opportunity to join the fast-growing community of Smart Crypto Investment Automation (SCIA) users!
Snowball is the first Smart Crypto Investment Automation (SCIA) platform that enables access to professionally curated portfolios, empowering everyone to invest like accredited investors.
Here are some useful links for you to explore: Snowball Website Snowball Twitter Snowball Telegram Snowball Instagram
The sharp rise and subsequent fall in Bitcoin’s value places it among the greatest market bubbles in history. It has outpaced the 17th-century tulip mania, the South Sea bubble of 1720, and the more recent Japanese asset price and dot-com bubbles.
The rapid price rise garnered attention from an increasing number of academics and investment advisers. Some have suggested that Bitcoin improves portfolio performance and can even be used as a potential “safe haven” asset in place of gold.
Our work finds that much of this research is flawed and overlooks some important attributes that any investor should consider before allocating funds to such a speculative investment.
This is particularly relevant if investing in Bitcoin is rationalised as a prospective safe haven in times of market turmoil.
Hard to value The first attribute investors consider is how to value Bitcoin. Typically, assets are valued based on the cash flows they produce. Bitcoin lacks this property.
This leads to ongoing debate as to the true value of Bitcoin and other cryptocurrencies. Some, such as the Winklevoss twins and other Bitcoin entrepreneurs, believe the price will soar far higher. Others, including Nobel prize winner Eugene Fama and esteemed investor Warren Buffett, believe the real value is closer to zero. Another Nobel winner, Robert Shiller, suggests the correct answer is “ambiguous”.
There is even wide variation in price across the various Bitcoin exchanges. This is common in fragmented markets and makes it difficult for an investor to find the best market price at any point in time – a process called price discovery.
High price volatility Bitcoin prices also have a high level of variation (volatility) when compared to other possible investments including bonds, stocks and gold. Even tech stocks such as Twitter, which are considered relatively volatile, are found to have less price variation. This adds to the difficulty investors face when trying to value Bitcoin and any portfolios that contain it.
This is of particular concern given the large daily losses that Bitcoin has experienced in its relatively short life. The largest one-day decline experienced by the popular S&P500 index since 2011 is 4.2%. Bitcoin has had nearly 200 days that were worse (and over 60 days worse than the biggest decline in the gold price of 10.2%).
Put another way, Bitcoin has had 200 days worse than the worst day on the stock market. This hardly seems like an enticing investment for most.
Low liquidity Investors should also consider the ease with which they are able to buy and sell any assets in which they invest. One method used to measure this liquidity attribute is the bid-ask spread – the difference in the price at which one is able to buy and sell the asset.
More liquid assets have a narrow bid-ask spread. Bitcoin’s bid-ask spread varies from one exchange to another, but in general it is much larger than for other assets.
While bid-ask spreads provide one measure of implicit trading costs, investors also consider the explicit transaction fees they are charged when trading. Transaction fees for trading traditional investments are typically well known and have trended down over time.
While Bitcoin fees have recently declined, they have proven to be highly variable, ranging from over $30 to under $1. The time taken to process a transaction can also be greater than 78 minutes. This is much longer than for stocks or bonds and creates another layer of uncertainty for investors.
Only for the most risk-loving Bitcoin is harder to value, more volatile, less liquid, and costlier to transact than other assets in normal market conditions. Potential investors should be wary and carefully consider whether such highly speculative assets are appropriate additions to any portfolio.
Given safe havens are typically in demand during financial crisis, when markets are more volatile and less liquid, it is highly unlikely that Bitcoin is even worth considering as a safe-haven asset.
This week the Bitcoin Uncensored Podcast with Junseth and Chris Derose interviewed the winner of the 2013 Nobel Prize in Economics, Eugene Fama. Eugene «Gene» Fama is a titan of finance. His 1964 doctoral dissertation «The Behavior of Stock Market Prices» laid the foundation for the efficient markets hypothesis that has transformed the way finance is viewed and conducted. In 2013, he was honored with the Nobel Prize in Economic Sciences for his empirical analysis of asset prices. Professor Fama is a prolific author, having written ... 125: Eugene Fama on the Efficient Market Hypothesis, the Feds Fund Rate, Bitcoin and Daily Routines “I went into academics because I didn’t want to go into anything that would affect my sports life.” – Professor Eugene Fama Eugene F. Fama is Professor of Finance at the University of Chicago Booth School of Business. Professor... Nobel Ödülü sahibi Eugene Fama son zamanlarda Bitcoin Uncensored Podcast ile röportajda Bitcoin hakkındaki görüşlerini dile getirdi: BU (Bitcoin Uncensored): Eğer bu kadar çok para taşıyorsanız, muhtemelen bitcoin'in anonimlik özelliklerini istersiniz. Başka bir notta, neden kredi kartlarında% 2 işlem ücreti alıyoruz? Eğer gerçekte paranın maliyeti sıfır ise. Der Wirtschaftsnobelpreisträger Eugene Fama lässt die Finger von Bitcoin und sieht Kinderlosigkeit als Gefahr für die Weltwirtschaft.
Eugene Fama Why Small Caps and Value Stocks Outperform - ClientInsights - Duration: 7:38 ... 125: Eugene Fama on the Efficient Market Hypothesis, the Federal Funds Rate, Bitcoin and Daily ... Presenter: Robin Greenwood, Harvard Discussant: Matt Richardson, NYU Nov.08 -- Bloomberg Opinion columnist Barry Ritholtz talks to two economic legends: Eugene Fama of the University of Chicago Booth School of Business, and Da... This video is unavailable. Watch Queue Queue. Watch Queue Queue In this short video, Nobel laureate Eugene Fama provides perspective for long-term investors on why they shouldn’t pay a lot of attention to short-term results.