Annual Report 2025

All $ signs in this report indicate Australian Dollars. I'll do a separate report on individual investments. I do a report breaking down spending after the end of the financial year.

Overview 

Investment returns were positive and net worth again increased. My base case net worth projection was $8.2 million and we reached $8.192 million. In December we again travelled to China and this time Vietnam for the first time. I did some short business trips to Sydney and Brisbane during the year as well. My 61st birthday was in December and at the end of November I took a redundancy package from my employer and retired.

Investment Return

In Australian Dollar terms we gained 8.7% for the year while in USD terms we gained 17.1%. The big gap is because the Australian Dollar rose. The MSCI gained 22.9% and the S&P 500 17.9% in USD terms while the ASX 200 gained 11.9% in AUD terms. The HFRI hedge fund index gained 12.7% in USD terms. Our target portfolio gained 7.3% in AUD terms and the Vanguard 60/40 AUD benchmark returned 9.8%. So, we under-performed all benchmarks apart from the target portfolio and HFRI. But we didn't do that badly compared to the S&P 500 given we target a much lower volatility. The poor performance of the target portfolio was also due to the rise in the Australian Dollar.

This chart compares our portfolio to the benchmarks in Australian Dollar terms over the year:

 

It was actually a smoother ride in USD terms:

This was unusual as the Australian Dollar usually falls during stock market crises.

  

Here are annualized returns over various timeframes:

 

We beat the HFRI, the target portfolio, and the 60/40 portfolio over the last 5 and 10 years. Our performance over 20 years is still very weak, though it matches the HFRI.

 

Here are the investment returns and contributions of each asset class in 2025 in currency neutral and unlevered terms:

The contributions to return from each asset class sum to the total portfolio return. The portfolio shares are at the beginning of the year. Rest of the world stocks did worst, because of the performance of Defi Technologies, followed by futures, which includes bitcoin. Gold was the best performer followed by hedge funds and each made similar large contributions to the total return. Private equity was disappointing, in large part due to the fall in 3i near the end of the year, the shutdown of Kyte, and a disappointing earn out at IPS. A good result from Aura VF2 saved the day.

Investment Allocation

There were significant changes in asset allocation over the year:

 

We reduced exposure to futures = crypto (-12.8% of portfolio), RoW stocks = Defi Technologies (-4.3%), and real assets (-4.2%) over the year and increased exposure to all other asset classes and hedge funds, in particular (+7.7%).

Accounts

Here are our annual accounts in Australian Dollars: 

 

Percentage changes are for the total numbers. There are lots of quirks in the way I compute the accounts, which have gradually evolved over time. There is an explanation at the end of this post. 

We earned $440k after tax in salary etc. This grew massively due to the redundancy payment. Total non-investment earnings including retirement contributions were $473k, up 97% on 2024.

 

We gained (pre-tax including unrealized capital gains) $507k on non-retirement account investments. The rise in the Australian Dollar reduced those gains by $43k. We gained only $30k in retirement accounts with $32k in employer retirement contributions. Gold and hedge funds contributed strongly to non-retirement funds and retirement funds suffered from the crypto theme.

 

The value of our house is estimated to have fallen by $64k. As a result, investment gains totaled $472k and total income $945k.

 

Total spending (doesn't include mortgage payments, life insurance, margin interest etc.) of $158k was down 7% on last year.

 

$21k of the current pre-tax investment income was tax credits – we don't actually get that money directly so we need to deduct it to get to the change in net worth. We do receive some refund of franking credits in our annual tax returns, which count towards "Other income". We saved $289k from salaries etc. before making contributions of $74k to superannuation. I also record a $7k "inheritance", which is a gift we received on our trip to China. Current net worth increased by $701k.

Taxes on superannuation returns are just estimated because, though we know the tax paid by the SMSF, our employer superannuation funds only report after tax returns. I estimate the tax these funds paid to make retirement and non-retirement investment returns comparable. The total estimated tax on superannuation was $29k. Net worth of retirement accounts increased by $108k after the transfer from current savings. With the gain in the value of our house, total net worth increased by $745k.

Projections

Last year my base case scenario for 2025 was for an increase in net worth of $800k to $8.2 million, which we hit. For this year, my best case scenario is for an increase of $900k to $9 million. My bear case is for a decline to $7.5 million, which is roughly what we would expect if stock markets fell 20% assuming a beta of 0.5 and alpha of 5%. The Australian Dollar would likely fall in that scenario, boosting the Australian Dollar value of foreign investments.

Notes to the Accounts

Current account includes everything that is not related to retirement accounts and housing account income and spending. Then the other two are fairly self-explanatory. However, property taxes etc. are included in the current account. Since we notionally converted the mortgage to an investment loan, mortgage interest is counted in current investment costs. So, the only item in the housing account now is increases or decreases in the value of our house. This simplified the accounts a lot but I still keep a lot of cells in the spreadsheet that might again be used in the future.

 

Current other income is reported after tax, while investment income is reported pre-tax. Net tax on investment income then gets subtracted from current income as our annual tax refund or extra payment gets included there. Retirement investment income gets reported pre-tax too while retirement contributions are after tax. For retirement accounts, "tax credits" is the imputed tax on investment earnings which is used to compute pre-tax earnings from the actual received amounts. For non-retirement accounts, "tax credits" are actual franking credits received on Australian dividends and the tax withheld on foreign investment income. Both of these are included in the pre-tax earning but are not actually received month to month as cash.... 

 

"Saving" is the difference between "other income" net of transfers to other columns and spending in that column, while "change in net worth" also includes the investment income.