Wednesday, 22 May 2019

RBA governor tries his hand at blame-shifting

Apparently the RBA governor has 'gone political' and given a post-election speech suggesting that the government ought to look at other ways to lower unemployment (such as increased infrastructure spending or industrial reforms to boost employment growth), rather than rely on the RBA cutting interest rates:
https://www.smh.com.au/politics/federal/how-good-is-that-rba-decides-it-s-time-for-some-real-policies-20190521-p51pmv.html

However, there seems to be an opinion that recent low unemployment levels may (after a lag of around a year) lead to higher inflation:
https://www.businessinsider.com.au/kangaroo-curve-australia-unemployment-rate-inflation-nairu-2018-11

So I'm not sure that lowering unemployment should be a priority for the RBA or government, given that unemployment is getting pretty close to the rate that occurs naturally from a certain proportion of people always being in transition from one job to another.

Given recent moves by the RBA to put their previous inflation target band on the back burner (having failed to keep underlying inflation within the target) and instead focus on lowering unemployment, it seems that this might be a bit of self-interested bias by the RBA. Having found achieving their inflation target 'too hard', they've decided to shift the focus to unemployment rates, and then wash their hands of that too, but saying that there isn't much scope to cut rates any further, so its now the government's responsibility to do something.

Given the supposed sanctity of the RBA being independent in terms of setting interest rates free from government interference, it seems a bit inappropriate for the RBA governor to now be offering the newly re-elected government 'helpful' advice on where their budget priorities and IR policies should head.

There are of course aspects of unemployment that still need to be addressed: underemployment (those in one of more casual or part-time jobs that would really like to be working full-time in a permanent position), regional unemployment, youth unemployment, indigenous unemployment, age discrimination in employment and so forth. But focusing on getting the 'headline' rate of unemployment below 5.x does not seem to be valid 'top priority'. Especially if that could lead to a break-out in inflation.

This shift in RBA focus from inflation targets to the unemployment suggests the 'recency effect' is at work - tending to give excessive weight to the latest information. Having now 'beaten' inflation to such an extent that it is often below the lower limit of the RBA's own 'target band', the RBA might be assuming that (high) inflation can't reoccur. An over-emphasis on getting unemployment rates even lower may risk inflation taking off again. It could also happen at just the wrong time - when the US-China trade war could potentially reverse the decades long trend in cheap Chinese products 'exporting' deflation to the developed countries.

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Saturday, 18 May 2019

Things are looking up

Tony Abbott lost his seat of Warringah. He's a nice bloke (I've met him), but his view are very out-dated, so it's probably going to be a good thing for the Liberal party when he's gone. Zali won the seat - so it will be interesting if she actually backs the coalition (assuming it forms government), or is actually a lot more 'left' than she claimed during campaigning (she had strong support from GetUp!, but was constantly pointing out there were no 'formal links'). We'll see.

Overall it looks like the coalition might be able to form government - either with a slim majority, or as a minority government with some of the independents - if it's a minority government I'll win a few bucks I wagered on Betfair, if they win outright I'll win more (the odds of a coalition win were 5:1 when I placed the bet).

I also got notified that GoDaddy technical help was fixed up my business website (took about four days), which is good. They also created a backup ;) They suggest that I change from a windows hosting plan to a Linux hosting plan, as Wordpress apparently will be more robust running on a Linux server (and my website should also load faster). I'll check with GoDaddy support on Monday to see if I can just switch over my existing 'deluxe' hosting plan from Windows to Linux hosting, and get everything moved across without too much fiddling.

All in all, not a bad night.

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Hi ho, Hi ho, it's off to vote I go

DS1 is working for the AEC today, manning a polling station in a nearby electorate. It's a good opportunity for a uni student to earn some money (apparently it's close to a thousand dollars for one, very long, day of work). He'll even get a superannuation contribution ;)

The electorate we live in in is a 'safe' Liberal seat (it was won with a 15.7% margin at the last Federal election) so how I vote really won't matter very much. It will be much more interesting in the neighbouring electorate when Tony Abbott (the ex-PM) is standing for re-election in a traditionally 'safe' seat, but is facing a strong independent candidate (Zali Steggall) who is being given a lot of support by a grab-bag collection of 'anyone but Tony' groups such as GetUp! (Labor activist group), 'Vote Tony Out' (the ultimate in negative campaigning as far as I can tell they really don't care which party forms government, as long as Tony Abbott doesn't get re-elected), and the usual Labor, Green candidates (who don't stand a chance of getting elected, but their preference flow to Zali will boost her chances, as long as she comes second on the first preference count). Polls funded by GetUp! suggest he is trailing Zali 46:54 (but I can guess how 'push' polling funded by GetUp! is! - I'm amazed how much coverage these sort of biased polls get in the national press - e.g. the front page of the SMH), but more independent polsters have it around 50:50 (still a very close thing for a formerly 'safe' seat, which shows how unpopular Tony is with some 'swinging' voters).

In any case I'll be voting Liberal in my electorate. I don't think the Libs have particularly enticing policies (in fact I'm not sure they have any new policies this time around), but the Labor policies appear to involve an even larger amount of 'tax and spend' than usual (I think the fact that Labor has been consistently ahead in the opinion polls since the last Federal election has them thinking they can get a 'transformative' platform endorsed by the voters, simply because the electorate has had enough of the coalition and wants to 'give the other side a go'). A lot of the policy (e.g. climate change action) is not fully costed, and other policies (eg. subsidising child-care worker salaries) have not been costed in the 'long term', so, like the NDIS scheme and NBN, are likely to be massively expensive after the first decade, and almost impossible to wind back the cost.

I probably won't be too adversely affected by Labor's tax grab if they get elected, as it is mostly targeted at those in the very top tax bracket, or who make use of discretionary trusts, have very high super balances (tens of millions!) etc., but I suspect that what might happen if Labor wins is that they will get their spending promises enacted (after all, who doesn't want to spend more on schools, hospitals or the needy?) but then fail to raise the revenue required to pay for it all. A lot of their tax changes will have serious trouble getting through the Senate (where minor parties and independents have the 'balance of power'), so we could end up with four years of Labor budgets promising to be 'balanced' but which end up blowing out the deficit (even more) -- that seems to be the usual pattern when Labor gets into office.

We'll see what happens this time around...

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Tuesday, 14 May 2019

The cost of a DIY website

Having no paying clients (yet), and considerable running costs (AFSL monthly fees & mandatory CRM/SOA software subscription of around $1,400 per month), I've been trying to setup my financial planning business on a shoe-string budget (especially as I also have to pay the fees for my postgrad uni courses in financial planning - which work out to be around $1,100 per month). This has meant cutting costs by having a 'home office' (yet to be organised) and also by choosing to spend the time constructing my own Wordpress business website, rather than paying a 'professional' website designer to do so.

The obvious down-side of this approach is that I've spent a lot of time over the past 4-5 months fiddling around with Wordpress to get my website done, and while the resulting website looks OK it has pathetic page load speeds (even after using an image optimizer plugin to reduce total image filesizes by about 75%). The less obvious problem with the DIY approach was that when the website blew up during a routine upgrade of Wordpress (casusing a server error '500'), I was left floundering when the recommended fixes for such an error didn't get things working. (In case you think I don't know what I'm doing, you're probably right, but since I have a Grad Dip in IT I should be able to fix a common problem arising from a standard housekeeping task in Wordpress!)

This has left me with a) a website not working since Saturday evening, b) several hours spent trying to 'fix' the problem by renaming htaccess file, plugins folder etc. with no result, c) about half an hour spent of the phone with GoDaddy's 'free' help service (its only free in the sense that since I'm already paying for GoDaddy products, they don't charge extra for doing some basic trouble-shooting if the products stop working) with no progress, and c) finally having to pay another fee to get some 'Premium support' to get my Wordpress site back up and running (hopefully). The minimum cost to get the WP issue fixed is A$65 (for one 'credit'), but I decided to pay a bit extra ($111.06) to purchase three 'credits' - the first one will hopefully get my website back up, and I can then use the second credit to try to improve/optimize my website performance. I'll keep the third 'credit' in reserve in case something goes wrong when I try installing and using a backup/restore plugin like 'BackWPup'.

The initial service ticket should now take 'up to' 72 hours to get done, so I'll have ended up with my website offline for almost a week by the time it gets resolved. Fortunately, with no clients (nor even prospects making enquiries) as yet, I don't think it will make much difference whether or not my website was 'up' this week. All I've had to do is temporarily deactivate my Google Ads until my website is available again.

The positives out of all this are that I've learned more than I really wanted to about how Wordpress works (or doesn't work), and I've still ended up 'only' spending about $200 all up (including the maintenance fee) to get my business website registered, hosted, and setup. Getting it done by a 'professional' website designer would have probably cost several thousand dollars for the sort of website I've ended up with, and then any future changes would have meant paying additional fees.

Overall I'm not very impressed by the robustness of Wordpress - having it fail during a routine version upgrade, and not to be able to simply revert (automatically) to the previous, working version seems very primitive. Rather than have backup/restore plugins available as extra, this feature should be built in to the basic Wordpress installation.

And I'm also not very impressed by GoDaddy help - while the cost of 'premium' technical service is quite reasonable when you need it (assuming it actually gets my problem solved - fingers crossed). You shouldn't need to pay for something as basic as reverting to the previous, working setup when something goes wrong - that is, I don't see why a basic backup/restore feature isn't included when you are paying for 'deluxe' hosting.

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Sunday, 12 May 2019

Why does Wordpress suck so bad?

Yesterday morning I had my business website running smoothly, all the pages finally done and approved, my Google Ads setup and sending traffic to the site, and even all the plugins (traffic, appointment booking etc) all behaving. Then I decided to risk doing the recommended 'Wordpress update' and it all went belly-up.

I'd had a similar problem several months ago when I just had my basic website structure in place, so I wasn't too fussed when I had to delete all the files in my domain folder and start from scratch. But this time, having spent months getting my website more-or-less finished, I was very wary of doing the upgrade - why fix what isn't broken?

However, since it is generally 'recommended' that you keep wordpress and plugins up-to-date (to fix known bugs etc.) I decided to 'give it ago'. Unfortunately, the update failed and left my website displaying a 'server error 500' message. I then spent a couple of hours going through the recommended 'fixed' of a) renaming the htaccess file, and then (after that didn't work) renaming the plugins folder. (which didn't work either). Short of paying GoDaddy support to try and fix up my Wordpress installation, I'm left with trying to use the 'Manage Applications' tool to upgrade WP to 5.1.1 (which didn't do anything). Then revert it back to 5.0.3 (I'm still waiting to see if that get my site working again).

What amazes me is that Wordpress is such a widely used product for websites, yet the automatic update process can fail so easily and leave the website in a corrupted state (it's happened to me twice for two different updates within a couple of months). Surely as a popular, modern content management tool Wordpress should be able to gracefully revert to the current/previous working state if an update fails?

If/when I get my website working again I'll have to look seriously into using both and FTP app and a wordpress backup/restore plugin to (hopefully) make the process of reverting to an earlier (working) version of my website less painful. I had hoped that the first time the Wordpress update process left my website unusable was an isolated instance, but it seems that this is quite likely to happen every time I do a routine update of Wordpress ;(

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Saturday, 11 May 2019

Uber provides another lesson in the dangers of investing in IPOs

For some strange reason many people like to invest in IPOs. For some it may be the promise of buying shares 'without brokerage' (as if a few dollar brokerage is really going to make much difference in the long run. And on the downside, any 'mum and dad' investor that buys shares via an IPO because they don't have a brokerage account, will end up having to set one up anyway, when they eventually want to sell the shares - unless they go through the complication of finding a willing buying and doing an off-market transfer). I suspect that the real reason most people buy shares via an IPO is the forlorn hope that they will get in on the 'ground floor' of the next Microsoft, Apple, Amazon or CSL - and make their fortune.

The reality is that most IPO are NOT the 'ground floor' - that was during the pre-IPO phase when the owners of the private company got injections of capital in exchange for parcels of ownership while the company was still privately held. By the time the IPO comes around, the pricing is usually aimed at getting the maximum possible funding from 'the public' and transferring that wealth to those that either a) started up the company, or b) invested in the company before it 'went public'.
There are exceptions to this of course - where a company has 'gone public' and then gone on to bigger and better things, making those that bought shares in the IPO a small fortune. But the odds are against you:

  • More than 60 percent of more than 7,000 IPOs from 1975 to 2011 had negative absolute returns after five years in the secondary market, according to a UBS analysis using data from University of Florida professor Jay Ritter. [1]
  • Uber is a recent example: It opened trading at $US42 a share on Friday - or nearly 7 per cent below its IPO price of $US45. And its shares closed at $US41.57, costing IPO investors a 7.6% loss in one day - and that's before taking into account the brokerage cost if they want to offload the shares.
Now, Uber may end up being a wonderfully profitable company, rather than just a loss-making disruptor, but if you are an investor rather than a speculator, its not the place to make serious investments.

Investing in IPOs can be fun, but should be approached as the gamble they are - never 'invest' more than you can afford to lose, don't chase losing 'bets', and be willing to 'walk away' if it doesn't go the way you expected, rather than 'holding on' and hoping it might 'come good' in the long run.

I've dabbled in IPO shares for fun, and even put some money into a pre-IPO 'startup' company (GEN) that seemed likely to cash in on the internet boom back in the late 90s (but then went broke before listing), but I've always been aware that these were highly speculative gambles and made token investments that I could afford to loose without too much angst.

References:

[1]: https://www.cnbc.com/2019/04/03/dont-be-fooled-by-the-unicorn-hype-this-year-most-ipos-lose-money-for-investors-after-5-years.html


[2]: https://www.smh.com.au/business/markets/tough-week-to-go-public-uber-flops-on-its-wall-street-debut-20190511-p51m9o.html


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Thursday, 2 May 2019

2019 may be the last chance to invest tax effectively using negative gearing and the current CGT discount rate

I currently have a relatively modest amount of margin loan debt used to purchase a portfolio of growth assets (some direct investments in managed funds and shares, and some ETF investments in index funds), as I was forced to reduce my gearing during 2008 in order to avoid margin calls, and have taken a more conservative approach ever since.

This will probably change during 2019, as if Labor wins the Federal election (which seems highly probable at the moment) they intend to make massive changes to both the CGT concessional tax rates and the ability to use margin loans and negative gearing to reduce overall taxable income. According to their current policy website:

  • Limit negative gearing to new housing from 1 January 2020. All investments made prior to this date will not be affected by the changes and will be fully grandfathered.
  • Halve the capital gains tax discount for all assets purchased after 1 January 2020. This will reduce the capital gains tax discount from assets held longer than 12 months from 50 per cent to 25 per cent. All investments made prior to the 1 January 2020 will be fully grandfathered.
One positive feature for investors is that investments made during 2019 will still enjoy the current CGT and negative gearing rules going forward. So I'm in the process of transferring $50,000 of my available credit in my St George Portfolio Loan (a home equity loan) into my Commsec Margin Loan account, and I will then purchase $100,000 of growth assets (probably MVW and QUAL ETFs). The dividends from those investments should be less than then interest paid, which under the current negative gearing rules will reduce my taxable income from wage salary etc. When I sell the investments any capital gain will be discounted by 50% before being taxed at whatever marginal tax rate applies to me at the time. If Labor does win the election I'll think about doing the same again before the end of 2019.  While my taxable income will be reduced this year and next by tax deductions for my FP business and self-education costs, in a few years time (all going well) being able to reduce my taxable income may be more important.

A rough calculation shows that investing after the removal of negative gearing would cost me around $3,500 per year more in tax. And that investing next year rather than this year would mean any future capital gain on the investment would be effectively taxed at 75% of my marginal tax rate, rather than the current 50%. (Although this could be managed by only selling a small portion each year after I've retired and receiving a tax-free pension income from my SMSF, so that the CG was subject to nil or low marginal tax rates, in which case the CGT discount rate would not matter).

If nothing else, investing using my margin loan facility after 1 Jan 2020 would make my tax calculations a lot more cumbersome - I would have to keep track of what amount of the loan had been used to purchase investments prior to 1 Jan 2020, and how much afterwards. This could then be used to calculate the proportion of interest paid during the year that could be deducted against other income (eg. salary income) and how much interest was not deductible against other income, but only offset against dividend income. Additional complexities will be introduced if several investments are made after 1 Jan 2020, so the ratio of pre- and post- borrowed/invested funds changed during the financial year. Not to mention if tranches of pre_2020 investments are also sold at different times, and if interest rates have changed during the year

From a financial planning POV, the changes will make Investment Bonds a more attractive option for high income (highly taxed) individuals that are willing to invest for the long term. An investment bond pays tax on earnings at the company tax rate (30%), but benefits from any franking credits (so the effective tax rate is lower). And if held for 10 years or more, there is no tax payable on the gain made when the bond is sold.

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Wednesday, 1 May 2019

Net Worth: April 2019

The continued strength in the Australian and International share markets during the past month resulted in improved superannuation and  geared share portfolio valuations as at the end of April. Our house price valuation is unchanged as the suburb average sales data for our area had not been updated this month, but as the Sydney Index data from CoreLogic only showed a small fall in average sales prices for homes during April this should not have much impact on the total NW estimate. Overall my NW increased by $47,874 (or 2.11%) during April, not quite reaching a new 'peak NW' value.

I'm currently planning on remaining in my current job (unless I get retrenched - which is always a possibility in the modern workplace) while I get my Financial Planning business up and running, and try to achieve profitability while running it part-time in the evenings and weekends for the next 2-3 years (while finishing of the Master of Financial Planning degree and then possibly the CFP certification and start on a PhD in Financial Planning). Depending on how things look in 3-4 years time, I might either keep running the FP business part-time while keeping my full-time salaried job (until I reach 65 or so), or else see if I can reduce my salaried job to 4 days/week and increase the amount of time devoted to my own 'business'. I might also need to switch to 4 days/week if I commence PhD research part-time after completing the Master of FP degree, as I had found it quite difficult to spend enough time on my astrophysics research degree while also working full-time (one of the reasons I ended up 'dropping out' of my Master/PhD enrolment).

If the FP business is going well I'll probably think about 'retiring' from my salaried job when I around 65 and then continue to run my FP business for a while. How long I do that for will depend on a) if I still want to work (at least part-time) until 70+, b) if the business is profitable (and how profitable), and, most importantly, c) if I'm still healthy enough. One of my great-great-Aunts lived past 100, my father's parents both lived until almost 95, and my parents are both reasonably fit and active as they approach 90, so I have a realistic expectation of being able to continue working past 65. I do need to loose quite a lot of weight and do more exercise though! If the FP business is a going concern, I can probably sell it for around 2-2.5x annual revenues when/if I decide to retire. That might provide an extra 'nest egg' for my retirement, if I can get the business up and running ;)
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Sunday, 28 April 2019

CPD update

I got 20 hrs/units of CPD credit for the uni course I completed in Q1, which put me well over the 40 units/hrs CPD total required for all of 2019. While a total of only 30 units/hrs of formal coursework can be counted towards the annual CPD requirement, I'll continue to get the CPD value of each quarter's uni course 'verified' by my AFSL so they are recorded on my Kaplan CPD record. If nothing else it will provide a convenient annual summary of all the CPD units I complete each year.

I've been doing a couple of the Kaplan CPD articles each week (in reality an article that is rated as one 'hour' of CPD really only takes about 15 minutes to read through, and then another five minutes or so (if you double check each answer) to complete the multiple choice, open book 'exam' online to get the CPD points.

I've also been attending the one-hour webinars presented by my AFSL dealer group (which DO actually take an hour to watch, but I can do them while on my lunch-break at work while also doing some other paperwork, so the effective effort is also only about 15 minutes per 'hour' of CPD credit).

I've also signed up for the free TAL 'academy' which is a resource of several 'webinar' recordings about various aspects of insurance and practice management/marketing. I'll probably do a dozen or so of those webinars during the year, probably while sitting at home in the evenings playing computer games on the other screen ;)

Another source of easy CPD credits are the articles published in each issue of the AFA and FPA professional association magazines. These are worth around 1.5 CPD credits each, so I could get up to another 12 CPD credits from those (if I bother doing the online quizes and then downloading the resulting 'certificate' and entering the details into MyKaplan and then emailing my AFSL to have the certificate 'verified'.

I need to finish off the final video 'role play' submissions for the two 'specialist' modules (margin lending and SMSFs) that I'm doing with IIT (I might also get some CPD hours for those, but I'm not sure), so I can then get started on the four subjects for the Advanced DFP. I'l try to get the two role plays completed this weekend, as I have a uni quiz next weekend and will have to start studying for that.

Overall, I'll end up with around 5-6x the required amount of CPD 'hours' this year, and be just over 1/3 of the way through the Master of Financial Planning course (and have my Advanced DFP) - if all goes to plan. The TAL Academy also has a cheap ($55) 5-hour live seminar for preparing for the 3.5 hour FASEA examination for Financial Planners. I'll probably do that early in 2020 so I can have a go at the exam. You are allowed to take the FASEA exam multiple times in order to pass (different sets of random questions each time), but the exam is only scheduled a few times each year, and existing Financial Planners have to pass the exam before 1 Jan 2021, so I don't want to leave it too late. If I sit the exam fairly soon after completing the ADFP course it should be pretty easy.

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CFD Trades

I have a small account (currently around $300) with CityIndex so I can trade CFD's when I get bored (stops me mucking around with my asset allocation in our SMSF or other investments). I had a long position in a diamond CFD (GEMS) and also in crude oil. I decided to sell the GEMS CFD as it had been heading the wrong direction for quite a while and there didn't seem to be any indication that it would soon turn around. And while oil has been doing well, I decided to take a profit and close out that position too.

I had been thinking about going short on Tesla, but it has already come down quite a lot from last year's highs, and although I don't think it will do a well as Elon keeps promising, from here it could go either way, depending on how things turn out during 2019, so it seemed to much of a speculative gamble. The other CFD trade I had in mind I did go through with - going long on the Berkshire CFD. Although it has gained a lot over the past couple of years (I used to have a direct investment in Berkshire shares a few years ago, but the trading and holding costs with a US broker, and the tax complications, made it too much like hard work so I got rid of all my direct US share holdings), it has a great track record and should continue to do well (although there may be a temporary dip when Buffet retires from active involvement or dies). We'll see how well it does over the next 5-10 years.

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