Sunday, 6 July 2014

Tiny fish in a massive pond

The sale of the private marketing company I work(ed) for to a large Multinational Company was finalized on 30 June (end of the Australian financial year), and we were treated to a bit of a motivational session/corporate ethics intro by the incoming management team one afternoon last week, followed by a hello/goodbye social event (drinks and finger food) hosted by the outgoing owner and the new management on the following afternoon/evening. I was pleasantly surprised to get a thank you card and a cheque for a gift of $5,000 from the departing owner, a nice gesture since the sale had been finalized a few days previously and she could have just ridden off into the sunset without a backward glance. DW also received a thank you card, but her cheque was for $2,000 - presumably because she works part-time (3 days/week), given that she's worked for the company a few months longer than I have (more than 15 years).

So, I now officially work for a regional specialist branch office of a large multinational 'Fortune 500' company, that has around 10,000 staff globally. I expect there will be some major changes not too far down the track - they are planning to spend the next 2-3 months with an interim management structure in place while they go through the 'integration' process and work out what changes to implement by the end of this year. I don't think the 'integration' will be a particularly pleasant experience for the 400 or so staff that are the 'integratees', given that the parent company generated about $300K profit per existing employee. The figures for the private company weren't public, so I don't know exactly how much profit per capita it made, but I'd guess it was only around $100K per headcount, or less. So I'm sure 'head office' will be expecting to implement major 'efficiency gains' during the first year. Although there is apparently a sizable budget earmarked for growing this regional business, the initial signs don't suggest that they are going the spend very much of that budget on staff remuneration. It was quite amusing to hear during the introduction session that the new owners were 'surprised' to learn that our company routinely does that annual performance review/remuneration review cycle in June - we normally get our annual salary letters in the first week of July. The parent company follows the US practice of doing its compensation reviews in Dec/Jan - so it looks like we are getting an 'accidental' pay freeze for the next six months!

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Net Worth: June 2014

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Wednesday, 4 June 2014

Beware "low" fees on Superannuation accounts

While the Australian Superannuation system has a lot of good features (practically universal coverage, tax advantages in exchange for preservation until retirement age, providing some mitigation of the impact of the aging population on the cost of the aged pension system, encouraging workers to plan for their retirement, and a reasonable rate of enforced savings of current salary income towards retirement) it also has some bad features (such as complex tax rules, changes to rules over time eroding confidence in the system, the tax benefits being negligible for below AWOTE workers, and the biggest tax benefits being available to those who probably wouldn't get the aged pension in any case and don't need any encouragement to save for their retirement - for example the ability to make a $150K pa 'after tax' contribution into superannuation provides a 15% tax rate environment to high income earners who would otherwise be exposed to the top marginal tax rate on investment income if it was invested outside of the superannuation system). And one of the worst features is the often excessive fees charged by superannuation fund administrators (especially the 'retail' funds).

A side effect of the generally outrageous fees charged by superannuation funds is the growth of so-called "low fee" funds that many retail funds have set up to stem the flow of superannuation savings away from retail funds and towards Industry (trade union) superannuation funds and self-managed superannuation funds (SMSFs). However, not all "low fee" funds are particularly good value! As a random example I had a look at the Suncorp Everyday Super Fund that is advertised as being a "low fee" superannuation fund.

Suncorp Everyday Super charges an administration fee of $1.50 per week plus 0.65% of your balance. And for the Suncorp Lifestage Fund investment option there is an 'Investment Fee' of 0.2%.

While 0.65% admin fee is certainly a lot lower than many retail funds (some charge around 1.50% administration fee), it still can excessive for anyone with a signficant amount accumulated in their superannuation savings. For example, with my current superannuation balance of around $600K, a 0.65% 'admin' fee would cost me $3,900 every year! By comparison, our SMSF administrator charges $699 pa for admin (including audit report costs), and even with the extra SMSF 'supervisory levy' charged by the ATO (a ridiculous $259 from 2014), the total 'admin' cost of $958 for our SMSF is less than 0.15%.

The 'sticker' cost of 0.2% Investment Fee for the Suncorp Lifestage Fund may appear to offset some of the higher admin costs, given that in our SMSF the Investment Management Fee charged by Vanguard for the LifeStrategy HighGrowth (Index) Fund is around 0.4%. However, drilling down into the Suncorp Lifestage Fund 'Profile' reveals that there is a 0.85% 'Management Fee' embedded in the Lifestage Fund.

So, overall, putting $600,000 into a SMSF and investing in a 'growth' index fund investment option would cost around $3,458 pa, whereas having the same amount in the 'low fee' Suncorp Everyday Super Fund and invested in the Lifestage Fund would cost you $1200 'up front' as an Investment Fee, and then an annual cost of around $9,000. A difference of over $5,500...

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Net Worth: May 2014

The net value of my geared stock portfolio, retirement account (SMSF) and home all increased during the past month, resulting in a solid gain in overall net worth estimation. The retirement account gain was largely due to 5 months of employer contributions (Jan to May) all being deposited into our SMSF bank account during May.

Normally employer contributions for each quarter (eg. Jan, Feb and Mar) and due by the end of the month following the quarter (eg. Apr), and take a week or more to be processed by the Company Superannuation administrator (BT Super) and arrive in our bank account (eg. early May). The HR department had been talking about making the superannuation payments monthly, which accounts for the Apr and May payments being processed in May as well. Fortunately my age and current superannuation rules regarding concessionally tax contributions mean that even with 2-3 months extra payments being processed in the current financial year I wouldn't exceed the contribution cap.

Recent Sydney real estate index figures from RP Data are showing a slight decline in house prices, so the estimated valuation for my half of our home is likely to decrease slightly over coming months (my estimation used a moving 12-month average price guide for our postcode, rather than the daily Sydney Index value). As usual, I don't include assets or liabilities belonging to DW, DS1 or DS2 in my personal net worth figures.

Assets$ Amount$ Diff% Diff
Stocks *$245,086$9,583n/a
Retirement$602,386$11,0391.87%
Home$496,457$9,3281.91%
Farm$325,000$325,000n/a
Debts ^$ Amount $ Diff% Diff
Home Mortgage(s)$102,358-$7-0.01%
Net Worth$1,566,571$29,9571.95%
* the Stocks figure is portfolio value - margin loans. The LVR is around 80% overall.
^ doesn't include the ~$675,000 of investment loans, as these are already deducted when calculating the value of my geared stock portfolio.

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Friday, 9 May 2014

Net Worth: April 2014

A fairly quiet month, aside from a good increase in my retirement account value (which was partly due to January employer contributions being deposited during April). The Feb and Mar superannuation contributions were paid by my emplyer on 28/4 and should be hitting our SMSF bank account "any day now" according to the payroll department. Still not sure why it takes BT super (that handles the company superannuation payments) more than two weeks to deposit funds into the member accounts! But as our annual SMSF tax bill was paid in early May there won't be much impact overall this month.

The contribution payment delays can really be a pain at the end of the financial year, as having one or two of the Apr/May/Jun payments appear in our SMSF bank account before the end of FY can push me over the concessionally tax contributions (Salary Sacrifice plus SGL) limit if all three payments arrived late the previous year. With all the payments being processed electronically (from employer to BT Super, and then from BT Super to ANZ bank) there is no reason for the payments to take more than two business days to arrive in our SMSF bank account.

I've continued to report the 'hobby farm' valuation as the nominal "purchase" cost ($325,000) which was used to calculate the stamp duty, but I'll make a separate note of it's monthly valuation estimate (the valuation is based on house price sales in the nearby township, which may not be a very good guide to changes in values for a nearby 25 acre rural property). This month my estimation increased from $354,900 to $357,000 (+0.86%).

Assets$ Amount$ Diff% Diff
Stocks *$235,503-$951n/a
Retirement$591,347$10,4341.80%
Home$487,129$3,6280.75%
Farm$325,000$325,000n/a
Debts ^$ Amount $ Diff% Diff
Home Mortgage(s)$102,365$90.01%
Net Worth$1,536,614$13,1020.86%
* the Stocks figure is portfolio value - margin loans. The LVR is around 80% overall.
^ doesn't include the ~$675,000 of investment loans, as these are already deducted when calculating the value of my geared stock portfolio.

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Sunday, 20 April 2014

How to Live forever (or die trying)...

Although (with a BMI currently hovering around 32 and having only just resumed regular gym sessions) I'm hardly a poster-boy for healthy living, I've always been intrigued by the possibility of extending natural lifespan in humans via Calorie Restriction (CR). This is often termed CRAN (Calorie Restriction with Adequate Nutrition), CRON (Calorie Restriction with Optimal Nutrition), or CRL (Calorie Restriction for Longevity) in order to clearly differentiate it from eating disorders such as anorexia nervosa, where food intake is restricted, but in an unhealthy manner.

While there's no doubt that obesity can lead to numerous health issues and premature death, in practice it is often difficult to lose weight (and keep it off) and achieve the recommended BMI of around 22. Otherwise the developed countries wouldn't be experiencing an 'obesity epidemic'. Then, once you achieve a healthy BMI and take regular aerobic and strength training exercise, is the any further benefit to be achieved via CRAN?

While CRAN had been proven in multiple independent experiments to extend lifespan in simpler species (such as worms and mice), there was little hard data on the effects (for good or bad) that CRAN could have on humans. Most historical examples of calorie restriction were simply cases of starvation, where the adverse effects of malnutrition were the dominant factor. Given the ethical issues surrounding doing CRAN studies on randomly selected groups of human test subjects, the best scientific data applicable to humans is likely to come from primate studies (although there are a number of people voluntarily adopting CRAN to some degree as a lifestyle choice, such isolated cases are not a controlled study).

A study published a few years ago (by the NIA) had seemed to show that in rhesus monkeys CRAN had no significant beneficial effect. And yet a new study published only a few weeks ago (ref: Colman, R.J. et al. "Caloric restriction reduces age-related and all-cause mortality in rhesus monkeys." Nat. Commin. 5:3557 doi: 10.1038/ncomms4556 (2014).) has found that CRAN did indeed have a significant effect on rhesus monkey survival rates. The apparent disparity in results is (according to the authors of the new study) due to the 'control' monkeys in the NIA study having not actually been fed 'ad libitum', but instead had, unintentionally, been fed on a slightly calorie-restricted diet (as shown by the fact that this 'control' group had lower average weights than is typical for Rhesus monkeys in captivity). The 'control' group had therefore already been getting some of the benefits available from CRAN (as shown by the unusually high survival rate to 40 years - the equivalent of around 116 years old for a human!).

As a very rough approximation of how effective CRAN 'might' be when applied to humans (from young adulthood - so this will be more relevant to DS1 and DS2 than myself!), I've scaled the age of Rhesus monkeys (by a factor of 2.9) to bring the survival rate curve of the monkey 'control' group (red squares) in line with that of UK humans in 2010 (blue diamonds). The scaled plot of the CRAN group of Rhesus monkeys (green triangles) should therefore be roughly in line with what one might expect to happen in the case of humans adopting a CRAN diet from young adulthood onwards.

Hopefully this could mean that instead of around 50% of humans in developed countries surviving to age 80, and very few making it past 100, by adopting a CRAN diet for their adult life, around 50% of people could live past 100, although the maximal natural lifespan could probably not stretch much past 130. The main benefit would be a significant reduction in the many disabling age-related illnesses that often reduce quality of life past 70.

It will be very interesting what happens to the surviving Rhesus monkeys over the next 5 or so years, but which time the survivors will be achieving the normal 'maximal lifespan'.

All in all, there seems to be sufficient evidence to warrant not only my getting down to my 'healthy weight' BMI of around 21-23 (and going to the gym 2-3 times a week), but for me (and later on my sons), adopting a modest level of CR (say 80% of 'normal' maintenance calorie intake) while ensuring our diet has no nutritional deficits. In practice this can be as simple as cutting out all 'empty calories' from snacks and junk foods, and avoiding (or at least minimising) processed foods that all generally high in fats, salt, and/or sugar.

The biggest hurdle is the self-control/psychological one associated with most forms of dietary restriction. If it was easy I would have stuck with CRAN since I first learned about it (and got down to my healthy BMI) back when I was in my mid thirties. I'm due to get my annual blood test done next week, and I'll post some selected biomarkers (BMI, cholesterol etc.) for the past couple of years and update them annually. Hopefully I'll be able to get down to a healthy weight again over the coming year, and transition into a more healthy CRAN-based dietary lifestyle. After all, there's not much point being wealthy if you're in poor health and die young!

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A change is as good as a retirement

Since being retrenched from my previous job as a scientist at a tiny, privately-owned minerals processing research company about 15 years ago, I've been working for a small privately-owned marketing company (of around 250 employees). The company owner/CEO is about ten years older than me, and had wanted/planned to sell up and retire in her fifties (until the GFC squeezed profit margins and made the business less saleable), so it was always unlikely that my current job would last all the way through until my retirement. Pre-GFC the prospect had been more likely, as I had hoped to be able to afford 'early retirement' (by around age 57-60). But post-GFC my SMSF balance wasn't going to be sufficient unless I keep working until 67 or thereabouts.

Last week my employer announced that she will be retiring this year, having managed to sell the business to a large, multinational company. As usual this is being presented to the current employees as a completely positive development, with the new 'owner' having deep enough pockets to properly fund the company's future growth and expansion. But while the prospect of a multinational parent company with deep pockets may well be exciting for the younger employees (via improved education/training, opportunities for international work travel and the chance to work for different divisions located in different countries, and the greater chance of career progression to senior positions available within a large, multinational company), for those of us over 50 the change doesn't seem so 'exciting'. While there are promises that all existing permanent employees will retain their positions ("no retrenchments") this is only ever a short-term guarantee (I.e. it really mean "no retrenchments --- just now"). New ownership always means the chance to restructure a business to make it more efficient, which generally means laying off some of the existing staff working for the acquired company (once the new owners have absorbed all the valuable IP and determined which "key staff" they want to retain). My position is even more precarious as a large part of my current role was tasks associated with a part of the company that isn't being sold off, but is being split off as a smaller private company to be retained by the current owner. So I expect that in the next couple of months those tasks will have disappeared, and my work will have been restructured around the remaining "internal audit" tasks that I perform. I've had little training and no professional qualifications in internal audit (just a couple of short courses completed about ten years ago), so I'll either be given some proper training and have a chance to obtain audit certifications (the "best case" scenario) or else end up retrenched and with little prospect of getting a similar position elsewhere.

Changing employer and career path in my late thirties was quite stressful, but worked out OK in the end. But being unemployed and looking for a new position (and career path) again in my fifties isn't likely to have such a happy ending. I'll probably either wind up in a new job which requires a lot of unpaid overtime to 'get up to speed' and prove myself (again), hence putting an end to my part-time PhD studies, or else end up in a much lower paid position with little or no job security. Or perhaps even be unable to find any decent job at my age and wind taking early retirement with an inadequate superannuation balance (and no access to aged pension due to the assets/means test).

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Sunday, 13 April 2014

New Worth: March 2014

The net value of my geared stock portfolio and retirement account (SMSF) were both down slightly over the past month, having suffered a significant dip due to the global stock market being affected by the Crimean Peninsula tensions which were only partially recovered towards the end of the month.

The Stocks figure was also reduced by about $13,000 this month due to costs associated with the transfer of my parent's hobby farm into my name during the past month (my 'inheritance'). I was initially not going to include the market valuation for this property in my net worth calculations, but as the transfer and ongoing costs will be incorporated I may as well include the value of this 'asset' (although, as I intend to pass this property on to my sons in my will, it should be considered a non-liquid asset).

The remaining amount shown for 'properties' and 'home mortgage(s)' is my half of these figures. As usual, I don't include assets or liabilities belonging to DW, DS1 or DS2 in my net worth figures (which is why I was initially not going to include the value of the hobby farm mentioned above).

Assets$ Amount$ Diff% Diff
Stocks *$236,454-$8,559n/a
Retirement$580,913-$7,112-1.21%
Home$483,501$1,0360.21%
Farm$325,000$325,000n/a
Debts ^$ Amount $ Diff% Diff
Home Mortgage(s)$102,356-$39-0.04%
Net Worth$1,523,512$310,40425.59%
* the Stocks figure is portfolio value - margin loans. The LVR is around 80% overall.
^ doesn't include the ~$675,000 of investment loans, as these are already deducted when calculating the value of my geared stock portfolio.

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Wednesday, 5 March 2014

Net Worth: February 2014

February saw a rebound in the stock market that provided a nice boost to my geared stock portfolio and also to my SMSF account. In fact this month saw a new high reached in my net worth, however this wasn't too exciting given the previous high was way back in 2007. After adjusting for inflation there is probably no net rise in net worth over the past seven years, which is fairly mediocre considering I am 'saving' about $40,000 each year (via superannuation savings and also indirectly by servicing the interest payments on my geared investment loans). However, considering the size of the hit my net worth took in 2008 it could be much worse!

Assets$ Amount$ Diff% Diff
Stocks *$245,013$25,717n/a
Retirement$588,025$21,1773.74%
Properties$482,465$3,1090.65%
Debts ^$ Amount $ Diff% Diff
Home Mortgage(s)$102,395$100.01%
Net Worth$1,213,108$49,9934.30%
* the Stocks figure is portfolio value - margin loans. The LVR is around 80% overall.
^ doesn't include the ~$675,000 of investment loans, as these are already deducted when calculating the value of my geared stock portfolio.

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Net Worth: January 2014

There was almost no change in my net worth during January as the drop in value of my SMSF account balance was almost exactly offset by the increase in estimated house equity. Despite the slight down-turn in the stock market, my geared stock portfolio ended the month almost unchanged.

Assets$ Amount$ Diff% Diff
Stocks *$219,296$645n/a
Retirement$566,848-$4,787-0.84%
Properties$479,356$4,1460.87%
Debts ^$ Amount $ Diff% Diff
Home Mortgage(s)$102,385$90.01%
Net Worth$1,163,115$50.00%
* the Stocks figure is portfolio value - margin loans. The LVR is around 80% overall.
^ doesn't include the ~$675,000 of investment loans, as these are already deducted when calculating the value of my geared stock portfolio.

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