Monday, 3 February 2025

Net Worth - JAN 2025

Chart updated to end of JAN in sidebar.

Stocks/cash decreased -$15,072 (-5.19%) to $275,603 but this was mostly due to my using $20K from my mortgage offset account to make a non-concessional contribution in super. I will do a similar contribution every month for the rest of the FY, so I max out the NCC cap for this FY, as I will have a $0 NCC cap in future years (probably) due to my TSB being too high.

Retirement savings (SMSF etc) increased by $92,010 (4.68%) to $2,057,199. Once I hit age 65 I will transfer the TBC amount into a SABP (pension phase) to take advantage of the tax-free status. When I retire I can move some of the SMSF SABP back into accumulation phase (about $500K) and use that 'cap space' to then purchase a lifetime pension from QSuper.

Est. valuation of our home (my half) decreased slightly by -$2,592 (-0.22%) to $1,191,911. And the 'Other real estate' (my 'lake house' and the investment apartment) also decreased by -$4,809 (-0.22%) to $2,178,422.

Other assets (my online depository bullion account at Perth Mint, and the bullion value of my gold and silver proof coin collection) increased by $3,896 (7.46%) to $56,124. Stock market volatility has increased since Trump was inaugurated and failed to stop the Russian invasion of Ukraine 'within one day', and the trade war he just instigated with Canada, Mexico and China has also increased market nervousness and hence some increased interest in Gold (the Chinese economic troubles are also seeing a shift from bank deposits and property to gold apparently). I don't have enough exposure to bullion to have much diversification impact on my overall investment portfolio.

Overall, NW increased by $73,433 (1.56%) to $4,767,268 during January, which was a new record high. Markets seem quite volatile currently, and the US market is overpriced according to several indicators, so I am a bit nervous and won't be surprised if my NW is lower by the end of 2025, rather than higher.

As usual I have no idea how things will turn out during the rest of 2025, so I will just stick with my investment structures, long term asset allocation, and usual saving and expense budget.

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Friday, 31 January 2025

Trialling my planned investment strategy for HEAS funds

As posted previously, when I reach 'Age Pension age' (67) I plan on making use of the Home Equity Access Scheme (HEAS) to obtain a loan of 150% of the Age Pension rate each fortnight (about $840 per fortnight), and dollar cost average into a 50:50 mix of VGAD (the Vanguard MSCI Index International Shares (Hedged) ETF) and the new ALFA (the VanEck Long-Short Complex ETF). The interest on a HEAS loan is capitalized and the interest rate is currently 3.95%. So if the investment returns more than this, it should add to my NW during my retirement. I don't want to make the investment  too cumbersome to manage or track, and need to be able to add a fortnightly amount via a regular savings plan. Investing in Australian based ETFs should make the annual tax reporting quick and simple, with a single AMMA (Attribution Managed investment trust Member Annual) statement for each ETF provided for us in tax return preparation. You can also request an annual statement from Services Australia outlining the HEAS balance, transactions and interest accrued for the year (which should be tax deductible if the HEAS funds are used to make an income producing investment).

VGAD has historic returns of 10.54% pa (5-yr avg) and 10,.27% (10-yr avg) and while there is no historic performance data for the new ALFA fund, it is intended to outperform the S&P/ASX 200 Accumulation Index over the medium to long term. The historic performance of the ASX 200 Accumulation Index is about 8.36% over the past 10 years. So, a 50:50 allocation to VGAD and ALFA could be expected to provide an average return somewhere around 9.4% pa over 20-30 years (maybe).

To get a 'feel' for how such an investment might perform I decided to make a small ($1,000) initial investment in this asset allocation using my superhero app. There is only a $2 brokerage fee for each trade. I bought 24 units of ALFA for $496.88 and 4 units of VGAD for $433.68. I have this setup in yahoo finance as a 'portfolio' so I can easily see how the investment is doing over the next few years.

If/when I commence the HEAS I will have the loan payments made directly into a credit union subaccount I setup for this purpose, and have an automatic transfer to a suitable (preferably $0 brokerage) trading account. I will probably make each fortnightly trade manually, as I can adjust the ratio of VGAD:ALFA purchased each time to keep the overall asset allocation close to 50:50 (ie. effectively do fortnightly 'rebalancing' for no increase in trading cost).

I might also look into automating the fortnightly purchase calculation (rebalancing) and trade execution, as some platforms are starting to include some tools to allow this (I haven't played around with that much so far).

One final benefit of using the HEAS loan scheme to invest (aside from the low interest rate) is that the outstanding loan balance is secured only against the property (or properties) used to take out the HEAS loan. They will stop making additional loan payments once you hit a specified age-based formula (around 50% of the property value), but in the event of a property market crash, the HEAS loan is only repayable upon your death, and only up to the value of the property used to secure the loan. In the unlikely event that the property was worth less than the outstanding loan balance, it is 'written off' (so won't impact other assets in your estate).

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Friday, 3 January 2025

Net Worth - DEC 2024

Chart updated to end of DEC in sidebar.

Stocks/cash decreased -$18,263 (-5.91%) to $290,675 but this was mostly due to my using $20K from my mortgage offset account to make a non-concessional contribution in super. I will do a similar contribution every month for the rest of the FY, so I max out the NCC cap for this FY, as I will have a $0 NCC cap in future years (probably) due to my TSB being too high.

Retirement savings (SMSF etc) increased by only $2,045 (0.1%) to $1,965,189. Despite my normal SGL contributions and the extra $20K NCC.

Est. valuation of our home (my half) increased slightly by $1,296 (0.11%) to $1,194,503. However he 'Other real estate' (my 'lake house' and the investment apartment) decreased by -$12,239 (-0.56%) to $2,183,231.

Other assets (my online depository bullion account at Perth Mint, and the bullion value of my gold and silver proof coin collection) increased by $2,425 (4.87%) to $52,228 due to a resumption of the gold and silver upwards trend during December..

Overall, NW decreased somewhat by -$24,736 (-0.52%) to $4,693,835 during December, so I didn't finish 2024 on a record high. However, my NW still increased by $0.5M during the past year, so I can't complain ;).

As usual I have no idea how things will turn out during 2025, so I will just stick with my investment structures, long term asset allocation, and usual saving and expense budget.

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Sunday, 15 December 2024

Decided to max out my NCC cap space this FY

The two main contribution types that can be made into superannuation are concessional contributions (CC) and non-concessional contributions (NCC). Concessional contributions are those that have the 15% contribution tax applied to a 'before tax' amount of income contributed into superannuation -- eg. Superannuation Guarantee (SG) paid by the employer, any salary sacrifice amount, and any amount of personal contribution where a tax deduction is claimed. The annual cap on CC is currently $30K, and there are various employment. tax residency and age requirements that aren't relevant to most working Australians. Non-concessional contributions are the 'after tax' amounts one can also contribute into superannuation ie. you take some money that you already paid income tax on, and make a contribution into superannuation without claiming any tax deduction. There is an annual cap on NCC of four times the CC cap (ie. currently $120K), and there are some 'carry forward' rules that allow unused CC cap space to be 'carried forward' for up to 5 years, subject to some other requirements (eg. TSB under $500K, age limit, employment status etc.). There is also a 'bring forwards' rule that allows you to make an immediate contribution of up to three years of NCC, ie. 'bringing forward' up to 2 future years of NCC, so you can make an NCC of up to $360K in one year, and then have $0 'cap space' for the next two years. However, this 'bring forward' rule only applies up to the TSB cap (currently $1.9M). If you already have >=TSB then your NCC cap is $0, and you can't use the 'bring forward' rule. And if you are close to the TSB cap, then you may only be able to  make a NCC of $120K, or perhaps 'bring forward' one additional years of NCC, ie. make a $240K NCC. According to the ATO:

  • You are only eligible to bring-forward the next 2 years of contributions if you are under 75 years (67 years for 2021–22, 65 years for 2020–21 and prior years) on 1 July of the first financial year in which your total super balance on 30 June of the previous financial year was less than $1.66 million from 1 July 2024 ($1.48 million from 1 July 2021, and $1.68 million from 1 July 2023).
  • If your TSB on 30 June of the previous financial year was $1.66 million or above but less than $1.78 million – you can contribute 2 times the annual cap over 2 years (that is, $240,000).
  • If your TSB on 30 June of the previous financial year was $1.78 million or above – you can't bring forward any amount, but you can make a current year contribution of up to $120,000.

Our SMSF is currently preparing the fund's tax return for FY24, but from my monthly estimate of my retirement savings balance, I had around $1.79M as at 30 June (the actual figure in previous FY has varied from my estimate by +/- $10K-$20K) and my TSB is current around $1.96M. So this will be the last year I can make any NCC into super - either $120K or $240K, depending on my TSB as at 30 June 2024. I have just over $200K sitting in my investment mortgage offset account. so I have setup an automatic $20K/mo deposit into my QSuper account for the next 6 months (to use up my $120K NCC cap space for this FY). Once out SMSF tax return is finalised and lodged (around April next year) I will be able to get the official TSB for 30 June 2024 from the ATO mygov website, and can make another $120K 'bring forward' NCC contribution if my TSB was <$1.78M.

It is a bit hard to do optimal tax planning given the timing of when SMSF tax return figures become available (about 9 months after the EOFY) -- if I had known last June that I was going to be just over the $1.78M TSB limit to impact my NCC 'bring forward' by $120K, I might have paid myself the maximum 10% TRIS pension rather than the minimum 4%. The extra $18K TRIS pension payment *might* have just brought my TSB down to the level permitting an extra $120K NCC to be paid into super this FY.

Ah well, you do the best planning possible with the data available at the time...

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