Monday, 12 August 2019

Is Labor doomed to mostly stay in opposition for the rest of this century?

Putting aside the fact that Labor managed to loose the last election (contrary to most peoples expectations), I was reminded today about the rapidly growing over 65 demographic in Australia (15% of the population in 2017, up from 9% in 1977. And projected to comprise 22% of the population by 2057 and to reach 25% of the population by 2097). Combine this with the fact that the two-party preferred breakdown shifts from Labor to NLP with age, and it looks as if it might become increasing difficult for Labor to form government in Australia during the remainder of the 21st century.

Age     two-party vote (%)
         ALP      NLP
18-24    59.5     40.5
25-34    58.5     41.5
35-49    51.5     48.5
50-64    46.0     54.0
65+      39.0     61.0

While the young tend to favor progressive policies and redistribution of wealth, older voters tend to be more conservative and prefer lower taxes. This attitudinal shift tends to occur with age - the same cohort of twenty-something voters that voted "It's Time" for a Labor government in 1972 and the aging baby boomers that mostly voted NLP in the last election. Therefore, it can be expected that as the percentage of over 65s increases, this should boost the overall two-party preferred vote of NLP at Labor's expense.

Another factor that might work in NLP's favour is that as the population ages and once radical social agendas become 'mainstream' they tend to be adopted by the conservative side of politics. Whereas the Labor/Green policies constantly have to be ever more progressive to appeal to their 'base' of young voters.

This also explains why Labor occasionally spruiks the idea of lowering the voting age further -- as these voters would be predominately Labor/Green supporters.

Subscribe to Enough Wealth. Copyright 2006-2019

Thursday, 8 August 2019

Passed the FASEA exam

The results from the June FASEA exam sessions were released today - I'm glad I passed as that is one less thing one my 'to do' list as a financial planner (and resitting the exam would cost around $500 each time!). All registered financial planners in Australia are required to pass this exam (on ethics and compliance/legislation) by 1 Jan 2021 or lose their registration.

Apparently 579 (out of approximately 25,000 registered advisers in Australia) sat the exam in June, and about 90% passed the exam.

When the current semester at Western Sydney Uni finishes in a few weeks I'll also be 1/3 of the way through my Master of Financial Planning degree, so the extra educational requirements that come into force on 1 Jan 2024 for existing advisers are also progressing nicely (although it costs a small fortune).

Now I just need to get my first client!

Subscribe to Enough Wealth. Copyright 2006-2019

Wednesday, 7 August 2019

Saving money by 'switching' Electricity Supplier/Plan

Late last year I finally got around to using the State Government's "Energy Watch" website to compare my electricity supplier/plan with others that were available. After entering some facts about my current bills (costs and usage pattern) it turned out that the best alternative for us was 'switching' to a different plan offered by our current supplier. (Because I didn't actually change supplier I've since received reminder emails from Energy Watch saying that I didn't complete the switching process).

As I have setup automatic payment of our electricity bills by direct debit (I just have to make sure I remember that the charge is due, so I have enough money in that bank account!) the best plan available for us was one where there is a hefty (around 25%) discount on the energy usage component of the bill (ie. everything except the daily 'supply'/connection charge) if the bill is paid "on time". It also involved locking us in to that supplier for a period of time, but as I hadn't bothered switching suppliers for the past decade that isn't an issue.

Looking at the four quarterly bills we paid for 2017/18 vs 2018/19 our figures were:

FY 2017/18 kWh = 8,941 cost = $2,367
FY 2018/19 kWh = 9,065 cost = $2,092

Therefore our usage had increase 1% (no significant change) while our bill had dropped 12%, despite only making the switch to the discounted plan at the end of 2018.

We also saved a little bit by paying more attention to our usage during 'peak' times - managing to reduce our 'peak' time electricity usage from 10% of our total to only 6% (basically by DW not doing any washing during the 'peak' hours, and us not starting to cook dinner most days until after the 'peak' period ended (peak period is 2pm-8pm on weekdays). Peak electricity cost around 60c per kWh, compared to 27c for 'shoulder' periods (7am-2pm and 8pm-10pm) and 13-16c for 'off peak' (10pm-7am) and 'dedicated circuit' supply (which I think is our hot water tank).

Switching plans half way through the year saved us around $250 last financial year, and we should reduce our annual electricity bill by about another $250 this financial year.

The comparisons don't take into account the price changes for electricity over the past two years - as prices have increased 9% during that period, our bills would have been even higher if we hadn't switched plans or reduced our 'peak' usage.

The next item on my 'to do' list relating to electricity costs is to get our solar panels/inverter checked and possibly repaired. We had solar panels installed on our garage roof about ten years ago, and because the cost was subsidised by a government rebate and there were initially very generous 'feed in' tarriffs applied, the system had paid for itself after only 2-3 years, and the solar power had been subsidizing our electricity bills (until the inverter stopped working a couple of years ago).

While our solar power system is out of warranty (and the supplier went out of business long ago), it might be worth getting a new inverter installed (if the panels are still OK). I made a few inquiries about getting a repair quote, but most solar panel suppliers only seem interested in selling new system.

Getting the solar panels working again would only reduce our total mains usage by about 10%, but it would mostly cut our 'peak' and  daytime 'shoulder' use, so it would have slightly more impact on our bills than on our mains electricity consumption. It would also help cut our contribution to carbon emissions a little bit (but probably not as much as the fact that I now get the bus and train to work each day, rather than driving).

Subscribe to Enough Wealth. Copyright 2006-2019

Thursday, 1 August 2019

Net Worth: July 2019

My net worth total was marginally higher at the end of July (+$1,873 or 0.08% compared to last month) at $2,382,540. This was due to a significant increase in the balance of my retirement savings (SMSF and ColonialFirstState superannuation accounts) that was largely offset by a drop in the estimated value of our home. In reality, Sydney house prices stabilized during June/July, but this was masked by the fact that last month I didn't have updated local sale price data, so I had used the previous month's estimate. So I basically included the June decline in house price in the July figures.

My direct stock and managed fund investments (via margin loan accounts) also showed a slight decline during July, but the reality was the stock markets rose during July, but my net stock portfolio total also included some draw downs on my 'portfolio loan' for payment of uni fees, a monthly transfer of $1,500 to cover my financial planning business fixed costs, and payment for an unlisted investment of $4,215 in the company Adviser Ratings (via a crowdfunding campaign). Theoretically I should include the value of the Adviser Ratings shares in my portfolio, but I can't be bothered (it is probably also prudent to 'write down' the value of this investment to $0, as they are illiquid and of dubious value unless the company does well and eventually floats on the ASX (or gets sold to an investment company).

Overall, the stock market gains of 2019 have been largely consumed by my expenses relating to my financial planning business running costs (~$2,000/month) and my university fees (~$1,000/month) for the Master of Financial Planning degree. Hopefully within two years my business will have reached 'break even' and I will have completed the Masters degree (if I decide to continue on to do a PhD in financial planning the fees should be covered by RTS government funding).


The $7,900 valuation of the S type Jaguar I bought last year might also be optimistic - it has an electrical issue (the new battery keeps going flat within 1-2 weeks of being charged up - probably due to the fact the the brake lights stay on even when the engine is off and the key removed from the ignition!). This car is due for registration renewal this month, so I'll have to arrange for it to be towed to the local mechanic to get repaired and obtain an inspection report ('pink slip') so I can renew the registration before it expires... getting the car towed will be a little bit tricky as the anti-theft system locked up the steering when the battery was disconnected for charging, and the NRMA road service mechanics were unable to unlock the steering. So it will be hard for a tow truck to get it out of the garage and onto the street...

Subscribe to Enough Wealth. Copyright 2006-2019

Friday, 5 July 2019

Paying less tax under the Liberals

Well, the tax package the NLP government took to the last election has now been passed by both houses, so will become legislation. My local MP sent me a link to this handy tax relief estimator. My actual taxable income is hard to know in advance, as it will depend on how large my tax deductions (interest paid on my margin loans, costs associated with my Ubereats casual work, and my self-education and business expenses relating to starting up my financial planning business) turn out to be, and how much extra income I get from dividends, and how much (if any) income I earn from my business and casual work. And any capital gains (or losses) made on any shares I sell during a particular financial year...

Based on my raw (before any deductions or other income) annual salary, plus bonus, of around $125,000, my tax bill would drop by only $165 (to $36,217 ie. a reduction of only 0.45% in tax) during 2018-19 to 2021-22 FY. The tax cuts for 2022-23 and 2023-24 would increase to $2,565 (a 7.05% reduction in tax), and (assuming Labor doesn't rescind the latter tax cuts) the final stage from 2024-25 onwards would see the tax on $125,000 of taxable income drop by $4,790 (13.16%).

However, my taxable income is usually a lot less than this raw figure, so the initial tax savings will be proportionately larger in the next couple of years. If my taxable income was $90,000 the initial tax rate changes would save me $1,215 in tax (a reduction in tax paid of 5.3%), which is equivalent to a fairly hefty pay rise.

And then, if my business becomes profitable in a few years time, the latter tax cuts that benefit higher income levels more will be just getting phased in. So, if my taxable income reached $200,000 by 2024-25 the tax saving would be worth $11,640 (a reduction of 17.3% in the amount of tax due).

The prospect of significant reductions in income tax for higher income earners from 2022 (and even more from 2024) means that it will be a good tax strategy to realize any capital losses in the next couple of years, and postpone selling any assets that will realize significant capital gains until the final stage of tax cuts has been implemented. Assuming it all goes ahead as planned...

Subscribe to Enough Wealth. Copyright 2006-2019

Thursday, 4 July 2019

Invested in 'start up' company Adviser Ratings via crowd funding

Last time I invested in a company pre-listing was a US ISP start-up 'Global Entrepreneurs Network' (GEN) last century. Despite being a dot-com company prior to the dot-com boom-bust in the late 1990s, that company managed to run out of money and go bust (actually it appears it was acquired by SAGE, but the original public investors didn't end up with any equity) before it reached IPO/listing stage.

It was a bit disappointing (especially as I could have invested in listed companies such as Microsoft or Apple instead - and could have made a lot of money) but not unexpected with those sort of high risk 'blue sky' investments. On the other hand, if a pre-IPO investment works out, you can potentially make a considerable profit.

After twenty years I've finally decided to risk another small investment in a 'start up' company - this time I've invested $4,215 via crowdfunding to 'invest' (aka speculate) in buying150 shares in the new financial adviser rating company called 'Adviser Ratings' (not as imaginative a company name as Alphabet, but at least its truth-in-labelling). There is a considerable demand for reliable financial advice in Australia (and the UK and US), and considerable difficulty for consumers in knowing which advisers are good and which aren't (for example, some of the shonkiest advisers exposed during the Hayne RC had high profiles, and appeared to be highly regarded 'experts'). So a 'trip adviser' style consumer rating system for financial advisers would seem to have considerable potential.

Also, being a software based company with (apparently) some revenue streams already (one of the big risks is whether or not these revenues do turn out to be 'sticky' and ongoing as expected), and the  potential to replicate its business model in the UK and possibly the US (although I've no idea what existing/potential competitors might be doing a similar thing in those markets) it could scale up at minimal cost, and grow revenue. Whether this actually happens or the shares end up worthless is the risk you take when making such 'blue sky' investments.

Anyhow, its an interesting investment opportunity, and fits in with knowledge of the financial advice industry (one of the old cliches of share investing is to pick companies that produce products you know about and consume yourself - whether it is a winning strategy is dubious - just think of all the people that used VHS tapes in the 80s!). And if the company never 'lists' and the shares end up worthless I can afford to loose the $4,215 (I lost a lot more when I invested in Agribusinesses Timbercorp and Rewards!). If anyone is interested in investing, you can use this link (which will utilize my referral code, and I'd end up getting 30% of the 6% fee that birchal charges for the crowdfunding). The crowdingfund share 'float' for Adviser Ratings has already passed its minimum funding target (raising $350K) so it looks like this tranche of shares will be issued.

NOTE: This is NOT a recommendation to invest in this company - do you own research and make up your own mind!

Subscribe to Enough Wealth. Copyright 2006-2019


Wednesday, 3 July 2019

MFinPlan progress

I was relieved that I managed to end up getting a Credit grade for last semester's subject 'Commercial Law' with a mark of 66%. As I had only gotten marks just over 65% for the assessment tasks during term, I had gone into the exam expecting to either just Pass the course or maybe get a Credit. Law was certainly not one of my favourite subjects! I've now completed 1/4 of the Masters degree in Financial Planning, and will be nearly half-way through by the end of the year.

My previous two subject results had been a Distinction and a High Distinction, so I'm just on track for the annual "Dean's Letter" this year (which requires a Distinction average and taking at least four subjects) and to remain on track to make the cut-off for consideration for a 'with Distinction' degree (must have a Distinction average overall i.e. GPA >=6.0) and to a have any shot at getting an academic medal (to get that I'd have to end up in the 'top 2%' of the graduating cohort, which would probably require getting mostly HDs from here on).

This semester I'm doing the subject 'Investment Planning', which should be a lot more enjoyable, although it seems to cover a lot of stuff that I'm already familiar with:
Module 1 - Investment environment
Module 2 - Risk and return
Module 3 - Investing in shares
Module 4 - Alternative investment
Module 5 - Investing in fixed income securities
Module 6 - Investment administration
Module 7 - The investment planning model and client profile
Module 8 - Investment objectives and returns
Module 9 - Management of risk
Module 10  - Investment strategy
Module 11 - Investment selection
Module 12 - Portfolio construction and management

This semester I need to make sure I also finish off the two 'specialist' courses (Margin Lending and SMSFs) that I'm enrolled in at the International Institute of Technology (I'm nearly finished, aside from the 'role play' video submissions and the final assessment quizes), and I also need to try to get a couple of the modules completed towards the Advanced Diploma in Financial Planning that I'm also enrolled in.

Subscribe to Enough Wealth. Copyright 2006-2019

Monday, 1 July 2019

Net Worth: June 2019

The positive performance of the Australian and global share markets during June resulted in my geared share portfolio gaining $22,317 (10.34%) and my superannuation savings rising by $40,058 (3.88%). I don't have new sales data for calculating our house price estimate this month, but the overall Sydney property market data showed practically no change in average prices during June, suggesting that the market has 'bottomed out' in response to the RBA lowering interest rates (which flowed on to home mortgage interest rates) and the election result ruling out the proposed changes to negative gearing that had been Labor policy. While most pundits don't expect a strong rebound in house prices during the remainder of 2019, I don't expect out home price estimate to be a major drag on my NW during the financial year (and may even have modest gains during 2020).

My NW estimate $2,336,288 rose $62,606 (2.75%) during June and has recovered to be within $2,500 of my previous all-time-high (in August 2018). While dropping interest rates suggest that the economy is weak (a negative for the prospects of the stock market), on the other hand they make dividends more attractive relative to bond yields, which may support stock prices. Hopefully the tax cut legislation will be passed this week, which should provide some economic stimulus during the latter part of 2019, and should help bolster consumer sentiment despite the ongoing lack of any significant real wage growth.

Subscribe to Enough Wealth. Copyright 2006-2019

Monday, 24 June 2019

FASEA exam done and dusted - hopefully I passed

I did the FASEA Financial Adviser exam on Sunday (I didn't want to take a day off work). I can't say anything detailed about the contents of the exam as that would be 'misconduct' (we were basically sworn to secrecy). The exam was 3-1/4 hours long, but it was possible to get the 70Qs done within the time limit (I actually finished about 12 mins early and decided to leave before the final 10 min 'lock in' period), so there wasn't really much time pressure. Most of the questions were related to 1 page 'case study' descriptions, very similar to the practice exam Qs provided by FASEA. A few other Qs were just a multiple choice of table of T/F values to fill in relating to one key definition or series of statements. The short answer questions were OK, but it was sometimes hard to work out exactly which two key points they were expecting to be included in the response. The exam format was all described in the instructions provided to candidates when you registered for the exam, so nothing 'secret' about that.

Overall I *think* I passed (requires a minimum of 65%) the exam, but if I didn't then I will need to do a LOT more reading before sitting the exam again - the bits I was uncertain about were either things I haven't done yet for my initial registration (eg. taxation advice) or were related to how the AFSL compliance team would handle breaches by one of their authorised reps (as a rep I'm more concerned with knowing what I need to do to be compliant with the rules, not what the actions/penalties would apply when the rules are breached). This seemed more appropriate to AFLS management or compliance staff, not particularly relevant to 'front line' financial planners.

The fact that the exam was 'open book' in terms of having access to pdfs of the relevant Acts was really quite unhelpful - if you didn't know the answer to a particular question, there was no way you'd have enough time to review the relevant Act to find the answer. The few times I tried looking up a relevant key phrase to simply double check on an answer I had no luck finding the relevant passage out of the thousands of pages of legislation! If you knew exactly which section of an Act to look up, you'd probably already know the answer!

Anyhow, fingers crossed that I passed the exam, as its not something that I want to have to do again (or pay another $500+ for the privilege!). Time to get on studying for my next Masters degree subject (investment analysis), and finishing off the couple of 'specialist' modules (SMSFs and Margin Lending) that I've almost completed. Then I need to get stuck into doing the Advanced DFP course I enrolled in last December (and haven't started yet)...

Subscribe to Enough Wealth. Copyright 2006-2019

Friday, 21 June 2019

SMH had a silly article about to earn $1m and pay no income tax

Apparently the SMH sub-editors have no qualms about using click-bait headlines such as "How a millionaire pays no income tax".

The article has some interesting facts about typical amounts deducted, drawn from ATO data on 2016/17 tax returns. But the main lead of the article is about the mythical 'Tony' who has a $1m income but pays no income tax. It turns out this hypothetical example is based on a) him making a $50K deductible contribution into super (of course these days the amount has reduced to $25K), and also making a whopping $850K charitable donation.

I suspect that most readers lured by the heading weren't expecting an article about how to pay no tax by giving all your earnings away as a charitable donation! ;)

Of more interest (but unexplained in the article) was the factino that the average amount claimed by those earning more than $1m income on 'managing tax affairs' was $607,201. It would be interesting to see if that much money was actually being spent on an arms-length basis.

Subscribe to Enough Wealth. Copyright 2006-2019