Friday, 10 July 2015

Stop! Identitfy thief!

I've only myself to blame. After doing internet purchases for many years without any real problem (and using a secondary credit card with a low credit limit for internet purchases 'just in case') I became too careless about Internet security, and recently made several online payments recently using my main credit card. While I've used that card before for domestic telephone payments and some internet payments where I'm confident about the processor (eg. university fee payments), I'd usually been cautious about payments overseas (such as AliExpress, Banggood etc.).

However, in the past couple of months I must have used it somewhere that has had their payment database hacked, or else I've managed to get some spyware or something onto my home laptop (despite Mcaffee scans showing nothing untoward) as my main credit card suddenly showed eight foreign internet transactions totalling over $1,000 that I hadn't made. Fortunately I happened to be checking my online credit card transaction listing the day that the fraudulent transactions were processed, so I immediately called my bank to report the issue and they 'blocked' my old credit card and issued a new number (I'll have to wait for it to arrive in 5-10 days before I can activate it and advise several direct debit billers of the change in payment details). I then had to lodge on online form 'disputing' these transactions, and they will sit on my account (although I've arranged to not have to pay them in the next billing cycle) until the dispute is resolved - which can take anywhere from one to six months! Hopefully I won't end up being 'out of pocket' for these fraudulent transactions...

As the transaction descriptions made it easy to track down the online company at which five payments for the same amount had been processed, I decided to also lodge a report with the Australian Cyber Crime website ('ACORN') with the details of the transaction, date, amount, merchant etc. I'm not sure if they will actually pass on the information to the Australian or International Police (the amount involved is 'only' $1,000, but it could lead to a 'gang' systematically using stolen credit card details to make online payments), but at least I've done my bit to fight Cyber Crime. Unfortunately I still don't know for sure exactly which prior (legitimate) online purchase was the one the resulted in my credit card details being stolen/hacked.

Theoretically it should be fairly easy for ACORN/Police/Interpol to request details of the IP address used to make the five purchases (as they were for identical amounts and made on the same date using my credit card details) from the online merchant that processed the fraudulent transactions. Whether or not this leads to a suspect (if they were careless), or just leads to an anonymous redirect is unknown. As the five purchases were from an online MOOG company the authorities may also be able to track the IP/identity of who is now using the purchased game service (I suspect the person/gang that made the five online purchases probably bought new game logins and resold them at a steep discount for cash down at the local pub...). If they can find the end-user they might be able to find out who was selling the 'stolen' goods. Hopefully if the online merchant can cancel the services bought with these fraudulent transactions there will be less difficulty getting the disputed transactions cancelled, compared to if the transactions had been for physical goods that had already been shipped out...

Ah well, I've learned my (potentially expensive) lesson and won't be using my new credit card number for any more online purchases in future. I'll stick to using PayPal (wherever possible) or else using my designated 'low credit limit' credit card if a card is required for making an online payments.
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Thursday, 2 July 2015

Net Worth: June 2015

My estimated net worth at the end of June had decreased considerably (-$39,299) compared to the previous month, despite three months' worth of superannuation contributions being deposited into my retirement account during June. The decrease was due to global and Australian stock markets showing weakness during the first half of June, and then having a couple of really bad days at the end of the month due to the 'Grexit' uncertainty.The only positive contribution during June was the continued rise in the estimated valuation of our home, which increased by another $9,328 (+1.54%).

Our three year fixed-rate home loan matured at the end of June, so I transferred $50,000 from my available 'portfolio loan' credit limit to pay that amount off our remaining home loan balance. This was to match the $50,000 payment DW made using funds from the sale of our investment property last year that she had invested in a term deposit until our home loan fixed rate period ended.

During the month I bought a few additional shares in NAB and IFL to add to my existing holdings - the NAB shares were via the rights issue, and the IFL shares were bought after recent bad publicity caused the stock to drop more than 10%. Hopefully in the longer term these will both be sound investments.

Overall, any major future rise in my net worth will depend on whether or not our home gains substantially in value if the area gets 'rezoned' by the local council later this year (for medium density housing around the new hospital site), and when (if) the Australian stock market eventually recovers to pre-GFC levels (unlike the US stock market, the ASX-200 is still considerably below the peak of about 6800 reached during 2007). While I continue to save a large fraction of my salary via superannuation 'salary sacrifice' the amount often seems insignificant compared with the monthly changes in net worth caused by market fluctuations. The 'plan' is that enduring these fluctuations ('risk') will eventually pay off via better returns in the long term compared with less volatile asset allocations.

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Tuesday, 2 June 2015

Net Worth: May 2015

Overall my estimated net worth at the end of May had increased slightly (+$5,284) from the previous month to reach a record high of $1,790,460 AUD. Positive contributions came from the increased valuation of our home (but that estimate is based on 12-months average sales figures for our suburb, with the latest figures being for the period ending March 2015. The more current RP Data index for all-Sydney suggests there was a slight drop in average house price during May, which might indicate the current boom/bubble in Sydney real estate is coming to an end), and from a rise in the value of my superannuation account balance (due to a drop in the Australian dollar increasing the unit value of our Vanguard LifeStategy HighGrowth Index Fund investment). These gains were largely offset by a drop in the net value of my geared stock portfolio, which was affected by both a decrease in the stock market during May, and also by a slight draw down on my portfolio loan to repay a $20,000 'balance transfer' I'd taken advantage of (to access some funds at 0% interest rate for six months).

Our 3-year fixed rate home loan reverts to standard variable rate next week, at which time I will pay off $55,000 of the home loan balance (which is not tax deductible in Australia) using some realized gains on one of my hedge fund (OMIP220) investments that is maturing in June and being paid out. That will reduce the market value of my stock investment portfolio by the same amount, so there will be no net effect on my overall net worth (but theoretically reduces my gearing slightly).

During the remainder of 2015 I should be able to start working on the development application for building an extension to the lake house (on my hobby farm), but I will be capitalising those costs (as the cost of the extension should add an equivalent amount to the value of the hobby farm) they will also have no net effect on my overall net worth. But it will mean that a larger percentage of my net worth is tied up in illiquid investments (especially so in the case of my hobby farm, as I expect to pass it on to my sons as part of my 'estate' -- fortunately Australia does not have gift, death or inheritance taxes, so they will only pay capital gains tax if they eventually sell the property for more than the 'cost base' value. Due to the fact that the 'cost base' is no longer adjusted for inflation, long term capital gains are taxed at half the marginal tax rate, which approximates to only paying tax on 'real' gains -- at least up to the point where an asset has more than doubled in value during the holding period).

Once we have paid off a large chunk of our remaining home loan I should have some spare cash flow each month, which I'll use to pay off some of my margin loan balances. With the margin loan interest rate currently around 6.29% and my marginal tax rate for 2015/16 being 32.5c or 33c (depending on whether or not the “Clean Energy” (carbon tax) package of compensation measures gets rescinded as planned), this will give me an effective return of around 4.2% for paying down that tax-deductible debt rather than saving the extra cashflow. Conventional wisdom would indicate the optimum use of the extra cashflow would be to pay off any non-deductible debt (eg. credit card balances or my home loan), but I don't have any credit card balance (I pay off the amount due in full each month) and paying off our home loan would require DW to pay the same amount (as our home and loan are in joint names and we make equal loan repayments), and she has just bought an investment home unit 'off-the-plan' and wishes to save up some funds to be ready to pay settlement costs and stamp duty when the construction is completed towards the end of 2016.

It will be interesting to see when (if) my net worth eventually hits the "two million dollars" mark. Although I am saving about $30,000 of my salary into superannuation each year, the biggest factors affecting my net worth will continue to be changes in the value of our home (especially if our property is rezoned to 'medium density' in August), and how the Australian economy and the stock market perform (affecting my superannuation savings).

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Thursday, 28 May 2015

Me vs. BRW "Rich List" 2015

Years ago I picked the cut-off net worth for getting onto BRW magazine's "Rich-200" list (the wealthiest 200 individuals in Australia) as a suitable "benchmark" for evaluating how well my net worth was tracking. As the cut-off more than 100 times my net worth, I divide the annual report's threshold by 100 and compare it to my current net worth as shown below (the graph is on a log-linear scale, as compounding tends to make wealth grow exponentially).

The chart clearly shows how I have been generally tracking quite well against this benchmark, with the exception of 2008 when the GFC caused me to have to liquidate a large part of my geared share portfolio at the bottom of the market. Over the past four years I have been slowly making up ground against the benchmark, probably due to my portfolio being overweight in Sydney real estate and the stock market, whereas many of those on the "rich-200" list have a large part of their wealth tied up in resource companies.

This benchmark is quite challenging due to a couple of reasons:
1. Being limited to the wealthiest 200 Australians, the population growth means that this is slowly becoming a more exclusive cohort
2. As under-performers get dropped from the list, the cut-off is biased towards those with the best investment performance

On the other hand, starting from a relatively low level of net worth means that initially my income was a large percentage of my net worth, and that savings were making a large contribution to my increasing net worth. This effect is slowly diminishing as my net worth grows to a larger multiple of my salary package (currently around 13.7x) and hence the ROI of my existing investments starts to outweigh the increase due to my savings. Of course, once I retire and start to draw down on my savings, rather than adding to them, it will be almost impossible for my net worth to keep pace with this bench mark...

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My Stock and Fund Investment Portfolio going into FY 2015/16

I am no longer an active investor, as I eventually realized that I don't have any exceptional talent for timing the market, nor for picking individual 'winners' - either stocks or fund managers/funds. Hence, my ongoing regular investment/saving plan is:
1. an automatic contribution into superannuation via the compulsory SGL (superannuation guarantee levy, currently 9.5% of pre-tax salary) and an additional $800 of 'salary sacrifice' from each fortnightly pay. Within the SMSF $5000 is automatically moved from our ANZ V2 High Interest SMSF bank account into our investment in Vanguard LifeStages HighGrowth Index Fund.
2. $100 per month investment into the Colonial First State Geared Share Fund via a direct debit by my StGeorge Margin Lending account (with a matching $100 loan amount being invested)
3. $100 per month invested into the Vanguard LifeStrategy HighGrowth Index Fund held

So, overall I am currently saving around 30% of my total pre-tax salary package, mostly via tax-effective superannuation savings.

I had sold off some of my smaller individual stock holdings and some of my Resource Company Investments (when the 'mining boom' was coming to a close) in recent years, so the remaining investments in my geared portfolio are likely to remain unchanged during financial year 2015/16. I recently took up my entitlement to 88 additional shares in National Australia Bank, and IPE Private Equity is likely to continue to decline in market value as they slowly sell off various private company holdings and pay out the proceeds to the shareholders.

Overall the level of gearing is fairly modest (loan:value ratio around 50%), with the total dividend income distributed last year slightly exceeding the interest on the margin loans (hence the portfolio was slightly 'positively geared'). Some of the dividend income is reinvested, so I actually have a slightly negative cashflow and have to use some of my 'take home' pay to cover any monthly margin loan interest payments that aren't covered by the dividends I receive. The dividend paid out by Woodside Petroleum is also likely to be a lot less than was paid out during the past 12 months.

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Thursday, 7 May 2015

Slow progress with the 'Lake house' renovations and extension

The prefab house on the 25-acre hobby farm at Lake Wallis my parents transferred to me early last year had become very run-down during the ten years one of my sisters was living there (rent free) and supposedly looking after my parent's herd of alpacas... in reality she appears to have spent most of her time collecting and hoarding junk, which my parents are now in the process of slowly clearing out and either taking to the local tip (at a cost of about $85 per trailer load) or packing up to transport to their larger farm at Inverell (where my sister and the alpacas herd had moved to at the start of last year). Once all the junk has finally been cleared out the old carpet will be removed and the house fumigated before being renovated (new lino floors and patched and repainted walls). My plan is to then submit a DA (development application) to the local council to have a two-storey extension added to the rear of the existing house, so that there will be enough room for us to stay at the farm with my parents during school holidays.

My parents plan on eventually buying my sister a small farm for he to live on, using some of the proceeds from selling off their Inverell farm, and to down-size by moving back to the Lake Wallis farm to live. The balance of the proceeds of the sale of their Inverell farm should help self-fund their retirement for the next few years (they get a small UK pension due to the years my father was in the RAF before moving to Australia in the early 60s, and recently also a small amount of Australian aged-pension, having now spent most of the superannuation my father received when he retired as an airline pilot in the early 1990s). In another few more years time the value of the Lake Wallis farm they gifted to me will no longer be counted in the pension 'assets test', so my parents should then be eligible for a slightly larger Australia pension income to live off. As I am now paying the rates, insurance and maintenance costs for the Lake Wallis house their living costs should be fairly modest by then (provided they are no longer paying for any of my sister's living expenses!). I also plan on moving to Lake Wallis myself when I retire in ten or fifteen years time (unless I get retrenched beforehand), but I doubt my parents will still be living there as my father would be pushing 100 by then (although it is possible, as his Aunt will be celebrating her 100th birthday in a few months' time).

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Net Worth: April 2015

Continued weakness in the Australian stock market saw my geared stock portfolio decline in value, and also resulted in the value of my retirement account (SMSF) decreasing despite two months of employer contributions (SGL and salary sacrifice) being deposited into our SMSF bank account during April. On the other hand the continued boom in Sydney real estate pushed up the estimated valuation for our home (which may be overly conservative due to reasons mentioned last month). I also adjusted the valuation for 'other real estate' (the hobby farm at Lake Wallis) upwards by $11,000 to incorporate the cost of having the pastures 'mulched' and trees within 10m of the farmhouse removed to reduce the bushfire hazard (allowed under the current "10/50" state legislation).

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Net Worth: March 2015

Not much change overall, with gains in my retirement account and home valuation mostly offsetting weakness in my stock portfolio during March. The home valuation is more approximate than usual this month as I missed getting some of the online median sales price data. In any case the home valuation may turn out to be highly conservative, as it is based on median sales data for the entire suburb/postcode area, whereas the value of our house may be boosted if there is rezoning (for medium or high density housing) in the near future due to the construction of a new regional hospital in the vicinity.

Some neighbours on the adjacent main road (opposite the hospital construction site) have already been offered an 'option' to sell their property to a developer for around $2.5 million in two years time (they only get a 1% payment up front). While not everyone has accepted the offer (some are holding out for a higher price, while others don't wish to sell their home at all, or wish to sell and move out immediately rather than having to wait for two years before selling their house), construction of the hospital is already underway and redevelopment on the surrounding area will soon follow. While our house is a bit further away from the hospital site, it is still within the surrounding 'zone' earmarked for strategic redevelopment, and a council decision on rezoning is due very soon. It is quite likely that our house with get rezoned from current standard residential (single dwelling, maximum 8m/2 storey) to medium density (eg. townhouses/villas or blocks of 3-storey flats). DW fondly imagines we will eventually be able to sell in a couple of years for $2.5m or more (compared to the current valuation of around $1.15m), but I will wait and see how the zoning goes and what offers from developers actually eventuate. As the 'family home' isn't subject to capital gains tax in Australia, any windfall profit would be tax-free, allowing to replace our house and still have money left over to invest or add to our super.

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Friday, 3 April 2015

Iran deal terminally stupid

After years of sanctions that were obviously starting to bite, Iran finally came to the negotiating table -- and got everything they wanted. The 'deal' will lift the sanctions that were impacting Iran's economy (which some western critics had complained simply punished the innocent population of Iran -- but what better way to incite the population to be disaffected with their leadership and encourage change from within?) and in exchange Iran was not 'agreed' to halt research into developing nuclear weapons, but instead has reached an 'understanding' that includes some limits to the use of its nuclear research facilities and the amount of enriched uranium it can stockpile.

What this means in reality is that instead of the 'worst case' scenario of Iran being theoretically (but never realistically) being able to stockpile enough enriched uranium for a single nuclear weapon 'within months' (but not having the ability to actual build a nuclear weapon for many years to come), we now have a situation where they can continue developing the knowledge and technology required to produce a functional and effective nuclear weapon (which was always going to take several more years or research, and time to steal/buy technology from Russia, North Korea, Pakistan etc.) and can still produce enough enriched uranium for a weapon within a year or so of being ready to make use of it...

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Monday, 16 March 2015

Quick, Sell (Lease) the 'poles and wires' before they're not worth anything!

The latest opinion polls suggest that the NSW election is likely to see the coalition remain in government for another term. Theoretically that should mean that their policy to 'sell' (actually a 99-year lease of 49%) the electricity system 'poles and wires' should go ahead, with most of the proceeds going to build other much-needed public assets (ie. infrastructure). Of course, with the minor parties still having enough senators to block any government legislation that Labor is opposed to, just winning another state election isn't a guarantee that this policy will ever get implemented. But it should - if for no other reason that if they wait too long the 'poles and wires' are likely to be entirely worthless within a few decades.

Just as the sale proceeds from selling the electricity generation assets (coal-fired power stations) were eventually much less when the sale went through a decade or so after it was first proposed (due to the move towards alternative electricity generation sources to address the need to reduce greenhouse gas emissions), the value of the existing 'poles and wires' used for distributing bulk generated electricity is likely to plummet when rooftop solar power generation starts to eliminate the need for many houses to remain connected to 'the grid'. Already a house could be self-sufficient in electricity generation if the entire rooftop was covered with standard PV panels (and expensive storage batteries), but developments in PV technology mean that within a decade or so the required set of 20 or so large panels could be replaced by a single panel around 1 square meter in size, and at much lower cost. It would only need improvements in the cost of batteries (or the development of alternative energy storage systems like hydrogen fuel cells, room temperature superconducting magnets etc.) to make it affordable for most houses to be self-sufficient in terms of energy. How much will the old 'poles and wires' be worth then?

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