BTC donation

Please Donate To Bitcoin Address: [[address]]

Donation of [[value]] BTC Received. Thank You.
[[error]]

Monday, 31 December 2007

New Blog Monetization Opportunity - Pay Per Play

I'm moving away from sponsored posts (such as PayPerPost, REviewMe and so forth) to more scalable revenue streams such as AdSense. Although the revenue is minimal when you have low readership levels, it allows you to concentrate on writing the content you want, and will begin to generate revenue if you succeed in creating useful content that attracts a substantial readership. A new form of Internet advertising that guarantees that you will get a 100% conversion rate on 100% of your website traffic is now available - Pay Per Play. It differs from most Ad programs in that every visitor gets played the audio ad, so you should get some revenue from every visitor, not just those that click on an ad link (such as AdSense).

Although the audio ads won't start being "broadcast" until February, it would pay to join up via the link provided asap in order to have a chance to get some second and third level income from referrals (for that reason I'd appreciate it if you used my referral link to join up rather than direct to the site). The ads are supposed to be context-sensitive, so your readers should only get relevant ads, and no adult or offensive content.

Only time will tell if this program ends up being a major player like AdSense, or if it dies on the vine like Agloco, but it won't hurt to give it a go if you're at all interested in monetization of your blog. If you currently don't have any ads on your site, this is one program that would provide some revenue without displaying any ad content on your site, thus retaining a "clean" ad-free appearance. After all, if your readers don't like ads they will probably have their PC sound system set to "mute" and won't even know if you are using Pay Per Play on your website!

Update: There are a few anti-PPP posts around, and it's unclear if PPP has any real advertisers lined up yet. But that would fit in with their model of getting as many websites as possible to join up before the Feb 'go live' date. Apparently they are getting their "reach" independently measured during this pre-launch phase, and will use that info to sell to advertisers. For this reasons there aren't any ads being served by PPP until Feb, so no income being generated. Hence this isn't a sponsored post (although I hope to make some money from PPP if it eventually suceeds).

Copyright Enough Wealth 2007

AdSense Payments on Hold

When checking my AdSense account for this blog there was a new notice that "Your payments are currently on hold. Action is required to release payment." This seemed a bit odd as I've only earned around $20 from AdSense in November and December, and my total is still well below the $100 threshold I selected for receiving payment. I had read tales of bloggers having their AdSense account closed for click fraud, or other breaches of the AdSense rulebook, but my CTR seems normal, at around 0.50% of pageviews.

Drilling down into the details of the notification it turns out that AdSense is changing their security to require a PIN number be entered to "release payment". This is probably a good thing, but the printed PIN number card is "in the mail" and should arrive within the next three weeks. Since I don't expect the reach the payment threshold for at least another four months this won't be an issue, but it still would have been less of a surprise if the PIN number had arrived in the post BEFORE it came into force!

Copyright Enough Wealth 2007

How I set my Net Worth target for 2008

You may have noticed my new goals for 2008 are listed in my sidebar. Having them there will help "keep me honest" and the desire to achieve some progress each month will help keep me on track, especially with the study and weight loss goals. Those two goals were easy to set - achieve my desired (healthy) weight and pass all the subjects I'm enrolled in for 2008.

The financial goal of increasing my net worth by $150,000 (approx. 12.8%) is less within my control than the other targets, but is still set at what I think are reasonable assumptions. As my overall portfolio has a mix of direct real estate, Australian and International shares, and some bonds and fixed interest (via the asset selection within my superannuation fund) the overall portfolio has a better chance of meeting my growth and income projections than the individual components.

So, what are the assumptions built in to my 2008 financial goal?

1. Continue with my current retirement savings plan rate. I'm currently contributing $1650 per fortnight pre-tax into my SMSF via salary sacrifice. However, $650 of this is effectively "re contributing" the $34,000 I withdrew from my superannuation account last year for tax reasons. So, my real retirement savings rate is $26,000 pa (which is around 30% of my pre-tax salary. In addition my employer contributes the compulsory 9% SGL amount, which adds another $7,560. As all these amounts are "untaxed", there will be a 15% contribution tax deducted. The overall amount being added to my SMSF after tax is therefore around $28,500.

2. A total return (dividends reinvested plus capital gains) on my SMSF balance of 10%. Based on my current SMSF balance this would add around $33,000 to my net worth over 2008.

3. Real estate capital appreciation. While DW is working part-time we are only paying interest on around half of our total mortgage balances, and are using a redraw of advance payments to help meet the P+I payments on the remainder. Overall our total mortgage balances are staying fairly static, so the only contribution to increasing my net worth will come from increased house prices. Luckily after a couple of poor years it is expected that Sydney prices in our area will increase by around 6% next year. This would add roughly $27,000 to my net worth.

4. Stock investments. With interest rates increasing and Australian stock returns likely to be lower than the past 3-4 years, I'll just plan an an overall ROI of 10% on my equity in my geared stock portfolio. This would provide an increase in net worth of $40,000.

Adding this all up comes to only $128,500 - so I'll have to add another $21,500 during the year via non-retirement savings. When I had a lower net worth my savings rate had a much greater impact on increasing my net worth. These days asset allocation and the ROI on my investments is much more important. I'm hoping that by the time I complete my BTeach qualification and a suitable teaching position becomes available, I'll be able to take the pay-cut required to change careers without it affecting the growth of my net worth significantly.

Copyright Enough Wealth 2007

Friday, 28 December 2007

Sold Centro Properties

I bought 3.000 shares in Centro last week at $0.66 after news of it's refinancing woes had caused it's share price to plummet to under $0.50 before rebounding. I missed a couple of chances to sell out at around $1.50 over the next two days, and was thinking of holding on for the longer term in case it eventually recovers to the alleged book value of around $2.40 per share. However, in the past couple of days it has drifted lower - $1.30, $1.20, $1.10... even though the general market has been recovering. So when it continued to drop today I decided to sell out at $1.02 and pocket a gain of around 50%. Although it will be annoying if the stock moves higher from this price level, it won't be as bad as if I'd held on until the stock dropped below the price I'd paid for it - a small gain is better than a loss any day.



Copyright Enough Wealth 2007

Why your Wealth will Leap Ahead in 2008

A lot of our major expenses are fixed annual amounts, such as life insurance, health insurance, car insurance, council rates etc. Not so many are accrued daily - the main daily expenses being petrol, food, electricity and water usage. So, since 2008 is a leap year, and Feb 29th is a Friday, most reader's will benefit from an extra day's wage without having an extra day's expenses in 2008. Sweet. If you manage to make Feb 29 a "no spend day" you'll get to keep most of this extra 0.4% wage for 2008 - consider it a "one off" bonus and try to add it to your savings rather than just fritter it away. After all, it only comes every four years.

Copyright Enough Wealth 2007

Thursday, 27 December 2007

Merry Christmas Paris Hilton

What a Christmas present from Grandpa! Just in case you were counting on an inheritance to fund your retirement, here is a cautionary tale of why it's a bad idea to count you chickens before they hatch. Barron Hilton has announced that he intends to donate 97% of his $2.3 billion dollar fortune to charity via the Conrad N. Hilton Foundation. This means that the remaining fortune that Paris Hilton may get to share will be whittled down to a modest $69 million. Since Paris has a brother, and Barron had eight children to split the estate between, she's likely to inherit a very small fortune.

However, if Barron doesn't get a move on and finalise the transfer of assets to the Conrad N. Hilton Foundation before his death (he is already 80) it may never happen. He currently plans "to contribute ... at whatever value it is at the time of his passing" [my emphasis]. This could be a problem since there is a traditional of rich beneficiaries contesting wills that cut them off from the family fortune. Indeed Barron contested his own father Conrad's will when it left a controlling stake in Hilton Hotel to the charity in 1979. The nearly decade-long legal struggle reached an out-of-court settlement to split ownership of the shares with the foundation in 1988. So Paris Hilton may not end up being a poor little rich girl after all.


Copyright Enough Wealth 2007

Wednesday, 26 December 2007

e-Tax adventures

I've finally started filing my 06/07 tax return using the e-Tax online filing software (it was due by 31 Oct, but I'm unlikely to be fined for late lodgement since they owe me a refund). The ATO has introduced an optional "pre-fill" feature where you can download the dividend, mutual fund, bank interest and other data they already have on file for your tax file number (TFN). Last year I decided against using this feature as I was sure it wouldn't be completely correct, and trying it out this year has certainly shown that "pre-filled" tax returns are unlikely to be 100% correct for any but the simplest tax return. The bank interest data was OK as far as it went, but there were a number of accounts missing from the ATO's download (for no apparent reason, as they all have my TFN on file), and our joint accounts were completely absent - it appears that the ATO system can only match data to TFNs where an account has one TFN associated with it.

The dividend data download was also incomplete, with several company's dividend payments missing from the data. The ATO data was also a pain to reconcile against my excel spreadsheet of dividend payments, as it had combined some dividends payments made at different times by the same company, but had also listed some other dividends from the same company as separate line items. The downloaded data also wasn't listed in alphabetic (or any other discernible) order, so each line item had to be found and highlighted on my spreadsheet in order to identify which dividend items were missing from the ATO's "pre-filled" data.

The worst problem with the ATO's dividend data appears to be an item included as an unfranked dividend recorded as paid by the Commonwealth Diversified Share Fund. Although this is a listed company that pays dividends, the dividends paid to me WERE fully franked (the ATO data listed the payments as unfranked, and lacked the franking credit information), and these payments were listed in the annual tax advice from CDF under different tax return items (relating to managed fund payments, which seems correct) to the normal stock dividend payment tax items. I think this data has been misreported to the ATO, so I've edited out these dividend payment items from the ATO downloaded data and will include only the tax advice amounts listed in the advice provided by CDF.

The mutual fund data downloaded from the ATO only included one fund (an Adelaide bank cash management account linked to my Leveraged Equities margin loan account). All the details for my other fund investments with Colonial First State, Vanguard and other funds were absent and will have to be manually added to the downloaded ATO data.

Overall, although it was interesting to find out exactly what transaction data was on file with the ATO, the errors and incomplete data makes it more trouble checking and correcting the "pre-filled" eTax return that it's worth. I'm sure some people (less honest than me) would use the downloaded information as a guide to what dividends they have to include on their tax return, and would assume that the ATO was unaware of any dividend payments that don't appear in the downloaded ATO file. Although the ATO does advise that the downloaded data should be checked before filing, you'd probably not be penalised if you used the ATO data to complete these tax items and an eventual tax audit showed that the data from the ATO was actually incomplete.

The "roll-over" feature that automatically incorporates data from the previous year's eTax return stored on my PC is more useful, mainly as a prompt for which tax items were included last year. However, even that feature has some glaring omissions. For example, even when the previous year's eTax data has been rolled-over, the eTax "interview" still asks whether or not I was using the "Simplified Tax System" for my business last year - surely this would have been easy to roll-over? I had to go to last year's hardcopy of my eTax return to check what I'd decided last year.

Anyhow, hopefully I can finish entering all the dividend and mutual fund details into eTax tonight, and tomorrow can finish off my capital gains tax calculations and get my tax return lodged. The capital gains tax calculations have been my reason for not filing my tax return earlier - some of the shares I sold last financial year had been bought in dribs and drabs over the past 20 years, including some off lots added via DRPs, and some had been partially sold off in previous years. All this meant that I have to trawl through my previous year's tax return files to find the relevant dividend statements showing how much the DRP additions had cost, and to look up which lots had been allocated to previous partial sales of my stock holdings.

Once my tax return is filed I will know the final figure for my 2006/7 taxable income and can then proceed to file DWs return. Her tax return is much simpler (no margin loans, mutual funds, dividends or capital gains tax calculations), but can't be completed until I've done mine as the eTax return asks for the spouse's taxable income, and this in turn affects the Family Tax Benefit calculation.

The fact the both mine and DW's eTax returns asks for the spouse's taxable income is a bit of a catch-22 situation. I have to complete my return using a guesstimate of DWs income, then (before I actually file my return) complete her return (using the figure for my taxable income) in order to determine the correct figure for her taxable income to update my return and file it! Luckily the spouse's income figure only appears to affect the Family Tax Benefit calculation and not the taxable income calculation, otherwise this would become an iterative process...

Copyright Enough Wealth 2007

Tuesday, 25 December 2007

Kids Stock Portfolio Update - Dec 2007

The boys are only seven (DS1) and one (DS2), so their portfolios are truly "long term". They are also very static - once I buy a stock for them it probably won't be sold unless there is a massive and unexpected change in the company's prospects for the long term. There also won't be any additions to the portfolios after the initial stock purchases, apart from small additions due to dividend reinvestment plans (DRPs) or bonus share plans (BSPs). The main difference between these two plans is that DRPs buy additional shares at current market price (sometimes sans a small discount eg. 5%) using the taxable dividend income, whereas BSPs issue "bonus" shares at no cost in lieu of any dividend. The value of the issues bonus shares is the same as the dividend would have been, but isn't taxable as income. However, as the bonus share had a zero cost base for CGT purposes, there will be a bigger capital gains tax hit when the bonus shares are eventually sold. However, over the very long term the cost base will most likely be a small fraction of the total sale price, so this will not have much effect on the amount of CGT paid. Another way to look at it is that the while the starting value of the shares will be eventually be taxable for bonus share issues, the tax isn't due until the shares are sold - by which time the real cost of the tax will be much reduced due to inflation. There's also the benefit of only paying CGT at half your normal marginal tax rate for long term capital gains (assets held more than 12 months before being sold).

Anyhow, here is the current valuation of the boys' stock holdings:



When I bought QBE for DS1 they were undervalued due to the temporary concerns around their exposure to claims arising from the twin towers destruction on 9/11. ANZ bank was also reasonably cheap at that time, with the outlook for bank stocks being rosy. Five year's later, when it was time to buy some stocks for DS2, the banks were still highly profitable in Australia, but, with the current credit concerns resulting from the US sub-prime loans problem and rising inflation and interest rates in Australia, they don't currently appear to be such a bargain. So, for DS2 I've gone with CSL which is likely to benefit from continued growth in the medical products field in the future, and CPU which as a provider of stock administration services globally is well placed to benefit from economic growth in developing countries and the increased investments of the baby boomers and subsequent generations to provide for their own retirement plans. That's the theory -- we'll see how they perform over the next 10-20 years.

Copyright Enough Wealth 2007

Monday, 24 December 2007

The Tax Planning Benefits of Investing in Stocks

Over time I've come to the conclusion that I'm not the next Warren Buffet, and given the amount of time I spend "researching" my stock picks I'd probably get better returns over time from my investments in low-fee index funds rather than my portfolio of individual stock picks. However, one significant benefit of investing directly in a diversified collections of stock remains -- tax planning. For example, this year my wife is working part-time and is entitled to some Family Tax Benefit payments from the government, provided our overall taxable income isn't too high. I'm salary sacrificing a large amount of pre-tax salary into my superannuation account this year, so our combined taxable income will be below the threshold provided I don't realise too much capital gains from selling some of my stock holdings this financial year.

At the same time, the Australian stock market is looking a bit choppy, so I would like to sell off some of my stock holdings and use the proceeds to reduce the level of gearing I have via my margin loans. By being able to pick and choose which stocks I sell I can control how much capital gain I realise this year. For example, I recently took up my entitlement to 124,000 IPE options at $1.00. Since then they have paid out a dividend of around 5c per share, and, combined with the overall market correction, they are now down to around $0.91. If I sell off these shares I realise a capital loss of around $11,000 which I can use to offset capital gains realised from selling off some other shares that I have owned for a longer period and have gone up considerably in price since I bought them. That way I can realise some cash to reduce my overall margin loan gearing levels without increasing my taxable income this financial year.

If I later decide that I want to reinvest in IPE for the long term, I can always buy back in to IPE at a later date. Given the global credit concerns I may even be able to buy them in a few months time for less than I've sold them for - they currently appear to be in a bit of a down-trend compared to the overall market:



Copyright Enough Wealth 2007

Saturday, 22 December 2007

Quicken Revisted

After having problems trying to get Quicken 2007 to work with my new Vista PC back in August, I didn't implement my New Financial Year resolution of starting again to record all my finances in Quicken (I stopped doing so back in '99 after I got married and started a family - I didn't have as much spare time on my hands). I received an email last week advertising the upgrade to Quicken 2008 which is Vista compatible (it even has a Vista Gadget to display transaction reminders), so I decided to download to Quicken 2008 trial version to start recording my finances from 1 Jan. It downloaded and installed without any problems, but when it started up it asked for an installation key. I thought that this was because the 90-day trial period for the 2007 version that had been on the PC had expired, so I went out today and purchased 2008 Quicken Personal Plus for $189. There is supposed to be an $80 rebate available from Quicken for existing Quicken users, so hopefully it will end up only costing $109. Later on, when I checked my email, it turned out that an activation key for the trial version had been sent to me, so I didn't need to purchase the full version yet after all...

Once I got home I used the installation key that came with my new software to enable the 2008 trial version I had already installed. However,it then asked me to go online to "register" the newly activated software! The problem with that is that I don't know my existing user ID and PIN number, so I had to try phoning the help line to find that out - unfortunately they're only available MON-FRI 8am-6pm, so I can't complete the activation process until Monday...

Meanwhile the registered software seems to be working OK on my Vista PC, so I can start setting up all my bank and other account details, and try to get my investment account details up to date (stock and mutual fund holdings). I can easily enter the details of what stocks I have, but finding all the transaction history for some of these stocks will require going through many years of broker statements and DRP dividend statements. If I can get all the stock transaction history up to date by the end of June I'll be able to plan the best way to sell some of my stocks with minimal capital gains tax liability.

I still miss the simplicity of the earlier versions of Quicken, back in the 90s, when the software only used a installation key to allow installation, and didn't require you to "register" via the Internet. It also meant that if you changed computers you could reinstall the software without any problem. Since I don't use automatic import of bank account details, the only benefit on the new Internet-linked versions of Quicken are the ability to update the values of my stock holdings automatically. However, that isn't a must-have feature for me, as I can get updated total portfolio values from my margin loan websites anyhow.

Copyright Enough Wealth 2007

Friday, 21 December 2007

The Price of History

The last remaining copy of the Magna Carta remaining in private hands was recently auctioned for $24.8 million. $24.8 million sounds like a lot of money, but is it a good investment? A rough calculation shows that, if it cost the equivalent of $500 in today's spending power to make (which is a conservative figure, as vellum and calligraphy services were expensive back in 1297), a real return of only 2% per annum would have seen an investment of this amount accumulate to a present value of over $638 million. Even if this rare artifact appreciates more rapidly in future it probably isn't a good "investment" -- there is always the risk of it being destroyed, and the cost of insurance would more than offset the long-term gain in value.



Copyright Enough Wealth 2007

Thursday, 20 December 2007

The Millionaire Baby Next Door

Consider baby "John Doe". John's father starts doing some overtime (or a second job) as soon as he finds out John is on the way. When John is born he manages to scrape together $12,000 to invest in a low-cost investment fund. If the fund's total return averages 11% pa, the child's investment returns are taxed at 25%, and inflation averages 2% pa, the real, after-tax, return of the investment would be 7% -- and the investment account will hold just over $1 million (in today's dollars) when baby John turns 65.

Of course very few expectant parents would have a "spare" $12,000 lying around when a baby arrives, few dads would go out and earn an extra $12,000 during the pregnancy, and, if they had the choice, most people would probably put the $12,000 towards baby expenses rather than invest it for 65 years -- but it does show what can be achieved with a fairly modest amount invested for a long period.

If a lump sum of $12,000 is beyond reach (after all, that would require putting aside $33 a day for a year), the same result can be achieved by investing $1,000 each year for ten years (ie. finding an extra $3 a day to invest for the child), provided the investment return is somewhat higher (13% instead of 11%) or if the money was invested in a tax-sheltered account (such as a child superannuation account).

If one did both - investing an initial lump sum of $12,000 and then adding a further $1,000 each year until John Doe turned ten, John's investment would reach $1 million (in today's money) by age 58.

Copyright Enough Wealth 2007

Wednesday, 19 December 2007

Twice bitten, third time lucky?

After swearing off day trading forex (having lost $4,000 in a couple of months), I've now transferred another $1,000 into my CMC markets CFD trading account. This means I have "invested" a total of $5,000 into day trading forex (USD vs AUD) and will now be starting off with a balance around $1,200. During DS1's Chinese class last weekend DW happened to talk to a lady who works as a professional forex trader for a large investment company. After sharing a few laughs at how we'd lost money trading forex in a very hit-and-miss fashion (and leaving positions open overnight), a few comments that it was possible to make money trading forex (if you trade to a plan and used stop-loss orders) was all it took to rekindle DW's interest in trading forex. I'll also start trading forex again as it's more fun if you share a hobby, even an expensive one! This time we'll first read an introductory text like "Commodity Trading for Dummies", pay the extra monthly to enable automatic stop-loss orders in the CMC Markets trading platform, and watch the 8-hours worth of "free" training DVDs we got from CMC Markets when we opened DW's account. Worst case I'll lose another $1,000. If I'm lucky I'll have some fun trading next year and might even manage to get back to break even.

The addictive thing about day trading is that you always had second (and third) thoughts about every trade you make, so when you've lost money trading you can always think back and see where "if only" you'd made some different decisions you could have made a profit rather than a loss. I'm still pretty sure that there's a lot more luck than skill involved in trading forex. If I happen to get lucky and make some money trading forex the danger will be that I convince myself that I now know the "secret" of trading and continue trading until I eventually lose whatever profits I've made. I'll need discipline to not throw any more funds into trading forex if I lose this "final" $1,000...

Copyright Enough Wealth 2007

Centro Properties Bonanza

My dabble in Centro Properties stock (CNP) continued to pay off today, rising to around $1.50 before dropping back to close around $1.20 -- an 82% gain on my purchase price of $0.66 in one day! Centro made reassuring noises today (that "Centro is comfortable about the ongoing viability of the business and would not allow its securities to trade if this were not the case"). At this stage I just have to decide whether to realise a short-term capital gain (I don't really want to realise any capital gains until after 30 June), or whether to hold on and hope that the company remains liquid - in which case the shares may return above their supposed "book value" of around $2.30 per share.

Copyright Enough Wealth 2007

Tuesday, 18 December 2007

A beautiful dive off the cliff...

Like a cartoon figure running off a cliff, the market suddenly realised that it was walking in mid-air, and took a dive. Although everyone has been aware of the "sub-prime loans" issue since mid-year, it appears that the concerted action by several countries central banks, coupled with Greenspan's comments about possible stagflation (economic stagnation (read recession) coupled with oil-price induced inflation), has finally made investors risk-averse. The Australian market is suddenly no longer "uncoupled" from the US-market, and has dropped around 10% in three days trading. The worst hit large local stock is Centro Properties, which had geared up massively to invest in US shopping centre and other property investments over the past year. After sliding from a all-time high around $10 to $6 over the past few months, last week they went into a trading halt and yesterday announced that they had been unable to refinance short term debt as they had planned. It now looks as if they'll have to try to reduce their debt rations in order to obtain further financing, which will mean selling off assets they had only recently purchased, probably at a huge mark-down, considering the state of the US property market and poor retail sales prospects.

My portfolio has dropped around $40,000 over the past week, and unfortunately the Index Put options I had bought as "insurance" against such falls isn't working any more (the options expire on 20 Dec. The Index is still around 6200 and the options aren't "in the money unless the index drops below 5500). To divert myself from this depressing state of affairs I've dabbled in buying some Centro Property Stapled Securities (CNP). As shown below, the share price had dropped to $1.60 yesterday, and today it plunged further to a low around $0.44 before rebounding. I bought a small parcel of 3,000 CNP at $0.66. This is probably another $2,000 down the toilet, but if Centro does manage to offload some of their assets at a reasonable price and obtain refinancing the stock price could recover substantially by the end of next year. I did a similar purchase of QBE shares when they plunged after "9-11", as the hit due to their exposure to the twin towers re-insurance seemed likely to be temporary. Centro is probably more of a gamble, put the amount invested is not significant.



Update: By close of trading CNP had recovered to $0.85, so it looks like my hunch that CNP was oversold might have been correct (at least for today). Only time will tell if they can manage to refinance their debts and retain value over the longer term.

Copyright Enough Wealth 2007

Monday, 17 December 2007

Living in a Throw-away Society

I just bought myself a new All-in-One printer/scanner/copier. It's not that I needed a new printer, just that I needed one that works. I'd bought an HP flat-bed scanner a few years ago, making use of the $300 provided by the government for all small businesses to upgrade their computer systems to cope with the new GST. Later on I bought an HP inkjet printer, which worked fine until the second new ink cartridge didn't fix a printing problem. So I tossed out the HP printer and bought a new Lexmark printer that was on sale for around $75 - the cost of a new set of printer ink cartridges. After a year of occasional use the colour ink cartridge had been emptied (of ONE colour!), so I decided to try to save on the cost of ink refills by buying one of those "refill it yourself" kits. For around $30 it promised to provide three refills. Unfortunately the refilled ink cartridge still didn't print properly, I suspect I had used the printer too infrequently and the inkjet nozzles had become blocked. Several cycles through the self-cleaning sequence didn't fix the problem, so it looked as though I'd have to fork out another $40 for a colour ink cartridge and $30 when the black ink ran out.

Then I saw the Lexmark X2470 on sale for $34 at the local supermarket while grocery shopping. For less than the price of a new ink cartridge I get a new printer/scanner/copier, complete with USB cable and an ink cartridge. The ink cartridge combines black and coloured inks in the one unit, so it probably isn't as economical (in theory) as separate black and coloured ink cartridges, but at $34, who cares? If nothing else, the new All-in-One unit will allow me to reclaim the desk space used up by the flat-bed scanner. It just seems a pity to throw out perfectly good equipment every time I need to replace ink cartridges...

Oh well, perhaps the local primary school would like the old flat-bed scanner.




Copyright Enough Wealth 2007

Saturday, 15 December 2007

Property Portfolio Update: Dec 2007

The lastest monthly sales figures (November) for the suburbs of our home and investment property have just come out. There continues to be a lot of "noise" in the data, with monthly average sales prices being affected by the mix of properties sold in the month, but the general uptrend in prices is continuing and may be the start of another house price "boom. The only factor mitigating against this is that interest rates continue to rise as the RBA attempts to keep inflation within it's 2%-3% target band. Since we have around half of our property mortgages fixed (rather than at a variable interest rate, which is standard in Australia), inflation would actually be of some benefit as it would push house prices up (as replacement costs increased) while the real value of our outstanding mortgage balance would decline. On the other hand, if inflation moderates as expected in 12-18 months time, and home loan interest rates start to decline, this would fuel demand by first home buyers and investors and start to push house prices up more rapidly.

The average rate of increase in house prices in Sydney has been around 6% pa over the past twenty or thirty years, and it looks like this rate may apply over the coming 5-10 years. Prices remained flat between 2002 and 2006 (after the last property boom collapsed in Sydney), but it now looks as if prices have started to increase again. If the lengthy stock market boom comes to end we are likely to see more investment flow back into the property market, while will help support Sydney property price increases over the next 2-3 years.




The graph of our property portfolio shows how the overall valuation has tracked close to the expected long term rate of 6% pa, reverting to the trend line after the "housing bubble" burst in 2004. Unfortunately after initially paying off extra from our home loans each month (with plans to clear the mortgages by 2020) we have had to start redrawing some of our advance payments each month while DW was on maternity leave, and will continue to do so while DW is only working part time two days a week. Anyhow, after the recent changes to "Simpler Super" it is more tax efficient to salary sacrifice into superannuation and eventually use part of our accumulated retirement funds to pay off any remaining morgage balance, than it is to pay off our mortgages using after-tax dollars.

Copyright Enough Wealth 2007

Investing in Precious Metals

Bullion investments tend to fall into the "other" category of most people's investment portfolio asset mix. The main components are generally stocks, bonds, property and cash. However, a case can be made for having a modest investment in gold or silver. Personally I have some silver coins, some gold coins and a couple of ounces of gold bullion. The main reason for investing in bullion are:
* as an inflation hedge (precious metals tend to go up in price when inflation takes off)
* in case of major disaster. Although diamonds are better as physical stores of large amounts of wealth, only experts are in a position to accurately value them. So in a disaster situation you're much more likely to be able to barter silver or gold coins for necessities.
* to reduce the overall risk of your portfolio. Due to the low correlation with other asset classes, including a small amount of bullion in your overall asset allocation can significantly reduce the overall risk (volatility) of your portfolio without reducing performance too much.

On the downside, investments in bullion:
* don't provide any income
* have storage costs (either home security or paying a fee for an entitlement to physical bullion held elsewhere (which loses the benefit of owning bullion in a disaster)
* capital gains are largely speculative

If you're interested in investing in gold bullion, one way is to invest via BullionVault. BullionVault gold is stored in security vaults, so the gold you buy doesn't move making it safe, secure, cheap and easy to trade online. Client holdings are reconciled every day and published online using anonymous aliases to show who owns the gold stored by BullionVault.

While some people may be tempted to invest in gold to protect their wealth from possible bank panics due to the credit-crunch, I invested in gold when it was less than half it's current price. Gold has doubled in value over the past 5 years to $800/oz (you can check out gold charts at BullionVault), so the big question is whether gold prices will fall back or continue to climb.

Copyright Enough Wealth 2007

Thursday, 13 December 2007

Slow Progress towards BTeach degree

The second (and final) assignment for the BTeach subject I completed this semester came back in the post today. Although I only have the raw marks, it looks as though I probably scraped through with a pass in the subject. Next study item on my agenda is to complete the assessment items for the remaining three subjects for the DFS (FP) course, which I plan on doing during the two week vacation I have over the Christmas/New Year period. Next Year I've enrolled in two subjects for my MIT degree and two towards the BTeach. I'll need to be a lot more organised about my studying and start work on assignments early, rather than leave them to the last minute.

Copyright Enough Wealth 2007

Tuesday, 11 December 2007

Frugal Christmas

In previous years we've gone to my parent's place for Christmas Eve and had a big turkey dinner there, taking the Christmas presents with us for DS1 to open while visiting. This year my folks were planning to travel back to their farm over the Christmas/New Year period so we had planned on having just a simple Christmas at home. My parent's changed their plans at the last moment as they have to stay in Sydney to take their dog to the vet for a knee operation, but we're not going to bother with a big Christmas dinner - just drop by for the kids to visit and get some presents from Grandma and Grandpa (I know that they've bought a large wooden train play table for DS2, which DS1 will also enjoy playing with, and I'm sure they'll have bought a few other toys for the kids). For Christmas Day we may organise a BBQ around the pool, as it's often 40C (100F) or so on Christmas Day in Sydney.

At home we only have a small $20 artificial tree (with fibre optic lighting built in). It's surprisingly attractive and only takes a couple of minutes to unpack and set up. Due to the built-in fibre optic lights it doesn't even need decorating, although DS1 has added a few of the Christmas decorations he's made at School or at the local church's Kids Club. Such a small tree doesn't take up too much room in the lounge room, and serves the purpose of providing a focal point to accumulate all the wrapped Christmas gifts.

I've decorated the house with a few Christmas lights - each year I buy one or two more boxes of lights for $10-$20, so I'm slowly building up a collection. So far I've spent around $100 on Christmas light over the years. I've strung most of them in the tree house outside the front of the house and along the porch railing, which is easy to setup and remove. Across the street one house has set up dozens of light sets around the garden and on the roof of their house. That would be way to much expense and trouble for me. Some people seem to go overboard with lighting - there was one Sydney house on the news recently where a man had spent hundreds of hours and $12,000 setting up a massive light and sound show of Christmas decorations! I really don't think Christmas decorating should be treated as a competitive sport.

As DS1 already has lots of toys from previous years (some of which we haven't even had time to play with - such as his Lego robotics kit), I've been more modest with the Christmas presents this year. I bought a large multi-colour inflatable swimming pool with see-through "portholes" ($50) which I think DS1 can use as a floating "fort" within our backyard swimming pool. I also bought a couple of large "super soaker" water cannons ($10 each) so he and his friends can play "capture the fort" in the swimming pool during the summer school vacation. I also bought him the latest Harry Potter DVD (ex-rental from the local video hire store, $14) and today I bought a twin-engine, rubber-band powered model biplane which should be fun to assemble and fly (no glue required)for $20. Altogether this adds up to around $100 for DS1's Christmas presents, and DW has bought a couple of toys for DS2 (who recently turned one, so will probably get more fun from unwrapping his presents that playing with them!).

For DW and my parents I've just wrapped up a $50 gift card for each of them. After 45 years I've already given my parents every affordable present that I thought they would like, and it had gotten to the stage of just buying presents for they sake of having something to give them. In DW's case I gave her some diamond earrings last year with the understanding that future birthday and Christmas gifts would be inexpensive. This also means that DW only has to buy my a small "token" present for my Birthdays and Christmas, which suits me as I really can't think of any presents I'd like to receive.

Since we won't be cooking a massive Christmas dinner or attending any Christmas parties (except maybe the local Christmas "street party") our total Christmas expenses this year will be less than $500 all up.

Copyright Enough Wealth 2007

Monday, 10 December 2007

Time to Think about some more Market Insurance

The Australian stock market has been trading sideways in a volatile manner since mid-year. No-one really knows if the US economy will succumb to the credit squeeze caused by the sub-prime lending fiasco, and draw the global economy into a slump, inducing a bear market. Or whether the US economy will scrape by avoiding recession, and the continue strength of the BRIC economies and Asia will push the Australian market to new highs.

Overall, after several years of double digit returns, I feel it's prudent to reduce my level of gearing from around 60% overall, to a lower level, perhaps even ungeared. However, I don't want to realise any capital gains this financial year (ie. prior to 30 June), so I need to look at some form of insurance against major losses if there is a significant fall in the market before I sell some stocks and reduce my margin loans.

I bought 7 All Ords Index Put options back in June, which would have offset most of my portfolio losses if the market index dropped below 6,500, but the options expire this month. I could buy some similar options that would offset any significant drop in the market (say, more than 10%), for a cost around 2% of my portfolio value. There are other avenues such a warrants, or even using CDFs to short-sell an ETF such as the Commonwealth Diversified Share Fund. I'll have to crunch some numbers to see which how much each alternative would cost to provide similar protection. These choices also have different features. For example, once I've bought XAO put options they would remain 'in force' until the expiry date. If the market rose they would simply decline in value. In contrast, if I sold CDF CFDs and the stock price rose I'd soon face a margin call to keep the position open.

On the other hand, I don't really believe in "market timing", and my investment plan is to remain invested for the long term and to use gearing to (hopefully) produce improved returns (at higher risk) over my investment timeframe. It's just that the series of interest rate hikes over the past few years have raised the interest rate on my margin loans to around 9.5%, which makes it less likely to be a worthwhile strategy (given the long-term overall returns from the Australian stock market are around 9-12% pa). Also, the recent changes in superannuation rules and the ability to invest in CFDs within the tax-advantaged superannuation system, make it attractive to move funds out of geared direct stock investments and into my SMSF. Using negative gearing (outside of the superannuation system) still provides some attractions via the ability to reduce taxable income and "convert" it into long-term capital gains. This is more beneficial than it might appear from simply looking at the income tax rates, as lower taxable income will impact on capital gains tax rates, access to the superannuation co-contribution for undeducted contributions and eligibility to Family Tax Benefit.

Copyright Enough Wealth 2007

Sunday, 9 December 2007

Farm Get-Away is Going Up-Market

My parents own a 25-acre farmlet at Lake Wallace, 3 hours drive north of Sydeny, that they bought when I was a teenager. It was previously part of a cattle farm, and the 10-acres that was pasture slowly became overgrown while the family only used it for the occasional camping holiday while we were at school. About 15 years ago my parents and I started an alpaca farm using the property and my parents had a new "kit" home erected on the siten, and erected some fencing. We're hoping to be able to visit my parent's farm during school holidays for the next 10-15 years, as the area is really nice and unspoilt at the moment. Although there has been quite a bit of development of the town of Forster-Tuncurry at the northern end of Lake Wallace (with some high-rise units being built), the southern end was not very developed, with just a large camping site nestled between two stetches of national park along the coast. The seaward side of Lake Wallace was a narrow stretch of sand dunes, forming the "seven miles beach", which was one of the most best stretches of beach I've seen. Many times we visited the beach during the Summer holiday season and could walk along stretches of the beach without another person in sight.

All that will probably change very soon, as there is a large redevelopment of the camping ground being advertised, which will install scores of residential units and several five-storey unit blocks near the beach. At least the central stretch of seven-mile beach is national park, so, hopefully most of the residents of the new "luxury" development will stay close to their home units and not completely destroy the tranquility of the beach.

Copyright Enough Wealth 2007

Friday, 7 December 2007

Net Worth of PF Bloggers: November 2007

Here's the latest round-up on how the various PF (Personal Finance) bloggers who post their Net Worth each month are progressing.

Monthly Net Worth of PF Bloggers for November 2007:

Blogger Age Net Worth $ Change % Change
An English Major's Money 23 $20,776.00 $909.00 N/A
Blogging Away Debt 2x -$36,384.00 $2,699.00 N/A
Consumerism Commentary 30 $121,861.00 $2,179.00 1.8%
Debt Free 4 Ever 39 $56,800.00 $331.00 0.6%
Enough Wealth 46 $1,172,427.00 $13,522.00 1.2%
Finance Journey 25 $159,268.00 -$3,562.00 -2.2%
Lazy Man and Money 2x $214,826.00 -$14,859.00 -6.5%
Moomin Valley 42 $451,536.00 -$1,789.00 -0.4%
My Money Blog 28 $204,759.00 $14,653.00 7.7%
Savvy Saver 27 $226,833.00 -$7,301.00 -3.1%

nb. Some ages have been adjusted as follows:
exact age provided = listed as given
"20's" = listed as 2x
"early 20's" = listed as 22
"mid-late 20's" = listed as 27
and so on.

If you have any corrections, let me know as soon as possible after the post and I'll edit immediately. If it's more than a few days after the post, email me and I'll make the change the following month.

Note: Most of these figures are in USD, but some are not (eg. mine are in AUD). Also, some bloggers post combined net worth of a couple, others are single, or, like me, only post their personal net worth.

The N/A figures are either a lack of monthly data, or where I've not included % change data because the net worth is less than +/- $100K.

I've had some appreciative comments about this regular monthly post - if you like it, please link to it from your blog, or add a link to EnoughWealth to your blogroll. ;)

Copyright Enough Wealth 2007

Christmas Present Inflation (CPI) Index

Are you thinking of giving the gifts from "The Twelve Days of Christmas." to your loved one this Christmas? Think again.

According to the PNC Wealth Management, the cost of putting together this Christmas hamper extraordinaire have gone up considerably since last year:

  • a partridge in a pear tree alone will cost you around $165 a set - a 13.8% increase since 2006.
  • four calling birds about $600 compared to $480 last year.
  • labour costs (milking maids, leaping lords, piping pipers, and drumming drummers) have gone up.
  • gold and geese are much more expensive than they were last year.


In total, this year's basic "12 Days" package would set you back about $19,507. And if you give the multiple sets specified in the lyrics it all adds up to about $78,100.

Copyright Enough Wealth 2007

Wednesday, 5 December 2007

Blog Performance and Monetization Update: December 2007

READERSHIP: EnoughWealth.com

Readership continued to increase slowly during November. Although my google pagerank suddenly decreased from 4 down to 2, and then to 0, my sitemeter stats show that I'm getting quite a lot of casual traffic from a variety of personal finance search terms. Fortunately some of these casual drop ins must like what they see as my feedburner subscriptions has increased from 57 to 70 this month.

My Technorati 'authority' increased from 115 to 126 and 'rank' has improved to 50,119.

My Alexa rank has dropped very slightly from 1,261,875 to 1,177,098 but there seems to be a problem with tracking recently as there are no figures for the past week. I'm not sure how reliable the Alexa figures are, as the report for my site doesn't include any "links in" data, and my site isn't registered in OPD/DMOZ yet.

Quantcast estimate of my readership is:
Global: 2,256 uniques (~visitors) per month
US: 1,222 uniques per month
My QuantCast rank has improved from 1,017,055 to 761,374

Depite no longer posting new content to the enoughwealth.savingadvice.com site and removing several months worth of recent posts that site still gets similar visits and pageviews as before. Not mirroring posts onto that site hasn't improved my google pagerank yet (some reports suggest that pagerank only gets recalculated every three months), so I'll just leave that site dormant from now on.



MONETIZATION:

I didn't do any more PayPerPost sponsored posts this month as the reduction in pagerank to 0 meant that there are no relevant opportunities available! I also didn't get any more sponsors, although I had one enquiry.

AdBrite revenue from interstitial ads continued to be around 2c-3c per day, even though I had increased the estimated CPM rate so that AdSense ads get displayed instead of AdBrite most of the time. AdSense revenue was variable, on some days there were many clicks while on other days similar traffic wouldn't result in a single click.

Newsroom continued to accumulate revenue from display of their feeds, but the amount of revenue is negligible and there isn't much content that suits my blog. Newsroom currently pays out monthly by cheque once you hit $50 (which I won't reach for a long while), but will "soon" start making payments via PayPal.

Feedburner revenue continues to accrue very slowly from the ads that get attached to feeds of my post distributed via the IBN group.


PAID [PayPal] PENDING ACCRUED [CHQ] ACCRUED [EFT]
Advertisers: USD $270.00 - - -
PayPerPost: USD $443.25 - - -
Blogsvertise: USD $124.50 - - -
SponsoredReviews: USD $ 16.25 - - -
ReviewMe: USD $ 60.00 - - -
AdSense: - - - USD $ 38.84 [$100 threshold]
AdBrite: - - USD $ 34.96* - [$100 threshold]
Newsroom: - - USD $ 1.04 - [$ 50 threshold]
Amazon: - - USD $ 2.71 - [$100 threshold + $15 fee applies]
Feedburner: USD $ 2.12 USD $ 3.05 - -
------------ ------------ ------------ ------------
TOTALS: USD $916.12 USD $ 3.05 USD $ 38.71 $USD $ 38.84
Grand total: USD $996.72


Increase for month $13.38

As the income from Feedburner and AdSense Ads is proportional to traffic (and click through rate) this monthly income should increase over time.

EXPENSES:

Around USD$51.23 pa. The income generated is now significantly more than the out-of-pocket costs of maintaining and promoting the site.

Annual domain name registration with Dotster USD$14.95, plus $10.00 for the redirection required to have my blog hosted by Blogspot but still use my domain name.

PFBlogs "Friends" fee: USD$2.00 per month.

Google AdWords: USD$0.76 for 4 clicks. Budget is set at max. $7.80 per month, but so far only getting around 1 click per month at $0.19 per click.

Copyright Enough Wealth 2007

SMSF Update - New Trust Deed

ESuperFund (the administrator of our Self-Managed Superannuation Fund, or SMSF) has sent out a new Trust Deed for DW and I (the trustees and members of our SMSF) to sign. Apparently the recent changes to "Simpler Super" last June have made the original Trust Deed so out of date that there's a chance our SMSF could become "non-complying" and lose it's tax-benefited status if we don't update the Trust Deed. The new trust deed costs $199, which isn't a huge amount, but I would have expected it to be free since it's been less than a year since we setup our SMSF and signed the original Trust Deed. At least ESuperFund has promised to not make any additional charges if another Trust Deed update is required within the next five years.

Last year's SMSF tax return and member statements were very simple as I had only made a $200 undeducted contribution into the SMSF bank account before 30 June to check that everything was setup and working correctly. This year we have rolled over our most of our existing retirement savings from the BT fund (our employers fund) and have had our SGL and salary sacrifice "tax deducted" contributions paid into our SMSF bank account. Our employer sends these payments to BT "super choice" which then forwards them to our SMSF bank account. For some reason the SGL contributions for DW and myself get rolled together into a single monthly deposit, and the salary sacrifice amounts have also been sent through as a single transaction for both members. This means that I have to keep an accurate spreadsheet showing the breakdown of each transaction into member components, as ESuperFund will need this information at the end of the financial year in order to prepare the member statements and financial accounts.

Most of our SMSF balance has now been invested into the Vanguard High Growth Fund. By investing in a single Vanguard fund we will maximise the available fee rebate. Having only one cash account and one investment account for the SMSF also makes the record keeping much simpler. If we started directly investing in stocks or CFDs we would probably have to spend some extra money on SMSF specific accounting software. Since software such as MySF costs over $300 pa this would defeat the "low cost" rationale for setting up a SMSF in the first place.

The rollover statements for the money we transferred from BT to the SMSF are quite complicated, so I'll have to check the annual SMSF paperwork very carefully when it's produced by ESuperFund next August. It's important that all the information has been correctly transferred from BT to ESuperFund as there can be adverse tax consequences during retirement or when death benefits are paid to non-dependant beneficiaries.

Copyright Enough Wealth 2007

Tuesday, 4 December 2007

Setting Goals for 2008

As the year draws to a close it's time to review how I went in achieving my goals for 2007.

My financial goal of reaching a net worth of approx. $1.18m (based on an overall ROI of 13% plus savings) is within reach, but as my property valuation will drop a bit this month it will all depend on how the market finishes 2007. It will also help if the HR department at work finally gets it's act together and gets the arrears in my retirement contributions. With the steady raising of interest rates in Australia over the past two years, and the prospect of less stellar gains in the stock market after four years of strong results, I'm planning of reducing my margin loan balances during 2008. As I don't want to increase my taxable income too much this financial year, and have prepaid the margin loan interest until the end of June 2008, I plan on selling some stocks in the latter part of the year and using the proceeds to wind back my level of gearing.

We also completed the planned move of our superannuation accounts from BT to a Self-managed superannuation fund. Over the long term this move should save us around 1%pa in admin and management fees on our retirement savings.

My educational goals of completing 4 subjects towards a GradDipEd degree while also completing 1 subject towards my MIT weren't achieved. I ended up only completing 1 subject for the GradDipEd (assuming I pass - the results are due out on 20 Dec) and withdrawing from the other subjects (due to poorly timed bouts of the 'flu just before some major assignments were due). For next year I've enrolled in two subjects for the GradDipEd and two for the MIT. Hopefully I'll be able to get these completed. So far my rate of progress towards completing these post-grad qualifications has been glacial, as shown below:

I'm planning on completing 4 or 5 subjects each year for the next several years, which would allow me to complete both degrees in 2011.

My enrolment in the Diploma for Financial Services (Financial Planning) was a spur of the moment decision mid-year. I've completed one of the four subjects and have read through the other subjects and started work on the assessment items. I expect to finish this off sometime in January, making use of the two week break over Christmas/New Year. I may enrol in the Advanced Diploma course next December when my uni courses have finished for the year, so I have something to keep my busy poolside during the Summer vacation.

I didn't achieve my goal of losing some excess weight and improving my fitness during 2007. So next year I'll again be aiming to reduce my BMI from around 30 to less than 25. If I just cut out all junk/snack foods I should be able to lose 0.5 kg a week. I did manage to take some regular walks at lunch times, but now that the hot Australian Summer has begun I need to start swimming laps at home instead.

I didn't have any particular career goals for this year - I'm happy with my current position and wage, and with a couple of young kids I'm not keen on devoting extra hours at work to win any promotions, and don't want to change jobs in pursuit of a pay rise as new jobs inevitably require unpaid overtime while establishing yourself as an "indispensable" employee. For next year I'm just planning on staying in the current job and getting a standard cost-of-living rise in the middle of the year. I have a fair amount of annual leave accumulated, and my 8 weeks "long service" leave vests next July, so we'll probably take a four week overseas holiday towards the end of 2008, and I'll continue using some leave to take a "long weekend" every two or three weeks. In the longer term if I progress with my BTeach studies I'll see how much I enjoy the practical teaching sessions and decide whether or not I want to make a career changing into teaching when I complete my degree (around 2012).

I removed the goals widgets from the blog recently when I revamped the template. Although using the html code made it easy to update the progress each month, I found that they didn't display correctly in both IE and Firefox. So the new goals will be updated as a graphic using paint, which should ensure they display correctly in all browsers.

Copyright Enough Wealth 2007

Monday, 3 December 2007

Net Worth Update November 2007

My net worth as at 30 November increased by $13,522 (1.17%) during the month to $1,172,427 (AUD), largely due to an increase in the estimated valuation of our real estate assets which more than offset the losses in the stock market. The real estate valuations bounce around from month to month, affected by what mix of houses were sold during the month, so it's only the long-term trend that matters. The balance of my half of the mortgage increased slightly by -$89 to -$363,153 as we continue to redraw some of our advance payments to cover the interest payments while DW is working part-time (until DS2 starts school in a couple of years). This month the redraw was mostly offset by there being three fortnightly repayments falling within the month. My leveraged stock portfolios decreased by a net -$22,302 (-5.35%) to $394,653. My retirement account decreased by -$4,450 (-1.34%) to $327,873. This figure is still a bit understated (by around $4,000) due to a delay in the processing of my employer's contribution for the month of August. There's also been a slight miscalculation in the 9% SGL employer contribution for the past six weeks.

Copyright Enough Wealth 2007

Christmas Ching-a-Ling

As Christmas rapidly approaches the shoppers come out in force and are in the mood to spend. DS1 spends half an hour or so busking with his recorder at the nearby Shopping Plaza every Sunday after his piano lesson. Most weeks he makes $15 or $20 in half an hour, which he's keen to save in his bank account (He's only seven, so he doesn't have any expenses yet). Well, in the past couple of weeks his busking has earned around $40 in half and hour, and, today, he made $73 in 45 minutes (we stayed a bit longer than usual since the weather was very pleasant and DS1 was in the mood to play the Christmas Carols he had learned last month). It would be nice to have another couple of sessions like this before Christmas, but the weather in Sydney can get very hot this time of year, in which case busking isn't much fun - we'll go straight home for a swim in the pool after piano instead ;)

My mum was impressed by how much DS1 had made today, but my dad simply said "What sort of lesson does that teach him?". I guess he feels that if DS1 earns money too easily he may get an "easy come, easy go" attitude towards money. Personally, I think it's good for him to see that good money can be earned IF you're in the right job, at the right time and right place. Anyhow, he saves all the money he earns, and is quite interested in the process of banking the cash, and even takes some interest in my explanations of his superannuation fund, stock investments and tax returns.

Copyright Enough Wealth 2007

Saturday, 1 December 2007

The Role of Luck in Investing

Just as all the children in Lake Wobegone were above average, most investors would like to think that they can achieve above average results - if not now, then in the near future when they have learned the "secret" of successful investing.

In my case I started out buying my first stock investments via a full service broker (in those days there weren't any discount brokers and the Internet wasn't invented yet), generally picking one or two based on avid reading of the stock tips provided in the brokers in house "research" newsletters. After a while I noticed that the broker only seemed to advise stocks to buy and wasn't very good at telling you when to sell a stock (many years later I learned that a "hold" or "underperform" recommendation was code to get out of a stock, and that brokers had a vested interest in giving mostly buy recommendations), so I paid for a subscription to an investor newsletter that advertised impressive returns in recent years. After a while I realised that it was impossible for a small investor to follow all the trades recommended in the newsletter, so you were back to flying solo in terms of picking a few of the recommended stocks. It also turned out that "past performance is not a reliable indicator of future returns" - many newsletters attract subscribers based on a run of good "stock picks" but then fade away when their future selections fail to perform.

The next step as an investor was to read widely and try to learn how to sort the wheat from the chaff for myself. This leads one to fundamental analysis (such as p/e rations, debt ratios, book value and so on), through value investing (looking for good stocks that can be bought for a good price due to being temporarily out of favour), momentum investing (the trend is your friend), contrarian investing (the herd tends to overreact) and variations such as the zulu principle (high peg stocks), technical analysis (charting), and so forth. Some investors will fall in love with one of these approaches, generally because they have some luck with one method or another. While some investors may have the ability, skills and dedication to succeed at one of these approaches, there is great danger that one confuses luck with skill and will continue to pursue a particular strategy when it no longer works. It also turns out that what you read in company reports often isn't all that helpful. Apart from the standard ploys of including graphs of recent annual results if profits and marketshare are increasing, and using tables (or no previous results) and concentrating on "vision" statements when things aren't going so well, the financial figures can be manipulated in many interesting ways. While you may be able to discern the true situation by sifting through all the footnotes to the accounts, it can sometimes be impossible to identify when "creative accounting" is being employed.

Not knowing which, if any, investment approach will work I eventually came to adopt the semi-strong efficient market theory (with some reservations as to it's real world application in times of irrational exuberance or "the madness of crowds"). I tend now to invest with a core of index funds and only the occasional punt on a particular stock that I feel may outperform. Theoretically having a diversified portfolio of 20-30 stocks should eliminate a large amount of the risk associated with attempting to pick individual "winners" and leave you with close to market levels of risk (volatility). However, a recent article by Marcus Padley shows that luck still plays a huge role in how your stock portfolio will perform if you invest in a selection of twenty or so stocks. For example, if your portfolio of 10-20 Australian stocks picked from the ASX200 had happened to exclude BHP Billiton, this year your returns are likely to have been only 7.6% rather than the 13.85% achieved by the ASX200. In fact, excluding the top 10% (the best performing 20 stocks in the ASX200), the return of the remaining 180 stocks was -0.4%! The 20 best-performing stocks in the ASX 200 have averaged a rise of 146 per cent this year, while the 20 bottom-performing stocks have fallen an average of 36 per cent. So in any group of individual investors that pick a handful of stocks for their portfolio out of the ASX200 you would get some that do very, very well and some that do extremely poorly just by pure luck.

Copyright Enough Wealth 2007

Friday, 30 November 2007

Swings and Roundabouts

With the market recovery in the past couple of days it looks like this month's net worth figure will just manage to break even. My stock investments are still down around 5% for the month but this was offset by a jump in the estimated values for my home and investment property. Unfortunately I already have the raw data for calculating next month's house price estimates and about half of this month's real estate gain will be given back next month. Perhaps the market has bottomed out and next month will gain enough for net worth to stay relatively constant. If nothing else this is proof of the value of having an diversified allocation of uncorrelated assets.

Of course it won't always be the case that one asset class is doing well when others are struggling - I'm sure there will be periods when everything in my portfolio is doing badly, and the rare 'perfect storm' when everything is going gang-busters. In the inevitable bad times an asset allocation on the efficient frontier isn't enough to see you through, you also need to take the long term view and stick to your plan. So it's especially important to have a plan that is based on realistic expected returns (historic returns over 20, 50 or 100 years may not be replicated over your 10-20+ year investment time frame, but it's the best guess available), and which has a risk (volatility) level that matches your risk tolerance. When I get bored and want to plan around with my investment plan I take my current asset allocation, grab some historic annual returns for the past 20 or 50 years, and use a spreadsheet to simulate my portfolio using randomly selected returns. This sort of "Monte Carlo" simulation will show you what the most likely outcome of your plan is. But of more interest is to see how your portfolio might perform in particularly good or bad periods. If you translate the bad patches into prospective dollar losses you can get an idea of how hard it will be to stick with your plan in those trying times. Looking at the worst performing runs of your simulation will also give you an idea of how comfortable you would be in retirement in a likely worst case scenario. This might help motivate you to live frugally and up your savings rate a notch or two. I always figure it's better to live frugally by choice while I'm working than to have an impoverished lifestyle when I'm retired.

Copyright Enough Wealth 2007

Thursday, 29 November 2007

We'll all be 'rooned

In the 70's I was an impressionable teenager that did door knocks raising funds for the National Parks and Wildlife service, joined the World Wildlife Fund (now called World Wide Fund for Nature), and was naive enough to believe the "Club of Rome" report about how most finite resources were going to run out in the next 10-15 years...

In the 80's I first studied the "greenhouse effect" and possible global warming while at Uni doing a course on environmental chemistry. It was around that time that Greenpeace was gaining support and WWF decided to morph from an endangered species/habitat conservation society and jump on the anti-nuclear bandwagon. Since I knew that from a global environmental viewpoint coal-fired power stations were a much greater threat than nuclear power stations, I quit WWF and generally was disillusioned by the whole "green" movement. While I'm all in favour of protecting endangered species, eliminating pollution and building a society that uses finite resources more efficiently, I find that the Greens attract too many phobics - those with a dread fear of nuclear power, GMOs, and so so. There's a point where rational concern about safety and ethics turns into paranoia.

I was reminded of this when reading an article by Steve Biddulph on the SMH website today. If you want to have a chuckle, go and read this waffle. It was so reminiscent of the Club of Rome that I had to smile. I think I'll keep a clipping of this article just so I can send it to the author in 2014. While I make no claims as a futurist, I'm fairly confident that Australia in 2014 will look a lot more like it does now than that predicted by Steve Biddulph. If nothing else, I suspect that the Liberals will still be getting more votes than the Greens in 2014 - in fact I wouldn't be surprised if it was the Labor party that lost more votes to the Greens in future.

Copyright Enough Wealth 2007

Wednesday, 28 November 2007

The Moneys in the Bank

While I was very busy at work today I did manage to check on my NAB credit card account to see if the 0% balance transfer funds had come through from BankWest yet (I'd faxed the form last Thursday after my original application was apparently lost in the mail). The funds had been received in my NAB account yesterday so my account was now in credit by around $14,400 (the transfer was for $16,150 but I had some charges on the card which I'd normally pay off in full on the due date next month). I went to the nearest NAB bank branch to withdraw $14,000 and deposited into my credit union account via the Westpac bank next door. NAB only processes cash advances on a credit card as cash withdrawals, so I was feeling a bit nervous walking from one bank to the other with two envelopes stuffed full of $50 notes in my bag. I've checked my credit union account tonight and the funds haven't been processed yet. As a cash deposit I expect the funds to appear tomorrow.

Since the NAB credit card is still in credit by $400 at the moment I won't have to make my normal monthly CC payment this month, so I'll be able to use that money to top up the credit union deposit to the full balance transfer amount of $16,150. Invested at 6.6% for six months I'll make around $500, allowing for the $10 cash advance fee charged by NAB and the slight reduction of the amount invested over the six months (due to the minimum monthly payment required on the BankWest account.

The banks were quite busy at lunchtime, so I had to queue up for around 20 minutes all together in the two banks to make the cash transactions. It was funny listening to the comments of some disgruntled customers waiting in line at the bank - they generally seemed to think the bank should employ more tellers to avoid them having to queue up. I personally thought having two tellers working when there was a queue of ten people during the lunch time rush was perfectly adequate. If the bank employed more staff just to cope with the busiest hour of the day then account fees would have to be increased substantially. Of course it would be ideal to just employ tellers who worked for a couple of hours a day during the peak time, but unfortunately even casual staff don't like going to work for just 1-2 hours a day!

Copyright Enough Wealth 2007

Tuesday, 27 November 2007

Tracking Stock Trades with Covestor

Some of you may have noticed the new Covestor widget in my sidebar - it's tracking the performance of my "Little Book That Beats The Market" portfolio of US stocks vs. the S&P500 index. I came across this widget when I was reading Timothy Sykes' blog. He is using it to provide an independently verified record of his stock trades while he attempts to replicate his original claim to fame - building up $12,415 of Bar Mitzvah Gift money into $1.65 million from 1999 to 2002 through small stock trading (mainly short selling).

I'm not an active trader - even my US stock portfolio is based on buying a stock and holding it for at least 12 months before selling it and buying a replacement from the current short-list of prospects. So tracking my trades through Covestor is a bit of overkill. However, it does provide interesting information about trading performance, risk adjusted return and so on.

I may also track my Australian stock portfolios using Covestor as they seem to be setup to handle data from various stock brokers around the world. I setup my account to track the US stocks I trade via Comsec-Pershing. You can choose to enter your initial portfolio and track future trades either automatically (by providing your account login details) or 'manually' by sending a file of your latest brokerage statment and then sending in updates for future trading activity. Since Pershing didn't seem to be included on the list of brokers I'm updating this account manually. When I setup another account to track one of my Australian brokerage accounts I may try the automated method and see how well it works.

Unfortunately you have to setup a new account (using a different email address for verification) for each individual brokerage account - it would be a lot easier if you were able to setup "sub accounts" instead. Covestor also provides ranking tables showing how well the Covestor members are performing, and you can track your favourite traders, get updates of when they make new trades, and read what comments that have made about each trade. In the longer term Covestor hopes to charge membership fees for people to be able to track successdul investors, and will pass on a percentage of these fees to the members being tracked. I doubt anyone would pay to see details of my investing activities, but active traders like Timothy may attract a day-trading fan club over time.

Copyright Enough Wealth 2007

Monday, 26 November 2007

Credit Card Arbitrage Hiccups

The Bankwest "0% interest rate for six months on balance transfers" offer I received last month still hasn't been processed. I phoned last week to check why my application hadn't been processed yet, and was told it must have been lost in the mail. I faxed a new application form last Thursday (making sure to write in big letters across the top that this was in response to an offer of 0% interest for six months. The last thing I want to do is end up with a balance transfer that costs the normal, exhorbitant interest rate). If the money hasn't hit my other CC account by the end of this week I'll have to make another phone call to Bankwest.

Meanwhile I wound up paying the minimum monthly amount on my ANZ balance transfer debt twice this month. I was checking my credit union bank account online last week and noticed that the monthly $300 automatic payment was due to be processed on the 21st. As I didn't have enough in my main account to cover this payment I quickly transferred some funds across from my other "high interest" account. When I checked this morning the automatic payment hadn't been deducted from my main account, so I quickly made a manual BPay transfer of $300 to ANZ. It was only after this payment had been made that I checked the "high interest" account and realised that the automatic payments to ANZ were setup to come out of that account, and had been made on schedule last week. Oh well, it just means I'll have $300 less as a "baloon payment" when the interest free period on this balance transfer ends early next year.

Copyright Enough Wealth 2007

Losing is Lucrative

It turns out that losing an election can be financially rewarding. Ex-prime minister John Howard will get an annual pension of $345,000 a year in retirement. This is around $15,000 a year more than he earned as prime minister. He also has the option to take a $1.5 million lump sum payout, and get a reduced pension of about $170,000.

Another person who has turned making money out of losing elections into an art form is the former One Nation party leader, Pauline Hanson. She looks likely to achieve the 4% share of the Queensland Senate vote required to get electoral funding for "costs". In 2004 Hanson got $200,000 to cover the costs of her failed Senate campaign which cost just $35,426 - netting her a profit of around $165,000 for nominating and running a low-budget election campaign for less than two months. This time she is likely to make even more out of losing the election. Of course, if she'd won she would have received this funding and had a well-paid eight year term in the Senate.

Copyright Enough Wealth 2007

Sunday, 25 November 2007

Australia goes Left and Green

Labor has won a clear majority in yesterday's election - counting of postal votes is still likely to decide a couple of seats that are in doubt, but it looks like the new Prime Minister Mr Rudd will have 86 or 88 seats, giving a majority of around 11. It turned out that Labor won more seats in QLD than I had expected yesterday evening, and the Liberals didn't win any seats from Labor in WA.

A plot of majority (as a percentage of total seats) for all post-war Australian elections is quite interesting. As you can see below, yesterday's result is the best Labor has had since the first win by Bob Hawke back in the early 80's. It's big enough that Labor is likely to have at least two terms in office, which probably explains why Mr Costello has decided not to contest the leadership of the Liberal party.



As I've said previously, the policies announced during the election campaign were fairly mild. It will be interesting to see what surprises may turn up in the first Labor budget next May. Labor appealed to the green voter more than the Liberals, with promises to ratify "Kyoto" and be more pro-active about setting 'aspirational' greenhouse gas emission targets. It will be interesting to see how this pans out in the longer term, as Australia is largely dependent on coal-fired power stations and exports a lot of coal. Labor has a reasonably strong anti-nuclear policy, which means that Australia won't be getting any nuclear power generation capacity in the foreseeable future. However, their policy to not expand on uranium production for export may conflict with the increase in the use of nuclear power in SE Asian countries and China.

It will also be interesting to see how Prime Minister Rudd handles the withdrawal of combat troops from Iraq next year, while leaving anout 2/3 of the troops there for embassy security and "support" roles. The ALP is also going to keep the Australian tropps in Afghanistan, which may become the next foci of anti-war protestors in Australia. In recent weeks there have been several Australian servicemen killed in Afghanistan, and the latest fire-fight seems to have also killed some Afghan civilians. Next election we could see the "No War" protestors targetting the ALP, just as in the UK.

Copyright Enough Wealth 2007

Saturday, 24 November 2007

Labor Wins Australian Election?

Looks like the opinion polls were correct and the Australian Labor Party will win today's Federal election. Counting hasn't produced figures for WA yet, but the results from NSW and QLD look like the ALP will win enough seats to form government. I'd guess the ALP will end up with a small majority of only 2-5 seats.

The published policies of the two parties were pretty similar, apart from withdrawal of combat troops from Iraq and unwinding of the "work choices" legislation by Labor if they win. However, the big risk is that with the economy growing strongly, unemployment at 4% and inflation heading above 3%, an ALP win will result in a wages break-out, which will boost inflation. This will in turn require larger interest rate rises by the RBA. If this ends up coinciding with a global slow-down (lead by the US) it could mean Australia has it's first recession for more than ten years, and unemployment heads back up again. Unfortunately Labor policies to boost productivity by increased spending on skills training will take longer to have any impact than would the removal of Work Choices and a resurgence in union campaigns for wage rises. We'll see how things work out over the next three or four years. If Labor ends up with a slim majority and the economy runs into troubles during this period we could end up with a one term Labor government.

Copyright Enough Wealth 2007

Reverse Mortgages can be a Wealth Hazard.

A recent phenomena in the finance industry has been the increased marketing and availability of "reverse mortgage" products for retirees to access the equity tied up in their family home, without having to sell their home. However, such loans are poorly understood by many retirees. A recent ASIC survey found that almost half of those with a reverse mortgage product did not know how much the loan would eventually cost. As there are around 31,500 such loans at present in Australia, worth around $1.8 billion, this could become a big issue. Retirees often have never had access to such a large lump sum of cash before, and can be in danger of spending it all and then having to radically cut their expenses when the money runs out. The loans are not particularly cheap (around 1% more than the standard variable home loan rate) and because the lender is taking on the longevity risk (Reverse mortgages are a form of equity release that allow retirees who own their own home to borrow against the property but defer all repayments until they die or the home is sold) the loan is often fairly small compared to the value of the property. If the lump sum is poorly invested or rapidly spent then the wealth tied up in the family home can easily be consumed by accumulating loan interest long after the initial loan has been spent.

For example, one retired man in his 70s spent more than $135,000 he obtained through a reverse mortgage in only two and a half years."I've been in business all my life and never had to budget. I might have to budget now.", Another woman borrowed $50,000 "in anticipation of needing it over the next three to five years", but then invested the money in a term deposit at a lower interest rate than the loan was charged. Other retirees were recently encouraged by financial planners (who were getting commissions of up to 10%) to take out home equity loans and invest the proceeds in mezzanine financing products that offered double-digit returns. The recent collapses of Westpoint property group, Fincorp and Australian Capital Reserve left such investors with nothing. While a reverse mortgage can be a good way to provide retirees with some extra income without having to sell their only significant asset (their house), it can be dangerous given the relatively poor financial literacy of the retirees being sold these products.

Copyright Enough Wealth 2007

Friday, 23 November 2007

Children's Stock Investments

Since the market was down again today I decided to go ahead and buy some stocks for DS2. I bought 80 CSL at $32.08 and 250 CPU at $9.95. Total cost was $5,113.80 ($5,053.90 + $59.90 brokerage). While the investment is long term, it was nice to see the market recover a bit after I placed the order, so that by the close DS2's "portfolio" was worth $5,125.80, a rise of 1.4% above the purchase price.

DS1's portfolio consists of 246 ANZ shares and 438 QBE shares. The initial purchase cost $4,134.01 and is now worth $20,292.06.

Hopefully these four stocks continue to perform well over the next 10-20 years and will form the core of a stock portfolio they can add to as they grow up. If nothing else buying stocks for the kids provides a good opportunity to explain the concepts of share ownership, dividends, and compound interest. Because the accounts list their names (as trustors) they take an interest dividend statements and so on arrive in the mail.

Copyright Enough Wealth 2007

Wednesday, 21 November 2007

Picking Stock for the Kids

I bought a couple of stocks for DS1 when he was one year old (six years ago), the idea being that they would be a good nest egg by the time he leaves home. At the time the banks looked set for continued growth (a lot less certain now) so I bought ANZ bank. There was also an opportunity to buy QBE when it was marked down due to concerns about insurance liabilities after 9/11. The other reason to pick these stocks was that they had bonus share plans, which means that dividends are foregone in exchange for bonus shares. This avoids income tax issues for the child, although there will be a higher rate of capital gains tax liability as the bonus shares have a zero cost base. Since then both stocks have done quite well, although ANZ has actually underperformed the broader market slightly.

DS2 has recently turned one, so the current market downturn is a good opportunity to buy a couple of stocks for him. I'm thinking of buying either Cochlear (COH), Commonwealth Serum Laboratories (CSL), or Computershare (CPU).

Copyright Enough Wealth 2007

Tuesday, 20 November 2007

Raising the Bar (and cost) to become a Teacher

I'm currently enrolled in a Graduate Diploma of Education (Secondary Science) course, studying part time by distance education. The plan is to change careers in 3-5 years time, and spend 10-15 years as a high school science teacher as my version of "transition to retirement".

When I first had a go at doing the GradDipEd course ten years ago (I dropped soon after starting when I got retrenched from my previous job and had to work long hours getting established in my new job) it consisted of just 6 subjects and 8 weeks practical experience, and cost a couple of thousand dollars in fees. When I decided to enrol again last year the course had changed to increase the number of subjects to 8, and the cost per subject had increased substatially (to around $800 per subject). In the meantime the basis for teacher's salaries had been changed so that overall pay rates were slightly better in real terms than ten years ago, but I would actually be worse off as they no longer count years of relevant professional experience outside of teaching when working out your starting salary level.

They've now changed the course again - from next year they will require 60 days of prac teaching instead of the current 45 days. They are also phasing out the current GradDipEd course and replacing it with a Bachelor of Teaching degree from 2009, The BTeach degree will require completing 10 theory subjects instead of the GradDipEd's current 8 subjects.

I'm not too fussed by the changes, although it will mean at least an extra $2,400 in fees and an extra years to complete the course before I can apply for a teaching position around 2010 or 2011! The extra weeks of prac teaching will help me decide if I really want to become a teacher, and I was thinking of doing an extra curriculum studies subject anyhow (so that I'm qualified to teach both science and IT).

The funny thing is that I'll get the same classification (as a 'four year trained' teacher) when I do the BTeach degree as I would have with the current GradDipEd. By the time I start teaching I'll have completed a 3-year Applied Chemistry degree, and Graduate Diploma in Applied Science, a Graduate Diploma in Industrial Math & Computing, and a 3-year Teaching degree! (and I'll probably also have completed my Masters in IT by then). The starting salary will be around half of my current salary, and after 6 years I'd reach the maximum pay rate, which is about $15,000 pa less than my current wage. If I DO decide to change careers and become a teacher (I won't decide until I complete the course and see how much I enjoy the three months of prac teaching) it certainly won't be for the money.

While I don't mind the move from 45 days to 60 days prac experience, I suspect terminating the GradDipEd course and only offering the BTeach degree is being done by the University in order to get more fees out of the students. The HECS fee of $800 per subject is supplemented by the government, so the Uni receives more the $1,000 per distance education student for each subject attempted. Starting this year the Uni cancelled the residential week each semester that the DE course usually involves, as they had too many distance education students to fit on campus! Since each subject only involves providing a set of photocopied notes, 2 CDROMs and the marking of two essays (which gets farmed out to teaching assistants) the Uni will make a massive profit out of forcing all the current GradDipEd students to transfer to the BTeach course and take an extra two subjects.

Copyright Enough Wealth 2007