Thursday 31 May 2007

Keeping Up with the Uber-Joneses

One of the benchmarks I use to evaluate the progress of my net worth is to compare it to 1% of the amount required for entry to the annual Business Review Weekly "Rich List" of the 200 wealthiest Australians. Last year the cut-off was A$130m. This year it has leap up to A$180m, largely due to the mining boom and surging financial services sector. This represents an increase of 38.5% in just 12 months.

By comparison my net worth increased from A$847K to A$1.033m during 2006 - an increase of "only" 22%. So, it seems that I'm not keeping pace with the Maga-Rich at the moment. This is largely due to the fact that nearly half my net worth is tied up in Sydney real estate, which has been in the doldrums for the past couple of years, and my stock portfolio is a bit underweight the mining sector. But overall I'm still pretty pleased with the performance of my investment portfolio.

Anyhow, although the cut-off point for entry to the Rich List rose by 38%, the estimated total wealth of the people making the list only increased by 27% from A$101.5b in 2006, to A$128.6b today. It appears that while accumulating wealth get easier after you've made your first million, it starts to get harder again after the first billion - those at the top of the Rich List (excluding the miners) are growing their wealth less rapidly than the others in the list.

Enough Wealth

Frugal living: Running Your Car on Air

The Air Car runs on compressed air, managing speeds of 68 mph (109 kph) and has a range of 125 miles on one tank of air. A duel-fuel version that can use petrol-powered compressor in the country would have a range of up to 2,000 miles between refills.

The tank can be filled for around $2.00 (but only at specially equipped gas stations), or can be plugged into your home power socket to fill the tank in around 4 hours.

I'd love to see an off-road version developed based on the old Haflinger AWD vehicle (I have an old haflinger that is patiently waiting restoration). Combined with a removable air tank (so you could recharge one tank using solar power while driving with the other), I think this would be the perfect "post apocalypse" transportation. And while waiting for WWIII you could drive it around town ;)

Enough Wealth

Wednesday 30 May 2007

AU shares - portfolio update: 30 May 2007

I had planned on selling off my portfolio of Australian stocks during the next financial year to reinvest the proceeds within our SMSF, but I've decided against this course of action as the realized capital gains would minimize the benefits of shifting the investment into the tax-sheltered SMSF. Instead I'll just salary sacrifice a large part of my salary into super each year (up to the A$50K deductible contributions limit). Since I'm not planning on selling off my portfolio in the next year I've decided to prepay 12 months interest on the bulk of my margin loan balances, so that I can take the usual tax deduction this financial year. For my Comsec loan I've sent in the paperwork to prepay $100K out of the $116,612.16 loan balance, at an interest rate of 8.75%. If I have any spare income during the year (eg. from takeovers) I'll pay off the remaining $16K of variable rate loan remaining. I'll also prepay $120K of the $150K loan balance on my Leveraged Equities margin loan before the 30th June.

For the next two years I'll be supplementing my salary income with the $34K I withdrew from my superannuation account. This will allow me to salary sacrifice at a high rate for those two years. After that time I'll look at slowly selling some of my Australian stock portfolio each year to allow me to continue salary sacrifice into our SMSF. If I get enough pay rise in the next couple of years to offset the amount I wish to salary sacrifice, I'll retain the existing stock portfolio holdings until I retire, at which time I'll have a very low assessable income (under the new Simpler Super rules pension income isn't taxed after you turn 60) and I could then sell off a portion of my holding each year without accruing much CGT liability. Until 75 I would still be able to contribute the proceeds into super while drawing a pension. After 75 I wouldn't be able to contribute into my own super, but I could start to contribute any excess funds into the super accounts of DS1 and DS2. Under current rules up to $150K a year of undeducted contributions could go into each of their accounts each year. As they will be in their 30s by that time I don't expect that they would be contributing that much into their super accounts yet.

All this planning assumes that the superannuation tax rules don't change much in the next 30 years - a most unrealistic assumption! This plan will obviously have to be updated as the rules and our financial situation changes over time.

Current holdings:

Leveraged Equities Account (loan balance $150,000.00, value $316,303.73)
stock qty price mkt value margin
AAN 295 $15.22 $4,489.90 70%
AEO 1,405 $2.04 $2,866.20 65%
AGK 510 $15.32 $7,813.20 70%
AMP 735 $10.01 $7,357.35 75%
ANN 480 $12.00 $5,760.00 70%
ANZ 1,107 $28.78 $31,859.46 75%
BHP 748 $31.06 $23,232.88 75%
BSL 781 $11.27 $8,801.87 70%
CDF 6,943 $2.02 $14,024.86 70%
CHB 118 $51.01 $6,019.18 65%
DJS 2,000 $5.13 $10,260.00 65%
FGL 3,751 $6.27 $23,518.77 75%
LLC 481 $19.82 $9,533.42 70%
NAB 316 $42.40 $13,398.40 75%
QAN 2,175 $5.06 $11,005.50 70%
QBE 983 $31.56 $31,023.48 75%
SGM 830 $27.08 $22,476.40 70%
SUN 963 $21.16 $20,377.08 75%
SYB 2,880 $4.37 $12,585.60 70%
TLS 5,000 $4.78 $23,900.00 80%
TLSCA 3,000 $3.31 $9,930.00 80%
VRL 1,500 $3.20 $4,800.00 60%
WDC 783 $20.77 $16,262.91 75%

Comsec Account (loan balance $116,612.16, value $229,848.59)
stock qty price mkt value margin
AGK 240 $15.32 $3,676.80 70%
AAN 139 $15.23 $2,116.97 70%
APA 4,644 $4.22 $19,597.68 70%
ASX 200 $48.39 $9,678.00 70%
CBA 130 $55.03 $7,153.90 75%
CDF 43,997 $2.02 $88,873.94 70%
IPEO 54,000 $0.019 $1,026.00 0%
IPE 8,000 $0.995 $7,960.00 60%
IFL 1,300 $10.25 $13,325.00 60%
LDW 1,350 $7.81 $10,543.50 0%
NCM 300 $21.68 $6,504.00 60%
OST 2,000 $6.52 $13,040.00 70%
QBE 607 $31.60 $19,181.20 75%
RIO 60 $94.55 $5,673.00 75%
THG 4,000 $1.02 $4,080.00 50%
WBC 300 $26.03 $7,809.00 75%
WPL 220 $43.68 $9,609.60 75%

Changes to portfolio since last update:

I sold my Qantas shares on the market for $5.39 on the last day before the takeover offer closed. I guessed correctly that the APA offer would fail to reach the required acceptances to proceed, and over the next few days the QAN share price dropped, as had been expected. However I had expected the price would drop to under $5.00. In fact the stock price has since increased after the Qantas management released an upbeat assessment of their prospects, and is now trading around $5.60. The proceeds of the sale reduced my loan balance below the $150K I had prepaid interest on for this financial year, so Leveraged Equities automatically moved the surplus amount into the linked Cash Management Account so I'm at least getting some interest on this bit of borrowed money.

My AMP holding increased by 15 shares due to a dividend reinvestment. I no longer enrol in DRP for new stocks I buy as there is little if any price discount and the hassles of keeping records for CGT calculation outweighs the benefits. I simply use dividends to help pay the interest on my margin loans.

My QBE holding increased by 17 shares due to a dividend reinvestment.

My SUN holding increased by 113 shares due to a Share Purchase Plan offer I took up.

My SYB holding increased by 32 shares due to a dividend reinvestment. This company is currently subject to a take over offer, which pushed the price up from $3.70 to $4.37. As the offer is a cash plus stock mix I may decide to sell my holding on the market rather than accept the offer.

Enough Wealth

Tuesday 29 May 2007

Is it Better to Invest 100% in Stocks or to Gear a "balanced" Portfolio?

I happened to come across the website for Shearwater Capital the other day. Their investment approach seems sensible and their published fees reasonable, but that isn't what caught my eye. I was more interested in their model portfolios and using the data on the 20-year performance to evaluate the effectiveness of gearing as an investment strategy.

Looking at their "Aggressive" portfolio (80% stocks/20% bonds, which is similar to my target asset allocation) you have a Twenty Years Annualized Return of 12.3% with a Thirty Three-Year Model Annualized Standard Deviation 11.8%. The "Very Aggressive" portfolio (100% stocks) has a Twenty Years Annualized Return of 13.7%, but the Thirty Three-Year Model Annualized Standard Deviation shoots up to 14.6%.

This shows that, as can be expected from modeling of the efficient frontier of a portfolio composed mainly of stock and bonds, the optimum return-risk outcome is achieved from a portfolio comprised mostly of stocks, but with some bonds included. The mix within the stock component is usually around 60% domestic:40% foreign, although in various ten-year periods you would have done better with the opposite ratio (so a 50:50 split may be a good bet).

Moving from the "Aggressive" to "Very Aggressive" asset mix boosted returns by 11.38%, but the "risk" (variability of returns, as measured by the Standard Deviation) increased by 23.73%.

For this reason, if you are seeking higher returns over long time periods, it seems a better strategy to use gearing of an "Agressive" portfolio, rather than moving to a "Very Agressive" portfolio.

Taking the Twenty Years Annualized Return of the "Very Conservative" portfolio (100% bonds) as a proxy for the interest rate cost of gearing (via margin loans or a real-estate backed investment loan such as a HELOC), one can make a rough estimate of the Twenty Years Annualized Return and Thirty Three-Year Model Annualized Standard Deviation that would result from a 100% geared (50% LVR) "Aggressive" portfolio:

20-year 33-year
Annualized Annualized
Return Std Devn
Ungeared "Aggressive" 12.3% 11.8%
Estimated Cost of Loan 5.9% 2.4%
Estimated 100% geared 18.7% 23.6%
Estimated 22% geared 13.7% 14.4%
Ungeared "Very Aggres." 13.7% 14.6%

Using gearing could therefore increase your average returns by 52.03% at the cost of increasing standard deviation by 100%. This is somewhat better than shifting your asset allocation from "Agressive" to "Very Aggressive". However, the absolute "risk" has increased 100% compared to 23.73%, so the strategy of making use of 100% gearing ratios should probably be called "Hyper Aggressive". A more modest use of gearing (say, 22%) would produce similar average return as a "Very Aggressive" asset allocation, but with a slightly lower standard deviation.

It was interesting to see that the returns for the 100% geared "Aggressive" portfolio are very similar to the long-term increase in value of my own investment portfolio. When I started out I didn't use gearing and had a more conservative asset allocation, but this was offset by the relatively large impact my savings had at that stage. These days my savings have a more modest impact on my overall increase.

One final note, when using gearing the cost of funds (interest rate and any annual fees) can have a major impact on the long-term performance of this strategy, so it is worth shopping around.

Enough Wealth

Get A Perpetual Income Stream for just 3% of Salary

What happens if you save "too much" for your retirement, as a recent MSN Money Article suggested was a possibility following conventional financial planning "rules of thumb" such as the 4% retirement withdrawal rate? Nothing too disasterous it turns out - just an accumulation of wealth and a perpetual income stream for our descendants, and/or a legacy to leave to one's favourite charity.

Plugging some "typical" figures into a retirement savings planner from AMP, it turns out that someone on a reasonable salary of $50K from 20-65, who saved the 9% SGL plus an extra 3% via salary sacrifice would end up with a retirement income of $33,333 that would last well beyond their expected life span - until the ripe old age of 150 years!

Calculator data entered:

Current retirement savings $ 0
Your age now years: 20
Your expected retirement age years: 65
Expected annual contribution increase: 3%
Expected rate of return before retirement: 8%
Expected rate of return after retirement: 7%
Expected annual inflation rate: 3%
Current gross annual salary $ 50,000
Your yearly contribution: $ 0
Your employer's yearly contribution: $ 4,500
Yearly retirement income required (% of current salary): 65%

Amount saved upon retirement $ 2,217,233 ($ 586,322)
Which would provide the required retirement income of $33,333 until age 94, which is considerably more than the expected life expectancy (81 years for a male).

But wait, just saving an extra 3% of salary each year via salary sacrifice (ie. pre-tax) would result in the following:
Amount saved upon retirement $ 3,086,723 ($ 816,249 in today's dollars)
Will last almost indefinitely (until over 150!)

Any higher savings rate would result in the retirement account actually accumulating wealth during retirement at a rate greater than 65% of pre-retirement income, so you would leave a perpetual income stream for your descendants.

In reality you're unlikely to get a steady 8% return pre-retirement and 7% during retirement, even if you invest in an asset allocation that is expected to average these rates. Similarly, inflation won't stay at 3%. For these reasons most people will choose to be conservative in their modelling, and the chances are good that you'll end up with an even larger perpetual income stream, plus the ability to draw a larger income stream during your retirement years.

Enough Wealth

Monday 28 May 2007

Blog Monetization: PPP Direct

I already monetize this blog with the occasional reviewme or payperpost sponsored blog advertising, although it's hard to find many opportunities that are relevant to personal finance/investing and that I'm happy to post about (either good or bad). A new method of getting paid to do reviews of products or websites/blogs is being released by PayPerPost - their new "direct" widget. This will enable potential advertisers who come across my blog apply to get a review/post done by me at the price I have specified. PPP will only be skimming off 10%, of which 5% goes to transaction fees for PayPal and credit card processing. In contrast other similar services can cost 40-50% of the fee paid by the advertiser. However, in the PPP Direct model the advertiser has to be visiting your blog when they decide to make a request for a specific blog post, so you've already done most of the "leg work" in sourcing the advertiser. I still think it's worth the 10% fee though to have my "rate" and the admin of handling post requests and getting paid all done by the PPP system. I've had the odd advertiser directly email me for a quote, and getting things organised this way can be a hassle. ReviewMe on the other hand charges a much higher "fee", but advertisers will have found you via the categorised blog directory maintained by them, so they have really "sourced" the advertiser for you. I'll have to wait and see whether any advertisers approach me via the PPP Direct widget.

Enough Wealth

Surrounded by Million-dollar Suburbs

Although it hasn't yet broken the million-dollar mark for average house prices, the area in which we have both our home and our investment property (coloured green in the diagram below (adapted from a recent SMH article) is surrounded by suburbs where the average house price is now over A$1m. This is quite reassuring as in Sydney it seems that the higher-priced suburbs have been the most resilient in the recent property downturn, and over time experience the greatest gains. Apparently while it is hard for the average worker in Sydney to afford a house with average prices approaching the half-million dollar mark, executives working for investment banks are awash with cash and snapping up any multi-million-dollar houses that come up for sale.

Enough Wealth

Sunday 27 May 2007

Contented Retirement is a State of Mind

Canadian Financial Stuff has a post Retirement? Not Likely for me that seems to suggest that only the baby boomer generation will be lucky enough to get to enjoy a real "retirement". I must admit that I think this view comes from a perception that most modern consumers combine of lack of taking ownership for their own retirement funding with an inflated expectation of what lifestyle retirement should offer them. From personal experience "retirement" has been enjoyed by most people in the developed countries for the past couple of generations, and isn't about to disappear for anyone that makes a serious effort during their working lives to fund their retirement years:

My grandfather was a plumber, retired at 65 and lived on the UK government pension until he died at age 92 - 27 years of "retirement".

My father was an pilot, retired at 58 and lives as a self-funded retiree. He's 75 and going strong - so far 17 years in "retirement".

I'm a scientist/middle manager, and will probably be able to "retire" any time after 58, though I'll probably choose to work 'til 65 or 70, and then spend my time managing my investments. Hopefully I get to spend 20-30 years in retirement.

My kids already have retirement funds setup by me, and adding a thousand dollars a year into their accounts from birth until 18 will mean they're very likely to be able to "retire" any time after 58 that they choose, without having to sock too much away during their working lives. I've no idea how long they'll spend retired. Advances in health care may extend their healthy lifespan so much that retirement is postponed indefinitely by choice. Adding just a few extra years to your working life makes it MUCH easier to accumulate enough for a very comfortable retirement lifestyle - just compare the results you get from any retirement calculator with a retirement age of 60 vs. 65 or 70...

I think the only thing stopping many people in the current and future generations in the developed world from having a comfortable retirement will be "consumption inflation". Like locusts many modern consumers gorge on current consumption and put nothing aside for their own retirement.

Another aspect is that people these days often aim for a "lifestyle of the rich and famous" in their retirement. In my grandparents day all you needed for a "comfortable" retirement was a one bedroom house with a roof that didn't leak, enough money for food and utilities, and membership of the local library and church. Throw in a radio and a small garden to tend and they were more than happy. These days this existence would be labelled as living "below the poverty line"!

Enough Wealth

Frugal living: Computer Games

Yesterday I discussed saving money by buying good quality, used computer hardware. Computer software is another area where there is a huge saving to be made by not buying the latest and best. Today I bought three computer games for my new PC - Doom III, European Air War and Lords of the Realm III. As these originally came out several years ago, they were available brand new from the store for prices of $5, $10 and $20. Two of them work just fine under Vista, although European Air War had a glitch with the mouse when running, so I'll have to check if there's a patch available. Overall, these are still great fun, and I can't see the point of buying the latest releases that are on sale for $70 or more.

Enough Wealth

Friday 25 May 2007

Frugal living: Computers

After yesterday's fiasco trying to get a clearance sale 17" LCD monitor from DSE, today I decided to check the yellow pages for suppliers of used computer equipment. There was one located close to our home, so I called them to check on prices for 2nd hand monitors. They quoted $20 for a 17" CRT, $50 for a 15" LCD and $90 for a 17" LCD. They only had a CRT in stock, so I decided to pick that one up at lunch time and drop it off home for DS1 to be able to use his old PC again over the weekend, while he's still very enthusiastic working through the Kid's programming tutorial in QBasic.

Although the CRT was ex-lease, it was in excellent condition and the picture quality is superb. As his PC is located on a PC workstation unit there is plenty of room for the CRT on top of the computer, so an LCD really wouldn't have been any advantage. I asked the supplier to contact me when an LCD screen does become available, as I'd still like to add a second screen to my Dell PC in my loungeroom, so I can track CFD trading on the small screen while playing games or browsing the pf blogs on the main screen.

They also have ex-lease computer systems available from time to time, so I'll eventually pick up a "new" 2nd-hand PC for DS1 to use when he's getting towards high school age. Although I've been guilty in the past of buying bleeding-edge technology and paying top dollar for the latest computer gear, it's really much more sensible to buy ex-lease equipment in good condition that is only a couple of years old.

Enough Wealth

Wi-Fi at Last

The setup and configuration of the Belkin Wireless Router attached to my cable modem and Dell PC went *relatively* painlessly. After moving the cable modem from my Laptop to the Dell and checking that it was working OK (after power cycling the modem to get it to recognise the new system), I simply plugged the modems ethernet into the Belkin router and connected the router to the Dell PC using the supplied ethernet cable. The internet worked on the Dell via the router, so I then connected the supplied Belkin configuration webpage and setup security settings for my router. The router rebooted with the new settings and everything was working OK on the Dell.

Next I installed the Belkin software on my Laptop and was able to then connect the USB adapter. I had to muck around a bit getting the network connection working (initially it found a Linksys wireless network with a signal strength of 40%, which soon dropped off and disappeared. I guess this was a Wi-Fi network from one of the neighbours!). After a bit of mucking around and a reboot of the Laptop my Belkin network was identified and the Laptop showed that the connection to the router was working, but not the connection to the internet. A few cycles through powering everything down and up again, and rebooting the laptop eventually got everything working OK. It seems that the Norton Security only recognised and permitted the new network connection when I rebooted the Laptop after the connection to the network was working OK.

Eventually everything was working OK, with both the Dell and the Laptop having access to the internet. Now my only problem is why Firefox loads OK on the Laptop but freezes up every time I try to access that page on the Dell (Firefox accesses other websites via the Dell fine). Oh, and the fact that every now and again Vista seems to lose the cable modem internet connection and can't reconnect (it seems to be trying to do a dial up to a cable connection!) - so I have to power cycle everything to get things working again. And that the version of IE that came preinstalled on the Dell includes to Google toolbar, and when I installed the Alexa toolbar it seems to be doing strange things (its seems to be referencing a blank 'page' above the main browser page, rather than getting info on the page you're currently viewing...

Anyhow, overall it's been one of the less painful network setups I've done (then again the last one I did was an mixed PC and mac ethernet wired network ten years ago - things have got more plug 'n play since then).

Enough Wealth

Thursday 24 May 2007

Disappointed and Annoyed

DS1 needs a new monitor for his old PC, and I would like to add a second monitor to my new Dell PC, so I checked out what monitors were available from local electronics shops via the internet. I thought it was my lucky day when I saw that Dick Smith Electronics have a 17" HP LCD monitor on clearance sale for only $90 (this size LCD monitor is usually around $300 in Sydney). The website listed the Warringah Mall "Superstore" as an outlet that had some in stock, and I phoned them from work this afternoon to confirm that they still had some in stock. After checking the front desk advised that there were three in stock at the moment (4pm), so I decided to go there straight after work to buy one or two of these monitors (DSE is open until 9pm on Thursday nights).

When I got there and enquired in the computer section about the monitor, I was told that in fact there was only one broken monitor in the repair section, and that the other two were "missing" ie. stolen. When I complained about the fact that I'd been told over the phone that there were three in stock I was told that their inventory system didn't adjust for broken or pilfered stock! I told them that they should tell the front desk that this item wasn't available. The best they could do was to promise to pass on my complaint to the Computer Section manager.

This really pissed my off, and I will phone the store again tomorrow to see how many of these monitors they say are available then. If they still advise three are in stock I'll contact the store manager or owner and make another complaint. I've had bad experiences with inventory control at another Dick Smith Electronics store previously. When a game that I wanted that was on special was out of stock in one store I got them to phone around and see if it was available in another outlet. They finally tracked one copy down in another store, and that store "put it on hold" for me in the stockroom. However, when I drove all the way there to collect it later the same day the game was nowhere to be found! It was only after waiting for half an hour and eventually getting three different staff to search the stock room that it was finally located "on the wrong shelf"!

I have a sneaking suspicion that whenever DSE has some bargain items on sale, the staff tend to put some aside in the back room for their friends to buy the next weekend. Either that or the company has a "bait and switch" policy in operation.

While I was at the Mall I went in to a different electronics store (JB Hi-Fi) and purchased the Belkin wireless router and USB adapter I need to connect both my new PC and my old laptop to the internet via my Optus cable modem. I had ordered the same gear online from last month, but it never arrived, and Mitec stopped taking new orders on the 12th, so it seems that they are going out of business. They haven't replied to my email enquiry about my order, so I'm assuming that it will never arrive.

Hopefully setting up the wireless router and getting my internet to work over the wireless network will not be too much of a hassle this evening...

Enough Wealth

Wednesday 23 May 2007

A Cautionary Tale

Many people like to lend a helping hand if they are able, especially when it comes to close family members. But financial assistance may be ineffective if you don't fully understand the situation of the person you've helping out, and how they'll react to their new situation. When you're helping out relatives you don't want to pry into their finances, but I'd advise making the effort to make discrete enquiries, even if it seems a bit awkward.

As an example, my grandfather changed jobs shortly before he was due to retire (in order to move back to the region his wife and he had lived when they were young). Unfortunately this meant that he didn't qualify for a pension from the company he had worked at for over thirty years, and instead had to rely on the government old age pension. As my grandparents didn't own their own home, my father decided to buy a house for them to live in, thinking that this would substantially boost their living standard in retirement. Later on, one of my grandparents had to move into a nursing home for several years while other other one continued to live in the house my father had bought them. It was only after my grandparents had both passed away that my father found out that the nursing home fees would have been paid for by the government if my grandparents had no substantial assets. However, because of my father's generosity they had managed to save a substantial portion of their government pension for many years (without telling anyone), apparently hoping to leave something to their kids and grandchildren. This had meant that they were required to pay the nursing home fees themselves, until all their savings had been used up. So, due to a lack of communication my grandparents hadn't gained any benefit from my father's financial help (if they'd spent part of their pension on rent they wouldn't have had to pay the nursing home fees), and the end result was simply that my father's money was tied up in a country house that didn't appreciate at all in value, when it could have been more effectively invested elsewhere.

Enough Wealth

Tuesday 22 May 2007

The Good Old Days

Nostalgic references to "the good old days" have long been a bit of a joke (eg. see "The Good Old Days Skit" from the 'At Last the 1948 Show', 1967*.) But just how good we have it these days compared to our grandparents time (and before) was again brought home to me when I was browsing through the latest annual HILDA** report and came across this data on how much time off work Australian full-time workers typically had in 2006. Looking at those workers who had been in their current job for more than 1 year (and were thus entitled to the usual 20 days paid annual leave), the typical full-time worker took 16-days of paid leave, plus another 3 days of paid sick leave and a couple of additional days of "other" paid leave (eg. workers compensation). This means that, combined with the 10 days paid public holidays we have, the average Australian full-time worker worked around 229 days in 2006. (And they also accumulated 8.3 weeks of "long service" leave if they stayed in the same job for ten years.)

With the average working week being around 37 hours in Australia, this means full-time workers clocked up a total of 1,695 hours in paid work during 2006. This translates to spending 29% of their waking hours in paid work during their working years. With the average retirement age being around 58, this means a "typical" worker might work a total of just over 15% of their total "waking hours" during their entire lifetime, assuming they started full-time work at 20 and lived until 72. Of course, some people work at lot more than 37 hours a week, and don't take time off work for holidays - but the HILDA figures show that as many people took more than 20 days leave in 2006, as took less than 10 days leave.

Some people may still think that this is a large chuck out of their valuable time, but most people get some enjoyment from their work, even if it is just from the social contact with co-workers. In comparison, my grandfather started working "down the pit" in South Wales when he was 15. In those days you worked a twelve hour shift at the coal-face, had to walk for an hour before and after work to even get to the coal face, plus time spent walking from home to the mine. Oh, and they also worked a six-day week with only Sundays off and few (if any) public holidays. No wonder he jumped at the chance to do a plumbing apprenticeship in London when he got the chance!

If nothing else, history provides a sense of how well off people are these days (at least in the developed countries).

Enough Wealth

** The Household, Income and Labour Dynamics in Australia (HILDA) Survey report from Melbourne University.

* Just in case you don't have a copy of "The Golden Skits of Wing Commander Muriel Volestrangler FRHS & Bar" handy, I'll append it here - its only 2 and a bit pages out of a 128 page book, so we'll call it "fair use" for educational purposes, shall we?

The Good Old Days Skit
by MV, Marty Feldman, Graham Chapman and Tim Brooke-Taylor; 'At Last the 1948 Show'. 31 October 1967

It is sundowner time at a tropical paradise. Four north-countrymen, in late middle-age and tuxedos, sit contemplating the sunset. A dusky waiter pours some claret for one of them to taste.

Joshua ...Very passable. Not bad at all.

The waiter pours the wine for the rest of them, and departs.

Obadiah ...Can't beat a good glass of Chateau de Chasselas, eh, Josiah?

Josiah Aye, you're right there, Obadiah.

Ezekiel ...Who'd have thought ... forty years ago ... that we'd be sitting
here, drinking Chateau de Chasselas ...?

Josiah Aye! ... In those days we were glad to have the price of a cup of tea.

Obadiah Aye, a cup of COLD tea ...

Ezekiel Without milk or sugar.

Josiah OR tea ...

Joshua Aye, and a cracked cup at that!

Ezekiel We never had a cup ... We used to drink out of a rolled up newspaper.

Obadiah Best we could manage was to chew a piece of damp cloth.

Josiah But y'know ... we were happier in those days, although we were poor.

Joshua BECAUSE we were poor ... My old dad used to say, 'Money doesn't bring
you happiness, son.'

Ezekiel He was right! I was happier then and had NOTHING. We used to live in
a tiny old tumbledown house with great holes in the roof.

Odadiah A house! You were lucky to have a house. We used to live in one room,
twenty-six of us, no furniture, and half the floor was missing. We
were all huddled in one corner, for fear of falling.

Josiah You were lucky to have a room! We used to live in the corridor.

Joshua Ooooh! I used to DREAM of living in a corridor. That would have been a
palace to us. We lived in an old water tank in the rubbish tip. We were
woken up every morning by having a load of rotting fish dumped on us.
House, huh!

Ezekiel Well, when I said HOUSE ... it was only a hole in the ground covered by
a couple of foot of torn canvas, but it was a house to US.

Odadiah We were evicted from our hole in the ground. We had to go and live in
the lake.

Josiah Eee! You were lucky to have a lake. There were over 150 of us living in
a small shoe box in the middle of the road.

Joshua A CARDBOARD box?

Josiah Yes.

Joshua You were lucky. We lived for three months in a rolled-up newspaper in a
septic tank. We used to get up at six, clean the newspaper, eat a crust
of stale bread, work fourteen hours at the mill, day-in, day-out, for
sixpence a week, come home, and dad would thrash us to sleep with his

Obadiah ... Luxury! We used to get out of the lake at three, clean it, eat a
handful of hot gravel, work twenty hours at t'mill for twopence a month,
come home, and dad would beat us about the head and neck with a broken
bottle, IF we were LUCKY.

A pause.

Josiah ... Aye, well, we had it TOUGH. I had to get out of the shoebox at
midnight, lick the road clean, eat a couple of bits of cold gravel,
work twenty-three hours a day at the mill for a penny every four
years and when we got home dad would slice us in half with a bread-

A longer pause.

Ezekiel Right ... I had to get up in the morning at ten o'clock at night half
an hour before I went to bed, eat a lump of poison, work twenty-nine
hours a day at t'mill and pay boss to let us work, come home, and each
night dad used to kill us and dance on our graves, singing.

A very long pause

Joshua ... Aye, and you try and tell the young people of today that, and they
won't believe you.

Frugal living: Kids education - programming

DS1 has a keen interest in computers and is a good reader for his age (7), so I thought I'd have a go at teaching him computer programming. I quite like QBasic as a programming tool as its very quick and easy to type in a few lines of code and immediately run it to see what happens. There wasn't QBasic installed on my laptop (running Windows XP) so I downloaded off the internet. Microsoft made QBasic public domain last century, so there are plenty of places to download it, here for example. Next step was to find a suitable programming tutorial for a seven year old. One that seems quite good is QBASIC Programming for Kids by Ted Felix. I helped DS1 work through the first six chapters last night, and he was so keen that he then sat down and read through the remainder of the 55-pages of the book on his own before he went to bed! Tonight he worked through Chapter 7 and I then gave him a simple programming assignment based on the first 6 chapters to help reinforce yesterday's lessons. Here's his first "very own" computer program:

INPUT "Enter your name: ", Name1$
INPUT "Enter your mothers name: ", Name2$
PRINT Name1$, "loves ", Name2$

DS1 seems to love computer programming - kids are empowered when they can do something "grown ups" do, and the computer has infinite patience while he slowly picks out the commands on the keyboard and fixes his typos. DS1 also loves to play the game LUDO with his grandparents, so I've told him we'll work together on a project to create his own computerised version "QUDO" once he's worked his way through all the exercises in the QBasic tutorial. QBasic has sufficient ability to handles graphics and sound to make such a project feasible, and the way Ted Felix has organised the tutorials provides an "object oriented" and structured approach to programming. (He doesn't even mention the dreaded "GOTO" command except in reference to error handling!).

All in all, provided you already have a computer, you can provide your kid with a good entry-level course in computer programming for $0. Ted recommends kids start off with LOGO first, and then progress to QBasic when they're around ten. DS1 had no trouble leaping straight into QBasic, but his reading is a couple of grades ahead of his class average, so most kids would probably enjoy this course when they're 8-10 years old.

Later on there are plenty of more advanced tutorials available on line that can be used to learn game design, 3D graphics, animation etc. When the limits of QBasic are reached it is easy to migrate to Visual Basic.

Enough Wealth

The Routerless Wireless Router

Setting up my home network with my new Dell PC is taking longer than expected. I had ordered a Belkin Wireless router and USB adapter combo for $112 from an online supplier, and originally had a delivery ETA of 5th May. After that date had come and gone I chased up the supplier and was advised that the new ETA for the equipment to arrive from their wholesaler was 18th May. As it still hadn't arrived last Friday I thought I'd check with their online order tracking service to see if there was an updated ETA for delivery. The tracking page gave a "page not found" error (a *very* bad sign), so I went to the companies home page. Apparently they stopped taking new orders on the 12th May, and are working their way through old orders that are outstanding. I sent another email checking on the status of my order, and hope to get a reply tomorrow. At least my initial payment for the order (via Paypal) never was finalised - Paypal initially confirmed my payment, but then cancelled it three days later when the "eCheque" money transfer from my bank account into Paypal was declined (I'd forgotten that I can only transfer funds from my Paypal account into my bank account, not vice versa). This means that possible outcomes are:
1. I get sent the equipment and the supplier never gets around to invoicing me because they're going out of business.
2. I get sent the equipment and they invoice me for the outstanding balance - which I'll be happy to pay by CC once I have the goods.
3. I never hear from them and end up having to buy the wireless router from some other supplier.

None of these options are terrible - although I'd like to have setup my home network a couple of weeks ago. If the original payment via Paypal had gone through OK, I'd be in the unhappy position of having paid for goods and never receiving them. Trying to get money refunded by Paypal is a financial adventure I'm happy to do without.

Enough Wealth

Banking Black Holes

The $200 I transferred direct from my Credit Union account into my new ANZ "V2 Plus" account that was recently set up to receive contributions into our Self-Managed Superannuation Fund (SMSF) has disappeared (temporarily I hope). Although there's often a three day "hold" on funds transfers between different financial institutions in Australia, this is usually manifest as a difference between the "account balance" and "available balance" figures for the destination account ie. the funds immediately disappear from the source account, and generally appear in the destination account the next day, but aren't available until the three day holding period expires. It seems odd that the $200 I transferred last Thursday hadn't appeared at all in the ANZ account yet - if it doesn't turn up tomorrow I'll have to phone ANZ to try to work out where the money has gone. It raises an interesting side issue - at least when transferred funds appear immediately but are "unavailable" you still earn interest on the money during those three days. With funds that disappear for three days someone else must be earning interest on my money in the interim.

Enough Wealth

Monday 21 May 2007

Adventures in Day Trading - 13

Lucky 13! I dived back into forex trading with the last $700 out of my initial $2000 kitty. I lost a quick $135 on a sudden move the wrong direction, then bought the AUD at 0.8251 which was close to the bottom of recent trading ranges. I hung on through a couple of down turns to under 0.8200, but today the bottom dropped out of the AUD (or the USD suddenly gained support - I never know which until after the event), and CMC Markets automatically liquidated my position when my account balance dropped to less than US$200. I can't trade even a $50K position with a balance under A$500, so I won't be trading for a while, if at all. My initial plan was to "play" with $1000, but I soon had to add in another $1000 in order to trade, after my initial quick losses. If I add further funds in I'm in danger of throwing good money after bad - and developing a gambling addiction! The total loss of $2000 isn't material to my overall net worth, but it is still significant (and unpleasant). I took me a lot longer to decide to spend $1800 on a new computer system than it took to lose a bigger amount day trading. Day trading is definitely playing with fire.

Enough Wealth

Movie Preview: The Bug

It's a bit hard to do a review of a movie you haven't seen yet, but the new bug movie from Lionsgate Films looks interesting. The two posters I've seen (shown below) are attractive, with the black and white one having a vaguely Hitchcock feel about, with a reasonably subtly visual reference to a bug in the portrait of Ashley Judd, who stars in the bug movie. I'm less enticed by the second poster image, as the double exposure human face looks more evocative of a ghost movie than a sci-fi/horror flick.

The movie trailer on YouTube suggests that this movie will be an eerie combination of the alien invasion, psychotic killer and plague movie genres. As a great fan of movies such as Alien, The Blob, and similar sci-fi horror movies I'm sure I'll enjoy watching this movie. However, I'll most likely take my usual option of waiting until the movie gets released onto DVD rental, and then buying an ex-rental DVD to watch at home and add to my collection. I'm not sure that DW will like the movie - although she quite enjoyed the remake of War of The Worlds, she only watches horror movies when I'm sitting close by (to be grabbed during the scary bits). It also doesn't look like the sort of movie that I'll let DS1 watch. He got through War of The Worlds without any problems (it seems that the vapourising of people was too detached from the everyday to be frightening for a six year old), but he gets scared and refuses to watch parts of Harry Potter movies. I definitely think this sort of atmospheric horror movie would be unsuitable for young kids (hence the R-rating), but I'm sure most teenagers would think its a hoot.

Enough Wealth

Sunday 20 May 2007

Why the First Million is the Hardest

I don't know where the expression comes from originally, but I'm sure most people have heard that "the first million is the hardest". The funny thing is that when you're starting out on the road to accumulating wealth, it somehow seems to be a bit of a put down - you think it's just a throw-away line of the mega-rich, along the lines of "Let them eat cake!" Of course, it's easier to save once you have a million dollars and are living on easy street!

However, once you get closer to having $1m net worth you realise that this truism, like so many in personal finance, does actually encapsulate some fundamental truths.

Some reasons why it really is true that "the first million is the hardest":
* When you start out, your income is generally at the lowest point of your working life. So even saving 25% of your gross income will only build up your net worth very slowly. For example, I started full time work on a salary of under $20K, so saving 25% of my gross salary only added $5,000 to my net worth over one year.
* When you start out you generally know very little about investing. Even if you study some economics and financial analysis subjects in High School or University, you often won't gain a practical knowledge until you've been "hands on" investing for several years. When I started saving I was focused on bank savings accounts, and slowly progressed through government savings bonds, term deposits, and later into shares and property investment.
* When you're starting out you have smaller amounts to invest. This makes many avenues of investing unavailable or uneconomic. Although things are much better these days than when I started out - the advent of the internet and discount brokers has made many more types of investment accessible to beginners.
* Once you have a substantial investment portfolio built up, the "passive income" flowing from your investments becomes a large component of your "savings" in relation to your salary income. However, this only holds true if you stick to "reinvesting" your investment income, rather than using it to supplement your lifestyle spending.
* Some aspects of financial planning such as asset diversification and efficient asset allocation ("efficient frontier") only become applicable when you have larger amounts to invest.
* Any "emergency" that causes you to dig into you savings will have a much larger impact on your net worth when you are starting out. Conversely it is much more important to pay for various types of insurance when you are starting out - for example, starting a family it is important to have life insurance in case the main bread winner dies unexpectedly. Later on, the expensive of life insurance may be avoidable if you have paid off the mortgage, the kids have left home, and you have built up an investment portfolio.

Looking back to when I started out saving it was incredibly hard for very little result. For example, in High School I would work 9 hours at a market garden weeding or sorting and rebagging potatoes (ie. removing the stinking rotten ones, washing off the others and rebagging the remainder for sale). I earned around $10 for the whole days work, and spend $1 on lunch and $1.20 on busfares to and from work. In the end a whole day of my life resulted in adding less than $8 to my net worth. However, that initially stage of developing my finances provided a basic understanding of the value of money, and provided the "seed capital" required to start saving and investing. If you try to take a shortcut from McDonalds worker to property tycoon you are liable to end up another Casey Serin.

Enough Wealth

Saturday 19 May 2007

Transferring Funds into our new SMSF

After completing the 100-point identity check for DW and myself at the ANZ bank nearest my workplace, I checked with our payroll department on what paperwork was needed to start making the employer SGL payments into our new SMSF. I was advised that it would be best to get the new details entered into the pay system now, but my employer would prefer to not commence payments into the SMSF until the new financial year (ie. after 1 July) so that it was easy to reconcile this years payments. This is fine by me, it just means that we can't send in the paperwork to exit DW from the old BT Superannuation fund until after all this years payments have been processed. As I'm going to leave some money in the old fund in order to retain my life insurance policy, I can still send in the form for making my partial fund transfer next week. Meanwhile I did a $200 direct payment into the new SMSF bank account from my credit union account, just so they'd be some financial details reported for the SMSF this financial year. I want to check out what the member reporting looks like.

I was a bit interested in how various payments made into our SMSF through the one ANZ bank account could be identified by eSuperFund - ie. which member the contribution belonged to, and whether the payment was a deducted or undeducted contribution, employer SGL payment or salary sacrifice. I rang the eSuperFund help line and they advised that the deposit should note which member the deposit was from in the lodgement reference, and that employer contributions should be identifiable because they would be regular deposits from the same source. Anyhow, at the end of the year eSuperFund will send us a contributions summary for the trustees (DW and I) to check for accuracy before it is finalised. They also mentioned that it would be possible to check these details online in future, but that this was still "in development". This is another risk with moving from the BT fund into our own SMSF managed by eSuperFund - if eSuperFund ever went out of business we may find that the required record keeping hasn't been up to scratch. Hopefully tha annual compliance checks by the ATO will ensure that everything is meeting the required minimum standards.

The next step is to check what investment mix DW and I currently have in our BT superannuation accounts, and decide on what combined asset allocation we want in the SMSF, and how to meet this allocation - eg. direct share investments or CFDs, ETFs, actively managed mutual funds, index funds or whatever. One drawback of using the SMSF for DW and myself is that the assets are all managed in a "pool", and just split into member balances pro-rata the contributions into the SMSF. This means that we have to decide on the investment mix jointly as trustees, rather than being able to choose our individual investment mix as we do in our existing BT funds. This isn't a big problem as we have similar risk tolerance and investment time-frame. In practice, the SMSF balance will comprise around 80% or more my contributions, and I enjoy doing paperwork more than DW, so I'll probably make the investment selections and just get my choices approved by DW.

Enough Wealth

Thursday 17 May 2007

Car Fixed, Wallet Lighter

The 70,000km service was done (needed new front brake pads) and the faulty alternator replaced with a reconditioned one. All up, the bill came to A$818. I hope that this alternator lasts until we get rid of this car when it reaches 150,000km or 2013, whichever comes last. By that time DS2 will be ready to go on camping trips etc. and the Festiva will be getting too small to transport two adults and two teenage boys. We'll probably replace it with a used Subaru Forester. Hopefully we can get one in good condition, with low kms, a couple of years old for around 60% of the new car cost.

Enough Wealth

Wednesday 16 May 2007

Adventures in Day Trading - 12

I should rename these posts "Disasters in Day Trading" ;)

After holding on to a AUD/USD short position that I'd opened at 0.8323 for more than a day, while the price bobbed up and down within a few points of my entry price, the AUD suddenly dropped down rapidly to 0.8305 late last night, then levelled out at 06/07. As both DW and I had short positions open I woke her up to ask if she wanted me to close out her position. She got up to have a look at the chart and, after a bit of hesitation, decided to close out at 0.8306 at a good profit on this trade.

I was impatient for her to decide and make her trade, as I then had to log out of her account, and wait for the MarketMaker app to close down, before I could log into my account to close out my position. Unfortunately the AUD rebounded to 0.8311/13 before the trading software was open with my account on the screen. I thought about still closing out at this price, which would have made me a $100 profit on the trade, and possibly then going long on the AUD to gain from any continued increase back to its previous trading level of around 0.8323. In the end I decided that this may just be a temporary upwards jig in a general down trend, as has often happened before, so I kept my short position open, waiting for the AUD to drop back down towards 0.8300 (which would have made back my losses from the previous day's trading).

Instead the AUD continued back to its earlier level of 0.8322/24 so I left my position open expecting the AUD to level of at this level and possibly drop again later in the evening. At that stage the chart looked like there was a slow downwards trend in place. I shut the trading window while I did some blogging, then went back a short while later to check on the spot price. Shock! Horror! The AUD had continued to climb rapidly, and was sailing through 0.8341, 0.8342, 0.8343... I was now down $200 on this trade and it looked like this could be one of those vertical moves of nearly 100 points. At this stage I lost my nerve, and, after holding my trade open for over a day, closed it out at 0.8343. I immediately bought the AUD at this same price, hoping to make back some of my losses if the strong uptrend continued for a while. Of course, the AUD immediately reversed direction and started dropping, so I closed out that position at a small loss. After watching for a little while it looked as if the upward spike in the AUD had definitely lost all momentum, and the AUD was drifting lower, and started to drop a bit faster. I then went short the AUD again (I should have not closed out in a panic in the first place! D'Oh!), only to see the AUD regain some ground. At this stage I gave up in disgust, closed out my position (again), and went to bed.

Today the AUD has slowly drifted back down to yesterday's low of 0.8308, so if I had not bothered watching the screen last night and just kept my position open for 2 days instead of one day, I'd have actually made a good profit, rather than losing $255 in three losing trades in a row. My trading account is now down below $1,000 (after I transferred in a second $1,000 last week - bringing my total trading kitty to $2,000) so I can only trade A$50K rather than $100K. I think I'll just watch the market for a while before I attempt another trade. It will take a long time to claw back my losses. Trading is good fun, but it's turning out to be expensive entertainment.

Enough Wealth

Tuesday 15 May 2007

Setting Up A Personal Retirement Fund

The paperwork from eSuperFund confirming the establishment of our Self-Managed Superannuation Fund (SMSF) arrived today. Overall the process has been very quick and efficient. The initial online application only took five minutes to complete and gave a false sense of simplicity - when the actual "paperwork" to create the SMSF arrived it was a very thick package with FIFTY of the little, yellow "sign here" stickers attached! Anyhow, the paperwork has now been processed by the ATO (Australian Tax Office) and everything is now in place. In total we received:
* A TFN (Tax File Number) for the new fund from the ATO
* An ABN (Australian Business Number) for the new fund
* A "V2 Plus" Bank Account with the ANZ (to handle all deposits into the fund)
* A Share Trading account with E*Trade for the fund
* A second ANZ Bank account to hold funds to settlement of SMSF share trades

The next step is to visit the local ANZ Bank branch and present passport, drivers licence etc. for myself and DW (the trustees of the SMSF) to complete the 100 point identity check required for any new bank account. At the same time I'll get a CRN (Customer Registration Number) and "telecode" from ANZ so we can register online for online access to the ANZ Bank accounts.

This should all be in place by next week, at which time I can do the paperwork required to transfer funds out of our current Employer-sponsored Superannuation fund (run by Westpac/BT) and into the new SMSF. DW has around $50K in her account, so we'll transfer the entire amount and arrange for future SGL (Superannuation Guarantee Levy) amounts to be paid from our employer into the new account. This will mean she loses the current life insurance cover we have via the BT Super Fund, but she only had a nominal amount of cover anyhow. I have a $400K policy through the BT Super Fund, so I'll probably transfer the majority of my balance into the new SMSF, but leave a small amount there to maintain my life insurance cover. I'll also let my future employer SGL deposits go into the 'old' BT account to cover the ongoing insurance premiums. I can always withdraw the remainder of the balance if I change jobs or have a large balance build up in that account. I wouldn't want to do too many transfers out of the BT Fund though, as they charge $35 for each withdrawal! There will also be the ongoing annual member fee if I keep my BT Super account open (around $55 pa), but at least I'll be avoiding the fairly high fund management fee of around 1.25% (even after our employer's fee rebate has been applied). Overall, with a combined Super balance of around $350K in the SMSF we'll save around $3,500 each year in management fees, even after deducting the $600 pa management, audit and reporting fee charged by eSuperFund on our SMSF.

In the future we will probably add any future savings into the SMSF as the tax benefits are considerable, especially under the new "Simpler Super" changes that apply from 1 July. With a maximum annual contribution limit of $400K ($50K each of pre-tax contributions (SGL and salary sacrifice), and $150K each of post-tax contributions) we would be able to put all our future investments into the SMSF if we want to (the only significant draw back of this strategy is that we can't get money back out of superannuation until we reach 60).

Enough Wealth

Car Troubles

We run a 2000 Ford Festiva which we bought new just before DS1 was born (my old Ford Capri convertible didn't have a big enough back seat to take a child seat). Up to now it has been pretty reliable, but yesterday it started missing and then stalled when I was parked with the engine running and the air con on. It took a couple of attempts to get it restarted and I noticed that the LCD display on the clock radio flickered and went out - a sure sign of an electical problem. Luckily there's a garage close to my workplace where I normally get the car serviced, so I dropped it in for a quick check. Sure enough the battery wasn't being charged when the engine was running, so the alternator needed replacing. As this would be done the next day I decided to also get the routine 10,000km service done at the same time. I got a lift home from someone at work that lives close to home, and this morning had to catch the bus to work. Even though a city express bus departs only 200m from my front door, having to change buses in the city to get to work means that the bus trip takes just over an hour, whereas the trip by car usually takes around 45 minutes. Public transport is quite relaxing - I can close my eyes and nap on the way - but it isn't as economical as you might expect.

The two bus fares required to get to work cost a total of $8.80 each way, so travelling to work by bus each day would cost around $4,224 pa. By comparison our car uses $35 in petrol each week (including a couple of trips on the weekends), and probably an extra $1000 each year in servicing and tyres. Depreciating the full purchase price over a ten year worklife, costs around $1,300 pa and insurance and registration another $800 or so each year. Hence taking the car to work each day costs around $4,780. Even if I can slightly cheaper bus fares by buying weekly or return tickets, the car isn't that much more expensive to run than using public transport for one person. Once DW goes back to work (she works in the same suburb as me) we will share the car costs, so it will be cheaper to travel to work by car than it would be taking the bus! And the ability to use the car in the evenings and on weekends definitely makes it good value for money.

Anyhow, the car wasn't ready to take home this afternoon - although the alternator had been replaced, the service had required a clip for the brakes that wasn't in stock, so I had to get another lift home tonight, and will catch the bus to work again tomorrow.

Enough Wealth

Monday 14 May 2007

Update: Property Portfolio

Our Real Estate "Portfolio" consists of just two houses in adjacent suburbs. With the ridiculously high property prices in Sydney, it's amazing we even managed to end up owning two properties. The first one was an investment property we bought soon after we were married, at which time we were both living rent free in my parent's old house (they've moved to a "retirement" farm up north, and are in the process of renovating the old family home in order to sell it and help fund their retirement). We were lucky to buy the investment property just before the last Sydney property boom really gathered steam, but even so it consumed all the equity DW had from selling her unit and an equal sum from me to meet the deposit.

The Sydney property boom gave us a significant boost in equity, and this, combined a promotion and increased salary allowed us to purchase our current home. We had previously been toying with the idea of buying an investment unit in Queensland or New Zealand (both of which has since had property booms, so would have been good investments), so when my parents decided to renovate and sell their Sydney house it wasn't too much of a stretch to buy another house - with the minimum deposit needed to avoid paying mortgage insurance, and taking out a 25-year loan.

Soon after moving into our own home the Sydney property boom ended. Fortunately the suburbs where our properties are located only declined 5% or so in value, before levelling off. The past current months have shown good increases in the median sale price for houses in both suburbs, so it looks like prices may be starting to pick up again. Despite prices being very high, and almost unaffordable as a multiple of average weekly earnings, there is an undersupply of new housing construction in Sydney, and a shortage of new land zoned for development. This has started to force rents to increase, which is encouraging people to look at buying their own homes, even though mortgage interest rates have increased 0.75% since the start of 2006.

Our property portfolio is shown below:

A plot of monthly changes in estimated house valuations clearly shows the recent "boom and bust" housing cycle in these suburbs of Sydney:

Enough Wealth

Sunday 13 May 2007

Adventures in Day Trading - 11

My problem at the moment, aside from the fact that I'm losing money trading, is that I haven't been able to stick to a trading plan. After losing a large chunk of cash by holding a short position open for several days, only to finally close out just before the AUD started a major downtrend, I had decided that I wouldn't keep positions open when I couldn't monitor them - such as overnight or while I was at work. However, after dropping US$30 on a quick $100K AUD/USD spot trade on Friday morning (Buy @ 0.8256, closed out @ 0.8253), I managed to make back the $30 that evening, buying $100K @ 0.8280, and getting out at 0.8383. I was very nervous in that trade - after watching the AUD go up to 0.8386 I closed out when it dropped quickly to 0.8383. It then (of course) rapidly moved up to 0.8300, which would have made me $170 if I hadn't panicked at the slight drop earlier on. As this was at the top of the current trading band, I then Sold $100K at 0.8300, and was pleased to see it soon drop back to 0.8290 as expected. At this point I thought about closing out a making a $100 profit on the day and calling it quits, but, having missed out on making $170 by closing my earlier position too soon, I decided to hold on to see if it dropped all the way back down to 0.8380.

The AUD then started a major uptrend (although it didn't seem like that at the start!), so I was soon in the red on this open short position when the AUD climbed above 0.8300. I missed a few opportunities to close out at 0.8300 on dips, as I was still hoping to make a profit on this trade, and in the end sat by and watched it climb to over 0.8330 shortly before the market closed. It did drop back to 0.8322, so I then dumped my earlier resolve to not leave positions open, and left my $100K short position on the AUD open while the market has been closed over the weekend. I'm now waiting to see if the AUD drops against the USD when the market opens in a couple of hours. The AUD seems to be at the high end of the recent trading range, so it seems more likely to drop back further than to resume rising. BUT, this is based on historical patterns, which are not really and guide to future behaviour if something fundamental suddenly changes. Just ask the guys who used to work for Long Term Capital Management.

Trading this way is totally illogical - I seem to be just mentally crossing my fingers and hoping things turn my way when I'm in a losing trade, rather than closing out when my loss reaches $100 on a trade, which was my original trading plan. I think the fact that on the some of my first trades where I did close out on a $100 loss, holding on to the position for a few more minutes would have seen the trend reverse and my losses recover shook my faith in that plan. As it is, I'm making trading decisions on an ad hoc basis ("gut feel"). So far it seems that the old adage that "people don't plan to fail, they just fail to plan" is holding true for my day trading.

Enough Wealth

6% of Americans are Addicted to Shopping

According to a study made last year by Professor Donald Black from the Univerity of Iowa, and published in World Psychiatry, 5.9 per cent of Americans have a shopping addiction. The compulsion seems to run in families, which also tend to suffer from mood and substance abuse disorders. See this article in the SMH for more detail.

Enough Wealth

Blasts from the Past

My Mum is clearing out some old junk and found a folder of my old receipts and financial records. Looking through it I found some interesting tid-bits:
* My accounts record book from 1978, when I was working part-time in a market garden and at the local supermarket on weekends while in High School. One entry records that I was paid $10.50 for an 8.5 hour day's work.
* I found the cost of my very first computer system - a Sinclair ZX80, with accessories - bought in 1980 for around $550. If I'd saved this money (the computer was outdated and superceeded by the IBM PC soon after) I could have bought Microsoft for the equivalent of 8c per share (adjusted for splits since then), and my $550 investment would now be worth around $250,000 - even without any dividends being reinvested. Contrary to what you might expect, I actually find this reassuring. I'd always remembered thinking when I first heard about Microsoft being listed that it was already expensive on p/e basis, and that all the big gains had been made by private investors pre-IPO, so I didn't investigate how to invest in a US stock (at that time it was hard enough to trade Australian stocks, let alone arrange to buy a foreign stock directly). Now that I realise that even if I'd invested 10% of my entire net worth in this one US stock when it listed, it would only have added about $150K to my current net worth. So I can forget about this "one that got away".
* I also found some annotations in my accounts books listing my total assets back then (I didn't have any debts, so this is the same as net worth). I'll add some of these ancient figures to my long term net worth plot. As an example, I had the following;

date net worth
30 Aug 79 $1,330.00
30 Aug 80 $700.00
30 Aug 83 $2,518.00
30 Aug 84 $3,168.00
30 Aug 85 $5,070.00

* I also realised that I was a lot more enterprising in those days than I remember. I have entries for my casual weekend jobs, but I also have some cash entries for payments received for getting computer programming articles published in an electronics magazine in 1981, and some payments for some craft works I sold in a local gallery. It seems I had the drive to make some extra money back then, but I had a problem finding a money-making scheme that was scalable during my uni days. That's probably why I stuck to a salary job and concentrated on learning how to invest my savings.

Enough Wealth

Saturday 12 May 2007

Mother's Day Cheapskate

I bought DW a pair of diamond earrings last year for her birthday, on the understanding that, being a large one-off item she wouldn't expect much for future birthday or Christmas presents (we tend to only exchange token gifts between the adults anyhow). So, for this year's Mother's Day I simply gave DW a tin of "deluxe" hot chocolate drops, and a $20 gift card (one of the ones I'd redeemed using my accumulated points earned scanning the snack food items in my shopping for the past year). DS1 made a Mother's Day card at the church kids group on Friday, which I think is enough of a gift from someone that just turned seven. My own mother I just gave a $20 gift card, although a might also buy one of her favourite pot plants tomorrow morning before we drop in for a visit after lunch.

Enough Wealth

Friday 11 May 2007

US Stock Trade and "Little Book" Portfolio Update - MAY 2007

This month I selected Jakks Pacific (JAKK) from the MagicFormula listing to add to my "Little Book That Beats The Market" Portfolio of US Shares (100% geared). I bought 200 JAKK @ $24.96. My US Stock Portfolio current situation is listed in the sidebar.

My portfolio had recently reached an annualised ROI of 20%, but in the last few days it has dropped back considerably. I won't be doing a serious review of performance and comparison to a benchmark (such as the Russell 2000) until I have a track record of at least five years to evaluate. My success criteria is to achieve a return greater than the cost of funds invested (borrowed as part of a "Portfolio loan" from St George bank, so the interest rate is the standard variable home loan rate), and my target is to achieve a ROI of 10-20% pa over the long term.

When I'm fully invested this December (approx. US$90K) I'll have a portfolio of 18 individual stocks (I'm buying one US$5000 lot of stock each month), and I will then start to sell off the oldest holding each month and replace it with a new pick from the current MagicFormula list. Rather than rollover the exact amount realised from each sale into a new stock, I'll invest 1/18th of the current portfolio value, adding in some extra cash when needed. That way I'll be investing roughly equal dollar amounts each month.

Enough Wealth

Adventures in Day Trading - 10

This morning my short position of $50K AUD/USD spot at 0.8244 wasn't looking too bad - although the price had gone as high as 0.8308 a couple of times, in the morning it had dropped to around 0.8372 and from the 1 month plot it was looking like it might drop back further and erase my losses on this trade. Unfortunately while I was at work a lower than expected unemployment figure of 4.4% came out (general expectation had been steady at 4.5%) which meant the chances of another interest rate rise later in the year increased. I'm not sure exactly why this translated into an immediate 0.5c gain in the AUD, but it did - so in the afternoon at work I could see the AUD bobbing around 0.8315-0.8325, but I was willing to hang on for a bit longer. However, around 5pm the AUD started appeciating rapidly against the USD, so I rang home and got DW to close out my position at 0.8334, crystallising a US$450 loss!

Of course the AUD started dropping back slightly shortly after I'd bought back my $50K position. This evening it has been oscillating between 0.8310 and 0.8335, so I made a few $50K sells above 0.8322, and buys around 0.8312. In three trades I made back US$100, but I still have a lot of work to do to make back the $450 I lost by sticking with a bad position for the past three days.

I'm currently short AUD$100K at 0.8320, as the AUD is close to recent all time highs, and, having gone up over 1c in the past few days, it has a good chance of dipping back to below 0.8320 in the next few hours. If it doesn't, and starts going above 0.8330 again I'll have to close out at another loss, as I'm not game to leave my positions open while I'm asleep or at work after this recent fiasco.

Enough Wealth

Thursday 10 May 2007

Adventures in Day Trading - 9

I haven't posted about my forex trading for a couple of days because I'm sitting on an open short position that is in the red. Having made several trades which I closed out once my losses exceeded my planned stop-loss of $100, only to see the price move in my favour shortly afterwards, I decided that I wouldn't close out my position this time. The theory being that while the AUD/USD was bouncing up and down within a trading range, a position opened somewhere near the middle of the trading range should eventually become profitable if I held on long enough.

Of course, having sold $50,000 AUD at 0.8244, after a run-up from previous lows around 0.8200, the AUD then rose slightly and, despite dropping slowly over the next few hours didn't drop enough to make it worthwhile closing out my position. I then decided to go to bed and see what had happened by morning. Of course the worst case scenario resulted - with the AUD appreciating strongly while I was asleep. Sticking to my new "plan" to just ride out this setback until the AUD dropped back down, I've now been watching the AUD hover around the 0.8280-0.8300 region for a couple of days.

My email box is getting full of margin call and liquidation warnings from CMC Markets every time my cash balance drops below the required 1% margin. But I'm not too fussed if they liquidate my position as I'll only lose $1,000 maximum (my initial account balance). And this would only happen if the AUD goes above 0.8360, which would be close to a 17-year high.

Meanwhile, my real investments are all doing nicely - my "Little Book" Portfolio of US stocks is doing quite well with the annualised ROI getting above 20%, even after deducting the exhorbitant buying and selling costs. My Aussie stock portfolio is also doing very well, with the local market hitting new all time highs, which is also boosting my retirement account. And my real estate is also moving up again, now that the Sydney housing market is starting to recover.

BTW - my sitemeter stats registered a huge spike today. All from a mention of one of my posts on The Simple Dollar"! I usually get around 50 visitors each day - so far I've already had 126 visitors in three hours!

Enough Wealth

Wednesday 9 May 2007

Superannuation Arrangements and Dividends

The cheque for my $34,000 withdrawal of money from my retirement account arrived today. As it was an undeducted, unrestricted, non-preserved component of my super account balance there wasn't any tax deducted and I don't expect it to be subject to any income tax (although the Eligible Termination Payment statement that accompanied the cheque looks like its something that has to be attached to this year's tax return). I emailed the payroll office at work a few days ago to organise a salary sacrifice increase to $1600 per fortnight next financial year, so I'll be using the $34,000 as supplementary income for the next couple of years. For that reason I think I'll just leave it in the high interest online account with my Credit Union (earning 6.10%) and transfer $650 each fortnight into my main Credit Union account where my pay gets deposited.

A dividend payment notice arrived today from David Jones for a fully franked interim dividend of $180, with a $77.14 franking credit.

So far this financial year I've received the following dividends from my Australian share portfolios:

UnFranked Franked Franking Credit TOTAL
FY 06/07 $1,607.90 $10,408.32 $4,460.68 $16,476.90

Enough Wealth

When is it OK to stop Saving?

When I started out in my first full-time job out of uni, I was saving around 25% of my gross salary, of about $10K pa in today's money. This obviously had a huge impact on how fast my net worth increased - in the second year my savings alone boosted my net worth by around 100%, and the relative impact of how much you save is massive when you first start out.

These days I save around 35% of my gross salary - as my salary has increased I've tended to spend roughly the same amount on "needs" and not increased my consumption of "wants", so I'm able to save a bigger slice of my salary. However, now that my net worth is around $1.15m this years "savings" will only add 2.6% to my net worth. It's still worth saving, as it helps boost my overall rate of increase in net worth from what can be achieved from my investment income and capital gains, but it's not hugely significant any more.

My contributions into my superannuation account are similar. The 9% employer contribution and my 13% salary sacrifice add around 4.5% to my retirement account balance - nice, but these days my asset mix and investment returns are getting to be much more significant that saving a few more percent of my salary.

I intend to boost my savings into my retirement account via salary sacrifice for the next couple of years, but that is in order to arrange my income and investments in the most tax efficient manner rather than a need to boost my savings rate in order to meet a retirement target.

In a few more years the impact of my savings will be negligible on my net worth, but I still intend to save the same amount. Why? Several reasons:
1. I intend to live of the same amount during retirement as I currently spend, so any increase in spending now will have a large impact on how much I need put aside to fund my retirement years.
2. I enjoy my current lifestyle and don't actually enjoy "wasting" money. I used to spend more on books, hobbies etc. but I now have more than enough "toys" to last the rest of my life.
3. One of my more nebulous goals is to leave create the basis of a "family fortune" - although it will take more than one generation to accumulate significant wealth based on modest living and sensible investing rather than a establishing family business empire.

So the answer for me is "never", but I suspect that this isn't the answer for most people.

Enough Wealth

Tuesday 8 May 2007

Budget Night Benefits

The Australian Treasurer handed down the annual budget tonight, and, as expected in an election year, there are some generous handouts to "middle Australia" (ie. swinging voters). Those of personal interest are:
* A "one off" doubling of the government superannuation co-contribution for the 05/06 financial year. This means that DW and DS1 (who both made $1000 undeducted contributions into their superannuation accounts that year), will get a total of $3,000 in co-contribution, rather than the expected $1,500.
* Tax cuts at the "bottom end" starting from 1 July 2007. The threshold for the 30% rate has been increased from $28,000 to $30,000, and the low income earners tax rebate has increased from $600 to $750, which means anyone with taxable income less than $30K will pay 0% tax on the first $11,000 of income (the 15% tax rate normally applies above $8,000).

Having recently withdrawn $34,000 of unrestricted, undeducted, non-preserved money from my superannuation account (prior to the rule changes taking effect on 1 July), I'll now be able to salary sacrifice a large fraction of my salary for the next two years. This will
a) save tax on the sacrified amount (super contribution tax rate is 15% rather than the income tax rate of 30% which would otherwise apply)
b) reduce my taxable income down to around $30,000, so I'll be eligible for the $1,500 government superannuation co-contribution if I make a $1,000 undeducted super contribution (it may even end up being $3,000 if this year's "one off" increase ends up being repeated!)
c) substantially reduce our combined family taxable income so we are eligible for some Family Tax Benefit payments.

The others changes won't immediately affect us, but the childcare rebate changes should be good once DS2 starts preschool in a couple of years.

Enough Wealth

Qantas in a Spin

I'm still not sure if selling my Qantas shares last Friday for $5.39 was a great move, or a real dud. QAN has been in a trading halt all day today. The company which mounted the takeover (APA) has apparently not decided what they're going to do, or if their takeover bid really did fail to make the 50% control required for the bid to get a two week extension. Initially they announced on Friday night that they had failed to get 50% acceptances by the deadline. Then they convinced a US hedge fund to sell at least half their stake, pushing APA over the 50% mark, but after the deadline for acceptances had passed. Over the weekend the takeover review board didn't allow an exception to the deadline, so the bid appeared to have definitely failed. Then today there was talk that apparently the offer document included a clause stating that partial acceptances were not allowed, and would be deemed to be a full acceptance, so the takeover *might* have actually achieved the required 50% before the deadline - but no-one is sure, and applying this clause would probably end up in the courts.

Meanwhile, the Australian government has sent Qantas a "please explain" memo regarding a possible breach of the legislation that requires foreign ownership of Qantas to be less than 50%. Apparently with all the share trading in the past few days, much of it controlled by foreign hedge funds, this rule may have been broken. If so, Qantas has to go through all the transactions and reverse out enough done by foreign parties to get back to the 50% limit.

Hmmmm... no matter what does eventually happen to the takeover bid and the listed share price, I think I am better off having sold out after all.

Enough Wealth

Monday 7 May 2007

Vista vicissitudes

After a call to the CMC Markets helpdesk I got the CFD trading software running under Vista using XP compatibility mode, and everything seems to be going OK. The wireless network router and USB adapter didn't arrived today, so I don't know how setting that up will work out. Meanwhile though, I'm having problems running both Firefox and Explorer. Firefox freexes up ("not responding") every time I try loading my blog site (although it loads perfectly well using the same version of firefox on my laptop running XP), and on a couple of occasions Explorer has tried to "connect" to the internet when it is launched, even though the internet is already available (as I have the CFD displaying live data in the background).

I'm not sure if the fix will end up being upgraded versions of Firefox and IE, or a fix to Vista. I've also had one "blue screen of death" event, even though only application (the CFD trading app) was running at the time. As I haven't changed anything from the initial configuration of Vista that came with the new PC from Dell, it looks like these problems may be with Vista itself.

Vista looks very pretty, but so far I'm not overwhelmed by the reliability.

Enough Wealth

A Little Bit of Extra Money

After posting about the large bill the plumber had sent for some recent work ($850+), I received a number of comments prompting me to negotiate the amount with the plumber. Although I'm normally reticent about arguing about charges (I hate haggling), I thought I had nothing to loose in at least discussing my concern with the plumber. It took a while for the plumber to finally call back after I had left a message querying the bill, but, in the end, he called to say that he could see me point of view (although they had spent the amount of money charged in finally getting the work completed) and I should just send in a cheque for whatever amount I thought was reasonable. This was a good move on his part, as we have had work done on both our home and rental property so he wouldn't want to loose our business. Also, when left up to me I didn't want to be unreasonable about the bill, so I ended up just knocking $100 off the orginal invoice amount. So, thanks to all those who commented - you saved me $100!

Another easy $120 came in the form of gift vouchers I earned for scanning the barcodes of snack food items in my grocery shopping for a survey company during the past year or so. The scanning didn't really take any extra time or effort while packing away the shopping at home, so it was easy money. Unfortunately the survey company has now terminated the home scanning program.

Enough Wealth

Sunday 6 May 2007

Net Worth - PF Bloggers progress for APR '07

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 APR 2007:

Blogger Age Net Worth $ Change % Change
An English Major's Money 2x $14,275.00 $818.00 N/A
Blogging Away Debt 2x -$34,651.00 -$860.00 -2.6%
Blunt Money 2x $226,157.72 -$9,530.38 -4.0%
Consumerism Commentary 30 $90,495.55 $2,128.60 2.4%
Crazy Money 27 $261,669.00 $13,583.00 5.5%
Enough Wealth 45 $1,116,129.00 $45,141.00 4.2%
Financial ladder xx $152,414.85 $294.00 0.2%
Finance Journey 25 $164,531.00 $10,643.00 6.9%
It's Just Money 32 $167,715.62 $3,807.60 2.3%
Lazy Man and Money 2x $176,700.00 $7,691.00 6.9%
Make love, not debt 2x -$59,903.97 $1,060.45 N/A
Mapgirl 3x no Apr data no Apr data N/A
Moomin Valley 4x $426,078.00 $8,883.00 2.1%
Money Blog Site 25 no Apr data no Apr data N/A
My Money Blog 28 $133,672.00 $7,147.00 5.6%
My Open Wallet 37 $335,541.00 $8,500.00 2.6%
Savvy Saver 27 $198,001.00 $3,962.00 2.0%
Seeking Wealth xx $27,026.71 $6,937.08 N/A
Tired But Happy 30 $171,122.00 $25,830.00 17.8%

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 asap 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.

Enough Wealth

New PC Looking Good

So far the new PC is going well. I got my cable modem working and registered the McAffey security suite that I'd bought with the system (15 month rego). I then had a go at installing the MarketMaker CFD trading software that we use for our forex trading. After downloading the installer .exe I tried running it - no go. However, having a background in chemical engineering as well as computers, I knew enough to try the "if it doesn't work give it a kick" approach - I simply ran the installer .exe a second time. Vista somehow recognised that the app needed to be run in "compatible" mode, and this time the installer ran OK. Then the fun began...

Unfortunately MarketMaker is written as a whole lot of java code, and every time you launch the app it first checks for updates, which it will install before allowing you to login (it also only loads additional modules as you use various features). Every time I tried running MarketMaker it simply stopped midway. After emailing CMC Markets help regarding any tricks getting their software to run under Vista, I browsed through their help FAQs and noticed the bit about having to configure any firewall to allow three programs to both send and receive data via the internet. (I remember this happened on my laptop - but in that case I was running Norton security, and in "learn" mode it automatically prompted me to flag these programs as "trusted" when they tried to transfer data via the internet). I managed to find where the relevant firewall settings were configured, but, MarketMaker still fails to run properly. I'll have to wait until Monday and see if I get a reply from the helpdesk - I may also have to phone them while I'm at the PC at home - hopefully they answer the helpdesk phone outside business hours!

Meanwhile the cable modem is back with the laptop. I'll shift it to the new PC again on Monday if the Belkin wireless router and USB adapater arrive on schedule during the day. If I get the wireless network working I can then leave the cable modem permanently connected to the desktop PC, and run MarketMaker on the laptop until I get it working under Vista.

Once I get the wireless network and MarketMaker app working I'll do a full system backup onto a DVD, so I can restore to this "basic" configuration. I usually dive straight in and start loading heaps of software onto a new PC, but this time I want to be more methodical about what I load on, and also take the time to sort out all my personal data files and copy them to the new PC in an organised structure.

The new PC/Vista will run dual screens, so I may hunt around for a very cheap, small LCD screen to add on - that way I can leave the forex trading window running on the second screen to keep an eye on our trades, while using the main screen for blogging etc.

Enough Wealth

Saturday 5 May 2007

Adventures in Day Trading - 8

We missed out on the big slide in the Aussie dollar yesterday (it was caused by the RBA announcing that inflation was lower than expected last quarter and had a good chance of staying under control for the next 12-18 months). DW was out of the house during the day and by the time she got home and started trading the dollar had already dropped to around USD$0.8190. I did a $50K trade when it spiked up to 0.8212, and for a while it was looking good as the AUD slide back down to 0.8202 - I was holding on hoping it would go back down to previous intraday lows of around 0.8175 or so. However, it slowly began to climb back up, and I eventually closed out at 0.8208, making just USD$20 on the trade.

Enough Wealth