Wednesday 30 April 2008

Goals progress and changes

I've added a new 'long term' goal to the graphic in the RH margin - it shows how close I am to fully funding my desired retirement income solely from the money socked away in my retirement fund (SMSF). I've set the goal at a fairly modest 65% of my current pre-tax salary, the rationale being that

a) the pension paid out of my SMSF will be tax free (under the current "Simpler Super" regime),

b) I currently use up a large part of my salary on expenses that won't exist during retirement [eg. retirement savings (at least 13% via salary sacrifice), daily commute (2%), income tax (at least 10%), mortgage, children... - hey, I looks like I won't need any money in retirement ;)],

c) I'll also have my other investments to draw on for any large one-off expenses, unexpected health costs etc. (although I'm not planning on consuming my investment portfolio during retirement if I can help it).

The calculation also assumes that I can withdraw a pension from my SMSF at the rate of 5% of the total value each year without reducing it's real capital (this assumes a tax-free 8% long term ROI and 3% inflation rate). This gives me a target in current dollars to which I can compare my current SMSF balance. Using this target amount and the currect balance of my SMSF I get a figure of 27%.

This month I've "written off" around 1/4 of my education goal for 2008, as I've fallen behind in my MIT course work this semester and decided to take a leave of absence for next semester, when we'll be away on holiday overseas for more than a month. I'm still hoping to complete the course work for my BTeach and DFS(FP) enrollments, but at the moment I'm struggling to find the time to get on top of things.

My investment goal for 2008 is still looking unattainable after a poor 1st quarter, and my weight loss is progressing much slower than I'd intended (at least it's still heading in the right direction).

I won't be moving the "goal posts" though, as I still want to try to get as close to my original targets as possible on the annual goals, even if I don't quite make 100%.

Copyright Enough Wealth 2008

Tuesday 29 April 2008

Pulled the plug on my Amex Gold card and saved $150

As previously posted, I was disgruntled to find that my last Amex bill included a $20 "late payment" fee, plus my annual $130 membership fee. Since I only charge my monthly $150 family basic hospital insurance to this account, it makes no sense to pay these sorts of fees. So I phoned the health insurance company and arranged to have future monthly debits taken from my NAB Visa card, which I use for everyday purchases and bill payments, and checked the date of the last charge made to my Amex card.

I then phoned Amex. Closing the account was quick and painless, after the obligatory questions about why I was choosing to close my account and getting a reminder that the Amex card has lots of extra features (which I never use), and I was invited to reopen a Charge card account in future if my requirements changed. I was pleasantly surprised that rather than just giving me a pro-rata refund on the annual fee that had been charged in March, they refunded the entire annual fee AND reversed the $20 late payment fee that was on my last monthly statement!

This means I now just have a Gold Amex Credit Card (with $0 annual fee for life). I don't use that card either, but at least it isn't costing me anything.

Copyright Enough Wealth 2008

Sunday 27 April 2008

Pinching pennies

Apparently the commodity boom has spread from oil, gold and other 'hard' commodities to 'soft' commodities such as corn and rice. Like most commodities, the local price of rice is affected by global supply and demand, so it seems likely that the price of rice in our local supermarket will go up more than inflation in the next few months. Since we had almost used up the 10kg bag of rice we had at home, I decided to stock up a bit. Usually the cheapest we can get good quality long grain rice is around $10 for a 10kg bag, so I bought 4x5kg bags for $5.02 each. I'm tempted to buy a few more bags, as a price rise seems a near certainty, but it doesn't pay to overstock and risk spoilage. While rice stores well, it does a have a shelf life of 24+ months.

While I was rice shopping I also had a look at the price of the same rice in smaller packs. A 250g bag was 'on special' for $1.50. This means that buying rice in 250g bags costs 6x as much as in 5kg packs!

Copyright Enough Wealth 2008

Saturday 26 April 2008

Are you a super saver?

Can I Get Rich on a Salary posted about the story of Shawn Larsen who is 47 years old and planning to retire in a couple of years at age 50. He has accumulated assets of $300K in his retirement fund, $680K in mutual funds, plus he has some equity in his home (although it doesn't say how much, just that he's still paying off a mortgage. The average house price in the US would suggest he may have $200,000 or so in home equity). He also will get a $30Kpa pension, which is equivalent to having another $750,000 in retirement funds (assuming a conservative 4%pa withdrawal rate). So, his total deemed NW might be around $2m, which is pretty impressive for a 47 year old wage earner.

The Money article and Can I Get Rich appear to think that saving 50% of a $180,000pa salary is an amazing feat, but I don't think it's that much of an achievement for someone on a relatively generous salary - especially for a single guy with no dependents. It may indeed be extraordinary (after all, a lot of US and Australian citizens his age would have a negative or negligible net worth, and have a negative savings rate due to consumer debt burdens), but it isn't all that hard to achieve if your maintain a modest, but comfortable, lifestyle.

For example, I currently save $30Kpa out of my salary (35% of gross), or if you include the 9% compulsory employer retirement contribution (SGL) that we have in Australia, 40% of gross. And I'm supporting a family and paying off a mortgage on that salary. As my salary has increased over the years I've slowly increased the proportion I save, and we live comfortably enough now that any future raises above inflation could be added straight onto my savings.

DW currently works 2 days per week, and is saving 53% of her pre-tax salary into her retirement account, and another 35% goes towards our home loan repayments (which we split 50:50). That doesn't leave her with much "play" money, but since I pay the utilities, food, kids school expenses etc. she can still afford the odd indulgence.

So, if I was earning an extra $90,000+ on top of my current salary (like Mr Larsen) I'd be adding it all to our investments. It's very hard to save and invest if you're in a low paid job, but it shouldn't be a stretch for anyone earning above the average wage.

Copyright Enough Wealth 2008

What I bought my niece for her 21st birthday

One of my nieces is turning 21 next month, so I went shopping for a small 21st gift. In the end I decided to buy her something that might actually be useful for an independent, young woman - a copy of One million for Life by Ashley Ormond. It's a very easy-to-read practical guide to managing your money and sensible investing:

"...his strategy for wealth creation is sound and conservative, and involves careful money management to guarantee you a healthy income for the rest of your life. Based on a 5-step plan, which starts with owning your own house and paying it off, the book shares the secrets of maximising the opportunities offered by superannuation, investing outside super, protecting your assets and developing your money sense. The case studies and practical examples included make this road map to financial security easy to follow.

$1 Million For Life will appeal to investors aged 35 to 50 who are income earning and carrying debt, but who are keen to take control of their financial future."

I'm not sure that this is what she's expecting, but I'm hoping that she might at least read it ;)

Copyright Enough Wealth 2008

Friday 25 April 2008

A lesson in bad tax planning

Wesley Snipes was found guilty on misdemeanor charges of failing to file tax returns. Even though he was acquitted of more serious felony charges of tax fraud and conspiracy, and had made a payment of $5 million towards his tax liability (the exact total owed is disputed, but could be as much as $15 million), he was sentenced to three years in prison.

This highlights that even when you rely on others to manage your finances or prepare your taxes, ultimately it's your money and your responsibility. Even though jurors accepted his argument that he was innocently duped by errant tax advisers, this didn't exempt him from prosecution.

I find the sentence a bit harsh (then again, US courts have convicted children to the death penalty, so I'm not surprised by the vagaries of sentencing in the US), but I'm more surprised that someone of Snipes' resources didn't shop around and get competent tax advice.

Copyright Enough Wealth 2008

Wednesday 23 April 2008

How I cut my phone bill by 90%

We're pretty frugal when it comes to telecommunications. DW uses a prepaid "calling card" to make overseas calls - she just calls a local phone number and enters her account number and pin to connect overseas for very cheap rates (a few cents per minute). And we have a pair of "his and hers" matching mobile phones I bought a couple of years ago - they were "free" when we signed up for the $14 per month plan for each phone (which includes $10 of included calls). The benefit of having matching phones is that we have two chargers, so we can have one at work (we both work in the same office) and the other at home - saves on lugging the charger around with us. The two $14 plans also pool the included call value, so we can make up to $20 worth of calls each month without paying any more than the basic plan fee.

We also have a landline phone (I've had the same phone number for 40 years and kept it when I moved house), but it doesn't get much use - last month the line rental cost $32, but we only made $1.80 worth of phone calls all month!. Because the landline is from my ISP it does entitle me to a $10 monthly discount off my monthly internet bill, but that isn't enough to make it worth keeping the landline. So today I called the phone company to arrange for disconnection. After explaining why I wanted to close our phone account, I was offered a monthly $20 discount for the next six months. Combined with the $10 internet discount this means that our phone line is now effectively going to cost $2 a month rather than $22. A saving of 90% just by making one simple phone call.

Copyright Enough Wealth 2008

A monkey learns to type Shakespeare while nailing jelly to a tree...

That should give you an accurate mental picture of my attempts at day trading forex (AUD vs USD aka. the "Aussie"). Although I haven't updated my trading spreadsheet with individual trades past the end of last financial year (30 June), I have now plotted monthly totals to see how I've performed in my first year trading Forex - not too flash overall, although the trend has at least been in the right direction so far this year:

I initially started with a $1,000 account with CMC Markets in March 2007, but trading losses in April and May forced me to choose between cutting my losses and stop trading altogether, or throwing some good money after bad. I eventually decided to add some more funds to my CMC account and keep on trading. Of course I promptly lost this extra $1,000 trading during June and had to "top up" my account with another $1,000, and then another $1,000, and another. By September I had "invested" a total of $4,000 into my trading account, but although I had lost money overall, my trading performance had improved slightly. From losing an average of between $10 and $35 per trade in the first three months, I was breaking even in Jul, losing around $5 per trade during Aug, and then finally making over $500 profit in Sep, with an average gain of about $10 per trade.

The wheels fell off during October when I lost almost $2,000 in just 25 trades (averaging a loss of nearly $80 per trade). My account balance ended up below $250 (insufficient to trade the minimum $25,000 Aussie CFD with 1% margin), and I had learned the hard way that it doesn't pay to leave trading positions open overnight (or while at work) without using stop loss orders!

I didn't trade at all during Nov/Dec, but finally decided to put in a "last" $1,000 into my account in late Dec, and to start trading again in the new year - but with a more disciplined approach to using stop and limit orders on any unattended open positions. (Dw had talked to someone who trades Forex professionally, and we decided it was about time we watched the free educational DVDs CMC Markets had given us when we opened our trading accounts!). Part of the motivation for resuming trading was to have something to "play" with to avoid the temptation to fiddle with my general asset allocation during the recent stock market woes.

Although I still lost a small amount during Jan '08 I did at least us stops to control the size of my losses when things didn't work out as I had anticipated. Although there were times when my 13 point stop was triggered soon after I opened a position, only to see the market change direction and move in the direction I had expected, AFTER I had been closed out! I also learned to set up "OCO" (One Cancels the Other) paired stop/limit orders against my open positions. For example, if I went long $25,000 AUD at US$0.9350, I would then setup a $25,000 OCO order with a limit of US$0.9395 and a stop of US$0.9332. The exact number of "pips" I set the stop and limit from my initial price depends on the recent volatility, resistance and support levels, long term trends, moving averages etc. etc. I tend to look at all this stuff and form an overall "gut feel", rather than trading purely on the technical indicators. OCO orders are good when I leave positions open unattended - my losses are limited and I'll take a reasonable profit if the market moves in the direction I expect. Using just stop-loss orders would control my losses, but don't help when the market moves in the "right" direction while my open position is unattended, only to drop back before I get a chance to close my position. Then again, using an OCO order doesn't let "winners" run, so I tend to set the limit further from my initial price than the stop.

Trading during Feb and Mar was actually profitable, with an average gain of $10 per trade. Apr so far hasn't been as good, although I'm currently up a few hundred dollars for the month. I'll stick to trading the minimum position for the moment ($25,000) and see if I can be consistently profitable for the next few months. My "goal" for trading during 2008 is to try and average $10 profit per trade most months, avoid any months that I "blow up" and make huge losses by not trading to my plan, and hopefully end the year with close $5,000 in my account.

If I can trade my way back to my initial account balance I'll then think about trading larger positions ($50,000 or $100,000) in 2009. Theoretically performance shouldn't be affected by the size of my trades.

My monthly gain(loss) is tabulated below, which shows number of trades each month, average gain or loss per trade for the month, and cumulative trading results. Hopefully during 2008 my cumulative gain(loss) per trade will continue to trend towards $0, and eventually become positive.

Copyright Enough Wealth 2008

Tuesday 22 April 2008

Free Wealth Analysis and Report

Wealth benchmarks(TM) has a website (Australia and International versions available) that lets you create a free account and complete a detailed, anonymous financial survey and obtain a personalised and confidential report about various aspects of "what you own, owe, are worth, earn, spend, save and insure". It is based on your inputs and the application of various simplifying assumptions, so it provides a fairly high-level summary, but it's a good starting point to help you better understand your position and hint at possible priorities for improving or enjoying your financial security.

Copyright Enough Wealth 2007

Monday 21 April 2008

How to make thirty million dollars overnight

Step 1. Buy and entry in this week's Tuesday night OzLotto draw (jackpot first prize $30 million)
Step 2. Have the seven winning numbers (odds are 45,379,620:1 against!)
Step 3. Hope no other entries have the same winning numbers ;)

This week I decided to "invest" $2.20 on buying two games in this week's lottery draw. I normally don't bother wasting my money on gambling, but since the prize hasn't been won for the past nine weeks the potential payout is higher than normal (although the odds of winning are still just a incredibly remote). Even though more people buy entries to the lottery when the prize has jack-potted, the odds are so long that there is usually only one winner of the major prize, so it's better "value" to buy an entry this week compared to most weeks. For example, the last "jackpot" prize of $6m only had one winning entry.

With two entries I have a whopping one chance in 22,689,810 of winning the first division prize. My statistics are a bit rusty, but I think that means that I'd have a 50:50 chance of winning if I made this sort of bet every week for 200,000 years or so! Anyhow, it's a bit of inexpensive fun as a once off event (for the next 24 hours I can "plan" on how to spend the thirty million), but I wouldn't want to do this every week. Some of my co-workers are in a syndicate that pools all their $5 contributions to buy one "system" entry each week. Although they don't seriously expect to win the jackpot, there is some wishful thinking that at least they may win a minor prize - perhaps $1,000 each. There is a social value to this sort of communal gambling, but I just can't get past the fact that just spending $5 each week would end up costing around $10,000 over your working years, for no tangible benefit.

Copyright Enough Wealth 2007

Saturday 19 April 2008

Buy in Gloom

The stock market is still looking rather sickly, and Sydney property prices remain flat. So where is one to invest? In the stock market and real estate!

And an article in today's Sydney Morning Herald states that "Fewer homes were built in NSW last year than any year since records began in the mid 1980s...which is expected to put further pressure on house prices and soaring rents." Recently the Australian economy has started to slow down, suggesting that the RBA's series on interest rate hikes has had the desired effect. If inflation moderates during the rest of 2008 we could start to see interest rates drop again towards the end of the year, possibly reinforced by an easing of the global credit crunch. That would provide the perfect launching pad for rapid growth in Sydney real estate prices. While real estate is hardly cheap when measured against incomes (so-called "affordability"), Sydney prices are relatively cheap compared to other markets (such as VIC, QLD and WA). I'd expect those markets to suffer a decline in real prices over the next few years, while Sydney is more likely to show some increase in real prices once the NSW economy improves.

"Fewer than one in five of the homes built nationally were built in NSW, despite the state needing to accommodate roughly one-third of the nation's population.

Nationally, 151,631 homes were built last year, the figures show. This is significantly less than estimates by economists of the need, which put the underlying demand for new homes at about 175,000 a year."

The stock market is also looking reasonably good value at the moment. One just has to look at a plot of the stock market index vs. company profitability to see that the recent sell-off has brought the market back from slightly overpriced (although no-where near the bubble of '87) to the sort of value not seen since 2002 - which was the perfect time to invest prior to the last bull run. I was sent an updated version of the chart below by ColonialFirstState which shows that after the index got well ahead of corporate profitability in 2007, the recent drop has brought the index back below the levels that would be considered "fair value" in relation to underlying company profits.

The recent market weakness also seems to have been excessive when viewed against the 200-day moving average, assuming that we are in period of temporary loss of confidence rather than a fundamental global economic problem that could see the stock market stagnate for many, many years like the 70's.

Having said all that, I'm already fully invested already and don't have spare cash flow to support any further borrowing to invest. Also, although I'm reasonably positive regarding the outlook for the Sydney property market I already have two properties in NSW, so any further purchases in NSW would be subject to property taxes of around 1.5%pa, which would take the gloss off any further real estate investments. So for the moment I'm just going to sit pat with my current investments and use any spare income to reduce my margin loan balances (which at current interest rates is a good strategy) and invest in the Vanguard HighGrowth index fund within my tax-sheltered superannuation fund via salary sacrifice arrangements.

Copyright Enough Wealth 2008

Time to lose my 'gold' card

I've had an Amex card since I graduated from Uni in the early 80s and started my first full-time job. Back then my "everyday" credit card (a National Bank Bankcard) was only accepted by merchants in Australia and New Zealand, so the Amex card was a useful adjunct to travellers cheques when I went on a holiday abroad (it was also a bit of a yuppie status symbol, at least in my mind). However, these days my Visa card is accepted by more merchants than the Amex card when travelling overseas, and I only use my Amex Gold card to charge my $150 monthly health insurance premium. I plan to pay off the balance in full each month, but a couple of times I've mislaid the bill and been slugged with a $20 late payment fee. This month I not only hit with a $20 fee for forgetting last month's bill, but the annual fee has increased to $185! So, it's about time I made the effort to arrange for my insurance to be charged to my Visa card and finally got around to closing the Amex account. Anyhow, these days the "gold" card is pretty down-market and definitely not worth the cost.

Copyright Enough Wealth 2008

Friday 18 April 2008

A day of big spending

Ever since I bought a new Dell desktop PC last year my wife and son have taken over use of my older Toshiba laptop. It had gotten to the stage that they would complain when I had to take the laptop to work for a couple of days. I had been thinking of buying a new Dell laptop for a while - aside from having better performance than the older laptop it would also have built-in Wi-Fi which I think may come in handy when we're travelling around Europe on holiday in August. The theory being that it will be easy to find Wi-Fi hotspots to access the Internet, and safer to login to my investment accounts using my own laptop than making use of Internet cafes. Dell Australia had a basic laptop with Vista Home Basic on sale for $749 which I was thinking of buying, and today Emailcash had an offer to get a $200 discount on a slightly higher spec Dell laptop which normally sells for around $899. After adding a slight upgrade to the sound system, the laptop I finally bought today cost around $720 - still slightly cheaper than the lower spec machine I'd had my eye on. As with all computer purchases the trick to avoiding buyer remorse will be to now not browse through any computer sale catalogues for the next 12 months - otherwise I'm sure to see a higher performance laptop on sale for a lower price before I leave for my vacation!

By coincidence I also bought a 1 TB external HDD from Aldi for $300today. Although I've found USB drives very handy for moving files between my various home PCs and work, they don't quite have enough capacity to store everything I might want to access. And although I do back up my most important files onto DVD, I don't do it as often as I should, and don't have a very good filing system. Having a 1TB HDD that can connect to any of my PCs using the USB port will enable me to keep backups of all my files in one central location, and will also make it easy to take all my files with me when I go on holiday to my parent's farm a couple of times a year.

It's just as well I don't spend a grand on computer gear every day!

Yes, I did choose the purple colour for the laptop ;)

Copyright Enough Wealth 2007

Tuesday 15 April 2008

Can I afford to retire?

Well, yes and no ;) I ran some numbers through Excel to see what situation I'd be in if I retired today, compared to "early" retirement when I turn 56, "normal" retirement at age 65, or "late" retirement at age 71. I made some fairly simplistic assumptions as follows:

start with my current net worth,
an assumed ROI of 8% (after tax - a large chunk of NW is tax-sheltered in SMSF or family home)
an assumed inflation rate of 3%
constant current salary and savings rate (not adjusted for inflation, so probably conservative) retirement income of 75% of my current pre-tax income

If I quit paid employment tomorrow, my investments (excluding my family home and minus a lump sum to pay off the home mortgage) would yield a net income of around $25,000pa (using a "sustainable" 4% pension rate), or $50,000 (using a withdrawal rate of 8%, which invokes longevity risk and would leave no estate for my heirs). Probably a good thing that I'm not planning on quitting tomorrow, and that I have adequate Death, TPD and loss of income insurance in place ;)

If I choose to "retire" (stopped all paid employment) at the relatively young age of 56 I should be able to consume my retirement savings at the rate of 75% of my current pre-tax salary (adjusted for inflation) indefinitely, and may have an estate of around $6m (in today's dollars) to leave the kids (and grand kids) by age 95. I'm probably being overly optimistic with the life expectancy assumption - although I had two grandparents live until 94, the average of all four grandparents was 82, which happens to be mid-way between my current age and the world's longest verified lifespan. Then again, my parents are both quite healthy in their mid-70's, and medical science is pushing out life span's in the developed world by around 2 years per decade at the moment, so it's not completely unfeasible.

If I "retire" at the standard age of 65 I should be able to consume my retirement savings at the rate of 75% of my current pre-tax salary (adjusted for inflation) indefinitely, and may have an estate of almost $10m (in today's dollars) to leave the kids (and grand kids) by age 95.

I was somewhat surprised to find that delaying retirement to 71 and consuming my retirement savings at the same rate of 75% of my current pre-tax salary (adjusted for inflation) indefinitely, would only increase the residual estate to around $11.5m (in today's dollars) by age 95. I think this is because my retirement at 65 would only require a pension rate slightly above 3% of my investible net worth, so delaying retirement beyond 65 wouldn't have a huge impact on my estate.

I haven't included any possible inheritances in my calculations, as I think my parents and other elderly relatives are quite entitled to spend all their money on themselves, and may wish to leave any bequests to charities rather than their relatives.

Copyright Enough Wealth 2008

Sunday 13 April 2008

An Elite Credit Card with a difference

The website has an information centre that provides some useful information about the usual CC topics such as new credit products, credit repair post bankruptcy, credit bureaus and bad credit. However, it also has some more esoteric information that you might not find elsewhere. For example, this Elite credit cards page provides some information about the Sotheby's World MasterCard and the Sotheby's World Elite MasterCard, which are definitely not your "typical" credit card offering. Do you earn well into the six figures? Fancy buying expensive art works to decorate your penthouse, inviting your friends along to the best museums free of charge, take a helicopter tour or rent a mansion in Europe? Well, if so, this card may be just what you are looking for.

I can't imagine that many multi-millionaires shop around for their next credit card using the Internet, but perhaps their personal assistant or accountant will come across this website while surfing the 'net on company time. Anyhow, it's interesting to read about some of the products and services available to those living at the top end of the wealth distribution curve. I may not be in the position to justify paying $85 annual fee for this card (I also couldn't get one since I'm not a US resident), but I can imagine some people would like having the card in their wallet (it looks a bit more up-market than the usual MasterCard from AnyBank). However, the Elite version (available by invitation only) is really only suited to those for whom money is no object, and are happy to pay $395 a year for "personal" services such as:

  • 24/7 concierge and travel consultation
  • Complimentary Business Class companion international air tickets
  • Upgrades from Economy to Business Class on international air travel
  • Global airport lounge access
  • Upgrades and amenities at 700+ top hotels, resorts, spas, lodges and villas
  • Complimentary shore excursions on 400+ luxury cruises annually

I don't think I'll ever be rich enough to want such services, even when my assets (net worth?) exceed the US$2 million which is apparently required to get an "invitation" :)

Copyright Enough Wealth 2008

Saturday 12 April 2008

Net Worth of PF Bloggers: March 2008

Here's the current financial situation of some personal finance bloggers who post their net worth each month.

Monthly Net Worth of some PF Bloggers for March 2008:

Blogger Age Net Worth $ Change % Change
An English Major's Money 24 $22,561.00 $802.00 N/A
Aspire 2 Wealth 2x $28,837.00 $1,658.00 N/A
Blogging Away Debt 2x -$30,443.00 $750.00 N/A
Consumerism Commentary 30 $143,174.00 $7,525.00 5.5%
Debt Free 4 Ever 39 $50,056.00 $1,428.00 N/A
Enough Wealth 46 $1,044,608.00 -$19,167.00 -1.8%
How I Save Money 27 -$17,785.00 $144.00 N/A
Lazy Man and Money 2x $213,031.00 -$315.00 -2.7%
Map Girl 32 $49,045.00 $6,029.00 N/A
MaxLoot 25 $42,986.00 $2,747.00 N/A
Moomin Valley 42 $451,951.00 $19,008.00 4.4%
My Money Blog 28 $242,347.00 $9,894.00 4.3%
Savvy Saver 27 N/A N/A N/A

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 27and so on.

Previous monthly reports can be found in the Net Worth category.

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 2008

Thursday 10 April 2008

When is a recession not a recession?

The news services are buzzing about the prospects of a "global recession", after a statement that "The IMF now sees a 25 per cent chance that global growth will drop to three per cent or less in 2008 and 2009 - equivalent to a global recession," was released in the latest IMF's World Economic Outlook report. But what does "equivalent to a global recession" actually mean? In this case it means the exact opposite - that the current IMF forecast is that the world is NOT heading into a recession (even using the generous definition of a global recession as being growth below 3%pa - which is roughly the rate required to avoid global per capita output growth that is zero or negative) within the next two years. In fact the IMF's latest forecast is for global growth to moderate to "just" 3.7 per cent this year and 3.8 per cent next year (as measured in terms of purchasing power parity)- still ABOVE the long-term average.

All that the latest IMF report is actually saying is that the worsening US economic conditions now makes a global recession a possibility - increasing the likelihood from essentially being no chance to now being a "a 25 per cent chance that global growth will drop to three per cent or less in 2008 and 2009.". Put another way, there is now a 75% chance that the world will have growth above 3% in 2008 and 2009 - but that wouldn't make a good headline.

Copyright Enough Wealth 2008

Monday 7 April 2008

An interesting first quarter

2008 has proven to be a very "interesting" year so far for the Australian stock market. The chart of the All Ordinaries Index below shows the massive sell-off that occurred during January, and the very bad start to March which retraced and exceeded the earlier lows before recovering almost half the losses since January 1 in just the past two weeks.

From here I expect the recovery to taper off, and the index could trade within a narrow range for the next couple of months barring any unexpected good or bad news. Hopefully the market has established a support level around 5200, and will slowly recover during the remainder of 2008 back towards 6000 or above.

Until I plotted this candlestick chart I hadn't realised that the January lows were almost as bad as the bottom reached in March. My personal net worth chart showed the March dip to be considerably worse that the low reached in January. I think this is due to the January low being very short-lived, with the market bouncing back from the lows within a day. My net worth includes several managed fund investments which often report price changes the next business day, artificially smoothing the worst of the daily ups and downs by trailing the stock market gyrations by one day (probably a good thing for my peace of mind!). In comparison the March decline was more gradual and the index stayed around the lows for several days, which allowed my net worth calculation to fully reflect the bottom.

Copyright Enough Wealth 2007

Sunday 6 April 2008

A not-so-cheap day out

DW's brother and his wife flew across from Perth to spend a weekend in Sydney and catch a show, so while they were here we arranged to meet them in town. We managed to find free street parking near the railway station and were planning to catch the train in to town. However the trains weren't running on the northern line (due to track maintenance) and we ended up travelling on the express bus that the railway provided. The train fares for the family only cost $10 for a round trip, and we had some fast food for lunch before meeting the relatives. After a pleasant Sydney afternoon wandering around Hyde Park, the Botanical Gardens and through the grounds of Government House we headed back past the Opera House and returned to the train station to catch the bus home. The afternoon provided plenty of time for DW to chat with her brother and the kids enjoyed running around the various parks and gardens.

The day had been very pleasant and low-cost -- up until the time we got back to our car. At that point I found that the car wouldn't start and the battery was practically dead. I phoned for my Dad to meet us and attempt to jump start our car, but we still couldn't get my car started so I had to phone the NRMA (AA) to come and replace the battery. The new battery cost $175, but at least it has a three year warranty. Since I'm planning on selling our car and replacing it with a newer, second-hand AWD (perhaps a Subaru Forrester) in two or three years time, this will hopefully be the last battery I have to buy for this vehicle.

Copyright Enough Wealth 2007

Less and less people are losing more and more

An article in the SMH reported that although the number of people in the USA losing money to internet scams had gone down last year, the total amount being lost had increased to $US239.09 million (up 20.5% from 2006). That is, while people in general were getting more savvy about internet fraud, those that were taken in were being taken for larger amounts.

"We're seeing more schemes involving bigger ticket items, get-rich-quick and work-at-home schemes that involve higher dollar losses," FBI special agent John Hambrick, who is in charge of the FBI's Internet Crime Complaint Center (IC3). The bottom line, as always, is caveat emptor.

Copyright Enough Wealth 2007

Alternative/Passive Income Week

Last week was a good one for 'passive' income. A cheque from Primary Healthcare arrived for the takeover of my Symbion shares ($11,664) and the half-yearly dividend payment season was in full swing, so I received $4,298.71 by direct deposit into my credit union savings account:

26/03/2008 LLC $ 206.83
26/03/2008 QBE $ 394.55
28/03/2008 APA $ 12.76
28/03/2008 APA $ 679.33
31/03/2008 AEO $ 56.20
31/03/2008 WPL $ 121.00
01/04/2008 SYM $ 144.00
01/04/2008 BSL $ 171.82
01/04/2008 SUN $ 500.76
01/04/2008 BBI $ 4.62
01/04/2008 BBI $ 9.82
02/04/2008 FGL $ 450.12
02/04/2008 CBA $ 146.90
04/04/2008 TLS $1,120.00
04/04/2008 TLS $ 280.00

However I don't count this as disposable income as it all needs to be reinvested (the takeover payment) or used towards the interest payments on my margin loans (the dividends).
Copyright Enough Wealth 2008

Saturday 5 April 2008

Review of

This website provides some useful information about credit cards - such as an information centre that provides articles about recent innovations in the credit card arena. A recent article discusses the pros and cons of so-called "green" credit cards from Bank of America and Wells Fargo. The article discusses how rewards points on these cards can be used to purchase carbon dioxide offsets or support projects aimed at developing renewable energy sources. On the downside the article reveals that these cards tend to have higher interest rates than other types of credit cards, but may still be attractive to customers that are concerned enough about the environment so pay extra for an environmentally-friendly card that encourages signing up for paperless credit card payments.

There's an interesting article on the site that discusses the benefits of cards with no annual fee and low interest rates for mature age customers (who tend to pay off their balances in full and use their cards sparingly). Another article discusses the option of using a debit card if you can't qualify (or don't want) a credit card, and how the debit card can help you learn the basics of credit card management. The article also points out the potential pitfall of accruing overdraft charges if you make a mistake and exceed the available funds in your debit account.

So, if you're looking for easy to access information about Credit card innovations you should browse through some of the articles on this site.

Copyright Enough Wealth 2007

Tuesday 1 April 2008

Net Worth Update March 2008

March was looking really bad by the middle of the month, with my daily net worth estimate dropping below the $1m mark on the 17th and 18th. At the low point ($994,777) my net worth was down 6.60% compared to the end of February (even with a slight gain from my real estate valuations which are updated on the 1st of each month). But the stock market rally last week salvaged the situation and I ended the month down "only" -$19,167 (-1.80%) for the month, to $1,044,608.

The final result was due mostly to further losses in my geared equity investments (still down -$24,176 or -8.15% after the recent "bounce"), which were only partially offset by yet another good month for Sydney property valuations (at least for the northern suburbs) -- my share of our property valuations was up $11,534 (1.39%) to $842,978 while my share of the mortgage loan balance only rose $850 to $366,540 (0.23%) as we were able to fund part of our loan repayments using our tax refunds rather than the usual monthly "redraw" of some of our advance payment balance. Preliminary data for March shows that the property component of my portfolio will show a slight gain this month, but the amount could easily be offset by one bad day in the stock market given the current levels of volatility.

The $50,000 I invested in the Colonial FirstState Geared Share Fund on the 7th of March had shown a small profit by the end of the month, although I missed the March low point by a week (I've no idea if the March lows will eventually turn out to be the low of this bear market). This is small beer compared to the situation I'd be in if I'd still had the Index Put Options in place that I bought early last year, but which expired value-less in early December.

The balance of my retirement account gave back the gains of last month, dropping by -1.88% to $295,784. The decrease would have been even larger if not for my monthly retirement contribution (around $4,200). My retirement account balance is down 13.5% from it's peak last year, despite the large monthly contributions I've been making since last July via "salary sacrifice". The only bright spot is that this means my salary sacrifice contributions have been purchasing investment units (in the Vanguard High Growth Index Fund) at lower prices, which should be beneficial in the long term (fingers crossed). It hardly compares to the position I'd now be in if I'd simply stayed invested in cash since we moved our retirement accounts into our Self-Managed Superannuation Fund last June. Looking back there was no urgent need to reinvest my superannuation balance immediately into equities, given the exceptional performance of equities in recent years, the uncertainty about the impact of the sub-prime lending crisis (at that time), and the consensus view that equity returns would be modest in 2008. Short-term cash deposits in online savings accounts are currently paying around 8%pa, which is looking very attractive in the current environment. However I don't intend to alter my long-term asset allocation. No good closing the barn door after the horse has bolted!

We're now 25% through 2008 and there seems no way I can possibly achieve my initial goal of increasing my net worth by $150,000 (13%) in 2008. From my current position I'd have to gain around $244,000 (23.35%) over the next 9 months, or around 31% annualised!

My revised target is to reach $1.15m by the end of 2008 - this would be the same point I was at in May 2007, and still 4% below my all-time high achieved on 1 Nov 2007. I give this a 35% probability. However, I wouldn't be surprised to find my net worth dropping even lower sometime during 2008 (50% probability), in which case my net worth may not rise at all by the end of this year. I can only hope that we won't see a repeat of the 1970's, in which case I could find my net worth stagnating well into the next decade (10% chance).

Of course the real "worst case scenario" (<5% chance) would be a Great Depression II (possibly followed by WWIII). I'd give this scenario very, very low probability (1%?) - but people generally tend to completely discount high-impact, low probability risk events (such as earthquakes, tsunamis) unless they've happened recently. "What-ifs" such as a SARS pandemic around the time of the Beijing Olympics, or a hot war between the US and Iran, are possible, but not highly probably. It's much more likely that the global economy will weather the current storm, and we'll return to long-run average asset performance over the coming years.

Copyright Enough Wealth 2008