Tuesday, 1 July 2008

Networth Update: June 2008

Oh, the pain! The pain!

The worst June stockmarket result since 1930.

The worst financial year stock market result since 1982.

Not a good time to have geared investment in the Australian stock market!

During June my net worth declined by $83,111 - that's about one year's gross salary gone in one month. Poof! To put it another way, if I'd shifted all my investments into cash this time last month, I could have quit my job and gone fishing for a year and still ended up better off!

I also ended the month with my net worth dropping below the magic "one million" mark yet again. This time it looks more permanent than the three day dip below $1m earlier this year. At the end of last month I was still hopeful that I might get back to my previous peak net worth by the end of 2008, or at least by the end of the 2008/9 financial year. Now I'll be relieved if my net worth is over $1m at the end of 2008, and I doubt that I'll be setting any personal net worth records before the end of this decade. Considering inflation in Australia is currently running at over 4% pa and that you can get more than 7% return on cash invested in online savings accounts, that is really a rather pathetic outlook. On the other hand, if the stock market continues to drop I could soon be forced to sell off some shares to avoid margin calls - just when everyone else is bailing out of the market and prices have tanked, so things could still get much, much worse. Such is life when things go pear-shaped using "other people's money" to invest in stocks...

The bad net worth result is even worse considering there were several positive factors at work during the month:
* $3,885.50 was contributed into my retirement account (employer SGL contribution and salary sacrifice)
* a $19,130 increase in the estimated values of my share of our house and investment property

My stock equity and retirement account value dropped by a combined total of more than $100,000 during June! I'm running out of exclamation marks!! A small part (around $10,000) of this decline was due to pre-payment of margin loan interest for 2008/9 on one of my margin loan accounts. I applied for interest pre-payment for two of the other margin loan accounts as well, but the pre-payment hasn't appeared in my on-line account details as yet. It's possible that the faxed application forms were not received and processed before 30 June. In that case I may sell off some stocks and reduce the margin loan balances - this would save on the 10%+ interest rate on the loan balances, but would also "lock in" the recent losses if the market rebounded during the remainder of 2008. On the other hand, if there's an extended bear market (for example if there's a global recession in 2008/9) I would be happy to have reduced my gearing even now - pity I didn't do it last month, or in 2007 as I once considered. Even more pity that I let my Index put options expire in Dec 2007 without making more than a token effort to find replacement "insurance" via index put options, warrants, or selling index CFDs.

Property valuations +$19,130 (+2.29%) to +$853,830
Mortgage loans..... -$...165 (-0.05%) to -$365,579
Retirement accounts -$20,404 (-6.66%) to +$285,985
Stocks & other..... -$82,002(-27.92%) to +$211,694
TOTAL NW........... -$83,111 (-7.77%) to +$985,931

My employer's monthly retirement contributions for the months of Feb, May and Jun (a total of approx $11,650) isn't showing in this month's figures as the employer contribution hasn't appeared in my SMSF bank account yet. The payments were only processed in the last few days, so this may create problems with next year's superannuation tax. My SGL and salary sacrifice total in close to the $50,000 annual concessional contribution limit, so the late 2007/8 FY employer contributions could push next year's total concessional contributions over the limit, and make be liable for an extra 30% tax of the surplus amount. I've applied for a private ruling on this matter from the ATO (Australian Tax Office), as I'd like to know exactly how my SMSF administrator should report these contributions in our SMSF tax returns for 2007/8 and 2008/9, and if I'll need to make an application for 'Special Consideration' regarding these employer contributions.

Hopefully this month and the rest of 2008 turn out to be more positive. They say that it's "darkest before the dawn" - I can remember how dire things appeared during the days of the '87 stock market crash, and yet that now appears as a mere blip on the stock market charts.

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traineeinvestor said...

June looks like it has been a painful month for a lot of people. Somewhere out there there must be some great opportunities emerging....but it requires cash or assets that can be pledged as security in order to take advantage of them.

Debt Dieter said...

I feel your pain, though not quite as 'acute'. I'm down all my superannuation payments for the last year plus an extra $15K.

Right when I'd actually started looking at my super too, I kind of wish I hadn't started looking at it...

mOOm said...

Yeah, hasn't felt this bad (or been this bad to my portfolio) since 2002... If only the oil price will retreat a bit I think things can at least stabilize...

Chuck said...

Yea, I think this month was a tough one for everyone in the market. Personally my investments lost about 10% of their value. Will be interesting to see how others net worth fared.