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Monday, 31 March 2008

Yes, China really is getting rich quick

From some of the xenophobic, protectionist-inspired criticism you read about Chinese imports into the US and Australia (from what some blogs write, you'd think every product coming out of China was made from toxic waste and designed to maim or kill western consumers) you may doubt the reality of the Chinese "economic miracle" - don't. As reported in this SMH article China has gone from no serious private wealth 30 years ago, to one billionaire in 1999, 14 in 2006 and 106 billionaires as of last October (according to the Hurun rich list).

While it may seem somewhat obscene for an economy that still includes a couple of hundred million people living on less than US$2 a day to be sprouting a crop of billionaires, there can be no doubt that over time this sudden influx of domestic wealth will help boost the overall wealth of the Chinese population. Even if Chinese private wealth is currently largely the result of the unscrupulous combination of speculation and political power (very similar to the situation in Russia I suspect), in the near future we are going to see a massive rise in size of the affluent middle class in China.

Copyright Enough Wealth 2007

Review of Artem Minayev

If you are looking for information to help choose a new credit card, then Artem Minayev's Credit Cards Club may be of interest. It provides about various types of credit card offers (such as business credit cards, 0%APR credit cards, balance transfer offers, low interest rate and No annual fee credit cards etc.) and also a "top credit card" selection of current offers that are available.

Another section of this site provides articles about how to choose a credit card, the basics of the dreaded "credit score", and even a history of the credit card page listing articles such as "A short history of MasterCard". This section would have been interesting, except that the articles appear to be blank placeholder pages!

Overall the layout of creditcardsclub.com is attractive, uncluttered and easy to navigate. It provides some useful links to a selection of card offers, and the ability to sort offers (such as balance transfer credit cards by APR rate or into APR period) is very useful. It's unfortunate that a few sections of this site (CC history) appear to be incomplete, but there is still a vast amount of information about the various aspects of credit card selection and use available.

Copyright Enough Wealth 2007

Sunday, 30 March 2008

Better never than late

The problem with changing from a variable rate home loan to a fixed rate loan is that by the time it seems like a good idea, the horse has probably already bolted. Locking in a fixed rate at the top end of the interest rate cycle is worse than doing nothing.

We converted around half of our home mortgage balance (home and investment rental property) into a five-year fixed rate loan a little under two years ago. At that time rates in Australia had already bottomed out and there had been a couple of 0.25% increases in the variable interest rate. But fixed rates were still lower than variable as a lot of commentators were expecting rates to top out and start dropping again fairly soon. Most home loans in Australia are taken as variable rate loans (similar to US ARMs), and at that time not many homeowners were choosing to move to fixed rate loans.

Two years later and our fixed rate loan is looking pretty sweet after a string of four 0.25% rate rises by the reserve bank in the past year, plus an extra 0.2%-0.3% increase in home loan rates added by the Australian banks due to the increased cost of funds caused by the global credit crunch. Recent figures show that fixed rate mortgages are becoming more and more popular, as home owners get concerned about the prospect of further rate rises.

But is this a good time to be choosing a fixed rate loan? While a fixed rate eliminates the risk of increased loan payments in the future, it also locks in the rate rises of the past two years. If variable home loan rates drop substantially in a year or two, getting out of a five-year fixed rate loan would be very expensive. Although no-one has a particularly good track record at predicting future interest rate movements, the fact that longer term fixed rate loans are available for lower rates than the current variable rate loans suggests that future rate movements are more likely to be down than up.

For example, for a home loan St George bank is currently advertising:

Variable rate....9.37%
1-year fixed.....9.05%
3-year fixed.....8.95%
5-year fixed.....8.90%

and similarly, a margin loan rates from a couple of lenders are:

1-year fixed.....9.8%
2-year fixed.....9.7%
3-year fixed.....9.6%

For the three and five year fixed rates to be 0.2% lower than the current standard variable rate (when most pundits think there's a good chance of one more 0.25% rate rise by the RBA in the next few months) suggests that the banks and other lenders expect interest rates to have dropped by around 0.5% over the next couple of years.

I won't be rushing out to fix the variable rate part of our home loans at this time, but it may be a good time to rollover our current fixed rate loan when it matures in another three years.

Copyright Enough Wealth 2007

Saturday, 29 March 2008

Earth Hour is pathetic tokenism

Like a lot of environmental "direct action", Earth Hour is a pathetic waste of time and effort in terms of actual outcome (of course, the counter argument is that it's main aim is education and awareness, rather than actually achieving concrete results, but at some point good intentions have to actually start producing some tangible results). I've seen figures that about 10% of households have actually "committed" to observing Earth Hour. One can expect these households to turn off TV, lights and maybe air conditioners/heaters. I doubt that they'll turn off power at the main switch-box, so they won't reduce power consumption of fridges etc., and a large part of household power use is often off-peak heating of water which happens in the early hours, so it won't be affected. Overall, I'd guess these households will achieve a 50% reduction in power use for the Earth Hour, saving about 2.1% of their daily power use. This translates to a saving of 0.0057% of these household's annual power consumption, or around 0.00057% of all household's power use for the year! I hate to be cynical, but I somehow doubt that this will do much to slow global warming...

Copyright Enough Wealth 2007

Wednesday, 26 March 2008

CC application rejected

I got a call from Aussie regarding the credit card application I lodged last week (in order to get a 0% balance transfer). They wanted to "check" on some of the details on my application. We went through my salary income, "other" income (my stock portfolio dividends), debts and expenses. In the end the call center operator told me that my expenses were more than my after-tax income (they're not) and asked me if I wanted to change any of the figures. I explained that the problem was that their calculation of my after-tax income was wrong. Since the interest payments on my stock portfolio loans are tax-deductible, my taxable income and therefore the tax I pay is a lot less than their calculations suggested. This went over like a lead balloon (the operator actually asked "is that legal?" when I gave an indication of my actual taxable income) and they were obviously not going to think beyond the numbers that were getting thrown up on their screen. I could have simply told them to ignore the assets, debt and cash flow figures relating to my stock portfolio (which I've done on previous occasions when the CC application didn't have anywhere to put this sort of info), but in the end I decided to just let them decline my application. I don't really want another CC cluttering up my wallet, and the interest I could earn investing $8,000 of "free" OPM for 6 months isn't a huge amount.

Copyright Enough Wealth 2007

Do you want the good news, or the bad?

My insurance company phoned me this morning to let me know that the builder had inspected the further damage to our rental property. As I'd been expecting the worst, I wasn't surprised to hear that the broken brace amongst the steel support beams under the house was deemed to be due to old age, rust and bad welding when the house was originally constructed more than fifty years ago, rather than being due to the tree that fell on the house in a storm last year. As normal 'wear and tear' isn't covered by our landlord insurance policy (unlike storm damage), this means the cost of making any repairs to the steel foundations will be coming out of my pocket. I phoned the structural engineer I'd initially contacted last week(before the insurance company was consulted), and he quoted 4-5 hours to do an inspection and report on exactly what work is required. This will add up to about $750+ just for the engineering report -- he'll then arrange for quotes on the actual repair work from three builders he knows are capable of doing this sort of work.

And the good news? The insurance company's builder did some emergency welding repairs to fix the broken brace which I won't be getting billed for.



Copyright Enough Wealth 2007

Sunday, 23 March 2008

Property portfolio Update: Mar 2008

The latest monthly sales figures (February) for the suburbs of our home and investment property have just come out. There continues to be a lot of "noise" in the data, with monthly average sales prices being affected by the mix of properties sold in the month, but the general uptrend in prices still continues and has formed into a mild house price "boom". However the recent series of interest rate rises by the reserve bank and additional increases in home loan rates due to the global credit crunch are starting to dampen house sales, especially at the lower end of the market. The 12-month gain in average price for the two suburbs we're invested in was around 14.5%, compared to only 5.8% a year ago.

The graph below shows that the rate of property price increase in our suburbs took off in early 2007, with the annualised price change going above the long-term rate of 6% and continuing on past 10% pa. My new worth goal for 2008 assumes an increase in our property valuations of 8%, which may turn out to be conservative. However, it looks as though rising interest rates are starting to bite, so the current housing boom may be relatively short-lived and weak compared to previous Sydney property cycles.



Copyright Enough Wealth 2007

Talk Your Way Out of Credit Card Fees and Interest

Guest Post

Many people take high interest rates and extra charges lying down. But if you have a good credit history you can negotiate better rates and lower fees just by picking up your phone. Credit card companies don’t tell you this, but it’s true.

There is a rule in marketing that attracting a new customer costs 10 times as much as keeping an existing customer. Because competition is so fierce in the credit card industry, you’re an attractive asset to their business and it makes sense and cents to keep you in the fold.

Here are some examples of what you can get with a simple, polite phone call to your credit card company:

  • Late payment fee? If it’s your first “offense,” a simple call to your credit card company will likely win you a reversal of the charge.
  • High interest rate? Simply call and request a switch to get your interest rate lowered – but if they offer you a lower rate with an annual fee, refuse to accept the annual fee, providing an example of a competitor’s offer without an annual fee. To keep your business, your creditor will likely waive your fee and give you a lower rate.
  • Low credit limit? An easy way to boost your credit score is to request an increase in your spending limit, which will automatically lower your debt-to-credit ratio. The debt-to-credit ratio is how much credit you are using out of your available credit and is a factor in your attractiveness to other credit lenders. Just make sure you don’t use the increase as a license to spend more!
  • Did your credit card company jack your interest rate without much notice? Credit card lenders are only required to give you 2 weeks’ notice when they increase your interest rate. If you have a solid track record and can easily get a competitor’s lower rate, call up your credit card to negotiate a lower rate.

Tips for dealing with banks over the phone:

  • Call as soon as possible after your bill arrives if you’re disputing a fee
  • Have your statement on hand when you call with numbers and figures, and older statements that show your good history as a customer
  • Be prepared with “deal breakers” – you’ve had other offers, you’ll transfer or close your accounts
  • Be calm and polite, don’t be a jerk about it
  • Don’t blame the representative for mistakes
  • Don’t close your account right away before giving your bank a chance to resolve your issue

About the guest author:

Linda Bustos is a contributor to Creditor Web, where you can learn more about credit cards, banks and how to use plastic money wisely.


Copyright Enough Wealth 2007

Friday, 21 March 2008

It's your money, look after it

In another example of the dangers of "outsourcing" management of your wealth, Australian artist Ken Done is suing his financial advisers for $53 million, claiming he lost three-quarters of his personal fortune through bad advice. The 67-year-old's money was apparently invested in risky loans and investments in little-known companies that failed - including stakes in two soccer teams, a beauty spa and an obscure Maltese biotechnology company.

If, as he claims, he gave instructions specifying that only 20 per cent of his money was to be put into speculative ventures, he may be able to recover some of his lost fortune through legal action. Done alleges he was misled by false accounting entries and that he paid nearly $2 million in fees over six years.

However, it appears unclear how much of the loss was due to advice from his financial advisers and how much could be due to the actions of the accountancy firm and the principal accountant responsible for Mr Done's financial affairs. In any case, it again highlights the fact that you are ultimately responsible for managing your own financial affairs, and you should keep a close eye on the actions taken on your behalf by "hired help".

Copyright Enough Wealth 2007

Thursday, 20 March 2008

I applied for another 0% balance transfer offer

Aussie Home Loans is offering a 0% interest rate for six months on balance transfers for new Mastercard applications (the card is issued by ANZ Bank). I applied online for a card today, and should get a decision within seven days. I applied for an $8,000 balance transfer "from" my existing NAB Visa account even though the current month's balance is only $4,000 and I'll be paying it in full as usual. I'll soon be getting charged about $8,000 for last week's online booking of the airfares for our European Vacation. I have the money for our holiday expenses already saved up in my ING online savings account, so I'll be able to pay off the credit charge in full the month that it appears on my statement, but if I get the 0% balance transfer I'll be able to leave the $8,000 in my online savings account earning 8.1%pa for another six months. That would be another $324 in interest income for about five minutes "work".

Copyright Enough Wealth 2007

Tuesday, 18 March 2008

Ah, the Student Life for Me

I didn't manage to finish off all my assessment items for the DFS(FP) course prior to the start of the Uni semester, so I had to pay $75 for another two month "extension of time" (it appears that you can keep extending the "deadline" indefinitely, provided you pay a small admin fee -- don't you just love privatised, quasi-professional courses). However, I have just about finished off two of the four modules, so I should be able to complete the rest of the DFS(FP) before this current extension period ends. I also had to pay $75 for a new version of the Superannuation module, as the changes to the superannuation regulations last year (aka "Simpler Super") have made the existing course notes out of date. I don't mind paying to get the updated module on superannuation, as it's relevant to my role as trustee of my SMSF. It does make me wonder how "up to date" some RG146 qualified financial planners would be are if they qualified under the old course and don't do much "continuing education".

Meanwhile the "Autumn" semester at Charles Sturt University has begun. We're already in week four (I think -- it's hard to keep track when you're studying via distance education), and I have an assignment for this semester's BTeach (previously GradDipEd) subject "Reconceptualising Secondary Education" due next week. I also have an assignment for the Master of IT subject "Interface Useability" due the following week. I've started reading through the course notes, text books, and "readings" for both subjects, and I've started some preliminary research for the BTeach assignment. Hopefully I can complete most of the work on these two assignments during the four-day Easter long weekend. Last year I'd planned on completing my assignments during the Easter break and then came down with a bad bout of 'flu that kept me in bed the whole time!

These two assignments are quite fun, but there's a huge difference in the amount of time required to just "scrape through" and the amount of time that should really be spent on them.

Copyright Enough Wealth 2007

Monday, 17 March 2008

Why I hate being a landlord

After surviving the hassles of a tree falling on the roof of our rental property last year, and the drawn out saga of getting the repairs quoted, approved and completed by our insurance company and builder, I thought we were finally getting back to normal. The tenant had started paying the full amount of rent again once the repairs were finished, and we'd even negotiated a rent rise in two stages over the next twelve months. The builder had sent me the Scope of Work document to sign-off that all the required repairs had been completed, and I was about to visit the property to give it the once-over and sign-off.

Then I got an email today from the tenant. They had been sitting on the balcony at the back of the house on Sunday night when there was a loud noise and the balcony dropped several centimeters. The rear of the house sits on tall steel piers, and the balcony is therefore about four storeys above the back garden, so I wasn't surprised to read that the tenants ran inside in a panic and worried about the safety of the house. They report that one of the metal cross-braces under the house appears to be broken, so I started making arrangements for an inspection by a structural engineer this morning.

I think the damage may be related to the tree falling on the house last year, so I rang our insurer to find out what procedure to follow in regards to this latest damage. They advised that the approved builder (that had done to previous roof repairs) would need to inspect the house and decide if a structural engineer's report is needed, and if the damage appears related to the existing claim, or is a new claim.

I'll give the builder another call tomorrow to check that the insurance company has been in contact -- if not I'll call the insurer's complaints department. Last time it took many weeks to get the builder's quote approved by the insurance company and repairs commence. I don't think the tenants will be happy to stay in the house unless the inspection happens very soon, and repairs get underway in short order.

I'm hoping that the damage is due to the tree falling on the house. The house is more than forty years old, and if the damage is due to old age and normal rusting then I don't think our insurance policy covers it. In that case the repairs could end up costing us a lot.

Did I mention that I hate being a landlord? Then again, being a stock market investor isn't too much fun at the moment either ;)

Copyright Enough Wealth 2007

Saturday, 15 March 2008

Financial Literacy for High School Students

The Commonwealth Bank Foundation has put out some free curriculum resources for the teaching of financial literacy to high school students. The modules are available for free online:
Module 1: Earning an income
Module 2: Spending and saving
Module 3: Consumer decisions
Module 4: Consumer protection
Module 5: Buying a car
Module 6: Financial services
Module 7: Managing finances
Module 8: Consumer awareness
Module 9: Personal investment
Module 10:Planning and running a business
Module 11:Impact of technology
Module 12:Economics of everyday finance

The material is quite well developed with scripts, role-plays and discussion points to aid teaching the material to high school students. However, like many aspects of secondary education, it does aim at the "lowest common denominator". For example, the dangers of racking up credit card debts and only making minimum repayments are covered in detail, but there is no mention of using credit cards optimally IE. paying off the balance in full each month. There is also a slight socialist/environmentalist slant to the aspects of "why we pay tax", "ethical investing" and so on. And no practical lessons on legal tax minimisation - although there is a specific discussion question on whether investing in shares can save tax, there's only a mention of franking credits, and nothing about using investment debt to reduce taxable income and "convert" it into long-term capital gains which results in lower rates of taxation on wealth creation. Similarly, the discussions on superannuation seem to under emphasise the tax benefits of making additional employee contributions.

The Commonwealth Bank Foundation is also running some free one-day workshops on financial literacy for teachers. I may see if I can attend one of these workshops while I'm studying for my BTeach degree. If I start a new career as a secondary science/IT teacher in a few years time, having some training for teaching financial literacy may help me "win" a teaching position in a more desireable school.

Copyright Enough Wealth 2007

Chinese Wealth

I recently attended a 'careers night' hosted by AMP Financial Services (I'm thinking about applying for their 13-week intensive training to become a financial planner once I've completed the DFS(FP) course. Then again, quitting my salaried position to start my own financial planning business as an AMP franchisee would be a big step, which I haven't decided to take as yet). Anyhow, one of the facts they mentioned about financial planning in Australia is that although Australia is only a tiny fraction of the population of Asia, we represent around 40% of the private retirement savings of Asia. And the Australian retirement savings pool is growing at a rate of around 14%pa (largely due to our compulsory superannuation system) compared to GDP growth of around 4%.

However, this pales into insignificance compared to the rate of growth in wealth management in China. After many years of double-digit GDP growth, and probably more to come in the near-term, the Chinese wealth management industry grew by an amazing 70% in 2007. Although China can be a tough market for western companies to penetrate, there is huge potential for Australian wealth management companies to leverage their existing expertise into this growing market. A JV with an existing Chinese bank or investment company would probably be a good approach, given the risks in investing large amounts of capital to create a local presence from scratch - especially if there is a crash in the Chinese stock market in the next year or two and the grow in wealth management temporarily reverses.

Copyright Enough Wealth 2007

Thursday, 13 March 2008

Why I think it might be time to invest in stocks

Unfortunately I'm already fully invested in stocks, so this is of more interest to those investors who may be thinking about when to reallocate some of their investment portfolio into the stock market. My view is that over the long term the stock market has shown a remarkably consistent trend, as shown in the logarithmic chart of the monthly closing value of the Australian stock markets "All Ordinaries" Index since 1980. Therefore, when "Mr Market" has gone beserk and the market is well above or below the trend is the best time to think about adjusting you portfolio (or rebalancing back to your target allocation).

I've highlighted where the market has temporarily deviated well above the long-term trend (in red), and where it has dropped well below the long-term trend (in green). These, to my mind, represent overbought (mania) and oversold (panic) conditions in the market, and would have been good times to reduce or increase your asset allocation to stocks.

The fact that during 2007 the stock market was in the "red zone" was why I bought some Index Put Options (since I didn't want to sell off some of my stock holdings due to capital gains tax concerns). It's also why I'm kicking myself that I let these options expire in Dec 2007 without making a serious attempt at replacing them with a new series. Being in the "red zone" meant that the chances of a significant market correction or bear market were higher than normal, although the market wasn't as obviously overheated as was the case in 1987.

Today the All Ords is about 25% below it's all time high of 6,873 and has dropped well into the "green zone". To me this suggests the start of a buying opportunity (if I had any spare cash to invest). Of course, there's nothing to say the market won't drop even further before bottoming out - in 1987 the "crash" involved a drop of 36% in the All Ordinaries index. However, since the market wasn't as overvalued in 2007 as it had become in 1987, and the Australian economy is still benefiting from the commodities boom, I don't expect the market to drop much further (then again, this could just be wishful thinking on my part).



Copyright Enough Wealth 2007

Wednesday, 12 March 2008

How I became an ex-millionaire

Over the past two years I became a millionaire (on 6 Dec 2006 my Net Worth first went over A$1 million), was a millionaire all through 2007 (my NW peak at $1.184m on 20 jun 2007 and at $1.199m on 1 Nov 2007), and yesterday my estimated NW dropped below A$1m again. Today the stock market is up around 4%, so I'm probably a millionaire again!

If nothing else the past two years have proven some of fundamental truisms of investing:
1. Booms end in a bust
2. When people say "this time it's different", it isn't
3. Diversification helps smooth portfolio returns, but isn't a panacea.
4. Markets tend to revert to the mean
5. Never let tax considerations influence fundamental decisions about asset allocation

During 2006 the stock market was booming and the Sydney property market was still in a slump. At that time I was bemoaning the fact that my portfolio was overweight (around 50%) in real estate compared to what I'd like my allocation to be (around 35%), but with the high transaction costs of selling real estate the only way to realistically adjust with portfolio asset allocation was to borrow some funds against my real estate equity using a HELOC and invest additional funds in the stock market. Now that the market has slumped and Sydney property is making some modest gains I'm glad to be "overweight" in real estate.

Back when the stock market continued it's bull run into 2007 I decided to buy some "insurance" by purchasing some Index Put Options with an expiry date in Dec 2007. These were "out of the money" throughout 2007, but did appreciate in value somewhat during the market slump in July 2007, only to lose value as the market recovered later in the year and expired with no value in December. I had intended to buy some new Index Put Options in December 2007, but never made more than a cursory investigation into the available options, and, not finding any suitable ones with a reasonable price, delayed taking any action while I considered alternative methods of insuring against a bear market, such as short selling Index CFDs or ETF shares. In the end I took no action, and decided it that I'd "missed the boat" when the market corrected 5%-10% in early January. *Bad Move*! If I'd only "rolled over" my Index Put Options into a new series that had a Sep or Dec 2008 expiration date back in December, I'd have preserved around $150K of my Net Worth and would now be in a position to use the gains realised on the Put Options to buy into the market at the current low levels. Instead I've lost a significant percentage of my Net Worth, I have no free cash available to invest in the stock market at the current attractive prices, and my margin loan accounts are getting close to margin call levels of gearing!

The other bad call I made in 2007 was to not sell off some of my stocks when they reached all-time high prices and the market seemed to be reaching "full value" AND the US sub-prime fiasco started making the headlines. I made the mistake of paying attention to pundits who were predicting that although the Australian market was getting close to "full value" it wasn't on exceptionally high p/e's and could gain another 5%-10% by mid-late 2008. Wishful thinking!

When the market has had a bull run for several years, and some fundamentally bad news comes out that doesn't appear to dent the market's confidence, you're in the situation of Wiley Coyote running in mid-air off a cliff. I should have ignored all the talk about "this time it's different" (eg. the Australian market is supported by the commodities boom, the Australian/Asian markets are uncoupled from problems in the US economy, etc. etc) and just taken some profits out of my stock portfolio. I had tax reasons to not want to realise significant capital gains during 2006/2007, but I then continued to let tax considerations influence my decision to hold onto my unrealised gains during 2007/2008 when the market was starting to get choppy.

Oh well, at this stage all I can do is hope the current situation is a milder version of 1987, when the market recovered relatively quickly from it's massive sell-off. If the situation is more like the oil-shocked, stagflationary era of the 1970's it could be quite a long time before my Net Worth regains the peaks of 2007.

Copyright Enough Wealth 2007

Tuesday, 11 March 2008

How I save money planning my holiday

Part 1: British Heritage Pass

This is one of those things that is worth purchasing in advance of your holiday. Buying the 15-day family pass costs $285.00 in Australia, and a quick check of the entry fee for the top 15 places that we're likely to visit shows that I'll save around 70% off the entry fees by buying this pass (compared to paying each entry fee as we travel).

For example, we'll be interested in visiting the following most popular attractions:
(prices per family or 2 adults/1 child, converted to A$ at current exchange rate of 0.47GBP)

The Roman baths and pumphouse__$61.70
Edinburgh Castle_______________$70.20
Stonehenge_____________________$41.50
Shakespeare's birthplace_______$36.15
Blenheim Palace________________$91.50
Holyroodhouse__________________$52.10
Leeds Castle___________________$89.35
Conwy Castle___________________$29.80
St Paul's Cathedral____________$45.75
Globe Theatre__________________$57.45
Dover Castle___________________$50.65
Warwick Castle________________$102.10
Kents Cavern___________________$50.00
Lancaster Castle_______________$29.80
Bamburgh Castle________________$44.70

TOTAL_________________________$852.75

There are 580 sites in total that are covered by the Heritage Pass. Since we're likely to visit many more attractions during our tour, we should save a lot more on entry fees than the $600 saved by using the pass at these 15 attractions.

There's currently (during March) a 10% discount on purchasing the Heritage Pass on VisitBritain.com.au, so the pass will only cost $256.50. In addition, by going to the site via a link on EmailCash.com.au I'll earn around $2.50 worth of points when I purchase the 15-day family pass.

There are also some side benefits of having the 15-day Family Heritage Pass;
1. I can visit places I've previously seen without worrying about the cost. If I had to pay an extra adult entry fee each time I'd be tempted to just send the wife and kids in without me.
2. We can stop and do a quick "dash" through some sites that we're travelling past that are of moderate interest. If we were paying the full entry fee each time we wouldn't visit places where we didn't have enough time to get our full "money's worth".
3. We're can visit the sites that have higher entry fees. For example, on our honeymoon we visited Bath, but we didn't bother going through the Roman baths and pumphouse as the entry fee seemed a bit steep.

There are shorter and longer period passes available, but the 15-day pass should suit our itinerary perfectly as we'll be spending 15 days in London and driving around England/Scotland before we go by car ferry to Ireland. We'll have another couple of days in Wales and England at the end of our stay, but I'm not sure it's worth paying another $100 to upgrade to the 30-day family pass. I'll have to check our route to see what attractions we could visit in the last couple of days of our stay.

You have to enter you expected travel date when you purchase the pass, but the card uses smart card technology to log it's usage, so the valid period doesn't start until you use the card at the first property you visit. The validity period is based on calendar days, so we won't be using it on the first day we arrive in London at 8pm!

Copyright Enough Wealth 2007

Sunday, 9 March 2008

Started booking our European Vacation

Well, I finally decided to commit to taking a five week overseas holiday to Germany and the UK in August/September. I booked our airfares online through webjet.com.au and a London hotel (Marble Arch Inn) directly online. The return airfares Sydney-Frankfurt-London-Sydney for two adults, 1 child and 1 infant cost $8,663.39 (including fees & taxes and $340 for family international travel insurance) and a 'family' room (for four adults and two kids) cost 500 GBP for four nights. This seems quite reasonable for a London hotel, as the other 3-4 star hotels I checked out had room rates starting from $235 per day for two adults/two children. My parents will be coming with us on this holiday, so we're sharing the hotel accommodation in London and will drive a small mobile home around Germany and the UK. The booking fee will be immediately charged to my credit card, and the balance of the airfares charged within the next seven days. I have enough saved up in my ING Direct "holiday" account to cover this, and the balance of the holiday costs won't be charged until August, by which time I'll have accumulated the remainder of the costs.

I haven't taken a "proper" vacation for about five years, so I have eight weeks annual leave accumulated plus my eight weeks "long service" leave vests in July. So there's no problem taking the time off work. The question mark was over the cost of this holiday (estimated around $18,500 all up) and whether I really want to spend two days in economy class flying from Australia to Europe and back, just to spend five weeks driving the family around Germany, England, Scotland, Ireland and Wales...

I've been to Germany and the UK many times before (but never to Ireland), but DW has only been to England and Wales once (on our honeymoon), and the DS1 is old enough to enjoy (and be educated by) his first trip to Europe. I had thought about postponing this trip until DS2 was also old enough to remember something of it, but some of the relatives we want to visit might not be around in another five years time (my Great-great Aunt in England is in her 90s, and my Aunt in Germany is approaching 80 and in poor health). Also, with the Aussie dollar at very high levels and the oil price continuing to rise, this sort of holiday could be much more expensive in five years time.

My dad is going to book us a six-berth motor home for two weeks driving around Germany/Austria etc., and we'll hire another one for driving around the UK and Ireland for three weeks (it'll be a bit rushed, as usual). At a cost of around $220 per day, the van should be cheaper than hiring a large rental car and staying at motels or B&B's each day (especially since I'll be splitting the motorhome rental costs with my parents). The time saved not having to pack and unpack every couple of days and hunt for accommodation each day (our itinerary is fairly flexible) should also be benefit compared to staying in hotels. However, I haven't been on a caravan holiday for many, many years and it will be interesting how my parents, kids and wife get on together for six weeks in close quarters ;)

Copyright Enough Wealth 2007

Saturday, 8 March 2008

Net Worth of PF Bloggers: February 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 February 2008:


Blogger Age Net Worth $ Change % Change
An English Major's Money 24 $21,759.00 $508.00 N/A
Aspire 2 Wealth 2x $27,179.00 $1,629.00 N/A
Blogging Away Debt 2x -$31,193.00 $1,944.00 N/A
Consumerism Commentary 30 $135,649.00 $9,879.00 8.4%
Debt Free 4 Ever 39 $48,143.00 $274.00 N/A
Enough Wealth 46 $1,063,755.00 -$2,302.00 -0.2%
How I Save Money 27 -$17,929.00 $3,292.00 N/A
Lazy Man and Money 2x $213,031.00 -$315.00 -2.7%
Map Girl 32 $43,016.00 $404.00 N/A
MaxLoot 25 $38,975.00 $2,591.00 N/A
Moomin Valley 42 $445,175.00 $7,440.00 1.7%
My Money Blog 28 $232,413.00 $13,875.00 6.3%
Savvy Saver 27 $226,073.00 $5,286.00 2.4%

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

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

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

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

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

Copyright Enough Wealth 2007

Friday, 7 March 2008

Budget Review

As I've previously posted, I don't normally budget these days as most things are running on "autopilot". Even our grocery shopping doesn't vary much from week-to-week. However, since I want to start tracking my expenses fully in Quicken, I've decided to do a rough budget in order to work out what categories I need to setup and use that will be meaningful to me.

This budget is somewhat unusual in that I only count "my half" of our rental property income and home and rental property loan expenses. The rental income almost covers the rental property expenses, and the difference (negative gearing) is counted as "investment" as it's tied to the eventual capital gain we expect to make on the rental property. I also ignore the interest costs of my margin loans, on the assumption that the dividend income from theses investments more-or-less covers this cost (any shortfall tends to come out of realised capital gains).

By excluding the investment income and expenses that net out to zero, my overall budget therefore corresponds to how my income is being allocated for everyday expenses:
 
housing_________________31.6%
retirement savings______22.8%
income tax_______________9.3%
food_____________________7.8%
transport________________6.3%
healthcare_______________5.4%
self-education___________4.4%
investments______________3.9%
children_________________3.9%
unallocated______________3.0%
entertainment____________1.5%
total__________________100.0%

It should also be noted that the "children" category only covers incidental expenses such as school fees, music lessons, and sports fees. The kid's clothes and food expenses are just absorbed within the general "food" category.

The housing cost is largely the repayments on our home loan, so some of this should really be allocated to the "investments" category.

I'll setup these eleven categories in Quicken and use them for my initial budget for tracking purposes. I'll setup another category ("portfolio") to lump together all the dividend income, capital gains/losses and margin loan interest expenses.

Copyright Enough Wealth 2007

Symbion takeover offer accepted

I finally accepted Primary Healthcare's $4.10 takeover offer for my Symbion stock. The offer had become unconditional and with the Symbion board of directors unanimously recommended the revised offer and Primary's control reaching over 85% it seemed inevitable that they would reach the 90% required for a compulsory takeover of any residual hold-outs. Since that would result in receiving the offer price of $4.10 (reduced to $4.05 due to the dividend recently paid out by Symbion), there was not point in not accepting.
I had thrown out my previous offer acceptance forms, so I tried phoning the Primary Healthcare info line to order a new acceptance form last week. However, the number was on voicemail, so I didn't end up ordering a new form. One arrived in the mail on Monday anyhow, sent to all Symbion shareholders who hadn't accepted by the time the latest offer deadline extension was announced.

The listed stock price was around $4.10-$4.11, so I thought about selling my holding on the market rather than sending in the acceptance form, but since my Symbion shares are held in my Leveraged Equities margin loan account I'd have to sell them via the registered broker - Tolhurst. Since they aren't a discount broker this would have meant brokerage fees of around $75, which would have knocked about 3c per share off the realised sale proceeds. I looked into changing my registered broker to an online broker, but the only one that Leveraged Equities has arrangements for online trades of margined stock is Morrison. Although the rates seemed competitive on first glance (similar to Comsec and other online brokers), the fine print of the account application form revealed that you have to use their IRESS trading application with a significant monthly fee, or else use their 'HTML' trading platform (similar to Comsec and others) which costs $500pa (unless you maintain an account cash balance with them of at least $5,000!). I could have investigated further to see if the CMT account linked to my Leveraged Equities account could have maintained the requisite $5,000 balance, in which case the interest rate paid on the $5,000 would have been OK, but I decided it was all too hard. I was especially put off by the Morrison application forms having a clause that, once you assigned them as your principle broker on your leveraged equities account, they had to agree in writing to any request to change brokers in future.

So, in the end I faxed the Primary Healthcare offer acceptance form to Leveraged Equities yesterday. I should receive the $11,664 payment from Primary within two weeks of the offer deadline. Now that I've accepted the offer I hope the deadline doesn't get extended yet again!

One thing I'd forgotten is that by accepting the takeover offer instead of selling the stock I'd lose the margin value of these shares from my leveraged equities account immediately the offer paperwork was processed by LE, but I wouldn't receive the payment funds for several weeks. D'Oh! - this made my margin utilisation shoot up from 81% to 88% overnight.

Hopefully there market won't drop significantly before the payment from Primary Healthcare is processed, otherwise I'll have to find some cash to reduce the LE margin loan balance.

Once the funds arrive from Primary I'll use the money to reduce the LE loan balance. I'm slowly reducing the stock holdings within my LE account due to the lack of online trading with this account. These days I make any stock fund purchases on margin using my St George margin loan account, and any direct stock investments (or the CDF ETF) using my Comsec margin loan account, which can be traded online.

Copyright Enough Wealth 2007

Thursday, 6 March 2008

AGL Energy Dividend Reinvestment Plan (DRP)

AGL Energy has sweetened their DRP conditions slightly - apparently they need to raise some funding. The new DRP scheme provides for a 2.5% discount to the weighted average price prior to the record date, plus they are now going to round UP any fractional stock entitlements that result from the DRP. The latter is a boon for small shareholders, and used to be quite common with DRPs back in the 80s.

Although I generally prefer cash dividend payments to DRPs due to the extra paperwork and complications around CGT calculations for my tax return when I sell a shareholding that includes DRP stock purchases, I've decided to enrol in the AGL DRP. I have two AGL holdings - one on my LE margin loan account and another on my Comsec margin loan account. The added value of the DRP is just enough to make the extra record keeping and tax calculations worthwhile:

LE AGL holding.............510 shares
current price..............$10.31
Dividend...................26c x 510 = $132.60
Example DRP price..........97.5% x $10.31 = $10.05225
DRP shares due.............13.19 shares
rounded up to..............14 shares
DRP value..................14 x $10.31 = $144.34
DRP premium................$11.74 more than taking the cash dividend

Since I have two similar AGL holdings in separate accounts, the total benefit of participating in the DRP is around $40pa, so it's worth the small overhead in extra paperwork.

Of course in reality the DRP premium is coming out of AGL's profits, so if all shareholders participated in the DRP (and there wasn't any rounding benefit) they'd be no net benefit in participating in the DRP. However, many stockholders won't use the DRP, and large shareholders won't benefit from the rounding-up effect, so I should be slightly better off using the DRP than if there wasn't any DRP available at all. This ignores any potential gain or loss that might result from investing the cash dividend elsewhere.

Copyright Enough Wealth 2007

Blog Performance and Monetization Update: February 2008

Readership got a boost in January when I started promoting some of my "best of" posts using StumbleUpon. This had less effect in February when I'd gone through all my best posts and only promoted the three or four posts during the month that would probably appeal to a general audience. Visitors are now averaging around 100 per day (80-90 if I don't post new material, 110-120 when I post), and sometimes spikes up to 200-300 visits if a post is promoted using StumbleUpon.

Revenue from blogging has reduced to only $15-20 per month from Google AdSense. Although I haven't yet reached the $100 payment threshold, so I may never even see this money. Google recently sent me an email warning that they may revise the payment calculations as they had detected some traffic coming from "paid-to-surf" or similar sites. I can only guess this was due to a small amount of traffic that was coming from TrafficSwarm, where I had setup an account to get some extra people to visit the site. As far as I can tell, this only produced a handful of visitors each day, and none of them appear to have been clicking on the AdSense ads anyhow. I've now disabled the link from TrafficSwarm, so hopefully this will fix the potential angst with AdSense. I'll have to wait and see if my AdSense account balance is actually adjusted - it's currently sitting around $95, so I'm hoping to hit the magic '$100' threshold this month and get some income from AdSense in April.

PayPerPost no longer has any suitable opportunities for me to blog about - the drop in my Google PageRank to 0 makes this blog ineligible for most PayPerPost opportunities. The new PayPerPlay system went "live" last month (with very limited numbers of ads playing per site - my site got to play only 20 ads after 15,312 hits), and my grand total of accumulated payment due from PayPerPlay is only $0.07 - I doubt I'll ever see any payout from PayPerPlay! There are a few sponsored post offers coming through from Blogsvertise, but many of those aren't for services I'd be happy to write a neutral or positive post about, so I can't count on any revenue from sponsored posts in future.

Copyright Enough Wealth 2007

Wednesday, 5 March 2008

Increased my investment in the Colonial FirstState Geared Share Fund using margin

My Margin Loans with Leveraged Equities and Comsec are almost fully utilised (>80% MU, with margin calls if MU exceeds 105%), but I have a fairly low gearing level with my StGeorge Margin Loan, as I transferred all my miscellaneous mutual fund investments into this account several years ago and have only been using a 50% geared savings plan of $200/mo to slowly add to my investment in the Colonial FirstState Geared share plan. That particular investment has done well during the bull market, but is currently down around 50% from it's high last October. Assuming we're close to the bottom of the Australian bear market (which seems possible, given our economy is still growing around 4%pa and exports due to the commodity boom expected to rise another 30% in the next 12 months) it may be a good time to invest more into this internally geared fund.

The fund invests using internal gearing and generally invests in high quality companies in the S&P/ASX 100 Accumulation Index. These companies generally have strong balance sheets and their earnings are expected to grow at a greater rate than the Australian economy as a whole. The option’s gearing effectively magnifies returns from the underlying investments, whether they are gains or losses. The option predominantly invests in Australian companies and therefore does not hedge currency risk.

I've filled in an application form to invest a further $50,000 in this fund and faxed it to StGeorge margin lending. The investment will be fully funded from the available margin in my account. This will cost around $5,000 pa in additional interest payments, which are tax deductible, but would be partially offset by any distributions from the investment. Of course, borrowing 100% to invest in a geared stock fund is very high risk, but this is only around 5% of my 5% of my net worth. The strategy will pay off if this is a "normal" bear market (followed by a period of good market performance), but won't pay off if we enter a period of extended poor stock market returns, such as occurred the last time we had an oil shock and high inflation in the 70's. Time will tell.





Copyright Enough Wealth 2007

Paper Trade ASX CFDs for free

You can now "paper trade" ASX CFDs with the ASX CFD simulator. ASX CFDs are a versatile and flexible trading tool for the experienced trader. The ASX CFD simulator allows you to experiment with trading and experience the benefits of ASX CFDs without risking any of your own capital.

The ASX CFDs simulator enables you to:

  • trial your strategies and trading techniques with a hypothetical cash balance of $100,000,
  • set up watchlists,
  • place trades in the top 50 equity CFDs, and
  • view your transaction history and performance positions.

All you need to do is set up your simulator trading account and you’ll be ready to go. You can use the simulator as a watchlist or participate in the ASX CFD Trading games that will run throughout the year.

Copyright Enough Wealth 2007

Tuesday, 4 March 2008

Boys Own Financial Plan

The boys (DS1 and DS2) net worth decreased slightly this month, taking hits on their small, undiversified stock portfolios. DS1 suffered the worst performance, with his investments in ANZ and QBE both doing badly. DS2 did slightly better, with CSL and CPU in his portfolio.

The long term financial plan for the boys aims for each of them to have a net worth somewhere north of $100K when they turn 18 - providing a sound base for them to save for a house and fund their retirement accounts without too much stress.

There actual and projected net worths are plotted against age below:



The projection is based on the following assumptions:
Savings accounts.....1.2% real return
RSA account..........4.7% real return
stock portfolio......8.8% real return
superannuation.......8.8% real return
(invested in stock/geared stock funds)

savings:

  • $1,200 pa contribution each (by me) into their superannuation accounts
  • $1,500 pa government co-contribution each into their superannuation accounts
  • $50 per month saved from their odd jobs/busking/pocket money etc.

The recent dip in DS1's graph shows how unlikely it is that the actual outcomes will be anything like the smooth projection.

Copyright Enough Wealth 2007

Monday, 3 March 2008

Net Worth Update February 2008

Blame it on the leap year! February's performance was looking OK until the stock market drop on the 29th.

My net worth as at 29 February decreased by -$2,302 (-0.22%) during the month to $1,063,775 (AUD), due to further losses in my geared equity investments, which were only parially offset by a good month for Sydney property valuations (at least for the northern suburbs). Preliminary data for March shows that the property component of my portfolio will show another gain this month, but since the stock market dropped a further 3% today there's no guarantee that my overall net worth will improve this month. Since my savings and the interest I could get on a risk-free asset allocation (online bank investment) would see around $10,000 being added to my net worth each month, it's getting tedious to see back-to-back month's of flat or decreasing net worth.

The estimated valuation of my share of our real estate assets increased by 1.73%, but the balance of my half of the mortgage also increased by 0.24% as we continue to use monthly redraws to help cover the interest payments while DW is working part-time. We added a large chunk of our tax refunds to the joint account that funds the mortgage payments, so we should have enough to meet payments until at least the end of 2009 (provided the tenant of our rental property keeps up with the rent). We will also contribute a large part of any tax refund we get this year, which will help offset the expected 0.25%-0.75% in interest rate rises by the RBA in the next few months. Fortunately we have around half of our mortgages on a five year fixed rate loan, which lasts until 2011.

My leveraged stock portfolios decreased by -4.92% this month to $296,562, which is painful, but not as bad as last month (-18.35%). I'm not game to increase my margin loans to invest any more in the market at the moment, although this is probably a good buying opportunity.

The balance of my retirement account recovered slightly this month, by 1.73%, but that was largely due to my monthly retirement contibution (around $4,200) plus an amount being paid in by my employer that had been outstanding since September.

We're now 15% through 2008 and it appears highly unlikely that I'll achieve my goal of increasing my net worth by $150,000 (13%) in 2008. From the current situation I'd have to gain around $225,000 over the next 10 months, or around 21.1% in 10 months! From the current position I'll be happy to achieve half that increase.

Copyright Enough Wealth 2007