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Wednesday, 31 December 2008

That was a year to remember

Well, the Australian stock market has ceased trading for the year (it closed early today so everyone can get a good vantage point for tonight's fireworks and/or partying). The All Ordinaries index had its worst calendar year on record, plummeting 43%, compared to the 32% slump during the oil shock of 1974 and the 34% fall in 1930, during the Great Depression. The drop in 1987 calendar year doesn't even rate a mention.

Hopefully I'll still be around in twenty or thirty years to be telling my grand kids "I remember the Great Stock Market Meltdown of '08"...

Subscribe to Enough Wealth. Copyright 2006-2008

Displaying the All Ordinaries Index on Desktop

At work we're still using Windows 2000, so I have loaded the Sydney Morning Herald's All Ordinaries chart onto my Active Desktop. This also works with XP, but active desktop isn't available in Vista so I use a sidebar gadget at home. Monitoring the market serves no useful purpose (for me anyhow - but if you are day trading using your mobile phone it *might* be helpful), but on volatile days I can glance at it and go "Ooh, Aaah" as the market plummets or takes off. A bit like watching a fireworks display.



At home I now have Vista, so I've loaded the Stocks 3.3 sidebar gadget and set the options to only display the All Ordinaries Index (data from Yahoo!, code ^AORD). If you want to track your portfolio live you can add up to 30 symbols, such as BHP.AX, and you can specify the number bought and (average) cost so it displays current profit/loss. Unfortunately it doesn't seem to allow a portfolio total to be displayed, which would be fun (you could see your net worth going up and down minute by minute).



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Tuesday, 30 December 2008

Goals for 2009?

I'm a bit wary of setting goals for 2009, after failing to meet my 2008 goals. Some of the goals (around investment portfolio returns and increased net worth) turned out to be wildly optimistic given my asset allocation, use of gearing, and the GFCs impact on my equity investment returns. It's disconcerting to consider that I could have come close to meeting my goals if simply closed out my stock portfolio a year ago, paid off my margin loans, and put the balance into an online savings account for 2008!

This year I'll not even try to guess where the market might be in 12 months time and set any ROI goals - I'll just aim to meet my home, real estate investment and margin loan interest payments out of current income (salary, dividends and rental income), and to keep socking away 50% of my pre-tax salary into retirement savings via salary sacrifice and SGL contributions into our SMSF. A sub-goal will be to ensure that my employer makes the salary sacrifice contributions at the right times so I avoid any "excess contributions" tax liability.

It would be nice if there are further interest rate cuts by the RBA in 2009, as this would reduce the amount of cash DW and I have to contribute each month towards the interest-only payments on our home loan. Any surplus cash flow could be directed towards paying off some of my margin loan debt (or possibly some of our home loan debt - although the interest rate on the home loan is lower than the margin loans, the home loan interest isn't tax deductible).

I'll have to roll over my 2008 goal of losing weight and going to the gym - I only managed to lose around 7kg this year, and my BMI is still around 30. Given that my diastolic blood pressure is way too high (although my systolic is OK), I need to get down to an ideal BMI of around 22 to see if I can avoid taking blood pressure medicines.

One new goal for 2009 is to keep my current job (although that is somewhat out of my hands given the current economic climate). This time last year my net worth was high enough to toy with the idea of "early semi-retirement" - perhaps taking a pay cut in order to change careers into teaching or financial planning. But the drop in my net worth during 2008 means that I probably need to keep earning at my current income level until 65 in order to afford a "comfortable" retirement. My direct boss "left the company" suddenly a couple of weeks ago (he wasn't inclined, or allowed, to give specifics of his departure, but I'm pretty sure it was a "voluntary redundancy" along the lines of what I got from my previous employer ten years ago). If I'm lucky that cost saving will be the extent of the belt tightening required by our department, but it could just be the start of a round of company-wide "right sizing" if Australia goes into recession during 2009.

My other perennial goal is to start tracking all my income and expenses using Quicken. If I get can get my "new" Dell laptop repaired under warranty (it was doing strange things when I took it on holiday last October, and the DVD drive isn't working) I'll load Quicken 2008 onto it and be able to update my accounts during my lunch break, rather than trying to do so at night when the kids have been put to bed.

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Sunday, 28 December 2008

Tax Office website has closed down for the holidays

Although the 2007/8 tax return deadline was officially the 31st October, since I'll be due a small refund I only really need to finish my return by 31 December so I can lodge it electronically using the ATO's free filing software "eTax". So I spent the last couple of days of the holiday break finalising the capital gains calculations for my 2007/8 tax return - trawling though ten years of previous tax files to get my DRP records up to date for the shares that were sold that year. However, while looking up some details online regarding the Mayne Nickless demutualisation and the Alinta "scheme of arrangement", I tried to follow a link to relevant information on the ATO website, only to see the following message:



It seems that the ATO shut down it's website on Christmas Eve, and it won't be available again until 5th January! I'll try using eTax to lodge my (and DW's) tax returns before eTax stops working on 31 December, but I suspect it won't be possible to lodge an eTax return while the ATO website is offline. If it doesn't work I'll call the ATO on the 5th January to enquire about lodging electronically, but I suspect I'll end up having to fill in and lodge the paper "tax pack" forms this year. It's not much of a hassle, but it will mean I won't get my tax refund as soon, and I may not be able to import the 2007/8 data into eTax next year.

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Saturday, 27 December 2008

How Efficient is your favourite Charity?

An interesting article that points out the relatively high salaries paid to executives at some not-for-profit charitable organisations, the under-reporting of how much of the money raised by charities is consumed by fund-raising and administration costs, and how some charities have large pools of donated funds sitting in investments (that have done poorly this year). It appears that some charities are mostly concerned with justifying their continued existence, gaining "market share", and "empire building". While investing a small percentage of the funds raised makes sense in order to be able to maintain a consistent level of expenditure when income fluctuates from year to year, accumulating a large investment portfolio should not be the main aim of any charitable organisation.

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Thursday, 25 December 2008

Season's Greetings

Merry Christmas to all readers of EnoughWealth!

After a slow start, Christmas trading in Australia appears to have picked up considerably in the last few days - apparently the Government's economic stimulus package is being spent. It will be interesting to see if we avoid a recession in Australia during this global slow-down. The hefty interest rate cuts this year may restrict the drop in Australian residential real estate prices to the 10-15% already experienced (although QLD and WA will probably continue to decline given the effect of the plunge in commodity prices on the mining sector in those states and their relatively high price ratios compared to historic ratios to NSW and VIC). On the other hand, home affordability is still very low at the current prices, and although there is currently undersupply of new housing compared to demand, the increased unemployment rate over the next year may cause the government to reduce immigration levels, which will lessen demand for housing in the medium term. Falling real estate prices have accounted for around $100K of the $500K drop in my net worth this year, so my financial progress in 2009 will be significantly affected by how Sydney real estate performs. My asset allocation is now even more overweight in real estate compared to this time last year, due to the plunge in equity markets.

It is impossible to know where the stock market will end up in twelve month's time - after all, this time last year many "experts" were still expecting the US sub-prime financial crises to not impact the global economy, or even have much impact on the US "real" economy. And I was silly enough to let my Index put options expire without taking the time and effort to replace them. However, with markets down around 45%, it feels close to the bottom (although it seemed similar back in March, when the market plunge paused after a fall of 25-30%, the "normal" bear market decline), and the Australian stock market could stage a rapid recovery (although not to 2006-7 boom levels) if our economy does manage to dodge a recession. After all, GDP is a lot higher than it was 5-6 years ago, so stock prices are relatively cheap if GDP holds up and company profit margins can recover - especially with interest rates continuing to drop to the lowest levels for a long while.

Hoping for a Happy New Year in 2009!

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Monday, 22 December 2008

Got our Economic Security Strategy Bonus Payments

Last week we received $2000 in Economic Security Strategy Bonus from the Federal Government. We are eligible for the government hand-out since we get a small Family Tax Benefit Part A payment, and have two children. Although the government would like this money to be spent asap in order to stimulate the local economy and avoid Australia joining the US, UK, Japan and several European countries in recession, we've simply used the money to meet a couple of month's mortgage repayments shortfall.

It will be interesting to see how big an impact this stimulus payment actually has. I suspect that all the bad economic news over the past 6-12 months has tempered Australian consumers love affair with debt-fueled consumption. Perhaps most recipients of this largesse will use it to repay CC debts, or perhaps make an undeducted $1000 contribution into their superannuation fund (and thereby get another $1500 from the government via the co-contribution)?

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Sunday, 7 December 2008

Financial Crisis dims Christmas lights

I've been a bit late putting up our Christmas decorations this year. We put up a few inside lights and our artificial tree two weeks ago, but I only got around to unpacking and installing the outside lights today. We went for a walk around our block yesterday for DS1 and DS2 to see the neighbour's Christmas lights and there seemed to be a few less displays than last year. Apparently the financial crisis has caused many people to not "light up" their houses for Christmas this year. I can understand people not buying new lights in the current economic climate, but I can't imagine that people who have been putting up Christmas light displays for years would save a significant amount of money by not turning on the same lights they've used in previous years. It's probably just that people aren't in such a "festive" mood this year, and can't muster the enthusiasm required to set up their lighting displays this year. What do you think?

Anyhow, I've added one LED net light to our collection so far this year (about $20), and I'm thinking of buying one of the larger free-standing garden light displays to "complete" our collection (you have to draw the line somewhere, or it could become an expensive obsession to have the "best" display in your street/suburb/state/the world). There are some nice 3D rope light displays available, but can be quite expensive for something you only use for a couple of weeks each year, and has no resale value. I'll check out what is available in the Christmas Warehouse Sale close to my workplace tomorrow, I'm thinking of something that the kids will enjoy and isn't too "religious". Perhaps something like this one for $100:



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Thursday, 4 December 2008

Shifted my son's cash savings into long-term asset allocation

DS1 had $10,000 he'd earned from two years of doing a paper round sitting in a St George online savings account. It was earning a good rate of interest, and was nice and safe (especially since the Australian government guaranteed bank deposits), but cash isn't a sensible asset allocation for an 8-year old with a very long investment time frame. So, with interest rates rapidly dropping as the RBA cut the official rate by 3% in the past 3 months, and the stock markets appearing reasonable value at current prices, I decided to open a Vanguard investment account for DS1 so he could invest his $10,000 in a suitable index fund. The one we (I) decided on is the Life Strategy High Growth fund, which invests in a mix of the other Vanguard Index funds to achieve an asset allocation of:

Asset Sector ..................... Fund ... Target
...................................Actual . Allocation
Growth Assets
Australian Shares ................43.5% ....44.0%
International Shares .............28.9% ....29.0%
Australian Property Securities ... 5.2% .... 5.0%
Int. Property Securities (Hedged). 5.6% .... 5.0%
Int. Small Companies (Hedged) .... 3.8% .... 4.0%
Emerging Markets Shares .......... 2.9% .... 3.0%
Total Growth .....................89.9% ....90.0%

Income Assets
Australian Fixed Interest ........ 4.1% .... 4.0%
Int. Fixed Interest (Hedged) ..... 6.0% .... 6.0%
Australian Cash .................. 0.0% .... 0.0%
Total Income .....................10.1% ....10.0%

The fund has a fairly high fee (0.9%) for an index fund, especially compared to the US Vanguard funds, but there are fee rebates for larger investments, so you pay 0.6% fee on amounts between $50,000 and $100,000, and a reasonable 0.35% for amounts over $100,000. If DS1 continues to use this fund for investing as he gets older it should be a reasonable investment vehicle for his non-retirement savings.

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Monday, 1 December 2008

Net Worth Update: November 2008

Another exceptionally poor month. My net worth as at 30 November decreased by another -$92,546 (-12.13%) during the month to $670,548 (AUD), due to the continued losses in my geared equity investments (down by $39,207 (64.88%) to only $21,222. At one point during November my stock portfolio had negative value, with my margin loans and HELOC being greater than the value of combined portfolio. The estimated valuation of my share of our real estate assets also decreased significantly this month, by -$43,523 (-5.31%). The balance of my half of the mortgage decreased by $234 to -$367,554/ The RBA interest rate cuts over the past three months have reduced the monthly interest payments, reducing the amount of monthly "redraw" required to cover the interest payments while DW is working part-time. There is speculation that the RBA will cut rates by another 0.75%-1.25% at their next monthly meeting, with the scope for further interest rate cuts to offset the effects of the global recession increasing as inflation fears rapidly subside.

I had to sell off some of my Australian stock portfolio this month to avoid margin calls, and my margin utilisation is now slightly below 90% on all three margin accounts.

The balance of my retirement account also decreased this month, by -$10,050 (-4.00%) to $241,186, as it's invested about 98% in the Vanguard Lifestages "High Growth" fund which is allocated mostly to domestic and international equitites. The market declines were largely offset by two month's worth of employer contribution being deposited into our SMSF account this month.

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