Friday 25 December 2009

Some little financial Christmas gifts

My company closed down for Christmas Eve, giving everyone an extra day of paid leave. They're pretty generous that way. On the other hand, they gave a minimal 2% "cost of living" pay rise last year to most employees (when the official CPI in Australia was around 3% and the average wage increased by more than 4%) and this year they gave no "across the board" rise at all, citing the challenging economic climate and uncertain profit outlook for 2009. As I anticipated, they decided to give a modest bonus ($250) to all employees just before Christmas. They normally don't give bonuses to non-executive staff, and a one-off bonus means that they have locked in the wage savings gained from keeping the general salary bill increase to just 2% over the past two years.

Aside from the $250 bonus at work, I also received a 1-for-12 renounceable rights issue from Woodside petroleum. As the 19 new WPL shares I'm entitled to are priced at $42.10 and WPL is currently trading at $47.50, taking up my entitlement will result in a net gain of around $100 (assuming the share price doesn't drop too much due to dilution when the shares trade ex-entitlement).

Overall though, the "Santa Claus" rally in the share market in the past week was a bigger boost to my net worth than these little Christmas presents.

Subscribe to Enough Wealth. Copyright 2006-2009

Tuesday 22 December 2009

Am I underpaid, or is he overpaid?

Now, I'm not saying that David Tepper is being overpaid (well, actually I am), but he was paid my annual salary for every 6 minutes he worked in 2009! And although a 120 percent rate of return in excellent, a performance fee of 30% seems a bit rich -- especially since he won't be handing any of it back in bad years (like 2008, when his fund earned -25%). Overall, such performance fee structures seem designed mainly to transfer as much of the fund investors wealth into the fund managers pockets as quickly as possible.

For example, if such a fund started out with a value of $100b and made 120% in one year (and was paid a 5% base fee plus a 30% performance fee) and then -25% return the next (and was 'only' paid a typical minimum 5% base fee), the investors would end up with a return of around $34b over two years, while the fund managers would have been paid $40b in fees...

The $30 million pounds paid to Crispin Odey, a British hedge fund manager who made similar bets in 2009, seems a more reasonable payment for exceptional hedge fund management.

Subscribe to Enough Wealth. Copyright 2006-2009

Monday 21 December 2009

First Timbercorp Distribution Received

I just noticed that the liquidators of Timbercorp had deposited $4,803 into my credit union account on Friday. Looking at the KordaMentha (liquidators) website I learned that this was payment of the 1st distribution ($1,601 per Lot) to be made in relation to the sale proceeds received by KordaMentha for the Grower Investors' trees (sold on 30 September). A final distribution (expected to be $543 per Lot) is due to be made in the first quarter of 2010. This means that the total amount of income generated by my Timbercorp investment will be around $6,432. My total investment was an initial up-front payment of around $10,500 in 1999 plus approx. $9,000 spent on annual insurance, land rental and management fees since 1999 -- adding up to around $19,500 (not adjusted for inflation). The distribution is therefore around 35c in the dollar, or around 10c in the dollar if you adjust for inflation and opportunity cost. I had hoped the sale proceeds would result in a larger payout to the 1999 Investors, as the amount was supposed to be proportional to the value (age) of the trees), but a plot of total distribution vs. year of investment shows that the payout amount doesn't correlate to the age of the trees as much as I had expected (as usual I seemed to have managed to pick the worst possible year to invest in a 'dud' investment).

While the basic idea of diversifying my investment portfolio into agribusiness investments was sound, it turned out that this investment was driven mostly by the up-front tax deduction available to investors, and suffered from huge management and promotion costs (IE. fees and bonuses paid to financial advisers) that were more in line with life insurance products than your typical investment fund.

One consolation is that I wouldn't have done especially well investing in a listed agribusiness company such as Wesfarmers, and would have done almost as badly if I'd put my money into a supposedly 'safe' agribusiness such as the Australian Wheat Board. And I could have lost even more if I'd invested the money in a company in 1999 (unless I'd picked Google or one of the other exceptions).

Subscribe to Enough Wealth. Copyright 2006-2009

Friday 18 December 2009

Is giving billions to developing countries the best way to minimise climate change?

One of the sticking points at the Copenhagen climate summit is how much money the rich/developed countries will provide to the poor/developing countries to help them 'adapt' to climate change. Figures of $10b and now $100b are being thrown around, and I saw one of the representatives of the developing countries state that $400b of aid would be required, and fast. I just wonder how effectively that money will be spent by developing countries -- the track record of aid spending by third world countries has been pretty bad, with a large percentage of funds being siphoned off and promoting corruption rather than development.

I have a sneaking suspicion that this 'aid' is really a form of hush money, paid by the rich countries to the poor in order to minimise the impact of CO2 reduction on western living standards, and not the best way to actually minimise the concentration of CO2 in the atmosphere.

And if the aid money actually ends up increasing the rate of development and improvement of living standards in the developing nations, it could actually increase the rate at which global CO2 emissions are rising, rather than reducing it.

Perhaps the money would be more effectively spent on fast-tracking research into more efficient photovoltaic cells, the ITER fusion power generation research facility, providing birth control options to those who want them in the developing countries, building more nuclear power stations to provide base power generation capacity in western countries in place of coal-fired power stations, and so on. But there seem to a great many vested interests and ulterior motives at work at the global climate change summit, and within the 'climate change movement' in general.

It will be interesting to watch how this saga develops over the next few decades, but I don't think we're heading towards a happy ending. The world of the future may end up resembling the movie 'Soylent Green' (or possibly 'Salute of the Jugger').

Subscribe to Enough Wealth. Copyright 2006-2009

Thursday 17 December 2009

Tiger Woods to be skinned alive

The latest rumour circulating about Tiger Woods infidelities is that his wife has had enough and decided to get a divorce. I suspect that while she may have known about (and tolerated) one or two 'flings', she isn't prepared to put up with a guy who has racked up more than a dozen affairs at a rate of more than two for each year of marriage. Apparently Elin Nordegren has a generous pre-nuptial agreement that would probably she her getting around $300 million in a divorce settlement, plus custody of the children and child support. That would make it the most expensive celebrity divorce to date - far exceeding the previous record Michael Jordan holds with his wife, Juanita, receiving an estimated $150 million settlement. In third place would then be Greg Norman with his $128 million payout to his wife of three decades, Laura Andrassy.

Subscribe to Enough Wealth. Copyright 2006-2009

Sunday 13 December 2009

Sydney property set to rise, or fall, in 2010

I don't know how Sydney property prices will move next year. And even if I did, there is so much variation between suburbs and from house to house as to make the movement in the 'average' house price nothing more than an academic interest to anyone who has money tied up in one or more houses. However, some 'expert' opinions published in the Sydney Morning Herald last week piqued my interest:

Opinion 'A': House price rises to extend into 2010: APM

"Property owners will continue to see their investment grow in the new year, with house prices already exceeding pre-global financial crisis levels nationally by nearly three per cent, and growth is expected to continue well into 2010," APM said in a statement issued on Dec 11.

Opinion 'B': House prices tipped to slide

The value of Australian homes will drop 14 per cent by the end of 2010, pushed down by a falling employment levels, according to an analysis done by JPMorgan in June. However, at that time the bank was expecting the jobless rate, sitting at 5.4 per cent at that time, to hit 9 per cent in that time. Given the latest monthly unemployment figures showed a slight decrease in the jobless rate and a pick-up in the creation of full-time jobs, it seems more likely that the unemployment rate will peak at less than 7% in this economic cycle. Anyhow, historic data doesn't support the view that house prices always fall when unemployment rises - after the last technical recession (1990/91), unemployment peaked at 10.9% in December 1992, and was over 10% for the whole of 1992 and 1993.
But house prices nationally rose by +3.3% with performance varying across capital cities. In NSW unemployment hit 11%, but Sydney house prices rose by +2.3%. In Melbourne house prices fell by -1.0% and in Brisbane they rose by over 8%.

So, depending on who you believe, Sydney house prices are set to either go up or down next year, or maybe end up unchanged. Glad that's cleared up. ;)

All I know is that the average house price in the two suburbs where we own property have gone up more than 5% in the past six months, but seem to be levelling off in recent months. I'm pencilling in a rise of 2%-7% during 2010 for our property portfolio. But it hardly matters since we don't expect to sell our rental property for at least 3 or 4 years, and we'll probably not sell our current home until we've retired in 20 or more years time.

Subscribe to Enough Wealth. Copyright 2006-2009

Wednesday 9 December 2009

Mini Budget for 2010

I completed my online enrolment for the MAstron course yesterday, so I now know exactly what the course fees will be ($850 per semester, due in Mar and Aug) for 2010. I won't do a full budget for 2010 as I expect my overall income and expenses will be similar to the past couple of years, and most of my income and expenses are ticking over nicely on 'autopilot'. However, there is some room to make savings in some areas (such as grocery shopping) and I need to reign in my impulse/discretionary spending and also budget for my uni expenses. I spent an hour checking through my monthly credit card statements for the past 12 months and came up with the following 'mini budget' (credit card charges only) for next year:
 (all amounts are monthly)
Item ............ budget '10... prev 12 mo avg .. comments
Petrol: ......... __$140.00 ... __$115.40 ....... The last 6 months have averaged closer to $140
Shopping:........ $1,400.00 ... $1,366.78 ....... I intent to trim this expenditure as much as possible
Medical:......... __$400.00 ... __$406.76 ....... If there are only routine expenses this may be 50% lower
Rates/Utilities:. __$220.00 ... __$219.18 ....... I intend to offset any price rises with reduced water/elec use
Books:........... ___$30.00 ... ___$28.07 ....... A small item that we seem to end up spending on each month
Uni study:....... __$200.00 ... ____$5.42 ....... Only had application expenses this year. Budget for fees and textbooks
Computer:........ ___$65.00 ... ___$65.76 ....... Tends to be large, irregular expenses. Need to watch this doesn't blow out.
Gifts:........... ___$25.00 ... ___$25.30 .......
Income insurance: ___$75.00 ... ___$70.46 ....... Monthly charge is currently $75.71
Hobbies:......... __$150.00 ... __$169.68 ....... Should come in under budget if I avoid impulse purchases
Other:........... __$150.00 ... $1,319.39 ....... See below

Annual total:.... $34260.00 ... $45506.26

This year the 'other' category included irregular household expenses such as car servicing and registration etc. as well as miscellaneous 'big ticket' items such as the new pool fencing, a garden play set, and 200 sq metres of stone cladding (bought because it was on clearance sale, and destined for the holiday house I intend to building on my parent's lakeside farm in the next couple of years). For 2010 I'm only budgeting for an 'other' amount that covers the essentials (car rego & insurance etc) and assuming I won't make any unplanned purchases.

Although this budget doesn't include any of my regular expenses that are not charged to my credit card - such as home loan repayments, investment loan interest charges, retirement savings etc. - those items don't vary much, are out of my control, and are covered by the balance of my salary income, rent and dividend income. The variable (and mostly discretionary) items all get charged to my credit card (and paid off in full each month), so, provided I stick to my CC mini budget, my overall finances should remain on track.

Subscribe to Enough Wealth. Copyright 2006-2009

Tuesday 1 December 2009

Budgeting for the new year

Yesterday I received the official letter from JCU offering me a place in the MAstron course next year, and today I sent in the acceptance form and completed the eCAF (electronic Commonwealth Assistance Form) which is required prior to enrollment.

The JCU website indicates that the two courses I'll enrol in for 2010 are each 0.25 EFTSL (equivalent full-time study load) and are both "Band 4" (which determines how much Commonwealth sponsored students have to pay). However I'm still not 100% certain what I'll have to pay in 2010 for these courses, as the JCU site only lists the cost per EFTSL for Bands 1, 2, 3 and for those subjects classed as 'national priority' subjects for 2010 (science, math and engineering). I strongly suspect (since the MAstron course is run by the Dept of Engineering and Science) that these Band 4 subjects are included the 'national priorty' category, which means that the lowest cost per EFTSL will be applied. I intend to pay the course fees in full before the 'census date', which will mean I get an additional 20% discount. I think that the subject fees will end up around $850 each.

This month I'll prepare a detailed household budget for 2010 that includes paying the course fees in full each term, and I'd like to start tracking my financial data again in Quicken from the start of next year - my 'one off' expenses have been excessive for the past few months, and need to be brought under control.

I'll also need to carefully budget my time next year so I can get good results in my uni subjects - my previous study method of leaving assignments until they were almost due and only studying for exams the night before produced 'mixed' results. I've been browsing through the Study Hacks blog and there are a few tips that I'll give a go. So, this week I'm studying how to study ;)

Subscribe to Enough Wealth. Copyright 2006-2009

Net Worth Update: November 2009

November saw another significant increase in my net worth, although the 'Dubai announcement' adversely affected the valuations of my stock portfolio and retirement account balance on the last business day. This month the strength in the Sydney property market was augmented by similar gains in the stock market - by 30 November my net worth had risen to $830,832 (up $42,891, or 5.44%). That's still about 30% off my previous 2007 peak in NW.

My retirement account (SMSF) gained $7,598 (+2.46%) to $316,835, recovering most of the last month's loss. The recovery in the stock market was amplified by our modest amount of gearing (8 ASX200 index CFDs, code: IQ). A couple of month's worth of employer superannuation contributions were deposited into our SMSF bank account during November (around $4,000), so the result wasn't as good as it appears on the surface. I expect the December quarter employer contributions will not be deposited until sometime during January (around $6,000). Last Friday I transferred another $5,000 of our cash balance into our Vanguard "High Growth" index fund investment - hopefully the timing of this investment was just right to benefit from the one day dip in stock market indices.

The estimated valuations for my half of our real estate assets (house and investment property) were up substantially this month, by $20,365 (+0.2.53%) to $825,758. The Sydney real estate market still appears to be in an up-trend at the moment, but the winding up of Federal boost to First Home Owners grant and continued monthly rises in official interest rates will probably limit price increases until unemployement has clearly peaked. It appears that first home buyers have disappeared from the market in the past couple of months, which will probably drive down rental vacancy rates during 2010. A recent BIS forecast predicted a 21% rise in rents in Sydney over the next three years.

My stock portfolio gained $14,888 to $52,702 net equity during November (due to the high gearing levels - stock portfolio value is currently around $510,000 with $460,000 of margin and portfolio loans outstanding). The market (ASX200) appears to be consolidating around the 4700 level and I don't expect it to move much higher until company profits see further benefits from the Australian economic recovery in 2010.

I again didn't have any spare cash flow to pay off some mortgage or margin loan debt principal this month, as I continued spending on "home improvement" projects ($750 for a new sand filter for our swimming pool). Cash is likely to remain tight for the next few months as well, as I will have to pay for repairs to my digital SLR camera and the pool salt chlorinator, top-soil and turf for the new play area, and I will also have to find around $7,000 to pay for the ~270 sqm of granite wall cladding I recently bought for use on a new holiday house to be built on my parents' lakeside farm. During 2010 I'll have to finalise my requirements for the holiday house so I can get an estimate of the cost (built to "lock up" stage) and possibly proceed with getting plans drawn up for a development application to be submitted by the end of next year. Depending on how much of the construction (using Hebel or besser blocks) we do ourselves, the basic house structure may cost around $85,000. I've yet to work out how I'll pay for it ;)

Subscribe to Enough Wealth. Copyright 2006-2009

Saturday 28 November 2009

Avoiding 'bank' fees

Although I have many (too many?) different bank accounts, and our biggest 'relationship' with St George bank (our home mortgages, a margin loan account and a portfolio loan account), I've always considered my 'main' bank account to the credit union savings account I opened thirty years ago while at uni. It's always been economical to have my wages paid directly into the credit union account as there is no monthly account keeping fee, and, until recently, there were no fees for writing cheques or making on-line bill payments or transfers. There was a limit to the number of "free" transactions each month, but I had never exceeded the limit.

A few months ago the credit union announced a new, variable monthly transaction fee 'allowance' that is based on the total size of the 'relationship' you have with the credit union each month. As my savings account balance tends to fluctuate between $0 and several thousands of dollars during the month, some months I only have the minimum $25 fee "allowance" and other months I'm allocated a $50 "allowance". As my usual monthly activity (bill payments, transfers, cheques and ATM cash withdrawals) usually adds up to around $25 dollars in notional "fees" some months I've ended up having to pay out $2 or $5 in fees. It was especially annoying when I thought I was just under the monthly limit, only to have a couple of cheques presented on the last business day of the month!

To avoid having to pay any fees I now transfer some money from my personal credit union account to the "joint" account DW and I opened after getting married and pay some of my bills out of that account. A transfer between accounts within the credit union has no fee, and while the joint account generally has almost no cash in it, it is still allocated the minimum $25 "fee allowance" each month. By paying some of my bills using the joint account I can effectively double my monthly fee "allowance" to $50, which means I can make around 25 transactions each month without being charged a fee.

Subscribe to Enough Wealth. Copyright 2006-2009

Thursday 26 November 2009

Building a Castle, one stone at a time

I've always been an aficionado of castles, and even made a bid (unsuccessfully) to buy a small Scottish 'castle' (actually a manor house) a few years ago that was an ex-boy's remand school in need of substantial renovation. However, the combination of the UK property price boom and then the GFC makes it unlikely I could ever afford to buy a 'castle' fixer-upper, and DW was never all that keen on the idea of migrating to Scotland! So, I've now decided to build my own 'castle' as a holiday home on my parent's lake-side farm on the mid-north coast, with a view to eventually retiring there.

Not being totally insane, my 'castle' will actually be a modern DIY 'kit home' with some stylistic features reminiscent of medieval European architecture. Although I haven't even settled on a final house plan yet, the key feature will be to clad the exterior walls of the house with real stone panels, such as the 'rock face' granite cladding imported by Cinajus. The RRP for the granite cladding normally ranges from $106.33 per sq. m (white granite) to $136.67 per sq. m (for 'black' granite), and was recently on special for around $80 per sq. m. A few days ago I was checking that the product was still available, and found that Cinajus was having a clearance sale on some small 'remainder' stock for only $25 per sq. m! After much consideration (and two trips to the display yard by my parents to collect samples of the available granite colours) I've bought the stock of about 82 m^2 of white and 87 m^2 of 'black' granite wall panels. This should be just about the right quantity to clad a modest two-storey kit home. The cost of delivery of the 30 tonnes of stone to my parent's farm will add around $20 per sqm to the final cost, but the total cost will still only be around 30% of the normal RRP plus delivery.

Once I've found a few kit-home plans that I like, the next step will be to get an architect to draw up a plan with the features I like, and allows for the exterior to be clad using this stone. I'm not sure that a standard steel house frame will be strong enough to support this cladding, so I may end up building the exterior walls in hebel aerated concrete blocks, or plain old concrete 'besser' blocks. One major advantage of building the house will concrete walls and clad in granite will be a high degree of fire resistance -- very useful given the rear of the farm property adjoins the Wallingat National Park and is therefore at risk from bush fires.

Attaching the stone cladding to the new house will be a major endeavour - even though each 600x300mm piece isn't too hard to handle (weighing around 30kg), the entire consignment consists of around 940 pieces (28 tonnes in total!). Hopefully the finished product will end up looking something like this:

Subscribe to Enough Wealth. Copyright 2006-2009

Tuesday 17 November 2009

Astronomical Expenses

I phoned the JCU Centre for Astronomy again today to check that I'd mailed my MAstron application form to the correct address and had included all the required documentation. I didn't want to wait until next January to find out that my application was incomplete or had not arrived at all! I wasn't sure that everything was OK because the instructions printed on the 'one size fits all' post-grad application form had been different to the information provided on the Centre for Astronomy website. After putting me on hold for a while they were able to confirm that everything was in order and my application had, apparently, just been 'signed off' by the Dean. A letter of offer should be mailed out to me in the next week or two. When it arrives I'll then have two weeks to accept the offer, send in certified copies of my uni transcripts and pay the 2010 fees.

I haven't been able to find the originals of my uni transcripts (I think I mis-filed last time I took them our to make copies), so I had to phone UTS, UWS and CSU unis to order certified transcripts from each institution (total cost $65).

* * * * * *

Since applying for the MAstron course I've been browsing through online journals to find out what the 'hot' research topics currently are and checked out the publication lists of the JCU staff. I also browsed through the online catalogues of various US-based telescope retailers, and ended up ordering a Meade Pro II CCD digital camera ($499) to use with my Meade 10" SC telescope. I also ordered a Coronado PST Solar Telescope ($999) for viewing prominences, active regions, filaments, and other surface details of the sun (it has a 'Double Stack' H-Alpha system that provides a bandpass of <0.5 Angstrom) - unfortunately there is a six month wait due to a production back-log.

Subscribe to Enough Wealth. Copyright 2006-2009

Swimming pool maintenance

I finally finished installing our new pool fencing and safety gates last weekend, so it was time to get the pool cleaned up and start swimming again. The old candle filter was on it's last legs, so we decided to replace it with a new sand filter. The pump had also been performing poorly, but that turned out to be easy to fix -- there was a small tree nut stuck in the impeller! Tomorrow my dad will find out if the old salt chlorinator can be repaired with a new electrode, or if we need to replace the whole unit. If it needs replacing I may defer the capital expense and continue using chlorine granules until next year. The new pool filter cost around $1,000, which isn't too bad as it has a ten year guarantee (and should last longer). Unlike the candle filter, which required new diatomaceous earth every couple of months, the sand filter only requires regular back-washing. Apparently the sand will need replacing in about ten years time.

Next weekend I'll work on building the new sandstone steps leading down from the pool area to the newly enclosed play area. Once that is done I can finish levelling the play area, lay new turf and assemble the kids play set/gym. Oh, and put up the Christmas lights ;)

Subscribe to Enough Wealth. Copyright 2006-2008

Wednesday 11 November 2009

Are homes unaffordable, or are people just too greedy?

With interest rates starting to rise again in Australia, and house prices failing to drop much during the GFC, many commentators(eg. Ross Gittins) are joining the chorus of young (and not-so-young) renters bemoaning the cost of houses now being "out of reach". I suspect this is a perennial complaint, as I know that my parents were shocked when they migrated to Australia in the early 60s and found that the equity from the sale of their UK house was barely enough for a deposit on a Sydney home. And I could barely qualify for a mortgage to buy a cheap house (in Blackett) a few years after I started working full-time as a uni graduate (and I was still living at home rent free...).

Anyhow, lets look at the current situation:

Average weekly full-time ordinary time weekly pay for a person in NSW (as at May '08) is $1,142.50. According the the St George bank online mortgage estimator, a single person on that weekly income (using the default settings of having average living expenses of $14,568 pa plus a 350/month car loan) would qualify to borrow up to $367,000 on a standard 30-year variable rate home loan. In my experience St George uses fairly typical repayment:income limits (typical of 'old school' banking). So a person on AVERAGE income in NSW could easily 'afford' to buy a house in one of the cheaper suburbs. For example, median (ie. half the houses sold for LESS than this amount) house prices for the 6 months to Sep '09 for some example suburbs are:
Blackett $226,000
Mt Druitt $277,000
St Marys $284,000
Colyton $300,000

I wouldn't choose to live in one of these suburbs, but they're OK (my sister lived in St Marys for a while and I owned a rental property in Blackett for about ten years).

Some commentators are even going so far as to state that houses are 'out of reach' for a couple where BOTH people work full-time! In that case, AVERAGE male full-time OTE weekly income is $1,213.00 and for a female full-time worker OTE weekly income is $1,026.90, giving a combine income of $2,239.90. According to St George, that couple could borrow up to $853,000 putting a whole swag of the most expensive Sydney suburbs within reach (if they had saved up a 20% deposit):
Epping $740,000
Birchgrove $910,000

It appears that only houses in the MOST expensive suburbs would actually be 'out of reach' for a couple with both earning AVERAGE income:
Bondi $1,200,000
Hunters Hill $1,495,000

I think a lot of the people that are complaining about housing affordability (and hoping that house prices will drop 30%-40% before they buy) are simply unwilling to make the life-style spending sacrifices (eg. no eating out, taking staycations for a couple of years) required to be able switch from being renters to being home owners. In five years time I expect both house prices and rents will be higher than now -- and the same people will still be waiting for house prices to drop to more 'affordable' levels.

What do you think?

ps. Don't forget that home loan interest rates are now lower than at any time since the early 60s. Would you prefer current prices and home loan interest rates around 8%, or home prices 50% lower and interest rates of 17%?

Subscribe to Enough Wealth. Copyright 2006-2009

Wednesday 4 November 2009

How much will going back to uni cost me?

While I'm waiting to find out if I'll even be offered a place in the JCU Master of Astronomy course for next year, I tried to work out how much I should budget for the course costs. The MoA consists of 6 subjects each worth 0.25 "EFTSL" (equivalent full-time study load). You can either do the course in 1.5 years full-time, or 3 years part-time (either way the course is delivered via the Internet as "Distant Education"). The course has "some" commonwealth-funded places available, but I couldn't find out how many funded places are available, or how many students were enrolled in the MoA in 2009. If I have to enrol as a fee-paying student it will cost $2,500 per subject, but I think there is a chance that I'll end up only having to pay the government-subsidised HECS-HELP rate of fees. The subjects for this course are offered by the JCU school of Engineering and Science, and for HECS purposes the subjects appear to be classified in the "engineering" band (2), which determines how much the government pays JCU (and the maximum fee the uni can charge the students). This is based on the course cost being quoted as $11,350 by JCU, which corresponds to the Band 2 maximum fee rate. I guess the MoA subjects have been classified by JCU as engineering rather than as science so JCU can get a higher payment per subject from the federal government. From my point of view it would be better if the subjects were deemed to be "science", as that is one of the current "national priority" categories where the commonwealth subsidy is higher (and hence the student fee is lower).

I'll be choosing to pay any HECS-HELP fees "up front" as my "repayment income" would be so high that the full amount would fall due with each tax return anyhow. By paying "up front" I'll get a 20% discount on the HECS-HELP fee amount, so the total cost for the MoA course (based on 2010 HECS-HELP fee rates) will be $9,080 (plus textbooks etc.), rather than the $15,000 as a fee-paying student. If I get a HECS placement the commonwealth government will pay $22,734 in subsidy to JCU (I'm not sure if the 20% "up front" HECS-HELP discount is also paid by the government to JCU). Overall, it looks like I'd end up paying around 26.6% of the "full cost" ($34,084) of the MoA course if I get offered a HECS-HELP place.

Based on the $2,500 "full fee" rate per subject, it would appear that JCU makes a "profit" of at least $19,000 for every HECS-HELP place (ie. the $22,734 amount of government HECS contribution to JCU plus the student's HECS fee payments, minus the $15,000 of notional "full fee" payments). I assume that the $2,500 per subject charged to domestic fee-paying students is more than the actual cost of delivery for each subject. With the course being delivery via the Internet, the incremental cost to JCU for each student must be fairly low (just the cost of some admin overheads, plus marking of the exam and assignment work).

Doing the MoA will consume 1.5 of my remaining HECS-HELP SLE (Student Learning Entitlement). Fortunately the uni study I had done prior to 2005 didn't affect my initial standard entitlement to 7 years worth of full-time study assistance. To date my SLE balance has only been reduced by 0.625 for the subjects I attempted for the GradDipEd course I dropped last year, so I currently have 6.375 SLE remaining. In additional, it appears that if you're over 27 years old there will be an extra 0.25 SLE added each years from 2012 onwards, aimed at encouraging "lifelong study".

Aside from HECS fees, the MoA will probably cost me another $1,000 or so for textbooks, and a small amount for miscellaneous items. There may also be unexpected costs for software (eg. Hearne's "Origin" app for data analysis and graphing would be nice, but it's not worth the $1,000 cost) and there will probably also be some additional expenses associated with the literature review and research subjects.

Subscribe to Enough Wealth. Copyright 2006-2009

Net Worth Update: October 2009

October saw little overall change in my net worth, with the strength in the Sydney property market being offset by a sharp correction in the stock market in the last week, which produced negative results for my geared stock portfolio and retirement savings (SMSF). By 31 October my net worth had increased slightly to $790,140 (up $1,452).

My retirement account (SMSF) lost -$12,215 (-3.80%) to $309,237, erasing all of last month's gains. The drop in the stock market was exacerbated by our small geared stock investment (8 ASX200 index CFDs, code: IQ). There was around $2,000 of employer superannuation contributions banked during October, so the result is worse than it appears. I expect the rest of the September quarter's employer contribution will be deposited sometime during November (around $4,000). During October I transferred $5,000 of our cash balance into our Vanguard "High Growth" index fund investment and also bought 1 additional IQ CFD. If the market consolidates around current levels I may buy the final 2 IQ CFDs to top up our holding to the planned holding of 10 IQ CFDs.

The estimated valuations for my half of our real estate assets (house and investment property) were up substantially this month, by $21,459 (+0.2.74%) to $805,393. The Sydney real estate market still appears to be in an up-trend at the moment, but the winding up of Federal boost to First Home Owners grant and continued monthly rises in official interest rates will probably limit price increases.

My stock portfolio lost -$7,122 to $40,014 net equity during October (due to the high gearing levels - stock portfolio value is currently around $500,000 with $460,000 of margin and portfolio loans outstanding). Hopefully this is just a normal "correction" of 10%-15%, rather than the confirmation of a double-dip bear market. The relative strength of the Australian economy and Asian trading partners suggests the Australian stock market should have lower correlation with the US stock market in the medium term.

I haven't had any spare cash flow to pay off some mortgage or margin loan debt this month, as I continued spending on "home improvement" projects ($580 for a 81cm HD digital TV and stand from Aldi, $280 for sandstone slabs and besser blocks for constructing a path and steps as part of our swimming pool area upgrade, and about $500 on a new bunk bed and mattress for DS1's bedroom). This month I plan on spending another $250 or so to enclose two existing pine bookcases with sliding doors, and about $400 to lay new turf in the play area I've enclosed next to our swimming pool. It may also be quite expensive (I guess around $500-$1,000) to get our pool ready for swimming - the filter valve assembly needs a new seal, there is a significant leak somewhere in the underground pool piping when the filter is running, and the salt chlorinator needs a major service to get it working again!

Once I find out if I'll be enrolling in the MoA course next year I'll revise our budget for 2010. Perhaps I'll even have time during the Christmas holiday period to get my financial data for this FY up to date in Quicken.

Subscribe to Enough Wealth. Copyright 2006-2009

Friday 30 October 2009

Blog Income Review

I don't expect to get rich from blogging (or even earn a similar amount of income per hour spent blogging compared to my day job) but it does provide a (very) small stream of income and has practically no monetary cost (if one ignores pre-existing overhead costs such as my PC and broadband connection). I no longer do any paid posts - it's not that I'm against sponsored posts (if they are flagged as such) - but simply that there aren't any opportunities coming through from PayPerPost, Blogsvertise etc. that aren't totally crass and/or for something I don't want to be promoting on my blog. My blog income this year is mostly from the handful of text link sponsor ads in my sidebar (LinkWorth) and from the banner ad clickthroughs (Google AdSense). The text link ads are relatively lucrative (around $0.50 per day per text link ad) compared to Google Adsense income (around $0.50 per day), but I have to wait for advertisers to request a text link ad to increase this revenue stream (and advertisers can "pull the plug" at any time). Whereas Google AdSense revenue could be boosted through my actions, as it depends on blog traffic volumes (ie. what I post, how often, and how I promote this blog) and on click-through rates (ad relevance/post content and blog audience composition I suppose), but my natural level of daily page impressions is fairly static. Some attempts to boost traffic (eg. Traffic Swarm) are counter-productive (as they are considered 'spam' links and can lead to page rank penalties from Google etc.), and others just increase traffic without producing any long-term increase in readership or clicks on ads (eg. StumbleUpon), as seen last October.

Overall I receive about $2-$3 per day income from this blog, which corresponds to an 'alternate stream of income' equivalent to about 1% of my wage income. If I could increase this by an order of magnitude (either boost quality blog traffic ten-fold, or establish ten similar blogs that are low maintenance/post frequency) the extra 10% income stream would become significant, especially if it was all directed into additional savings and investments ;)

Then again, I may be too busy doing a MoA next year to worry about setting up new blogs!

Subscribe to Enough Wealth. Copyright 2006-2009

Thursday 29 October 2009

Return to study next year?

I haven't been enrolled in any part-time postgraduate courses this year. Last year I'd been enrolled simultaneously in both a BEd degree and MIT degree (by distance education). The combination of full-time work, a young family (2 and 8 year old boys) with attention-demanding health issues (severe eczema), and going on holiday overseas for 6 weeks during the semester led to my dropping out of the BEd subjects I'd enrolled in and getting excluded for not making satisfactory progress.

I had been on an approved leave of absence from the MIT course, but then received a notice of exclusion just before Christmas for not meeting the progress requirements! I initially ignored the notice as they'd sent me the same last year by mistake. However, when I tried to complete enrolling in subjects for this year I found out that it wasn't a mistake. By then I had missed the deadline for appealing against the exclusion (I thought being on approved leave was a pretty good reason for not progressing), and would first have had to apply for special permission to make a "late appeal". In the end I decided that it wasn't worth the effort to even seek leave to appeal against exclusion, as I didn't fancy my chances of passing all the subjects I'd have to have completed this year to meet progress conditions.

I also didn't bother completing the assessment items for the Diploma of Financial Planning I'd enrolled in the previous year. I might still complete the items if I get bored during the Christmas holidays, but the career prospects in financial planning have dimmed a lot with the GFC and with the Australian regulator looking closely at commission-based remuneration in the planning industry. I really don't think enough people value financial planning enough to pay significant up-front fee-for-service.

Anyhow, I recently found out about an Internet-based MoA (Master of Astronomy) course run by James Cook University in Townsville. I've applied for admission, as I've always been keen on Astronomy as a hobby (I bought a 10" Meade SC telescope about 20 years ago) and have a suitable undergraduate degree and a Grad Dip in Industrial Math and Computing. I won't find out if I've been offered a place until the New Year, but I've already ordered a copy of the text for the first two subjects from (it cost around A$120 delivered from Amazon, compared to about A$150 for the same book from a local Sydney university book store!).

The MoA course *should* take three years to complete part-time, and cost about A$15,000. If all goes well I'd then like to progress to the DoA or PhD course (although I'll be in my mid-50s by the time I finish a doctorate). This study will be purely for fun, as I intend to stay in my current non-academic job until I retire, athough it would be cool to publish a few research papers "on the side". Sometimes I miss my old job as a research scientist.

Does anyone else think I must be mad to enrol in another part-time uni course? DW thinks I should just sit back and relax and not bother with any more 'study'. Perhaps this is my version of a "mid-life crisis" ;)

Subscribe to Enough Wealth. Copyright 2006-2009

Sunday 25 October 2009

Timber! Fizz!

I haven't received any notification as yet from the Timbercorp liquidator KordaMentha regarding the sale of the Timber assets to Australian Bluegum Plantations on 30 Sep for approx. $345m. From the KordaMentha press release it appears that about $198m of the sale proceeds (due to settle on 2 Nov) will be available to the woodlot investors. As Timbercorp's forestry assets included 92,000 hectares of eucalyptus plantations, and each woodlot represented 1 hectare of forest, I estimate around $2,150 is available for distribution per woodlot. However, the earlier woodlots (such as mine) should receive a higher proportion of the sale proceeds as the standing timber was more mature (due for harvest in 2011), and the later woodlots had many more years of maintenance payments due before they would reach maturity. It will be interesting to see what distribution formula (and costs) are used to calculate the final payout figures. Earlier correspondence from KordaMentha had indicated that growers who hadn't paid the last annual maintenance and rent invoice would not be entitled to proceeds from sale of forestry assets, so that may boost the amount paid to the paid-up investors.

I've already written off my initial $11,500 investment in three Timbercorp woodlots, so any sale proceeds will be a pleasant surprise. The $200 contribution towards legal costs I paid to Clarendon Lawyers on 24/8 is probably money down the drain. And I think the annual timber insurance premium I recently paid was non-refundable.

As the initial investment and annual fees were tax deductible, I expect any pay-out will be taxable income. Due to the recent slashing of the amount that can be salary sacrificed into superannuation, my current marginal tax rate is probably the same, or higher, than when I made my investment into Timbercorp. So, no net income tax saving, and probably a negative ROI on the amount invested!

* * * * * *

I sold my main tranche of Coca-Cola Hellenic Bottling company shares several years ago, but somehow wound up with an odd lot of 60 shares (probably from a dividend reinvestment plan allocation). CHB has now been removed from the ASX, and I just sent in the paperwork to have my remaining CHB shares pooled and sold-off on the Athens stock exchange in November. The brokerage fee (0.55%) is good value, but unfortunately the market price could be depressed by CHB purchasing their own shares during the share sale period. Apparently CHB can buy up to 20% of the recent average daily volume each day, and although the maximum price is regulated (no more than highest normal market trades in CHB) there is no minimum stipulated. There is also a special recapitalisation dividend of around $3 per share that I might be paid (depending on timing of the share sale and the recapitalisation being finalised), although I expect the CHB share price would drop by a similar amount as soon as they trade ex-entitlement. I'll probably end up being sent a cheque for around A$1,200.

Subscribe to Enough Wealth. Copyright 2006-2009

Saturday 24 October 2009

Some good customer service from Westpac

The 0% balance transfer offer on my Westpac Ignite CC ended last month on the 13th, and my repayment of the full $22,000 balance due didn't appear on the CC statement until the 14th. As I'd left making the online BPay payment until the last minute, I wasn't surprised to see an interest charge on my next CC statement. However, the amount of interest was $32.08, which seemed a bit steep for only one, at most two, days of having a $22,000 balance accruing interest charges. The APR for cash advances on this account is 17.74%, which according to my calculation meant an interest bill of $21.38 should have be due. (The only way I can come up with something close to this figure is to divide the APR by the number of business days in a year, and apply that daily rate to the $22,000 balance for two business days).

As I wanted to make sure I now paid off the CC balance in full (so I didn't end up with another small balance on next month's statement for interest accrued on the $32.08 balance!) I phoned to enquire about how the interest amount had been calculated, and to find out the current balance due.

The call centre rep couldn't see how the amount had been calculated either (after checking that 0% had applied up to the 13th, and the balance had been paid in full on the 14th), so she told me she had reversed off the interest charge! Cool. Although their system is now showing $0 due she wasn't sure there wouldn't be a small interest charge calculated on the $32.08 balance from the 14th until the date of the reversal. I'll wait and see what appears on my next CC statement.

Subscribe to Enough Wealth. Copyright 2006-2009

Sunday 18 October 2009

Will the AUD be worth more than the USD?

Not so long ago the AUD had gone from around 50c US to close to parity with the USD on the back of the commodity boom turning into a commodity bubble. The GFC pricked that bubble and last year the AUD had dropped back into it's traditional 70c-80c US range. Now the AUD is back over 90c US and many pundits are predicting the Aussie dollar will soon reach parity with the USD. This time around I think there is a good chance the AUD will soon be worth more than the USD and it could probably stay that way indefinitely. The USD is under pressure due to the US Federal deficit reaching massive levels (around US$4,500 per capita in the past year, and likely to accrue to over US$25,000 per capita over the coming decade), which could well lead to an inflation problem in the US once the economic recovery gets underway. On the other side of the equation, commodity prices are likely to remain high as the global economy recovers and demand again starts to pick up while supply constraints are still evident for many commodities (Oil isn't the only commodity likely to see production peak in the next decade or two).

I've had a couple of attempts of making some money from these expected long term trends, but going long with AUDUSD forex and the Crude Oil price trading CFDs on my City Index and CMC Markets accounts didn't work out due to short term fluctuations and trend reversals exceeding my expectations. Although I had opened an oil position at around USD51 and bought the AUD around 68c US earlier this year, both positions were closed out when temporary dips saw my margins evaporate. My trade execution and risk management still needs improving.

Subscribe to Enough Wealth. Copyright 2006-2008

Friday 16 October 2009

Apparently Praying doesn't Boost Investment Returns

I'm guessing that while lots of investors might have resorted to prayer as they watched the value of their life savings plummet during the GFC, it wouldn't have had any material effect (apart from any purely psychological benefits). This story provides some evidence to that effect. The Glebe Administration Board (apparently an Anglican Church body) posted a $160 million loss for the year to December 2008, or a -60% annual return!. Its highly geared share portfolio crashed amid the global share market downturn. Unfortunately they won't be benefiting from the recent strong rally in the equity markets, as the board reduced its bank debts from $140 million to just $14 million between December 2007 and December 2008 as part of an attempt to reduce its gearing and "protect" its assets from further falls. Not very inspired decision making, although if they had attempted to ride out the downturn any longer they would have probably been completely wiped out by the time the market bottomed out in March.

Subscribe to Enough Wealth. Copyright 2006-2009

Thursday 15 October 2009

We'll all be rich

Not that I place much reliance on the various market predictions that are constantly being released by all and sundry, but a new report "Housing Outlook for 2010 to 2012" released by QBE Lenders' Mortgage Insurance is predicting a 21% rise in Sydney house prices by 2012. If our two properties saw a price rise of 21% my net worth would get a $170,000 boost over the next couple of years! For many home owners such an increase would not increase their disposable wealth, as they have to live somewhere, so any profit made when selling their current home would be offset by the higher cost of the new house they move to. The exception to this is where people make a "sea change" (or "tree change") and sell their city house to move to a country town on the coast, or inland, where prices tend to not appreciate in real terms.

In any event, many other property 'analysts' have questioned the forecasts. For example, Louis Christopher, the managing director of SQM Research, has said that "Given the level of housing debt we have in this country, and overall private debt to GDP which is at quite a considerable high, it's actually near a record high at this time, it means that... borrowers are very susceptible to interest rate rises, probably more so than at any time in the last 30 years,".

"This time round with the cycle, it probably won't take interest rates to get to 9 per cent to stall the market, or to make the market fall, it'll probably take something less. And that's one thing I question the BIS numbers on is what happens if we see interest rates at that time [in two or three years] at say 8 per cent or 9 per cent, what would that do to their forecasts?".

Mr Christopher believes that over the long-term, house prices can only sustainably rise at a similar pace to incomes, otherwise the economy becomes vulnerable to debt-fuelled asset bubbles. Well, who doesn't? The question is how long do you have to wait for "long term" trends to overcome short-term deviations? Moomin has plotted real house prices vs. income, which shows a sustained trend for house prices in Australia to rise in real terms compared to incomes since the 1960s. But a lot of that real increase is due to houses evolving from a fibro, one level, three bedroom cottage into the current "McMansion" houses with multiple bathrooms, a "home theatre" and much higher floor areas. Also, real incomes have increased over the past decades in Australia, so a larger percentage of disposable income can be devoted to servicing housing costs. So, although there must be a limit to how fast real house prices can grow compared to real incomes, it's not clear that the ratio of real house price (or more accurately real housing cost eg. interest payments) to real income can't change significantly over time.

Subscribe to Enough Wealth. Copyright 2006-2009

Monday 5 October 2009

The Rich get poorer

As reported in the SMH the total wealth of the wealthiest Americans fell by 300 billion dollars in the past twelve months. The 400 wealthiest Americans saw their total net assets drop from 1.57 trillion US dollars to 1.27 trillion - a decrease of 19%. That's somewhat less than the decrease in my net worth since it's peak in 2007, but I don't feel too bad as the Forbes list would benefit from survivor bias - after all, 32 plutocrats fell completely off the list when their wealth fell below the new, $950 million cut-off (reduced by 27% from the previous year) and were replaced by some new super-rich folk.

I benchmark my net worth performance against 1% of the cut-off value for entry into the annual BRW "rich list". A similar benchmark for US readers would by 0.1% of the Forbes 400 list threshold (ie. $1.3m last year, and $950k this year). The logic behind this benchmarking is that, presumably, the richest people know how to invest well (or at least can afford the best advice), so their performance is a proxy for "best in class".

Subscribe to Enough Wealth. Copyright 2006-2009

Sunday 4 October 2009

Net Worth Update: September 2009

Another very positive month, with my net worth increasing 4.72% during September, pushed higher by the continued rally in the Australian and global share markets (although the rally seems to have lost momentum towards the end of the month). By 30 September my net worth had increased to $788,688 (up $35,552). Since the bottoming out in early March at $554,783 (the lowest since August 2003) my net worth has increased by $233,905 (42%) in just six months! Unfortunately that is only 1/3 of the way back to my peak net worth achieved in 2007.

My retirement account (SMSF) gained $12,820 (+4.15%) to $321,452. The gain was entirely due to the stock market rise, with our small geared stock investment (7 ASX200 index CFDs, code: IQ) boosting the return. The were no employer superannuation contributions banked during September - I expect the quarterly employer contribution to be deposited sometime during October (around $6,000). I'll then transfer the $8,000 cash currently sitting in the SMSF bank account into our Vanguard "High Growth" index fund investment.

The estimated valuations for my half of our real estate assets (house and investment property) were up only slightly $2,545 (+0.33%) to $783,934 in September, but the latest monthly sales data suggests a larger rise (around $10,000) will be recorded for end of October figures. The Sydney real estate market appears to be in an up-trend at the moment, but that may be affected by the reduction in the First Home Owners grant from this month, and likely rises in official interest rates towards the end of this year. On the other hand, record immigration levels mean that demand continues to exceed supply of new housing, which might lead to another housing bubble/boom. October will see my share of our total mortgage debt increase by about $1,000 due to having to make a redraw to meet our loan interest payments while the rental property remained vacant. Fortunately our agent found new tenants that moved in last Friday. They are 'community housing' tenants, which means they are on the waiting list for Public Housing and only pay 25% of their income to Garrigal Community Housing as 'rent'. We get paid the full 'market' rent amount directly by Garrigal Housing, with the difference being funded by the state government (ie. NSW Housing Department). Hopefully this will mean we get paid the rent in full and on time - I've previously had bad experiences with tenants not paying rent on time despite getting a large rent subsidy from Centrelink. I believe the lease will be for one year with an option to renew for a second year. If we're lucky Garrigal Housing may continue to renew the lease annually and just move new tenants in as needed. The rent amount ($495 per week) is less than we had originally expected, but is OK provided we don't get too many requests for petty repair and maintenance issues (eg. wanting an electrician to replace a light bulb or a plumber to fix a dripping faucet), and if the lease gets renewed for several years.

My stock portfolio gained $21,139 to $47,136 net equity during September (due to the high gearing levels), despite my large holding in IPE continuing to underperform the overall market. That may change if the market consolidates it's gains, company profits recover, and more companies have successful IPOs. Unfortunately my share portfolio value won't return to it's previous 2007 high even if the stock market fully recovers, due to my having had to sell off some of my portfolio to reduce my level of gearing and avoid getting margin calls last March. I don't want to increase my debt by re-gearing as the market recovers, as my previous 'conservative' gearing proved to be too agressive when the market experienced a worse bear market than 'normal'. And there's always the chance that the recent sharp recovery was a "bear trap" or "dead cat bounce".

My current plan is to slowly reduce my margin loan debt over the coming decades, and instead invest any extra savings within my SMSF. Now that SMSF are allowed to invest in Contracts for Difference (CFDs) I can still apply some gearing when investing within the tax-advantaged SMSF environment. Currently investing within the SMSF also has a lower tax rate on capital gains, and the potential to pay 0% capital gains tax if the investments are not sold until my SMSF has shifted into pension mode after I reach retirement age. However, the tax rules applying to superannuation may well change (again) as a result of the Henry Tax Review.

Subscribe to Enough Wealth. Copyright 2006-2009

Saturday 26 September 2009

Coin counting machine at CommBank

When DS1 and I went into a local branch of the Commonwealth Bank last week we noticed a shiny new coin counting machine had been installed. You pour you collection of coins into a tray, press a button and Hey! Presto! the coins are swept into the guts of the machine and a docket is printed out showing how much your coins were worth (you have to assume the machine never makes mistakes!). If you're a CommBank customer and use the docket to deposit the funds into your CommBank account there's no charge. But if you're not a CommBank customer you'll be hit with a massive 10% "service fee". We also found out that you have to use the docket to deposit the money that day (I suppose there's some sort of checking done when the docket is processed to verify the amount matches what the machine has taken - the docket would probably be easy to forge).

As the branch is open on Saturday afternoon when DS1 does his busking, I'll put a note with his account details into his busking bag so he can have his earnings counted and deposited into his account as soon as he finished busking. Currently we have to lug his bag of coins home, manually sort and bag them, and later make a trip to the bank to have the bagged coins deposited.

It will be interesting to see how the coin counting machine reacts if there are some foreign coins mixed in with the Australian coins - DS1 often gets some NZ, Chinese or Malaysian coins thrown into his busking collection box.

We'll probably just use the CommBank coin counting machine for counting and depositing the 'silver' (<$1) coins, and still take the 'gold' ($1 and $2) coins to put in his money boxes. DS1 usually gives a dollar or two of his earnings to his younger brother, and deposits the bulk of his income into his St George account so it can be transferred easily into the higher interest "online" savings account.

Subscribe to Enough Wealth. Copyright 2006-2009

Friday 25 September 2009

Children's Superannuation: Retirement Savings Account (RSA) Comparison - AMP vs CommBank

I opened two retirement savings accounts for DS1 several years ago, one when he was born, and the the second when he started earning money doing a paper round.

The first retirement account was a 'Child Super' account that allowed parents or grandparents to contribute up to $1,000 each year into a superannuation account for their child. These accounts were never very popular as there was no tax deduction for the amounts contributed, so the only real benefit of a 'Child Super' account is to avoid the incredibly high tax rates (around 60%) applied to children's unearned income (eg. interest on bank savings accounts where the money came from gifts or pocket money) once it exceeded a threshold (of around $2,000 pa after applying the low income tax rebate). Earning within a 'Child Super' account are taxed at the usual concessional superannuation tax rate of 15%. I opened the 'Child Super' account with Macquarie, and at least it offers a good choice of investment options (eg. Australian and Overseas share funds). Once DS1 reaches 18 years of age this account will transition to a normal "personal" superannuation account (I may add him as a member of our SMSF when he turns 18. Under 18 it's harder for children to be members of SMSFs as they can't be a Trustee).

Once DS1 started having 'earned income' (from his paper round - deposited into a separate savings account to keep it separate from his pocket money and any money gifts) I opened a second "personal" superannuation account for him, so he could benefit from the 1.5:1 government co-contribution on personal, undeducted superannuation contributions (ie. when he deposited $1000 into super each year he received a $1,500 "co-contribution" from the ATO). Finding a suitable superannuation account was a bit difficult - Child Super' accounts aren't eligible for the co-contribution (as they don't accept contributions from the child themselves), and most "personal" superannuation accounts required the applicant to be over 18 years of age. At the time, the only account I could find for DS1 that didn't require applicants to be over 18 years old was the AMP Retirement Savings Account (RSA) (at the time they didn't require DOB information on the application form, although they later did apply an incorrect "default" DOB and I had to send in a copy of his birth certificate to get the data fixed). This worked well, with DS1 received the co-contribution "match" for FY04/05 and FY05/06 (that year the budget even gave a second "bonus" co-contribution of $1,500). DS1 didn't receive the co-contribution for FY 06/07 (once he had stopped his paper round), as the Superannuation co-contribution rules at that time required having income from an employer to be eligible (ie. the rules excluded the self-employed). The rules were change the following year so that any income earner (including self-employed) under the age of 75 who makes an undeducted superannuation contribution is now entitled to receive the co-contribution (although it's been reduced to $1,000 this financial year). DS1 received the $1500 co-contribution in DEc 08 for the FY07/08 tax return he lodged in July 08, and I expect he'll receive the $1,000 co-contribution for FY08/09 later this year...

However, since I opened his AMP RSA account interest rates have dropped considerably, and the rates on offer from the AMP are now very low:

Balance________________ Int Rate
<$1,000________________ 0.00%
$1,000 - $2,500________ 0.15%
$2,500 - $10,000_______ 1.15%
$10,000 - $50,000______ 1.40%
>$50,000_______________ 1.60%

The 0% rate is obviously set to allow for the Superannuation rules that prohibit charging any fees on Superannuation account balances below $1,000, and all the rates are net of MER (estimated at 1.9%).

I recently received a PDS (Product Disclosure Statement) for a new RSA on offer from Commonwealth Bank. It looks pretty good for anyone looking to setup a superannuation for a child or teen wanting to save something towards their retirement (and possibly get help from the government co-contribution, although the next Labor government budget may change that). There is a flat annual admin fee of $25, but only when the account balance is over $1,000. And the interest rates on offer are much better than the AMP rates, especially for balances under $2,500:

Commbank RSA:
Balance________________ Int Rate
<$1,000________________ 1.90%
$1,000 - $5,000________ 2.00%
$5,000 - $10,000_______ 2.15%
$10,000 - $50,000______ 2.30%
>$50,000_______________ 2.60%

On DS1's current RSA balance of around $12,000 he would earn an extra $83pa in interest with the Commbank RSA.

The Commbank RSA also offers a second investment option within the RSA account - fixed rate term deposits for amounts over $5,000:

Commbank RSA term deposits (min $5,000):
Term___________________ Int Rate
1 year_________________ 2.40%
2 years________________ 3.40%
3 years________________ 4.50%
4 years________________ 4.95%
5 years________________ 5.20%

Although variable interest rates are likely to start rising in 2010, and may go up considerably if inflation takes hold post-GFC, the term deposit rates look attractive for a government-guaranteed investment sitting in a low-tax (15%) environment.

As the minimum amount to open a CommBank RSA is just $1, I'm going to open an account for DS1 in preparation for rolling over his AMP RSA account as soon as this year's co-contribution has been processed.

This graph highlights the difference in net interest rate on offer from AMP and CommBank:

Subscribe to Enough Wealth. Copyright 2006-2009

Wednesday 23 September 2009

Cub Scouting and Vacation Costs

DS1 enjoyed his second and third Cub Scout's meetings as a "new chum" and was keen to join up and start working towards some of the achievement badges during the upcoming school vacation. So I decided to go ahead and buy the required cub scout uniform (peaked cap, buttoned shirt and belt) from our local Snowgum store (the Scout product distributor in NSW). The clothing cost $64.85 from Snowgum, which is the same price as listed by the Scout shop. In addition, for new customers buying Scouts equipment Snowgum waives the usual $11 fee to join their loyalty scheme - so each May we will be sent a refund voucher worth 10% of the amount spent at Snowgum stores. I'm sure the refund will come in handy to buy some badges or camping gear. The Snowgum store didn't have any of the "official" Scout uniform trousers in the right size for DS1, so instead of paying $39.95 for a pair of tan-coloured cargo pants with zip-off legs we visited Target and bought a suitable pair of tan-coloured shorts for just $10. The "official" Scout uniform shirt and belt is made in China (the cap label doesn't mention where that came from), and the cheaper Target shorts come from Bangladesh. The label says to wash to shorts before wear, which I assume is to remove dyes and chemical residues (and possibly pins etc). As DS1 has eczema we will definitely wash the clothing twice before use. After the 10% discount the total cost of the basic Cub Scouts uniform came to $68.37. If the uniform doesn't get worn out too quickly, DS1 will use it until he moves on to Scouts in 18 months time, and we'll then keep it until DS2 is old enough the start Cubs three years later.

I handed in the membership application paperwork at the second meeting, along with the "[I'm not a] prohibited person" declaration that is required from any parent that wants to help out at Cub meetings. As a pro-rata fee amount due is calculated from the number of quarters remaining before the 31 March "year end", I listed 1 October as the joining date and post-dated the cheque.

For the school vacation period I have booked DS1 into a 4-day sailing course (cost $320) the first week of the holidays, and a 2-day art class the following week ($120). Hopefully DS1 enjoys the classes enough to make them worthwhile. We have a small catamaran sail-boat stored at my parent's lake-side farm, so sailing would be an affordable activity for DS1 if he enjoys it.

DS1 may also spend some time in the vacation learning JAVA programming - he worked his way through a couple of kid's programming tutorials last year using QBasic, so I bought a colourful introductory book on programming in Java that will help introduce him to object-oriented programming concepts and revise his previous work on variables, arrays, loops, i/o and so forth. Last week I registered him with the online training site used by students preparing for the Australian Informatics Olympiad programme. The site is really meant for high-school students (years 7-12) that are participating in the Australian Informatics Competition (AIC) or the Australian Informatics Olympiad (AIO), but the online exercises will provide many programing exercises for me to work through with him. When he submits his solution code to the site it will be automatically run using a suite a test data files and given an overall score based on program output correctness and run time. Cool. DS1 is only in year 4, so he can't enter the informatics competitions yet, which is a pity since he got a high distinction in the ICAS computer skills test this year (top 2%) and is interesting in programming and robotics. But if starts programming now for fun, he may do well in the competitions when he is in Year 7.

Subscribe to Enough Wealth. Copyright 2006-2009

Monday 14 September 2009


Now that DS1 is old enough I had another look at what Cub Scouts branches are currently active in our neighbourhood. The closest Scout hall is long-abandoned and derelict, and the next closest packs have their weekly meetings starting at 6:30pm on nights that DW and I both return home fairly late from work. A 6:30 start is not really practical as DS1 and DS2 are at day care/after-school care until 6pm on those days. Fortunately there's another Cub Scout group a few km away that holds their meetings from 7pm-8:30pm on a non-working (for DW) week-night, so we dropped in for a visit last Tuesday to check them out. DS1 enjoyed the activity (building model rafts using corks and paddle pop sticks) and the overall club atmosphere, and he was intrigued by the list of tasks required for the various achievement badges and the bronze, silver and gold "boomerang" awards.

The cost for Cub Scouting is very reasonable ($10 each school term to help pay for materials, around $65 for the uniform shirt, belt and cap, and an annual association and club fee of about $180). I've filled in the application paperwork and will probably join him up after he's attended a few more weekly sessions as a "chum" (to check that his enthusiasm doesn't wear off too quickly).

I found it interesting that the cub "oath" is offered in two versions (one mentions the Queen of Australia and the other that just mentions Australia - to avoid putting off republican supporters I guess) but that both versions include an affirmation of belief in "my God". While the Australia Scout movement is less restrictive that the BSA (the "official" US Scouting body) in that girls have been allowed to join Scouts and Cubs in Australia since the 1980s, it still requires at least lip service to having belief in a God. It doesn't seem to matter WHAT God you believe in, but an expression of faith is an intrinsic part of the weekly meetings. Given the historic background of Scouting I have no problem with them including faith as one of the positive attributes they want to encourage in their young members, but making it a mandatory part of the oath for Cubs seems anachronistic given the relatively secular nature of modern Australian society. Oh Well, DS1 did attend a local church "Kids Club" for several years and knows the basic Christian Sunday school stories and he was Christened when he was one year old, so I suppose making the oath won't really be lying. I left the religion/denomination section of the forms blank though, as we don't attend church and therefore aren't affiliated with any particular brand of religion. There seems to be an assumption that having faith in "my God" means you will be a member of one of the organised religious movements. If I have to fill in the blank on the form it will be a toss up between putting down Methodist Christian (a simple answer) or Naturalistic Pantheist (possibly a more "honest" answer).

Next meeting I'll ask the pack leader what the process is for completing the various "achievement" badge requirements. A lot of the tasks can be done at home, but I'm not sure if DS1 will need to get approval from the pack leader before hand, or if DS1 can just do the required work and then make a presentation at Cubs when he's completed all the required activities. I remember from my short time as a Cub Scout many decades ago that the biggest hurdle to earning more than a couple of merit badges was the lack of interest from the pack leader (especially any topics they weren't "expert" in). There are only so many times that repeating the same course on "map reading" remains interesting for a child! The "new" (since 2004) list of 35 achievement badges includes a lot a topics DS1 is interested in (eg. music, entertainer, scientist, space, information technology) and can easily complete. For the "flight" badge it might also be possible to organise a day-trip for the pack to attend the Scout activity centre at Campden airport (there's a $53 fee that includes all the requirements for completing the "flight" achievement badge and also a half-hour joy flight in a Cesna 172).

Subscribe to Enough Wealth. Copyright 2006-2009

Thursday 10 September 2009

NAB SPP Scale-back Refund Cheque Received

Unfortunately National Australia Bank decided to limit the recent retail investors SPP offer to the $750m, so out of my $15,000 application for new shares only $4,343 was allotted to purchase 202 shares at the offer price of $21.50. The remaining $10,657 was refunded via a bank cheque which arrived a couple of days ago. With the NAB share price currently around $28.75 the SPP still produced a $1,464.50 paper profit (ignoring any dilution effects on the value of my existing NAB shareholding) but not as much as I'd hoped for when I sent in the full $15,000 for my maximum SPP entitlement. With the market recovering and NAB shares trading well above the issue price, most retail investors took up the offer in full it seems. It's a bit annoying that NAB scaled back the offer so severely (the pro-rata issue was 28.82%), especially since they have already diluted the retail investors ownership via the quite large institutional offer. NAB included an explanatory letter trying to justify why they did an SPP rather than a rights offer, and also why they chose to scale back the SPP. They bank's excuse for scaling back the offer rather than accepting the full amount provided by their shareholders ("... the depressing effect doing so can have on return on equity, dividends and the share price") is unconvincing given the dilution effect of the large institutional share placement and the fact that they'd done a previous SPP last December. If they seek to raise any more capital in the next one or two years it will prove that they have little regard for their "mum and dad" retail investors.

ps. It's also annoying that the NAB "bank cheque" still hasn't been cleared in my credit union account several days after I deposited it. I have a 0% balance transfer offer that expires today that I want to pay off in full - every extra day until the cheque clears and I can pay off the CC balance will cost me around $10.

Subscribe to Enough Wealth. Copyright 2006-2009

Tuesday 1 September 2009

Net Worth Update: August 2009

My net worth increased 7.21% during August, due mostly to the continued rally in the Australian and global share markets. By 31 August my net worth had increased to $753,137 (up $50,628). At the start of 2009 I had hoped for the economy to stabilise and show signs of recovery by the end of the year, and would have been happy for no further decrease in my net worth over 2009. Things were looking pretty dire by the end of February, having lost another $70K or so of net worth. At the bottom of the stock market slump in early March, my net worth had dropped to only $554,783 - the lowest since August 2003! And unfortunately the prospect of margin calls on my geared stock portfolio forced me to liquidate around half of my remaining portfolio. By mid-year the stock market recovery was well underway, and I had thought I my net worth could realistically recovery to $750K by year's end. That level has already been surpassed, and it looks as if the market has already priced in an economic recovery by the end of 2010. Any significant bad news (eg. China growth stalling) would probably see the market drop steeply again. In the medium term (2-5 years) the economy and company profitability may completely recover from the GFC, but I don't expect the market to reach the previous peak - investor confidence will probably be more subdued than in 2007, and inflationary impacts flowing from government stimulus spending around the globe will see official interest rates at higher levels, which will reduce p/e ratios.

My retirement account (SMSF) gained $18,375 (+6.70%) to $308,631. The gain was entirely due to the stock market rise, with our small geared stock investment (7 ASX200 index CFDs, code: IQ) boosting the gain. The were no employer superannuation contributions banked during August. We have around $8,000 cash sitting in the SMSF bank account, but I'm hesitant to add to either our Vanguard HighGrowth index fund investment or IQ CFD holding when the market has had such a steep rise for the past two months. I'll invest the cash if there is a substantial correction (10%+), or start to dollar cost average by investing our monthly contribution amounts if the market stabilises around the current level.

The estimated valuations for my half of our real estate assets (house and investment property) were up $6,921 (+0.89%) to $781,389 in August, but recent sales data indicates a smaller rise (around $4,000) will be recorded for September. Also, September will see our total mortgage debt increase by about $2,000 due to having to redraw this amount to meet our loan interest payments while the rental property was vacant during August. New housing starts remain below the level of increased demand (there was record high net migration to Australia in 2008/9, surpassing the previous high set in 2007/8), so there is likely to be another "property boom" in Sydney once the economy has started growing enough to stabilise unemployment rates (late 2010?). Higher inflation would also see construction costs for new housing rise, which usually boosts prices of existing stock, while the real value of our mortgage would drop. A decade of higher-than-average inflation would probably see the value of our real estate portfolio rise slightly in real terms, while our mortgage debt would be slashed in real terms (even with our mortgages currently being "interest only").

My stock portfolio showed the benefits of leverage when the market is rising rapidly, but my overweight (13% of total portfolio value) investment in IPE (ING Private Equity fund) shares is having a negative impact on my portfolio performance as the market start recovers. Being a 'fund of funds' that are invested in unlisted private equity, I expect the economic recovery will have to be well underway before IPE trades closer to NAV (currently NAV is quoted as around $0.47 per share, but the shares are trading around $0.21 following a 1:1 rights issue at $0.17 a share in June). Before the GFC IPE shares were trading around 85% of NAV, so I expect IPE will outperform the market in the medium term if the real economy recovers and the prospects for small, unlisted companies brightens substantially. My $51,240 invested in IPE (244,000 shares) is high risk, but theoretically could have great upside potential. For example, if the ASX200 reached 6,000 when the economy has recovered (another 33% rise from current levels, but still around 12% below the 2007 peak), the NAV of IPE should rise to around $0.63 per share. If p:NAV recovered to pre-crisis levels of 85%, this would result in a share price of about $0.53. It's probably an overly optimistic projection, but if it eventuated I would recoup all the loss that resulted from investing $100,000 in IPE just prior to the start of the GFC. (On the downside, IPE could end up worthless if the underlying private equity funds collapse). Converting my "trading" position in IPE options into a large stock holding back in 2007 using HELOC funding was one of my all-time bad investment decisions (the others were: not letting my stock portfolio gearing levels naturally decline during the bull market of 2006-7, not rolling over my index put-options when they expired in December 2007, not taking the opportunity to correct this mistake by investing in new index put-options during the brief bear market rally of March 2008, deciding Microsoft was too expensive to invest in during the early 80s, selling out of my position in Felix resources when the stock had risen from $1 to $2 a share (currently trading around $17!), holding on to my "investment" in Holyman ferries when they'd dropped 50% (they went out of business soon after)... Actually, the list goes on and on). Overall I tend to make the typical amateur stock investor's mistake of holding on to my losers (letting "paper" losses affect my decision making) and selling my winners too soon. That's the main reason our retirement savings are invested in index funds rather than trying to "pick" individual stocks ;)

Subscribe to Enough Wealth. Copyright 2006-2009

Thursday 27 August 2009

Retirement Savings Asset Allocation

The value of my retirement savings (superannuation) account is currently around $304,600. About $8,500 of this is sitting in my old Westpac Business Super account in order to retain my $400,000 life insurance policy (Death and Total & Permanent Disability cover), while the remainder is held within our Self-Managed Superannuation Fund in order to minimise administration and investment management fees.

Overall, the asset allocation of my retirement savings is currently as follows:
Australian Shares: 50.6%
International Shares: 34.5%
Property Securities: 9.5%
Fixed Interest & Cash: 5.4%

That's pretty much in line with my target allocation.

Many people would have a higher percentage allocated to property and fixed interest (bonds), but I already have a large percentage of my overall net worth invested directly in real estate (our home and one investment rental property), and I had decided on a long-term high growth investment strategy (including gearing) prior to the GFC, so I'll stick with that plan (it's too late to lock the barn door after the horse has bolted!)

My rate of retirement savings is currently around $25,000pa via my employer's SGL payment of 9% of salary, topped up with salary sacrifice to the maximum concessionally taxed amount. I'd like to be saving another $1,000 each month via undeducted contributions, but at the moment I'm a bit short of cash flow due to a spate of well-priced share purchase plan offers

I've really no idea how well I'm positioned for achieving comfortable self-funded retirement. It will largely depend on what average rate of return eventuates, at what age I retire, and how long I expect to live (hence the withdrawal rate I choose during 'pension phase').

Subscribe to Enough Wealth. Copyright 2006-2009

Sunday 16 August 2009

More Home Improvements

Years ago, when I was single (and had more spare time and money), I subscribed to various editions of leather bound 'heirloom' books from Easton Press. Altogether I bought approximately 200 books, which cost around A$100 each.

Since buying our current home seven years ago I've intended to convert our lounge room into a 'library' by building some book cases into one half of the room, but haven't got around to it yet. The books are currently scattered around the lounge room in various locations.

Last week I did manage to get one step closer to starting work on this project by buying six flat packs of DIY 'six cube bookcase' kits from Aldi for A$100 each.

These bookcases will provide more than enough storage space for my leather bound books, and for display of some of my collection of coins and other 'collectibles'. I plan to stack two of the bookcases on top of each other to make a 4x3 cube unit 1.6m high on each side of an alcove in the lounge room. I'll then cut the remaining two kits in half to install 1x4 cube units either side the large teak wood carving I bought in Singapore twenty years ago. The wood carving isn't as deep as the bookcases, so I'll be able to mount a flat screen HD TV above the carving and run the data and power cables behind the carving. I'm not sure if I'll leave the cube bookcases 'open' or enclose each cube with tracks and sliding glass doors or hinged glass doors. I can probably leave the glazing for 'phase two' of this project ;) In any case, I won't be starting on this work until after I've finished installing the new pool fencing and done this year's tax returns...

Subscribe to Enough Wealth. Copyright 2006-2008

Monday 10 August 2009

Superannuation co-contribution cheque arrived

A cheque for DWs $1,501.80 superannuation co-contribution arrived in the mail today from our SMSF administrator, eSuperfund. I can only assume the extra $1.80 was due to interest accrued while the $1,500 government co-contribution was sitting in a holding account for some time. There is always a significant delay between when the $1,000 undeducted superannuation contribution is made and when the co-contribution payment is eventually received. That's because the individual who made the contribution has to lodge their tax return (which confirms if a deduction is being claimed for the contribution, and the individual's taxable income for that year) and the super fund has to lodge it's annual tax return (which presumably includes any deduction claim paperwork) before the ATO can finally decide how much co-contribution to pay out.

Subscribe to Enough Wealth. Copyright 2006-2008

Thursday 6 August 2009

Panasonic NV-DS15 mini-DV camcorder 'reboot'

After the aborted attempt to "upgrade" to a new (but cheap) HD camcorder, I'm concentrating on making better use of the video equipment I already have. The two new batteries I ordered from arrived within a couple of days of my ordering them online. Charging them up only took a couple of hours and they each provide around 90 minutes of intermittent recording time when fully charged.

To download my miniDV tapes to PC I decided to use the camcorder's firewire connection, as using the serial connector and the video editing software that came with the camera when I bought it in 2000 would be v-e-r-y slow (I think it's really just meant for downloading the 6-second "photo shot" still images that can be recorded with the camcorder). It was a bit off-putting to see that Panasonic had a special document entitled "Cautions for Connecting a Video Camera to a PC" that stressed that the PC should be turned OFF before using a firewire cable to connect the PC to the camera - otherwise there "may" be potential for static electricity damage to the camcorder! Not exactly "plug and play" ;) In practice I've had no problems when unplugging the firewire cable from the camcorder the normal way - using the Windows "disconnect USB device" tool and then turning off the camcorder before unplugging the cable.

The recommended IEEE 1394-1995 i.Link cable from Panasonic (VW-CD1E) is apparently discontinued, and in any case was simply an overpriced 4-pin firewire cable (apparently it cost around $100!). I purchased a generic 4-pin to 6-pin Belkin firewire cable from the local JB Hi-Fi store for $16.95 and it works perfectly. It was a relief to find that Windows Vista detected the camcorder device as soon as it was connected, and installed a working device driver without any problems.

I'm using Windows Movie Maker to download the mini-DV tape contents to my Dell PC. In AVI format a standard 60-min (SP) miniDV tape will occupy approx. 13 GB of harddisk space. Unfortunately the 1TB drive is formatted with Fat-32 file structure, so the maximum size for a single file is apparently 4GB (~19 min of recording time). I found this out when trying to download the first miniDV tape. So I'm splitting each tape into 4x15 minute segments, with a 1-min overlap to make editing easier. As I have around 26 used miniDV tapes this will result in approx. 100 raw video segments in total! As the play-back/download process occurs in "real time" I'm only transferring one or two of my 1-hr miniDV tapes each evening. If I saved the downloaded video files in WMV format I could store each complete 1-hr tape in a 1GB file, but I'm not sure how much the image quality would be degraded using WMV rather than AVI format. I've already had one of the miniDV tapes get damaged (tangled during tape ejection) and was lucky to be able to still rewind the tape and download it without further problems (the data in the damaged section of tape was unusable), so I think its best to make a "master" copy of each tape in AVI format. As I'm storing all my video and digital photo raw files onto my external 1TB harddisk file size isn't an issue yet. For data backups I'll eventually need to buy a second cheap 1TB HDD when ALDI has one on special, and store the second drive off-site (in case of a house fire). But I may put this purchase off for a while as storage media keeps getting cheaper each year. I still remember paying hundreds of dollars for a tape drive and tapes to back up my old 3.5" FDD last century, and the technology was continually being superseded by larger capacity media that were much faster and cheaper (per MB) than what had been available the previous year.

I found manuals for the various Panasonic NV-DS15 camcorder models online, although I eventually also located my original hard copy manuals.

So far we've just been enjoying viewing the unedited tape segments as I download them. Once I've finished all the data transfers from tape to HDD I'll start playing around with editing some footage (meterage? byteage?) using Windows Movie Maker (DS1 is already an expert). My first project will be editing last year's European vacation tapes and burn it the result onto a DVD. I'll insert some relevant still digital photos that DW, DS1 and I took, and maybe make up some graphics showing our journey (I recorded daily way points using my GPS and kept the road maps) and some title frames. Dubbing in some background music and commentary might make the end result look more like a travel documentary and less like the old-fashioned "home movie". The DVD burner software apparently lets you create a DVD "index" to make the finished product look more like a "professional" (rental movie) DVD, but I suspect that the more "professional" I package the finished product, the more obviously amateur the actual camera work will appear! I've been reading up on basic camera techniques (pans, tilts, etc) and will make sure I use a tripod on our next holiday. I'd gotten used to making do with hand-held recording while on previous back-packing holidays, but nowadays we travel by car (or camper van) so there's no reason to leave the tripod at home. Another benefit of using a tripod and remote control for the camcorder (if I can find it!) is that I'll appear more frequently in our holiday movies.

Depending on how the finished DVD turns out, I may just send a copy to our relatives, or maybe we'll even make some of our friends suffer through watching a "home movie" ;)

Subscribe to Enough Wealth. Copyright 2006-2008