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!

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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" ;)

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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.

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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.

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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.

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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.

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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.

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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".

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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.

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