Saturday 2 April 2011

Net Worth Update: March 2011

A rise in the estimated price of our home this month increased my equity in our property portfolio by almost $16K this month, but the gain was offset by stock market decline affecting the values of our retirement account and geared stock market investments. The drop in my stock portfolio equity was also exacerbated by having to draw down on my portfolio loan account to fund a replacement water heater and stove cook-top during the month.

Property sales figures indicate our property valuations will have declined about $3K for next month, so the stock market will have to continue to rise during April if I'm to keep my net worth above the million dollar mark. Of course in USD terms this would look better, with the Aussie dollar reaching new highs against the greenback in the past week.

Australian property prices have weakened in most regions over the past few months, although so far Sydney home prices have been holding up. It seems likely that inflation and interest rates will rise over the next 1-2 years, while house prices will stagnate or drop 5%-10%. So, in real terms property is unlikely to make a contribution to my net worth for a couple of years.

In the next couple of days I'll have to decide whether to tender any of my BHP shares for their off-market buy-back. I'll have to look up the cost basis for my holding to work out how much I'd end up if I sold them on-market and paid capital gains tax. The buy-back comparison is hard to value as the final tender price isn't definite (although you can set a minimum price), the after-tax value also has to take into account the split of the buy-back price between capital return and fully-franked dividend components, and also the likelihood of the buy-back being scaled back. So even if I tendered all my BHP shares into the buy-back I'd end up only selling a portion.

Assets___________$ Amount______$ Diff_____% Diff 
Stocks_*__________$13,890____-$13,307______n/a % 
Retirement_______$374,659_____-$1,081____-0.29 % 
Properties_______$973,163_____$15,796_____1.67 % 

Debts____________$ Amount_____$ Diff_____% Diff 
Home Mortgage(s)_$360,902______-$150_____-0.04 % 

Net Worth______$1,000,809______$1,738_____0.17 %
* the Stocks figure is portfolio value - margin loans. As my portfolio value (and margin loan debt) is around $500,000 relatively small movements in the stock market produce huge percentage swings in the net value of my stock portfolio each month.

My version of net worth calculation only includes major assets (including my home equity) and debts. Cars, boats etc. and household goods are not included. Monthly credit card balances are also not included as I pay my credit cards off in full each month. I also pay the uni HECS fees for my Master of Astronomy course as I go, so I don't have any outstanding uni HECS debt. I haven't allowed for any capital gains tax liability that would be incurred if I sold off our investment property, shares etc.

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traineeinvestor said...

Back over the $1 million mark - again. How many times do you think that will happen?

The BHP buyback is interesting. I have BHP shares myself but will not tender any because I do not get the benefit of the franking credits. said...

It would be nice if my NW never dropped below $1m AUD again! But, realistically there are many reasons it could decline from here - in the short term a stock market dip would do the trick, in the medium term a significant drop in Sydney house prices would have a big impact (it would have been nice to reallocate my assets from real estate into stock in mid '09 when the stock market appeared to have bottomed out. But selling off part of a house isn't an option). In the longer term, the world economy could take another hit - Euro debt crises, Japan stagnation + nuclear woes, Chinese inflation requiring a moderation of growth and hence drop in commodity prices impacting Oz, etc. etc.

I'd be in a much more comfortable position now if I'd decided to sell off my shares and investment property back in '07 and used to proceeds to knock down and rebuild our home and move the remainder of my funds into fixed interest. Deciding to stay invested (and use index put options to minimise the downside risk from a bear market) didn't work out quite as well as I had expected ;]

Credit Cards said...

Nice Way to put these kind of things, I enjoyed reading your blog. I love money saving ideas and this article really is interesting. . As I quote this one great psychoanalyst: “Reality is hard. Changing reality is even harder. But we are in it! We can't be outside of it.”

Anonymous said...

How do you get the market value of your property on such a frequent basis?

Also, have you explored getting scholarships for your children?

Financial Independence said...

While economically it does make perfect sense, but still I have a question.

Why do you count you property as part of your net worth?

You still need a place to leave. Unless you bought something you can downsize, does it really make any difference how much does it cost?

Do apologize if it is too naive. Just when thinking about financial independence I do not understand, why counting property.