Friday, 20 September 2019

Climate change 'strikes'

Apparently, having just voted in the LNP (conservative) government in Australia, and with both major parties supporting coal mining, the most effective thing people can do to attack the climate change 'emergency' is to have a day off work/school and wave some placards around.

https://www.smh.com.au/national/global-climate-strike-live-australian-school-students-march-in-protest-of-climate-change-20190920-p52t70.html

The funniest thing about these hordes of people gathering to protest human greenhouse gas emissions is that the rise in greenhouse gas emissions since the 1880s has been driven mostly by the inexorable growth in the human population.

Just do a back-on-the-envelope calculation of what global emissions and the temperature rise would have been if population was still at 1880s levels...

I also wonder how many of these people are actually paying the few dollars extra that would be required to get all their domestic electricity consumption provided by renewables? As with most things, many people will cry out for action, but generally only if someone else pays for it - either via taxpayer funded schemes or by costing someone else their job.

It will also be interesting to see how many people protest in the countries that have increased global emissions the most in the past few decades - since 2005 US emissions have declined by 758 million metric tonnes, the EU by 770 million metric tonnes, while China has increased their emissions by 3 billion metric tonnes, and India by 1 billion metric tonnes.

It's not a coincidence that the underdeveloped countries with huge populations that are trying to 'westernise' their economies and living standards are the ones currently driving the world towards temperature rises above the 2 degree 'crisis' target. And it also shows the futility of making heroic cuts in carbon emissions in the developed countries when this is being overwhelmed by rising emissions in the developing countries.

Yes, the rich nations with already high living standards can best afford transitioning to non-polluting energy sources, and should lead by example (and pay the 'sunk costs' of developing the required technologies). But if this truly is a 'climate emergency' the most significant change that could avert a climate disaster would be to ensure that developing countries only develop via non-polluting energy sources, rather than simply pushing ahead with economic growth at any cost (on the back of fossil fueled energy supplies).

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Tuesday, 17 September 2019

Progressing with my uni (and other) studies

A new uni semester (Q4) has just started. This semester I'm doing the 'Superannuation' subject. Browsing through the modules it all looks quite familiar, so I *should* be able to get another HD in this subject. So far I've completed four out of the twelve subjects required for the Master of Financial Planning degree, and have gotten two HD's (in Communication and Ethics for Financial Planners, and Investment Planning,) one D (in Financial Planning), and a Credit (in Commercial Law).

My GPA for 2019 (so far) is 6.0 which is just at the cut-off for getting onto the annual "Dean's List". Either a D or HD this semester will be enough to get on the Dean's List for 2019, but I'd prefer to get an HD this semester, as it will improve my chances of getting a university medal when I graduation.

My GPA overall (so far) is 6.25. To graduate 'with distinction' I'll need my GPA to be above 6.00, and for the Dean's Medal award at graduation I'll need a GPA above 6.00 AND be in the top 2% of my 'cohort' (which I think will be all the postgrad students graduating from the school of business that year). Hopefully I can get mostly HDs and Ds for the remaining subjects and get my final GPA to  6.50 or above. It's hard to know exactly what GPA will be sufficient to make it into the 'top 2%'.

This semester I also want to finish off the specialist courses in Margin Lending and SMSF that I'm doing with IIT, and also finish off the ADFP I'm also enrolled in with IIT. So I'll be quite busy studying for the rest of this year. Next year I'll only be doing my WSU studies, so it should be a little bit easier to ensure I get as many HDs as possible. Once I've finished the Masters degree I then plan on doing my CFP (the Masters degree will give me credits for three of the four required CFP courses) and to enrol in a PhD in Financial Planning. We'll see if things go according to plan...

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Thursday, 12 September 2019

Trying "12:36" (intermittent fasting) for a change

My 'diet' hadn't been working too well this year - I'd stopped tracking my daily intake and gotten into a bad habit of buying snack foods when doing grocery shopping and then browsing on them while watching TV in the evenings. Instead of losing weight, I'd been slowly gaining weight this year!

So, after reading about 12:36 ('alternate day'(ADF), or 'intermittent') fasting producing some good results for weight loss and improving a range of health markers, I decided to give that a go. I'd previously found it quite easy to stick to a five-day regime of my version of FMD ('fasting mimicking diet') that involved a balanced but low-calorie (~600/day) regime for five days, but after initially intending to do that once a month (and stick to my 'standard' healthy diet plan the rest of the time), I'd found it too much of a chore to buy and prepare the fairly specific food items for FMD. After doing it a couple of times I'd never gotten around to it again...

Therefore, the '12:36' fast seemed like a good idea, as it will be a lot easier to implement. The original version of 12:36 is to eat 'ad libitum' (whatever you feel like) for 12 hours (eg. from 8am to 8pm) and then eat nothing for 36 hours (i.e. have a fasting day). That has been applied to 'normal' weight humans, but as I am obese (BMI ~34) I really don't think having any 'ad libitum' days is a good idea (I can easily eat a family pizza and a couple of packets of confectionery or a family-sized block of chocolate in an evening if I'm in the mood). Therefore, my version of the '12:36' diet plan is to stick to my standard, healthy food plan most days of the week, and simply have a fasting day every Tuesday and Thursday. If I'm really keen I might also stick to my low-cal 'FMD' diet regime some weekends.

I experimented with doing a couple of days of fasting last week, but not stictly as I did eat a few food items on those days. I ended up having 936 cals last Tuesday and 685 cals last Thursday. I didn't feel particularly hungry on those days, so I stuck to a proper fast on Tuesday this week (no food at all) and today. I've actually found it very easy to 'fast' - not feeling very hungry at all (no more peckish that I often feel at 4pm after having a normal breakfast and lunch!).

Studies have shown that ADF has similar benefits (at least in animal studies) as CRAN, so I think this might be my ideal diet regime. The biggest plus from my point of view is that it is incredible easy to implement - no special foods to buy or prepare, and nothing to keep track of on the fast days.

So far the only 'glitch' caused by fasting is that one day I completely forgot to take my multivitamins and prescription medications in the morning as I didn't have any breakfast.

So far I haven't been on ADF long enough to determine what the long-term rate of weight loss might be, but I'm hoping to lose weight at a steady rate of 0.5-1 kg/wk once the initial 'water loss' period is over, and then slowly move towards my ideal BMI (70-75kg) over the next 12-18 months. Hopefully my rate of weight loss will slow down as I approach my ideal BMI (it takes a lot more calories to maintain and move 110kg compared with 70 kg!) - but if not I'll just replace the 'fast' days with the more modest FMD food plan on those days once I get close to the lower bound of the healthy weight range.

So far the initial results look quite promising:

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Monday, 9 September 2019

Sydney Planning for Population Growth - a house built on sand.

A read a feature article in the SMH about how Sydney's population is expected to grow by 1.3 million over the next decade. The article is full of pretty computer generated 3-D views of 'projections' of where this increased population will be housed (mostly west of Paramatta), but, having looked at the data for my suburb, I have to question whether this whole planning exercise is built on pretty dodgy data foundations.

When I selected my suburb the 'model' responded that the 2016 population was 2,656 and that by 2031 it would increase to 2,677. Really? An increase of only 21 people?

Given that the brand new Northern Beaches hospital was recently opened in this suburb, resulting in rezoning from single dwelling to medium for quite a few blocks (one house nearby was already replaced with a block of six or so units just this year), and that the nearby High School is slated to be moved to another location and replaced with a new 'town centre' featuring three apartment blocks of around 10-15 floors each, I have to wonder at the accuracy of all the 'data' being used for these projections and modelling.

God help us if they are actually planning infrastructure developments based on these models.

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Thursday, 5 September 2019

AMP casting Financial Planners adrift

An article in today's SMH describes how AMP has started cancelling the licences of some of its 1500+ aligned financial advisers. The article parrots the AMP line that this action is to take a 'tough stance' as "some advisers were not going to meet new regulations imposed by the government to abolish commissions and increase compliance".

This implies that these advisers are being dumped due to some compliance issue, whereas the reality is that those adviser's "business economics simply aren't strong enough" -- which is AMP's way of saying that these advisers don't generate enough revenue to make it worth AMP keeping them as authorised representatives.

Those advisers will now in the difficult position of having to find a new AFSL to get registered with, or, if they decide the quit the industry they find that the value of financial planner's "books" of clients being worth a fraction of what it has traditionally been - due to reductions in ongoing commissions and increased costs (compliance) for servicing clients. This is reflected in the fact that AMP has also slashed the amount it will pay their advisers as 'buyer of last resort'.

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Monday, 2 September 2019

Government meets demands of AFA and FPA lobbying - FASEA exam and education deadlines extended

Due to the large number of AFA and FPA members that were unhappy with the 'short' timeframes allowed to a) pass the FASEA Financial Planner examination (which basically just tests the ethics and best interest concepts that all financial advisers should already have embedded into the day-to-day practice), and b) upgrade their educational qualifications to meet the new minimum requirement of the equivalent of a tertiary degree in financial planning, the AFA and FPA have been actively lobbying the Federal government to extend the current deadlines.

The rational for extending the FASEA exam deadline was that it had originally been announced as being "two years" to pass the exam, but due to the time required for FASEA to actually develop the exam with ACER and implement the first round of exams in June, the original deadline of 1 Jan 2021 would have 'only' allowed 18 months for existing financial planners to pass the exam (or be deregistered and have to go through the 'new adviser' process). The associations also complained that due to the time taken to mark exams and issue results, the last possible session for sitting the exam and receiving notification of a 'pass' before the deadline would have been Sep 2020, not the end of the year. In the end the government agreed to change the exam deadline to 1 Jan 2022 (a full 12 months extension), which allows more than two years to sit and pass the exam (I sat my exam in June and passed, and around 90% of the first cohort passed, so it isn't a particular difficult exam).

The deadline for the educational requirements was originally 1 Jan 2024, which seemed perfectly generous to me - even doing a full Masters or Bachelors degree in financial planning would only take 4-6 years part-time for those with no advanced standing for 'prior learning' such as the advanced DFP or a CFP qualification. But apparently due to business and family commitments (which are the normal status for nearly all part-time students) many financial planners had indicated it would be 'too hard' to meet this deadline. So, the deadline for the educational requirements has been extended by two years - to 1 Jan 2026.

The AFA and FPA have expressed the hope that this extended deadline will allow more planners to remain in the profession. Personally I think this would be due more to older, existing planners being able to keep working until the end of 2025 without needing to upgrade their educational qualifications, than many more planners attaining the higher educational requirements simply due to having another couple of years to complete the studies. Those who complained the most (planners with many years of experience and no tertiary qualifications) will still find it a shock to go 'back to school' at a university level, regardless of how much time they are given to complete the courses.

On the downside, the changes mean that the public may still be getting 'professional advice' from financial advisers that don't have a tertiary education for another five years...

Both changes will require legislation to be passed before coming into effect.

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Net Worth: August 2019

Although the equities markets recovered slightly towards the end of August, this did not completely offset the sharp declines experienced when the US-China 'trade war' became more intractable earlier in the month. Therefore, my geared stock portfolio and superannuation (which is mostly invested in Australian and International share markets via the Vanguard High Growth fund) investments declined by $11,061 and $10,163 respectively.

The net value of my geared stock portfolio continues to reflect the ~$2,600/mo of startup costs for my financial planning business that are being funded using my 'portfolio loan'. I haven't got any clients yet, but my goal is still to get a few clients by the end of 2019, and (hopefully) enough clients by the end of 2020 to at least cover the running costs of my home business. The major costs are the monthly fee to the AFSL ($1,150/mo), the monthly fee for Midwinter (admin) basic subscription (~$200/mo), and the costs of my uni studies (about $1,200/mo on average) and FPA and AFA memberships (~$100/mo).

The estimated value of my half of our home remained unchanged, as the local sales data was not updated last month, but the CoreData index of Sydney house prices showed a 1.5% gain during August, so it definitely appears that the decline in property prices has bottomed out after the two consecutive cuts in the cash rate by the RBA, and the introduction of personal income tax cuts by the Federal government.

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Monday, 12 August 2019

Is Labor doomed to mostly stay in opposition for the rest of this century?

Putting aside the fact that Labor managed to loose the last election (contrary to most peoples expectations), I was reminded today about the rapidly growing over 65 demographic in Australia (15% of the population in 2017, up from 9% in 1977. And projected to comprise 22% of the population by 2057 and to reach 25% of the population by 2097). Combine this with the fact that the two-party preferred breakdown shifts from Labor to NLP with age, and it looks as if it might become increasing difficult for Labor to form government in Australia during the remainder of the 21st century.

Age     two-party vote (%)
         ALP      NLP
18-24    59.5     40.5
25-34    58.5     41.5
35-49    51.5     48.5
50-64    46.0     54.0
65+      39.0     61.0

While the young tend to favor progressive policies and redistribution of wealth, older voters tend to be more conservative and prefer lower taxes. This attitudinal shift tends to occur with age - the same cohort of twenty-something voters that voted "It's Time" for a Labor government in 1972 and the aging baby boomers that mostly voted NLP in the last election. Therefore, it can be expected that as the percentage of over 65s increases, this should boost the overall two-party preferred vote of NLP at Labor's expense.

Another factor that might work in NLP's favour is that as the population ages and once radical social agendas become 'mainstream' they tend to be adopted by the conservative side of politics. Whereas the Labor/Green policies constantly have to be ever more progressive to appeal to their 'base' of young voters.

This also explains why Labor occasionally spruiks the idea of lowering the voting age further -- as these voters would be predominately Labor/Green supporters.

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Thursday, 8 August 2019

Passed the FASEA exam

The results from the June FASEA exam sessions were released today - I'm glad I passed as that is one less thing one my 'to do' list as a financial planner (and resitting the exam would cost around $500 each time!). All registered financial planners in Australia are required to pass this exam (on ethics and compliance/legislation) by 1 Jan 2021 or lose their registration.

Apparently 579 (out of approximately 25,000 registered advisers in Australia) sat the exam in June, and about 90% passed the exam.

When the current semester at Western Sydney Uni finishes in a few weeks I'll also be 1/3 of the way through my Master of Financial Planning degree, so the extra educational requirements that come into force on 1 Jan 2024 for existing advisers are also progressing nicely (although it costs a small fortune).

Now I just need to get my first client!

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Wednesday, 7 August 2019

Saving money by 'switching' Electricity Supplier/Plan

Late last year I finally got around to using the State Government's "Energy Watch" website to compare my electricity supplier/plan with others that were available. After entering some facts about my current bills (costs and usage pattern) it turned out that the best alternative for us was 'switching' to a different plan offered by our current supplier. (Because I didn't actually change supplier I've since received reminder emails from Energy Watch saying that I didn't complete the switching process).

As I have setup automatic payment of our electricity bills by direct debit (I just have to make sure I remember that the charge is due, so I have enough money in that bank account!) the best plan available for us was one where there is a hefty (around 25%) discount on the energy usage component of the bill (ie. everything except the daily 'supply'/connection charge) if the bill is paid "on time". It also involved locking us in to that supplier for a period of time, but as I hadn't bothered switching suppliers for the past decade that isn't an issue.

Looking at the four quarterly bills we paid for 2017/18 vs 2018/19 our figures were:

FY 2017/18 kWh = 8,941 cost = $2,367
FY 2018/19 kWh = 9,065 cost = $2,092

Therefore our usage had increase 1% (no significant change) while our bill had dropped 12%, despite only making the switch to the discounted plan at the end of 2018.

We also saved a little bit by paying more attention to our usage during 'peak' times - managing to reduce our 'peak' time electricity usage from 10% of our total to only 6% (basically by DW not doing any washing during the 'peak' hours, and us not starting to cook dinner most days until after the 'peak' period ended (peak period is 2pm-8pm on weekdays). Peak electricity cost around 60c per kWh, compared to 27c for 'shoulder' periods (7am-2pm and 8pm-10pm) and 13-16c for 'off peak' (10pm-7am) and 'dedicated circuit' supply (which I think is our hot water tank).

Switching plans half way through the year saved us around $250 last financial year, and we should reduce our annual electricity bill by about another $250 this financial year.

The comparisons don't take into account the price changes for electricity over the past two years - as prices have increased 9% during that period, our bills would have been even higher if we hadn't switched plans or reduced our 'peak' usage.

The next item on my 'to do' list relating to electricity costs is to get our solar panels/inverter checked and possibly repaired. We had solar panels installed on our garage roof about ten years ago, and because the cost was subsidised by a government rebate and there were initially very generous 'feed in' tarriffs applied, the system had paid for itself after only 2-3 years, and the solar power had been subsidizing our electricity bills (until the inverter stopped working a couple of years ago).

While our solar power system is out of warranty (and the supplier went out of business long ago), it might be worth getting a new inverter installed (if the panels are still OK). I made a few inquiries about getting a repair quote, but most solar panel suppliers only seem interested in selling new system.

Getting the solar panels working again would only reduce our total mains usage by about 10%, but it would mostly cut our 'peak' and  daytime 'shoulder' use, so it would have slightly more impact on our bills than on our mains electricity consumption. It would also help cut our contribution to carbon emissions a little bit (but probably not as much as the fact that I now get the bus and train to work each day, rather than driving).

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Thursday, 1 August 2019

Net Worth: July 2019

My net worth total was marginally higher at the end of July (+$1,873 or 0.08% compared to last month) at $2,382,540. This was due to a significant increase in the balance of my retirement savings (SMSF and ColonialFirstState superannuation accounts) that was largely offset by a drop in the estimated value of our home. In reality, Sydney house prices stabilized during June/July, but this was masked by the fact that last month I didn't have updated local sale price data, so I had used the previous month's estimate. So I basically included the June decline in house price in the July figures.

My direct stock and managed fund investments (via margin loan accounts) also showed a slight decline during July, but the reality was the stock markets rose during July, but my net stock portfolio total also included some draw downs on my 'portfolio loan' for payment of uni fees, a monthly transfer of $1,500 to cover my financial planning business fixed costs, and payment for an unlisted investment of $4,215 in the company Adviser Ratings (via a crowdfunding campaign). Theoretically I should include the value of the Adviser Ratings shares in my portfolio, but I can't be bothered (it is probably also prudent to 'write down' the value of this investment to $0, as they are illiquid and of dubious value unless the company does well and eventually floats on the ASX (or gets sold to an investment company).

Overall, the stock market gains of 2019 have been largely consumed by my expenses relating to my financial planning business running costs (~$2,000/month) and my university fees (~$1,000/month) for the Master of Financial Planning degree. Hopefully within two years my business will have reached 'break even' and I will have completed the Masters degree (if I decide to continue on to do a PhD in financial planning the fees should be covered by RTS government funding).


The $7,900 valuation of the S type Jaguar I bought last year might also be optimistic - it has an electrical issue (the new battery keeps going flat within 1-2 weeks of being charged up - probably due to the fact the the brake lights stay on even when the engine is off and the key removed from the ignition!). This car is due for registration renewal this month, so I'll have to arrange for it to be towed to the local mechanic to get repaired and obtain an inspection report ('pink slip') so I can renew the registration before it expires... getting the car towed will be a little bit tricky as the anti-theft system locked up the steering when the battery was disconnected for charging, and the NRMA road service mechanics were unable to unlock the steering. So it will be hard for a tow truck to get it out of the garage and onto the street...

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Friday, 5 July 2019

Paying less tax under the Liberals

Well, the tax package the NLP government took to the last election has now been passed by both houses, so will become legislation. My local MP sent me a link to this handy tax relief estimator. My actual taxable income is hard to know in advance, as it will depend on how large my tax deductions (interest paid on my margin loans, costs associated with my Ubereats casual work, and my self-education and business expenses relating to starting up my financial planning business) turn out to be, and how much extra income I get from dividends, and how much (if any) income I earn from my business and casual work. And any capital gains (or losses) made on any shares I sell during a particular financial year...

Based on my raw (before any deductions or other income) annual salary, plus bonus, of around $125,000, my tax bill would drop by only $165 (to $36,217 ie. a reduction of only 0.45% in tax) during 2018-19 to 2021-22 FY. The tax cuts for 2022-23 and 2023-24 would increase to $2,565 (a 7.05% reduction in tax), and (assuming Labor doesn't rescind the latter tax cuts) the final stage from 2024-25 onwards would see the tax on $125,000 of taxable income drop by $4,790 (13.16%).

However, my taxable income is usually a lot less than this raw figure, so the initial tax savings will be proportionately larger in the next couple of years. If my taxable income was $90,000 the initial tax rate changes would save me $1,215 in tax (a reduction in tax paid of 5.3%), which is equivalent to a fairly hefty pay rise.

And then, if my business becomes profitable in a few years time, the latter tax cuts that benefit higher income levels more will be just getting phased in. So, if my taxable income reached $200,000 by 2024-25 the tax saving would be worth $11,640 (a reduction of 17.3% in the amount of tax due).

The prospect of significant reductions in income tax for higher income earners from 2022 (and even more from 2024) means that it will be a good tax strategy to realize any capital losses in the next couple of years, and postpone selling any assets that will realize significant capital gains until the final stage of tax cuts has been implemented. Assuming it all goes ahead as planned...

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Thursday, 4 July 2019

Invested in 'start up' company Adviser Ratings via crowd funding

Last time I invested in a company pre-listing was a US ISP start-up 'Global Entrepreneurs Network' (GEN) last century. Despite being a dot-com company prior to the dot-com boom-bust in the late 1990s, that company managed to run out of money and go bust (actually it appears it was acquired by SAGE, but the original public investors didn't end up with any equity) before it reached IPO/listing stage.

It was a bit disappointing (especially as I could have invested in listed companies such as Microsoft or Apple instead - and could have made a lot of money) but not unexpected with those sort of high risk 'blue sky' investments. On the other hand, if a pre-IPO investment works out, you can potentially make a considerable profit.

After twenty years I've finally decided to risk another small investment in a 'start up' company - this time I've invested $4,215 via crowdfunding to 'invest' (aka speculate) in buying150 shares in the new financial adviser rating company called 'Adviser Ratings' (not as imaginative a company name as Alphabet, but at least its truth-in-labelling). There is a considerable demand for reliable financial advice in Australia (and the UK and US), and considerable difficulty for consumers in knowing which advisers are good and which aren't (for example, some of the shonkiest advisers exposed during the Hayne RC had high profiles, and appeared to be highly regarded 'experts'). So a 'trip adviser' style consumer rating system for financial advisers would seem to have considerable potential.

Also, being a software based company with (apparently) some revenue streams already (one of the big risks is whether or not these revenues do turn out to be 'sticky' and ongoing as expected), and the  potential to replicate its business model in the UK and possibly the US (although I've no idea what existing/potential competitors might be doing a similar thing in those markets) it could scale up at minimal cost, and grow revenue. Whether this actually happens or the shares end up worthless is the risk you take when making such 'blue sky' investments.

Anyhow, its an interesting investment opportunity, and fits in with knowledge of the financial advice industry (one of the old cliches of share investing is to pick companies that produce products you know about and consume yourself - whether it is a winning strategy is dubious - just think of all the people that used VHS tapes in the 80s!). And if the company never 'lists' and the shares end up worthless I can afford to loose the $4,215 (I lost a lot more when I invested in Agribusinesses Timbercorp and Rewards!). If anyone is interested in investing, you can use this link (which will utilize my referral code, and I'd end up getting 30% of the 6% fee that birchal charges for the crowdfunding). The crowdingfund share 'float' for Adviser Ratings has already passed its minimum funding target (raising $350K) so it looks like this tranche of shares will be issued.

NOTE: This is NOT a recommendation to invest in this company - do you own research and make up your own mind!

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Wednesday, 3 July 2019

MFinPlan progress

I was relieved that I managed to end up getting a Credit grade for last semester's subject 'Commercial Law' with a mark of 66%. As I had only gotten marks just over 65% for the assessment tasks during term, I had gone into the exam expecting to either just Pass the course or maybe get a Credit. Law was certainly not one of my favourite subjects! I've now completed 1/4 of the Masters degree in Financial Planning, and will be nearly half-way through by the end of the year.

My previous two subject results had been a Distinction and a High Distinction, so I'm just on track for the annual "Dean's Letter" this year (which requires a Distinction average and taking at least four subjects) and to remain on track to make the cut-off for consideration for a 'with Distinction' degree (must have a Distinction average overall i.e. GPA >=6.0) and to a have any shot at getting an academic medal (to get that I'd have to end up in the 'top 2%' of the graduating cohort, which would probably require getting mostly HDs from here on).

This semester I'm doing the subject 'Investment Planning', which should be a lot more enjoyable, although it seems to cover a lot of stuff that I'm already familiar with:
Module 1 - Investment environment
Module 2 - Risk and return
Module 3 - Investing in shares
Module 4 - Alternative investment
Module 5 - Investing in fixed income securities
Module 6 - Investment administration
Module 7 - The investment planning model and client profile
Module 8 - Investment objectives and returns
Module 9 - Management of risk
Module 10  - Investment strategy
Module 11 - Investment selection
Module 12 - Portfolio construction and management

This semester I need to make sure I also finish off the two 'specialist' courses (Margin Lending and SMSFs) that I'm enrolled in at the International Institute of Technology (I'm nearly finished, aside from the 'role play' video submissions and the final assessment quizes), and I also need to try to get a couple of the modules completed towards the Advanced Diploma in Financial Planning that I'm also enrolled in.

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Monday, 1 July 2019

Net Worth: June 2019

The positive performance of the Australian and global share markets during June resulted in my geared share portfolio gaining $22,317 (10.34%) and my superannuation savings rising by $40,058 (3.88%). I don't have new sales data for calculating our house price estimate this month, but the overall Sydney property market data showed practically no change in average prices during June, suggesting that the market has 'bottomed out' in response to the RBA lowering interest rates (which flowed on to home mortgage interest rates) and the election result ruling out the proposed changes to negative gearing that had been Labor policy. While most pundits don't expect a strong rebound in house prices during the remainder of 2019, I don't expect out home price estimate to be a major drag on my NW during the financial year (and may even have modest gains during 2020).

My NW estimate $2,336,288 rose $62,606 (2.75%) during June and has recovered to be within $2,500 of my previous all-time-high (in August 2018). While dropping interest rates suggest that the economy is weak (a negative for the prospects of the stock market), on the other hand they make dividends more attractive relative to bond yields, which may support stock prices. Hopefully the tax cut legislation will be passed this week, which should provide some economic stimulus during the latter part of 2019, and should help bolster consumer sentiment despite the ongoing lack of any significant real wage growth.

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Monday, 24 June 2019

FASEA exam done and dusted - hopefully I passed

I did the FASEA Financial Adviser exam on Sunday (I didn't want to take a day off work). I can't say anything detailed about the contents of the exam as that would be 'misconduct' (we were basically sworn to secrecy). The exam was 3-1/4 hours long, but it was possible to get the 70Qs done within the time limit (I actually finished about 12 mins early and decided to leave before the final 10 min 'lock in' period), so there wasn't really much time pressure. Most of the questions were related to 1 page 'case study' descriptions, very similar to the practice exam Qs provided by FASEA. A few other Qs were just a multiple choice of table of T/F values to fill in relating to one key definition or series of statements. The short answer questions were OK, but it was sometimes hard to work out exactly which two key points they were expecting to be included in the response. The exam format was all described in the instructions provided to candidates when you registered for the exam, so nothing 'secret' about that.

Overall I *think* I passed (requires a minimum of 65%) the exam, but if I didn't then I will need to do a LOT more reading before sitting the exam again - the bits I was uncertain about were either things I haven't done yet for my initial registration (eg. taxation advice) or were related to how the AFSL compliance team would handle breaches by one of their authorised reps (as a rep I'm more concerned with knowing what I need to do to be compliant with the rules, not what the actions/penalties would apply when the rules are breached). This seemed more appropriate to AFLS management or compliance staff, not particularly relevant to 'front line' financial planners.

The fact that the exam was 'open book' in terms of having access to pdfs of the relevant Acts was really quite unhelpful - if you didn't know the answer to a particular question, there was no way you'd have enough time to review the relevant Act to find the answer. The few times I tried looking up a relevant key phrase to simply double check on an answer I had no luck finding the relevant passage out of the thousands of pages of legislation! If you knew exactly which section of an Act to look up, you'd probably already know the answer!

Anyhow, fingers crossed that I passed the exam, as its not something that I want to have to do again (or pay another $500+ for the privilege!). Time to get on studying for my next Masters degree subject (investment analysis), and finishing off the couple of 'specialist' modules (SMSFs and Margin Lending) that I've almost completed. Then I need to get stuck into doing the Advanced DFP course I enrolled in last December (and haven't started yet)...

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Friday, 21 June 2019

SMH had a silly article about to earn $1m and pay no income tax

Apparently the SMH sub-editors have no qualms about using click-bait headlines such as "How a millionaire pays no income tax".

The article has some interesting facts about typical amounts deducted, drawn from ATO data on 2016/17 tax returns. But the main lead of the article is about the mythical 'Tony' who has a $1m income but pays no income tax. It turns out this hypothetical example is based on a) him making a $50K deductible contribution into super (of course these days the amount has reduced to $25K), and also making a whopping $850K charitable donation.

I suspect that most readers lured by the heading weren't expecting an article about how to pay no tax by giving all your earnings away as a charitable donation! ;)

Of more interest (but unexplained in the article) was the factino that the average amount claimed by those earning more than $1m income on 'managing tax affairs' was $607,201. It would be interesting to see if that much money was actually being spent on an arms-length basis.

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Wednesday, 19 June 2019

How much do Australian Financial Planners make?

From ATO data for 2016/17 available via a SMH article the following breakdown of 'Financial Planner' taxable income by tax bracket:

2.69% earned up to $18,200 (537 people) - average income: $13,785
7.27% earned in range $18,201 - $37,000 (1,453 people) - average income: $32,320
38.91% earned in range $37,001 - $87,000 (7,775 people) - average income: $68,848
35.55% earned in range $87,001 - $180,000 (7,102) people) - average income: $130,107
15.58% earned over $180,000 (3,113 people) - average income: $409,680

Overall, about half the 'financial planner' taxpayers had a taxable income under $87,000, and roughly 15% had a taxable income above $180,000.

Average full-time taxable income for this job category is $132,694

And the total number of taxpayers with title 'Financial Planner' was 19,980 - this probably is lower than than the actual number of financial planners, as some registered planners (like me) may have multiple jobs and the job title reported is for their main source of income.

Taxable Income      # people    % of FP    % /w PHC    % w/ NGP    % w/ HD    avg HD
$0 - $18,200          537        2.69%      74%         21%         22%       $25,184
$18,201 - $37,000   1,453        7.27%      72%         13%         27%       $24,449
$37,001 - $87,000   7,775       38.91%      79%         17%         29%       $25,568
$87,001 - $180,000  7,102       35.55%      94%         18%         11%       $15,525
over $180,000       3,113       15.58%      99%         20%          3%       $13,735

PHC = private health cover
NGP = negatively geared property
HD = HECS debt

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Tuesday, 4 June 2019

The impact of the FASEA changes on accountant's 'SMSF advice'

One of the quirks of the Australian financial advice sector was that accountants had been able to offer financial advice limited to SMSFs in isolation. This made a sort of sense, as accounting clients would often seek guidance from their existing accountants when thinking about setting up an SMSF. And, after all, accountants had much higher educational and professional standards than the typical 'financial adviser', so they felt they were perfectly capable of giving advice with regards to SMSFs.

However, with the move towards 'Best Interests Duty' meaning that financial advice has to take into account the entire situation of a client, it no longer makes sense (or is appropriate) to give advice on how to setup a SMSF without taking into account the client's overall financial situation, goals, and other financial needs such as insurance, investing outside of superannuation, and the actual  investment allocations once the SMSF is setup.

Before 30 June 2016, accountants were permitted to provide advice on setting up and winding up an SMSF (and other product-related advice) under the so-called ‘accountants’ exemption’, which has now been repealed. Therefore, if accountants want to continue to offer 'advice' regarding SMSF they need to get registered as a financial adviser, and meet the educational requirements - including the new FASEA exam.


You would think that if the accountants that had previously been offering 'financial advice' with regards to SMSFs had been acting in the client's "best interests" by taking into account their holistic financial situation and needs when advising about establishing an SMSF, then passing the FASEA exam would not be particularly challenging. But apparently not so - a recent poll by SMSFAdviser indicated that only 25% of respondents planned to 'meet the new requirements and continue to give advice' (some of the respondents would have been registered financial planners, so this probably overstates the percentage of accountants that will 'upgrade' in order to be able to continue offer SMSF advice). While 23.3% of respondents said they would be unaffected by the new requirements (i.e. they don't provide any financial advice in conjunction with their accounting services), a whopping 29.7% intend to stop giving advice, and a further 22% were planning to retire by 2024 or leave the industry.

Overall, it looks like the changes will result in a much smaller cohort of accountants offering financial advice to their clients, which suggests there may be an increase in referrals of accounting clients to financial planners when they are in need of personal financial advice. Those accountants that do choose to 'upgrade' in order to be able to offer financial advice will be able to offer a more holistic service to their clients. Whether or not it makes economic sense is another matter... there is a lot of admin required when providing financial advice (eg. product comparisons and a written SOA) that isn't involved when 'only' providing accounting services.

On the other had, there has recently been a significant flow of clients away from SMSFs and into low-cost industry superannuation funds - which might indicate that some clients of accountants had been placed into SMSFs when it wasn't really appropriate for them. So perhaps the repeal of the 'accountants' exemption' was long overdue.

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Monday, 3 June 2019

Net Worth: May 2019

"Sell in May and go away" - one of the old stock market sayings that hadn't been reliable in recent years, but certainly would have been worth heeding towards the end of May 2019. My overall net worth declined by $39,729 (-1.72%) during May, which isn't much fun considering it is around half my annual after-tax salary, or the equivalent of my total expected start-up/running costs for my financial planning business for two years! The decline in the stock markets saw my geared share portfolio decline by -$8,310 (-3.71%) and my retirement savings decline by -$18,695 (-1.78%). While the rate of decline in the Sydney housing market appears to be slowing, our estimated house price was down by -$12,956 (-1.75%), the size of the drop being partly due to no sales data being available last month (so this was essentially two months of price change in one hit). The election result and the likely cut in interest rates by the RBA will hopefully put a floor under Sydney house prices.

The ongoing trade war between the US-China is expanding to include Europe and Mexico (Trump seems to think Tariffs are a multi-purpose blunt instrument to beat everyone into submission) is starting to look like it could bring an end to the US economic growth cycle just as the global economy is quite anemic. So in the current situation it doesn't look like the rest of 2019 is going to be particularly kind to my net worth situation.

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Its fashionable to denigrate the rich

I recently posted about the criticism that had been leveled at some French billionaires when they gave generously to the Notre Dame restoration campaign. It seems that rather than being seen as altruistic, charitable giving by 'the rich' is nowadays often derided as being either a) pretentious ("see how much I can afford to give"), b) meaningless ("oh well, they can afford it, can't they?"), or c) evidence of the 1% problem ("no-one should have that much money!").

An article in today's SMH showed a similar vein of disdain when reporting that a charity fund-raiser had 'only' raised $3m for a worthy cause: "But before we send out the cheer squad, let's be real - that's chump change when the room is collectively worth around $25 billion."

Now, while $3m is only 0.012% of the net worth of the participants, that isn't actually too small an amount for a one-off fund-raising event. Just consider, an 'average' Sydney home-owner that doesn't have too large a mortgage will have a net worth of at least $1m. So this sort of giving is equivalent to an 'average Joe' making a $120 donation when the Red Cross or Salvos come knocking at their door, or spending $120 at a silent auction at a school Fete. This wouldn't be a huge amount, but it is still well north of the usual $10 or $20 amount (or less) people often give to charity at one time (indeed, the median charitable donations annual total for Australian taxpayers is only $200 or so). So I'm not sure that describing this quanta (0.012% of NW) of giving as 'chump change' would be warranted when talking about the average person. So why deride similar levels of giving by 'the rich'?

Criticizing people for philanthropy doesn't seem either nice nor productive - it is more likely to make them not bother to turn up at fund-raisers than to make them donate more. In any case, this particular article seemed to be motivated by the reporter not being invited to attend the event.

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Wednesday, 29 May 2019

FASEA Exam for financial planners

The new, mandatory examination for Financial Planners in Australia has finally kicked off - bookings for the June session of examinations opened earlier this month and close at 5pm on Friday 31st May. I decided to enrol in the exam (I'm booked in for Sunday 23rd June), as I *should* know all the required material already, having recently completed the DFP and done financial planning and ethics subjects at uni in the past six months. There will also be some preparation materials available via Kaplan (which my AFSL provides in order for their authorised reps to complete the annual CPD requirement), which will give me a chance to revise thoroughly. The exam is being run by ACER (UNSW) and costs $594 - hopefully I pass the exam on the first attempt, as although you can resit the exam it will cost another $540+GST (ie $594) each time!

Although the exam will be held every three months this year and every two months during 2019, I've seen mention that you will only be able to register for an exam if you haven't sat for one within the past three months - and since registrations close a couple of weeks before the exam session commences, this would mean that if you fail the June exam you couldn't register for the next session in Sep 2018. And during 2019 you would only be able to resit after four months, not two.

In any event, existing (registered) financial planners have to pass the exam before 1 Jan 2021, or they will then have to pass the 'new planner' registration requirements - which would include doing 12 months of supervised professional experience!

The exam 'pass' mark is 'credit level' (ie. 65%), but as the exam (70 Qs to do in 3 hr 15 mins, after 15 mins 'reading time') consists mostly of multiple choice questions I'm hoping it isn't too hard compared to a typical university exam. It probably will be a bit of a shock to existing planners that have been in the industry for many years and don't have any tertiary qualifications. The exam is also 'open book' in terms of having the relevant statutory materials available (presumably on the dedicated computers that the exams are being run on during 2018-19.

Anyhow, as soon as I finished off my uni exam on 11th June I'll get stuck into revising for the FASEA exam. Then I'll have to get cracking on finishing off the ADFP I've also enrolled in (but haven't yet started).

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Lagging my 'stretch' benchmark

One 'benchmark' that I use for evaluating how well I am doing at increasing my net worth is the cut-off amount for the annual 'rich list' of the 200 wealthiest Australians - I compare my NW to 1% of the cut-off figure. The latest 'rich list' will come out this Friday, but they have already announced that the cut-off amount for being included in the list has increased to A$472m this year. So my 'benchmark' aspirational figure is A$4.72m for the end of 2018 (the list takes several months to compile, so I compare the annual figure to my previous year-end NW estimate).

Unfortunately my NW has lagged this benchmark during 2018. I'm guessing this is mostly due to:

1. A large fraction of my NW is tied up in our home, so the deflation of the Sydney (and Australian) residential real estate bubble has had a major negative impact on my net worth

2. Although the exact make up of the 'rich list' won't be known until Friday, looking at some of the names that have dropped out of the 'top 200' suggest that many traditionally rich families, while doing OK during 2018, were surpassed by the rapidly rising fortunes of several people involved in the Australia 'tech' industry. The founders of Atlassian are one example.

I don't expect 2019-2020 will be particularly good for my NW either, as I will be spending quite a bit of my cashflow on my uni studies and the running costs of my new financial planning business. Hopefully by the time I finish off my masters degree at the end of 2020 (or early 2021) my business income will at least be sufficient to cover running costs (even if I'm not still not drawing any 'salary' from the business). In 2021 the business will either be running profitably, or I'll shut it down. And in 2021 if I enrol in a PhD in financial planning the uni fees may be covered by RTP (research training program) funding.

If my business does start to generate profits from 2021 onwards, I may start to make some progress relative to the 'rich 200' benchmark.



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Sunday, 26 May 2019

2018 was a bad year for billionaires

According to the Wealth-X Billionaire census the number of billionaires world-wide declined by 5.4% to 2,604 during 2018, and their total wealth also declined by 7% to $8.6 trillion last year.

The Pacific region, which includes Australia, did worse than average, with the number of billionaires declining by 6.3% (to 30) and their wealth declining by a massive 14% (to $64 billion) during 2018.

Overall, billionaires account for only 1% of all Ultra-High Net Worth (UHNW) individuals (defined as those with $30 million in net worth). However, they accounted for 28% of UHNW total wealth.

One interesting aspect of this is that 'wealth distribution' is actually a lot more 'equitable' amongst UHNW individuals than, for example, wealth distribution globally (where the top 1% of global population have at least 50% of the total wealth). Of course, this is largely due to the fact that no UHNW have a negative net worth, whereas the global population includes many people with negative net wealth (are in debt), or zero net wealth.

Australia is under-performing in terms of how many billionaires we have - our GDP ranks 13th, but we are not in the top 15 countries in terms of number of billionaires. This may of course reflect the much cherished belief that Australia is a more 'egalitarian' society than many other countries.

While not many people will feel much sympathy for billionaires having a tough 2018, it will have some adverse 'trickle down' effects - after all, the most popular hobby amongst billionaires is philanthropy, with over 50% known to be actively involved in philanthropic giving - often via educational grants, scholarships are so on. A recent example was Robert Smith paying off all student loans for the class of 2019 graduating from his Alma Mater (as is often the case when rich people engage in charitable giving, this immediately resulted in some criticism - the Washington Post wrote a piece questioning whether this act of charity was fair on those students (or their parents) that had saved and paid for their education without going into debt). Another recent example was the immediate, large donations of several French billionaires towards the restoration of Notre Dame cathedral after the recent fire. This, too, was promptly criticised - some on the basis that it was an example of Western privilege (i.e. it was easy to raise donations to restore a Western cultural icon, yet little had been raised to restore the damage done to Palmyra done by ISIS), and others simply objected on the basis that the generous donations provided another example that billionaires have more money than they need, or 'deserve'.

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Saturday, 25 May 2019

How 'fair' was Labor's policy to increase redistribution by raising taxes on the 'top end'?

One of the things I found most irritating about Labor's election campaigning was their constant assertion that raising taxes to spend on more 'redistribution' to reduce inequality was 'fair', and that the coalition policy to provide some income tax relief to those on above average wages was terribly unfair. I suppose it all depends on how you define 'fair'.

According to Labor, greens and other 'progressive' parties, any inequality of incomes or assets in 'unfair' and the role of government policy is to play Robin Hood - taking from 'the rich' and giving to 'the poor'. The confuse to goal of equal opportunity with that of equal outcomes.

We already have a progressive tax system, which ensures that those that can 'afford' to pay for the country's essential services does so, and also ensures that social welfare is provided to those in need. Does it need to be even more progressive? I doubt that many people realise how progressive it already is. I came across an interesting 'fact check' that was done back in 2015 when Hockey (then treasurer) made a statement that 50% of all tax was paid by the top 10% of the working population. The fact check confirmed this. But what I find even more interesting is that a phenomenal 98% of all income tax is paid by the top 50% of the working ie. those earning more than an average wage!

Whether or not it is 'fair' that 98% of the funding (in terms of income tax) to run the country is provided by only half the population (ie. the other half are basically free-loaders), I can't see how increasing that tax burden even more in order to hand out additional 'support' to the bottom half is 'fair'.

In any case, fairness (or unfairness) of redistribution is in the eye of the beholder. Those voters who will end up paying more taxes and not receive any direct benefits will tend to vote against such policies, and those who won't foot the bill, but will receive substantial benefits, tend to think it is a great idea (and self-evidently 'fair'). It is also the reason why younger voters (who often pay little or no tax) tend to vote more to the 'left' and older voters (in peak earning/taxpaying years or retired after a lifetime of paying taxes) tend to vote more 'left'.

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Thursday, 23 May 2019

Shorted Tesla in my CFD account

I decided to short Tesla again yesterday (not sure if the trade was executed, as I placed it while the markets were closed, so it depends what happens with the US market overnight). Last time I did so Tesla was up around $300/share, but rebounded after a dip, so I closed out. I should have kept my short position, as since then it has been in a remorseless downtrend. If my order gets executed, I'm hoping that Tesla won't make a miraculous turnaround - at the moment they seem to be counting on cost-cutting and a sudden increase in market share to stem their negative cashflow crisis before it runs out (they apparently have about 10 months worth of cash, after the recent $2B injection).

If things don't turn around, one Telsa-watching commentator has predicted the share price could drop to $10 (why not say $0?). I don't expect it to do that (unless Tesla looks like going broke and ends up being acquired by one of the 'real' car companies), but I'm hoping that it hasn't reached bottom yet. We'll see how things turn out.

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Wednesday, 22 May 2019

RBA governor tries his hand at blame-shifting

Apparently the RBA governor has 'gone political' and given a post-election speech suggesting that the government ought to look at other ways to lower unemployment (such as increased infrastructure spending or industrial reforms to boost employment growth), rather than rely on the RBA cutting interest rates:
https://www.smh.com.au/politics/federal/how-good-is-that-rba-decides-it-s-time-for-some-real-policies-20190521-p51pmv.html

However, there seems to be an opinion that recent low unemployment levels may (after a lag of around a year) lead to higher inflation:
https://www.businessinsider.com.au/kangaroo-curve-australia-unemployment-rate-inflation-nairu-2018-11

So I'm not sure that lowering unemployment should be a priority for the RBA or government, given that unemployment is getting pretty close to the rate that occurs naturally from a certain proportion of people always being in transition from one job to another.

Given recent moves by the RBA to put their previous inflation target band on the back burner (having failed to keep underlying inflation within the target) and instead focus on lowering unemployment, it seems that this might be a bit of self-interested bias by the RBA. Having found achieving their inflation target 'too hard', they've decided to shift the focus to unemployment rates, and then wash their hands of that too, but saying that there isn't much scope to cut rates any further, so its now the government's responsibility to do something.

Given the supposed sanctity of the RBA being independent in terms of setting interest rates free from government interference, it seems a bit inappropriate for the RBA governor to now be offering the newly re-elected government 'helpful' advice on where their budget priorities and IR policies should head.

There are of course aspects of unemployment that still need to be addressed: underemployment (those in one of more casual or part-time jobs that would really like to be working full-time in a permanent position), regional unemployment, youth unemployment, indigenous unemployment, age discrimination in employment and so forth. But focusing on getting the 'headline' rate of unemployment below 5.x does not seem to be valid 'top priority'. Especially if that could lead to a break-out in inflation.

This shift in RBA focus from inflation targets to the unemployment suggests the 'recency effect' is at work - tending to give excessive weight to the latest information. Having now 'beaten' inflation to such an extent that it is often below the lower limit of the RBA's own 'target band', the RBA might be assuming that (high) inflation can't reoccur. An over-emphasis on getting unemployment rates even lower may risk inflation taking off again. It could also happen at just the wrong time - when the US-China trade war could potentially reverse the decades long trend in cheap Chinese products 'exporting' deflation to the developed countries.

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Saturday, 18 May 2019

Things are looking up

Tony Abbott lost his seat of Warringah. He's a nice bloke (I've met him), but his view are very out-dated, so it's probably going to be a good thing for the Liberal party when he's gone. Zali won the seat - so it will be interesting if she actually backs the coalition (assuming it forms government), or is actually a lot more 'left' than she claimed during campaigning (she had strong support from GetUp!, but was constantly pointing out there were no 'formal links'). We'll see.

Overall it looks like the coalition might be able to form government - either with a slim majority, or as a minority government with some of the independents - if it's a minority government I'll win a few bucks I wagered on Betfair, if they win outright I'll win more (the odds of a coalition win were 5:1 when I placed the bet).

I also got notified that GoDaddy technical help was fixed up my business website (took about four days), which is good. They also created a backup ;) They suggest that I change from a windows hosting plan to a Linux hosting plan, as Wordpress apparently will be more robust running on a Linux server (and my website should also load faster). I'll check with GoDaddy support on Monday to see if I can just switch over my existing 'deluxe' hosting plan from Windows to Linux hosting, and get everything moved across without too much fiddling.

All in all, not a bad night.

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Hi ho, Hi ho, it's off to vote I go

DS1 is working for the AEC today, manning a polling station in a nearby electorate. It's a good opportunity for a uni student to earn some money (apparently it's close to a thousand dollars for one, very long, day of work). He'll even get a superannuation contribution ;)

The electorate we live in in is a 'safe' Liberal seat (it was won with a 15.7% margin at the last Federal election) so how I vote really won't matter very much. It will be much more interesting in the neighbouring electorate when Tony Abbott (the ex-PM) is standing for re-election in a traditionally 'safe' seat, but is facing a strong independent candidate (Zali Steggall) who is being given a lot of support by a grab-bag collection of 'anyone but Tony' groups such as GetUp! (Labor activist group), 'Vote Tony Out' (the ultimate in negative campaigning as far as I can tell they really don't care which party forms government, as long as Tony Abbott doesn't get re-elected), and the usual Labor, Green candidates (who don't stand a chance of getting elected, but their preference flow to Zali will boost her chances, as long as she comes second on the first preference count). Polls funded by GetUp! suggest he is trailing Zali 46:54 (but I can guess how 'push' polling funded by GetUp! is! - I'm amazed how much coverage these sort of biased polls get in the national press - e.g. the front page of the SMH), but more independent polsters have it around 50:50 (still a very close thing for a formerly 'safe' seat, which shows how unpopular Tony is with some 'swinging' voters).

In any case I'll be voting Liberal in my electorate. I don't think the Libs have particularly enticing policies (in fact I'm not sure they have any new policies this time around), but the Labor policies appear to involve an even larger amount of 'tax and spend' than usual (I think the fact that Labor has been consistently ahead in the opinion polls since the last Federal election has them thinking they can get a 'transformative' platform endorsed by the voters, simply because the electorate has had enough of the coalition and wants to 'give the other side a go'). A lot of the policy (e.g. climate change action) is not fully costed, and other policies (eg. subsidising child-care worker salaries) have not been costed in the 'long term', so, like the NDIS scheme and NBN, are likely to be massively expensive after the first decade, and almost impossible to wind back the cost.

I probably won't be too adversely affected by Labor's tax grab if they get elected, as it is mostly targeted at those in the very top tax bracket, or who make use of discretionary trusts, have very high super balances (tens of millions!) etc., but I suspect that what might happen if Labor wins is that they will get their spending promises enacted (after all, who doesn't want to spend more on schools, hospitals or the needy?) but then fail to raise the revenue required to pay for it all. A lot of their tax changes will have serious trouble getting through the Senate (where minor parties and independents have the 'balance of power'), so we could end up with four years of Labor budgets promising to be 'balanced' but which end up blowing out the deficit (even more) -- that seems to be the usual pattern when Labor gets into office.

We'll see what happens this time around...

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Tuesday, 14 May 2019

The cost of a DIY website

Having no paying clients (yet), and considerable running costs (AFSL monthly fees & mandatory CRM/SOA software subscription of around $1,400 per month), I've been trying to setup my financial planning business on a shoe-string budget (especially as I also have to pay the fees for my postgrad uni courses in financial planning - which work out to be around $1,100 per month). This has meant cutting costs by having a 'home office' (yet to be organised) and also by choosing to spend the time constructing my own Wordpress business website, rather than paying a 'professional' website designer to do so.

The obvious down-side of this approach is that I've spent a lot of time over the past 4-5 months fiddling around with Wordpress to get my website done, and while the resulting website looks OK it has pathetic page load speeds (even after using an image optimizer plugin to reduce total image filesizes by about 75%). The less obvious problem with the DIY approach was that when the website blew up during a routine upgrade of Wordpress (casusing a server error '500'), I was left floundering when the recommended fixes for such an error didn't get things working. (In case you think I don't know what I'm doing, you're probably right, but since I have a Grad Dip in IT I should be able to fix a common problem arising from a standard housekeeping task in Wordpress!)

This has left me with a) a website not working since Saturday evening, b) several hours spent trying to 'fix' the problem by renaming htaccess file, plugins folder etc. with no result, c) about half an hour spent of the phone with GoDaddy's 'free' help service (its only free in the sense that since I'm already paying for GoDaddy products, they don't charge extra for doing some basic trouble-shooting if the products stop working) with no progress, and c) finally having to pay another fee to get some 'Premium support' to get my Wordpress site back up and running (hopefully). The minimum cost to get the WP issue fixed is A$65 (for one 'credit'), but I decided to pay a bit extra ($111.06) to purchase three 'credits' - the first one will hopefully get my website back up, and I can then use the second credit to try to improve/optimize my website performance. I'll keep the third 'credit' in reserve in case something goes wrong when I try installing and using a backup/restore plugin like 'BackWPup'.

The initial service ticket should now take 'up to' 72 hours to get done, so I'll have ended up with my website offline for almost a week by the time it gets resolved. Fortunately, with no clients (nor even prospects making enquiries) as yet, I don't think it will make much difference whether or not my website was 'up' this week. All I've had to do is temporarily deactivate my Google Ads until my website is available again.

The positives out of all this are that I've learned more than I really wanted to about how Wordpress works (or doesn't work), and I've still ended up 'only' spending about $200 all up (including the maintenance fee) to get my business website registered, hosted, and setup. Getting it done by a 'professional' website designer would have probably cost several thousand dollars for the sort of website I've ended up with, and then any future changes would have meant paying additional fees.

Overall I'm not very impressed by the robustness of Wordpress - having it fail during a routine version upgrade, and not to be able to simply revert (automatically) to the previous, working version seems very primitive. Rather than have backup/restore plugins available as extra, this feature should be built in to the basic Wordpress installation.

And I'm also not very impressed by GoDaddy help - while the cost of 'premium' technical service is quite reasonable when you need it (assuming it actually gets my problem solved - fingers crossed). You shouldn't need to pay for something as basic as reverting to the previous, working setup when something goes wrong - that is, I don't see why a basic backup/restore feature isn't included when you are paying for 'deluxe' hosting.

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Sunday, 12 May 2019

Why does Wordpress suck so bad?

Yesterday morning I had my business website running smoothly, all the pages finally done and approved, my Google Ads setup and sending traffic to the site, and even all the plugins (traffic, appointment booking etc) all behaving. Then I decided to risk doing the recommended 'Wordpress update' and it all went belly-up.

I'd had a similar problem several months ago when I just had my basic website structure in place, so I wasn't too fussed when I had to delete all the files in my domain folder and start from scratch. But this time, having spent months getting my website more-or-less finished, I was very wary of doing the upgrade - why fix what isn't broken?

However, since it is generally 'recommended' that you keep wordpress and plugins up-to-date (to fix known bugs etc.) I decided to 'give it ago'. Unfortunately, the update failed and left my website displaying a 'server error 500' message. I then spent a couple of hours going through the recommended 'fixed' of a) renaming the htaccess file, and then (after that didn't work) renaming the plugins folder. (which didn't work either). Short of paying GoDaddy support to try and fix up my Wordpress installation, I'm left with trying to use the 'Manage Applications' tool to upgrade WP to 5.1.1 (which didn't do anything). Then revert it back to 5.0.3 (I'm still waiting to see if that get my site working again).

What amazes me is that Wordpress is such a widely used product for websites, yet the automatic update process can fail so easily and leave the website in a corrupted state (it's happened to me twice for two different updates within a couple of months). Surely as a popular, modern content management tool Wordpress should be able to gracefully revert to the current/previous working state if an update fails?

If/when I get my website working again I'll have to look seriously into using both and FTP app and a wordpress backup/restore plugin to (hopefully) make the process of reverting to an earlier (working) version of my website less painful. I had hoped that the first time the Wordpress update process left my website unusable was an isolated instance, but it seems that this is quite likely to happen every time I do a routine update of Wordpress ;(

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Saturday, 11 May 2019

Uber provides another lesson in the dangers of investing in IPOs

For some strange reason many people like to invest in IPOs. For some it may be the promise of buying shares 'without brokerage' (as if a few dollar brokerage is really going to make much difference in the long run. And on the downside, any 'mum and dad' investor that buys shares via an IPO because they don't have a brokerage account, will end up having to set one up anyway, when they eventually want to sell the shares - unless they go through the complication of finding a willing buying and doing an off-market transfer). I suspect that the real reason most people buy shares via an IPO is the forlorn hope that they will get in on the 'ground floor' of the next Microsoft, Apple, Amazon or CSL - and make their fortune.

The reality is that most IPO are NOT the 'ground floor' - that was during the pre-IPO phase when the owners of the private company got injections of capital in exchange for parcels of ownership while the company was still privately held. By the time the IPO comes around, the pricing is usually aimed at getting the maximum possible funding from 'the public' and transferring that wealth to those that either a) started up the company, or b) invested in the company before it 'went public'.
There are exceptions to this of course - where a company has 'gone public' and then gone on to bigger and better things, making those that bought shares in the IPO a small fortune. But the odds are against you:

  • More than 60 percent of more than 7,000 IPOs from 1975 to 2011 had negative absolute returns after five years in the secondary market, according to a UBS analysis using data from University of Florida professor Jay Ritter. [1]
  • Uber is a recent example: It opened trading at $US42 a share on Friday - or nearly 7 per cent below its IPO price of $US45. And its shares closed at $US41.57, costing IPO investors a 7.6% loss in one day - and that's before taking into account the brokerage cost if they want to offload the shares.
Now, Uber may end up being a wonderfully profitable company, rather than just a loss-making disruptor, but if you are an investor rather than a speculator, its not the place to make serious investments.

Investing in IPOs can be fun, but should be approached as the gamble they are - never 'invest' more than you can afford to lose, don't chase losing 'bets', and be willing to 'walk away' if it doesn't go the way you expected, rather than 'holding on' and hoping it might 'come good' in the long run.

I've dabbled in IPO shares for fun, and even put some money into a pre-IPO 'startup' company (GEN) that seemed likely to cash in on the internet boom back in the late 90s (but then went broke before listing), but I've always been aware that these were highly speculative gambles and made token investments that I could afford to loose without too much angst.

References:

[1]: https://www.cnbc.com/2019/04/03/dont-be-fooled-by-the-unicorn-hype-this-year-most-ipos-lose-money-for-investors-after-5-years.html


[2]: https://www.smh.com.au/business/markets/tough-week-to-go-public-uber-flops-on-its-wall-street-debut-20190511-p51m9o.html


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Thursday, 2 May 2019

2019 may be the last chance to invest tax effectively using negative gearing and the current CGT discount rate

I currently have a relatively modest amount of margin loan debt used to purchase a portfolio of growth assets (some direct investments in managed funds and shares, and some ETF investments in index funds), as I was forced to reduce my gearing during 2008 in order to avoid margin calls, and have taken a more conservative approach ever since.

This will probably change during 2019, as if Labor wins the Federal election (which seems highly probable at the moment) they intend to make massive changes to both the CGT concessional tax rates and the ability to use margin loans and negative gearing to reduce overall taxable income. According to their current policy website:

  • Limit negative gearing to new housing from 1 January 2020. All investments made prior to this date will not be affected by the changes and will be fully grandfathered.
  • Halve the capital gains tax discount for all assets purchased after 1 January 2020. This will reduce the capital gains tax discount from assets held longer than 12 months from 50 per cent to 25 per cent. All investments made prior to the 1 January 2020 will be fully grandfathered.
One positive feature for investors is that investments made during 2019 will still enjoy the current CGT and negative gearing rules going forward. So I'm in the process of transferring $50,000 of my available credit in my St George Portfolio Loan (a home equity loan) into my Commsec Margin Loan account, and I will then purchase $100,000 of growth assets (probably MVW and QUAL ETFs). The dividends from those investments should be less than then interest paid, which under the current negative gearing rules will reduce my taxable income from wage salary etc. When I sell the investments any capital gain will be discounted by 50% before being taxed at whatever marginal tax rate applies to me at the time. If Labor does win the election I'll think about doing the same again before the end of 2019.  While my taxable income will be reduced this year and next by tax deductions for my FP business and self-education costs, in a few years time (all going well) being able to reduce my taxable income may be more important.

A rough calculation shows that investing after the removal of negative gearing would cost me around $3,500 per year more in tax. And that investing next year rather than this year would mean any future capital gain on the investment would be effectively taxed at 75% of my marginal tax rate, rather than the current 50%. (Although this could be managed by only selling a small portion each year after I've retired and receiving a tax-free pension income from my SMSF, so that the CG was subject to nil or low marginal tax rates, in which case the CGT discount rate would not matter).

If nothing else, investing using my margin loan facility after 1 Jan 2020 would make my tax calculations a lot more cumbersome - I would have to keep track of what amount of the loan had been used to purchase investments prior to 1 Jan 2020, and how much afterwards. This could then be used to calculate the proportion of interest paid during the year that could be deducted against other income (eg. salary income) and how much interest was not deductible against other income, but only offset against dividend income. Additional complexities will be introduced if several investments are made after 1 Jan 2020, so the ratio of pre- and post- borrowed/invested funds changed during the financial year. Not to mention if tranches of pre_2020 investments are also sold at different times, and if interest rates have changed during the year

From a financial planning POV, the changes will make Investment Bonds a more attractive option for high income (highly taxed) individuals that are willing to invest for the long term. An investment bond pays tax on earnings at the company tax rate (30%), but benefits from any franking credits (so the effective tax rate is lower). And if held for 10 years or more, there is no tax payable on the gain made when the bond is sold.

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Wednesday, 1 May 2019

Net Worth: April 2019

The continued strength in the Australian and International share markets during the past month resulted in improved superannuation and  geared share portfolio valuations as at the end of April. Our house price valuation is unchanged as the suburb average sales data for our area had not been updated this month, but as the Sydney Index data from CoreLogic only showed a small fall in average sales prices for homes during April this should not have much impact on the total NW estimate. Overall my NW increased by $47,874 (or 2.11%) during April, not quite reaching a new 'peak NW' value.

I'm currently planning on remaining in my current job (unless I get retrenched - which is always a possibility in the modern workplace) while I get my Financial Planning business up and running, and try to achieve profitability while running it part-time in the evenings and weekends for the next 2-3 years (while finishing of the Master of Financial Planning degree and then possibly the CFP certification and start on a PhD in Financial Planning). Depending on how things look in 3-4 years time, I might either keep running the FP business part-time while keeping my full-time salaried job (until I reach 65 or so), or else see if I can reduce my salaried job to 4 days/week and increase the amount of time devoted to my own 'business'. I might also need to switch to 4 days/week if I commence PhD research part-time after completing the Master of FP degree, as I had found it quite difficult to spend enough time on my astrophysics research degree while also working full-time (one of the reasons I ended up 'dropping out' of my Master/PhD enrolment).

If the FP business is going well I'll probably think about 'retiring' from my salaried job when I around 65 and then continue to run my FP business for a while. How long I do that for will depend on a) if I still want to work (at least part-time) until 70+, b) if the business is profitable (and how profitable), and, most importantly, c) if I'm still healthy enough. One of my great-great-Aunts lived past 100, my father's parents both lived until almost 95, and my parents are both reasonably fit and active as they approach 90, so I have a realistic expectation of being able to continue working past 65. I do need to loose quite a lot of weight and do more exercise though! If the FP business is a going concern, I can probably sell it for around 2-2.5x annual revenues when/if I decide to retire. That might provide an extra 'nest egg' for my retirement, if I can get the business up and running ;)
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Sunday, 28 April 2019

CPD update

I got 20 hrs/units of CPD credit for the uni course I completed in Q1, which put me well over the 40 units/hrs CPD total required for all of 2019. While a total of only 30 units/hrs of formal coursework can be counted towards the annual CPD requirement, I'll continue to get the CPD value of each quarter's uni course 'verified' by my AFSL so they are recorded on my Kaplan CPD record. If nothing else it will provide a convenient annual summary of all the CPD units I complete each year.

I've been doing a couple of the Kaplan CPD articles each week (in reality an article that is rated as one 'hour' of CPD really only takes about 15 minutes to read through, and then another five minutes or so (if you double check each answer) to complete the multiple choice, open book 'exam' online to get the CPD points.

I've also been attending the one-hour webinars presented by my AFSL dealer group (which DO actually take an hour to watch, but I can do them while on my lunch-break at work while also doing some other paperwork, so the effective effort is also only about 15 minutes per 'hour' of CPD credit).

I've also signed up for the free TAL 'academy' which is a resource of several 'webinar' recordings about various aspects of insurance and practice management/marketing. I'll probably do a dozen or so of those webinars during the year, probably while sitting at home in the evenings playing computer games on the other screen ;)

Another source of easy CPD credits are the articles published in each issue of the AFA and FPA professional association magazines. These are worth around 1.5 CPD credits each, so I could get up to another 12 CPD credits from those (if I bother doing the online quizes and then downloading the resulting 'certificate' and entering the details into MyKaplan and then emailing my AFSL to have the certificate 'verified'.

I need to finish off the final video 'role play' submissions for the two 'specialist' modules (margin lending and SMSFs) that I'm doing with IIT (I might also get some CPD hours for those, but I'm not sure), so I can then get started on the four subjects for the Advanced DFP. I'l try to get the two role plays completed this weekend, as I have a uni quiz next weekend and will have to start studying for that.

Overall, I'll end up with around 5-6x the required amount of CPD 'hours' this year, and be just over 1/3 of the way through the Master of Financial Planning course (and have my Advanced DFP) - if all goes to plan. The TAL Academy also has a cheap ($55) 5-hour live seminar for preparing for the 3.5 hour FASEA examination for Financial Planners. I'll probably do that early in 2020 so I can have a go at the exam. You are allowed to take the FASEA exam multiple times in order to pass (different sets of random questions each time), but the exam is only scheduled a few times each year, and existing Financial Planners have to pass the exam before 1 Jan 2021, so I don't want to leave it too late. If I sit the exam fairly soon after completing the ADFP course it should be pretty easy.

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CFD Trades

I have a small account (currently around $300) with CityIndex so I can trade CFD's when I get bored (stops me mucking around with my asset allocation in our SMSF or other investments). I had a long position in a diamond CFD (GEMS) and also in crude oil. I decided to sell the GEMS CFD as it had been heading the wrong direction for quite a while and there didn't seem to be any indication that it would soon turn around. And while oil has been doing well, I decided to take a profit and close out that position too.

I had been thinking about going short on Tesla, but it has already come down quite a lot from last year's highs, and although I don't think it will do a well as Elon keeps promising, from here it could go either way, depending on how things turn out during 2019, so it seemed to much of a speculative gamble. The other CFD trade I had in mind I did go through with - going long on the Berkshire CFD. Although it has gained a lot over the past couple of years (I used to have a direct investment in Berkshire shares a few years ago, but the trading and holding costs with a US broker, and the tax complications, made it too much like hard work so I got rid of all my direct US share holdings), it has a great track record and should continue to do well (although there may be a temporary dip when Buffet retires from active involvement or dies). We'll see how well it does over the next 5-10 years.

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