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:

However, there seems to be an opinion that recent low unemployment levels may (after a lag of around a year) lead to higher inflation:

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.




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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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Wednesday, 24 April 2019

Why Global Warming Activists are targeting developed countries for Ideological reasons, and not scientific reasons

Here in Australia we are in the midst of a Federal election campaign, and one of the biggest issues of concern to the electorate (quite rightly) is the global warming crisis. Leaving aside the fact that it is a global issue, so international agreement rather than changing your local member is the only effective way to address the issue, the issue is tending to favour the parties on the 'left' (Labor and the Greens) at the expense of Conservative parties.

On the one hand this makes perfect sense, as global warming is an issue where being progressive and 'taking action' is the only way to solve the problem - being conservative and resisting change ('do nothing') is a recipe for disaster.

Unfortunately, the change being pushed by leftist parties is based on pseudo-scientific justification for their neo-communist, anti-western/capitalist policies. They use the raw 'per capita' emission data as an excuse to lay the blame for global warming entirely at the feet of developed countries, while the reality is that the root cause of the global warming crisis was (and is) global overpopulation. While one person using air conditioning and driving an SUV is bad for the environment, ten people doing so is ten times worse!

The ‘elephant in the room’ with regards to global warming causation is total carbon emissions, and this rise is mostly due to population growth (especially in third world countries), NOT due to the increase in carbon emissions per Capita per se:

As global warming is driven by the increase in atmospheric CO2 concentration (IE. Amount per cc of air), it is emissions per sq km that contribute to global warming impact, NOT emissions per capita. (Think about it – doubling the world’s population while keeping total CO2 emissions constant would NOT have any change on global warming, but would instantly reduce the emissions per capita. While doubling the world’s surface area while keeping the total CO2 emissions constant would halve the concentration of CO2 in the atmosphere – or, put a more realistic way, halving the amount of total CO2 emissions while keeping surface area constant would obviously halve the rate of CO2 increase). So, who are the big CO2 polluters in terms of actual impact (high CO2 emissions in relation to the country’s land area? – China, followed by Europe, then the USA, then India. A completely different picture than the ‘per capita’ argument pushed by Green Groups that totally ignore the biggest villain in the global warming crisis – China – for ideological reasons:

This shows the total fallacy, and ulterior motives, for Green groups pushing the usual ‘per capita’ propaganda:

By choosing to frame the global warming debate purely in terms of the scientifically invalid ‘per Capita’ measure (which they justify using a spurious notion of ‘fairness’ - make the rich pay), they can ‘prove’ that global warming is entirely due to the big, bad capitalist developed countries, and give the true source of the global warming crisis for the next fifty years – China and India - a free pass.

While this will undoubtedly achieve the Labor/Green goal of Robin Hood economics (steal from the rich and give to the poor), it is also a recipe for global climate disaster. The developed countries are going to spend a fortune on achieving heroic 'per Capita' emission reduction targets, while the developing countries and going to both a) not have to meet the same 'per Capita' targets, and b) also continue to stoke the engine driving climate change - unsustainable population growth.

In fifty years time my children will be suffering from the impacts of global warming, in world with a population having grown by around 50% above current levels - to around 10 billion. And I'm pretty sure the left-wing parties will still be blaming the problem on 'insufficient action' by developed countries, and not on the extra 2.5 billion people added to the global population in the interim.

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Tuesday, 16 April 2019

Let the marketing begin!

Well, my financial planning business is now in 'soft launch' mode, with a website, Facebook page, yellow pages entry etc. all 'live'. I delivered an initial batch of ten brochures to a local gated estate (the letterboxes were nearly all marked 'no junk mail', but as I'm not a direct mail company, and the letters were individually addressed, I ignored that - on the other hand, the occupants will probably ignore my letters). It was amazing the amount of time I ended up spending on printing brochures, folding and stapling them, creating a mailing list in excel (by looking up local street addresses on google maps), and then getting the mail-merged envelopes to print out correctly using manual feed (one-at-a-time, or the printer jams). Oh, and I also wasted time creating a mock 'stamp' to print on the envelopes (supposedly this makes them more likely to be opened, rather than going straight into the bin). I'm planning to print and distribute around 50 letters/brochures a week from now on. As there are around 20,000 households in the six local postcode areas, I won't run out of letter boxes any time soon.

I'll print out another 20 envelopes tomorrow and deliver them in the evening, so that they should end up mixed in with the official mail sitting in those letter boxes on Thursday, and hence be more likely to be opened. And hopefully the Easter long weekend might encourage people to read the brochure ('Financial Health Check - 14 questions you should ask yourself'). Whether anybody actually decides to phone me or make an appointment only time will tell. According to general statistics about direct mail campaigns, the response rate is often around 2-3%%, so I'm aiming for a marketing 'funnel' of  around 200 letters/month > 4 -6 responses/month > 1-2 initial (free) meetings booked > ~1 new client per month.

Once I put some finishing touches on the website I'll setup Google and Facebook Ad campaigns to drive targeted (local) traffic to my website. Hopefully that also generates some online bookings.

My uni studies are going OK so far - my GPA for the first two subjects is 6.5/7 (conincidentally exactly the same as I ended up with for my Master of Astronomy degree). I've only enrolled in one subject per semester this year (as I also need to squeeze in the four subjects for the ADFP course I'm enrolled in, and then complete a TASA (Tax Agent Services Act) mandatory course before the end of this year) as I want to keep my GPA above 6.0 so I qualify for the "Dean's List".

If all goes well this year, I'd like to do all the remaining seven subjects next year and finish off the Masters degree, and I also want to get the Financial Adviser exam out of the way next year (the deadline for passing the exam is 1 Jan 2021).

After that I plan on doing the CFP exam in 2021 (I'll receive exemption for CFP 2, 3 and 4 when I complete the Master of Financial Planning degree, therefore I'll only need to complete the subject 'CFP 1' to then be eligible to sit the CFP Certification Assessment), and I'd like to commence a PhD in financial planning once I've completed the Master's degree. We'll see how it all turns out ...

Meanwhile, back to the marketing 'campaign' ;)

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Tuesday, 2 April 2019

Net Worth: March 2019

There was a modest rise in the valuations of my retirement savings and geared shared portfolio (both up around 1.3%) which was offset by another -1.85% decline in the valuation of my half of our home. Overall, my net worth was almost unchanged, gaining $1,824 (0.08%) during the month to $2,265,537. Still below my all time peak, with my NW tracking sideways for the past 18 months or so.

Funding my university studies and running costs of my start-up financial planning business continue to cost around $2,500 per month. I completed the second course (out of twelve) for my Master of Financial Planning degree. So far I've received on HD and one D, with a GPA so far of 6.5/7 - coincidentally exactly the same as my average for the Master of Astronomy I did previously ;) I'm aiming to average 6.5 or above, and would like to get on the "Dean's List" each year and possibly get another academic medal for Masters by Coursework.

I didn't get my website finished off during March, so that is my immediate business development goal. I've printed off a couple of hundred brochures to direct mail to local addresses (I'll do the letter box deliveries myself, as I need the exercise) and will see if they achieve the typical response rate of 2-4% (ie. I should get around 2-4 phone calls or bookings for a free initial appointment for every 100 brochures I deliver). I plan of delivering around 50 brochures each week, testing minor variations, and hope to achieve around 4-8 responses per month, which *should* result in 1-2 new clients each month. Since I haven't had a client yet, this is all very theoretical at the moment.

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Monday, 4 March 2019

Net Worth: FEB 2019

The continued rebound in local and international share markets meant that my retirement savings balance increased $43,045 (4.47%) and my geared share portfolio increased $29,660. The continued deflation of the property bubble nationwide, and especially Sydney, meant that the gain in my share portfolio was somewhat offset by the valuation of our home decreasing by $4,198 (0.55%) during the month. The rate of decline in house prices appears to be moderating slightly, suggesting a normal house price cyclical decline rather than a 'crash' or deflation of a 'bubble'. Overall, my net worth recovered $68,732 (3.13%) during the month to $2,263,713. Still below my all time peak.

Funding my university studies and running costs of my start-up financial planning business continue to cost around $2,500 per month. I received my annual bonus last month (approx. $9K after tax), which will help with cash flow for a while. I setup a free business entry in the 'yellow pages' yesterday and was immediately called by a couple of charity fund-raisers this morning seeking sponsorship/advertising support this morning. I agreed to sponsor the local Neighbourhood Watch (via a $440 ad in the local youth support magazine they produce annually) but I will have to decline supporting any other local groups (at least until I have my first paying client!) I'm still working on the website for my business, but should get that up and running by the end of March.
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Friday, 1 February 2019

Financial Planning CPD and FASEA requirement progress

Now that I'm a registered Financial Planner/Adviser I need to meet the annual CPD requirements (basically 40 hrs of approved training pa) and also work towards the new FASEA education requirements that existing Financial Planners have to meet over the next couple of years.

I did 8.75 hrs of CPD during January via the MyKaplan website access provided by my AFSL, and also made a bit more progress towards completing the specialisation courses I'm doing in SMSF and Margin lending (these IIT courses *could* also provide some CPD credits when I complete them - the ML course quotes CPD Accreditation number 006725 for 11.5 CPD points and SMSF quotes the same CPD Accreditation number for 25.75 CPD points). And the Advanced DFP I'll be completing with IIT this year could also provide some CPD units (75.25 units!), however my AFSL tracks CPD compliance via Kaplan, so a maximum of 30 units of 'external' CPD can be counted towards the 40 unit requirement from their point of view. The four subject I complete for the Masters degree during 2019 could also provide some CPD units, but I won't need those CPD points to reach the minimum requirement this year. I find it quite amusing that some existing Financial Planners (and accountants providing SMSF 'advice') have been whinging online about having to complete 40 units of CPD pa!

What I will need is to complete the FASEA educational requirements by 1 Jan 2021. As I only have a DFP and a 'non-relevant' degree I will need to complete at least the 8 units required for the Graduate Diploma by then, although I'm currently planning to complete the 12 units for the Masters sometime in 2020 and have commenced a MRes degree by then.

Oh, and I also need to complete a TASA course from IIT later this year, as I won't get all the Master's degree courses that will satisfy TPB registration requirements completed before the end of this year, whereas my AFSL requires all new Financial Planners to get the training required for TPB registration completed within the first 12 months...

Looks like a fairly busy 2019 study-wise, not to mention trying to launch my business part-time while working full-time at my 'day job' ;)

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Net Worth: JAN 2019

A rebound in local and international share markets meant that my retirement savings balance increased $42,724 (4.64%) and my geared share portfolio increased $19,533. The continued deflation of the property bubble nationwide, and especially Sydney, meant that the gain in my share portfolio was more or less offset by the valuation of our home decreasing by $18,397 (2.37%) during the month. Overall, my net worth recovered $44,081 (2.05%) during the month to $2,194,981. Still well below my all time peak.

I've started using some of the credit available in my St George 'portfolio loan' facility to fund my financial planning expenses (the self-education costs of the Masters degree, and the monthly licencee fee and CRM/admin package fee for the basic module of 'Midwinter'). Until I start receiving some client fee income, this debt will accrue at a rate of about $2,430 per month. Using the one loan facility to fund the major business running costs and self-education costs will make it easy to keep track of the amount of (tax deductible) interest I pay.

My goal is to start generating business income during 2019, and to generate enough business income during 2020 to cover running costs ('break even'). Hopefully by 2021 the business will be profitable, or at least cover the running costs and related self-education costs (the Masters, then possible a MRes degree followed by a PhD in Financial Planning). We'll see how things pan out.

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QFF points for saving for my retirement

I received an unusual offer via email the other day - I could receive 20,000 Qantas Frequent Flyer points if I opened a superannuation account online with AustralianSuper using the provided link, and contributed $350 within six months.

I already have a SMSF (low cost admin/audit annual fee of around $900, with the cost shared across my account and that of DW and DS1) for the bulk of my retirement savings, and an account with the super fund specified by my employer (as they subsidize the admin fee, so its quite low cost, and they also pay the premiums for a fixed amount of life insurance within that fund, so the admin cost is less than the value of the insurance premiums benefit I receive). So the main question when deciding whether or not to take up the AustraliaSuper offer was how much will the account cost compared to the value of the QFF points? The fund has a fixed admin fee of $1.50/wk, which is rising on 30 March to $2.25/wk. There is also a $35 'exit fee'. So, if I keep the account open for five months (the QFF points are supposed to be allocated within 2-3 months of making the $350 contribution) and then rollover the account balance to my SMSF it will end up costing around $1.50x9 + $2.25x13 + $35 = $77.75. 20,000 QFF points are worth between $132 and $456, depending on what flight or 'Qantas Store' product the points are eventually redeemed for. For most domestic economy flights, 20,000 points are worth around $280 of travel. The points are 'worth' a lot more when used for upgrading economy international flights to business class, but that isn't something I'd actually spend cold, hard cash on. Overall, the 20,000 points are probably 'worth' around $280 to me, so my net gain for taking up this offer is around $200. Of course I am also locking away that $350 until I reach preservation age and can withdraw money from my superannuation, but that isn't too long to go now...

Anyhow, I decided to take up the offer. It took about 5 minutes to complete the online application process, and the BPay details for making a contribution were available the following day when I logged in to my new account. I did a BPay of the $350 personal contribution the day after I opened the account, and the funds were reflected in my balance the next day (I invested 50% in Australian Shares and 50% in International Shares) - which had gone up to $351.25. I'll wait an see when the promised QFF points get credited, and then do a rollover application. All in all, a fairly quick and painless way to 'earn' an extra 20,000 QFF points.

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Saturday, 19 January 2019

Bought some Vanguard ETFs

As I had reduced my geared stock portfolio significantly in mid-2018, I decided the time might be right to invest a bit more in the stock market given the recent market weakness and slight recovery. I decided to buy some VAS , VSO, VSIM and VGAD ETFs. Altogether I invested about A$17,000 using my Comsec margin lending account. I'm planning on leaving this investment in place for about ten years, over which timeframe the total return will hopefully exceed the interest costs (currently around 6.6% pa).

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Thursday, 10 January 2019

Working on my business website

As I'm trying to launch my business on a low-cost, DIY basis I registered my business domain name using Dotster but then want to host the website content using my existing personal hosting account with GoDaddy. So I had to set up a 'redirect' of the URL from the name servers at Dotster to the hosting at GoDaddy. Took a bit of fiddling around but it seems to be working OK.

The next step was to install Wordpress for that domain in GoDaddy, and install a suitable 'Theme' (free of course). I eventually picked 'Sydney' after dabbling with 'Tesseract' but not being able to get it to work properly. I had a bit of trouble getting the recommended plugins (Elementor and Sydney Tools) working until I eventually figured out that I needed to upgrade the version of PHP installed in my GoDaddy hosting from 5.2 to 5.4 (and eventually I went to 5.6 as it was needed by 'Appointment Booking Scheduler' by Weblizar that I'll use for my online client booking tool).

I now seem to have all the tools installed to create the website content I have (vaguely) in mind - so the next stage is to sketch out my sitemap and page layouts and to actually write my page content, pick some suitable (free) stock photos to use etc. I could waste tons of time fiddling around with this stuff (I already wasted time browsing through free stock photos to pick a suitable background image for my page 'header' background), so I'll have to be quite disciplined about working towards a website that is 'fit for purpose' rather than trying to make it an award-winning masterpiece.

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Friday, 4 January 2019

Starting my Financial Planning business

I did a couple of days of 'induction training' in December (had to fly from Sydney to Perth for the training, as the AFSL company does their training there) and managed to get 'registered' with ASIC as a Financial Planner before 1 Jan 2019. Looking back over my records, I'd been enrolled in the DFP course on and off for about six years, so it was only the pending FASEA rule changes that prompted me to hurry up and finish off the DFP to I could get registered before the new work experience requirements came into effect.

Having completed the DFP I'm now enrolled in the ADFP ('Advanced' Diploma) with IIT, and I'm also doing a Master of Financial Planning (via distance education) through Western Sydney University. I aim to get the ADFP completed during 2019, while also setting up my business website, creating a marketing 'funnel' to prospect for potential clients, and (hopefully) starting to provide advice to some clients. I should be able to complete the Masters degree sometime in 2021. I might then do a MRes degree with the idea of eventually doing a PhD in financial planning at WSU (that should be a *lot* easier to complete part-time than the PhD I tried to do in astrophysics).

Fortunately the AFSL company I've signed on with provides considerable resources for their 'authorised representatives' in the form of documentation templates, feedback on strategies being considered for clients, and has a requirement for all SoA (Statements of Advice) to be prepared by a professional third party paraplanner service. They also 'vet' all SoAs produced by new planners, so there is considerable supervision and assistance provided. On the down side their monthly fee is over $1000 (plus they also retain 20% of all revenues until annual income reaches a certain threshold), and there is also a minimum monthly fee for the required CRM software. Then for each SoA there will be paraplanner and vetting fees of around $250. The fees charged by the AFSL company cover such things as PI (Professional Indemnity) insurance, annual compliance costs (monitoring CPD requirements are met and conducting an annual audit) and the processing client fees and commissions.

My initial plan is to slowly build up to servicing around one new client per month, by which point I should just about 'break even'. Fortunately I'll be running this business in the evenings and weekends, while still keeping my full-time 'day job', so there isn't any great need to become profitable in the short term. Initially my business losses will have to be 'carried forward' until eventually I'll be able to deduct them against my other (salary) income (once my assessable income as a sole trader reaches $20,000 pa).

Aside from all the usual 'business expenses', I will also need to keep track of how much time I spend working on my business in my 'home office'. I won't use the dedicated office area I've setup in my home for meeting with clients (I plan on meeting with clients in their homes), so I won't be able to claim a deduction for pro-rata 'occupancy expenses' such as rates, house insurance and so forth, but I will be able to claim a deduction (at the set rate of $0.45/hr) for 'running expenses'.

I also had to register for GST, so I've started using Reckon One (online accounting) to track things and help prepare my annual BAS statements. As I'm now registered for GST I'll also have to include any UberEats delivery income in my BAS returns.

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Net Worth: Dec 2018

Another negative month, with my geared share portfolio and retirement savings balances each dropping by more than $20K, while our house price estimate stabilized. Still waiting (and hoping) that the global stock market 'correction' is over, but it appears that there may be further weakness ahead. The Australian economy is still growing quite well, so there may soon be a buying opportunity. Our Superannuation is already fully invested in growth, but my gearing is currently very low, so I could use my available margin loan facilities to invest in the local stock market when it seems to have reached the 'bottom'. However, as I am currently funding around $1,200 per month for my Financial Planning registration fees (without any clients so far) from my wage cash flow, I don't really want to add margin loan interest payments at this stage.

My goals for 2019 are:
- lose weight and exercise more (a perennial goal it seems) - I'm currently ~108kg and need to lose about 30-35kg! I also need to start using the Gym membership I took out in July...
- startup my financial planning business and get my first clients during 2019 (my target is 1 per month)
- complete the two 'specialisation' modules ('Self-Managed Superannuation Funds' and 'Margin Lending') that I enrolled in when I finished the Diploma of Financial Planning course in early December
- start and complete the Adavanced DFP course that I enrolled in recently
- complete the four courses for the Master of Financial Planning degree I've enrolled in for 2019 (1 per quarter).

So, it looks like I'll be quite busy during 2019 ;)

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