Affiliate Ads support this blog:

Sunday, 22 November 2020

Vanguard new website access finally working - and it still sucks

After almost one month, half a dozen online messages with various photos of ID, a selfie of myself holding the ID, and then the back of the ID, and two phone calls to customer service (to get action done within one day, rather than the usual 10-day wait for someone to get around to responding to an online message), I finally got my online access to the new Vanguard website. Well, for ONE of my accounts (our SMSF investment). My other Vanguard account is collateral on one of my margin lending accounts, so I will no longer have ANY online access to that account. Why? Because the new, improved website lets you apply for and redeem units online, with funds going automatically to your linked bank account. So, as the margin lender has the units as security for a loan, they can't permit you to transact online and have the funds transferred straight into your personal bank account.

Makes absolutely no sense to me, as all they need to do was disable access to the online transaction page for any accounts where that are on a margin loan. Or, simply set the bank account details to be the cash account that is linked to your margin loan account, and disable online changing of bank details (which would probably be a good idea, as if your online Vangard account was hacked (or they have a data breach), then a hacker could log in, change the bank account details, and then redeem off your entire investment.

The website also doesn't really offer any new functionality aside from being able to make online purchases and redemptions of units. And even that looks problematic, as it seems that if you sold units the funds would go automatically to your linked bank account. Which doesn't seem a sensible way to do things if you want to move funds from one Vanguard investment to another, to change asset allocation or do a rebalancing.

The whole website redesign seems mostly geared towards making the UI specific for use on mobile devices such as a phone. Which is fine, except that the website lacks rudimentary OS detection (so when viewed on a laptop the display looks like it was designed for Kindergarten kids to use, with hardly any data on the screen and everything in a massive font).

Moving to the new website also meant that the existing (paper based) retail funds are now 'closed' to new investors (existing investors can still add to their holdings in these funds - for the moment). That meant that they were no longer listed in the fund unit price lists under 'products', and I had to make another phone call (and wait for the CSR to seek advice from her supervisor) to find out that the old funds unit prices were buried on back page of the website, which was not easy to find without specific instructions (I've now saved those price data pages as 'bookmarks' on my browser).

The other problem with the old funds being 'closed' to new investors is that this usually means that those funds eventually get would up entirely (in my past experience this usually happens after 12-24 months), which will then mean having to move our current investments into the equivalent, new ETF fund. Great, except that this will mean and sell/buy transactions, so we'll get some realised capital gains while I'm still in accumulation mode (paying 10% tax within our SMSF on long term capital gains), rather than the 0% tax rate that would apply in a few years' time when my super account is in 'pension mode'.

Unfortunately there's no way to avoid that, as closing our existing Vanguard investments to move them to another product provider (eg. Dimensional Funds) would also result in a CGT event.

The CGT implications probably aren't all that dire however, as we already switched investments around within Vanguard in February and then again in June as we moved from 100% High Growth to 50% bond and 50% conservative funds back in Feb, and then moved to our current allocation of around 50% Conservative and 50% Growth (with monthly new investment going into the High Growth Fund) in June.

I was thinking about moving us back into our long term 100% High Growth asset allocation back in October, as it appeared that the markets might improve in the long term, but there was a bit of a dip due to the 'second wave' (or 'third wave' in the case of the USA) of Covid-19. However, as I couldn't access the new website I didn't have an opportunity to do the transactions online, and with the significant market gain over the past month or so, it looks like I missed our chance to rebalance at a 'low'.

At this time I'm undecided whether to switch the 50% that is currently sitting in Conservative into the High Growth Fund, or wait a bit longer and see if there is a market correction/buying opportunity during the US/European winter when Covid-19 deaths might peak before vaccinations get rolled out in significant numbers during 2021.

Subscribe to Enough Wealth. Copyright 2006-2020

Tuesday, 17 November 2020

Net Worth: OCT 2020 part 2

Finally got access to the new Vanguard website - it tool almost a month after the old system had been turned off and I tried activating my login to the new system. I was able to update our SMSF estimate and finalize the other figures required for my end of month net worth calculation and have updated my monthly entry in networthshare

During October the value of my geared share portfolios had declined by $6,226 (2.1%) but this was offset by my estimated superannuation savings increasing by $6,131 (0.51%). The estimated value of our home increased slightly, increasing the value of my share by $1,814 (0.22%). We continued to slowly pay of the relatively small balance remaining on our home loan, so my share decreased by $254 (0.62%). Overall, my net worth increased by $1,973 (0.07%) during October to $2,643,488. The stock market has been performing strongly so far this month, so my NW for the end of November seems likely to have improved considerably.

Subscribe to Enough Wealth. Copyright 2006-2020

Indulging my doomsday fantasy

As a 'prepper lite' I had previously bought a selection of cheap (~$100) radiation detectors (0.05-99 uSv/hr), but although they seem quite precise (but not calibrated) for measuring normal background levels of gamma radiation and can indicate small increases in gamma radiation levels (e.g. if held close to an old thorium-enriched gas mantle or a piece of depression era 'uranium' glassware) they would not be of any use for civil defence (e.g. measuring significant radiation levels from a 'dirty bomb' terrorist attack, nuclear accident (not that Lucas Heights research reactor is capable of a serious nuclear incident), or if there was fallout from use of nuclear weapons).

So I finally bought myself some antique (cold war vintage) gamma radiation detection instruments that *might* be of some use (if ever needed). Without spending $395 to have them calibrated by ANSTO (and they'd probably laugh at anyone wanting these 'antiques' calibrated anyhow) they won't provide reliable measurements. But hopefully they would at least provide an indication that they was a problem (significant radiation levels) and let me know that evacuation or shelter-in-place was required (you don't have to know exactly how much radiation there is, as just knowing there is significant radiation tells you it's time to take action).

What I bought (on eBay) was a CD V-777-2  radiation detection 'kit' (well, at least that is what the vintage box says, but the actual items included were not the original set) that consisted of a CD V-715 model 1A survey meter, two 100R dosimeter pens (CD V-740) and a Bendix CD V-750 model 5b charger (plus some cool original instruction manuals etc.) for US$90 plus US$30.25 postage and US$17.03 import charges (GST). Total cost was A$189.57. A second purchase was for an IEH CD V-750 model 5b charger and three 200R dosimeter pens (CD V-742) that were supposedly "tested", for A$20.70 + A$39.76 postage and GST = A$59.46. Unfortunately only two of these three dosimeters will charge and zero properly (the third one can be charged and set to zero, but drifts towards FSD at a rate of several R every minute, so is totally useless. After recharging/zeroing many times over several days it was still no good, so I binned it. I've emailed the seller to try to get a replacement sent out for free, or get a few dollars refunded).

After charging and zeroing the four working dosimeters I've checked the readings daily for several days and there was no noticeable drift. I'll check the readings each week to chart their rate of drift. Then repeat the process several times to see if their rate of drift is consistent (if so, the raw dosimeter readings can be normalised to compensate for the know drift rate to get more accurate readings). All dosimeters will slowly lose charge and 'drift' towards FSD without any exposure to abnormal radiation levels (normal background radiation levels provide around 30 mR per year, so won't affect a 100R dosimenter).

The V-715 survey meter I bought would have been made in the early 1960s (the final model 1B was produced in 1964), and my one is not stamped with a "R" after the serial number, so it has not been through the refurbishment process that FEMA used on their V-715s in the 1980s to improve their reliability and maintain their calibration longer. So far I haven't even put batteries in the V-715 and done a circuit test, so it is really only a conversation piece/antique.

So, all up I've spent about A$250 to get some working (but uncalibrated) dosimeters and a survey meter that is of dubious functionality (but as a modern survey meter such as a Fluke 481_DESI costs over $7,000 and even a RadEye G series palm sized survey meter costs around A$2,000, I'm not going to spend much for something that will probably never be used). There is a miniscule probability that I'd even need them, but if I ever did they are not the sort of thing you can get at the corner store in the event of a crisis (that's why I also have a few packets of potassium iodide tablets in my first aid kit).

BTW I was also looking around on eBay for some vintage (original) fallout shelter signs that usually cost around $50-$100 each, and came across a batch of ten that I was able to purchase for 'only' A$255 (plus $100 for shipping from the US to Australia). I'll probably keep a couple of the signs and try reselling the remaining eight signs locally (so postage isn't too exhorbitant) on eBay. If I manage to sell them off I might make some money to cover the cost of the signs I keep and the radiation detectors I bought ;)

Subscribe to Enough Wealth. Copyright 2006-2020

Friday, 13 November 2020

Lodged an amendment to DS2's tax return

A few months ago I submitted DS2's tax returns for the past several years (as the dividends from his share investments and interest on his bank savings slowly grew his income tax liability has slowly grown and now exceeds the franking credit refund). I initially hadn't bothered including his 'earned income' from busking, but then realized that without any earned income he wouldn't get the government co-contributions for the $1,000 undeducted contributions he made into his superannuation account in FY 2018 and FY2019. I did the amendment for his 2019 tax return and the result was a small reduction in the amount of income tax he earned (from around $35 to under $30 - I'm not sure why having more income reduced his tax liability - probably something to do with the low or middle income tax offsets?) and also resulted in the $500 government co-contribution for that FY turning up in his super account a few weeks later. When I get some spare time I'll do an amendment for the other year where he earned some money busking and made a contribution into his superannuation, which should result in another $500 co-contribution from the ATO into his super account. Every little bit helps, especially when it will have half a century to compound in a low tax environment before he reaches retirement/preservation age.

Subscribe to Enough Wealth. Copyright 2006-2020

End of October "12% solution" portfolio changes

After looking good for most of Sep/Oct (I was tempted to close out the QQQ position early when it had a good run - but decided to stick to the monthly trades recommendations and see how things go in the long term), QQQ tanked towards the end of the month.

For end of October the signal was to sell the QQQ holding and move those funds into IWM (iShares Russell 2000 ETF (All Sessions)): 60% IWM and 40% JNK.

The market spiked up on the news of the successful vaccine trial, and this added to the generally positive market movement as the US election outcome became clearer, so my "12% solution" portfolio is looking a bit healthier again as I write this. 

Subscribe to Enough Wealth. Copyright 2006-2020

Tuesday, 3 November 2020

Net Worth: OCT 2020

My end of month NW calculation has been delayed as I can't yet access my account information via the new Vanguard website that got rolled out on 19 October. I'll update my networthshare monthly entry as soon as I have the date, and update this post then.

I expect my NW to be done slightly this month, as the share markets took a bit of a dive towards the end of October. This will be slightly offset by a modest rise in the estimated value of our home (~$2K for my half share). The Sydney real estate market appears to have stabilised in the suburbs, although apparently the inner suburbs have seen some weakness as workers decide that they don't need to live close to work if they can telecommute (work from home). Apparently there has also been a bit of a boom in regional areas close to Sydney (such as Wyong and Gosford) which is also been attributed to the increasing viability of teleworking.

Subscribe to Enough Wealth. Copyright 2006-2020

Thursday, 29 October 2020

Has the other shoe finally dropped?

It looks like the US stock market might have finally woken up to the fact that Covid-19 isn't going to "go away real soon" and that simply ignoring it and refusing the "shutter the economy" doesn't mean that life can go on as normal (with minimal economic impact). The reality is that if you enforce strict lock-downs and close high risk businesses when there is a surge in cases, you get an immediate economic hit, but you have a chance to get the spread under control and loosen the controls within a few weeks (or months). But if you let "business as usual" continue during a surge in Covid-19 cases, the health situation will eventually become so dire (with hospitals reaching capacity and deaths increasing rapidly) that people decide for themselves to stay home and "shelter in place". The end result is still a big hit to economic activity, but you get their with an out-of-control pandemic and it takes a lot longer to get things under control.

It looks like the US stock market has woken up to this reality and realized that an effective vaccine might still be months away, and even then it will take many more months for enough people to get vaccinated for the pandemic to be brought under control. So the US economy is likely to suffer for a prolonged period (no "V-shaped recovery") which makes the stock market performance since March "irrational".

The ASX200 is currently down by about 11% compared to the start of 2020, whereas the S&P500 is currently about 5% higher. The Australian market usually goes down where there is significant weakness in the US stock market, so we may see a good buying opportunity in the Australian stock market in coming months if the US market finally 'capitulates' to the pandemic's economic impact.

Subscribe to Enough Wealth. Copyright 2006-2020

Saturday, 24 October 2020

Betting on the US election

It's quite surreal watching the US Presidential election campaign from afar - the disconnect between much of what the US President says and the reality of the terrible loss of life being experienced due to Covid-19 in the US does not seem to be reflected in the voting intentions showing up in US opinion polls. One would think that in this sort of situation a sitting President would be much further behind than the ~8% the polls suggest. There must be a huge number of voters that simply vote Democrat or Republican regardless of who the candidate is or the current economic/health situation or the candidates policy details (not that US Presidential elections appear to give much weight to actual policy platform details).

The voter intention polls got the outcome of the last election very wrong, so the current poll numbers need to be treated with caution, but I still find it hard to believe that Trump can claw his way back into contention this late in the campaign, especially as a large portion of US voters have already cast their ballot via pre-polling. So I decided I'd place a small wager ($10) on Biden to win the 2020 Election, and I also put another $5 bet on Biden getting between 49-52% of the popular vote, and another $5 on him achieving between 52-55% of the popular vote.

We'll see how it turns out, but I'm guessing there might be a small 'shy Trumper' effect that reduces the actual popular vote for Biden down to about 51-53% in the final wash-up.

Subscribe to Enough Wealth. Copyright 2006-2020

Friday, 23 October 2020

The new Australia Vanguard online access really, really sucks!

I've been a Vanguard customer for decades, and currently have both personal investment and our SMSF investments in some Vanguard Index Funds.

Up until this week, we have perfectly good online access to our accounts, able to access transaction history, daily unit prices, and pdf copies of statements etc.

Then they forced all existing retail customers onto their new 'personal' platform, and closed the existing funds to new investments. So, after wasting time 'activating' my new SMSF login using a customised link they sent us, and having to provide three different types of ID details (even though we are existing account holders and provided ID when we opened the accounts, and already had online access via their old platform), it turned out that I'll also have to provide a certified copy of one of the IDs!

Given Covid-19 I'm not going to queue up somewhere to get a photocopy of my ID and then get it certified by a JP (I'm a JP but aren't allowed to certify copies of my own documents - go figure). So I've sent in a jpg of my new digital driver licence (which in NSW the police are happy enough to take as ID - they simply scan the QR code). Authorised businesses can also go online to check the details for a drivers licence number, but Vanguard obviously hasn't bothered to do that (they did have some ID checking built in to the account activation process, but it apparently didn't work - probably because they ask for your name in one screen (where I entered my full name) and then ask separately for middle and surname (and there was no option to 'go back', so it probably failed the automated ID checking process. And no option to try again, or fix typos etc.

The new website is also a total waste of space - the unit price data is harder to navigate to than in the old website, and the whole thing seems to have just been 'dumbed down' to make it mobile phone friendly (and doesn't display well on  laptop). Modern website design autodetects whether the user is browsing using a phone or larger screen, and automatically send appropriate html for the device.

The new system also has only replace having to send in faxes (or mail) for investment instructions (eg. switch from one fund into another) with the ability to send forms electronically via their 'secure message' system once you log in to your account. Most modern financial product websites allow you do transact securely online once you have logged in - eg. switch fund options using an online tool, NOT still requiring investors to fill in forms and send them in to be processed!

Overall, the new Vanguard website and personal investor fund is highly disappointing, and a real pain for existing investors to switch to and activate...

Not surprisingly the new website is displaying a message that they are taking 5 or more days to respond to queries and have long delays on phone enquiries - apparently a lot of their customers aren't happy with the migration.

Subscribe to Enough Wealth. Copyright 2006-2020

Tuesday, 13 October 2020

The sexist double standard applied to female politicians

It's been a few years since Australia had its first Female PM, Julia Gillard. While I generally prefer have a Liberal government to a Labor government (for policy reasons), there was nothing particularly bad about Julia Gillard as a PM. But it was amazing the amount of criticism that was simply rampant sexism (eg. rather than "Dump Gillard" we had protestors waving "Ditch the Witch" placards).

The latest example of the double standard often applied to female politicians is the criticism of the NSW Premier Gladys Berejiklian (who is female and single) for having a 'close personal relationship' with a former NSW politician who was found to be abusing his position for (attempted) financial gain, and was dumped and left politics in 2018 after a previous ICAC investigation. There is no evidence (yet) that the NSW PM acted improperly on a professional level, just that she had a relationship with someone known to be 'shady'.

Yes, in an ideal world politicians would only have relationships with persons of impeccable character, and would immediately dump anyone that they found had the slightest character flaw. But is this really expected of male politicians? No. So why expect female politicians to apply higher standards to what are, after all, private considerations regarding who they have a relationship with.

It may yet turn out that the NSW Premier acted improperly (eg. gave Darryl Maguire information or support in his dodgy business dealings) and has to exit politics, but so far it appears that she has done nothing wrong herself. The days of the worth of a female professional being at all affected by who their partner is should be long gone. Gladys is doing a great job as NSW Premier during the Covid-19 pandemic, and who she is (or isn't) dating should be irrelevant.

Subscribe to Enough Wealth. Copyright 2006-2020

Sunday, 11 October 2020

Are the 2020 Budget tax cuts 'fair'?

Some people (such as the welfare lobby) have argued that the tax cuts brought forward as an economic stimulus measure in this year's Australia budget are 'unfair' as the largest benefit is received by those on higher income levels, and there is no benefit to those on low or no income (such as the unemployed).

Of course the fundamental reason for the unemployed and low income workers getting no benefit from this tranche of tax cuts is that you can't benefit from a tax cut if you already pay no tax!

But looking at the criticism that these tax cuts provide the biggest benefit to those on higher incomes, one has to look at the cuts not just in dollar terms, but as a percentage change in the amount of tax paid:

Taxable Income        FY2018                    FY2021                     Change in Tax

                              $ amnt  % change     $ amnt  % change     $ amnt  % change

$40,000                   $4,947     12%         $3,887      10%         -$1,060     -21.4%

$60,000                   $12,147   20%         $9,987      17%         -$2,160     -17.8%

$80,000                   $19,147   24%         $16,987    21%         -$2,160     -11.3%

$100,000                 $26,632   27%         $24,187    24%         -$2,445     -9.2%

$120,000                 $34,432   29%         $31,687    26%         -$2,745     -8.0%

$140,000                 $42,232   30%         $39,667    28%         -$2,565     -6.1%

$160,000                 $50,032   31%         $47,467    30%         -$2,565     -5.1%

$180,000                 $57,832   32%         $55,267    31%         -$2,565     -4.4%

$200,000                 $67,232   34%         $64,667    32%         -$2,565     -3.8%

This shows that the biggest percentage reduction in tax burden is flowing to those on lower incomes.

Overall, it seems a bit churlish on those already paying a lot less tax than they receive in benefits (e.g. free schooling, medicare, NDIS, JobSeeker etc. etc.) to complain that those who foot the bill for their benefits will be getting a small reduction in the amount of tax they pay.

Subscribe to Enough Wealth. Copyright 2006-2020

Thursday, 8 October 2020

How the budget provides business stimulus at no cost (over time)

With Covid-19 having dumped Australia into its first recession in decades, this week's Federal budget went to great pains to provide massive amounts of stimulus to business in order to protect as many jobs as possible, and to provide the means for businesses to survive and grow the economy (as soon as a Covid-19 vaccine becomes widely available and things such as immigration, tourism and foreign students can start to recover). Two of the key strategies in the budget to support and stimulate business were the carry backwards of business losses (i.e. rather than having to record business losses this year and deduct them against future profits (if the company services), businesses will be able to offset losses this year against previous year's business income, and get a tax refund of previous taxes paid), and to be able to immediately 'write off' business expenses (rather than apply the normal depreciation rates, which make the expense a deduction over the working life of the item). The SMH has a good article providing some more details about these budget measures.

What is especially smart about providing business with immediate assistance via these budget measures is that although they provide an immediate cash flow boost to business in this financial year (when its needed most), they will actually not cost the government much over time. The reason being that unlike government expenditure on stimulus measures such as business grants, increases JobSeeker payments, or building vast tracts of public housing, these measures are being paid for from money that the government would have had to pay back to business anyhow - just in future tax years under normal circumstances.

So, rather than business losses this FY reducing tax takes in future years, the government is refunding immediately some tax collected in previous years. But as those losses will have been used up this year, future business tax revenue will increase by this same amount. They are simply moving tax revenue and refunds from one financial year (or years) into another. No net tax cost to the government - just adjusting its timing.

And rather than business expenses this year reducing business taxes over several years, the expense will reduce tax liability this financial year in one hit. But the net deduction over the life of the item will remain unchanged.

Overall, a very clever way to provide extra immediate cash flow benefits to businesses this financial year without building it costing the government anything over the long term! Basically businesses will end up with more cash flow to stay in operation and employing people this year, but will pay it back in future years.

Subscribe to Enough Wealth. Copyright 2006-2020

Friday, 2 October 2020

Poetic Justice - POTUS and FLOTUS have COVID-19

In an ironic twist to US Presidential election campaigning, Pres. Trump has announced that he and Melania have tested positive to Covid-19, most likely being infected by Trump's close aide Hope Hicks. He'll be in quarantine for a couple of weeks, and might miss the next scheduled Presidential 'debate'.

One can only hope that he does what his doctors recommend, and doesn't self -medicate with hydroxycholoroquine or injects himself with bleach!

Subscribe to Enough Wealth. Copyright 2006-2020

Thursday, 1 October 2020

Net Worth: SEP 2020

My monthly Net Worth calculation has been updated in NetWorthShare as at the end of September. The stock markets got a bit wobbly, which adversely affected my NW. Our estimated house price showed a modest rise, despite the overall Sydney real estate market starting to show weakness. The extent and duration of any decrease in the value of my real estate assets will depend on how long immigration and the economy remains impacted by Covid-19. If a safe and effective vaccine for Covid-19 becomes widely available during early 2021, things may start to pick up by the middle of next year. My net worth figure decreased by $11,805 (-0.44%) overall, to $2,641,515.

Subscribe to Enough Wealth. Copyright 2006-2020

Saturday, 26 September 2020

Does the SGL need to increase to 12%?

There's a bit of a 'culture war' going on regarding when and if the SGL rate should increase to 12% on schedule, be brought forward, or deferred. Those on the left side of politics view the Australian Superannuation system as one of their great social reforms, although moving towards a self-funded retirement system was probably a demographic inevitability regardless of which side of politics was in power given the aging population was causing an increase in the ratio of pensioners to tax payers since the 1980s. As the introduction of the SGL was a Labor initiative, they therefore jump on any suggestion to defer the planned increase of the SGL rate as an attack on the Superannuation system itself ('mediscare' seemed to work, so expect a host of 'superscare' election ads if there is any delay to the SGL increase before the next election).

Those on the hard right of course hate the very concept of government mandated savings for retirement, as they would prefer people to be able to choose for themselves whether or not to spend current income or defer some of it for their retirement (then again, the far right is also against redistribution of income and welfare, so if left to their own devices, those without any retirement savings would presumably end up in poverty if they didn't save for their retirement).

Since we have a Superannuation system in place, and the rate is planned to eventually rise to 12%, the real question is whether the rate change should proceed according to schedule, or, due to the economic impacts of Covid-19, whether the rate increase should be brought forward or deferred.

The argument for bringing forward the SGL rate increase is that it would be a proxy wage rise, given that the SGL is employer funded. Given the current lack of wage inflation, an SGL increase is at least one way to funnel company profits into employees pockets rather than to shareholders (even if the employees can't access the funds until they retire). The original SGL was a trade-off of wage rises for superannuation contribution (at a time of high inflation and wage increases), so any SGL increase would theoretically result in a commensurate decrease in future wage rises. But in a time of negligible wage rises, an increased SGL contribution would initially simply be an additional cost to employers. Of course, there is the possibility that imposing an SGL increase on employers would therefore discourage employment, at a time when unemployment has increased due to the economic impacts of Covid-19.

The  argument for deferring the SGL rise is that people need as much current income as possible in the current economic environment, so it makes no sense to defer additional current income to fund retirement spending. And that this isn't the right time to impose an additional cost on employment when many companies are already struggling financially.

Of course the superannuation 'industry' is in favour of the SGL increase happening sooner rather than later, as SGL contributions add to the pool of retirement savings they can 'clip' for management and admin fees. And trade unions favour larger Industry Super Funds as they promote Industry Super as if superannuation is a worker benefit that is provided by the trade unions (union membership has been declining for the past few decades, so anything that makes trade unions seem more relevant to workers is vital to their continued existence).

However, looking at the SGL rate dispationately, the key question is whether an increase from 9.5% to 12% is actually critical to making Superannuation provide an adequate retirement income in the long term. It has been pointed out that currently 40% of retirees report that their superannuation doesn't provide an adequate income for a comfortable retirement, which is taken as evidence that the SGL rate needs to rise. But the reality is that current retirees did not accumulate their Superannuation at the current SGL rate of 9.5%, but for most of their working lives the SGL rate was much, much lower. SGL was only introduced in 1992 at of rate of 4%, and the rate has slowly increased over the years.

For example, looking at a 45 year working life (from age 20-65), those that retired in 2017 would have received SGL at an average rate of only 4.54%. Those retiring in 2018 after working 45 years had an average SGL contribution rate of 4.75%, and even those that retire this year after working 45 years only received an average rate of SGL at 5.38%.

So, even with the SGL rate at "only" 9.5%, twenty year old works will retire after 45 years after having received roughly twice the total SGL contributions of recent retirees. The actual impact on their final retirement balances will be even greater, as the impact of receiving 9.5% SGL in year 1 of saving for your retirement rather than in year 45 is much more than double due to the benefits of compounding for 45 years. So, while 40% of retirees may have inadequate Super balances at the moment, in future years the current SGL rate will already provide a much greater benefit at retirement age.

Overall, keeping the SGL at the current rate for a few more years will not have much impact on eventual retirement balances, but might assist with the recovery in employment rates over the next few years.

Subscribe to Enough Wealth. Copyright 2006-2020

Tuesday, 22 September 2020

2/3 through my Masters in Financial Planning degree

Last Friday I got my result for the subject I did in Q3 (Portfolio Management) - I got another Distinction grade, which was actually a bit disappointing as I need to pick up another HD this year to get on the Dean's List again in 2020 (I recently got the notification that I made it onto the 2019 Dean's List), and keep on track to graduate "with Distinction" next year. Unfortunately I only got a Credit for the subject I did in Q1, so I'll need to get another HD during 2020 to offset that result.

I'd gotten about 88% for the assignments and mid-term quiz (collectively worth about 55% of the course mark), so I must have only received a 'credit' grade on the final exam. Not entirely surprising as one of the six questions was about a theory we'd covered at the start of the course and I'd forgotten one particular definition (which was basically the question, worth about 20% of the exam!). There's nothing more annoying than sitting in an exam knowing that you've read about a particular piece of terminology, but not being able to recall exactly what the definition was. I was actually a bit surprised to find that question was even in the exam, as the final was supposed to only be on material covered in modules 5-9 of the course (as modules 1-4 were covered in the mid-term exam, and that definition was covered in module 2). I also probably didn't get full marks on a calculation question as I didn't have a calculator available during the online exam. Although the uni subject and exam guides had both said that any "non-programmable" calculator could be used in the exam, when I logged in with ProctorU to sit the online exam they told me that according to their exam instructions only a "financial" calculator was allowed, so I couldn't use my standard scientific calculator! I emailed and tried phoning the lecturer to clarify this, but couldn't get hold of him before the exam was due to start, so I had to sit the exam sans calculator. After I logged out of the exam session I was able to check my emails, and the lecturer had meanwhile responded that it would be fine to use by scientific calculator - D'Oh!

I was going to lodge a 'misadventure' form, but they all required supporting letters for broken legs, illness etc. and there was no form that seemed to cover "total stuff-up by the university and ProctorU" as an option ;)

Anyhow, I've decided to revert to only doing one subject in Q4 (I've been doing the normal one subject workload as a part-time student so far, but had initially enrolled in two subject for Q4 with the idea of finishing the degree by the middle of next year) as that will make it more likely that I can get an HD in Q4. The Q4 subject is 'Insurance' so I already know most of the material from my DFP and CPD studies, but the trick will be to put enough effort in to actually get an HD.

My main goals for the next few months are to: complete the Q4 subject with an HD grade (so I get onto the Dean's List for 2020 and get my GPA back up to the 6.0 minimum required to graduate "with Distinction" next year), finish off the two 'specialist' financial planning courses I'm doing (in Margin Lending and SMSF), and get one of the four ADFP modules completed by the end of this year. It would also be nice to get a paying financial planning client by the end of this year.

Next year's goals will be to: finish the MFP degree, finish the ADFP qualification, do the required TPB course to be registered as a financial (tax) advisor, and do the course required for CFP (I'll get a credit for three of the four required CFP courses for completing the MFP degree). I'll also apply to enrol as a part-time PhD student at WSU when I've completed the Masters degree. Looks like 2021 will be quite a busy year (aside from my full-time job).

Subscribe to Enough Wealth. Copyright 2006-2020

$50 bonus available to new accounts with peer-to-peer lender Plenti

I've invested a few thousand dollars with the Australian online peer-to-peer lender Plenti (previously known as RateSetter), mostly just to see for myself how peer-to-peer lending works. They currently are offering a $50 bonus to new investors that invest $1000 in the five year lending market and setup their account using this offer link. Their five year lending is currently offering investors around 6.3% pa interest rate.

Disclosure: I will also get a $50 bonus if anyone joins up using that link and invests $1000 in the five year lending market. Make sure you read the PDS. I'm not providing any advice about this product - I've invested a relatively small amount myself, but I can afford to loose it.

Subscribe to Enough Wealth. Copyright 2006-2020

Tuesday, 1 September 2020

Net Worth: AUG 2020

My monthly Net Worth calculation has been updated in NetWorthShare as at the end of August. I've included a couple of miscellaneous accounts that I hadn't previously bothered including in the monthly calculations - a couple of savings accounts, the value of the IG and CityIndex share and CFD trading accounts, and my foreign share holding - to make the NW calculation more complete. However I am still recording the value of the Lake House 'at book cost' and the off-the-plan investment unit at 'cost' (deposit and stamp duty paid to date). My net worth figure increased by $51,254 (1.97%) overall, to reach $2,653,320.

Subscribe to Enough Wealth. Copyright 2006-2020

September "12% solution" portfolio changes

No trades required for the start of September, as the emailed recommendation is the same as last month: 60% QQQ and 40% JNK.

Subscribe to Enough Wealth. Copyright 2006-2020

Thursday, 27 August 2020

Covid has apparently caused pet inflation

I'd read about a surge in interest in having a pet due to Covid-19 impacts on human behaviour (lots of lockdowns, and increased WFH (work from home) even where lockdowns were not in place) creating more 'at home' time and boredom - which combined to make the thought of having a pet more appealing, and prices to start to increase for dogs and other pets.

So I wasn't surprised to find that when I searched online for a free female guinea pig there were none available, with prices now in the range of A$30-$50+.

Last time I had looked at guinea pig prices several years ago there were lots being given away (some even came with a free hutch). We had picked up a couple of female guinea pigs (a 'middle aged' one aged around 4 years old and her daughter aged 4-6 months old) for free, and we had slowly transitioned from keeping them in a hutch (with daily outings to an enclosed grass area) to letting them go 'free range' around our grassed play area and front garden. They had plenty of hedge plants to hide amongst when they weren't grazing on the front garden lawn.

The 'mother' guinea pig had been enjoying her 'golden years' in our front garden, having long naps in the winter sunshine while sheltered under some succulents this year. She had gotten a lot slower moving than her daughter but would still come out for a piece of carrot or celery 'treat' on most days. Then she stopped appearing for the morning feed for the past two days and we couldn't find her despite looking in all the usual hiding places. This morning DW found her peacefully 'at rest' in the front rockery, where I'd looked yesterday. So she must have passed away last night or perhaps this morning while having a final sun bake.

It was a bit of a relief to find the remains, as DW was worried that the guinea pig might had been snatched by a cat and met a grisly end. The 'piggy' is now buried in the front rockery with a pebble marking the resting place (and to hopefully avoid it being dug up by a passing scavenger). I'll keep an eye out for a young free female guinea pig to keep the 'daughter' company - there are still a few free male ones available, but its best not to keep a mixed pair (unless you want to end up with lots of surplus guinea pigs to give away).

Subscribe to Enough Wealth. Copyright 2006-2020

Tuesday, 25 August 2020

"12% solution" portfolio update

I didn't get around to checking my "12% solution" portfolio on Saturday mornings for the past two weeks, so here's a current snapshot of how things are going so far compared to my last review.

Portfolio as at Mon 24 AUG 2020:                   Value       Profit/Loss

50 Betashares Asia Technology Tigers ETF A$   488.50   + A$    63.00

34 Proshares UltraPro QQQ (All Sessions)       US$ 4,920.48   +US$   702.78

27 SPDR Barclays High Yield Bond ETF           US$ 2,853.90   +US$     7.02


Total positions                                 A$11,351.94    +A$ 1,058.47

Cash                                            A$  - 26.73


Portfolio                                       A$11,323.85


So far it has been an amazing initial performance, but that is obviously just a fluke of timing. It will mean that my 3, 5 and 10 year performance figures for this portfolio will be much higher than if I'd  started trading just a few weeks later. The negative cash balance is due to a quarterly A$50 account keeping fee having been debited (I forgot about that fee when I was deciding to trade the "12% solution" portfolio using my IG account!).

Subscribe to Enough Wealth. Copyright 2006-2020

Tuesday, 18 August 2020

Every cloud has a silver lining

Apparently the Covid-19 pandemic has boosted the wealth of the top 12 billionaires in the US by 40% to a total of more than US$1 trillion. As might be expected, this is mostly due to them having large stakes in online services and retail channels that have received a major boost during the pandemic. The 'top 12' list is:

1. Amazon founder Jeff Bezos $189.4 B USD

2. Microsoft founder Bill Gates $114 B USD

3. Facebook founder Mark Zuckerberg $95.5 B USD

4. Berkshire Hathaway CEO Warren Buffett $80 B USD

5. Tesla founder Elon Musk $73 B USD

6. Former microsoft CEO Steve Ballmer $71 B USD

7. Businessman and investor Larry Ellison $70.9 B  USD

8. Google co-founder Larry Page $67.4 B USD

9. Google co-founder Sergey Brin $65.6 B USD

10. Walmart heiress Alice Walton $62.5 B USD

11. Walmart heir Jim Walton $62.3 B USD

12. Walmart heir Rob Walton $62 B USD

Unfortunately this vast boost to wealth at the top end has occurred while thousands of people are dying and millions of people losing their jobs due to Covid-19.

Of course Covid-19 hasn't helped all the rich get richer - those with fortunes tied up in airlines, travel agents, hotels, and restaurant chains have probably taken a huge hit due to the pandemic.

And even if you are 'working class' the impact of the pandemic on your finances has depended on who you work for - I've been lucky in that my job seems reasonably secure, I haven't had a pay cut or a reduction in hours, and I've actually enjoyed the transition to working from home for the past several months.

Subscribe to Enough Wealth. Copyright 2006-2020

Saturday, 8 August 2020

Weekly "12% solution" portfolio performance update

Saturday morning and the AU and US markets are closed, so I can do a weekly post on how my implementation of the "12% solution" portfolio is performing in my IG trading account. As mentioned previously, I already had a few hundred dollars in the IG trading account I opened to get some 'free' Qantas Frequent Flyer points last year, and that money is invested in the ASIA Technology Tigers ETF as a long position (ie. I'll just let it sit there for 5+ years and see how it goes). The other $10,000 I recently added to my IG account using funds from my portfolio (home equity) loan to trade each month per the recommendations given in the end-of-month email updates from David Alan Carter per his "12% solution" trading methodology.


Portfolio as at Sat 08 AUG 2020:                   Value       Profit/Loss

50 Betashares Asia Technology Tigers ETF A$   475.00   + A$    49.50

34 Proshares UltraPro QQQ (All Sessions)       US$ 4,319.02   +US$   101.32

27 SPDR Barclays High Yield Bond ETF           US$ 2,858.76   +US$    11.88


Total positions                                 A$10,503.76    +A$   207.66

Cash                                            A$    23.37


Portfolio                                       A$10,527.03


This week was all sunshine and puppies, but I won't be making >1% gain every week ;)

Subscribe to Enough Wealth. Copyright 2006-2020

Wednesday, 5 August 2020

August 12% solution portfolio trades and status

The A$10k I transferred from my portfolio loan into my IG trading account on the weekend arrived in my IG account today. The markets required for the "12% solution" trades opened at 11:30pm Sydney time and I bought approximately A$6,000 (60%) QQQ and A$4,000 (40%) JNK per the August asset allocation provided in the monthly email I received.

Each month I'll make any required trade(s) to adjust my holdings to the recommended position, although it won't be exactly per the model due to timing of the trades, and the fact that I can only buy a whole number of shares (so there will be a small cash residual balance).


Trades executed for August:

04 Aug 2020 23:35:45 BUY 34 QQQ A$5961.31

04 Aug 2020 23:37:56 BUY 27 JNK A$4024.27

Residual Cash balance: A23.27


Current IG Portfolio:

34 QQQ ProShares UltraPro QQQ (All Sessions)

27 JNK SPDR Barclays High Yield Bond ETF

50 ASIA Betashares Capital Ltd - Asia Technology Tigers Etf


Having this trading portfolio in place will give me something to play with once a month while my major investments in Index Funds within my superannuation sit on 'autopilot' and slowly compound. And the IG 'workspace' display looks quite cool with all the charts and flashing price changes on every 'tick' ;)

Subscribe to Enough Wealth. Copyright 2006-2020

Tuesday, 4 August 2020

Net Worth: JUL 2020

Surprisingly the estimated valuation for our home, based on sales data for our suburb, increased during the month. This is contrary to the general trend in residential real estate prices across Sydney, so I wouldn't be surprised to see a decrease next month.

My retirement savings (SMSF account balance estimate and company super account balance) also increased substantially during the past month - mostly due to a generally positive share market during July, plus the usual monthly salary sacrifice and SGL contributions.

The stocks figure is the usual net amount of my margin loan portfolio assets minus the margin loan balances and my portfolio loan balance, but I started including the balances of a couple of minor share trading accounts (as I will be putting $10K into the IG account to trade the '12% solution' portfolio model) and a few cash accounts that I previously hadn't bothered including in my monthly NW spreadsheet calculations. Overall this added around $11,000 to the net 'Stocks' figure. On the other hand, I am funding the $1,500 monthly 'running costs' for my financial planning business from the portfolio loan, and also paying my quarterly uni fees for the MFinPlan degree out of that account, so the 'Stocks' figure isn't a pure reflection of the movements in my stock portfolio.

Overall my NW increased by $35,993 (1.40%) to $2.602m which I think is probably another 'record high' for me.


Subscribe to Enough Wealth. Copyright 2006-2020

Monday, 3 August 2020

Apology to the Walking Dead (and all disaster movie) writers - people really do act more stupidly during disasters than I believed possible

As a closet 'Prepper-lite' (I have an ultraviolet water purifier, some GM detectors and a few packets of iodine tablets sitting in a box - 'just in case'. If you thought it was hard to find toilet paper during a pandemic, just wait and try to get hold of a dosimeter after a nuclear accident or when WWIII looks likely!) I've always enjoyed watching disaster movies and series such as The Walking Dead and imaged how I'd deal with such life-or-death situations. (Of course the reality is I'd probably be the first one to come to a grisly end, but that doesn't stop me being an arm-chair critic and scoffing at how unbelievably stupid the behavior of people is portrayed in these movies and TV series.)

I've watched in disbelief when characters are portrayed as behaving as if everything is fine the minute an immediate threat is no longer apparent - examples that come to mind are the young lady in The Day After who insisted in running out of the relative safety of the basement shelter and into fields contaminated with lethal fallout just because she'd been cooped up for a few days and the weather outside looked fine (just ignore all the dead livestock lying on the ground), or the myriad examples in The Walking Dead series where the group has heroically hacked and slashed their way through legions of zombies to get to a place of relative safety - only to then chillax as if everything was back to normal if there is no longer an immediate threat.

I had put this all down to screen writers taking artistic licence with the stupidity of the average human being - surely no-one could act with such self-destructive nonchalance is a real disaster situation?

But, having watching people in the US and Australia rub shoulders at concerts or when queuing up to get into a pub in the midst of an out-of-control pandemic - when there is active community spread of a virus that kills about 1% of the infected (and more if you're over 50), and to which no-one (that hasn't already survived it) has any immunity - I now believe that, yes, people really can act that idiotic during a bona fide disaster.

So, my apologies to all disaster movie and TV series writers - your scripts aren't as woefully unrealistic as I had assumed them to be. Some people are just plain dumb, inconsiderate, live in denial, or use 'magical thinking' as the basis for their decision making. Go figure.

Subscribe to Enough Wealth. Copyright 2006-2020

Sunday, 2 August 2020

Implementing the "12% solution" trading system on a small ($10K) portfolio as an experiment

A few years ago I bought an eBook by David Alan Carter called "The 12% solution" (the Kindle edition only costs about five bucks, so its good value) and was interested in his method of tilting a simple asset allocation each month according to his calculated trading signals. Having bought the book I get a free monthly email at the end of each month telling me what asset allocation the method has decided is 'best'. The assumption being that you trade asap (the next trading day) to move your portfolio allocation to the new recommended mix.

I was going to start trading a test portfolio using these monthly trading recommendations a few years ago on my CitiIndex CFD tradining account, but discovered that not all the assets used in the 12% portfolio were available to trade. So I put the idea on the back burner.

When I received this month's email, showing that the '12% solution" portfolio 2020YTD performance is +18.1% and for 2019 was +12.4%, I decided I might try to test this methodology on a small scale using $10,000 of borrowed funds (from my St George 'portfolio loan' account, currently charging 4.98% pa interest, which is tax deductible as I use it for income producing investments) and trading on my newly opened IG share trading account. The IG account currently only has a balance of $468.85 and is invested in the Asian Tigers technology fund (code: ASIA). I'll use the $10,000 I've added to the IG account to make the recommended investments: 60% QQQ + 40% JNK.

Trading using the IG account costs $8 per Australian share trade (if 0-2 trades were made the previous month), and I saw a mention that US share trades on the IG platform cost $0 (not sure if that is correct - there are probably some other costs involved). With only $10,000 invested, an annual return of 12%, minus the 5% loan interest costs, would yield an expected net 7% return ($700 pa). Making an average of two trades per month (assuming I have to sell one holding and buy another most months), would cost up to $16 per month, or $192 pa. This would mean that I would mostly be making money for St George (interest) and IG (trade fees), and I might end up with a taxable profit of only $508 pa, which is hardly worth the effort and extra work when filing my annual tax returns.

So I might reduce trading frequency to every second month, which would halve the trading costs (Carter apparently tested different trading periods, such as bi-monthly or quarterly, and decided that the monthly trading cycle provided the best returns, but with a small account balance, frequent trades will have a larger drag on performance). What impact trading every second month will have on the portfolio performance is unknown. Trading every second month will obviously produce somewhat different results, but, as the trading signals are a 'point in time' calculation of the 'best' allocation to make, there is no reason why it should be much worse to hold that allocation for two months rather than just one month before rebalancing to the current recommendation.

We'll see how it goes. I might increase the amount invested (which will reduce the relative impact of the trading fees) if actual results go according to 'theory' for the next year or two.

In terms of how I've mapped the recommended ETFs in the "12% solution" portfolio to what is available to trade in the IG platform, I decided to use the following:


"12% solution" ETF list <> [ IG share trading platform ]

IWM - iShares Russell 2000 Index Fund <> [iShares Russell 2000 ETF]

MDY - SPDR S&P MidCap 400 Index Fund <> [SPDR S&P 200 Mid Cap Growth ETF]

QQQ - PowerShares Nasdaq-100 Index Fund <> [ProShares Ultra QQQ]

SPY - SPDR S&P 500 Index Fund <> [SPDR S&P 500 ETF Trust (All Sessions)]

JNK - SPDR Barclays High-Yield Corporate Bond Fund <> [SPDR Barclays High Yield Bond ETF]

TLT - iShares 20+ Year Long-Term Treasury Bond Fund <> [iShares 20+ Year Treasury Bond ETF]

CASH - cash or the SHY 1-3 Year Treasury Bond ETF <> Cash or [iShares 2-3 Year Treasury Bond ETF]

For many of the codes provided for the "12% solution" there were multiple similar investments listed for trading in the IG platform, so I've picked whichever one seems closest to the correct description and put that on a watch list in the IG platform so I can buy and sell the chosen units each month.

There will probably be some additional complications when I try to implement this portfolio within my IG account - for example the buy costs may not allow the exact percentage allocation recommended by purchased, so I may have a small residue sitting in 'cash' each month (earning 0% but costing me 5%pa in interest!)

The current unit buy prices are:

IWM  $ 147.61
MDY  $   57.08
QQQ  $ 169.68
SPY  $ 327.03
JNK  $ 106.10
TLT  $ 171.00
SHY  $   86.63

As soon as the $10,000 I've transferred from my St George Portfolio Loan account is available in my IG account I'll try placing buy orders for 35.36 units ($6,000) of 'QQQ' and 37.70 units ($4,000) of JNK.

As a benchmark I'll track my actual IG account balance each month vs. how an equal-value allocation to the seven listed securities performs. I'll also compare how my actual implementation performs compared to the performance reported for the 'ideal' implementation of the "12% solution" that is reported in the monthly email notifications.

Subscribe to Enough Wealth. Copyright 2006-2020

Friday, 31 July 2020

What really makes FI/RE work?

FIRE (Financial Independence - Retire Early) is a 'popular movement' of people (often Millennials) who are sick of the 'rat race' and consumerism, and wish to achieve financial independence (not relying on a pay check, but instead having a sufficient income stream from investments to either work as they choose, or even do a traditional 'retirement' (stop working) at a much younger age than usual (eg. age 65)). The key to FIRE is often seen as cutting out spending on mere 'wants' and instead using the resultant surplus income to invest.

To give an example of how effective cutting expenses and increasing savings rate can be at reducing how long one has to work until able to achieve financial independence and 'retirement', I did a simple excel model of how long it would take for invested savings to build up to a level sufficient to provide enough passive income to replace the income previously spent while working.

To keep it simple I made the following assumptions:

After tax income (available to spend/save): $100,000 pa for all years

Investment ROI is constant and is 7% pa after tax

Inflation is 2% pa, so the real ROI is 5% pa

In reality, returns will vary from year to year, and even if the average return works out to be 7%, actual results will depend on the size of variations and order (ie. return volatility and sequencing). And while DS1 is starting out in his first job straight out of uni at age 20 with a salary of around $100K (similar to my current salary, and also to the inflation adjusted amount I got in my first job after graduation), many people start out at a relatively low salary level and see their wage increase until their 50s. The actual after tax income level however doesn't affect how the model performs, as the required retirement income is calculated as a percentage of wage - so as long as your earn sufficient to be able to save part of your wage, the income level won't change how long it will take to achieve FIRE.

So, what does the model predict?

If you start at age 21 with zero savings/debt and save 10% of your after tax income, you would achieve the $1.88m investment balance to enable you to retire with a passive income of 90% of your after tax working income at age 68. This would mean you would have the exact same amount of disposable income in retirement as you had (after deducting the 10% being saved) while working.

If you instead saved 20% of your after tax income, you would only require $1.7m to retire, and would achieve that by age 54. The reason you require a lower final investment balance is because you have been living on 80% of after tax income, rather than 90%. This is one of the 'secrets' of FIRE - by adjusting to living on a smaller percentage of your income while working, you can reach that level of investment income much sooner. (If you had instead saved 20% of income, but wanted to still retire on 90% of income, the investment balance required to fund retirement would have remained at $1.88m, but you would have achieved it by age 58 by saving 20%, rather than age 68 by saving 10%.

If you cut spending to boost the saving rate to 30%, the investment balance required to fund retirement reduces to $1.53m, and you'd get there by age 46.

And by saving 40% of after tax income you could retire by age 40 with an investment balance of $1.3m.

By saving 50% you could retire by age 36 (with $1.18m), and by saving 60% you could retire by age 32 (with under $1m).

By now it should be obvious that using FIRE to achieve early retirement is partly a trade-off between retirement age and the level of spending possible both while working and during retirement. Some people who have tried FIRE have found it too hard to cut current expenditure significantly. While how much one can take from current spending and divert towards saving for 'financial independence' will depend on personality (FIRE isn't for everyone), I suspect that some people who find it hard to reduce spending while they are working are in for a very unsatisfactory retirement when they suddenly find their income slashed involuntarily.

The sequencing risk is also not to be underestimated - I always saved around 30% of my after tax income, and was on track to be able to afford 'early retirement' by age 50, but that was before the GFC. So its probably worth building in a couple of extra years as a buffer when planning for FIRE.

Another aspect that I've come to realize is that once you have achieved your 'FI' target you may not want to 'RE'. I actually passed the minimum amount of superannuation savings required to replace my rate of expenditure (current wage income - taxes and savings), and am now working towards hitting the $1.6m transfer balance cap), and hope to transition from working for a salary to working for myself in  my own financial planning business. Achieving financial independence means that you are actually choosing to work (even if it is still in the same old job), rather than having to work.

Subscribe to Enough Wealth. Copyright 2006-2020

Saturday, 18 July 2020

Expenses for past two years

I did my annual budget review, getting most of my expense data from my monthly credit card statements for the past two years, plus some adjustments for expenses paid via EFT from my bank account, and some uni fees I paid using my portfolio loan (ie. I effectively accumulated some 'student loan' liability doing my masters degree). Some of the figures may be a bit rubbery (for example I estimated my tax based on gross salary - tax home pay- SGL/SS deductions. In reality I will probably pay less tax than that, as I have deductions for margin loan interest that is usually a bit more than the dividend income I receive, so I get a small tax refund that I haven't adjusted for).

One striking thing was how similar the expenditure break-down was for the past two years. I don't deliberately spend according to a budget, as my savings are on auto-pilot, and everything else tends to stay fairly constant. I've projected my notional budget for this financial year - which is pretty similar to the past two years. The transportation costs might be slightly lower as I'm currently working from home, and I got rid of the S-type Jaguar that cost me quite a bit in servicing, rego etc. last calendar year. I haven't allocated that savings into any other budget category, so (hopefully) that should mean I accumulate some surplus cash in my savings account over time, and might be able to pay my uni fees from savings rather than increasing my portfolio loan balance.

I'd like to reduce our expenditure on groceries, as it seems quite high compared to some other budgets I've seen on PF blogs, but with two teenage boys that might be hard to achieve, so I haven't budgeted for any savings there. I'd also like to get some clients for my financial planning business (GFP) this FY, so hopefully there might be some revenue to offset the fixed costs of running my business.


Subscribe to Enough Wealth. Copyright 2006-2020

Friday, 17 July 2020

Covid-19 will be one of the leading causes of death in the USA this year

Despite what the US leader (!?) thinks, Covid-19 is not comparable to the seasonal flu. A quick reality check of what he said in March:

"So last year 37,000 Americans died from the common Flu. It averages between 27,000 and 70,000 per year. Nothing is shut down, life & the economy go on. At this moment there are 546 confirmed cases of CoronaVirus, with 22 deaths. Think about that!"

versus reality (as of now): approximately 138,000 deaths (and another 1,500 or so each day).


But how bad is Covid-19 compared to the 'normal' leading causes of death in the USA?


Number of deaths for leading causes of death in the US: [https://www.cdc.gov/nchs/fastats/deaths.htm]

Heart disease: 647,457

Cancer: 599,108

Accidents (unintentional injuries): 169,936

Chronic lower respiratory diseases: 160,201

Stroke (cerebrovascular diseases): 146,383

Alzheimer’s disease: 121,404

Diabetes: 83,564

Influenza and Pneumonia: 55,672

Nephritis, nephrotic syndrome and nephrosis: 50,633

Intentional self-harm (suicide): 47,173


So, Covid-19 is already destined to be at least the 6th leading cause of death in the USA for 2020, and could end up being the 3rd highest cause of death in the USA this year (trailing only heart disease and cancer).


Subscribe to Enough Wealth. Copyright 2006-2020

Thursday, 16 July 2020

Tracking my Net Worth Performance against an iconic benchmark

Once you have an investment strategy in place, it is a good idea to measure performance - both in absolute terms and relative to a benchmark. Absolute performance measurements will let you know if you are 'on track' to meet your financial goals, and performance relative to an appropriate benchmark will let you know if you are implementing your chosen strategy effectively (eg. if your plan is to achieve a return of 1% more than the ASX200 index by investing in what you deem to be the 20 'best' shares in that index, you need to compare the performance of your portfolio to that benchmark - the ASX200 index).

I tend to not worry about benchmarking individual components of my investment portfolio, as my superannuation is invested in a mix of index funds, each of which already has appropriate benchmarks in place, and reporting of fund performance against those benchmarks. And my home valuation 'is what it is', as I'm not going to sell up and move to another suburb on the basis of how prices in our suburb move relative to the overall Sydney house price index.

Instead I benchmark my overall net worth against what I've decided is an appropriate 'stretch' benchmark - the minimum NW cut-off required to make it onto the Australian "Rich 200" list. That list was was originally prepared and reported annually by BRW magazine, and is now published by the Australian Financial Review. It takes a few months to produce, and normally comes out around May-June, based on valuations calculated in late March. This year the 'rich list' has been delayed until '4th Quarter' due to the market volatility that was occurring in March.


The reason that I've chosen to benchmark against the cut-off for the 'rich list' is that I assume that these richest Australians have reasonable expertise at building wealth. By taking the cut-off (net worth of the 200th richest Australian, whoever that happens to be) I eliminate much of the random variation that occurs at the top of the list (which often depends on how a particular investment/company is performing). And because Australia's population is increasing over time, the 'rich list' is getting more exclusive (a smaller percentile of the population) over time, so the cut-off will increase relative to the 99th percentile for example.

As the cut-off net worth for the rich list is still vastly higher than my net worth will ever be (I'll never be on the 'rich list'!), I've chosen to benchmark my net worth against 1% of the rich list annual cut-off. Plotting my monthly net worth (excluding the lake house I 'inherited' a few years ago) against this benchmark shows that I've generally been tracking quite closely to that benchmark, with the exception that my net worth did relatively poorly during the GFC due to my gearing having to be unwound at the market bottom to avoid margin calls - and then not having the confidence to gear up again to my previous level when the stock markets improved during the following decade.

When the annual rich list is published later this year it will be interesting to see when I've made up any ground against the benchmark - hopefully the market timing I attempted with the asset reallocation during the first half of 2020 will have boosted my relative performance.

Subscribe to Enough Wealth. Copyright 2006-2020

Sunday, 12 July 2020

Did DS2s tax returns for the past six years

I bought some shares (Cochlear, CSL and Computershare) for DS2 about ten years ago, as I'd made a similar gift to DS1 around that age. DS2 had his tax file number issued, and the shares were purchased in his name (but with DW and myself as trustees on the trading account, as I couldn't get a share trading account setup in only his name as he is under 18) and the dividends were paid directly into his St George student savings account. The idea was that having actual investments of their own would make the kids' lessons about investing, compound interest, budgeting and saving, and tax a lot more 'real'.

I'd previously done DS2s tax returns for the years up until 2012 and for 2014 (fortunately he didn't get enough annual income to be subject to the 66% child tax rate that applies to minors if they get more than $416 of 'unearned' income, so it was worth doing his annual tax returns so that he got the franking credits on his dividend payments refunded). But I hadn't yet lodged DS2s tax returns since 2014 when the old eTax software was replaced with having to lodge tax returns electronically online via a link of a myGov account to the ATO, which was rather complicated to do for another person (so I didn't get around to it). As DS2 had made undeducted contributions into his superannuation account in each of the past two financial years, I decided was high time that I made the effort to get his myGov account setup (easy) and linked to his ATO TFN (not so easy - for some reason it wouldn't validate using the bank account details, even though once it was setup it turned out that the interest for those account was autopopulated in his tax return!). I had to call the ATO and have DS2 on speaker phone with me (luckily I'm working from home, and DS2 is on school holidays) so we could both identify ourselves and get a linking code issued by the ATO to connect DS2's myGov account to his ATO TFN.

Once that was all done I started working through DS2's electronic tax returns from 2014 onwards. I got DS2 to 'help' do his tax returns, although I must admit that even I find doing tax returns less than exciting (and DS2 certainly was keen to get back to playing Fortnite!) For the first few annual returns DS2 will be due a small tax refund (due to the franking credits), but in each of the past two years his total income was over the $416 child tax rate threshold, so he has a tax liability (that was mostly offset by the franking credits) for those years. Over the entire six years of past tax returns that have now been lodged he'll end up owing about $33 of income tax. It was still worth lodging his tax returns, as he had made $1000 contributions into his superannuation in each of the past two financial years (from money he had earned doing some busking (hobby income, hence not taxable), and various amounts he'd received for birthday and xmas gifts etc.). Once his tax returns have been processed he should get a $500 government co-contribution into his superannuation account for each $1000 annual contribution.

With the covid-19 recession impacting dividend payments, and DS2 having spent some of his bank savings on a gaming desktop computer, its likely that he'll have low enough income from now until he turns 18 to avoid any child tax liability for future income years. I'll encourage him to continue making a $1,000 contribution into his super each year, so that he gets the immediate 50% benefit of the government contribution into his super each year, and the investment will enjoy about 50 years of compounding in a low tax environment (if the current superannuation system doesn't get changed completely over that time) until he retires.

DS2s taxes:

FY    taxable income    franking credits    net tax refund (liability)

2014    424                    34                        34

2016    503                    66                        7

2017    492                    62                        10

2018    541                    60                        (22)

2019    656                    96                        (62)

overall                                                        (33) tax liability

The way child tax works is a bit weird - if they have less than the threshold amount ($416) of 'unearned' income, there is no tax liability, but as soon as they exceed $416 the entire amount is subject to the 66% tax rate. So, if child A had $415 unearned income their tax liability is $0, but if child B had $420 of unearned income their tax liability is $135.20 + 66% of the amount over $416. So it is definitely worth trying to keep his unearned income below $416 - perhaps by not having his savings in an interest earning bank account.

Subscribe to Enough Wealth. Copyright 2006-2020

Sunday, 5 July 2020

Victoria outbreak shows how fragile our control of the Covid-19 pandemic really is

After suffering from outbreaks in nursing homes and returning cruise ships in March-May, Australia seemed to almost have the pandemic 'under control' in May, with States easing the 'lockdown' and allowing many business and social activities to resume, subject to social distancing.

However, there seems to be a combination of lockdown fatigue, conspiracy theory weirdness, wishful thinking, and "she'll be right" attitude making any move to ease restrictions a recipe for another outbreak - especially in Victoria.

Hopefully the current lockdown of some specific suburbs with 'hot spots' of community infection (and six public housing unit blocks, holding 3,000 residents, were around 1% of residents have already been confirmed to be infected) might bring this outbreak under control. Unfortunately it will be a couple of weeks before we'll known if community spread has been suppressed again, and by then the numbers of patients in ICU beds, and the number of fatalities will have risen in line with the current surge in cases.

A plot of reported cases per capita for Australia, the UK, USA, Canada and Germany shows just how well Australia had been doing, and just how badly the current Victorian outbreak has been. Rather than getting a "v-shaped' economic recovery post-lockdown, we have instead had a "v-shaped" rebound in Covid-19 contagion.


Subscribe to Enough Wealth. Copyright 2006-2020

Wednesday, 1 July 2020

Net Worth: JUN 2020

My NW rose about 0.5% during June, reaching a new 'all time high', which is quite pleasing during the middle of a pandemic (although anyone highly invested in tech stocks or a tech index fund during the past 6 months will have made about 35% gain!). Our reallocation of SMSF investments from bond index fund into growth index fund helped boost the performance of my estimated SMSF account balance during June. And my stock portfolio* also showed a small gain for the month. Our estimated house valuation hasn't changed even though new average monthly sales price data was available - apparently the average sale price for houses in our postcode has been constant for the past four months. My share of our home mortgage continued to slowly reduce, as we move past the 2/3 mark of our 25-year mortgage.

The 'other real estate' value remains constant (i.e. left at the cost price) for the off-the-plan $1m investment unit I bought last year and the lake house I 'inherited' a few years ago. And the 'other mortgage' value is being left as the notional cost price of the investment unit (I borrowed the money for the 10% deposit and stamp duty using part of my portfolio loan line of credit, and the remaining $900K is the amount I'll need to borrow to settle when the unit is completed in 2023). For fun I've been tracking one-bedroom unit sales data for the postcode area of my investment unit, and the calculated approximate monthly valuation has been in a modest up trend since I paid the deposit last year. But I won't start tracking the estimated value of the investment unit for my NW calculation until after it is completed and I get a proper valuation done.

But if the current trend in unit prices is accurate and continues until construction is completed in 2023, the unit *may* be worth around $1.5m by that time. Which should make it easy to get a $900K mortgage, and would also mean that my $140K investment (deposit and stamp duty) will have grown to around $600K equity in the property. After deducting the loan for the deposit and stamp duty, and the capitalised interest on the loan, that would result in a net profit of around $412K (subject to CGT). Can't really calculate a ROI for that as the investment was 100% funded using borrowed funds. Of course there is no guarantee that the unit will be worth more than I paid for it, so I could end up losing money.

* the 'Stocks' amount is net value of my geared stock/fund investments outside of super, minus the various margin loan balances and also the balance of my 'portfolio loan' that wasn't used for the unit deposit and stamp duty payment. As the 'portfolio loan' balance is increasing each month by both the capitalised interest, and the transfer of $1,500/mo to fund my financial planning business fixed costs, the 'Stocks' figure isn't really an accurate guide to how my stock/fund investments are performing.

Subscribe to Enough Wealth. Copyright 2006-2020

Tuesday, 30 June 2020

Last chance (for most people) to maximise concessional superannuation contributions for this FY

As today is the last day of the FY, I checked my CFS (employer selected) superannuation funds online transactions for 1 June 2019- today to see what the total of 'employer' (SGL and Salary Sacrifice) contributions added up to for the current FY. I had intended to 'top up' any remaining gap to reach the $25K annual cap on concessionally taxed contributions. It turned out that because of a late payment for June 2019 (hit the account on 1 July), and an unusually large employer contribution for March 2020 (still not sure why that was - I suspect it relates to SGL being higher that month as the annual 'bonus' was paid out, but the increase doesn't correlate with the size of the bonus compared to normally monthly wage, so perhaps the monthly pay/SGL gets annualised and capped as if I was earning that monthly rate all year?) I had already exceeded the $25K annual cap on concessional contributions. So, I didn't make any extra contribution (which I would have been able to claim a tax deduction for if I lodged the relevant form with the super fund by the end  of next FY).

So, anyone that hasn't hit the annual $25K cap on concessionally taxed contributions (for example, if you don't have salary sacrifice arrangements in place), has today to make the payment (although you'd have to check that the funds transfer hits the super account with today's date or it might end up in next FY as far as the ATO is concerned).

There is also a small 'loop-hole' that allows people with super balances below $500K to 'carry forward' unused concessional cap amounts for five years (from 1 July 2018), so if you didn't make the maximum $25K concessional contributions last FY you may be able to make a larger contribution this year (or else if you don't max out your concessionally taxed contributions this FY and have a low enough super balance next FY, you can 'carry forward' the unused cap and make a larger 'catch up' contribution next year.

Of course this all requires you to a) have enough spare cash flow to make additional superannuation contributions, and b) want to put more money into super (its tax effective, but on the down-side it means the funds are inaccessible until 'preservation age' in most cases).

DW and DS haven't maxed out their concessional contributions this FY, so if they are working next year they may be able to take advantage of the 'carry forward' rule to make additional contributions next year.

There is a good source of information summarizing the various contribution rules here.

Subscribe to Enough Wealth. Copyright 2006-2020

Friday, 26 June 2020

Past the half-way mark in my Master of Financial Planning studies

The uni results for the course I studied in Q2 (Planning for Retirement) came out this morning. I got a Distinction (77%) for the subject, which was quite surprising given that a) the weekly course modules online were very brief (30 minute read each) and simply provided guidance as to which chapters of the prescribed textbook were supposed to be read (I never got around to reading the textbook at all), and b) although I got 80% for the first assignment and around 85% in the exam, I only got 11/20 for the second assignment (a two page essay that I thought was quite good - but although I got high marks for style, grammar, structure and referencing, I got practically no marks for 'content' (worth half the marks) simply because the lecturer decided I didn't answer the question in the rigid essay structure she wanted). Having written lots of uni essays during the past 40 years of doing undergraduate and post grad courses (and always getting pretty decent marks) I felt this was a total rip-off. Fortunately it turned out that because the essay was only worth 20% of the overall course mark, I would have needed to get 19/20 or full marks to get 85%+ and a High Distinction for the subject. So essentially it didn't matter that I only got 55% for the essay.

Due to courses being completely online (including the online final exams, invigilated using ProctorU) the uni has offered students the choice of replacing their graded result this semester with a simple Pass/Fail result that won't be included in their overall GPA calculation. Since I managed to get a Distinction (6.0) for this subject I don't need to exclude the result from my GPA calculation (I need to get a GPA of 6.0 or more to graduate 'with distinction'), but I would have liked to be able to replace the Credit (5.0) I got last semester (Q1). I'm not sure why they haven't offered the Pass/Fail option for Q1 results as the final exam for Q1 was in March, just when the Covid-19 changes were being introduced and causing maximum disruption. I've emailed student services to double check if Q1 result can be replaced with the simple Pass/Fail outcome, but I don't hold out much hope.

If my Q1 result stands, my current GPA is just under 6.0, so I'll need to average Distinction for the remaining five subjects and get at least one High Distinction to bring my GPA back up to 6.0. This coming semester I'm doing 'Funds Management and Portfolio Selection' which should be interesting and quite easy to get an HD. And the final two subjects are 'research' projects, so should be able to get HDs if I put in enough work. We'll see how it goes.

I also have to finish off a couple of 'specialist' courses (in Margin Lending and Self-Managed Superannuation Funds) I'm enrolled in at an RTO and have nearly completed, plus do the four courses for the Advanced Diploma of Financial Planning I'm also enrolled in at that RTO. So it will be quite busy for the rest of 2020.

Once I finish off the MFP degree in mid-2021 I want to enroll in a PhD in Financial Planning (should be a lot easier than the astrophysics PhD I was enrolled in a few years ago). I'm slowly browsing through PhD theses in Financial Planning to try to get an idea of what research topic I might want to pursue. I'll have to start sounding out prospective supervisors at the uni early next year, and be ready to put in my application by the start of my final semester. 

Subscribe to Enough Wealth. Copyright 2006-2020