Thursday, 4 March 2021

Invested in Microequities Value Income Fund

I've been receiving regular promotional emails from Microequities Asset Management since 2017 when I first responded to an ad about this fund manager via Morningstar. I decided to take another look at their fund offerings, as I was willing to put $10-$20K into one of their funds as small, value equities can often perform well compared to the overall market index, but it is a lot of work to research and select potential winners (so I wouldn't try to pick individual stocks myself).

I found out (again) that their funds are 'wholesale' and normally only available to 'professional' investors with a minimum investment of $100K. Probably why I didn't invest back in 2017!

However, after abandoning my online application when I came to the minimum investment requirement, I was contacted by one of their relationship managers who advised that they had recently started up a new retail fund with a $20K minimum initial investment. So I decided to invest the minimum amount into their retail 'Value Income Fund' via my portfolio loan.

Being a small, boutique fund manager they charge a quite hefty fee of 1.3% PLUS a 'performance fee' of 20.5% of any return above the benchmark S&P/ASX Emerging Company Accumulation Index. There is also a potential liquidity issue, as the PDS notes that redemptions may be suspended or delayed if market conditions result in redemption requests of more than 5%-10% of the fund in one day.

Overall this is a fairly costly and high risk investment, so I wouldn't risk a large fraction of my portfolio on this investment. But $20K is only 0.72% of my NW, so I can afford to make a modest allocation to this investment. The retail fund has only been operating since Feb 2019, so it doesn't have much historic performance data, but it is expected to follow a similar strategy to their wholesale high income value fund, which has averaged a compound rate of return of 11.41% since 2012. As long as the average return is above the interest rate charged on my portfolio loan (currently 4.98% pa) I will do OK. We'll see how things turn out over the next 5-10 years.

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Tuesday, 2 March 2021

Stopped shorting Tesla and switched from buying Alphabet to ASX200 CFDs

My recent brief foray into day trading was profitable overall, making some net gains by shorting Tesla (TSLA) while losing a little bit buying alphabet (GOOGL) just before it dipped in price. I'm not sure if Tesla will continue to weaken towards a more realistic p/e ratio or if the previous enthusiasm for this car-maker-priced-as-if-it-were-a-tech-company returns for a while. Google may well continue to rise (at least until there is an overall market correction), but it has also seen incredible gains over the past last March, so could just as easily drop back to 1700 than continue to rise beyond 2000. I also only started buying alphabet because it has a tiny fraction of its value tied up in SpaceX - which is a pretty stupid reason to buy into a stock when you think about it.

Overall I've decided to stop playing roulette day trading for a while, and instead have just bought a small long position in the ASX200 via the purchase of 50 iShares MSCI Australia Index Fund CFDs at $25.780 on 26 Feb. I'm currently down -20.50 USD on this trade (-0.4 per CFD) due to the market sell-off at the end of last week, but as I have large trailing stop loss set at -4 points (currently set at $21.78), the market would have to drop 15% for the position to be closed out. I'll just leave the long position in place and hope to gain from any long term increase in the ASX200 index over the next few years.

The 50 CFDs had a position value of $1289 USD, but I think the required margin is only 7.5% (A$118.63), so the minimum trade commission of $15USD was a quite hefty impost (the commission rate is only 1c per CFD, but the minimum commission makes small trades uneconomical). So this sort of trade only makes sense if done as a buy-and-hold highly geared strategy, unless you are trading a large dollar amount. Daily interest charged on this small open position appears to be around A$0.11 per day.

So if the Australian share market rose 10% over 12 months, I would make a gain of around A$160 and have been charged around $40 in interest charges. Given the large minimum commission for this trade and the low ratio of required margin to my CityIndex account balance (currently around A$1,600) I probably should have traded 200 or 250 CFDs rather than 50. I'll probably use the 'spare' capital sitting in this account for some further day trading if and when an obvious opportunity arises.

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Monday, 1 March 2021

Net Worth: FEB 2021

My monthly NW estimate has been updated in NetWorthShare for the end of February. The stock markets performed well for most of the month, but then suffered a sell off in the last few days of the month but still ended up slightly overall for the month. I've added my recent Investment Bond investment to my 'stocks' total, and also included my investment in the 'Spaceship' online investment fund (I started that last year but seem to have not been including it in my NW calculations). Overall my 'stocks' figure was up $20,134 (6.54%), but the monthly movement has been exaggerated by the sudden inclusion of the Spaceship fund value (about $6,122).

Our estimated house price for February (my half) increased by $5,182 (0.62%) to $842,111. Due to low interest rates and government stimulus measures relating to first home owner grants and subsidies, the residential housing market in Australia is currently quite buoyant. Around this time last year the 'experts' were predicting falls of up to 30% in house prices, now those same 'experts' are predicting a rise of 10%-20% in Sydney prices over the next two years. Unit (apartment) prices are not a strong as free-standing houses due to the impact of Covid-19 border closures on migration to Australia. So my 'off the plan' unit probably won't increase much in value before construction is completed and I need to get a mortgage to fund settlement in Q2 2023. 

The value of my retirement savings rose significantly during February, to $1,307,671 (up $20,175 or 1.57%). Hopefully I will be able to reach the TBC ($1.7m from 1 July this year) by age 65 when I can transfer that amount from accumulation phase (where the tax rate is 15%) to retirement phase (where the tax rate is 0%). Any amounts above the TBC will remain in accumulation phase.

Overall, my NW reached $2,775,755 by the end of February - up by a healthy $45,758 (1.68%).

Accumulating wealth starts out like someone learning to swim by madly kicking their legs while holding onto a kick-board for grim life - lots of effort for little visible progress. But eventually you reach the stage where the portfolio growth exceeds the amount you are adding each month, so the situation is more like sitting in a kayak gliding along and only having to make the occasional course adjustment and put in a few strokes to keep things moving along. I suppose when I'm retired it will be a bit like sitting on a deck chair of a cruise liner - mostly just relaxing and watching the ship steam ahead, but sometimes still getting a bit anxious when there is a storm and the seas get rough.

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Saturday, 27 February 2021

End of FEB 2021 "12% solution" portfolio changes

For the end of February the emailed trading signal was to invest 60% in IWM (iShares Russell 200 ETF (All Sessions)) and 40% in JNK. As this was the same asset allocation as last month I don't need to do any trades again this month, which will help reduce trading costs.

My current account balance is $11,688.91 which represents a cumulative return of 11.65% since AUG 2020 when I commenced this portfolio.

Due to timing differences and fees (and the inclusion of a small holding in ASIA ETF that I had in my IG trading account before adding the "12% portfolio" investments) my portfolio performance won't track exactly against the standard "12% solution" portfolio. According to the monthly newsletter, the 2020 performance for this model was +40.6% and for 2021 YTD performance is +6.6%.

As I funded this portfolio using my St George Portfolio Loan, my target performance over the long term (10+ years) is for the returns (after admin fees and trading costs) to exceed the interest paid (after factoring tax credit) on the Portfolio Loan.

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Friday, 26 February 2021

I'll be increasing my Salary Sacrifice amounts from 1 July

I currently salary sacrifice $530 into superannuation in each bi-monthly pay ($12,720 pa) in addition to the SGL contribution of  $413.78 each pay ($9,930.72). That adds up to $22,650.72 pa of concessional contributions each year, well below the current $25,000 pa cap. However, there are also some additional employer contributions that get paid into my company-nominated superannuation plan as my employer refunds part of the standard admin fee and also refund the premiums paid out of superannuation for the basic amount of group life insurance. Those amounts vary a bit from month to month, and the timing of contributions actually being credited to the superannuation fund also move around a bit. As both of these additional contributions count towards the concessionally taxed contribution total, I have to be a little bit conservative with how much I contribute via salary sacrifice and then calculate the actual total of concessional contributions in the last few days of June so I can make a personal contribution into superannuation that will bring me up to the concessional contributions cap, and then claim a tax deduction for that personal contribution when I do my annual tax return. Last FY I didn't end up making any extra contribution in June as it turned out that due to a late monthly payment that had been deposited on 1 July 2019 I seem to have actually exceeded the concessional contribution cap for last financial year! (I won't know until my tax return for 2020 has been processed and the ATO decides if there was any 'excess contribution' amount. If there is any 'excess contribution' it will be added to my assessable income for the year and be taxed at my marginal tax rate (minus 15% tax rebate for the amount of tax already paid on concessional contributions by the super fund). The excess contributions will be counted towards the non-concessional contributions for that FY).

The concessional contributions cap will be increasing from $25,000 to $27,500 from 1 July 2021 due to indexation of various superannuation caps in line with increases in wages. So I will notify HR in late June to increase my bi-monthly salary sacrifice amount by $70 per pay period (to $600 of 'salary sacrifice). Hopefully I will receive a small annual pay rise this year (I'll find out the result of the company's annual salary review next month) that will cover this additional deduction, so my take-home pay should remain fairly constant. The SGL will also be increasing from 9.5% to 10% from 1 July, which will add another $522 of annual concessional contributions each year, so I might be getting close to the increased cap and not need to make much of a 'top up' contribution in June 2022 to max out the increased concessional contributions cap.

An added complication is that the admin fee charged by the superannuation fund has recently been cut, so to keep the total admin fee employees actually pay the same, the employer's refund of part of the admin fee will be reduced (so that amount of employer additional contribution into superannuation will be reduced slightly).

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Thursday, 25 February 2021

Tesla short update #7

Opened a sell trade of Tesla last night just after the market opened in the US as the price rebound seemed to have ended and the price was drifting downwards once more. I added a 20 pt trailing stop loss to close out my position if there was a rebound while I was asleep. As it turned out Tesla shares pushed higher after the first hour of trading and then moved even higher late in the day. Fortunately my stop loss closed out my position for a modest loss:

25/2    Sold 4 TSLA @ 705.610    closed out by stop loss @ 717.120    loss: -$58.45 (USD)

I'll wait and see if prices stabilize around this level before deciding whether or not to short Tesla again. The market is quite choppy at the moment, so I'll also defer placing another buy order for GOOGL until things settle down a bit. Trading a trend is only profitable if there is a trend.

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Wednesday, 24 February 2021

Tesla short - update #6

I wasn't watching at the open last night, and when I logged in the market had initially dropped very significantly before rebounding. I'd missed the low in GOOGL so didn't bother placing a new Buy order as I wasn't sure which way the market would trade during the day.

My Tesla position had automatically closed on the rebound due to my trailing stop loss (yay!) so it had locked in a significant profit. I watched the market for a little while and when the initial rebound in the Tesla price seemed to have run its course I placed a new Tesla Sell order, and put in a 25 pt trailing stop loss to limit my potential for a loss overnight. This morning the position had been closed out for another small profit as the share price had dropped after the rebound, only to recover again during the afternoon (US timezone) trading when I was asleep. Fortunately my stop loss again closed out my position for a small profit during the price rise. I'll keep an eye out on the pre-opening action before I place another short order tonight as Tesla may well drift back down to the 620 support level that saw resistance during the price rise back in December. If it breaks through that charting 'theory' could see the price retrace all the way back down to ~440.

My updated TSLA trading history:

TESLA:

17/2    Sold 4 TSLA @ 844.540    closed out by stop loss @ 818.295    profit: $134.74 (USD)

17/2    Sold 4 TSLA @ 806.190    closed out by stop loss @ 777.558    profit: $147.37 (USD)

18/2    Sold 4 TSLA @ 780.520    closed out by stop loss @ 787.860    loss: -$38.08 (USD)

19/2    Sold 4 TSLA @ 788.000    closed out by stop loss @ 793.980    loss: -$30.94 (USD)

20/2    Sold 4 TSLA @ 789.700    closed out by stop loss @ 637.195    profit: $769.52 (USD)

24/2    Sold 4 TSLA @ 700.370    closed out by stop loss @ 694.237    profit: $30.85 (USD)

My CityIndex CFD trading account seems to now have made an overall profit, with the recent trades more than making up for the losses I had manually trading the ASX200 index during 2020. Of course I'll have to pay about 37% CGT for the overall short-term capital gains made trading this FY (assuming I don't end up with a net loss come 30 June).

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Tuesday, 23 February 2021

Tesla and Alphabet trading update

My Tesla short trade is still open, with the trailing stop loss now locking in a profit if there is a sudden rise. I bought a CFD contract for 5 Alphabet shares at the open, but with a lower price as the pre-opening trade was looking weak so I adjusted the order price downwards before the trading day started. I then closed out the first long trade manually when there was a rapid relief rally that petered out, making a small profit on the first Alphabet trade. I then bought it again when it seemed to be trending back up towards its previous support level, but put in a trailing stop loss 25 points down to limit any losses while I was asleep. Overnight Alphabet just dipped into my stop loss price level, so my trade was closed out for a small loss. The share price later rebounded, so my trailing stop loss for Tesla may have been too conservative. So far my trades have been:


TESLA:

17/2    Sold 4 TSLA @ 844.540    closed out by stop loss @ 818.295    profit: $134.74 (USD)

17/2    Sold 4 TSLA @ 806.190    closed out by stop loss @ 777.558    profit: $147.37 (USD)

18/2    Sold 4 TSLA @ 780.520    closed out by stop loss @ 787.860    loss: -$38.08 (USD)

19/2    Sold 4 TSLA @ 788.000    closed out by stop loss @ 793.980    loss: -$30.94 (USD)

20/2    Sold 4 TSLA @ 789.700    position open (currently paper profit of $299.28 USD)


ALPHABET A:

23/2    Buy 5 GOOGL @ 2,055.50    closed out manually @ 2,067.03    profit: $72.65 (USD)

23/2    Buy 5 GOOGL @ 2,065.88    closed out manually @ 2,055.01    loss: -$69.01 (USD)


So far this year's CFD trading in Tesla and Alphabet has made back about 2/3 of the losses I made trading the ASX200 index CFD last year. Perhaps using conservative trailing stop loss orders will allow my winning trades to run with a trend while closing out trades where the price moves against my expectations? Overall out of 76 trades in the past 12 months my win rate has been 38%, which is close to my 'target' of 41% winning trades, but my average loss was -$36, whereas my average win was $39. Letting my winning trades run a bit longer may increase my average winning trade so I become profitable even with a win:loss trade ratio of around 40%. YTD I've done 4 trades with a 50% win:loss ratio and an average win of $141 and an average loss of -$35. Too soon to tell if this is just a random lucky streak or a significant improvement to my trading method.

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Monday, 22 February 2021

A fraudster by any other name

An interesting article in today's SMH about Melissa Caddick who is alleged to have defrauded her 'investors' of more than $25 million. I took objection to the fact that the article referred to her as an  'unlicensed financial adviser' as she has NEVER been a financial adviser (searching for her name on the official Financial Adviser Register (FAR) doesn't come up with anything, so she isn't even a former/de-registered adviser!

To quote the FPA:

"After over a decade of advocacy by the FPA, the use of the terms financial planner and financial adviser are restricted within the law to those authorised to provide financial advice and listed on the ASIC register. The Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 restricting the use of the terms was passed by parliament on 9 February 2017 and will commence on 1 January 2019."

Anyhow, I find it amazing that she managed to bilk her 'clients' of $20.28 million between Jan 1 2018 and Sep 18 2020. In the two years since I became a registered financial adviser I haven't got a single client, yet a total con artist managed to convince up to 61 people to give her $25 million to invest on their behalf.Go figure.

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Sunday, 21 February 2021

My Alphabet long trade

With a long term interest in space (came home from school to watch the first moon landing in '69, and recently did a Masters in astrophysics for a bit of fun) I've been watching the recent SpaceX test launches of SN8 and SN9 with much interest (and the NASA landing of Perserverance on Mars was also cool). Unfortunately SpaceX is still an unlisted private company, so you can't buy SpaceX shares directly. If they were available pre-IPO I'd invest a few thousand dollars for a bit of fun (I invested $5,000 in a pre-IPO internet stock GEN just before the dot.com bubble, but it went broke before it got to IPO stage).

Apparently employees of SpaceX get some stock, but getting a job at SpaceX isn't an avenue open to most of us. One US investment fund (Baron Focused Growth Fund - BFGFX) has a small investment (2.7% of its capital) in SpaceX, but that fund is only available to US investors and isn't listed in my City Index CFD trading account. So the only avenue available for me to (possibly) get some exposure to SpaceX seems to be an investment in Alphabet, which invested $900 million USD in SpaceX in 2015, but it is unclear what percentage of SpaceX shares are currently held by Alphabet.

Alphabet shares have also been increasing strongly in price during 2020, so I took a punt and placed on order to buy 5 Alphabet A CFDs at $2,087.50. I'm not sure exactly how much that will cost (if the order is filled when the market opens), but I think the required margin for US stock CFDs is 0.5% on City Index, so it might cost $52.20 or thereabouts. Since a large jump in stock price on 4 Feb it has been trading above $2,035 so a drop back to that level would cost me $250. I'd probably close out the position if it drops below that level, but I haven't placed a stop loss on the order yet - I'll wait and see if the order gets filled on Tuesday night (my time zone) and what sort of intraday volatility is 'normal'. 10 points intraday seems fairly typical on the ATR chart, but there is often much larger gapping overnight.

This is pure speculation/gambling for a bit of fun. If I limit my maximum loss to $250 it won't be any more costly than eating out at a restaurant or going to see a concert or a show would cost.

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Saturday, 20 February 2021

My Tesla short - update #5

After gapping up at the opening, Tesla shares appeared to be drifting downwards once more, so I placed a new sell order at $844.54. It wasn't looking too promising during the first 1-2 hours (started moving up again after the first hour), but as the trailing stop-loss had not yet closed out my position I went too bed with the position left open. This morning my position was still open, having not been automatically closed out by the trailing stop-loss order during the trading day. The position is currently in (paper) profit by A$42.47, but this could still end up being a losing trade as the trailing stop loss is currently still about 8 pts above the price I sold at.

17/2    Sold 4 TSLA @ 844.540   -- position still open after hours.

Looking at the available indicators on City Index charting, the Average True Range (ATR) for a 1-min period appears to show that most intraday price fluctuations are mostly within 14 points, so my 16 points trailing stop-loss setting seems reasonable, despite occasionally closing out positions that would have been profitable if allowed to run a bit longer.

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Friday, 19 February 2021

My Tesla short - update #4

Tesla gapped down at the opening last night, then bounced before seeming to start a downward trend. So I decided to open a new short position. During the first hour it seemed to be working out quite well, with an unrealised profit of about $50 at one stage. Unfortunately while I was asleep there was a change in direction and my position was closed out by my trailing stop loss close to the intraday peak. If I hadn't had a stop loss in place my trade would have remained open and I'd have ended the day with no significant gain or loss - but if the price had continued to rise I could have made a large loss. Overall the trailing stop loss is doing its job, letting the winning positions run and restricting losses. If about 50% of my trades are profitable, but the average size of 'wins' is substantially larger than the 'losers', my trading 'strategy' should work out OK.

I'll see what the market looks like at the opening tonight before deciding to place another sell order.

My updated Tesla trading record is:

17/2    Sold 4 TSLA @ 844.540    closed out by stop loss @ 818.295    profit: $134.74 (USD)

17/2    Sold 4 TSLA @ 806.190    closed out by stop loss @ 777.558    profit: $147.37 (USD)

18/2    Sold 4 TSLA @ 780.520    closed out by stop loss @ 787.860    loss: -$38.08 (USD)

19/2    Sold 4 TSLA @ 788.000    closed out by stop loss @ 793.980    loss: -$30.94 (USD)

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Thursday, 18 February 2021

My Tesla short - update #3

Tesla stock price was sliding nicely when I went to bed, but when I woke up this morning it had reversed direction and been in an up-trend for most of the trading day. Fortunately my trailing stop-loss had automatically adjusted to 16 points above the lowest price, so I got closed out at a reasonable price and only lost 38.08 USD on the trade. So my updated Tesla trading record is:

17/2    Sold 4 TSLA @ 844.540    closed out by stop loss @ 818.295    profit: $134.74 (USD)

17/2    Sold 4 TSLA @ 806.190    closed out by stop loss @ 777.558    profit: $147.37 (USD)

18/2    Sold 4 TSLA @ 780.520    closed out by stop loss @ 787.860    loss: -$38.08 (USD)

Tonight when the US market opens I'll keep an eye on how Tesla is trending before deciding when it might be a good time to open a new short position. It still looks to be within a general downward channel, but if it continues to rise much further it might indicate that Tesla will go back to trading within a 820-880 channel. Day trading really isn't "investing" but simply another form a gambling. A lot more fun when you make a profit than when you make a loss ;)

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My Tesla short - update #2

I logged in tonight (AEST) to check the US market open and was surprised to find that my position had been closed out, even though Tesla had dropped at the opening and was in a down trend. After scratching my head for a second I realized that the initial drop had been so rapid that the short 'relief rally' had been more than my trailing stop of 16 points, so I'd been closed out for a modest profit. I then put in a new short sale order and a trailing stop loss of 16 points.

My trades in Tesla so far are:

17/2    Sold 4 TSLA @ 844.540    closed out by stop loss @ 818.295    profit: $134.74 (USD)

17/2    Sold 4 TSLA @ 806.190    closed out by stop loss @ 777.558    profit: $147.37 (USD)

18/2    Sold 4 TSLA @ 780.520    trailing 16 pt stop loss active (currently @ 792.725)

It's hard (actually impossible) to predict the future, but Tesla appears to be trending down from testing highs around 900 in January, and *might* continue a slow decline back to the previous resistance level around 650 that it experienced in December. From there it *could* continue down to the earlier resistance level around 400, or drop all the way back to the resistance levels around 160 it initially experienced during its meteoric rise at the start of last year.

I've no idea if any of those scenarios might be realized, or how the random price movements intraday may get me closed out due to my trailing stop loss (but at least I shouldn't loose too much money while I'm asleep during most of the US trading day). I had previously traded the ASX200 index long during 2021 and managed to loose quite a bit of money despite there being an overall uptrend during that period. I found making manual decisions when to close out my positions led me to close winning positions too early, and let losing positions run too long - typical "loss aversion" behaviour at work!

Considering that Tesla has been starting its decline during the past month (down 8% since 21 Jan) while the S&P 500 has continued to slowly rise 3% during that period, suggests that the wildly optimistic sentiment around Tesla may have dissipated. Then again, I've not had much success previously with my day trading (but mostly due to opening and closing positions at the wrong time, rather than getting the general trend prediction wrong). Hopefully using a trailing stop loss may help me overcome my poor trading decisions.

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Wednesday, 17 February 2021

Investment Bond initial investment and first quarterly contribution

As mentioned in my 2021 goals, I decided to start a 'LifeBuilder' Investment Bond (Insurance Bond) investment with Generation Life, mainly for estate planning purposes (at my marginal tax rate there is negligible tax saving on income compared to investing in my own name, but it does have CGT benefits from year 8 onwards, and is CGT exempt after ten years). I made an initial contribution of $1,000 in January to set up the Investment Bond, with my chosen asset allocation being:

50% Dimensional 70/30 World Allocation Trust

50% Vanguard High Growth Portfolio

Overall, this means that the asset allocation of my IB portfolio will be:

0 - 5.5% cash

0 - 5% property

10.5 - 24.5% fixed interest

24.5 - 36.5% Australian shares

35.5 - 58.5% International shares

A long term average pre-tax ROI of around 8-9% after fees seems a reasonable prospect.

I've also setup up annual rebalancing (that occurs in May each year) back to this asset allocation (if it has deviated by more than 1%), and I've set up an automatic contribution of $500 each quarter to add to this investment bond this year.

The bond is initial setup with myself as the 'life insured' and the beneficiaries to be my two sons. In the longer term I will probably add another life insured - my youngest son (so the IB remains invested after I die) and the beneficiary to be a testamentary trust established via my will that will pay 0.25% of its annual trust income to each of my descendants who are aged over 18. When the testamentary trust eventually gets wound up it would distribute the remaining assets to each surviving descendant who is over 18.

Setting up the testamentary trust correctly will probably require involvement of an estate lawyer, as it seems a bit beyond the scope of a DIY will kit ;)

My total contributions into the IB in the first year will be $3,000, and the maximum contributions that can be added each year without resetting the CGT concessions 'clock' is 125% of the previous year's contributions. So in following years the maximum I can contribute will be:

Year    Max Contribution

2021    $3,000        (whatever amount you contribute in Year 1 forms the basis for the Year 2 limit)

2022    $3,750

2023    $4,687

2024    $5,859

2025    $7,324

etc.

While I am still working full-time (and thereafter if I continue working part-time as a financial planner) I'll make these contributions from my after-tax cash flow. Once I retire I will fund that annual contributions from my SMSF pension. From some rough calculations/projections I should have enough 'surplus' retirement income (i.e. above my current 'take home' income level) to continue to make the maximum allowed contributions into the IB each year during my retirement. Of course how things turn out in reality will depend on market performance over the coming decades.

While the value of the IB is initially very modest, the power of compounding (and the increasing annual contributions) will make the IB value 'snowball' quite rapidly over the decades. And although the first distributions from the testamentary trust to my descendants will also be very modest, they will also increase quite rapidly over time, and the final 'lump sum' payment to each descendant might be quite substantial.

One of the benefits of an IB is that it doesn't normally form part of one's estate if there are nominated beneficiaries (such as a testamentary trust), so there is less risk of the beneficiaries of my estate being upset about not having immediate access to the IB. And in any case, the bulk of my 'estate' (home, lake house, residual superannuation balance etc.) will go to DW and my children.

*    *    *    *    *

I'm not sure why I fancy the idea of setting up a long-term legacy for my descendants. It probably has something to do with being an atheist and therefore not believing that there is any sort of 'after life' (any more than there was a 'before life' prior to my conception). When I was younger I fancied the idea of cryonic suspension, but the chances of that being anything more than an expensive method for preserving a corpse (corpsicle) seems extremely remote. So leaving a legacy seems a practical method to ensure I will be fondly remembered by a few of my descendants for a few years after my death ;)

If Elon Musk is correct and AI 'singularity' happens in my lifetime, mind uploading *might* offer some version of personal immortality. - but I doubt it. And in any event, one of the good features of an IB is that while I am still alive I can choose to access the funds if needed.

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DW retirement funding via SMSF

DW decided to take 'early retirement' last year as she wasn't enjoying the workplace environment and decided to quit when they wouldn't allow her to continue working from home. Being retired meant that she was able to put her superannuation into 'pension phase' as she turned 60 this financial year, which means that a) her SMSF retirement phase account will now have a 0% tax rate applied, rather than the 15% tax rate that applies to superannuation in accumulation phase, and b) she has to withdraw at least 4% as a pension payment each year (the percentage increases as you get older).

She has around $420K in her SMSF account, so the minimum pension payment was around $16,800, but she agree that she wants to withdraw $2,000 per fortnight (she actually took out $24,000 in a single pension payment instead this FY). The SMSF pension income is not taxable.

After a month or so of hectic gardening, she decided that doing a bit of part-time work locally would actually be nice, so she found a local part-time casual job for three afternoons each week. Combined with the SMSF pension that provides her with sufficient income. It helps that I am paying the household running costs (grocery shopping, council rates and insurance on our house, water and electricity charges, and the running of our car).

She earns just enough each month to meet the minimum salary level to require SGL contributions into super by her employer, so she gets a small SGL contribution each month that will go into a notional 'accumulation account' in her SMSF. As her taxable income this FY will be below the cap for receiving the full government co-contribution into superannuation, I gifted her $1,000 a few days ago so she will be able to make an undeducted personal contribution into her superannuation this FY and qualify for the $500 co-contribution. Although it is a modest amount going into her super compared to the pension payments being withdrawn from her retirement phase account, it will help preserve her SMSF total balance and reduce her longevity risk (that her super will run out while she still needs to draw a pension).

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My Tesla short - update

In overnight trading Tesla had a sharp upward move at the opening, triggering my trailing stop loss to close out my position. The trade ended up about $100 in profit. When I logged in to check on prices, Tesla had already dropped back sharply, so I opened a new short position and it continued to trade down overnight, ending with my position being about $50 in profit. I've entered another trailing stop loss 16 points above the current price. Currently the trailing stop would close me out around break-even, but if Tesla's share price continues to weaken it will start to 'lock in' some level of profit on this second trade. The trailing stop loss should allow for normal random variation in the stock price, but would be triggered if there is an "up" day of trading in Tesla, or if the downward trend reverses.

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Tuesday, 16 February 2021

The Delusions of Crowds: Why People Go Mad in Groups

William J. Bernstein has written a number of popular financial history books I've enjoyed, including 'The Birth of Plenty' and 'A Splendid Exchange'. He's now written a new book 'The Delusions of Crowds' that promises to be an entertaining and informative update to Mackay's Classic "Memoirs of Extraordinary Popular Delusions and the Madness of Crowds".

His new book is coming out on 21 Feb, and I've just ordered a copy from Amazon as it promises to be a fun (and informative) read. There is an extract of the prelude of his book available on his website.

In these days of online discussion groups and viral tweets it seems even more likely that rather than the wisdom of a group of individuals deciding sensible market prices for equities, we are likely to see 'group think' create more frequent instances of the 'madness of crowds'. The Tesla share price and Game Stop flash bubble spring to mind as contemporary examples.

Disclosure: The above links would provide me with a small affiliate payment if you make a purchase using the link.

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Thursday, 11 February 2021

My Tesla short is in play

My order to short 4 Tesla CFDs was filled at the market opening, at the price 844.540 (a bit lower than I'd specified as the price gapped down a bit on the opening). Tesla went down quite quickly to about 802, before doing a bit of a bounce to 817.50, but then trended generally lower during the trading day (overnight, my time). At the closing price (804.978) I have an unrealised profit of 151.18 USD (A$203.71). Quite an impressive first day. I'll leave the position open in case this is the start of a downward trend towards what would appear to be a more realistic price based on prospective profitability if everything goes well for Tesla (around 400-450). It's tempting to close out my position and pocket my A$200 'paper profit', but I may as well stick with it and see what happens. My trailing 'stop loss' is currently at 832.60, so I should make a small profit on this trade even if the Tesla share price goes back up. The timing of this trade seems to have been incredible fortuitous (so far).

Most of my attempts at trading haven't worked out so well (but that is hardly surprising as I generally trade on 'gut instinct' and don't close out losing positions quickly enough (one of the common traits of behavioral economics is "loss aversion"). I traded the ASX200 CFD last year, intending to hold a long position as the market recovered, but instead traded too frequently and lost money on about 60% of the trades before giving up ;)

Putting the trailing in stop in place seems to be working out quite well so far, as it ensures I stick to my 'plan' for the trade and let profits run and terminate losing positions. The trick will be deciding when to do another trade after this position gets stopped out...

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Wednesday, 10 February 2021

Shorting Tesla

I usually do long trades, and these days mostly trade indices or ETFs rather than individual stocks, but Tesla seems so over-priced as to beggar belief. I thought it was overpriced last year when it was trading around $150, only to watch it climb rapidly to $900 before pausing around that level.

I did a bit of research into Tesla's EV sales in recent years, and they did grow from around 1,500 per month back in 2017 to around 60,000 per month during 2020. This growth is largely driven by the increase in global EV sales, rather than Tesla continuing to make huge inroads in EV market share compared to other vehicle makers. For example, VW and BMW have remained relatively constant around 5% each of the global EV market, whereas Tesla had grown its share from around 10% in 2017 to around 25% some months during 2019-20. However, its market share appears to be flattening out around 15%-20% during 2020, so its sales might grow only in line with global EV sales rather than due to increasing its market share in future years.

Year   Tesla EV sales    Tesla EV market share

2016      75,890            9%

2017    103,020            8%

2018     244,920          12%

2019     367,200          17%

2020     424,467          18%

And although Tesla revenue continues to rise strongly, it has not seen a break-out in profitability (although it has managed to achieve profitability).

While I had toyed with the idea of shorting Tesla several times during 2020, there is theoretically no natural limit to how much you can loose taking a short position (while you can only lose your initial investment when going long (buying a stock), you can loose much more than your initial investment when you go short (sell a stock you don't own). For example, if you buy Tesla at $1,000 and it goes broke you would loose the entire $1,000. But it you short Tesla when it is $1,000 and it goes to $3,000 before you decide to close out your position, you would have lost $2,000.

But Tesla appears to have reached some sort of plateau around $850-$900 this year, so perhaps wild optimism is making way for a more realistic appraisal of the future potential profitability of the company?

An article in today's SMH supports my view that Tesla is already overpriced, for example pointing out that:

Tesla is valued at more than the combined worth of the top 13 global car manufacturers (who together produce more than 80% of global vehicles, and have 100 times Tesla's car sales). This might be OK if Tesla looked like wiping out all other EV car manufacturers as the world moves towards 100% EVs, but its market share seems to be stagnating around 20% of EV sales as other major manufacturers transition from making fossil fueled vehicles to EV production.

If Tesla grew its EV sales 50% each year for the next decade, it would increase its sales 58-fold, but to do so it would have to wipe out practically all other EV manufacturers. And EV sales would have to represent practically 100% of all vehicle sales by the end of this decade.

So if Tesla manages to improve its net margin to 10% (more than any existing car maker) even unbelievably good performance over the coming decade would still only justify a share price of $427 (half its current level) - even the most optimistic possible scenario over the next decade can only justify half its current share price.  

Continuing product quality issues may also adversely impact Tesla's sales growth and market share:

"Tesla has been asked to recall 158,000 Model S and Model X vehicles over an issue with failing touchscreens, which could increase the risk of crashes. The problem involves the memory chips used in the displays of cars made between 2012 and 2018, which wear out, causing the screen to stop working."

While not a huge issues by itself, Tesla seems to have problems with quality as it ramps up production levels.

Overall, while there is always potential for a darling stock like Tesla to continue to enjoy a soaring stock price well beyond what can be justified on any fundamental basis, I think there is considerable scope for a substantial stock price correction.

Today I added $1,000 to my CityIndex CFD trading account so I could place a Sell order for 4 Tesla shares at $849.15 (around the current price), with a trailing stop loss $30 above that (so I should limit my loss to around $150 if the stock rises above $880 (close to its previous highs).

The US market was closed when I placed the order, and I'm not entirely sure what the margin requirements are for short sales, so I'll find out tonight whether or not the order gets filled or cancelled.

If the order does go through I'll then watch with interest how the Tesla share price performs during 2021. My guess is that it may drop back to around $400 if there is any substantial bad news (eg. another quarter of losses, or EV sales below projections) or if the stock market has any general weakness.

No matter what happens, my position is quite small in proportion to my NW, so this is really only a bit of a fun gamble with 'play money'. I don't gamble more than I can afford to throw away.

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Tuesday, 2 February 2021

Net Worth: JAN 2021

My monthly NW estimate has been updated in NetWorthShare for the end of January. The stock markets performed well for most of the month, but then suffered a sell off in the last few days of the month to end up pretty much where they started the month. My 'stocks' figure is also affected by the payment of Q1 uni fees (around $3,750 for one subject) that I paid from the portfolio loan account (as they course is self-education related to maintaining my existing employment as a financial planner, the interest is tax deductible, so I can use my portfolio loan for this and not have to worry about any complex pro-rata calculation of how much of the loan interest is tax deductible). Overall my 'stocks' figure was down -$1,818 (0.59%), but excluding the borrowing for the course fee my 'stocks' figure would have increased by around $1,500 during January.

realestate.com.au hasn't updated the house price data for January sales yet, so our estimated house price remains unchanged for January. The overall house price index for Sydney continued to rise during January, so there probably was some slight increase in January, but I can't calculate a figure from the available sales data. Home loan balance continues to slowly decrease each month.

The value of my retirement savings rose slightly during January, to $1,287,496 (up $3,422 or 0.27%). The transfer balance cap (TBC) and total superannuation balance (TSB) cap will increase (due to CPI) from $1.6m to $1.7m this coming July, so if I want to make an undeducted contribution of $300,000 using the 'bring forward' rule I would still be able to do so for the next couple of years. After reaching my TSB I'll only be able to make concessional contributions (SGL and SS) until age 70, and from age 70 only SGL contributions can be made into superannuation. The only exception would be the ability to make a 'downsizer' contribution of up to $300K if we sold our home (and the normal contribution caps do not apply to the downsizer contribution).

Overall, my NW reached $2,729,997 by the end of January - up by a modest $1,871 (0.07%).

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Saturday, 30 January 2021

Getting DS1 used to the costs of running a household

Now that DS1 has completed his uni studies and commenced his full time job as a software developer for an up-and-coming IT company, his salary is quite similar to mine. I'm not going to charge him any rent (or board/food) while he continues to live at home, but I've decided that from now on he will put 1/4 of the amount of each bill for local council rates, electricity and water bills into a bank account he no longer uses (but I can see the balance and transactions when I log into online banking). He intends saving up a deposit to be able to buy a house in a few years, so he'll be able to use that bank account as additional evidence of a good savings record (and he'll also be able to use the money in that account to help pay the deposit - so he isn't really paying us anything for room & board).

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End of JAN 2021 "12% solution" portfolio changes

For the end of January the emailed trading signal was to invest 60% in IWM (iShares Russell 200 ETF (All Sessions)) and 40% in JNK. As this was the same asset allocation as last month I don't need to do any trades again this month, which will help reduce trading costs. This month my cash balance appears to have reduced by $50 due to an admin fee (quarterly?).

My current account balance is $11,352.16 which represents a cumulative return of 8.44% since AUG 2020 when I commenced this portfolio.

Due to timing differences and fees (and the inclusion of a small holding in ASIA ETF that I had in my IG trading account before adding the "12% portfolio" investments) my portfolio performance won't track exactly against the standard "12% solution" portfolio. According to the monthly newsletter, the 2020 performance for this model was +40.6% and for 2021 YTD performance is +2.7%.

As I funded this portfolio using my St George Portfolio Loan, my target performance over the long term (10+ years) is for the returns (after admin fees and trading costs) to exceed the interest paid (after factoring tax credit) on the Portfolio Loan.

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Thursday, 28 January 2021

Jordan Peterson and my 'Big Five' personality traits

I recently came across some Youtube videos of various Jordan Peterson interviews. I had somehow remained unaware of this Canadian Academic (probably because I'm not very au fait regarding political science - I even had to think a while before working out what the acronym SJW stood for!), despite him apparently being in the news a few years ago (for a legal case about Canada's C-16 Bill that potentially makes refusing to use someone's preferred personal pronoun an act of discrimination in some situations in Canada, which Peterson argues equates to compelled speech legislation and an infringement on freedom of speech). While his views are considered anathema by many (especially militant feminists and neo-communists apparently), I thought that he had some valid points in the few interviews I watched. (But he also seems to have an exaggerated view regarding some of possible impacts of PC etc. on society, probably because university political science faculties seem to have moved towards a relatively high percentage of left-wing academics and curriculum during the past few decades).

I was especially intrigued by his explanation how the unequal outcomes in workforce participation in certain jobs (such as Nursing and Engineering) may remain persistent despite equal opportunity, simply because any small (but non-zero) difference in the average (median) gender preference/interest in "things" vs. "people" will result in significant disparities in the number of people choosing to enter (or thrive in) those fields (because those fields require a very high interest level in "things" (engineering) or "people" (nursing)).

For example, if the normal distribution of interest in "things" means that only the top 5% of the entire population has sufficient interest in engineering to want to study engineering as a career, that translates to a VERY small percentage of women being in that 5% of the general population if the average (median) level has a very slight difference and the distribution curve is the same for each gender.

Therefore, although equal opportunity is a great (and necessary) thing, equal outcomes do not always automatically result. And attempts to "force" equal outcomes may ultimately be unsuccessful (and cause undesirable side-effects in the attempt).

Peterson also has written a popular book about 12 "rules" to live by, which mirror his view that people should take more personal responsibility and aim at self improvement rather than focus on external causes for personal/societal problems. A lot of the rules seem to be fairly common-sense (eg. decide what you want to achieve, and then start taking concrete actions to make progress towards that goal), although he does get a bit more metaphysical ("meaning of life") than is to my taste. In one interview he mentioned the "Big Five" personality traits, which appear to be fairly intrinsic to an individual and are apparently fairly reliable predictors of academic and professional success etc. I had previously done a few Myers-Briggs Personality Type tests, and I think the "Big Five" traits provide similar but slightly difference measurement of the same personality factors.

I did a online "Big Five" personality trait test (cost $10 USD at understandmyself.com) and found the result quite interesting (though not unexpected):

Agreeableness: 1st percentile (i.e. very unagreeable) - compassion 1%, Politeness 7%.

Conscientiousness: 52nd percentile (pretty average) - Industriousness 44%, Orderliness 60% (my uni lecturer once called me a 'lazy perfectionist').

Extraversion: 14th percentile (very introverted) - Enthusiasm 3%, Assertiveness 47% (so I hate public speaking, but can do it if I need to).

Neuroticism:53rd percentile (pretty average) - Withdrawal 57%, Volatility 48%.

Openess to experience: 37th percentile - Intellect 72%, Openess 13%. Hmmm - explains why I like the technical/theoretical side of financial planning but not meeting/interviewing prospects/clients.

Overall, the results seem pretty accurate, and it seems that the jobs I've had (science/engineering, QA/audit/process improvement, and financial planning) were pretty suitable for my personality type. I probably would have been more successful if I was more extraverted, more open to change, and slightly more agreeable (and had a better memory!). Having average conscientiousness and pretty good IQ (somewhere around 1st or 2nd percentile according to my old Mensa test results - which means over 132 on the Stanford-Binet IQ scale and over 148 on the Cattell IQ scale) seems to have made up for my other short-comings. Unfortunately IQ isn't particularly highly correlated with great business success or wealth (it does correlate with above-average lifelong income though).

Fortunately both DS1 and DS2 are at least as smart as me, and seem to be a lot more well socialized/outgoing ;)

Peterson also says that one of the most important tasks for a parent is to ensure that their children can make (and have) lots of friends by the age of four. The fact that I was living in Hong Kong around the age of 3-4, moved to Australia from the UK at age 4, and didn't attend any pre-school probably didn't help overcome my naturally introverted nature!

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Our SMSF after tax returns

As previously mentioned, my target ROR for our SMSF is around 8.5% - 10.0% pa, based on the historic returns achieved by the Vanguard High Growth Fund (which we generally have all of our SMSF allocated to, except for a small cash 'float' due to receipt of contributions and provision for payments (SMSF tax payments, eSuperfund annual admin payments, and, more recently, DWs annual pension payments).

The actual annual after tax returns achieved by our SMSF are pretty much in line with that expectation:

Year    ROR (after tax)

2020    6.96% (estimated - the FY2020 tax return isn't due for lodgment for a few more months)

2019    9.17%

2018    11.59%

2017    10.42%

2016    4.03%

2015    12.15%

2014    14.92%

2013    21.54%

2012    -4.54%

2011    9.65%

The average annual return has therefore been approximately 9.59%, and the compound annual rate of return is 9.39%. So we've been doing quite well compared to our target ROR.

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Super caps increasing from 1 July 2021


The general transfer (into pension mode) balance cap (TBC) for Australia Superannuation accounts will be increasing from A$1.6 MM to A$1.7 MM from 1 July 2021 due to the CPI index reaching 117.2 in the December 2020 quarter. The associated total superannuation balance (TSB) will also be increasing to $1.7 million. The TSB controls the non-concessional contributions cap for an individual - if you have exceeded the TSB in the previous annual tax reporting for your SMSF you will no longer be able to make non-concessional contributions into your superannuation (i.e. that annual cap drops from $100K to $0 when the TSB has been reached).

For individuals that have already made some transfer of superannuation from accumulation into retirement phase, their individual TBC will lie somewhere between $1.6 MM and $1.7 MM. If you have never previously transferred super into retirement phase, the new cap of $1.7 MM will apply from 1 July 2021. If you had (at any time) previously had a TSB reach $1.6 MM, then you currently have a TSB of $1.6 and that will remain (i.e. you will never be able to transfer additional super from accumulation into retirement phase.

For anyone who has previously used up part of the TSB the calculation of the remaining TSB, and how it will increase with future increases in the general TSB,  are fairly complex. The ATO will provide an individual's personal TSB via ATO online - but it will only be updated after your SMSF's annual tax return has been processed by the ATO (so there will be a period each year after 1 July when an individual will be unable to find out their TSB from the ATO!?).

Anyhow, now that I know the new TSB that will apply from 1 July this year, I can update my super tracking spreadsheet to show the new TSB target against my SMSF projections.

It may seem that because the TSB will increase with CPI you might be better off to wait with making transfers from accumulation to retirement phase as long as possible. But, assuming your SMSF returns are sufficient to make your balance continue to grow while in pension phase by more than the CPI plus the minimum pension withdrawal rate (currently 2% for those under 65, but increasing back to 4% from 1 July 2021) you would be better off to transfer the TSB maximum into pension phase as soon as possible.

Between ages 65-74 the minimum pension amount increases to 5% (currently 2.5% until 1 July 2021 due to Covid-19), so it would be more difficult to be certain that your SMSF returns will exceed the CPI (and hence the TSB uplift) after the minimum pension has been paid out each year. That will depend on your SMSF asset allocation and resulting performance (which in turn will depend on you risk tolerance).

In my case I expect our SMSF to achieve investment returns of around 8.5% - 10% pa, to it will be best to transfer the TBC amount of my SMSF balance into pension phase as soon as I reach 65 (if I'm still working and  not 'retired') - that is assuming my super exceeds the relevant TBC by that time. If I 'retire' before I hit 65 I will be able to transfer up to the TBC amount into pension phase (and hence pay 0% rather than 15% tax on the relevant SMSF pension account's income) - but I am unlikely to reach the TBC much before I reach 65 (but of course that will depend on the investment performance of our SMSF, and if I make any undeducted contributions to 'top up' my superannuation before I hit the TSB.

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Thursday, 21 January 2021

Australian Superannuation Caps and Limits

Superannuation provides a tax effective means of saving for your retirement in Australia, but the system is meant to reduce pressure on the Age Pension, so the tax concessions come with caps and limits - super is meant for retirement funding, not for estate planning or general tax minimisation (prior to the introduction of the caps and limits some wealthy individuals had managed to transfer a large amount of wealth into superannuation. For example, in 2019 it was reported that there were around 60 SMSFs with balances over $50 million, and around 750 more SMSFs will balances between $20 million and $50 million. And in 2016 it was reported that nearly 2,000 people had over $10 million in their superannuation accounts).

This was due to previous rules regarding contribution caps not taking into account how much had already been put into superannuation.

Under the current rules such large balances are very unlikely to accrue in future (unless an SMSF makes exceptional investments - for example investing 100% in a start-up company that does really well. But that would probably attract the scrutiny of the regulators regarding whether or not the SMSF trustees had paid appropriate regard to the risks of their asset allocation). The current rules regarding caps and limits are:

* Concessional (paid from before-tax income e.g. SGL and salary sacrifice) contributions are capped at $25,000 pa. These contributions are taxed at 15% for individuals with less than $250,000 pa taxable income, or at 30% for individuals with taxable income above $250,000 pa. You can still make concessional contributions (SGL and salary sacrifice) of up to $25,000 pa when you Total Super Balance exceeds $1.6 million - provided you are under 75 years of age.  Once you are 75 or older, only SGL (mandated employer) contributions can be made.

* Non-concessional (paid from after-tax income) contributions capped at $100,000 pa. These contributions are not taxed further unless they exceed the cap (and under the bring-forward rules up to $300,000 can be contributed over three years for those under 65 years of age) provided the existing super balance (as at last tax return) was under Total Super Balance Cap (currently $1.6 million).

As I will be approaching the Total Super Balance Cap in the next few years, I will have to decide whether I want to make any after tax contributions into my super while I still can.

While in an accumulation account, superannuation is taxed at 15% on income, and 10% on long term capital gains. Due to franking credits the effective tax rate for super assets is actually around 7%.

Once you satisfy conditions (such as preservation age and employment status) to be able to transfer superannuation from 'accumulation phase' into 'retirement  phase' you can shift up to $1.6 million into an allocated pension account (where there will be 0% tax rate applied to earnings and capital gains). Pension payments will be tax free to those aged 60 or more, but those aged between preservation age and 60 would have pension payments taxed at their marginal tax rate - 15%.

There are a whole raft of other caps and limits that apply in specific cases (for example inclusion of LRBA outstanding balances in calculating total super balances for SMSFs, treatments of defined benefit super balances, rules regarding government co-contribution eligibility, spouse contributions etc.), so this is not a comprehensive list of superannuation caps and limits.

Exceeding caps and limits can have significant consequences, such as additional tax liabilities.

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Wednesday, 20 January 2021

How much did Vanguard's new admin system cost our retirement savings?

As I have previously mentioned, I am underwhelmed by the 'benefits' provided by Vanguard's change of admin system and the new client online access system. Aside from no longer being able to access my Vanguard account linked to my St George Margin Lending account, the new administration system no longer allows 'switching' between the old retail funds.

Before the changed admin system, you would fax in a 'switching request' and the units would be sold from one fund and bought in the new fund using the same day's closing buy/sell prices. So the only cost would be the normal buy/sell spread in the unit prices.

But under the new system we had to sell our existing Funds, wait for four business days for the cleared funds to arrive in our bank account, and then start doing daily $100,000 BPay contributions into the new Fund...

Now that all the transfers have been processed and I know the relevant daily unit prices used for the transactions, I was able to calculate exactly what happened under the new process:

11 Dec; sold our existing Conservative Fund and Growth Fund investments: $1,598,995.36

The High Growth unit buy price on 11 Dec was $1.9507, so if we had been able to do a 'switch' we would have received 819,703.37 units of High Growth Fund

17 Dec - 1 Jan: bought into the High Growth Fund via daily BPay tranches

Total number of units allocated was 813,049.65 over a two week period

Therefore, we received 6,653.72 less units than we would have if we had been able to do a same day 'switch' between Vanguard Funds. At the unit price that applied on 11 Dec (when we would have done the switch) those extra units would have been worth $12,979.41.

Overall, being unable to process a 'switch' cost us 0.81%

Of course we might have got lucky and benefitted from changes in unit pricing during the two weeks it took to move the investment from one Vanguard Fund into the other, but it didn't work out that way. And I don't appreciate being forced to gamble on how unit prices might move during the time it now takes to 'switch' between Vanguard Funds. In fact I'm relieved that the markets didn't rise continually during the two weeks (which could have cost us even more missed gains).

If Vanguard works out how to painlessly (and at no cost) shift existing investors from the old retail Funds into the equivalent ETFs (without having to setup a whole new online Vanguard account) things will improve slightly -- but you would still need to sell one ETF investment and wait for the trade to become available in the cash account (taking the using ASX T+2 Settlement period) before being able to buy the new ETF.

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Tuesday, 19 January 2021

Updated NW performance vs my 'stretch' benchmark

After being delayed due to Covid-19, the annual Aussie "Rich 200" list was published at the end of November. I've done an updated plot of my net worth vs. 1% of the "cut off" amount required to make it onto the "Rich 200" list, as shown below.

I haven't made up any ground against this bench mark, but at least I am doing a reasonable job of keeping pace with the most successful of the Australian 'rich'. The cut-off net worth required to make it onto the 'Rich 200' list is quite a challenging benchmark, as the rich list automatically drops off any underperformers and replaces them with whomever is doing the best in the current economic climate. For example, this year several people that had made their fortune in the travel industry were dropped off the list, and three entrepreneurs involved in the creation of the successful start-up company Canva have made it onto the list.

Having been fixed at only 200 people for many years, the rich list is also getting more exclusive compared to the Australia population.

I doubt I'll ever grow my net worth to 1% of the rich list cut-off, but if I increase the growth rate (slope) of my net worth plot to match that of the rich list I'll be very happy.


My NW figure used in this plot is slightly different from that in Networthshare and my monthly NW estimates as I've deducted the value of the lake house property I 'inherited' from my parents as that would artificially inflate my NW growth.

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Bought some Vanguard High Growth Diversified Index Fund ETFs on my Comsec Margin Loan account

I've had no net debt owing on two of my three margin loan accounts for several years, but yesterday I decided to purchase $20,000 of VDHG (Vanguard High Growth) ETF using my Comsec Margin Loan account. I had previous had a small positive cash balance sitting in that margin loan account, so overall I'll now have a CSML loan balance of $11,685. The interest rate is currently 5.50%, so I'll be paying about $643 in interest pa, which will be tax deductible (in reality it will offset some of the dividend income produced by my investments).

Over the past three years the average annual total return on VDHG has been 8.42%. Longer performance data isn't available for the ETF, but it should perform in a similar manner to the Vanguard High Growth Index Fund that had an average return of 8.40% over the past three years (to 31 Dec 2020), and has averaged 9.84% pa over the past ten years.

As all distributions that are taxable as income will be offset by tax deductible margin loan interest payments, most of the net return (total return - interest cost) will be in the form of long term capital gains, which would be taxable at half my marginal tax rate due to the CGT discount. And if I don't sell the investment until I 'retire' and have little taxable income (any SMSF pension income will not be taxable income under current tax law when it is in 'pension mode' and I'm over 65) there may be no CGT liability at all.

While I can't know what returns over the coming decade will be (see my previous post regarding why it could be a decade of mediocre returns), there is a reasonable probability that the average total return over the next ten years will be higher than the average interest rate charged on the margin loan. So I have a reasonable chance of making a profit on OPM (Other People's Money).

To put this trade into perspective, I now have total margin loans (and portfolio loan - secured against our home equity) debts of $115,000, while the investments held in those accounts have a current market value of around $235,000. So, even after this latest purchase on margin, the overall LVR across all three margin loan accounts and my portfolio loan account is still under 50% (and most of that debt is on the portfolio loan, which isn't subject to margin calls).

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Friday, 15 January 2021

Will the 2020s be a 'lost' decade for equities like the 1970s?

Having recently switched our superannuation asset allocation back to our long term strategy of being 100% in 'growth' assets (via the Vanguard High Growth fund), I am of course now worried about the prospect of poor market returns, and the lack of a viable asset to 'rotate' into as a viable alternative. An article in the SMH described how any increases in interest rates by the US Federal Reserve in 2021 and beyond to combat possible inflation could pop the US equity bubble. Our Vanguard investment is about 60% International (mostly US) : 40% Australian equity exposure, so a bear market in US equities would impact our retirement savings considerably. And while there seems little immediate prospect of high inflation or increasing rates by the Australia Reserve Bank for next few years, the Australian share market tends to reflect movements in the US market most of the time.

The strength of the share markets during 2021 was a bit of a surprise in light of the economic impact of Covid-19, but can be explained by the higher p/e ratios being justified in comparison to drops in the 'risk free rate'. But as economies start to recover in 2021 and beyond, central banks will look to move back towards more 'normal' interest rates. Increasing interest rates would induce equity market 'corrections' to more normal p/e ratios even while company profitability may be on the rise. And increasing interest rates would drive up bond yields, which in turn will reduce bond values. So both equity and bond markets could experience poor capital growth over the coming decade.

And while cash rates are close to zero, shifting asset allocation back into cash isn't particularly attractive (our V2 'high interest' savings account is only paying 0.42% interest). An increase in the central bank rates from 0.25% to 1.5% might be a six-fold increase in interest rates, but that is still a poor rate of return (especially if inflation moves back towards the desired 1.5-2.0% target band).

So investors could see poor total returns from stocks, bonds and fixed interest during the 2020s. I can't see any obvious asset reallocation, so perhaps we'll just stick with the High Growth fund and see how things pan out.

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Sunday, 10 January 2021

A few blog layout changes

I'm supposed to be sorting and filing away a backlog of financial paperwork this weekend, so instead I'm fiddling with my blog layout ;) 

I decided to put a blog roll back into my layout, but most of the PF blogs I used to follow seem to have gone inactive or have turned into generic cash-generating machines with lots of cookie-cutter content and monetization, so I've only added two links to the blog roll so far. I'll add more if and when I find something worth following...

I've also removed most of the monetization ads from this blog (Amazon books and google ads in the sidebar), as no-one ever buys anything via the Amazon links and my google Adsense has not been working properly for many years (even though my site traffic is reported to hover around 100-200 people per day according to the google blogger stats, google Analytics (and hence Adsense) reports that the site traffic is only 1/10th of that). So my google AdSense revenue has been averaging only 5 cents per month, and at that rate it would take forever for my current accumulated Adsense revenue (around $88) to grow enough to receive another cash payout (I think that would be at A$100). 

I still have Adsense turned on for automatic insertion between posts, but I don't think that actually works (at least I never see any ads between posts when I have a look at this site). Overall, its not worth worrying about monetization of a low traffic blog, so I decided to just clean up my layout a bit instead. It's a bit like the interest received on bank savings accounts - such a tiny amount that its not worth worrying about.

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Tuesday, 5 January 2021

Net Worth: DEC 2020

My monthly Net Worth calculation has been updated in NetWorthShare for end of December. The stock markets were volatile during December but ended the month fairly flat, so my stock portfolio ended the month at $309,781 (down $1,894 or -0.61%) and my estimated super balance was $1,284,074 (up $5,595 or 0.44%). We've nearly finished the transfers back into Vanguard High Growth Fund from the ANZ V2 cash account, after liquidating the Growth and Conservative investments in mid-December and then having to BPay the cleared funds back into the Vanguard High Growth retail fund (closed to new investors) via $100K/day BPays. The final BPay was done on 1 Jan, and there is also a Vanguard distribution for 31 Dec that is in the process of being credited, so those adjustments won't affect the SMSF calculations until end of Jan.

Our estimated house price was slightly down (-$1,884 or -0.22%) for the month, but the Sydney residential real estate market is showing signs of strength, and a few forecasters have started predicting rises over 2021 and 2022. Hopefully the valuation of my investment unit will be higher than the 'off the plan' price by the time construction is completed in Q2 2023 (when I'll need to get a mortgage to pay the balance of the purchase price).

My net worth figure increased very slightly (by $2,152 or 0.08%) overall, to $2,728,126. 

During 2021 my NW increased from $2,442,188 to $2,728,126, which was a gain of $285,938 or 11.70%. Considering 2020 was a global pandemic and my salary package is only around $110K before taxes (and my financial planning business had no customers and cost me around $18,000 to run, plus I paid uni fees for my masters degree of around $12,000) I was very happy with my financial progress for 2020.

In 2021 I will finish off the final three subjects for my Master of Financial Planning degree (so the uni fees I pay will reduce to about $9,000 for 2021) as well as a couple of specialist financial planning subjects and the Advanced Diploma of Financial Planning from IIT (that I've already paid the fees for). Hopefully I will also get a few paying financial planning clients during 2021, so the net loss of my financial planning business should reduce (I'd like it to cover the running costs, but that may not happen in 2021). House prices in Sydney are expected to rise slightly during 2021, and our home loan will continue to slowly reduce. Depending on how the markets perform during 2021, I might hit $3m NW by the end of 2021... 

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Friday, 1 January 2021

End of December "12% solution" portfolio changes

For the end of December the emailed trading signal was still to be invested 60% in IWM (iShares Russell 200 ETF (All Sessions)) and 40% in JNK. This was the same as last month, so I don't need to do any trades again this month, which will help reduce trading costs. It will be interesting to see how this portfolio performs during 2021.

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