Sunday 30 May 2021

The financial benefits of Medicare in Australia - a personal example

Medicare is Australia’s universal health insurance scheme. It guarantees all Australians (and some overseas visitors) access to a wide range of health and hospital services at low or no cost. Australians make more than 150 million visits to a GP every year. Medicare — the public health insurance system — helps pay for those visits, hospital treatments, and prescription medicines (that are on the PBS list).

For example, I've had severe atopic dermatitis (eczema) since I was a young child. Atopic dermatitis is long lasting (chronic) and tends to flare periodically. It may be accompanied by asthma or hay fever (I had asthma as a child but grew out of it, but I still have severe allergies such as dust mites, mould, rye grass etc). No cure has been found for atopic dermatitis. In my case it also resulted in two bouts of Cellulitis that could have killed me.

The traditional treatments include topical corticosteroids (creams and ointments) and oral prednisone or prednisolone for the most severe 'flare-ups', although often the disease relapses once medication is discontinued. So for the past fifty or so years I've benefitted from paying the basic PBS (Pharmaceutical Benefits Scheme) amount (currently around $40 per prescription) rather than the full cost of prescribed medications.

As DS1 had even more severe eczema than myself (he was hospitalized several times as an infant and young child for both eczema flare-ups and severe asthma), and DS2 has eczema and asthma similar to what I had as a child, we have still ended up paying several thousand dollars each year for visits to our GP and specialists (partly refunded via Medicare) and for prescription medications. But a large part of the costs was covered by Medicare, as was the cost of public hospital treatments. We also currently have private medical insurance (paid for by my employer) which comes in handy for 'elective' hospital treatments (such as cataract operations etc.), dental care, and has also reimbursed us for ambulance costs (which aren't covered by Medicare) and the few occasions we have used private hospital accommodation (such as for my cataract operations).

Recently a new biological treatment for severe eczema called Dupixent came onto the market. Rather than being a topical treatment (applied to the external skin) it is an injected human monoclonal antibody that inhibits signaling of the interleukin IL-4 and IL-14 which are linked to the subcutaneous inflammation that causes severe eczema symptoms. This medication is delivered via a single injection every fortnight, but before it was added to the PBS schedule each injection cost around $750! My immunologist specialist had told me that a few of his other patients had been on Duprixent - either paying the full cost 'out of pocket' (around A$22,000 pa), or were covered by an overseas medical insurance policy that included this treatment. However, even though I earn a decent wage, paying $22,000 pa made this treatment effectively unaffordable.

Dupixent had been evaluated as effective by the Australian Therapeutic Goods Administration (TGA) several years ago, but had twice been rejected for inclusion on the PBS registry due to the cost (and the limited budget allocation for PBS). Fortunately it turned out to be 'third time lucky' and this medication was finally added to the PBS list on 1 March 2021, at an estimated cost of A$270 million pa. It is estimated that this medicine will be of benefit to more than 3,600 Australians. Turns out that I'm one of them, with my specialist getting approval and writing me a prescription for Duprixent on Friday. I'll collect the first batch of medicine from my local pharmacy next week and I have another appointment with my specialist in a fortnight to get the initial two injections and to be instructed on how to self-inject the single injection required every fortnight.

Hopefully with this new treatment my eczema will significantly improve - clinical trials showed that around 50% of patients had their eczema improve by 75% after 16 weeks of treatment, and around 75% of patients after one year. Switching from taking immunosuppressant medication will also remove the need to have regular blood tests, and will remove the increased risk of skin cancer that the immunosuppressant treatments have.

From a financial point of view, I'll be joining the ranks of Australian tax-payers that actually pay no net tax (receive more value in benefits received than they pay in tax) as the income tax on my salary is around A$28,000 pa and the value of the PBS subsidy for Duprixent will be worth around A$22,000 pa. When added to the benefit of DS2 receiving free pubic school education at a selective High School I'll be getting more back in taxpayer-funded benefits than I am paying out in income tax. Long live socialized health and education!

Once I reach pension age (66) I may also be able to get a Commonwealth Seniors Health Card that would reduce the cost of PBS prescriptions from $41.30 to only $6.60. While I won't ever qualify for the Age Pension (due to the Asset Test Threshold for a partial pension being just over A$1 million of assessable assets for a home-owning couple), there is only an deemed income cap of A$89,920 for a couple to be able to obtain the Seniors Health Card. There is no assets test for the Health Card. Although we will hopefully receive more than A$90K pa in actual income during our retirement, the deemed income will be significantly lower as the deeming rate is 2.25%. This means we would have to have more than $4 million of financial assets (excluding the family home) before we would be ineligible for the Seniors Health Card. In any case, whether I pay $41.30 or $6.60 per prescription will make little difference. 

From the Federal budget point of view, the fact that the Regeneron patent on Dupixent will expire on 27 October 2029 means that the cost of having this medication on the PBS list should greatly reduce once it goes 'off-patent' as other manufacturers will then be able to produce 'generic' versions of the medication at a much lower cost to the Federal government. There are apparently also other similar biologic treatments in the pipe-line, so the cost of Dupixent may also fall due to competition before the patent expires.

Side note: apparently in the US 82% of medical insurance plans cover Dupixent at a co-pay of $60-$125. So the out-of-pocket cost of Dupixent would end up similar to our cost on Medicare (but the average cost of health insurance in the US is around $6,000 pa, whereas the Medicare Levy in Australia is only 1-1.5% for medium and high income earners who do not have private hospital cover). Around 8% of people in the US have no health insurance.

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Saturday 29 May 2021

End of MAY 2021 "12% solution" portfolio changes

For the end of May the emailed trading signal is to invest 60% in SPY and 40% in JNK. As this is a change in allocation from last month, it requires selling MDY and buying SPY. When the market is open (Monday night my time) my monthly trade will therefore be:

SELL MDY : SPDR S&P MidCap 400 Index Fund

BUY SPY : SPDR S&P 500 Index Fund 

HOLD JNK : SPDR Barclays High_yield Corporate Bond Fund

According to the monthly newsletter, the 2020 performance for this model was +40.6% and for 2021 YTD performance is now +11.2%. My YTD performance is only 6.78% due to a combination of timing differences, buy/sell spread, trading costs, not having an exact 60:40 asset allocation (due to rounding down to the nearest tradeable quantity) and the fact the my '12% solution' portfolio is on my IG trading account which also includes some ASIA (Betshares Asia Technology Tigers ETF) which has been trending down in recent months.

I suspect that due to the small value of this portfolio (around $10,000) the trading costs and account keeping fees will be a massive drag on my actual ROI compared to the 'model portfolio'. It would probably be better to implement the "12% solution" via an account that has zero trading costs and no account keeping fees, but I can't be bothered opening yet another trading account for what is basically an experiment. I'll probably close all positions at the end of June, close the IG account and repay some of my portfolio loan, as the potential profit doesn't justify the extra calculations I'll need to do for my annual tax return for this account. 

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Wednesday 12 May 2021

Budget projections bad news for my off-the-plan apartment investment

While unit (apartment) prices in the suburb where I bought my $1m 'off-the-plan' unit have remained fairly steady during the pandemic, last night's federal budget projections regarding the resumption of immigration to Australia mean that I'm unlikely to see much increase in the unit's value before I need have to take out a mortgage when the unit construction is completed in early 2023. I had hoped that international travel and migration levels might already be getting back to 'normal' by the end of next year, but the budget forecasts have cut the population forecast for 2023 by 41,000 compared to the figure in last October's delayed budget. And NSW is expected to have a net population decrease of 20,000 or more each year until 2023-24.

So it looks like rental yields and price appreciation will be weak for my investment unit at least 2025. While I'm still working full-time and can benefit from negative gearing that won't be too much of a problem, but it would have nice for the unit valuation to exceed my purchase price when construction is completed, and for the cashflow deficit to be as small as possible.

Immigration levels might yet pick up faster than predicted in this latest forecast, but they could also be worse than anticipated. In the longer term, hopefully the current fall in new unit approvals (down 26% Y-o-Y to near decade lows) will mean a more favourable demand:supply ratio once immigration levels eventually return to normal.

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Monday 10 May 2021

Good news and bad news

On a positive note, the ASX200 closed at an all-time high of 7172.8, finally surpassing the previous closing high set in Feb 2020 (just before the pandemic's impact), and within 25 points of the all-time intraday high.

On a less happy note, a few days after Chinese Foreign Ministry spokesman Zhao Lijian accused Australia of "operating with a Cold War mentality against China" the Chinese State-run outlet The Global Times published an editorial from its editor-in-chief Hu Xijin that included the suggestion that "China make a plan to impose retaliatory punishment against Australia once it militarily interferes in the cross-Straits situation" and that "The plan should include long-range strikes on the military facilities and relevant key facilities on Australian soil if it really sends its troops to China’s offshore areas and combats against the PLA (People’s Liberation Army)." Of course an editorial in a Chinese state-controlled newspaper isn't exactly the same as a speech by a sitting Australian politician, but its a little bit of the 'pot calling the kettle black'.

Meanwhile China continues to buy more than 60% of its imported iron ore from Australia, and switching to an alternative supply (such as a new mine at Simandou in West Africa) could take 5-10 years (or be very expensive if China just went shopping to existing global suppliers for additional iron ore). In that context I'm not sure that long-range missile strikes on Australian soil would do China all that much good, especially if they were in the middle of an invasion of a Taiwan supported by the USA and Japan at the time.

Hopefully we can get back to the pretense that the 'one China' policy means (to us) that Taiwan will remain 'Chinese' without losing its democratic self-government, while at the same time meaning (to Beijing) that Taiwan will eventually/inevitably come under direct party control. Unfortunately the rapid build-up of Chinese military capability, combined with their future demographics and the leader's advancing years, means that the prospects of 'direct action' to 'reunite' Taiwan with mainland China seems to be growing each year.

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Friday 7 May 2021

Decided to increase my precious metals regular savings plan and diversify metals

As I already have a regular monthly transfer of cash into my Perth Mint Depository online account, and the first monthly $100 gold purchase was processed as expected, I decided to increase my monthly transfer to $200, and to setup a second automatic bullion purchase for $100 of silver each month. The change increases the annual allocation to $2,400 (which is still only about 0.08% of my NW, or about 8% of my overall savings rate). As there is a flat 0.50% transaction fee it doesn't increase costs to make two $100 purchases rather than a single $200 purchase each month, and diversifying across both gold and silver means that I'm exposed to 'precious metals' as an inflation hedge without caring if the gold:silver price ratio varies over time (which it does).

It is slightly more expensive to invest in silver than gold in terms of the buy/sell spread (about .5% for gold and about 1.35% for silver), but  investing in a combination of gold and silver the average buy/sell spread of 0.9% + 1% 'round trip' transaction fees isn't too bad compared to other investments. 

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Thursday 6 May 2021

My 1 Amazon CFD was closed out last night

My conservative trailing stop-loss on my Amazon CFD position closed me out last night when Amazon shares continued the previous day's weakness. I'll wait a while before going back in, as the price has dipped below the apparent 'support' level shown in latter weeks of  April, so may well continue down to around 3,000 - which would be close to the bottom of the horizontal band its been in since last August. Doesn't seem to be any great upward momentum at the moment, so I'm not in a rush to reopen a long position in Amazon, although I would like to get back in at some stage for the long haul.

My ishares MSCI Australia Index CFDs are in the black still. That position will remain open unless there is a sufficient market correction for the trailing stop-loss to close them out.

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Wednesday 5 May 2021

Global warming thought of the day

To take my mind off the worries of Covid-19 pandemics, potential stock market bubbles bursting, and rampant economic stimulus measures leading to high inflation, I though I'd just grab the latest public data on carbon emissions, average global surface air temperature and atmospheric CO2 concentration to see for myself what the data currently shows.

1. Global warming is currently underway, and the obvious culprit is carbon emissions.

Yes, you can make up alternate explanations involving solar activity, interstellar dust clouds, or little green men, but when combined with other effects (such as increasing oceanic acidity) it seems obvious that the driver for the observed rise in global average temperature is the rise in atmospheric greenhouse gas concentrations.

2. We all have to do our bit, but China ain't helping much

The world's scientist were well aware of the potential for rising carbon emissions to cause global warming due to the 'greenhouse effect' back in the 1980s (I actually studied this as part of an environmental chemistry elective I took for my BAppSc (Applied Chemistry) degree at UTS back in the early 1980's). And by 2000 the world's governments were getting serious about starting to tackle the issue. Hasn't been very effective so far, but at least most developed countries pledged to reduce the total CO2 emissions, and many are now aiming to stop net emissions entirely within the next decade or two (i.e. become 'carbon neutral'). Except that in the Paris Agreements China only agreed to stop increasing its emissions by 2030. Given the fact that China only produced 8% of global emissions in 1980, 14% by 2000, and is currently producing around 28% of global CO2 emissions this really is a bigger problem that whether or not Australia gets to 'carbon neutral' by 2040, 2050 or whenever. What China does (or doesn't) do about its carbon emissions will determine whether our great-grandchildren are living in a world that has a less hospitable environment that today, or one that is facing an existential climate crisis.

Unfortunately China seems more interested in 'reunifying' by invading Taiwan that it is in reducing greenhouse gas emissions. Hopefully in 2030 China hasn't invaded Taiwan and has started to reduce its carbon emissions (not just promise a per GDP emission reduction).

3. How bad is it really?

A simple projection of the rate of atmospheric CO2 concentration and global average surface air temperature shows that we are likely to hit 500 ppm CO2 by 2060, and for the global average surface air temperature to have risen another 1 degree Celcius by around 2070. So the amount of change that has happened since I was born will have doubled (roughly) by 2060-70. That will have some significant impacts (mostly bad, but a few good, and varying a lot by geographic location), but its what will happen by 2100 and beyond that is the real cause for concern (unless you don't give a rat's about what happens to the planet once you are dead).

It also seems that there is a bit of a 'lag' between rising CO2 concentration in the atmosphere and rising temperatures and sea levels (currently rising about 3mm pa). So temperature rise could continue long after we've achieved global 'carbon neutrality'. Never mention possible (theoretical) 'tipping points' about run-away greenhouse effects coming into play (such as release of greenhouse gases if the Siberian perma frost or seafloor icy methan hydrates are released due to rising temperatures), or the eventual melting of the Antarctic continental ice sheets.

All in all not very cheerful news. I'll go back to worrying about whether or not to get the AstraZeneca Covid-19 vaccination or wait until the Pfizer vaccine becomes available to those over 50...

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Tuesday 4 May 2021

Referral code for $50 bonus from peer-to-peer lender Plenti

If anyone in Australia is thinking about investing in peer-to-peer lending, the lender Plenti is currently (until 30 Nov 2021) offering a $50 bonus if you invest $1,000 in their 5-year income lending market. (I'd also receive a $50 bonus BTW) via this link.

I currently have $3,227.57 invested with Plenti - $1,177.98 in the 1-month rolling investment, and $2,049.87 in the 5-year income investment. I've earned $432.72 in interest since I first started investing in Plenti bac in March 2018. As I write this post, the interest rate available to lenders on the 1-month investment is 1.5% and for the 5-year income investment is 4.0%.

Be sure to read the product PDS before making any investment decision.

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My first Perth Mint gold purchase via online depository account was processed today

The first $100 monthly cash transfer into my depository account was processed in the middle of last month, and my regular savings plan of a $100 gold purchase each month was processed today, being the first business day of the month.

I checked my account online at 6pm (Sydney time) and it was still only showing the $100 cash balance, but I later received an email (sent at 8:50pm) stating that the order had been 'completed' at 16:00:02, and then a second email that had also been sent at 8:50pm stating that the order had been 'processed and delivered' at 16:43:02. I had to log in to my online account to view and download the order confirmation pdf, which showed that 0.043 toz had been bought for A$2,305.54, costing $99.14 and a $0.50 transaction fee.

It looks like the available cash balance is used to purchase a multiple of 0.001 toz, rather than convert $99.50 into an amount of gold with too many decimal places. I expect the left over 36c will go towards next month's bullion transaction.

Allowing for the time difference between Sydney and Perth, it looks like the transaction was processed promptly at the close of the first business day of the month. I'm not exactly sure where the $2,305.54 price comes from, as the latest spot asking price showing on their website is A$2,304.58 as at 5:00 pm AWST. I presume it was the spot asking price at the exact time the transaction was processed.

The 0.043 toz is slightly less than 1/20th of an ounce. As an example of how much premium you would pay for buying physical gold coins in such small quantities, the 1/20th gold coin is currently priced at $167.08. So a 0.043 toz as a gold coin would have cost around $143.69, rather than $99.64. I have a few 0.5g (0.0161 toz) gold coins that I bought many years ago (on 'sale' so the premium to the spot price was slightly reduced), so I can easily envisage my gold purchase each month being roughly equivalent to buying three of those tiny gold coins.

There is a strange mystique to gold that makes purchasing even a tiny amount 'on paper' somehow seem like more real wealth than buying a similar value of stocks, mutual funds or CFDs. A bit like how I used to enjoy seeing my bank balance updated in a physical passbook when I was a kid. But I'm not about to liquidate my entire NW and purchase 25 50-oz bars of gold!

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Monday 3 May 2021

Net Worth: APR 2021

My monthly NW estimate has been updated in NetWorthShare for the end of April. 

Stocks and managed fund investments gained a healthy amount this month, rising $8,618 (2.57%) to have  $343,574 net equity in my geared share portfolios.

Our estimated house price for April (my half) increased by $14,510 (1.70%) to $866,986. The strength in the housing market continues unabated, but the rate of gain has started to slow as affordability issues reduce the pool of prospective buyers. 

The value of my retirement savings rose significantly during April, to $1,392,174 (up $43,385 or 3.22%). I opened a new super accumulation account with QSuper and intend to make undeducted (after tax) contributions into that account before I hit the total super balance cap ($1.7M for 2021-22) which will reduce my non-concessional contributions cap from $110,000 pa to nil.

I also started tracking my precious metals investments (gold and silver proof coin sets, bullion bars etc.) under 'other assets' as I have started regular investment of $100/mo into gold via my Perth Mint Depository account. Based on the spot gold and silver price and purity of the various coins, the April valuation was $22,945. 

Overall, my NW reached $2,924,099 by the end of April - up by a healthy $89,727 (3.17%). Excluding the one-off impact of including my precious metals holdings for the first time, the monthly gain would have been $66,782 (2.36%).

It looks possible that my NW could hit $3M by the end of the FY rather than the end of 2021 calendar year, but it reminds me of when I first became a 'millionaire' in 2006, only to see my NW plunge by >40% during the GFC, so I'm actually feeling a bit wary. Especially given the fact the the S&P 500 has more than doubled over the past five years while at the same time governments around the world have incurred massive amounts of debt in order to provide economic stimulus during the pandemic.

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Saturday 1 May 2021

End of APR 2021 "12% solution" portfolio changes

For the end of April the emailed trading signal was to invest 60% in MDY (SPDR S&P MidCap 400 Index Fund) and 40% in JNK. This is the same asset allocation as last month so I don't need to trade this month.

According to the monthly newsletter, the 2020 performance for this model was +40.6% and for 2021 YTD performance is now +11.0%.

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Quo vadis? - projections/targets for NW going forward

As the saying goes "It's difficult to make predictions, especially about the future" (attributed to either Niels Bohr or Yogi Berra, but probably said by nearly everyone who has ever tried to guess what will happen in future, only to have reality bite them in the arse when they least expect it).

And as ASIC suggest in RG53 8.2.3 any financial predictions should include a disclaimer such as:

"Investments can go up and down. Past performance is not necessarily indicative of future performance."

With those provisos in mind, what realistic targets/projections can I make about my future NW trajectory?

Looking at the monthly NW data in Networthshare, over the past 18 years (after adjusting for the one-off increase in NW caused by my 'inheritance' of the lake house from my parents) my average monthly change in NW has been $9,250 (or  around $111K pa). However the years covering the GFC and EFC produced average monthly decreases of $35,755 (ouch!) and $9,905 respectively. If one excludes those two years (as being unlikely to occur every decade), the average monthly NW increase rises to $13,266 (or $159K pa), which is close to my average monthly NW change during the past nine years of $14,953 (or $179K pa).

The monthly NW increase is due to a combination of my savings rate and the total growth (income plus capital gain) produced by my investments, so will generally increase over time. My salary (and savings rate) has remained fairly constant over the past decade (around $100K salary and 30% of gross salary saved), whereas the total growth in my investments should be exponential (as compound interest results in exponential growth),

Over the next decade or so, leading up to retirement, my salary and savings rate should stay roughly the same (barring unemployment, disability etc.), so I might aim for averaging $180K pa increase in NW, resulting in around $4.6M by age 70. During retirement I plan to withdraw around $65K pa to replace my current take-home pay, and will also cease adding $25K pa to my retirement savings (SGL/SS contributions into superannuation), so the net effect will be to reduce NW accumulation by around $90K pa, to somewhere around $90K pa net. So, possible NW targets during retirement are $5.5M by age 80 and $6.4M by age 90 (if I live that long). Of course these figures are in current $ terms, so after adjusting for inflation my NW in today's $ might rise to $4M by the time I retire, and then remain there in 'real' (inflation adjusted) terms.

We'll see how things turn out in reality of the next 2-3 decades...

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