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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Sunday, 27 December 2020

Review of this year's Goals, and setting Goals for 2021

I was going to do a post reviewing my actuals for 2020 vs. my goals, but found that I hadn't actually posted about my goals for 2020. So I'll summarize how I went according to what I think my 2020 goals were, and set down my goals for 2021, so I'll have something to check off against when 2021 winds up.

So, what were my goals for 2020 how did I go?

1. Lose weight and get fit (exercise and weight training):

This was progressing nicely up until late Feb when I stopped going to the office (or gym) due to lock-downs and a transition to WFH (work from home). There was nothing stopping me from sticking to my diet plan or walking around the neighborhood, but I found that I tended to stay at my desk more when working from home than I had when I was going into the office each day. WFH means that you get a lot more random IM messages and Skype calls from co-workers (who would normally just catch you at your office desk if they had a question), so I tended to stay at my desk throughout the day. I also wasn't doing the daily 40 minute brisk walk to and from the bus stop. Despite saving a couple of hours each day not having to commute into work, I also ended up with less 'free' time at home as I tended to do more work in the evenings and on the weekends (as everything was set up to be able to work from home), and I had quite a lot more work to do. Given the job market during the pandemic it was hard to say no to additional work tasks, even it meant there was no way to get it all done in a standard 40-hours of work each week.

By December I had put back on most of the weight I'd managed to shed (just 6 kg less than my previous maximum weight), although I've managed to cut back on snacking and junk food for the past few weeks, and didn't overeat during Christmas. I did manage to complete a beginners Kendo course during 2020.

So, during 2021 my goal is to shed the excess weight (again) and actually continue on to achieve my 'ideal weight' (and lean mass). And start regular Kendo training once the Northern Beaches 'lock-down' ends. I'd also like to get back to weight training at the gym 2-3 times a week sometime in 2021, but that will have to wait until Covid-19 is back under control in Sydney (I had thought about starting to go to the gym again in early December, after more than a month of no locally acquired Covid-19 cases in NSW, but then the latest outbreak occurred on Dec 11-16).

2. Continue with my savings and investment plans

This was an easy win, as I automatically save a fixed amount of my pre-tax salary into superannuation (via SGL and salary sacrifice) and have a few $100/mo automatic transfers of after-tax salary into various online bank accounts and investment savings plans.

2021 had a lot more market volatility than I had been anticipating, but I reduced my leverage considerably after the GFC so wasn't too stressed when the market tanked in Feb/Mar. I hindsight I made the correct decision to go risk-off in our SMSF investments in late Feb as the Covid-19 outbreak had spread from China to Italy and was starting to have an impact around the world. Unlike many market crashes this one provided enough warning to allow assets to be reallocated.

We didn't manage to pick the market bottom though, as we were still a bit cautious when we took on some more risk in June. It didn't help that I managed to fill in the switching form incorrectly (I had intended to switch the Bond Index Fund into the High Growth Fund, but instead ticked the box for the Growth Fund). Overall we got through 2020 in good financial condition. DW decided to leave her full time job and retire when they wouldn't let her continue to work from home, but then changed her mind and got a local part-time casual position. She's applying for the odd local full-time position, but with the increase in unemployment due to the Covid-19 recession during Q1/Q2 there will be a lot of competition for jobs.

For 2021 I'll continue with my normal savings and investment plans, but I might shift some of the monthly savings into an investment bond rather than online savings accounts.

I don't have any specific investment performance or NW goals for 2021, as the markets will do whatever they want. Hopefully the real estate market will rise slightly during 2021 and the economic recovery will get underway and support the current stock market valuations. It would be very nice if my SMSF balance was 5-10% higher by the end of 2021.

3. Financial Planning qualifications and study

I had intended to complete the two specialist courses from IIT and the Advanced Diploma in Financial Planning during 2020, as well as progress with my Master of Financial Planning studies, but found that I kept putting off the ADFP and specialist units. I did complete the four MFP subjects I had planned for 2020, but only managed to get one Credit and three Distinctions so won't be on the Dean's List for 2021.

For 2021 I want to complete the ADFP and specialist units during Q1, as well as do one MFP subject, and then complete the remaining two MFP subjects during Q2 and Q4. Unfortunately the final subject I need to complete isn't on offer during Q3, so I'll be completing the Masters degree at the end of 2021, rather than in September, which will delay being able to apply to enroll in a PhD until the end of 2021. I need to get two Distinctions and one High Distinction in the three MFP subjects I do in 2021 in order to graduate 'with honours' (which is my goal).

4. Financial Planning business

Well, I still don't have ANY financial planning clients. I had planned on starting to cold-call a few local numbers each evening during 2020, but due to Covid-19 I put that plan on hold and only had a few enquiries that didn't result in any business. Overall I'm just glad that I'm doing this 'start-up' business as a side gig and am not paying rent on office space.

My 'plan' for 2020 is to get my first few paying clients - ideally a hand-full of clients that would provide sufficient revenue to at least cover the $15,000 pa in fees to stay registered as a financial planner.

5. Full-time job

I'm still at the same job I've had for over 20 years (although the original company was taken over by a multinational a few years ago), so I hope I keep my job during 2021. My 'plan' is to stay at this company until at least 2023 so I can arrange financing for the off-the-plan unit I purchases last year (due for completion in Q2 2023).

So, my goal for 2021 is simply to keep my job!

It will be interesting to review these goals next Christmas and see how things have gone during 2021.

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Monday, 21 December 2020

Playing timing roulette with our SMSF - hoping there isn't a "Santa Claus rally" this year

After selling our Vanguard Growth and Conservative Fund investments, it took four business days for the cash to arrive in our ANZ bank account. Fortunately the funds were cleared, so I could start the process of investing the cash back into our long term asset allocation of Vanguard High Growth Fund immediately. Unfortunately I can only BPay $100,000 per day, so it will take about two weeks to shift from 100% cash back to 100% Vanguard High Growth Fund (roughly - we already have about 1.5% of the SMSF total funds sitting in the High Growth Fund from our regular monthly investment plan, and will retain about 2% in cash to cover DWs pension payments and any tax bill due during 2021). I had thought it might take until 12 Jan to get the entire $1.59 million put back into the High Growth Fund, but fortunately the daily limit also applied to weekends, so I should be able to finish off all the required BPays by 1 Jan. Basically we will end up with a two week period of 'dollar cost averaging'.

This means that we will have quite a lot of our SMSF tied up in cash during a two week period, so it will be a 'lucky dip' whether we end up better or worse off than would have been the case if we had been able to switch investment options on the same day (as was possible under the old Vanguard account administration system). So far it looks like the Au and US share markets *might* have a bit of weakness during the xmas/new year period, so we *might* end up actually benefitting from the unavoidable delays involved in switching the asset allocation around. Fingers crossed that the markets drop for the next week or so, and then recover by the time the BPays have all been processed - getting an extra 1% or 2% return on our $1.6m SMSF investments would be a nice xmas present ;)

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Friday, 18 December 2020

Covid-19 outbreak in our area

We live in the Northern Beaches region of Sydney, but not particularly close to the Avalon suburb where the latest 'outbreak' of Covid-19 has occurred over the past two days. We've gone from living in a State that has gone from having zero locally acquired cases for about two months, to having 28 cases diagnosed in just the past two days, all apparently coming from an overseas case escaping the quarantine process on 11 December. Compared to the US and most of the world Australia is still the 'lucky country' in relation to how this pandemic is going (more due to geographic isolation and good public policy and execution of enforcement measures than 'luck' though), but this incident reinforces just how infectious Covid-19 is, and that you can't really relax mitigation measures such as mask-wearing in public and social distancing even when there have been no known local cases for more than a month. Things can't get back to 'business as normal' until 90% of the population has been vaccinated (which isn't likely to be completed until late next year).

There has been a good response to government requests for everyone to get tested that had been to any of the locations that have known cases, or if they have possible symptoms, and the contract tracers are doing great work to identify 100% of the contacts of anyone that tests positive. But we won't know for a couple of weeks how large this outbreak develops before it is brought back under control. I had planned to drive up to our lake house and visit my parents with DS1 and DS2 for a long weekend after NYE, and then for DS2 to stay with his grandparents for three weeks during the summer school holidays. But unless this outbreak gets stamped out within the next two weeks I'll probably cancel our visit and wait until the April school holidays to visit my parents at the lake house/hobby farm at Lake Wallis. No point putting my 89 year old father and 85 year old mother ask risk needlessly.

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