Friday 31 August 2007

The 285 Rules of Aquisition

For those that like their latinum gold-pressed, here are my favourites from the Ferengi rules of aquisition:
#8: Small print leads to large risk.
#44: Never confuse wisdom with luck.
#47: Never trust anyone whose suit is nicer than your own.
#74: Knowledge equals profit.
#190: Hear all, trust nothing.

Copyright Enough Wealth 2007

It's not What You Know but When You Know It.

Recent research reported in the SMH suggests that the IQ test score acheived by a five-year-old can predict if they will complete high school and go on to university, which is a signficant factor affecting earning potential. Michael Keane, professor of economics at the University of Technology, Sydney, reports that "If you know the kid's IQ test scores at age five, that is a better predictor [of future earning capacity] than the parents' IQ or income,". This suggests that good-quality preschoolling can be more cost-effective than later attempts to boost intellectual performance, and casts doubt on whether spending money on private schools for primary and secondary schooling is an efficient allocation of your financial resources if good-quality free education is available.

Personally, I have DS1 and DS2 booked on the waiting list of a good private school (Sydney Grammar) for their secondary years, but they may not end up going there. At $20,826pa for school fees (non-boarding) they will only be attending if I win the lottery, or, more realistically, if they score well enough on a scholarship test to obtain a half or full-scholarship. I'm sure that there are some "networking" benefits of attending such a school (if they end up pursuing a business/finance career in Sydney), but I imagine the effect would be marginal in the long run - once you complete a university degree which high school you attended no longer seems very significant, and once you have several years work experience where you obtained your undergraduate degree isn't very important either (for most people - it may matter if your are applying for a job as a merchant banker). For most private schools there would be lots of "old boys" who went on to mundane careers in middle management, which hardly justifies spending $125,000 on private school fees. Then again, I'm probably biased by the fact that neither of my sons is very likely to be selected for one of the 18 full scholarships that is available each year.

Copyright Enough Wealth 2007

Thursday 30 August 2007

What to do When the Grandkids Annoy You

As reported in the SMH, Leona Helmsley left nothing in her will to two of her grandkids for "reasons that are known to them", and left $6m to each of the other two grandkids who were still on her good side - provided they visit their dad's grave at least once a year. They probably don't think that is too much to ask - except for the fact that she left more to her dog that the two of them got between them. The again, to put in into perspective, the dog is only getting a tiny percentage of the estate - most of the estimated billions are being left to charity.

What I wonder is who gets the balance of the dog's $12m trust fund when she eventually goes to join her mistress?

Copyright Enough Wealth 2007

Wednesday 29 August 2007

Eating the Seed Corn

While it's good to look for sources of extra income, especially passive income, counting interest and dividends as part of your disposable income might be a mistake. I choose to only consider my income from salary as 'disposable' and have a savings target based on that income. This is because the income flowing from investment properties, shares and savings accounts forms part of the overall ROI of such investments. If you base your financial plans on the likely (eg. historic) returns of the assets in your investment portfolio, bear in mind that such figures generally assume all dividends or interest are reinvested. If you spend the some of the income being generated by your investment portfolio while it is still in the accumulation phase you will reduce the ROI of your portfolio. Even a small decrease in annual ROI will, over a long period of time, significantly decrease the final value of your portfolio.

Copyright Enough Wealth 2007

Out of This World and Down to Earth

Had some fun free entertainment tonight - a total lunar eclipse which conveniently started around 6:30pm when viewed from Sydney. We all visited my parents place and took DS1's telescope along to keep an eye on the eclipse while we relaxed and had a chat.

On a more down to earth note, the financial report, tax return etc. for our SMSF for the 2006/7 financial year just arrived from eSuperFund for our signatures. I'll have a careful read through it all tomorrow, but at first glance it all looks in order. We also have to BPay the $45 fee to the Australian Tax Office from our SMSF bank account.

The new ANZ credit card I applied for online on the 19th also arrived in the post. It was very quick and painless to apply online and the card arrived on the 7th business day after I applied - pretty good service. BUT it's a bit odd that the welcome letter and card carrier are all dated the 23rd - only 2 business days after I'd received an email rejecting my customised card design image file, which specified I should supply an acceptable image file within 5 business days or a "standard design" card would be issued. Since the "standard card" appears to have been issued in my name only 3 business days after my initial application, I strongly suspect there is no way an online card application can get a customised card design, even though that is clearly an option available via the online application process. Anyhow, it's not important - I intended to cancel the card after the 6 months 0% balance transfer period ends (on 23 Feb 2008) anyhow. If I HAD managed to get a card issued with my coat of arms on it I might have been tempted to keep the card just for fun - so it's ANZ's loss. The welcome letter states that any balance transfer that was requested should happen automatically 3 days after the card is activated - so I should have the $14,250 of free money in my day-to-day CC account by the start of next week. As I pay off that card in full each month I'll just do a cash withdrawal of the funds and deposit them into my credit union savings account and thence into the linked online savings account that pays around 6.1% interest. I'll also set up the automatica monthly payments of the minimum repayment amount from the credit union account so that there is no danger of missing a payment. I usually don't bother setting up the final payment due at the end of the 0% period but I may this time so I don't have to remember this payment is due at the start of next year.

Copyright Enough Wealth 2007

Monday 27 August 2007

401K Account Balances by Age

Some interesting information about what Americans have accumulated in their 401(k)'s and how the money is invested. There are tables showing average account balance vs salary, account balance vs years of job tenure, and asset allocation for each age group - 20's, 30's, 40's, 50's and 60's. The data is based on an analysis of some 20 million participants in nearly 54,000 employer-sponsored 401(k) plans done by the Employee Benefit Research Institute and the Investment Company Institute, as of the end of 2006.

Copyright Enough Wealth 2007

Why You Need to Diversify

An interesting example of why you need to diversify your investment in the stock market across several companies, no matter how good one particular stock may appear to be. Tabcorp is an well-regarded company that gets a significant part of its profit from the NSW horse racing industry. It had enjoyed good stock price appreciation in the years leading up to 2005, but has been stuggling in the past couple of years, as shown below. Last Friday an outbreak of horse 'flu meant the introduction of a total ban of the transport of horses around many areas of NSW and the cancellation of horse racing around the state. Tabcorp has estimated that the cancellation of horse racing next weekend will cost it $150m in revenue and reduce Tabcorp's group earnings by approximately $5 million after tax. Depending on whether or not the outbreak has been sucessfully contained, there may be effectively no spring racing season in NSW this year, which would have a disasterous impact on this years profit for Tabcorp. There is simply no way to predict such random events, so putting all your investment eggs in one basket is very risky, especially since there are lot more stocks that do exceptionally badly than there are stocks that have a meteoric rise.

Copyright Enough Wealth 2007

Sunday 26 August 2007

Another Interesting Artticle on Investing

The Sydney Morning Herald has yet another list of things to do for beginning investors. I still like reading these lists as a reminder of the basics, plus you sometimes come across an interesting example or effective way of explaining a concept.

If you don't want to read the article in full, here are the seven points in summary:
1. Save a bit out of each pay packet. Easiest is by a direct payment into a savings account.
2. Don't chase winners - ie. don't invest in last years hot stock of fund. And don't panic and sell-out in a dip if your intention is to invest for the longer term.
3. Diversify your investments across different asset classes, and within asset classes (eg. more than one stock)
4. Don't waste money paying too much in bank fees or in credit card interest payments by carrying a CC balance.
5a. Shop around for the best rate on home mortgages and other loans, and check out any discounts available eg. "professional Package" if you have a large loan balance.
5b. Pay off non-deductible debt in preference to any tax-deductible debt you may have.
6. Remember that higher returns are compensation for taking on higher risk.
7. Get to know your spending habits in order to identify areas in which savings can be made.

Copyright Enough Wealth 2007

Saturday 25 August 2007

SMSF Investment

I finally sent off the paperwork to invest some of our retirement account funds into the Vanguard LifeStages High-Growth Fund last Friday. Although eSuperFund had said I should send a cheque with the application form (for them to endorse and forward to Vanguard) I didn't want to have to request a cheque from ANZ (the SMSF bank account doesn't have a cheque book). The Vanguard application has an option to make the initial contribution via BPay, so I ticked that box and hope that I can just transfer the initial $180,000 investment once they email me an account number.

I ultimately decided to make the initial contribution amount $180K rather than the entire $330K we have available to invest after Moomin commented that he would dollar cost average (DCA) into the investment given the current market volatility. Since I really have no idea if the Australian and International stock markets will rebound to new all-time highs over the next few months or drop lower by another 5-10% or more it makes sense to DCA. By investing the remaining $150 of our current SMSF cash balance into Vanguard at the rate of $10K each week via BPay I'll avoid the risk of having invested at too high a price if the markets continue to drop, but by the same token have missed the chance of getting fully invested at the bottom of the correction. Somehow using DCA to achieve an truly "average" buy-in price seems in keeping with our decision to invest in an Index Fund to ensure we get typical market returns. I don't think my ability to time the market is any better than my ability to pick individual winner stocks.

Copyright Enough Wealth 2007

Delayed Gratification

Wife, kids, my parents and I all took a trip to inspect the Rolls Royce Silver Shadow II that is for sale for $29,000 ono. It's a nice car and seems to be running OK, but there were a few touched up spots on the paintwork, the air con needs regassing (which the seller, who's a mechanic offered to include in the sale price), and there was something a bit fishy about the car's alleged history. The owner claimed that the odometer reading of 61,500 km was legit, and it is possible for a 28 year old car to have that low mileage if it's been kept in garage and just used once or twice a month. But, he also claimed that it had been produced for sale in Australia (it has an Australian compliance plate), but the service log book that comes with car shows the first 40,000 km of servicing was done in the UK, prior to 1985. Then there is a gap of almost twenty years in the service records until the current owner bought it in 2003. The car allegedly only travelled 20,000 km in that intervening period while being used as a wedding reception car. It's possible for the mileage to have been that low if it was only used once a month for a wedding or two, but I would have expected the service log book to have been maintained while it was used as a reception hire car.

The running costs of the car would be high (it has twin SU carbys that would help fuel efficiency, but it would still probably use a full tank of gas, 103L, each week. Since it was designed to use leaded petrol it would run best on 'super' unleaded, which will add another 20% or so to the cost of fuel compared to regular ULP. Regular servicing should only cost around $500 pa, but if anything went seriously wrong it could cost a small fortune to repair.

The Rolls would be a sumptuous ride to and from work each day, but as my workplace is located in an inner city suburb with small winding streets and limited parking spaces close to work, it would be a pain to find a good parking place every morning. I'd also have to clear out the garage at home so it could be parked securely at night - currently the garage is used to store gym and gardening equipment and the Festiva just sits outside under the car port at night.

Anyhow, I'm in no rush to buy a "new" car just yet, so I'll think about it for another year to two. The price of RR Silver Shadows won't be going up in the meantime, and it will be interesting to see how the price of petrol changes over the next couple of years.

Copyright Enough Wealth 2007

Thursday 23 August 2007

The Lure of the Car

Having recently spent over $1,000 getting our 7-year old car repaired, I shouldn't even be thinking about changing cars. Although we've been planning on eventually replacing our Ford Festiva with a larger car when the kids are older - possibly a used Subaru Forester which would cost around $30,000, we don't intend to get rid of the Ford for another five years or so. However, I've also been toying with the idea of buying a Rolls Royce Silver Shadow II, which would only cost about the same amount as a used Subaru Forester (although it would be 28 years old, rather than 4-5 years old!). The Rolls comes with leather interior, air con, automatic, power steering, electic windows, etc. etc. so it should be a nice ride commuting to work every day. Of course it would be significantly more expensive to maintain, and with a 6.8L V8 engine it would cost a *lot* more in petrol each week than our 1.6L Festiva (or even a Forester!). I guess a full tank would last about the same distance in each car - the difference being that the Festiva tank only holds around 35L while the Rolls has a 103L fuel tank. DW's not too keen on the idea of buying a Rolls, she thinks the Forester would be more 'practical'. I'm not entirely convinced that driving a AWD around the city is actually any more practical than driving a Rolls. I spend 2 hours each day commuting to and from work each day in peak hour traffic, so sitting in luxurious leather upholstery driving an automatic with power steering would be much more fun that driving the manual Festiva. Anyhow, my dad and I will go take a look at it on the weekend, and I'll get a chance to take it for a test drive.

Copyright Enough Wealth 2007

Wednesday 22 August 2007

SMSF - the Devil is in the Details

No wonder they call it "Self-managed". Even with the fund administration, auditing and tax returns out-sourced to eSuperFund there is a fair bit of "paper warfare" involved (at least initially).

Investing our SMSF money into the Vanguard fund is turning out to be less simple than I had initially thought. Just when I was about to apply to invest in the Vanguard Fund online through our SMSF's e*Trade account, I noticed in the fine print that e*Trade would be charging an annual 0.66% "portfolio fee" for managed fund investments. This makes a mockery of our attempt to minimise fees and charges using a SMSF, and would have come as a big shock at the end of the year if I had skimmed over that part of the "fine print". Managed fund investments made via e*Trade would be at the "wholesale" fund management rate, but this isn't a significant benefit when investing in the Vanguard Fund as the retail fees are quite low anyhow (not as low as in the US, but that's a whole other story).

For example;

Investing via e*Trade Managed Fund Service:
Amount Vanguard Fee e*Trade DOLLAR
Invested Wholesale Porfolio Fee COST pa
$50,000 0.37% 0.66% $515.00
$100,000 0.37% 0.66% $1,030.00
$200,000 0.37% 0.66%/0.55%* $1,950.00
$500,000 0.37% 0.66%/0.55%* $4,710.00
*e*trade fee is 0.66% on amounts up to $100,000
and 0.55% on amounts from 100-500K, then 0.5% on
amounts above $500K. Vanguard Wholesale fee via
e*Trade is 0.37% on all amounts invested.

Investing via direct application to Vanguard
(application lodged via eSuperFund):
Amount Vanguard Fee DOLLAR
Invested Retail COST pa
$50,000 0.90% $450.00
$100,000 0.775%** $775.00
$200,000 0.5625%** $1,125.00
$500,000 0.43%** $2,150.00
**Vanguard Retail fee is 0.90% on amounts
up to $50,000 and 0.60% on amounts from
$50-$100K, then 0.35% on amounts above $100K.

So we could have ended up paying a couple of thousand dollars in extra fees each year if I hadn't been paying attention.
The other problem with investing via e*Trade is that you can't choose automatic reinvestment of distributions, and any additional investments in the same fund have to be made through the same process.

Investing directly by sending an application to eSuperFund should allow the initial investment to be made direct from the SMSF via BPay. The automatic reinvestment of distributions is possible, and I should be able to 'set and forget' an automatic additional investment by BPay each month.

The other bonus of investing directly (via eSuperFund) is that eSuperFund will have electronic 'read only' access to the Vanguard account, so I won't have to forward a hardcopy of the annual fund report.

The other wrinkle I found out when I tried to transfer the $300,000 back from our SMSF investment sub-account into the main account was that the ANZ bank hadn't correctly setup the accounts. Our 100-pt ID check data was confirmed for the main V2 bank account, but hadn't been set for the investment sub-account. This meant that while I had been able to transfer funds INTO the investment account, I wasn't able to transfer the funds back OUT into the main account electronically! Luckily this won't matter until the Vanguard application form has been processed and I need to make the BPay funds transfer for the investment.

Finally, it also turns out that when eSuperFund said that the normal $5,000 account balance minimum for an ANZ V2 account was "waived" in actually just means that we get paid interest on balances below $5,000. The ANZ bank system is still setup so that the "available balance" is always $5,000 less than the account balance. This means that there will always be $5,000 sitting in the ANZ V2 account that can't be invested into the Vanguard Fund or other investments (such as direct share purchases through e*Trade). It's not a huge problem since the $5K will be earning interest, but it still means an extra 1.5% of our SMSF balance is unavoidably allocated to "CASH" on top of whatever allocation to cash exists within the Vanguard High-growth fund (around 4%).

Copyright Enough Wealth 2007

Tuesday 21 August 2007

Decisions, decisions

The funds in our SMSF bank account have finally cleared, so I was able to transfer $330K into the investment sub-account which is used to settle any e*Trade transactions. I can now apply via e*Trade to make our initial investment into the Vanguard LifeStrategy High-Growth Fund. Of course I don't know if the unit prices will go up from here in the short term or maybe drop even further, but at least I can be 100% sure that the current price is around 10% off its peak from earlier in the year, and that we gained a couple of percent by being in cash for the past two weeks. I'm sure that in 20 years time the current dip won't even be noticeable in the chart. The important thing is to be invested in our chosen asset allocation and remain invested for the next 20 years. One good thing about investing all our SMSF funds in the one fund is that rebalancing between the underlying asset classes should be done automatically by Vanguard to stay close to the target asset mix for this fund. This is even better than using a mixture of Vanguard Index Funds to achieve a desired asset mix because rebalancing between funds would cost the 0.5% buy-sell spread in unit prices, although since rebalancing would generally only require a small fraction of the total investment to be moved, the effect would be negigible. All we need to do on an ongoing basis is to periodically adjust our automatic investment plan to reflect the amount of money we are depositing into our SMSF bank account each month via salary sacrifice and the SGL contribution from our employer.

Copyright Enough Wealth 2007

Monday 20 August 2007

Property Loan Payments

When we bought our investment property we initially paid off as much as possible, even though the interest was tax deductible. We had borrowed 80% of the value of the property, and at that time the amount we had borrowed seemed huge. After a few years the boom in Sydney property prices meant we had considerable equity in the property, and the drop in interest rates and slight increase in rent meant that the property was no longer negatively geared. Then when we bought our own home we changed the investment property loan to interest only as we wanted to reduce the balance of our home loan as quickly as possible because the interest on your own home loan isn't tax deductible in Australia, so any amount paid of the home loan is equivalent to an investment paying the home loan interest rate after tax. More recently we have changed our home loan to "interest only" as it is more tax effective to make pre-tax salary sacrifice contributions into our superannuation accounts since the latest tax changes mean that retirement payouts from our superannuation fund will be tax free once we are retired and over 60. Better still, if investments aren't sold until the superannuation account has switched into pension mode, there will be no capital gains tax liability either.

When making home loan decisions it is important to understand the various payment options, terms and conditions available, so you can select the most appropriate type of loan and loan provider for your situation. It also important to know when it may be worthwhile looking at fixed rate mortgages - bearing in mind that lenders will offer rates based on how they expect interest rates to move during the fixed rate period.

UK readers may wish to compare mortgages to determine which loan suits them best. Those considering an investment in real estate may want to learn about buy to let mortgages.

Copyright Enough Wealth 2007

Easy Money

The Aussie stock market was up around 4% today, which is a nice one day "paper profit". The cheque deposited into our SMSF still hasn't cleared, so we may have missed the chance to get in at the bottom of a short, sharp correction. Then again, I wouldn't be surprised if this turns out to be a 'dead cat bounce' and we get a chance to buy at new lows.

My ANZ CC application has already been approved - no additional paperwork required. A $15,000 credit limit was set, so I won't get the $25,000 balance transfer I asked for. The website stated that if you apply for a transfer of more than the credit limit that is approved, it will be scaled back to 95% of the limit. That means I'll get a 0% transfer of $14,250 which should earn me around $300 if interest over the six months, after deducted card fee etc.

The only hiccup with the card application was for the personalised graphic on the card. I got an email stating that the image file wasn't acceptable, and that I should resubmit within 5 business days after checking the image rules. I can't see why my device infringes any of ANZ's rules, so I rang their call centre to find out why it was rejected. The CSR couldn't help and told me to fax the customer service department. I suspect that someone in India probably mistook my heraldry for a company logo (which isn't allowed), but I'm not too optimistic that I'll end up getting a card with my arms on it. Worst case I'll just end up with an ordinary card and save the $15 fee.

Copyright Enough Wealth 2007

Another CC App for 0% Balance Transfer Arbitrage

I had nothing else to do while watching a movie on TV tonight, so I applied to a CC from ANZ Bank that is currently offering 0% interest on balance transfers for 6 months. There's no transfer fee, although the card has an annual fee of $30 so I'll probably cancel the card once the 0% period ends. Since I was going to the trouble of filling in the online application I decided to get the 'customised card design' that they offer. Although it costs an extra $15 to get the CC produced with your personalised graphic on it, I thought it would be cute to have a CC with my coat of arms printed on it. Anyhow, the total cost of $45 will come out of the interest I earn on investing the balance transfer funds in an online savings account for six months. I applied for a $25,000 balance transfer, so at 6.1% this would earn me $762.50 in interest (slightly less due to the minimum monthly payments made during the six month period). There may be some extra paperwork to fax in, or possibly taking some ID to the bank branch when collecting the card, but it's still worth a little effort to earn an extra $700 income. The only ongoing work once the transferred funds have been invested is to setup an automatic payment from my credit union account for the minimum monthly repayment, and remember to pay off the remaining balance when the 0% period ends.

Copyright Enough Wealth 2007

Saturday 18 August 2007

ISP Incentivation

Australian "high-speed" internet service is apparently pretty slow by first-world standards, and it also isn't particularly cheap. But there is some competition, which is probably why I recently received an offer for a year's free subscription to a lifestyle magazine if I maintained my cable internet with Optus for 12 months. I probably could get a cheaper service from some other company, but to be honest it wouldn't be worth the hassle of getting the installation changed. Therefore the free magazine was a nice bonus. It didn't actually save me any money as I wouldn't have paid to subscribe to the magazine, but DW enjoys it, so it has some value.

Copyright Enough Wealth 2007

AU Shares - portfolio update: 18 August 2007

Here's the latest monthly update of what stocks are in my Australian Stock Portfolio. I haven't bought or sold any stocks since last month (apart from some DRP reinvestment), so I've included and extra column to show last months price for each stock. This gives an idea of what impact the recent market "troubles" have had on my portfolio, and which stocks were affected most. In comparison my US Stock "Little Book" portfolio has dropped even more, but that was offset somewhat by the recent 10% plunge in the value of the Aussie dollar compared to the USD.

Current holdings:

Leveraged Equities Account (loan balance $158,715.42, value $286,383.32).
Last month value was $314,560.04, so the value of this portfolio
dropped -8.96% for the month, which means my equity dropped by a
whopping -18.08% since this time last month!
stock qty price mkt value margin month
AAN 295 $14.40 $4,248.00 70% $15.17
AEO 1,405 $1.88 $2,641.40 65% $1.95
AGK 510 $15.72 $8,017.20 70% $16.00
AMP 735 $9.18 $6,747.30 75% $10.41
ANN 480 $11.90 $5,712.00 70% $12.48
ANZ 1,107 $27.51 $30,453.57 75% $29.47
BHP 748 $32.42 $24,250.16 75% $38.17
BSL 781 $10.08 $7,872.48 70% $11.55
CDF 7,650 $1.76 $13,464.00 70% $1.83
CHB 118 $54.11 $6,384.98 70% $51.08
DJS 2,000 $4.43 $8,860.00 70% $5.52
FGL 3,751 $5.68 $21,305.68 80% $6.31
LLC 481 $17.35 $8,345.35 75% $18.58
NAB 323 $37.95 $12,257.85 75% $40.08
QBE 983 $27.47 $27,003.01 75% $30.70
SGM 830 $24.50 $20,335.00 70% $28.57
SUN 963 $18.24 $17,565.12 75% $20.52
SYB 2,880 $3.92 $11,289.60 70% $4.12
TLS 5,000 $4.23 $21,150.00 80% $4.67
TLSCA 3,000 $2.74 $8,220.00 80% $3.19
VRL 1,500 $2.92 $4,380.00 60% $3.24
WDC 851 $18.66 $15,879.66 80% $19.69

Comsec Account (loan balance $111,908.99, value $215,371.61)
Last month value was $232,038.86, so the value of this portfolio
dropped -7.18% for the month, and my equity has dropped by -13.87%
since this time last month.
stock qty price mkt value margin month
AGK 240 $15.74 $3,777.60 70% $16.00
AAN 139 $14.42 $2,004.38 70% $15.20
APA 4,644 $3.71 $17,229.24 70% $4.28
ASX 200 $43.42 $8,684.00 70% $51.20
CBA 130 $52.50 $6,825.00 75% $55.95
CDF 43,997 $1.78 $78,314.66 70% $1.89
IPEO124,000 $0.017 $2,108.00 0% $0.06
IPE 8,000 $0.945 $7,560.00 60% $1.06
IFL 1,300 $9.20 $11,960.00 60% $10.70
LDW 1,350 $7.50 $10,125.00 0% $8.30
NCM 300 $24.26 $7,278.00 60% $24.35
OST 2,000 $5.61 $11,220.00 70% $6.99
QBE 607 $27.50 $16,692.50 75% $30.73
RIO 60 $81.60 $4,869.60 75% $97.50
THG 4,000 $1.02 $4,080.00 50% $1.115
WBC 300 $25.20 $7,560.00 75% $26.40
WPL 220 $38.75 $8,525.00 75% $46.54

Copyright Enough Wealth 2007

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Copyright Enough Wealth 2007

Friday 17 August 2007

SMSF Update

I deposited the cheque for my transfer into our SMSF today, and the current balance showing online in the SMSF bank account is now around $340K. The funds haven't been cleared yet, but I expect that will only take three business days (the transfer from our old super account with BT was via a Westpac bank cheque). Once the funds clear I'll switch $340K into the sub-account that is linked to our e*Trade account for the SMSF, and will then be in a position to invest in Vanguard's High-growth fund. If the market continues to drop early next week I may be tempted to wait and see before investing, but the risk with doing that is that there may be a sudden 'bounce' as soon as it appears that the worst is over. Then again, I'd rather wait a bit too long and buy in a few % above the bottom of the correction, than get in too early and watch the market correction continue down another 10%...

Copyright Enough Wealth 2007

Comment Problems

Sorry if I haven't responded to comments left on my blog recently - I just found out that comments had recently stopped being emailed to me by blogger for some unknown reason, and I just got around to reading them via my blog. I'll keep an eye out for comments on recent posts in future, in case the email comment forwarding still doesn't work, but any new comments made on posts that are more than a week old might go unnoticed for a while.

Copyright Enough Wealth 2007

Quicken Suckens

I've used Quicken for my personal record keeping for more than a decade (on and off), and it can be a very useful tool for tracking expenses, budgeting and maintaing investment records (but takes a lot of time to keep my records 100% up to date). I had a free copy of Quicken 2006 installed on my laptop that I got with a magazine last year, but I hadn't used it much during the past year and it expired in June. I wanted to start tracking my accounts properly from 1 July on my new Dell PC, so I had filled in an online request to be mailed a CD of the trial version of Quicken2007 back in July, but nothing ever arrived. I finally gave up waiting for the CD and downloaded the "Free 90 trial version" of Quicken2007 Personal Plus off the Australian website of Quicken. The download and install went OK, but when I tried running the program it crashed out as soon as it got to the end of the initial account setup process. I tried a second time and had the same problem, so I made note of the error report ID. BUT, when I checked the email account that I'd used to sign up for the free trial there was only the initial download licence email, and no autoresponder regarding the two error reports that had been sent in. I therefore doubt that I'll be getting any response to the two error reports, and don't want to have to spend time on the phone (NOT a free call) trying to find out what's wrong.

I'm sorely tempted to just uninstall the 2007 trial version and try to install an old 1995 copy of Quicken for Windows. I've no idea if it would run OK under Vista, but at least it didn't expire after 12 months of use. It had the same based stock transaction and account keeping functions that the newer versions have, but just lacked the online automatic updates off stock price data and bank account info. Since I track my stock portfolio valuations via my margin loan accounts I don't need that info within Quicken, just the actual contract note details for capital gains tax calculations. I also don't find any use for automatically downloading bank transactions - my main account is a credit union account (that doesn't charge fees and has free cheques), and Quicken doesn't include it on the list of supported financial institutions anyhow. If I wanted to I can download a transaction file from the credit union website to import into quicken, but I tend to enter transactions manually each day and just reconcile them against the monthly account statement.

Copyright Enough Wealth 2007

Thursday 16 August 2007

All Cashed Up and no where to Invest (yet)

The cheque for transferring $280,000 from my old retirement account into our Self-managed Superannuation Fund arrived in the post today. I'll deposit it at the bank tomorrow, and I expect the funds will clear by the middle of next week. As soon as that happens I can use our SMSF money to invest in the Vanguard High-growth fund, which is mainly invested in Australian and International stock indices. Only trouble will be deciding WHEN to make the investment. Today the Australian market was down 5%(!) by mid-afternoon, before bouncing back to be down "only" 1.3% at the close. I won't be surprised if the US market also drops further this evening, which will cause further drops tomorrow. Where the market will be heading by the middle of next week is anyone's guess. A "normal" correction during a bull market is around 10%-15%, and we're already down 11%. However, the Australian bull run had lasted over three years already, with gains of over 20% for three years in a row, so this could easily be a severe correction of 20% or more, or even the start of a small bear market if the global economy is affected by the incipient credit squeeze.

BTW - the Reserve Bank just raised interest rates another 0.25% last week in expectation of an overheating economy and accelerating inflation next year. If there is a global credit squeeze and economic slow-down caused by the US sub-prime fiasco spreading this may turn out to have been one rate rise too many.

Copyright Enough Wealth 2007

Wednesday 15 August 2007

No, Mr. Tax Evader Doesn't Live Here!

I get most of my mail sent to a Post Office Box, as it's more secure and rain-proof than our home mailbox. However, I still get the odd bit of mail being delivered to our house, mostly junk mail. Today there was an official-looking envelope in our letter-box which I opened without checking took closely. It turned out that although it was addressed to our street address, it was meant for to a total stranger - let's call him Mr. X.

The letter was a request from the Australian Tax Office for Mr. X to submit his overdue tax returns for 2003, 2004, 2005, 2006 and 2007! My guess is that Mr. X is a tax-evader, and that he deliberately gave an incorrect address when working a 2nd job in order to avoid paying some tax. I know for a fact that Mr. X never lived at this address - we've been at this address for over three years, and the previous owners had lived here for more than twenty years. There's also no Mr. X living close by, so it's not just a case of the house number being incorrect. Tomorrow I'll phone the ATO and let them know that they have the wrong address for Mr. X.

Copyright Enough Wealth 2007

Every Cloud has a Silver Lining

The Australian Stock Market dropped another 3% or so today. Since I'm a long-term, high-risk-tolerance investor (supposedly) I should be sitting fully-invested (mostly in stocks) and having to grit my teeth and bear it as the market drops, taking my net worth down with it. But by happy coincidence I'm not as fully invested in the stock market right now as I should be.

A large chunk of my net worth is tied up in two properties (our house and one rental property). Although this has been a drag on my overall investment portfolio performance since the Sydney property market peaked in 2003, this year the property market has started to pick up a bit. The latest monthly sales price data came out today, and the estimated valuations of our two properties have jumped $25,964 and $10,364 respectively.

My margin loan accounts are still fully invested in stocks, but I'd been allowing my gearing level drop from around 70% debt:equity a couple of years ago to recently dip below 50% as the bull market had progressed. This has reduced somewhat the geared effect of the market drop on my stock portfolio equity. At the same time I've had some Index Put Options in place since the start of the year, and the increased value of these as the market drops offsets around 1/3 to 1/2 of the losses on my stock portfolio.

And, most fortuitously, we're in the middle of shifting our retirement accounts from a retail Superannuation fund into our own SMSF. This has meant that our retirement funds are currently either in transit between accounts ("the cheques in the mail") or is sitting in the SMSF bank account awaiting investment. So, if the market keeps dropping before we reinvest in our preferred high-growth asset allocation we could end up getting some benefit from the current market shake-out.

If the market drops another 5% or so in the next week we would end up reinvesting at a discount of around 10% compared to the prices at which we cashed up last week. Of course the market could just as easily bounce back before our funds transfers are completed and we re-invest. But at least at this stage we're in a better position that if the market had been in a strong rally while we were sitting on cash.

Copyright Enough Wealth 2007

Tuesday 14 August 2007

Self-Managed Superannuation Fund get Funded

We're in the last stages of transferring our retirement funds from our employer-sponsored fund (with BT) into the Self-Managed Superannuation Fund that we setup a few months ago. I mailed in the paperwork to BT at the start of last week and the funds had finally disappeared out of our BT accounts yesterday. Luckily that means that the withdrawal was probably processed on Friday using the unit pricing from COB on Thursday - that would mean that we just managed to escape the 4% drop in the Australian market that happened on 'Black Friday'.

So far only the funds from DWs BT account have appeared in our SMSF's bank account. As DW was closing her BT account the transfer was done electronically. I'm keeping a small amount of money in my BT account (enough to pay my life insurance premiums for a while) so I had to fill in a different withdrawal form which went to a different address at BT. The withdrawal appears to have been processed at the same time as DWs but will be sent via Cheque, so I probably won't receive the cheque until later in the week and have to deposit it into the ANZ bank account of our SMSF.

Some additional funds have also appeared in the SMSF bank account, so it looks like the compulsory SGL contributions from our employer are successfully being redirected into our SMSF. The amount doesn't reconcile with what I expected to be paid in for July, but I'll have to wait for the bank statement to try and work out exactly what has been paid in.

Once the cheque for my transfer has been processed I'll invest the entire balance of our SMSG in the Vanguard Lifestages High-Growth fund. The asset mix in this fund is broadly what we want, and by having the entire balance in this fund we'll save a lot on management fees.

The target asset allocation for the High-growth fund is:
4% Australian Fixed Interest
6% International Fixed Interest (hedged)
48% Australian Shares
29% International Shares
10% Property Securities
3% Emerging Market Shares

Vanguard in Australia charges 0.9% fee on the first $50,000 invested in any fund, 0.6% on the next $50,000 and then 0.3% on the balance above $100,000. This is a lot better than the 1.3% or more growth-oriented funds were charging in the BT scheme. In addition the BT fund admin fee was around 0.75% (even after a hefty employer-rebate). The SMSF in comparison will only pay eSuperFund $599pa plus another $150pa to the ATO. The total admin cost for our SMSF ($749pa) is therefore only 0.23% of our initial balance and will decrease over time as our SMSF balance accumulates. While we will be missing out on the dubious benefits of active fund management, I think the net saving of fees will exceed the typical outperformance of fund managers compared to the relevant indices.

Copyright Enough Wealth 2007

Sunday 12 August 2007

Time to Buy Some Stocks?

With the 4% drop in the Australian stock market on Friday the "correction" is now about 8%. While there could be further drops in the coming weeks, even if this is just a correction rather than the start of a bear market, I think it may be time to start looking at stocks to buy for DS2's portfolio. DS2 turns 1 next month and I'd like to buy him a couple of stocks to establish an investment portfolio - perhaps some CSL or COH. I'm looking for stocks that over the long term should have good growth prospects but don't pay out large dividends - getting too much "unearned income" results in punitive childrens tax rates.

Copyright Enough Wealth 2007

Put your Digital Camera to Good Use

I've previously posted how my digital camera saves me money by letting me indulge my hobby of photography at much lower cost due to the savings made by only printing the few snaps that you want in hardcopy. It's also a lot cheaper to email photos to your relatives that sending photos by mail!

But there are also many important uses for digital photography related to personal finance:
1. Make photographic records for insurance purposes.
* I've used my digital camera to record the state of our rental property before new tenants moved in, we took several photos of the storm damage that recently occured when a tree fell onto the roof of the property
* I've often read that it's important to take photos of your valuables so that you will know what to claim on your household contents insurance in case of theft. I've never got around to this due to the hassle and expense of developing and printing photographs, but I now have this on my "to do" list as it will be free and convenient using my digital camera.
* I took several snaps of my car where I sold it via an online ad. Same goes for any other items you have and wish to sell online.

All in all, digital cameras have become an important part of efficiently managing one's finances.

Copyright Enough Wealth 2007

Virtual Stupidity

Apparently the biggest "bank" in Second Life has frozen withdrawals and converted deposits into perpetual bonds that are trading at a steep discount to face value. The thought that avatars might be throwing themselves off virtual sky-scrapers in financial ruin would be funny, except that I'm sure that many people have spent lots of real hours accumulated Linden dollars with the expectation to eventually convert them into real USD. Where they ran into trouble was investing the Linden dollars with a virtual bank that was offering an interest rate equivalent to 44%pa. With the Linden:USD exchange rate fixed this was never going to be sustainable in the long term, and the recent "run" on the virtual bank was inevitable.

Copyright Enough Wealth 2007

Saturday 11 August 2007

Net Worth - PF Bloggers July

Here's the latest round-up on how the various PF (Personal Finance) bloggers who post their Net Worth each month are progressing.

Monthly Net Worth of PF Bloggers for JULY 2007:

Blogger Age Net Worth $ Change % Change
Amateurist Fin. Journey 23 -$36,471.00 -$1,931.12 -5.3%
An English Major's Money 23 $17,057.00 -$177.00 N/A
Blogging Away Debt 2x -$42,069.00 -$8.376.00 N/A
Blunt Money 2x $225,841.80 -$1,393.03 -0.6%
Consumerism Commentary 30 $102,011.00 $2,346.00 2.4%
Crazy Money 27 $275,057.00 -$2,050.00 -0.7%
Enough Wealth 45 $1,126,770.00 -$23,420.00 -2.0%
Financial ladder xx $164,801.44 $4,941.59 3.1%
Finance Journey 25 $166,676.00 -$911.00 -0.5%
Lazy Man and Money 2x $207,207.00 $14,302.00 7.4%
Make love, not debt 2x -$59,594.76 N/A N/A
Mapgirl 3x $48,448.00 $2,082.00 4.5%
Moomin Valley 42 $435,895.00 -$9,208.00 -2.0%
My Money Blog 28 $147,876.00 -$1,800.00 -1.2%
My Open Wallet 37 N/A N/A N/A
Savvy Saver 27 $207,180.00 -$278.00 -0.1%
Tired But Happy 30 $174,859.00 -$4,389.00 -2.4%

nb. Some ages have been adjusted as follows:
exact age provided = listed as given
"20's" = listed as 2x
"early 20's" = listed as 22
"mid-late 20's" = listed as 27
and so on.

If you have any corrections, let me know asap after the post and I'll edit immediately. If it's more than a few days after the post, email me and I'll make the change the following month.

Note: Most of these figures are in USD, but some are not (eg. mine are in AUD). Also, some bloggers post combined net worth of a couple, others are single, or, like me, only post their personal net worth.

The N/A figures are either a lack of monthly data, or where I've not included % change data because the net worth is less than +/- $100K.

I've had some appreciative comments about this regualar monthly post - if you like it, please link to it from your blog, or add a link to EnoughWealth to your blogroll. ;)

Copyright Enough Wealth 2007

Searching for New 0% Balance Transfer Offers

The 0% balance transfer period on the $15,000 I'd done with BankWest came to an end this month, so I made a payment from my credit union account to pay off the outstanding balance. I still have some "free" money from HSBC invested until October at 6.10%, but it's time to start looking around for some more 0% balance transfer offers. I think there's one available from ANZ bank, where I have an account for my SMSF, but these days you have to be very careful to read the fine print, as many of the 0% offers charge a "transfer fee" or an annual card fee which eats into the possible profit margin. For US readers who are looking for 0% no fee balance transfer offers there are several to choose from, with many having no annual card fee and no transfer fee. Unlike Australia though, you have to consider the impact of aplying for additional credit cards on you credit rating in the US - it may cost you later on if you end up paying a higher interest rate on other borrowings such as a home loan.

Copyright Enough Wealth 2007

Thursday 9 August 2007

How Closely Does my Portfolio track the All Ordinaries Index?

The graph below shows how well my portfolio of around 30 Australian stocks has tracked the All Ordinaries Index since 1 June 2007. As you can see there is fairly strong correlation between my portfolio and the Index (red and blue lines respectively). The chart also shows the effect of gearing (via margin loans) to amplify gains and losses (green line).

Copyright Enough Wealth 2007

Wednesday 8 August 2007

When Can You Retire: Case Study

In response to my recent post about the effects of savings rate and ROI on the age at which you can retire and reasonably expect your retirement savings to last until age 85, Fern wrote a comment requesting a review of her situation as an real world example. As I'm not a financial planner I can't give personal advice, so instead I'll just look at a hypothetical situation using Fern's figures as a starting point and adding in a few extra assumptions.
Model Parameters:
Person "X"
CUrrent Age: 48
Current Retirement Account Balance: $289,133
PV of Other investments to fund retirement: $142,158
Lifespan: 90
Target Retirement age: 60
Salary Income: current=$59K
Salary Increase: real 1%pa until retirement age
Retirement accounts savings rate: 15%
Other investments savings rate: 0% (assume paying off mortgage from now til retirement)
Risk tolerance: moderate
ROI: retirement account: 4% real ROI (after tax and CPI deductions)
ROI: investment account: 3.5% real ROI (after tax and CPI deductions). Lower ROI than 401K due to higher tax impost.
5 year p/t work yielding $15K pa income during early retirement years (age 60 to 65).
Investment account is drawn-down first during retirement until exhausted, then retirement account
Same investment mix held during retirement years as while working.
Outcome of model:
Plugging those figures into a spreadsheet it appears that Person "X" can retire at 60 (still working part-time until 65) and the retirement and investment accounts balances should be able to fund an income of 70% pre-retirement salary until age 90 ($46K in today's $). Indeed, there may some surplus remaining in the account at age 90 ($497K) if the assumed ROI were attained. Over the entire investment period one would hope that the ROI's average out to close to the projected values, but there will obviously be some better and some worse years. A string of bad years early on in the piece can significantly reduce how long the retirement savings will last, even if later years are better and boost the overall average ROI. However, in this case person 'X' expects to being living in a home with no mortgage during retirement, so if funds run short in the later years (or if lifespan exceeds 90) borrowing against home equity (a "reverse mortgage") would be a possible solution, given that no residual estate is planned. Another "solution" would be to save extra to make up any performance shortfall in the accumulation stage, or attempt to live off smaller pension amounts during retirement if the funds were being exhausted too rapidly.
The projected real ROI of around 3.5% or 4.0% after tax seem reasonable from a historical return viewpoint for an investment mix of 80% in stocks (eg. 70% domestic index funds and 30% foreign stock index funds) and 30% in bond funds. However, even a small decrease in actual ROI can cut into this "surplus" significantly. For example if both retirement and investment accounts attained an ROI of 3.5% the final balance remaining at age 90 is only $207K.
If, during retirement, a run of good returns had boosted the remaining funds above what was required, the investment mix could be shifted to a lower-risk, lower return investment asset mix. Alternatively the "surplus" could be withdrawn and invested in a fixed-interest account for a rainy day while leaving the retirement and investment account asset allocations unchanged.
If one was fortunate enough to attain an real after-tax ROI of 4.5% on the retirement account and 4.0% on the investment account, retirement age could be brought forward to age 56 (assuming part-time work undertaken until age 65). But this would depend on the unlikely prospect that the same above-average returns could be maintained all the way through until age 90.
It may be possible to aim for such a retirement age, but you'd want to track your actual retirement and investment account balances (allowing for accrued tax liabilities and adjusting for actual inflation rates) over the next 10 years and be willing to postpone early retirement if returns were lower than expected. For example, the model projects the values (all expressed in today's $) listed below:

nb. "Pension" denotes withdrawals from investment and/or retirement account during retirement years.
Balances at end of Yr
Age Salary Savings Pension Retirement Investment
Account Account
48 $59,000 $8,850 - $309,584 $147,134
49 $59,590 $8,939 - $330,869 $152,283
50 $60,186 $9,028 - $353,131 $157,613
51 $60,788 $9,118 - $376,375 $163,130
52 $61,396 $9,209 - $400,639 $168,839
53 $62,010 $9,301 - $425,966 $174,748
54 $62,630 $9,394 - $452,399 $180,865
55 $63,256 $9,488 - $479,984 $187,195
56 $63,889 $9,583 - $508,766 $193,747
57 $64,527 $9,679 - $538,796 $200,528
58 $65,173 $9,776 - $570,124 $207,546
59 $65,824 $9,874 - $602,802 $214,810
60 $15,000 - $30,169 $626,914 $192,160
61 $15,000 - $30,169 $651,991 $168,176
62 $15,000 - $30,169 $678,071 $144,452
63 $15,000 - $30,169 $705,194 $119,339
64 $15,000 - $30,169 $733,401 $93,346
65 $15,000 - $30,169 $762,737 $66,444
66 - - $45,169 $793,247 $23,600
67 - - $45,169 $804,232 -
68 - - $45,169 $791,233 -
69 - - $45,169 $777,713 -
70 - - $45,169 $763,652 -
71 - - $45,169 $749,029 -
72 - - $45,169 $733,821 -
73 - - $45,169 $718,004 -
74 - - $45,169 $701,555 -
75 - - $45,169 $684,448 -
76 - - $45,169 $666,657 -
77 - - $45,169 $648,154 -
78 - - $45,169 $628,911 -
79 - - $45,169 $608,898 -
80 - - $45,169 $588,085 -
81 - - $45,169 $566,439 -
82 - - $45,169 $543,928 -
83 - - $45,169 $520,516 -
84 - - $45,169 $496,167 -
85 - - $45,169 $470,845 -
86 - - $45,169 $444,509 -
87 - - $45,169 $417,120 -
88 - - $45,169 $388,636 -
89 - - $45,169 $359,012 -
90 - - $45,169 $328,203 -

Bear in mind that this is only a simple model - tax effects have been eliminated by use of after-tax returns, and no allowance has been made for any social security, company pension or similar retirement income streams.

Copyright Enough Wealth 2007

Tuesday 7 August 2007

Calculating the Decline in Net Worth from "All Time High"

I normally update the component figures (stock portfolio, retirement account) of my investments daily, but only calculate month-to-month changes in my net worth. Having had a couple of down months in a row I was interested in calculating where my net worth is in relation to my personal "All Time High" (reached on 20th June). I track my investments using an excel spreadsheet, so to calculate the current situation in relation to the "peak" value I need to know both the maximum value in a column of data (easy using the "MAX()" function) and the latest value in the column. The second figure isn't quite as easy to automatically calculate - there's no simple function (you might expect "LAST()" to do this, but no such luck), so you need to use a fairly complex function:
This for numeric data in column B, where the data is in rows 3 to 6500. For example, today's data is in row 1408 and my spreadsheet is currently setup with dates out to my expected retirement in 2027 (row 6500).

To check how the current value compares to my "All time high" value I calculate:

Using this calculation in my various spreadsheet tabs (one for each portfolio component) shows that my current situation is:
Current Property Equity = 98.23% of all time high
Current Retirement Account value = 94.84% of all time high
Current Stock Portfolio value = 88.85% of all time high

Overall, current net worth = 93.87% of all time high

Although I'm fairly sanguine about recent drops in the stock market and the post-boom slump in real estate prices (they've been stagnant in Sydney for the past 4 years, and the prospect of further interest rate rises means the recent mild recovery is likely to come to an end), it highlights the fact that I really haven't suffered a major decline in my net worth. Even back in '87 when I only had a tiny investment portfolio, mainly invested in stocks, the "crash" only wiped about 25% off my net worth at that time (I also had a "defined benefit" retirement plan which wasn't affected and I didn't count in my net worth calculations - just as well as my employer converted the plan to a defined-contribution scheme prior to laying off a large chunk of the workforce in the late 90's).

It makes me wonder how well I'd cope with a total melt-down across all asset classes (such as happened in the great depression). What if my stock portfolio was down to only 10%-20% of it's peak value, property was unsaleable (and valuations down 50%), and I lost my job? Hopefully the decline would be gradual enough to have some chance to unwind my geared positions - selling off shares to eliminate my margin loans and selling our investment property in time to pay off our home loan with whatever equity remained. The tricky part would to know when to "pull the plug" on debts. The temptation would be to first view a decline in asset values as a correction (10-15% down), and then as a bear market/housing slump if the decline extended to a 20-40% drop over many months or years. In such cases selling out would be the wrong move, while holding your position (or even buying more at the "bottom") would be a good long-term move. But, if such a recession turned into a full-blown depression then a buy-and-hold mentality could easily lead to bankruptcy.

One can only hope that the world's central banks know enough to avoid a global depression, just as one hope's there won't ever be another "world war" and that global climate change doesn't need to be factored in to personal financial plans! In the absolute worst case my "Plan B" is to move the family up to my parent's farm - they have a spare shed we could live in, a rainwater tank and bore water, so we could grow our own food. This is also the "plan" in case of WWWIII, SARS or bird 'flu ;)

Copyright Enough Wealth 2007

Monday 6 August 2007

When can you afford to retire?

There are many retirement calculators available online, but it's interesting to look at the figures that pop out of a simple spreadsheet model to guage the effect of savings rate and return have on possible retirement age.


Start off retirement savings with $0 at age 20

Initially earn $30Kpa which increases 5%pa until hit $50K salary, then 1%pa increase until retirement

Retirement savings to be drawn down during retirement at 70% of final salary

Savings to last in retirement until death at age 85 - this is about the average lifespan for someone who has reached 65. The assumption being that you live long enough to retire!

Investment returns and salary rises are expressed as real, after-tax percentages. This avoids having to guess what inflation rate may apply.

No other retirement income aside from retirement savings eg. no government or company pension.

RESULTS: Table of possible retirement age where funds will last until death
SR = savings rate (% of salary put into retirement account each year)
ROI = avg return on investment

ROI --->
SR 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
8% 74 72 70 68 66 64
10% 72 70 67 65 63 61
12% 70 67 65 63 61 59
14% 68 65 63 61 59 57
16% 66 64 61 59 57 55
18% 64 62 60 58 56 54


Early retirement before age 60 is a big ask - you either have to save a huge % of your salary, achieve a very high real return on your investments (which means higher risk of missing you target), or be willing to live on less than 70% of your pre-retirement income as a pensioner. To retire much before 60 you'd probably have to have other sources of wealth beside your retirement savings - such as a successful business or an inheritance.

Typical savings rates (10%-12%) and ROI (4%-4.5% real) result in a typical retirement age of 65

Investing too conservatively (3% ROI) or saving too little (8%) mean you couldn't afford to retire until your 70's if you want your retirement income to last until 85.

Copyright Enough Wealth 2007

Car Repairs Done

The car now been fixed - one reconditioned Japanese gear box and a new clutch installed for a total cost of around $1510. Hopefully the car will now last for another 5 years or so (by which time it will have done around 150,000 km) and we'll then replace it with a "new" 2nd-hand vehicle.

Copyright Enough Wealth 2007

Saturday 4 August 2007

Frugal living: Educational Coaching for Kids

Many parents give their kids education highest priority, and a lot will resort to expensive out-of-school coaching to help them get better marks and/or pass selective school tests. Things were different when I was in primary school - you just sat for the selective ("Opportunity Class") school tests in Year 4, and if you did well on the test you were offered a place. These days many parents spend a lot of money on professional "coaching" classes or computerised study assistance programs. But there isn't much evidence that this is money well spent - in fact some recent reports suggest that having kids spend too much time on repetitive "coaching" sessions after school can get them burned out and perform worse on selective school tests than they would have without any coaching at all!

I think a small amount of preparation for selective tests is probably worthwhile - knowing what sort of questions to expect in the test, practicing the exam format and getting used to the time allowed and exam technique can only help the child relax and do as well as possible "on the day". So, rather than spend a small fortune of coaching classes I've just bought a book of practice material and some sample tests which I'll work through with DS1 over the next couple of years (the exam is in year 4, but DS1 is only in year 2 at the moment).

Another fun activity which will help DS1 academically is spelling bee practice. Although spelling bees aren't nearly as big a deal in Australia as they are in the US, there has been a state-wide "Premier's" Spelling Bee running in NSW for the past couple of years. Entries for this year's competition closed last month - the school DS1 attends wasn't aware of the Spelling Bee until we told them, and was quite pleased to learn about it. DS1 was keen to compete in the yr 3-4 group, so the school decided that he will be able to compete against the kids in years 3-4 for selection to represent his school. The spelling lists used for the early rounds of the competition are available online, so DS1 will be able to practice learning them. A good, cheap, fun activity that will help him academically.

Copyright Enough Wealth 2007

Stocks Plunge (again)

Copyright Enough Wealth 2007

DFS(FP) Update 4

I checked through some of my email accounts yesterday and noticed that my assessment items for the DFS1 course had been marked and feedback emailed to me last Wednesday. The turnaround time for marking (3 business days) was very impressive. Three out of the twenty assessment items weren't quite right and will need to be ammended and resubmitted. That won't be any trouble as the feedback email explained what areas need to be improved and provides references to the relevant pages of the study guide to use as a reference.

Doing this course is a lot like the Certificate courses I've studied at TAFE (technical college) rather than the courses I've done at uni - everything you need to know to pass the course is provided in the printed course notes, and provided you work methodically through the course it's almost impossible to fail. Again like TAFE, doing the DFS(FP) course provides a sound foundation of the basics and the technical requirements (eg. rules and regulations), but, unlike a uni course, doesn't require much creative thinking or independent investigation to pass.

I've only completed the first one of the twenty assessment items for the DFS2 module (insurance) so far - I'd better get cracking on some more of it this weekend. My GradDip Ed course commenced last week and I don't want to fall behind in the readings for that course. Unlike the science and computing/math courses I've done in the past, the education course material isn't hard to comprehend and absorb, but does require a TON of reading. The assessment items are all essays, which means lots and lots of background reading and recording tons of quotes with referencing (in the approved "style").

Copyright Enough Wealth 2007

Friday 3 August 2007

Frugal Living: Garage Workshop

One way to save money on home maintenance is, of course, to "do it yourself". But to be able to DIY you need to right tools, which can be expensive, so it's important to look after them and keep them organised. My father is notorious for misplacing his tools, and winds up buying more than one tool - NOT the way to save money doing it yourself! To keep my tools organised I have a large workbench at the rear of our lock-up garage, and a garage storage system of pegboard and drawers to store my tools.

Copyright Enough Wealth 2007

Wealth Inequality Rises (Again)

Figures published in today's Sydney Morning Herald show while the disposbale income of low-income households rose by 31% in real terms over the past decade, high-income households saw their disposable incomes rise by 40% in the same period.

The popular assumption is that this is a "bad thing" - and it is when the increasing the gap between rich and poor causes social friction and reduces social harmony. But it can't be all that bad when the "poor" households have still seen their disposable income increase by a hefty 31% in real terms over ten years.

Copyright Enough Wealth 2007

Thursday 2 August 2007

Jobs For Kids

DS1 is quite interested in the financial topics I've discussed with him. He enjoys doing his banking, earning some money busking, and I showed him how to apply for a business number online and how I fill in his eTax return. He's also been keen on using the computer - drawing using MS Paint and has worked his way through the QBasic tutorial I gave him. It therefore seems quite logical to combine his interest in computers and money-making to start his own blog. I don't want him to be posting anything personal on the web, but blogging about his busking and other financial adventures anonymously should be OK. So today I registered a domain name for him to use - Dotster has a special on 1-yr rego of .info domains, so I registered and will show him how to setup a blog using blogger and to setup some adbrite banner ads and inline ads. If we can setup a PayPal account for him linked to one of his existing online bank accounts I'll do that, otherwise we'll use my paypal account and I'll just keep track of how much he makes and add it to his pocket money. Hopefully a blog using the domain name and some strategic use of suitable keywords in posts should generate some traffic from search engines.

Copyright Enough Wealth 2007

Net Worth Update July 2007

My net worth as at 31 July dropped by $23,420 during the month to $1,126,770 (AUD), due to a perfect storm of asset classes all declining simultaneously (so much for non-correlated asset classes). My leveraged stock portfolios decreased by a net -1.39% last month due to the overall weakness in the stock market. Whilst the estimated valuations for my share of our home and investment property also decreased slightly by -0.85%. The valuation of my retirement account decreased quite significanlty during July (-3.23%) as there were declines in both domestic and international stock funds, listed property funds and bond funds.

Given today's large drop in the Australian stock market I don't expect this month to turn out to be a net positive either...

Copyright Enough Wealth 2007

Wednesday 1 August 2007

Car Troubles = $$$

Our car is now 9 years old, although it's only done 78,000 km. Yesterday it developed an intermittent steering problem - every now and again when doing a LH turn it would "fight" against the left turn, before the resistence suddenly dissappeared with a bump. I took it in to the garage close to our workplace and during the day they changed the a ball joint on hte front LH wheel. Unfortunately the problem was even worse when the mechanic took it for a road test just before I was due to collect the car, so I drove it home and planned on dropping it back in for further work today (maybe an CV replacement?).

Driving home was very tense as the car would suddenly want to drift off to the right, and would then suddenly try to lurch to the left with a bit of a bang and a bump. Crossing the Sydney Harbour bridge was a white knuckle experience!

When we got home I decided to borrow my parent's car to drive to work today, and my Dad dropped our car off at a local garage for repair. It turns out that a couple of teeth were broken off the gears in the gear box, which will need replacing. $700 for a new gearbox, plus around $300 labour, plus maybe a new clutch (it still has the original clutch, which is probably quite worn out by now).

Copyright Enough Wealth 2007