Friday 27 June 2008

Revamped US stock portfolio

I sold off most of my US stock portfolio last month, just retaining my Microsoft shares and the one 'B' share of Berkshire I'd recently bought. Today I placed an order to buy another 9 BRK.B shares at market price, which should be filled overnight. That should leave around USD$18,000 in my Comsec-Pershing brokerage account, which I'll transfer back to my Australian bank account on Monday. I'll keep the cash sitting in my credit union high interest account, so that it's available to pay the monthly interest on the margin loan accounts that aren't prepaid this financial year. It will also be handy to have some ready cash available in case there's a severe stock market crash one day soon, and I need to avoid a margin call.

My US stock portfolio will now just consist of 10 Berkshire 'B' shares and a few Microsoft. Since the brokerage fees charged by Comsec-Pershing are so high, this will be a "buy and hold" portfolio from now on. Hopefully Warren Buffet is able to pick up some bargains amongst the sub-prime casualties, and Berkshire will continue to perform well over the next 10-15 years. We'll see.

Subscribe to Enough Wealth. Copyright 2006-2008

The Fat Tail bit me - again.

January '08 was a terrible month for my net worth - declining 7.78% from 25 Dec - 24 Jan. If one assumes a normal distribution of monthly returns, the figures since May 2002 would indicate this has an estimated frequency of just 0.09% IE. I'd expect such a bad month to occur once every ninety years or so. However, my June monthly measurement (from 27 May - 26 Jun) just produced a second abysmal monthly result within six months, down 7.10%, which has an expected frequency of around 0.16%, or roughly once every fifty years. As can be seen from the plot of actual monthly returns vs. the fitted normal distribution, my monthly returns don't follow a classic normal distribution - with a large percentage of my portfolio invested in growth assets it suffers from the "Fat tail" effect, whereby "outlier" events occur more frequently than would be expected for a normally distributed, random variation. Once possible explanation of such results is behavioural economics, or the "madness of crowds". Given the relatively robust state of the Australian economy, excessive fear seems to have afflicted the local stock market. If I wasn't already fully invested (and geared!) into stocks I'd be looking at investing in stocks at this time. As it is, all I can do is hold on, and hope this is close to the bottom of this particular roller-coaster dip.

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Wednesday 25 June 2008

First Trade with CityIndex

After opening a CFD trading account with CityIndex at the seminar we recently attended, I funded the account with $250 via BPay. A few days later the money still hadn't been credited to my CityIndex account balance, so I had to email customer support to find out what was going on. Apparently CityIndex has been having problems processing BPay payments (!), but everything was fixed up after a couple of days. The $250 bonus was also credited, so I had $500 available for trading. My first trade was to sell one US crude oil CFD, and I closed the position a few minutes later for a one pip profit, netting me a massive US$1 profit ;)

I haven't decided yet what I'll use this CFD account for in the long run - last year I would have used it to sell Australian Index CFDs to hedge my Australian stock portfolio, but it's too late for that now (hopefully - I'm assuming that we're close to the bottom of the bear market in Australia). I was thinking of using it to buy CFDs for Berkshire Hathaway instead of buying the stocks using my Comsec-Pershing account, but it isn't one of the US stocks currently available for trading with CityIndex. So, for the moment I'll just browse through the available CFDs and trade whatever tickles my fancy. As long as I only trade the minimal position each time and follow a strict stop-loss strategy I should lose too much by experimenting.

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Saturday 21 June 2008

The Money Pit

I took the family for an outing to look at display homes by Kauley Homes (the builder whose plan I mentioned in my last post). It turned out that there was only house currently open for inspection, and it didn't have the floor-plan I'm most interested in (that display house had been sold several months ago and was no longer open for inspection). The quality of the finish was good (you'd hope so on a display home), but many of the features shown in the display home are "extras", so the quoted base price is really just for a house built to "lock-up" stage, plus kitchen and bathroom fittings. Completing the house with floor coverings, air conditioning etc adds around 50% to the final cost. For example, the house I'm interested in has a base price of $315,000 but completed with the "options" it would cost around $400,000-$450,000. To have a flat patio roof on the house would require it be constructed using double brick rather than brick veneer (so it can support a flat concrete patio roof), which would increase the cost to around $600,000. Added to that will be extra site costs due to the split level block, the cost of adding in a cellar/basement level, and the cost of demolishing the existing house and clearing the site. Even if I liquidated all my non-retirement investments we'd have to take out a bridging loan to complete the house construction, and then pay it off when we move in and can sell our current house. This would leave us with a small mortgage on the new house and no savings other than our retirement fund. Overall, I'm amazed at how much it would cost to build such a relatively modest house, considering it doesn't include land purchase or any luxury fittings. It's not a mansion by any stretch of the imagination. Goes to show that a million dollars isn't what it used to be.

One bright spot, financially speaking, is that obtaining a topographic site survey, having a 'concept' plan drawn up with my requested modifications, and getting an approximate quote will "only" cost $3,000. Although that's a lot of money to throw away if we decide not to proceed with getting complete plans drawn up and submitted to council for approval, it will provide the information required to decide if we really want to (and can afford to) build such a house, or should just stay put in our current home.

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Thursday 19 June 2008

Rental Property Blues Continue

The structural engineer finally sent me a preliminary report regarding the condition of the steel foundations beneath our rental property. It didn't come as a surprise that he recommended some immediate work be done to properly repair the broken brace that the insurance company's builder had welded back together. The initial repair is estimated to cost $1500-$2500, and I suspect that the final report will recommend a whole lot of expensive work is needed to bring the property "up to standard".

Rather than spend tens of thousands of dollars renovating a dilapidated fifty-year-old house, we're thinking of revisiting our original plan when we bought the property almost ten years ago - to have it demolished and build a new home on the site for us to move in to. We won't decide anything until after we get the complete inspection report and get an estimate for the cost of doing all the recommended repair work, but in the meantime I'm having some fun browsing through project home websites. There are a couple of very nice homes, such as this one, available from around $300,000 (it would probably cost a lot more by the time we add in costs for demolishing the existing house, site costs for the steeply sloping site, and including some of the "optional" extras).

I'll take the family out on weekends to inspect a few of the more attractive display homes, and I might even drop in to chat with the architect of the BeyondHomes design I like, in order to find out how much the changes I have in mind would cost. If we went ahead and built this new "dream home" I'd have to liquidate my stock portfolio to pay for the construction, and then sell off our current house after we moved in to the new property to reinvest the proceeds in my superannuation account. Apparently the tax benefits make it more effective to invest any extra money into superannuation than to pay off a home loan early.

While it's fun to research available house plans and think about what my "ideal" house might look like, I'm 80% sure that in the end we'll simply decide to stay in our existing home and either repair the rental property or just sell it off "as is" for it's land value. Although we could afford to build this new house, it would consume a large part of our investible funds and would produce a rather poor IRR compared to other investment options (most of the returns from residential real estate come from increases in the land value, not from the building itself, which actually depreciates over time). Then again, optimising investment returns should only be a means to and end -- eventually you have to decide what to spend your accumulated wealth on. I'm just not sure that buying an up-market house will provide the maximum utility. DW was initially excited when I mentioned it might be better the knock down and rebuild the property rather than pay for renovations, but she's not entirely sure that she wants to have a bigger house to maintain. And I'm not sure I want to go through the hassle of moving house again.

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Monday 16 June 2008

Rose-coloured crystal balls

It wasn't much fun reading the recent stock market doom-and-gloom commentary in the mainstream media, given my fairly high asset allocation to stocks, and my use of gearing. It's far more enjoyable to read optimistic (from my point of view) predictions regarding Sydney real estate prices, such as that reported in today's SMH. According to the BIS Shrapnel Residential Property Prospects 2008 to 2011 report, Sydney will have the nation's highest median house price, of $650,000, by mid-2011 with real estate values expected to climb by 18 per cent during the next three years. This would boost the value of my real estate portfolio by $150,000 over the next three years. An additional benefit for owner's of housing is that rents are also expected to increase substantially over the next few years. And the icing on the cake is that interest rates may have peaked as the Australian economy comes off the boil, and banks may gradually pass on lower borrowing rates as credit conditions recover over the course of 2009.

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100% return trading CFDs

I phoned CityIndex today to finalise the details on the account I applied for at the seminar last Thursday. I was then able to login to my account to change to password from the initial default value, and I used BPay to transfer an initial $250 into the account. Because I funded the new account within one week of the seminar, I should get a matching $250 put into my account by CityIndex - an immediate 100% return! Of course you can't immediately withdraw the $250 - you have to make a minimum of 10 trades before you can withdraw the "bonus" $250 six months after opening the account. At least the bonus money will give me a $500 account balance to play with - sufficient to make trades with a required margin of around $100. For an Australian stock or Index with a 5% margin requirement that would mean taking a $2,000 position.

It was interesting to see the the CityIndex application pack included forms for opening a CFD trading account on behalf of a superannuation fund. Although the trust deed of our SMSF is probably broad enough to allow 'investing' in CFDs, I wonder how the trustees (DW and I) could justify trading such highly geared instruments within our investment strategy? Rather than purely speculative day trading CFDs, you'd have to execute a much more considered strategy with controlled risk - possibly pairs trading, commodity stripped investment in mining companies, or some such.

I don't think we'll use CFDs as part of our superannuation investments, but I may do some modelling to see 'what if' you used CFDs as a highly geared way to invest in the stock market index. For example, if you invested half you funds in a high-interest online cash account, and used the other half to invest in index CFDs (buy-and-hold, rather than trading), how would you have fared
over various 10-year periods since the 1970s? CFDs have an implicit interest cost of the overnight cash rate + 2%, so I should be able to get daily data for the AllOrds Index and cash rate since 1970. It will be interesting to see how this strategy would have performed in different market conditions, and the effect of the proportion of total funds invested. To much invested in CFDs would probably see your account wiped out by margin calls, and too little would see your fund return remain close to the cash rate.

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Saturday 14 June 2008

Spend, spend, spend

Today I ended up spending a bit more than I planned. This afternoon we drove down to the music shop where we'd bought DS1's clarinet (second hand) a couple of years ago. He started learning the clarinet this year, and playing in the school's training band. He's pretty good at music (playing piano, recorder and now clarinet), but not so good as to make it into a career. He enjoys playing in the band, but, being only eight, the instrument takes a bit of a pounding - especially last week when he left it standing on the floor and DS2 toddled past and knocked it over. Fortunately I bought a second clarinet at Aldi last year, so I could play along with him and teach him to play (I learned bassoon in high school, so I can teach basic keyboard and woodwind instruments - very handy given the cost of professional music lessons!). So for the next two week's he'll be using my clarinet while his is in the shop being repaired. DS1 earn a bit of extra pocket money busking on the weekend after his piano lesson - so I've told him I'll take out 50% as a "tax" to pay for the repairs. Hopefully this will make him take a bit more care with his equipment.

We then visited Aldi to buy some nappies, and while we were there ended up buying some unplanned "extras". They had a convection oven for sale at $49, which seemed a good price. We already had an old convection oven we've used for everyday cooking for the past ten years (we haven't ever used the stove oven!), so I thought it was worth buying a new one before the old one died (the fan has been getting a but more noisy lately). They also had a self-inking stamp kit for $8, which I bought for DS1 to play with. It's definitely not something we need, but he's having fun type-setting his name and address and can use it to label all his school books, and the occasional letter to his relatives.

While we were at the shopping centre I dropped in to the Electronic Boutique shop to browse for computer games. Although I don't really have much spare time to play games, I enjoy the occasional RPG and would like to see what the modern MUD games are like to play. Now that my uni assignments for this term are out of the way, I may be able to squeeze in a couple of hours of game play. I bought "Vanguard:Saga of Heroes" which appears to be Vista compatible (a lot of my old PC games don't work under Vista), and only cost $20. The game only works online however, so I'll have to pay a monthly fee if I want to keep playing after the introductory 30 day game subscription expires.

All up, an extra $77 of discretionary spending. At least I didn't buy the $139 hedge trimmer while I was at Aldi!

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Debt Consolidation

Many people have problems with debt - they start are using credit cards for convenience, and don't immediately appreciate that anything you charge has to be paid back! Of course, they know it in an abstract sense, but they are happy to not think about it. After all, they can afford the minimum repayment, so what's the problem?

I never got into any strife with credit as I always treated credit purchases as if they were cash - if I didn't have the money in the bank, or at least KNEW I'd have enough to pay off the CC balance in full at the end of the month, I simply didn't make a purchase. I was also luckier than most in that my uni studies didn't cost much (HECS only commenced after I'd started university, and cost around 1/4 of the full cost). However, many people use credit to buy goods and services they can't really afford at the time, or rely on using credit to make ends meet when some emergency arises. The big problem with using credit to get through an emergency or fund your lifestyle, is that once your credit is maxxed out you are in a worse situation than before - unable to maintain your lifestyle or pay for expenses, and yet lumbered with credit repayments, often at exorbitant interest rates.

While it would be nice to think you can dig yourself out of such a situation, it's usually helpful to get outside assistance. After all, good money managers seldom get into such strife, barring a major life crisis.

One source of help with credit card debt is NetDebt. Their website says that they "provide an easy, no-nonsense method of obtaining sound debt advice and an online help to eliminate debt problems". The website is nice and clean, although I was annoyed that the frequent question link just took you to an eligibility questionnaire (I made up some overdue debt figures to get to the next screen), and that the "how the program works" link took you to a talking head, sound-only pop-up. For such a service I'd want to read a full product disclosure with complete details of the fees, charges and costs involved. Although debt consolidation can help to eliminate calls from creditors, simplify multiple payments into a single monthly payment, and possibly get the interest rate reduced or some of the debt forgiven, there are many stories about people in debt who were actually worse off after using a debt consolidation service. For example, the cost of achieving lower monthly repayments may often be a much longer term required to pay off the debt. Especially since the cost of the debt consolidation service can be "invisible" - simply tacked on to the total amount owed, hence extending your repayment term, and the total amount of interest eventually paid, significantly. Anyhow, if you are in dire need for credit card debt settlement, NetDebt may be worth a look. But I'd make sure I was aware of the full cost before entering into any binding agreements.

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Thursday 12 June 2008

Money for nothing, and FX for free

DW and I attended a free CFD trading seminar provided by CityIndex this evening. It was held at the Sofitel Wentworth hotel this evening, and attendees received a bonus $250 match if they opened an account and fund it within a week of the seminar. Those who applied for an account then and there also got a free one year subscription to Wealth Creation magazine (I think that's the title). Since we are already trading CFDs with CMCMarkets, and weren't entirely happy with CMC Markets trading platform, it seemed like a good idea to apply for accounts on the spot. DW and I have our own trading accounts, so we each applied for a CityIndex account. Hopefully this will mean we get $250 each credited to our new account. You have to put at least $100 into a new account, and the offer is a dollar-for-dollar match up to a maximum of $250.

The CityIndex trading platform looks pretty cool, and has a few nice features that CMC Markets doesn't provide. It allows you to set stop and limit prices in the same screen that you setup an order, rather than having to do a trade first and then create a stop, limit or both (OCO) order subsequently (which is they way it's done using the CMC platform). The CityIndex platform is web-browser (IE) based, so you can login and trade on your account from any PC. The CMC Market platform is a java application that has to be downloaded and installed on each PC you want to use for trading. This also makes the CityIndex platform easier to update, and it seems more 'modern' overall. Another nice feature is that you can edit existing stop/limit orders (eg. reset the stops as a trend continues). This is a lot more cumbersome with the CMC Markets app, which requires you to cancel an order and then create a new one if you wish to change to settings.

One disadvantage with CityIndex CFD trading is that the buy/sell spread for FX trades is 3 pips - compared to only 2 pips with CMC Markets. However, CMC acts as a market maker, and does not have to set prices that exactly match the physical market price, which could end up costing more than the 1 pip difference per trade. At the seminar we were told that they may soon be reducing their FX buy/sell spread to 2 pips at some stage. There is also a software enhancement in development to provide dynamic stop/limit orders (where you can have the setting automatically change as the trend continues, but remain at their maximum values during any reversals).

CityIndex doesn't charge any extra fee for trading stock and index CFDs (CMC Markets charges a fixed $40 fee per month for accessing the Au stock market data), so I may use my CityIndex account to also trade the Australian ASX200 index. It would have been nice to have had this setup last year - I could have sold the index when my Index Put Options expired, and therefore been 'insured' against a large part of the losses suffered by my Australian stock portfolio this year. A case of saving $40 per month ending up costing me tens of thousands of dollars!

CityIndex should be in touch with us tomorrow to provide the remaining details required to open our accounts, and we should be able to fund the account with $250 and start trading in a few days. I'm not sure if I'll switch my forex trading from CMC Markets to CityIndex, or just use the new account for stock and index trading. I may replace my expensive Comsec/Pershing account with CFD trading for my US stock positions - now that I'm no longer trading small-cap stocks selected using the "Little Book that Beats the Market" method, and sticking to large-cap stocks such as Microsoft and Berkshire I should be able to access them via CFD trading. I still need to check into the full details of the cost of using CFDs for holding long term positions. The nominal interest rate with CityIndex (2$ above the reserve bank overnight cash rate for borrowing (going long)) appears to be comparable to the current cost of funds used in my Comsec/Pershing account. However, the interest is charged on the full position value (not just the 'borrowed' amount). Since CFD trading uses a margin (your funds) of around 3%-10% of the position, this will mean a slight increase in the effect cost of the 'loan'. Also, with interest being charged daily on positions held open overnight, there may be extra costs due to rounding of the interest charged each day.

Anyhow, I never quite worked out the real interest rate applied when I held positions open with CMC Markets overnight - although
they also quoted an interest rate a couple of percent above the overnight cash rate, in practice the rollover charge when I kept positions open several days seemed to always be a fixed fractional number of pips, rather than an interest charge based on the current cash rate. I'll probably have to make a small test trade with CityIndex and keep it open for several days before I can be certain how interest is really calculated and charged.

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Tuesday 10 June 2008

A new look at housing affordability

It's common to see reports of how the average house price has increased in relation to average income over the past decades, reducing home affordability to the point where the dream of becoming a home owner is out of reach for more and more working families. But the use of average figures can distort the true picture - after all, there are plenty of houses for sale below the average, but they tend to also be in cheaper suburbs where the average income is lower. So how do you know which parts of Sydney are truly unaffordable? City Futures Research Centre at the University of NSW has attempted to provide a more realistic measure of housing affordability in Sydney by comparing average house prices in each region with average income data for that particular region. Most people buy their first home within a short distance (5-10 km) of where they're living at the time they decide they want to buy.

The study has shown that while the traditional average income/average house price chart shows lots of 'cheap' housing in the south-west region, the reality is that most of Sydney is unaffordable to the people living in that area, and there are just a few pockets of reasonably affordable real estate scattered throughout the Sydney region;

While this is an interesting way to look at affordability, it doesn't speak to which areas are good value. After all, an area with expensive real estate will tend to be populated with high income families (who are the only ones that can afford to live there), and so may appear to be relatively affordable according to Randolph and Pinnegar (the authors of the report), but may still be overpriced.

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Sunday 8 June 2008

Getting things ready for the financial new year

Australia's financial year ends on 30 June, so I'm trying to tidy up some odds and ends and start the new financial year on the right foot. On Friday I finished off my assignments for the BTeach subject I was studying this semester, so this long weekend (Queen's Birthday) I have some time free to try getting my accounts up to date in Quicken.

I phoned Comsec margin lending regarding a reduction in the interest rate on offer (10.35%) for fixing and prepaying my loan for the next 12 months. Unfortunately they didn't come to the party, only 'offering' a reduced rate if I had a larger loan balance (which is their standard rate card). I don't really need to prepay too much margin loan interest this FY for the tax deduction, as I had salary sacrificed much more into superannuation this year than usual. So, I'll just leave the Comsec margin loan at the variable rate, paid monthly, and look to sell off some stocks to reduce the loan balance in the next couple of months, and possibly arrange for the stocks in this account to all be transferred to my margin loan account with St George. The combination of a lower rate (as a "gold" client) and getting a 50% rebate of the margin loan trail via YourShare (which isn't available on Comsec loans), means that borrowing from St George margin lending will be 0.50% cheaper than via Comsec.

I'll try this week to negotiate a lower interest rate for prepaying my other margin loan balance (with Leveraged Equities). If they also don't reduce the rate I'll do the same thing - sell off some shares to reduce the LVR and transfer the stocks to my St George account. Leveraged Equities was my first margin lender (more than ten years ago), but they don't offer the best interest rate and all trades have to be done via a "full service" (ie. expensive) brokerage firm on the phone. I much prefer being able to trade directly online, as with my Comsec account. I currently only have managed fund investments with my St George margin loan account, but I think they also allow you to trade shares on the margin account directly online via their DirectShare service. If I move all my margin loans to one provider I will get a rate reduction by having a larger balance. For loans above $250K rates reduce by 0.25%, and for loans totalling more than $500K another 0.25% is knocked off the rate. Therefore, just by merging my three margin loans into one loan of $330K I can save another $825pa in interest costs. There is probably some slight added risk associated with concentrating all my margin loans with one provider, but St George margin lending should be much more secure than some of the smaller, independent lenders such as Opes Prime.

In the past couple of months I've made some simple changes that will reduce costs by around $3,000pa. Some of these savings need to be put aside (for example as "self insurance" to offset the saving made by cancelling our private hospital insurance), but most will go directly to the "bottom line" of my overall investment returns. The next task will be to cut out some expensive habits that aren't very good for me - such as eating confectionery and drinking way too much diet coke. Hopefully keeping track of all my income and expenses in Quicken might also help identify some other areas of waste I'm not even aware of.

Of course some of my biggest expenses are beyond my control - for example the increase in our mortgage variable interest rate from 6% to 8% over the past couple of years had a big impact, especially with DW taking unpaid maternity leave and then returning to work part time until DS2 starts primary school. Hopefully interest rates might be at or close to the peak for this economic cycle, and may start to drop a bit in 2009. We have around half of our real estate loans on a fixed rate for another three years - hopefully when we have to refinance that loan, rates won't be too much higher than when we last fixed two years ago.

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Saturday 7 June 2008

Trail rebates and a free lunch

I got a couple of emails recently from confirming that they had finalised the paperwork required to nominate them as my 'broker' for my various various managed fund and margin loan accounts. They should now start to receive the trailing fees paid out by these investment companies, and I'll be sent a detailed statement of the trails paid and a cheque for 50% of the trail amounts on the anniversary of signing up with YourShare.

I also got a phone call from Paul Brady, the director of YourShare, letting me know that he was in Sydney on business and asking if I'd like to meet him to discuss my impression of the YourShare website. We had a pleasant lunch discussing the vagaries of trail payments, and he gave me an estimate of the trail rebate I'd likely get based on the investments I'd so far assigned YourShare as broker - it came to around $540 per year, which was close to my rough estimate. Paul is an accountant by trade, and YourShare appears to be a small business with great potential, given the amount of money most investors are paying in trailing fees without getting any benefit from the advisors or brokers who put them into the investment. One of the nice features of YourShare compared to other similar services is that there is no upfront fee required to sign-up, so you have nothing to lose by trying out the service. Now I just have to wait until next May for my cheque to arrive. I did mention to Paul that it would be nice if the "Your Portfolio" page on the YourShare website listed all trails received to date, and he indicated that this might be added in future.

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Online CC application site provides information on credit card offers online. You can save time by searching, comparing, and applying for a credit card in one place. The site has information categorised into:

  • Low Interest Credit Cards
  • Low Interest Credit Cards
  • Business Credit Cards
  • Student Credit Cards
  • Bad Credit Credit Cards
  • Balance Transfer Cards
  • Cash Back Credit Cards
  • Airline Miles Credit Cards
  • Instant Approval Cards
  • Prepaid Debit Cards

The site also has articles relevant to the maintenance and use of credit cards, such as how to stop receiving "pre-approved" credit card offers, using their money, and how to keep credit card accounts open. And provides lists of cards offering different types of benefits, such as:

  • Cash Rebates
  • Sign-up Bonuses
  • Save on Gas
  • Save on Groceries
  • Save on Dining
  • Airline Miles Rewards
  • Auto Rewards
  • Hotel Rewards
  • Sport Rewards
  • Finance Rewards
  • Home Improvement
  • Entertainment Rewards

Apply for a credit card when you have done some background research, and know the pros and cons.

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The positive side of high petrol prices

With oil setting record highs on a regular basis, the hip-pocket pain of filling up at the bowser is set to increase. However, increased fuel costs do have a positive side. Public transport use (trains and buses) has gone up around 8% in the past year in Sydney, reflecting the shift away from cars for commuting to work. The reduction in peak hour traffic would be even higher than this, as some people are car pooling rather than using public transport, and there would be some reduction in travel as people focus more on finding work closer to home.

Although I've seen the cost to fill up increase from around $25 to $45 in the past couple of years, during this same period the peak hour traffic has improved remarkably. The typical trip to work in the morning used to take 45-55 minutes, while trips during school holiday periods improved to around 30 minutes. This year I've noticed that the daily commute is only taking around 30 minutes, even during school terms. So, although I'm paying an extra $20 a week on petrol costs, I'm saving around 2.5 hours travel time each week. Unfortunately there is a lower limit to how long the trip to work will take - the distance and the speed limits mean it could never get much less than 30 minutes even with less traffic. So, any further petrol price hikes are not going to be of much personal benefit.

However, there will still be the global benefit of increased fuel costs reducing demand for oil. This will both help to cap further increases in the price of oil, and slow the rate of increase in greenhouse gases.

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Petrol discounts

our two large supermarket chains, Coles and Woolworths both run petrol discount schemes whereby you get a 4c/L discount voucher if you buy $30 or more of groceries in one transaction. While there is some criticism that the cost of the fuel discount is simply passed on to shoppers via increased grocery bills, I doubt that there is really much impact on grocery prices. For one thing, I'm sure a lot more vouchers get issued than are ever presented - I always have lots of vouchers in my wallet that don't get used before they expire after one month. The other reason is that the full cost of the discount won't be passed on from the petrol outlet to the grocery chain since the vouchers are a marketing tool to attract extra customers to the petrol station.

Woolworths recently replaced the printed shopping vouchers with a credit-card style rewards card. Each time you spend more than $30 in the supermarket you simply have the card scanned and a 4c/L discount is credited to the card. You then present the card at the petrol station to obtain the discount. The card is an improvement over the vouchers for several reasons:

  • You don't have to clip vouchers off your shopping dockets and keep them in your wallet
  • The card system automatically uses the highest value discount available, and then the oldest one. This ensures you get the best value from the available discounts.
  • If you go online to register your details for the card, you get a one-off 10c/L discount.

I got one discount card for myself and one for DW. I've already registered my card and used the 10c/L discount when I filled up last week. I'll now register the wife's card online and use that card to get a 10c/L discount next time I get fuel. After both 10c discount offers have been redeemed I'll "link" the two cards together - up to five cards can be linked, which means that a discount obtained using any of the cards is pooled with the others, and when any of the discount cards is presented when paying for fuel, the oldest of the discounts will be used up. My parents have also got the Woolworths discount cards, even though they do most of their grocery shopping at Coles. After they've used up the initial 10c discount from registering each card, we'll link all four cards together. That way they'll always be able to get a fuel discount even if they haven't been shopping at Woolworths for a while.

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Wednesday 4 June 2008

Forex CFD Trading Update: May 2008

My AUDUSD CFD trading produced a small loss for the month of May. I did get my account balance up to $2600 a couple of times during the month, but a couple of losing streaks offset the steady trickle of small gains. I seem to be able to make small profits ($10-$30 at a time) trading very short term gyrations (within a few minutes), but the win:loss ration is only slightly above 50% so it takes a lot of these short term trades to generate a small profit. This sort of trading requires constant attention to the price action, so the "hourly rate" is hardly worth the effort.

Longer period trend trading (loosely based on the cross-overs of short and longer period price averages, but with attempts to "pick" the turning points before they are confirmed by the charts) doesn't require constant monitoring, and the results seem promising. However, it requires setting a stop and limit OCO order for each open position, and this month I had a few too many occasions where either the stop-loss closed out my position, only to see the trend continue after the brief dip, or else the trend reversed just short of my profit-taking limit price.

Setting the stops too close means getting closed out of positions that would have been profitable if left to run, while setting them too loose means taking a big hit on the positions that turn out to have been wrong. I need to be more consistent at using OCO orders to control my risk, and resetting my OCO orders to "lock in" profits - but this isn't possible where I have positions open overnight or during the day while I'm at work. It would be ideal if the trading platform allowed you to automatically reset the stops in an open OCO order based on movements in a moving average, and alert you (eg. via sms) when the price approached the limit of your OCO order. The CMC platform currently doesn't even let you edit the stop and limit prices in an open OCO order (you have to cancel the open order and create a new order with the new parameters), but an enhancement to add this feature may be coming with the new version 5.4 being rolled out this month.

Despite losing $153.58 this month, the average loss per trade was only $1.36. Since the 2-pip buy-sell spread means that each leg of a trade is costing a minimum of $2.50 (on the minimum $25,000 CFD), my trading might exhibit some modest level of skill - albeit not enough to overcome the drag of the trading costs. Overall I've made 867 trades since opening my account. This means that CMC Markets has made at least $2,167 revenue from the spread on my trades - which accounts for almost 80% of the amount I'm down in my trading account! They also make a small profit from the interest rate differential on long and short positions being rolled over.

Next week I'm going to attend a free CFD trading seminar presented by CityIndex. It will be interesting to see what features their trading platform offers.

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Monday 2 June 2008

Networth Update: May 2008

May showed gains in my stock and retirement accounts, but a drop in the valuations of our property portfolio more than offset the gains and I ended the month down (-0.32%) for the month, to $1,069,041:

Property valuations -$14,527 (-1.71%) to +$834,700
Mortgage loans..... -$...776 (-0.21%) to -$365,744
Retirement accounts +$.2,539 (+0.84%) to +$306,389
Stocks & other..... +$.7,805 (+2.73%) to +$293,696
TOTAL NW........... -$.3,407 (-0.32%) .+$1,069,041

My monthly retirement contribution for May (around $4,200) isn't showing in this month's figures as the employer contribution hasn't appeared in my SMSF bank account yet. Hopefully all of this FY contributions will be deposited into our SMSF bank account by 30 June, otherwise it may create problems with next year's superannuation tax. My SGL and salary sacrifice total in close to the $50,000 annual concessional contribution limit, so if some of this FY contributions were deferred until next FY it could push next year's total over the limit, and incur an extra 30% tax of the surplus amount.

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