Saturday 26 September 2009

Coin counting machine at CommBank

When DS1 and I went into a local branch of the Commonwealth Bank last week we noticed a shiny new coin counting machine had been installed. You pour you collection of coins into a tray, press a button and Hey! Presto! the coins are swept into the guts of the machine and a docket is printed out showing how much your coins were worth (you have to assume the machine never makes mistakes!). If you're a CommBank customer and use the docket to deposit the funds into your CommBank account there's no charge. But if you're not a CommBank customer you'll be hit with a massive 10% "service fee". We also found out that you have to use the docket to deposit the money that day (I suppose there's some sort of checking done when the docket is processed to verify the amount matches what the machine has taken - the docket would probably be easy to forge).

As the branch is open on Saturday afternoon when DS1 does his busking, I'll put a note with his account details into his busking bag so he can have his earnings counted and deposited into his account as soon as he finished busking. Currently we have to lug his bag of coins home, manually sort and bag them, and later make a trip to the bank to have the bagged coins deposited.

It will be interesting to see how the coin counting machine reacts if there are some foreign coins mixed in with the Australian coins - DS1 often gets some NZ, Chinese or Malaysian coins thrown into his busking collection box.

We'll probably just use the CommBank coin counting machine for counting and depositing the 'silver' (<$1) coins, and still take the 'gold' ($1 and $2) coins to put in his money boxes. DS1 usually gives a dollar or two of his earnings to his younger brother, and deposits the bulk of his income into his St George account so it can be transferred easily into the higher interest "online" savings account.

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Friday 25 September 2009

Children's Superannuation: Retirement Savings Account (RSA) Comparison - AMP vs CommBank

I opened two retirement savings accounts for DS1 several years ago, one when he was born, and the the second when he started earning money doing a paper round.

The first retirement account was a 'Child Super' account that allowed parents or grandparents to contribute up to $1,000 each year into a superannuation account for their child. These accounts were never very popular as there was no tax deduction for the amounts contributed, so the only real benefit of a 'Child Super' account is to avoid the incredibly high tax rates (around 60%) applied to children's unearned income (eg. interest on bank savings accounts where the money came from gifts or pocket money) once it exceeded a threshold (of around $2,000 pa after applying the low income tax rebate). Earning within a 'Child Super' account are taxed at the usual concessional superannuation tax rate of 15%. I opened the 'Child Super' account with Macquarie, and at least it offers a good choice of investment options (eg. Australian and Overseas share funds). Once DS1 reaches 18 years of age this account will transition to a normal "personal" superannuation account (I may add him as a member of our SMSF when he turns 18. Under 18 it's harder for children to be members of SMSFs as they can't be a Trustee).

Once DS1 started having 'earned income' (from his paper round - deposited into a separate savings account to keep it separate from his pocket money and any money gifts) I opened a second "personal" superannuation account for him, so he could benefit from the 1.5:1 government co-contribution on personal, undeducted superannuation contributions (ie. when he deposited $1000 into super each year he received a $1,500 "co-contribution" from the ATO). Finding a suitable superannuation account was a bit difficult - Child Super' accounts aren't eligible for the co-contribution (as they don't accept contributions from the child themselves), and most "personal" superannuation accounts required the applicant to be over 18 years of age. At the time, the only account I could find for DS1 that didn't require applicants to be over 18 years old was the AMP Retirement Savings Account (RSA) (at the time they didn't require DOB information on the application form, although they later did apply an incorrect "default" DOB and I had to send in a copy of his birth certificate to get the data fixed). This worked well, with DS1 received the co-contribution "match" for FY04/05 and FY05/06 (that year the budget even gave a second "bonus" co-contribution of $1,500). DS1 didn't receive the co-contribution for FY 06/07 (once he had stopped his paper round), as the Superannuation co-contribution rules at that time required having income from an employer to be eligible (ie. the rules excluded the self-employed). The rules were change the following year so that any income earner (including self-employed) under the age of 75 who makes an undeducted superannuation contribution is now entitled to receive the co-contribution (although it's been reduced to $1,000 this financial year). DS1 received the $1500 co-contribution in DEc 08 for the FY07/08 tax return he lodged in July 08, and I expect he'll receive the $1,000 co-contribution for FY08/09 later this year...

However, since I opened his AMP RSA account interest rates have dropped considerably, and the rates on offer from the AMP are now very low:

Balance________________ Int Rate
<$1,000________________ 0.00%
$1,000 - $2,500________ 0.15%
$2,500 - $10,000_______ 1.15%
$10,000 - $50,000______ 1.40%
>$50,000_______________ 1.60%

The 0% rate is obviously set to allow for the Superannuation rules that prohibit charging any fees on Superannuation account balances below $1,000, and all the rates are net of MER (estimated at 1.9%).

I recently received a PDS (Product Disclosure Statement) for a new RSA on offer from Commonwealth Bank. It looks pretty good for anyone looking to setup a superannuation for a child or teen wanting to save something towards their retirement (and possibly get help from the government co-contribution, although the next Labor government budget may change that). There is a flat annual admin fee of $25, but only when the account balance is over $1,000. And the interest rates on offer are much better than the AMP rates, especially for balances under $2,500:

Commbank RSA:
Balance________________ Int Rate
<$1,000________________ 1.90%
$1,000 - $5,000________ 2.00%
$5,000 - $10,000_______ 2.15%
$10,000 - $50,000______ 2.30%
>$50,000_______________ 2.60%

On DS1's current RSA balance of around $12,000 he would earn an extra $83pa in interest with the Commbank RSA.

The Commbank RSA also offers a second investment option within the RSA account - fixed rate term deposits for amounts over $5,000:

Commbank RSA term deposits (min $5,000):
Term___________________ Int Rate
1 year_________________ 2.40%
2 years________________ 3.40%
3 years________________ 4.50%
4 years________________ 4.95%
5 years________________ 5.20%

Although variable interest rates are likely to start rising in 2010, and may go up considerably if inflation takes hold post-GFC, the term deposit rates look attractive for a government-guaranteed investment sitting in a low-tax (15%) environment.

As the minimum amount to open a CommBank RSA is just $1, I'm going to open an account for DS1 in preparation for rolling over his AMP RSA account as soon as this year's co-contribution has been processed.

This graph highlights the difference in net interest rate on offer from AMP and CommBank:

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Wednesday 23 September 2009

Cub Scouting and Vacation Costs

DS1 enjoyed his second and third Cub Scout's meetings as a "new chum" and was keen to join up and start working towards some of the achievement badges during the upcoming school vacation. So I decided to go ahead and buy the required cub scout uniform (peaked cap, buttoned shirt and belt) from our local Snowgum store (the Scout product distributor in NSW). The clothing cost $64.85 from Snowgum, which is the same price as listed by the Scout shop. In addition, for new customers buying Scouts equipment Snowgum waives the usual $11 fee to join their loyalty scheme - so each May we will be sent a refund voucher worth 10% of the amount spent at Snowgum stores. I'm sure the refund will come in handy to buy some badges or camping gear. The Snowgum store didn't have any of the "official" Scout uniform trousers in the right size for DS1, so instead of paying $39.95 for a pair of tan-coloured cargo pants with zip-off legs we visited Target and bought a suitable pair of tan-coloured shorts for just $10. The "official" Scout uniform shirt and belt is made in China (the cap label doesn't mention where that came from), and the cheaper Target shorts come from Bangladesh. The label says to wash to shorts before wear, which I assume is to remove dyes and chemical residues (and possibly pins etc). As DS1 has eczema we will definitely wash the clothing twice before use. After the 10% discount the total cost of the basic Cub Scouts uniform came to $68.37. If the uniform doesn't get worn out too quickly, DS1 will use it until he moves on to Scouts in 18 months time, and we'll then keep it until DS2 is old enough the start Cubs three years later.

I handed in the membership application paperwork at the second meeting, along with the "[I'm not a] prohibited person" declaration that is required from any parent that wants to help out at Cub meetings. As a pro-rata fee amount due is calculated from the number of quarters remaining before the 31 March "year end", I listed 1 October as the joining date and post-dated the cheque.

For the school vacation period I have booked DS1 into a 4-day sailing course (cost $320) the first week of the holidays, and a 2-day art class the following week ($120). Hopefully DS1 enjoys the classes enough to make them worthwhile. We have a small catamaran sail-boat stored at my parent's lake-side farm, so sailing would be an affordable activity for DS1 if he enjoys it.

DS1 may also spend some time in the vacation learning JAVA programming - he worked his way through a couple of kid's programming tutorials last year using QBasic, so I bought a colourful introductory book on programming in Java that will help introduce him to object-oriented programming concepts and revise his previous work on variables, arrays, loops, i/o and so forth. Last week I registered him with the online training site used by students preparing for the Australian Informatics Olympiad programme. The site is really meant for high-school students (years 7-12) that are participating in the Australian Informatics Competition (AIC) or the Australian Informatics Olympiad (AIO), but the online exercises will provide many programing exercises for me to work through with him. When he submits his solution code to the site it will be automatically run using a suite a test data files and given an overall score based on program output correctness and run time. Cool. DS1 is only in year 4, so he can't enter the informatics competitions yet, which is a pity since he got a high distinction in the ICAS computer skills test this year (top 2%) and is interesting in programming and robotics. But if starts programming now for fun, he may do well in the competitions when he is in Year 7.

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Monday 14 September 2009


Now that DS1 is old enough I had another look at what Cub Scouts branches are currently active in our neighbourhood. The closest Scout hall is long-abandoned and derelict, and the next closest packs have their weekly meetings starting at 6:30pm on nights that DW and I both return home fairly late from work. A 6:30 start is not really practical as DS1 and DS2 are at day care/after-school care until 6pm on those days. Fortunately there's another Cub Scout group a few km away that holds their meetings from 7pm-8:30pm on a non-working (for DW) week-night, so we dropped in for a visit last Tuesday to check them out. DS1 enjoyed the activity (building model rafts using corks and paddle pop sticks) and the overall club atmosphere, and he was intrigued by the list of tasks required for the various achievement badges and the bronze, silver and gold "boomerang" awards.

The cost for Cub Scouting is very reasonable ($10 each school term to help pay for materials, around $65 for the uniform shirt, belt and cap, and an annual association and club fee of about $180). I've filled in the application paperwork and will probably join him up after he's attended a few more weekly sessions as a "chum" (to check that his enthusiasm doesn't wear off too quickly).

I found it interesting that the cub "oath" is offered in two versions (one mentions the Queen of Australia and the other that just mentions Australia - to avoid putting off republican supporters I guess) but that both versions include an affirmation of belief in "my God". While the Australia Scout movement is less restrictive that the BSA (the "official" US Scouting body) in that girls have been allowed to join Scouts and Cubs in Australia since the 1980s, it still requires at least lip service to having belief in a God. It doesn't seem to matter WHAT God you believe in, but an expression of faith is an intrinsic part of the weekly meetings. Given the historic background of Scouting I have no problem with them including faith as one of the positive attributes they want to encourage in their young members, but making it a mandatory part of the oath for Cubs seems anachronistic given the relatively secular nature of modern Australian society. Oh Well, DS1 did attend a local church "Kids Club" for several years and knows the basic Christian Sunday school stories and he was Christened when he was one year old, so I suppose making the oath won't really be lying. I left the religion/denomination section of the forms blank though, as we don't attend church and therefore aren't affiliated with any particular brand of religion. There seems to be an assumption that having faith in "my God" means you will be a member of one of the organised religious movements. If I have to fill in the blank on the form it will be a toss up between putting down Methodist Christian (a simple answer) or Naturalistic Pantheist (possibly a more "honest" answer).

Next meeting I'll ask the pack leader what the process is for completing the various "achievement" badge requirements. A lot of the tasks can be done at home, but I'm not sure if DS1 will need to get approval from the pack leader before hand, or if DS1 can just do the required work and then make a presentation at Cubs when he's completed all the required activities. I remember from my short time as a Cub Scout many decades ago that the biggest hurdle to earning more than a couple of merit badges was the lack of interest from the pack leader (especially any topics they weren't "expert" in). There are only so many times that repeating the same course on "map reading" remains interesting for a child! The "new" (since 2004) list of 35 achievement badges includes a lot a topics DS1 is interested in (eg. music, entertainer, scientist, space, information technology) and can easily complete. For the "flight" badge it might also be possible to organise a day-trip for the pack to attend the Scout activity centre at Campden airport (there's a $53 fee that includes all the requirements for completing the "flight" achievement badge and also a half-hour joy flight in a Cesna 172).

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Thursday 10 September 2009

NAB SPP Scale-back Refund Cheque Received

Unfortunately National Australia Bank decided to limit the recent retail investors SPP offer to the $750m, so out of my $15,000 application for new shares only $4,343 was allotted to purchase 202 shares at the offer price of $21.50. The remaining $10,657 was refunded via a bank cheque which arrived a couple of days ago. With the NAB share price currently around $28.75 the SPP still produced a $1,464.50 paper profit (ignoring any dilution effects on the value of my existing NAB shareholding) but not as much as I'd hoped for when I sent in the full $15,000 for my maximum SPP entitlement. With the market recovering and NAB shares trading well above the issue price, most retail investors took up the offer in full it seems. It's a bit annoying that NAB scaled back the offer so severely (the pro-rata issue was 28.82%), especially since they have already diluted the retail investors ownership via the quite large institutional offer. NAB included an explanatory letter trying to justify why they did an SPP rather than a rights offer, and also why they chose to scale back the SPP. They bank's excuse for scaling back the offer rather than accepting the full amount provided by their shareholders ("... the depressing effect doing so can have on return on equity, dividends and the share price") is unconvincing given the dilution effect of the large institutional share placement and the fact that they'd done a previous SPP last December. If they seek to raise any more capital in the next one or two years it will prove that they have little regard for their "mum and dad" retail investors.

ps. It's also annoying that the NAB "bank cheque" still hasn't been cleared in my credit union account several days after I deposited it. I have a 0% balance transfer offer that expires today that I want to pay off in full - every extra day until the cheque clears and I can pay off the CC balance will cost me around $10.

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Tuesday 1 September 2009

Net Worth Update: August 2009

My net worth increased 7.21% during August, due mostly to the continued rally in the Australian and global share markets. By 31 August my net worth had increased to $753,137 (up $50,628). At the start of 2009 I had hoped for the economy to stabilise and show signs of recovery by the end of the year, and would have been happy for no further decrease in my net worth over 2009. Things were looking pretty dire by the end of February, having lost another $70K or so of net worth. At the bottom of the stock market slump in early March, my net worth had dropped to only $554,783 - the lowest since August 2003! And unfortunately the prospect of margin calls on my geared stock portfolio forced me to liquidate around half of my remaining portfolio. By mid-year the stock market recovery was well underway, and I had thought I my net worth could realistically recovery to $750K by year's end. That level has already been surpassed, and it looks as if the market has already priced in an economic recovery by the end of 2010. Any significant bad news (eg. China growth stalling) would probably see the market drop steeply again. In the medium term (2-5 years) the economy and company profitability may completely recover from the GFC, but I don't expect the market to reach the previous peak - investor confidence will probably be more subdued than in 2007, and inflationary impacts flowing from government stimulus spending around the globe will see official interest rates at higher levels, which will reduce p/e ratios.

My retirement account (SMSF) gained $18,375 (+6.70%) to $308,631. The gain was entirely due to the stock market rise, with our small geared stock investment (7 ASX200 index CFDs, code: IQ) boosting the gain. The were no employer superannuation contributions banked during August. We have around $8,000 cash sitting in the SMSF bank account, but I'm hesitant to add to either our Vanguard HighGrowth index fund investment or IQ CFD holding when the market has had such a steep rise for the past two months. I'll invest the cash if there is a substantial correction (10%+), or start to dollar cost average by investing our monthly contribution amounts if the market stabilises around the current level.

The estimated valuations for my half of our real estate assets (house and investment property) were up $6,921 (+0.89%) to $781,389 in August, but recent sales data indicates a smaller rise (around $4,000) will be recorded for September. Also, September will see our total mortgage debt increase by about $2,000 due to having to redraw this amount to meet our loan interest payments while the rental property was vacant during August. New housing starts remain below the level of increased demand (there was record high net migration to Australia in 2008/9, surpassing the previous high set in 2007/8), so there is likely to be another "property boom" in Sydney once the economy has started growing enough to stabilise unemployment rates (late 2010?). Higher inflation would also see construction costs for new housing rise, which usually boosts prices of existing stock, while the real value of our mortgage would drop. A decade of higher-than-average inflation would probably see the value of our real estate portfolio rise slightly in real terms, while our mortgage debt would be slashed in real terms (even with our mortgages currently being "interest only").

My stock portfolio showed the benefits of leverage when the market is rising rapidly, but my overweight (13% of total portfolio value) investment in IPE (ING Private Equity fund) shares is having a negative impact on my portfolio performance as the market start recovers. Being a 'fund of funds' that are invested in unlisted private equity, I expect the economic recovery will have to be well underway before IPE trades closer to NAV (currently NAV is quoted as around $0.47 per share, but the shares are trading around $0.21 following a 1:1 rights issue at $0.17 a share in June). Before the GFC IPE shares were trading around 85% of NAV, so I expect IPE will outperform the market in the medium term if the real economy recovers and the prospects for small, unlisted companies brightens substantially. My $51,240 invested in IPE (244,000 shares) is high risk, but theoretically could have great upside potential. For example, if the ASX200 reached 6,000 when the economy has recovered (another 33% rise from current levels, but still around 12% below the 2007 peak), the NAV of IPE should rise to around $0.63 per share. If p:NAV recovered to pre-crisis levels of 85%, this would result in a share price of about $0.53. It's probably an overly optimistic projection, but if it eventuated I would recoup all the loss that resulted from investing $100,000 in IPE just prior to the start of the GFC. (On the downside, IPE could end up worthless if the underlying private equity funds collapse). Converting my "trading" position in IPE options into a large stock holding back in 2007 using HELOC funding was one of my all-time bad investment decisions (the others were: not letting my stock portfolio gearing levels naturally decline during the bull market of 2006-7, not rolling over my index put-options when they expired in December 2007, not taking the opportunity to correct this mistake by investing in new index put-options during the brief bear market rally of March 2008, deciding Microsoft was too expensive to invest in during the early 80s, selling out of my position in Felix resources when the stock had risen from $1 to $2 a share (currently trading around $17!), holding on to my "investment" in Holyman ferries when they'd dropped 50% (they went out of business soon after)... Actually, the list goes on and on). Overall I tend to make the typical amateur stock investor's mistake of holding on to my losers (letting "paper" losses affect my decision making) and selling my winners too soon. That's the main reason our retirement savings are invested in index funds rather than trying to "pick" individual stocks ;)

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