Monday 4 January 2010

Net Worth Update: December 2009

December saw another significant increase in my net worth, with a "Santa Claus rally" and end-of-year "window dressing" in the last few business days boosting the stock market valuations. This month the strength in the Sydney property market was again matched by gains in the stock market - by 31 December my net worth had risen to $864,078 (up $33,246, or 4.00%). However my NW is seeing relatively less benefit from the bull market than it had suffered damage from the bear market, mostly due to my having cut back on my margin loan debt last March and not being game to buy back in to the market since then (I'm just holding on to the stock investments I had retained). In addition, most of my hedge fund investments values have stayed at their lowest levels - having either moved entirely into cash or suffering from suspension of trading in the underlying investments. However, in the longer term I should benefit from the capital guarantee conditions applying to my OM-IP funds. Some other investments (such as Timbercorp units) have been liquidated and will therefore never recover.

My retirement account (SMSF) gained $15,299 (+4.83%) to $332,134, with the gains in the stock market amplified by our modest amount of gearing (8 ASX200 index CFDs, code: IQ). No employer superannuation contributions were deposited into our SMSF bank account during December, but I expect all the December quarter employer contributions (SGL and salary sacrifice) will be processed in late January (around $6,000 is due).

The estimated valuations for my half of our real estate assets (house and investment property) were up again this month, by a relatively modest $4,525 (+0.55%) to $830,283. The forecast rate of rent rises during the next few years, coupled with net immigration to Sydney and possibly higher than trend inflation rates, should support (or slightly boost) house prices in the suburbs our properties are in. Affordability issues may cap price rises, although on previous occasions I have been surprised by continued strength in the top end of the housing market at times when the more 'affordable' suburbs have been in a down-turn.

My stock portfolio gained $13,438 to $66,140 net equity during December (due to the high gearing levels). The market (ASX200) break above the 4800 level was on thin trade during the holiday season, and I don't expect it to move much higher until company profits see further benefits from the Australian economic recovery later in 2010.

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Friday 1 January 2010

Spending the holidays at home

I'm spending the Christmas/New Year holiday break at home this year. My parents are in the last stages of clearing out their Sydney house and moving permanently up to their rural property near Inverell, so we didn't get to take the kids for a farm-stay this year. DS1 will be going up to their farm in the new year to stay with my parents until the 2010 school year commences at the end of January. I have a long list of home improvement projects I'm not getting done. I had planned on first completing my 2008/9 tax return and lodge it using eTax before the end of the year, but the capital gains tax calculations were even more cumbersome than I had expected.

I'd sold off all of my smaller share holdings in March 2009 (as the market dipped below the level where I would start getting margin calls if I didn't raise some cash) and in order to calculate the relevant capital gains figures I had to trawl through 15 years worth of tax pack files to find the relevant dividend reinvestment plan amounts in order to calculate the cost basis for the shares that had been sold. Where the shares had come into my account via a distribution due to a take-over or demerger I also had to work through the paperwork for several different share holdings to calculate the cost base relating to a particular share sale. Some added complications arose where I couldn't find the DRP paperwork in the relevant tax pack file (apparently I had the bright idea of filing the papers that would be needed for future CGT calculations in a different place at some point in time - now I can't find those dividend statements at all!). In those cases I had to look up the dividend payment details online (via computershare), but the online records only went back five years. For my Commonwealth Diversified Share Fund CGT calculation I had even more trouble getting information as the company had delisted when the fund closed down last June, so I couldn't even look up the historical share price information to calculate an approximate cost basis for the DRP shares that had been issued more than five years ago. In the end I had to download the historical price data for XAO (the all ordinaries index) and use a spreadsheet to calculate the approximate ratio of CDF share price to XAO index price, and estimate the CDF share price that would have been used for each DRP allocation. The final cost base amount for my CDF should be a reasonable estimate (within $50 or so), so it won't have a material impact on my CGT calculation. In any case, it looks like I'll have made a small capital loss overall for the 08/09 tax year which will carry forward until I eventually sell some shares for a net profit.

If the ATO ever does a desk audit of this tax return (I haven't been audited yet), it will be interesting to see if they decide to accept my estimation methodology, or want to spend time working out the exact cost base figures. From all the capital gains calculation information I've seen on the ATO website, they tend to prefer the most long-winded methods possible (for example, totalling all the purchase amounts and broker fees separately and then deducting total brokerage cost from total purchase cost, rather than just adding up the net cost amounts. The two methods are mathematically equivalent). At the end of the day, there's a 50:50 chance that I've underestimated the cost base and would be due a refund.

Diversification, dollar cost averaging and use of dividend reinvestment plans seemed like a good idea at the time, but since I stopped recording all my share transaction details in Quicken in 1999 the GCT paperwork has turned into a headache. That's one of the reasons I tend to invest in index funds these days, rather than investing in individual stocks.

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