Thursday 17 March 2011

Is $7 million enough wealth?

A article in the SMH titled 'A million dollars ain't what it used to be.' stated that in a recent survey more than four out of 10 American millionaires said that they do not feel rich. Out of more than 1000 millionaires (having at least $US1 million in investable assets, excluding any real estate or retirement accounts - the average age of respondents was 56-years-old with a mean of $US3.5 million of investable assets), 42% said they did not feel wealthy. This was a slight increase since 2009 when 46 per cent did not feel wealthy.

Personally, I felt quite 'wealthy' when the stock market was doing well in 2007 and my net worth was around $1.2m. Even though most of that was tied up in real estate and my retirement account, (so I wasn't a millionaire according to the measure used in this US survey), it was still sufficient for me to be confident about my financial future and to be considering early retirement. Of course, all that changed with the GFC (I'm now planning on working until 67 if my health holds up and I don't get laid off before then), and I'm now 'comfortable but cautious' rather than optimistic.

However, I'll concede that $1.2m wasn't enough to make me feel 'rich' - our family vacation to Europe involved staying in a campervan, not 5-star hotels, and after briefly considering building a new house we decided there was no way we could afford to do so (so we'll be staying in our 50+ year old house until at last retirement age). However, if I'd had $1m of investable assets in addition to our real estate and retirement savings I probably would have started thinking of myself as rich. I suspect the reason such a large percentage of US millionaires don't consider themselves rich is that their viewpoint is formed by comparing themselves to the 'super-rich'. After all, with 55% of US wealth being controlled by only 5% of the population, there more than enough billionaires available for comparison if you want to make yourself uphappy trying to keep up with the Joneses.

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Sunday 13 March 2011

Too many tests, too little evaluation?

DS1 will be sitting the official Department of Education selective high schools tests on Thursday morning. Then, on the following Saturday, he will be sitting a similar test ($20cost ) for the local (non-selective) public high school in order to be considered for their 'gifted and talented' class in Year 7 (1st form) next year. He will also be sitting a similar test ($60 cost) a few weeks later for the '7X' (Year 7 extension) class at a nearby public high school (which has a good academic record, similar to mid-range selective high schools).

Then, after the school holiday, he has an 'entry test' to sit for Sydney Grammar private high school, as well as another test (~$80) for a chance at a scholarship.

While I can see that standardised testing is required to 'rank' students applying for selective high schools, extension/G&T classes, or private school entry and scholarships, there seems to be a huge amount of redundancy when a student has to sit a handful of extremely similar tests within a month or so. The cost and waste of time hardly seems justified when practically all these students will have sat the DET selective high schools test, so the official 'score' provided from that test (which incorprates a school assessment component based on the Year 5 Naplan test results) could easily be used by the other local public high school for their sorting of extension/G&T class applicants and also those students that seek entry and/or scholarships for private secondary schooling.

Aside for the cost and time involved with all this testing, there also seems that there will be little useful feedback as an end product. Despite there being up to four test papers (in English/comprehension, mathematical ability, general ability ('IQ'), and creative writing) for each of the five tests DS1 will sit, for most of these tests the only feedback will be a single 'test score' number and the offer of a place or scholarship based on the test result.

Surely such a large amount of testing could provide some useful feedback and evaluation of each student's areas of strength and weakness? At least then a comparison of the results from the five different tests would indicate how accurately the tests reflected the true abilities of the student, and aid in designing a customised education plan.

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Saturday 5 March 2011

Net Worth Update: February 2011

As I suspected might happen, I spoke too soon about being a "millionaire" again. After breaking through the million dollar barrier earlier in the month, the middle East troubles and spike in the oil price made the Australian stock market drop enough to push my net worth below the megadollar in time for my end of month accounting.

However, it still looks like 2011 could be pretty kind to my NW - although Sydney house prices are so expensive that a drop in our real estate valuations can't be ruled out. Also, although the US economy looks like it may regain some confidence in 2011, that boost to our stock market could be counteracted by a slowing of Chinese economic growth if inflation problems cause their interest rates to take off.

My SMSF continues to grow, boosted by $25K pa from the combined effect of the SGL and salary sacrifice. On the other hand, we don't have any spare cashflow to pay off our mortgages, so my half of the debt in our property portfolio remains stuck around $361K.

Assets___________$ Amount______$ Diff_____% Diff 
Stocks_*__________$27,197______$4,399______n/a % 
Retirement_______$375,740_____$10,919_____2.99 % 
Properties_______$957,187______$2,121_____0.22 % 

Debts____________$ Amount_____$ Diff_____% Diff 
Home Mortgage(s)_$361,053_______-$46_____-0.67 % 

Net Worth________$999,071_____$17,485_____1.78 %
* the Stocks figure is portfolio value - margin loans. As my portfolio value (and margin loan debt) is around $500,000 relatively small movements in the stock market produce huge percentage swings in the net value of my stock portfolio each month.

My version of net worth calculation only includes major assets and debt.
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