Tuesday 30 June 2020

Last chance (for most people) to maximise concessional superannuation contributions for this FY

As today is the last day of the FY, I checked my CFS (employer selected) superannuation funds online transactions for 1 June 2019- today to see what the total of 'employer' (SGL and Salary Sacrifice) contributions added up to for the current FY. I had intended to 'top up' any remaining gap to reach the $25K annual cap on concessionally taxed contributions. It turned out that because of a late payment for June 2019 (hit the account on 1 July), and an unusually large employer contribution for March 2020 (still not sure why that was - I suspect it relates to SGL being higher that month as the annual 'bonus' was paid out, but the increase doesn't correlate with the size of the bonus compared to normally monthly wage, so perhaps the monthly pay/SGL gets annualised and capped as if I was earning that monthly rate all year?) I had already exceeded the $25K annual cap on concessional contributions. So, I didn't make any extra contribution (which I would have been able to claim a tax deduction for if I lodged the relevant form with the super fund by the end  of next FY).

So, anyone that hasn't hit the annual $25K cap on concessionally taxed contributions (for example, if you don't have salary sacrifice arrangements in place), has today to make the payment (although you'd have to check that the funds transfer hits the super account with today's date or it might end up in next FY as far as the ATO is concerned).

There is also a small 'loop-hole' that allows people with super balances below $500K to 'carry forward' unused concessional cap amounts for five years (from 1 July 2018), so if you didn't make the maximum $25K concessional contributions last FY you may be able to make a larger contribution this year (or else if you don't max out your concessionally taxed contributions this FY and have a low enough super balance next FY, you can 'carry forward' the unused cap and make a larger 'catch up' contribution next year.

Of course this all requires you to a) have enough spare cash flow to make additional superannuation contributions, and b) want to put more money into super (its tax effective, but on the down-side it means the funds are inaccessible until 'preservation age' in most cases).

DW and DS haven't maxed out their concessional contributions this FY, so if they are working next year they may be able to take advantage of the 'carry forward' rule to make additional contributions next year.

There is a good source of information summarizing the various contribution rules here.

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Friday 26 June 2020

Past the half-way mark in my Master of Financial Planning studies

The uni results for the course I studied in Q2 (Planning for Retirement) came out this morning. I got a Distinction (77%) for the subject, which was quite surprising given that a) the weekly course modules online were very brief (30 minute read each) and simply provided guidance as to which chapters of the prescribed textbook were supposed to be read (I never got around to reading the textbook at all), and b) although I got 80% for the first assignment and around 85% in the exam, I only got 11/20 for the second assignment (a two page essay that I thought was quite good - but although I got high marks for style, grammar, structure and referencing, I got practically no marks for 'content' (worth half the marks) simply because the lecturer decided I didn't answer the question in the rigid essay structure she wanted). Having written lots of uni essays during the past 40 years of doing undergraduate and post grad courses (and always getting pretty decent marks) I felt this was a total rip-off. Fortunately it turned out that because the essay was only worth 20% of the overall course mark, I would have needed to get 19/20 or full marks to get 85%+ and a High Distinction for the subject. So essentially it didn't matter that I only got 55% for the essay.

Due to courses being completely online (including the online final exams, invigilated using ProctorU) the uni has offered students the choice of replacing their graded result this semester with a simple Pass/Fail result that won't be included in their overall GPA calculation. Since I managed to get a Distinction (6.0) for this subject I don't need to exclude the result from my GPA calculation (I need to get a GPA of 6.0 or more to graduate 'with distinction'), but I would have liked to be able to replace the Credit (5.0) I got last semester (Q1). I'm not sure why they haven't offered the Pass/Fail option for Q1 results as the final exam for Q1 was in March, just when the Covid-19 changes were being introduced and causing maximum disruption. I've emailed student services to double check if Q1 result can be replaced with the simple Pass/Fail outcome, but I don't hold out much hope.

If my Q1 result stands, my current GPA is just under 6.0, so I'll need to average Distinction for the remaining five subjects and get at least one High Distinction to bring my GPA back up to 6.0. This coming semester I'm doing 'Funds Management and Portfolio Selection' which should be interesting and quite easy to get an HD. And the final two subjects are 'research' projects, so should be able to get HDs if I put in enough work. We'll see how it goes.

I also have to finish off a couple of 'specialist' courses (in Margin Lending and Self-Managed Superannuation Funds) I'm enrolled in at an RTO and have nearly completed, plus do the four courses for the Advanced Diploma of Financial Planning I'm also enrolled in at that RTO. So it will be quite busy for the rest of 2020.

Once I finish off the MFP degree in mid-2021 I want to enroll in a PhD in Financial Planning (should be a lot easier than the astrophysics PhD I was enrolled in a few years ago). I'm slowly browsing through PhD theses in Financial Planning to try to get an idea of what research topic I might want to pursue. I'll have to start sounding out prospective supervisors at the uni early next year, and be ready to put in my application by the start of my final semester. 

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Sunday 21 June 2020

Bought some Betashares Asia Technology Tigers ETF (ASIA)

I noticed that I had set up an IG trading account with $500 to get some bonus Qantas Frequent Flyer points last year, and it still had a cash balance of $436.55 sitting in the account (yes, I managed to lose some money while doing the required number of trades to qualify for the Frequent Flyer points, but the value of the QFF points I got was still significantly greater than the amount of money I lost). I probably should have just closed the account and transferred the balance back out, but I decided instead to purchase some ETF shares with the available balance. I've placed an order for 50 of the Betashares Asia Technology Tigers ETF (ASX code ASIA). At a limit price of $8.57 and $8 in brokerage that order will just about use up all the cash balance on the account. Assuming that the order gets filled when the markets reopen on Monday, I'll just let the investment sit for a decade or so and see what happens. No matter how this investment performs it will be hardly worth the trouble of including any distributions in my annual tax return, and to calculate capital gain/loss when I eventually sell the investment, so I might set up a monthly automatic contribution from my savings account into the IG account, and then add to this holding every six months or so to 'dollar cost average' into a larger position over time.

The top 10 holdings of this fund are:

NameWeight (%)
By country the ETF allocation is about 55% China, 20% Taiwan, 20% South Korea and 5% India.
And by sector it is about 30% internet and direct marketing, 20% interactive media and services, 20% semiconductors, and the balance other 'tech' sectors. The relevant index has a five year average return of 14.25% pa and the ETFs management costs are around 0.67% pa.

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Diet (bad) and Exercise (none) week whatever

After progressing well with my weight loss and exercise program until the gyms closed down and I started working from home (and eating too much junk food), I've now put back on about ten kilos since Feb. Time to stop snacking and start ramping up my daily step count again! While I was taking the bus and train to work (and walking around the office) I used to regularly do about 10,000 steps/day, which helped burn off the calories. But since being stuck at home all day I've averaged only 1,500 - 2,500 steps/day.

I noticed today in my Qantas Wellbeing phone app that until the end of June I can earn a 'bonus' 10 Qantas Frequent Flyer points every day that I walk at least 7,500 steps. Time to put the gym shoes on and start going for evening walks again...

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Fun investing app - Spaceship

I opened an account with 'Spaceship' in August 2018 and invest $100/mo in their 'Universe' fund. So far the performance has been quite 'stellar', with gains of 35.54% in the past year. I've no idea how this fund will perform in future, so don't take this as a recommendation to invest! But I'll keep adding $100/mo automatically and see how this account performs over the next 10 or 20 years (assuming it stays around that long).

The 'universe' fund invests in a range of companies, including global tech companies such as Adobe, Alibaba, Alphabet, Amazon and Apple (funny how a lot of 'tech' companies all start with "A"). With No brokerage fees, no buy-sell spreads, no entry or exit fees, and no admin fee for balances below $5,000 (and only 0.10% in total fees for balances over $5,000) it seems a pretty easy, cheap and fun way to get into 'investing'. I also like the colour scheme, which happens to be my favourite colour ;)

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Saturday 20 June 2020

DS1 has his first job already lined up for when he finishes uni

DS1 is currently in his third and final year at UNSW studying computer science, and recently finished doing 'final round' interviews with two local IT companies. It turned out he was offered a position by both companies! He initially accepted the offer made by the first company (a stock trading investment company), as he didn't get an answer/offer from the second company (that he was more interested in) until after the acceptance deadline. A week later the second company also sent him an offer, so he then had to let the first company know that he'd changed his mind. His starting salary will be about the same as mine (!) and he'll also get about $20K pa worth* of stock 'options' each year for the first four years. The value of the stock options is a bit of an unknown as the company isn't yet publicly listed, but the company has been growing very rapidly (it started up in 2012 and has apparently been profitable since 2017 - although its hard to know for sure with private companies).

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My financial planning 'start up' is 18 months old and still no clients

As readers may recall, I completed my Diploma of Financial Planning in late 2018 in order to get 'registered' as an 'existing' Financial Planner (aka Financial Adviser) in Australia before the rules changed on 1 Jan 2019 (which required all 'new' Financial Advisers do a year of supervised training/experience). I'd been studying for my DFP qualification on and off for several years (just out of interest), and the rule change prompted me to get my butt into gear and get 'registered'. As I still have a full time 'day job' that has nothing to do with financial planning, having to quit a relatively well-paid job in order to get an entry-level Financial Planner position just to meet the 'training' requirement would not have been feasible. Since getting 'registered' in late 2018 I've been doing a bit of local advertising (dropping free booklets into local letter boxes) and set up my 'business' website with an online appointment booking tool.

The result? So far, only two 'serious' enquiries (made a booking for a complimentary introductory meeting) that resulted in one meeting (that didn't work out as they had minimal income, no significant savings, and the person I met with wasn't really interested - their partner had booked the meeting but didn't attend) and a last minute cancellation.

I'm currently paying around $1,500 per month fee to my 'dealer group' (I have to be an authorised representative of an AFSL holder to be a Financial Planner here in Australia, or have my own AFSL which would cost a lot more) just to stay 'in business'. I had hoped to get a couple of clients in my first year (2019) and to get enough clients by the end of this year to at least cover the fixed costs of remaining registered (and a member of the FPA and AFA, which each charge around $500pa). Now I'm just hanging out to get my first client...

Oh well, I plan on staying in my full-time paid work for several more years (unless I get laid off), and in the meantime will complete my Master of Financial Planning degree next year and (hopefully) then enrol in a PhD. The Masters degree is costing me $3,500 per subject (there are 12 subjects in total for the degree), but fortunately if/when I enrol in the PhD course next year I shouldn't need to pay any more uni fees as this is generally covered by the Commonwealth-funded RTS (Research Training Scheme).

Once the Covid-19 restrictions are lifted I might start offering free lunchtime seminars for the staff of local business. And I'll start doing some 'cold calling' of locals.

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Thursday 18 June 2020

Revisiting "the chart I wish I'd seen a year ago"

Way back in 2008 I posted about a chart I made of the All Ords Index vs the Australian GDP price index series, which appeared to be a good warning sign of when the market was 'irrationally exuberant' and when it was 'oversold'. ie. When you might think about 'taking profits' and getting out of the stock market, and when the market was 'on sale' and a good buying opportunity. Of course, as Moom pointed out at the time, there are reasons why the stock market may increase relative to GDP, such as the decades long decline in interest rates (which made higher stock p/e multiples sensible - from 8-12x in the 80s and 90s to 15x-20x today). However, in the 'long term' it seems rational for the stock market as a whole to increase in line with GDP. So when the 'irrationality of crowds' makes the market oversold or overbought, one has better than normal chance of actually benefiting from trying to 'time the market' (I generally buy and hold, as timing attempts generally increase transaction costs more than performance, and I tend to buy index funds or ETFs rather than trying to 'pick' individual stocks or sector funds).

So, with the recent market drop and recovery during the first half of 2020, I thought I'd get some updated data on the AllOrds Index (the ASX200 Index follows the same basic pattern) and the Australian GDP Price index series, and see how the plot looks today. As you can see below, this plot is still pretty good at showing when the market is relatively 'expensive' (too high) and when it is probably 'cheap' (too low). But, as DS1 pointed out, if you sold out of the market when it goes 5% or 10% above the 'expected' level, and bough back in once it dropped 5% or 10% below the expected level, you would have missed the large market gains of 1986-87 and 2005-2007.  So, you'd probably want to take these levels as warning bells, rather than simplistic buy/sell signals. Possible it would be useful to combine tracking 30 vs 90 day moving averages with this simple 'too high'/'too low' market indicator to decide when a long-term investor should consider reducing and increasing their exposure to the stock market. That would help with making the decision to buy into the market when it is oversold, as it is usually quite hard to 'pull the trigger' and invest/reinvest when the market has dropped a lot - like in Mar 2008 or March 2020. Seeing that the market may have 'turned around' (rather than just a 'relief rally' during a bear market run), helps identify if the 'bottom' has passed.

If anyone is interested in tracking this relationship for themselves, quarterly GDP Price Index data and Monthly adjusted close All Ords Index data was obtained from the following free resources:

ABS website

Yahoo Finance

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Wednesday 17 June 2020

Time for the Aussie government to borrow and invest big

Ross Gittins has a good article in today's SMH outlining the reasons why the right wing Morrison government should be not looking to 'cut the deficit' (usual Liberal mantra) as the post Covid-19 economic recovery starts to tentatively materialize later this year. With the government able to effectively borrow at 0% real interest rate, they should restart the old 'government bonds' program (that issued 10 or 20 year bonds) with an interest rate of, say, 1.0%. A lot of super funds and pensioners would probably take these up, given the bank interest rates on savings being around 0%. That wouldn't raise a lot of money, but the government could also set up a few government-back statutory infrastructure bodies that could borrow globally at close to 1% for the long term, and then invest all this borrowed money in major projects that are a) sensible and add to long-term national productivity and/or development, b) relatively labor intensive, and c) have a decent 'multiplier effect'. There a experts that could (and probably already have) provide the government with a list of projects, but a few that spring to mind and such as - constructing defense assets such as destroyers, submarines, and possibly even an aircraft carrier (we used to have one) - building a large-scale solar electricity 'farm' (or farms) in outback regional Australia, with associated storage battery farms and connection to existing transmission lines - building adequate amounts of social housing, preferably with a bias towards regional towns to aid with decentralization - upgrading Woomera to support satellite launches using the commercial launch vehicles becoming available, and to add some 'bricks and mortar' to the recently created Australian Space Agency (with a budget allocation last year of just $9.8 million it could probably fund one episode of 'The Orville' - hardly a serious initiate for the 'clever country'). Anyhow, there are probably a lot of better ideas on how the government could spend a few billion dollars of cheaply borrowed money to help grow the Australian economy, address our contribution to global warming, develop local technology business, and provide skilled jobs. Hopefully the delayed budget later this year might actually include some large public spending initiatives. We'll see.

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Tuesday 2 June 2020

Net Worth: May 2020

The markets recovered somewhat during April/May, so my NW is close to the previous all-time high already. The house price and estimate off-the-plan unit valuation are less accurate than usual, as some of the sales price data I use for my estimates had not been updated in May. In any case, it appears that real estate is only down slightly so far, and may not fall as much as some pundits were predicting. We'll see.

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