Wednesday, 2 June 2021

Perth Mint Unallocated bullion purchase - May

My second monthly savings plan deposit (I increased the amount from $100/mo to $200/mo in May) went across to my Perth Mint online depository account on the 15th May. The scheduled bullion purchases ($100 each of gold and silver) were automatically processed at the close of business pricing on the 1st business day of June.

This month 0.040 troy ounces of gold were purchased for A$99.29 (including the $0.50 transaction fee), and 2.682 troy ounces of silver were purchase for A$100.00 (including the $0.50 transaction fee).

Total unallocated bullion holding are now:

gold: 0.083 troy ounces

silver: 2.682 troy ounces

The residual A$1.07 cash balance will carry towards next month's bullion purchases.

In my monthly NW calculations my bullion holdings are split into two components - the bullion value of my proof gold coin collection is recorded under 'other assets' and is probably undervalued as these proof coin sets were limited qty and generally have higher numismatic value than bullion value.

My Perth Mint bullion holding is valued at the spot bid price at the end of the month, and is currently included in my geared share portfolio valuation (I included it there as the first month was only $100 sitting in the cash account pending the first bullion purchase). I might remove it from the share portfolio calculation and add it to my gold coin collection next month, so that all my 'bullion' holdings are grouped together in my monthly NW reporting.

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Tuesday, 1 June 2021

Net Worth: MAY 2021

My monthly NW estimate has been updated in NetWorthShare for the end of May. Chart is in the side-bar.

Stocks and managed fund investments decreased slightly this month, down $2,121 (-0.62%) to have  $341,453 net equity in my geared share portfolios.

Our estimated house price for May (my half) increased by $58,041 (6.69%) to $925,027. While the Sydney house market has been rising strongly, this monthly gain seems a bit high. Possibly due to the particular mix of sales in our suburb making the median price bounce around (in previous months our suburb median price appreciation had seemed rather subdued compared to the overall Sydney housing market).

The value of my retirement savings rose during May, to $1,417,878 (up $25,704 or 1.85%). 

The value of my precious metals rose significantly during May, to $24,377 (up $1,432 or 6.24%). 

Overall, my NW reached $3,007,427 by the end of May - up by a healthy $83,427 (2.85%).

I continue to include the value of the 'other real restate' (the lake house I 'bought' from my parents, and the off-the-plan unit I 'bought' with a 10% deposit and paid stamp duty on) at 'cost'. The portfolio loan used to pay the deposit on the unit and the stamp duty (and the remaining mortgage I'll need to obtain upon settlement in 2023) is listed under 'other mortgages'. In reality the value of the lake house has increased since I 'bought' it, but I will never realize that capital gain as I intend to leave the lake house to my sons, and although the value of the off-the-plan unit is likely to be higher than 'cost' (based on movement in unit sales prices in that suburb since I bought) I'll wait until I get a valuation done when the unit construction is completed before I start tracking changes in the unit's value.

I did indeed become a tri-millionaire before the end of the financial year (as I mooted last month might occur), but it could easily drop again. I remember when I first became a 'millionaire' prior to the GFC, only to see my NW plunge during 2008/9. It is also sobering to remember that Australia now has over 100 billionaires - so being a billionaire is similar to the level of relative wealth a 'millionaire' had back in the days of the Great Gatsby,  and being a 'millionaire' these days simply means you are comfortably middle class.

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Sunday, 30 May 2021

The financial benefits of Medicare in Australia - a personal example

Medicare is Australia’s universal health insurance scheme. It guarantees all Australians (and some overseas visitors) access to a wide range of health and hospital services at low or no cost. Australians make more than 150 million visits to a GP every year. Medicare — the public health insurance system — helps pay for those visits, hospital treatments, and prescription medicines (that are on the PBS list).

For example, I've had severe atopic dermatitis (eczema) since I was a young child. Atopic dermatitis is long lasting (chronic) and tends to flare periodically. It may be accompanied by asthma or hay fever (I had asthma as a child but grew out of it, but I still have severe allergies such as dust mites, mould, rye grass etc). No cure has been found for atopic dermatitis. In my case it also resulted in two bouts of Cellulitis that could have killed me.

The traditional treatments include topical corticosteroids (creams and ointments) and oral prednisone or prednisolone for the most severe 'flare-ups', although often the disease relapses once medication is discontinued. So for the past fifty or so years I've benefitted from paying the basic PBS (Pharmaceutical Benefits Scheme) amount (currently around $40 per prescription) rather than the full cost of prescribed medications.

As DS1 had even more severe eczema than myself (he was hospitalized several times as an infant and young child for both eczema flare-ups and severe asthma), and DS2 has eczema and asthma similar to what I had as a child, we have still ended up paying several thousand dollars each year for visits to our GP and specialists (partly refunded via Medicare) and for prescription medications. But a large part of the costs was covered by Medicare, as was the cost of public hospital treatments. We also currently have private medical insurance (paid for by my employer) which comes in handy for 'elective' hospital treatments (such as cataract operations etc.), dental care, and has also reimbursed us for ambulance costs (which aren't covered by Medicare) and the few occasions we have used private hospital accommodation (such as for my cataract operations).

Recently a new biological treatment for severe eczema called Dupixent came onto the market. Rather than being a topical treatment (applied to the external skin) it is an injected human monoclonal antibody that inhibits signaling of the interleukin IL-4 and IL-14 which are linked to the subcutaneous inflammation that causes severe eczema symptoms. This medication is delivered via a single injection every fortnight, but before it was added to the PBS schedule each injection cost around $750! My immunologist specialist had told me that a few of his other patients had been on Duprixent - either paying the full cost 'out of pocket' (around A$22,000 pa), or were covered by an overseas medical insurance policy that included this treatment. However, even though I earn a decent wage, paying $22,000 pa made this treatment effectively unaffordable.

Dupixent had been evaluated as effective by the Australian Therapeutic Goods Administration (TGA) several years ago, but had twice been rejected for inclusion on the PBS registry due to the cost (and the limited budget allocation for PBS). Fortunately it turned out to be 'third time lucky' and this medication was finally added to the PBS list on 1 March 2021, at an estimated cost of A$270 million pa. It is estimated that this medicine will be of benefit to more than 3,600 Australians. Turns out that I'm one of them, with my specialist getting approval and writing me a prescription for Duprixent on Friday. I'll collect the first batch of medicine from my local pharmacy next week and I have another appointment with my specialist in a fortnight to get the initial two injections and to be instructed on how to self-inject the single injection required every fortnight.

Hopefully with this new treatment my eczema will significantly improve - clinical trials showed that around 50% of patients had their eczema improve by 75% after 16 weeks of treatment, and around 75% of patients after one year. Switching from taking immunosuppressant medication will also remove the need to have regular blood tests, and will remove the increased risk of skin cancer that the immunosuppressant treatments have.

From a financial point of view, I'll be joining the ranks of Australian tax-payers that actually pay no net tax (receive more value in benefits received than they pay in tax) as the income tax on my salary is around A$28,000 pa and the value of the PBS subsidy for Duprixent will be worth around A$22,000 pa. When added to the benefit of DS2 receiving free pubic school education at a selective High School I'll be getting more back in taxpayer-funded benefits than I am paying out in income tax. Long live socialized health and education!

Once I reach pension age (66) I may also be able to get a Commonwealth Seniors Health Card that would reduce the cost of PBS prescriptions from $41.30 to only $6.60. While I won't ever qualify for the Age Pension (due to the Asset Test Threshold for a partial pension being just over A$1 million of assessable assets for a home-owning couple), there is only an deemed income cap of A$89,920 for a couple to be able to obtain the Seniors Health Card. There is no assets test for the Health Card. Although we will hopefully receive more than A$90K pa in actual income during our retirement, the deemed income will be significantly lower as the deeming rate is 2.25%. This means we would have to have more than $4 million of financial assets (excluding the family home) before we would be ineligible for the Seniors Health Card. In any case, whether I pay $41.30 or $6.60 per prescription will make little difference. 

From the Federal budget point of view, the fact that the Regeneron patent on Dupixent will expire on 27 October 2029 means that the cost of having this medication on the PBS list should greatly reduce once it goes 'off-patent' as other manufacturers will then be able to produce 'generic' versions of the medication at a much lower cost to the Federal government. There are apparently also other similar biologic treatments in the pipe-line, so the cost of Dupixent may also fall due to competition before the patent expires.

Side note: apparently in the US 82% of medical insurance plans cover Dupixent at a co-pay of $60-$125. So the out-of-pocket cost of Dupixent would end up similar to our cost on Medicare (but the average cost of health insurance in the US is around $6,000 pa, whereas the Medicare Levy in Australia is only 1-1.5% for medium and high income earners who do not have private hospital cover). Around 8% of people in the US have no health insurance.

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Saturday, 29 May 2021

End of MAY 2021 "12% solution" portfolio changes

For the end of May the emailed trading signal is to invest 60% in SPY and 40% in JNK. As this is a change in allocation from last month, it requires selling MDY and buying SPY. When the market is open (Monday night my time) my monthly trade will therefore be:

SELL MDY : SPDR S&P MidCap 400 Index Fund

BUY SPY : SPDR S&P 500 Index Fund 

HOLD JNK : SPDR Barclays High_yield Corporate Bond Fund

According to the monthly newsletter, the 2020 performance for this model was +40.6% and for 2021 YTD performance is now +11.2%. My YTD performance is only 6.78% due to a combination of timing differences, buy/sell spread, trading costs, not having an exact 60:40 asset allocation (due to rounding down to the nearest tradeable quantity) and the fact the my '12% solution' portfolio is on my IG trading account which also includes some ASIA (Betshares Asia Technology Tigers ETF) which has been trending down in recent months.

I suspect that due to the small value of this portfolio (around $10,000) the trading costs and account keeping fees will be a massive drag on my actual ROI compared to the 'model portfolio'. It would probably be better to implement the "12% solution" via an account that has zero trading costs and no account keeping fees, but I can't be bothered opening yet another trading account for what is basically an experiment. I'll probably close all positions at the end of June, close the IG account and repay some of my portfolio loan, as the potential profit doesn't justify the extra calculations I'll need to do for my annual tax return for this account. 

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Wednesday, 12 May 2021

Budget projections bad news for my off-the-plan apartment investment

While unit (apartment) prices in the suburb where I bought my $1m 'off-the-plan' unit have remained fairly steady during the pandemic, last night's federal budget projections regarding the resumption of immigration to Australia mean that I'm unlikely to see much increase in the unit's value before I need have to take out a mortgage when the unit construction is completed in early 2023. I had hoped that international travel and migration levels might already be getting back to 'normal' by the end of next year, but the budget forecasts have cut the population forecast for 2023 by 41,000 compared to the figure in last October's delayed budget. And NSW is expected to have a net population decrease of 20,000 or more each year until 2023-24.

So it looks like rental yields and price appreciation will be weak for my investment unit at least 2025. While I'm still working full-time and can benefit from negative gearing that won't be too much of a problem, but it would have nice for the unit valuation to exceed my purchase price when construction is completed, and for the cashflow deficit to be as small as possible.

Immigration levels might yet pick up faster than predicted in this latest forecast, but they could also be worse than anticipated. In the longer term, hopefully the current fall in new unit approvals (down 26% Y-o-Y to near decade lows) will mean a more favourable demand:supply ratio once immigration levels eventually return to normal.

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Monday, 10 May 2021

Good news and bad news

On a positive note, the ASX200 closed at an all-time high of 7172.8, finally surpassing the previous closing high set in Feb 2020 (just before the pandemic's impact), and within 25 points of the all-time intraday high.

On a less happy note, a few days after Chinese Foreign Ministry spokesman Zhao Lijian accused Australia of "operating with a Cold War mentality against China" the Chinese State-run outlet The Global Times published an editorial from its editor-in-chief Hu Xijin that included the suggestion that "China make a plan to impose retaliatory punishment against Australia once it militarily interferes in the cross-Straits situation" and that "The plan should include long-range strikes on the military facilities and relevant key facilities on Australian soil if it really sends its troops to China’s offshore areas and combats against the PLA (People’s Liberation Army)." Of course an editorial in a Chinese state-controlled newspaper isn't exactly the same as a speech by a sitting Australian politician, but its a little bit of the 'pot calling the kettle black'.

Meanwhile China continues to buy more than 60% of its imported iron ore from Australia, and switching to an alternative supply (such as a new mine at Simandou in West Africa) could take 5-10 years (or be very expensive if China just went shopping to existing global suppliers for additional iron ore). In that context I'm not sure that long-range missile strikes on Australian soil would do China all that much good, especially if they were in the middle of an invasion of a Taiwan supported by the USA and Japan at the time.

Hopefully we can get back to the pretense that the 'one China' policy means (to us) that Taiwan will remain 'Chinese' without losing its democratic self-government, while at the same time meaning (to Beijing) that Taiwan will eventually/inevitably come under direct party control. Unfortunately the rapid build-up of Chinese military capability, combined with their future demographics and the leader's advancing years, means that the prospects of 'direct action' to 'reunite' Taiwan with mainland China seems to be growing each year.

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Friday, 7 May 2021

Decided to increase my precious metals regular savings plan and diversify metals

As I already have a regular monthly transfer of cash into my Perth Mint Depository online account, and the first monthly $100 gold purchase was processed as expected, I decided to increase my monthly transfer to $200, and to setup a second automatic bullion purchase for $100 of silver each month. The change increases the annual allocation to $2,400 (which is still only about 0.08% of my NW, or about 8% of my overall savings rate). As there is a flat 0.50% transaction fee it doesn't increase costs to make two $100 purchases rather than a single $200 purchase each month, and diversifying across both gold and silver means that I'm exposed to 'precious metals' as an inflation hedge without caring if the gold:silver price ratio varies over time (which it does).

It is slightly more expensive to invest in silver than gold in terms of the buy/sell spread (about .5% for gold and about 1.35% for silver), but  investing in a combination of gold and silver the average buy/sell spread of 0.9% + 1% 'round trip' transaction fees isn't too bad compared to other investments. 

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Thursday, 6 May 2021

My 1 Amazon CFD was closed out last night

My conservative trailing stop-loss on my Amazon CFD position closed me out last night when Amazon shares continued the previous day's weakness. I'll wait a while before going back in, as the price has dipped below the apparent 'support' level shown in latter weeks of  April, so may well continue down to around 3,000 - which would be close to the bottom of the horizontal band its been in since last August. Doesn't seem to be any great upward momentum at the moment, so I'm not in a rush to reopen a long position in Amazon, although I would like to get back in at some stage for the long haul.

My ishares MSCI Australia Index CFDs are in the black still. That position will remain open unless there is a sufficient market correction for the trailing stop-loss to close them out.

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Wednesday, 5 May 2021

Global warming thought of the day

To take my mind off the worries of Covid-19 pandemics, potential stock market bubbles bursting, and rampant economic stimulus measures leading to high inflation, I though I'd just grab the latest public data on carbon emissions, average global surface air temperature and atmospheric CO2 concentration to see for myself what the data currently shows.

1. Global warming is currently underway, and the obvious culprit is carbon emissions.

Yes, you can make up alternate explanations involving solar activity, interstellar dust clouds, or little green men, but when combined with other effects (such as increasing oceanic acidity) it seems obvious that the driver for the observed rise in global average temperature is the rise in atmospheric greenhouse gas concentrations.

2. We all have to do our bit, but China ain't helping much

The world's scientist were well aware of the potential for rising carbon emissions to cause global warming due to the 'greenhouse effect' back in the 1980s (I actually studied this as part of an environmental chemistry elective I took for my BAppSc (Applied Chemistry) degree at UTS back in the early 1980's). And by 2000 the world's governments were getting serious about starting to tackle the issue. Hasn't been very effective so far, but at least most developed countries pledged to reduce the total CO2 emissions, and many are now aiming to stop net emissions entirely within the next decade or two (i.e. become 'carbon neutral'). Except that in the Paris Agreements China only agreed to stop increasing its emissions by 2030. Given the fact that China only produced 8% of global emissions in 1980, 14% by 2000, and is currently producing around 28% of global CO2 emissions this really is a bigger problem that whether or not Australia gets to 'carbon neutral' by 2040, 2050 or whenever. What China does (or doesn't) do about its carbon emissions will determine whether our great-grandchildren are living in a world that has a less hospitable environment that today, or one that is facing an existential climate crisis.

Unfortunately China seems more interested in 'reunifying' by invading Taiwan that it is in reducing greenhouse gas emissions. Hopefully in 2030 China hasn't invaded Taiwan and has started to reduce its carbon emissions (not just promise a per GDP emission reduction).

3. How bad is it really?

A simple projection of the rate of atmospheric CO2 concentration and global average surface air temperature shows that we are likely to hit 500 ppm CO2 by 2060, and for the global average surface air temperature to have risen another 1 degree Celcius by around 2070. So the amount of change that has happened since I was born will have doubled (roughly) by 2060-70. That will have some significant impacts (mostly bad, but a few good, and varying a lot by geographic location), but its what will happen by 2100 and beyond that is the real cause for concern (unless you don't give a rat's about what happens to the planet once you are dead).

It also seems that there is a bit of a 'lag' between rising CO2 concentration in the atmosphere and rising temperatures and sea levels (currently rising about 3mm pa). So temperature rise could continue long after we've achieved global 'carbon neutrality'. Never mention possible (theoretical) 'tipping points' about run-away greenhouse effects coming into play (such as release of greenhouse gases if the Siberian perma frost or seafloor icy methan hydrates are released due to rising temperatures), or the eventual melting of the Antarctic continental ice sheets.

All in all not very cheerful news. I'll go back to worrying about whether or not to get the AstraZeneca Covid-19 vaccination or wait until the Pfizer vaccine becomes available to those over 50...

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Tuesday, 4 May 2021

Referral code for $50 bonus from peer-to-peer lender Plenti

If anyone in Australia is thinking about investing in peer-to-peer lending, the lender Plenti is currently (until 30 Nov 2021) offering a $50 bonus if you invest $1,000 in their 5-year income lending market. (I'd also receive a $50 bonus BTW) via this link.

I currently have $3,227.57 invested with Plenti - $1,177.98 in the 1-month rolling investment, and $2,049.87 in the 5-year income investment. I've earned $432.72 in interest since I first started investing in Plenti bac in March 2018. As I write this post, the interest rate available to lenders on the 1-month investment is 1.5% and for the 5-year income investment is 4.0%.

Be sure to read the product PDS before making any investment decision.

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My first Perth Mint gold purchase via online depository account was processed today

The first $100 monthly cash transfer into my depository account was processed in the middle of last month, and my regular savings plan of a $100 gold purchase each month was processed today, being the first business day of the month.

I checked my account online at 6pm (Sydney time) and it was still only showing the $100 cash balance, but I later received an email (sent at 8:50pm) stating that the order had been 'completed' at 16:00:02, and then a second email that had also been sent at 8:50pm stating that the order had been 'processed and delivered' at 16:43:02. I had to log in to my online account to view and download the order confirmation pdf, which showed that 0.043 toz had been bought for A$2,305.54, costing $99.14 and a $0.50 transaction fee.

It looks like the available cash balance is used to purchase a multiple of 0.001 toz, rather than convert $99.50 into an amount of gold with too many decimal places. I expect the left over 36c will go towards next month's bullion transaction.

Allowing for the time difference between Sydney and Perth, it looks like the transaction was processed promptly at the close of the first business day of the month. I'm not exactly sure where the $2,305.54 price comes from, as the latest spot asking price showing on their website is A$2,304.58 as at 5:00 pm AWST. I presume it was the spot asking price at the exact time the transaction was processed.

The 0.043 toz is slightly less than 1/20th of an ounce. As an example of how much premium you would pay for buying physical gold coins in such small quantities, the 1/20th gold coin is currently priced at $167.08. So a 0.043 toz as a gold coin would have cost around $143.69, rather than $99.64. I have a few 0.5g (0.0161 toz) gold coins that I bought many years ago (on 'sale' so the premium to the spot price was slightly reduced), so I can easily envisage my gold purchase each month being roughly equivalent to buying three of those tiny gold coins.

There is a strange mystique to gold that makes purchasing even a tiny amount 'on paper' somehow seem like more real wealth than buying a similar value of stocks, mutual funds or CFDs. A bit like how I used to enjoy seeing my bank balance updated in a physical passbook when I was a kid. But I'm not about to liquidate my entire NW and purchase 25 50-oz bars of gold!

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Monday, 3 May 2021

Net Worth: APR 2021

My monthly NW estimate has been updated in NetWorthShare for the end of April. 

Stocks and managed fund investments gained a healthy amount this month, rising $8,618 (2.57%) to have  $343,574 net equity in my geared share portfolios.

Our estimated house price for April (my half) increased by $14,510 (1.70%) to $866,986. The strength in the housing market continues unabated, but the rate of gain has started to slow as affordability issues reduce the pool of prospective buyers. 

The value of my retirement savings rose significantly during April, to $1,392,174 (up $43,385 or 3.22%). I opened a new super accumulation account with QSuper and intend to make undeducted (after tax) contributions into that account before I hit the total super balance cap ($1.7M for 2021-22) which will reduce my non-concessional contributions cap from $110,000 pa to nil.

I also started tracking my precious metals investments (gold and silver proof coin sets, bullion bars etc.) under 'other assets' as I have started regular investment of $100/mo into gold via my Perth Mint Depository account. Based on the spot gold and silver price and purity of the various coins, the April valuation was $22,945. 

Overall, my NW reached $2,924,099 by the end of April - up by a healthy $89,727 (3.17%). Excluding the one-off impact of including my precious metals holdings for the first time, the monthly gain would have been $66,782 (2.36%).

It looks possible that my NW could hit $3M by the end of the FY rather than the end of 2021 calendar year, but it reminds me of when I first became a 'millionaire' in 2006, only to see my NW plunge by >40% during the GFC, so I'm actually feeling a bit wary. Especially given the fact the the S&P 500 has more than doubled over the past five years while at the same time governments around the world have incurred massive amounts of debt in order to provide economic stimulus during the pandemic.

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Saturday, 1 May 2021

End of APR 2021 "12% solution" portfolio changes

For the end of April the emailed trading signal was to invest 60% in MDY (SPDR S&P MidCap 400 Index Fund) and 40% in JNK. This is the same asset allocation as last month so I don't need to trade this month.

According to the monthly newsletter, the 2020 performance for this model was +40.6% and for 2021 YTD performance is now +11.0%.

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Quo vadis? - projections/targets for NW going forward

As the saying goes "It's difficult to make predictions, especially about the future" (attributed to either Niels Bohr or Yogi Berra, but probably said by nearly everyone who has ever tried to guess what will happen in future, only to have reality bite them in the arse when they least expect it).

And as ASIC suggest in RG53 8.2.3 any financial predictions should include a disclaimer such as:

"Investments can go up and down. Past performance is not necessarily indicative of future performance."

With those provisos in mind, what realistic targets/projections can I make about my future NW trajectory?

Looking at the monthly NW data in Networthshare, over the past 18 years (after adjusting for the one-off increase in NW caused by my 'inheritance' of the lake house from my parents) my average monthly change in NW has been $9,250 (or  around $111K pa). However the years covering the GFC and EFC produced average monthly decreases of $35,755 (ouch!) and $9,905 respectively. If one excludes those two years (as being unlikely to occur every decade), the average monthly NW increase rises to $13,266 (or $159K pa), which is close to my average monthly NW change during the past nine years of $14,953 (or $179K pa).

The monthly NW increase is due to a combination of my savings rate and the total growth (income plus capital gain) produced by my investments, so will generally increase over time. My salary (and savings rate) has remained fairly constant over the past decade (around $100K salary and 30% of gross salary saved), whereas the total growth in my investments should be exponential (as compound interest results in exponential growth),

Over the next decade or so, leading up to retirement, my salary and savings rate should stay roughly the same (barring unemployment, disability etc.), so I might aim for averaging $180K pa increase in NW, resulting in around $4.6M by age 70. During retirement I plan to withdraw around $65K pa to replace my current take-home pay, and will also cease adding $25K pa to my retirement savings (SGL/SS contributions into superannuation), so the net effect will be to reduce NW accumulation by around $90K pa, to somewhere around $90K pa net. So, possible NW targets during retirement are $5.5M by age 80 and $6.4M by age 90 (if I live that long). Of course these figures are in current $ terms, so after adjusting for inflation my NW in today's $ might rise to $4M by the time I retire, and then remain there in 'real' (inflation adjusted) terms.

We'll see how things turn out in reality of the next 2-3 decades...

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Wednesday, 28 April 2021

Created new QSuper account with the intention to setup a Lifetime Pension when I retire

An article in yesterday's 'Money' column in the SMH about a new retirement income product from QSuper they call a 'lifetime pension'. It is quite similar to a standard lifetime annuity product (such as is available from Challenger) but with a few attractive features for me:

* it will pay a fortnightly pension for life (although the income amount isn't guaranteed like in a standard lifetime annuity).

* the underlying investment is a 'balanced' growth option, rather than the usual mix of fixed interest investments normally underlying a lifetime annuity. Theoretically you are exchanging the certainty of a fixed income rate (that can be indexed to CPI) for a variable income rate that is affected by the performance of the underlying 'balanced growth' investment pool. The old risk-return trade off.

* the income rate is adjusted annually based on how the investment pool has performed compared to a 5% benchmark net return. So if the return is more than 5% the pension rate will increase, but if the pool returns less than 5% net return the pension rate would decrease slightly (to prevent to pool being exhausted).

* while there is no fixed lump sum death benefit (life insurance), there is a guaranteed death benefit that corresponds to your initial investment minus the sum of income payments received - so you (or your estate) would be guaranteed to get you initial investment back even if you die a few years after taking out the lifetime pension

Currently for a 60 year old investing $30,000 (the minimum amount) into a lifetime pension the first year income stream would be $1,849. You can't invest in a lifetime pension until you reach a superannuation condition of release, such as being over 60 and stopping work. And the lifetime pension is purchased using superannuation money (such as in a QSuper accumulation account).

I decided to open a QSuper account (it took literally two minutes to enter my details, address and TFN to open the account online) and I'll initially make a $100 monthly after-tax contribution (I already make the maximum before tax contributions via SGL and salary sacrifce of $25K pa, but I can also contribute up to $100K pa of after-tax contributions, at least until I hit the $1.6m total super balance cap).

I've selected to invest the QSuper accumulation account in a 50:50 mix of the Australian shares and International shares investment options, as this corresponds to my normal 'aggressive' asset allocation, and these options have a low total fee of around 0.24%, which is similar to the fees our SMSF pays for the Vanguard High Growth Fund. As there appears to be no minimum fee (or fixed weekly admin fee) for QSuper, it should make any difference to my total superannuation fees whether I am invested 100% in our SMSF or have a small amount invested in QSuper as well.

I'll probably end up accumulating around $100K in the QSuper account, so that when I retire (possibly at age 70) I can put that amount into a lifetime pension paying around $7,529 pa in the first year (the initial income payments increases slightly for each year older you are when you take out the lifetime pension). If I waited to take out the lifetime pension until I turned 80, for example, the initial income rate would be $10,834.

This is a lot lower than the initial payments (from age 95) would be if I took out a $100K deferred lifetime annuity from Challenger when I am 60 (with a 35 year deferral period), if I chose the option of not having any death benefit (which risk getting no repayment at all if I died before the deferral date). So I might end up taking out a combination of a $100K lifetime pension from QSuper and a $100K deferred lifetime annuity (with no death benefit, and deferred until age 95) from Challenger. The remaining amount of super (below the transfer balance cap) would stay in our SMSF and transfer into retirement phase, so I could adjust the annual pension payments (subject to the mandatory age-based minimum percentage) and take out lump sums as needed.

Given my great-Aunt is currently still alive at age 105, and two of my grandparents lived to 94, having some component of my retirement income stream guaranteed against longevity risk seems prudent.

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Saturday, 24 April 2021

All Ords expressed as ounces of gold (in AUD) price, and compared to DJI

I found some monthly data for the Australian All Ordinaries index since 2000, and for the average monthly spot gold price expresses in AUD. A plot of the All Ordinaries index expressed in ounces of gold shows when the Australian stock market is overpriced compared to gold (eg. the index costs more than 6 ounces of gold) and vice versa (eg. the index costs less than 4 ounces of gold). Assuming one had a portfolio consisting mostly of the All Ords Index and Gold bullion (eg. 95% stocks, 5% gold), this plot could suggest when it might be prudent to go 'overweight' in stocks (eg. early 2008 and 2019 during market 'crashes') and when it might be prudent to shift to being 'overweight' in gold (eg. during 2004-2007).

Assuming one's long term asset allocation was, for example, 90% stocks and 10% gold, this might mean increasing gold to 15% allocation, or decreasing to 5% allocation, to slightly boost long term returns and reduce volality.

I also plotted how the All Ordinaries index performed compared to the US Dow Jones index since 2000. It shows that the Australian stock market was expensive compared to the DJI in 2007, but has not seen the massive increase that the US market has experienced since 2015. This explains why the US market seems 'fully priced' at current levels compared to gold, whereas the Australian market still seems to be reasonable value (at least in comparison to the price of gold).

Of course comparing the stock market indices to bullion prices doesn't preclude the possibility that BOTH stocks and gold could be simultaneously in a bubble - for example if the world was awash with capital looking for somewhere to invest at a time of no/low returns on cash and fixed interest investments. 

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Wednesday, 21 April 2021

Stock market and gold bubbles - is comparing stock indices to the gold price a useful dynamic asset allocation tool?

Aside from determining your risk tolerance, investment time frame, and hence a suitable asset allocation to invest in (preferably via low cost options such as ETFs and index funds), one of the few well proven methods to reduce risk (volatility) and improve performance (slightly) in your investment portfolio is to rebalance to your chosen asset allocation on a regular basis. Due to transaction costs (and CGT implications) this is often done annually.

Rebalancing will automatically sell off those assets (or asset class) that have done well, and buy more of those assets (or asset class) that have underperformed. While this is counter-intuitive (human nature, such as recency bias, prompts us to want to stick with 'winners' and sell 'losers'), it is usually a good strategy due to the 'bubbles' that regularly occur in various assets, and the tendency for those assets to subsequently suffer 'reversion to the mean'.

An extension of this might be to actually go 'underweight' assets (or asset classes) that have recently outperformed and go 'overweight' those assets (or asset classes) that have underperformed when you do your annual rebalancing. This isn't guaranteed to work, as your rebalancing period (one year) may not coincide with the duration of the various 'boom and bust' cycles experienced by various assets. That is, you may sell off outperforming assets and switch into underperforming assets too early in the cycle.

Therefore, it may be better to slowly adjust your asset allocations above or below your target (standard) allocation over several rebalancing periods - every year that an asset class is underperforming you would slightly increase its weighting, and every year that an asset class is outperforming you would slightly decrease its weighting. I don't personally do any rebalancing, as I mostly invest in diversified multi-index funds that are automatically rebalanced.

However, it might be interesting to see how such a strategy might perform over time. As an example, I came across a chart of the US Dow Jones index expressed as a multiple of ounces of gold. As gold is (theoretically) a hedge against inflation in the long term, such a chart should essentially show the real (inflation adjusted) returns of the stock market. The chart will also highlight when stocks are overpriced (a 'bubble') or when gold is overpriced. Hence if one had a portfolio consisting of the Dow Jones Index and an investment in gold bullion, it would be possible to reduce one's target asset allocation for stocks down when the stock index 'gold price' is well above the 'normal' range, and reduce one's target asset allocation to gold when the stock market is 'cheap' in terms of gold. It can be seen from this chart that seems quite clear when the stock market (DJI) was 'expensive' in terms of ounces of gold, and when it was 'cheap' (and hence either gold was in a bubble or the stock market was excellent value).

I'll look up some historic data for the Australia All Ords Index and the gold spot price in AUD and do a similar plot, then try out some weighting adjustment methods back-tested on the historic data. Hopefully adjusting the target asset allocation this way might boost returns and reduce volatility compared to using a fixed asset allocation (eg. 80% stock index and 20% gold) over the long term. From the above chart it looks like the typical cycles extend over decades, so this probably isn't something I can benefit from, but it might be useful to a young investor such as DS1. I'll see how the modelling results turn out. 

Incidentally, despite there being a lot of youtube videos about gold (and silver) being a great investment at the moment (due to the prospects for higher inflation resulting from the recent massive amounts of stimulus and effectively 'printing money'), and other videos (such as those by Harry Dent) stating that the stock market (especially the US) being in a 'bubble' and about to crash (40% by April, Dent was claiming back in Feb), the above chart doesn't show the Dow Jones Index being exceptionally expensive compared to gold,

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Found my gold coins

As mentioned previously, I've set up an online depository account with Perth Mint and will be purchasing $100 (-$0.50 transaction fee) of gold bullion each month which will be stored in their 'unallocated' holding. This will slowly add some 'precious metals' to my overall asset allocation and have no storage or insurance costs.

I thought I already had some gold coins that I purchased many years ago (I used to also have some gold and silver cast bars, but I had sold them off last time the bullion prices spiked up), so today I went on a 'treasure hunt' (actually I just looked around for the key to my electronic floor safe, as the battery for the electronic keypad was flat) to locate my gold coin 'collection'. Once I had the safe open I did a quick inventory of the various gold 'proof' and 'uncirculated' coins and put them into a spreadsheet to calculate their gold content (either .9999 or .916/22-carat) and gold value based on the current 'spot' price. Turns out I have about 9.9 troy ounces of gold (worth about A$22,800). A few of the proof coins are quite limited mintages, so might be worth more than their gold content alone.

The problem with having gold coins as an investment includes:

1. Insurance - my home contents insurance has a cap on the amount of miscellaneous 'collectibles' that are covered (eg. $5,000), and some insurance policies also only count currency "no longer in circulation" as a 'collectible'. Not sure where that leaves a 1980 uncirculated gold coin that has a 'face value' of $200 and is, technically, legal tender. Getting itemized cover for the coin collection would be expensive and difficult - aside from having to pay a higher annual premium for my home contents insurance policy, if a 'valuation' is required this can also cost quite a lot. For an 'investment' that often only appreciates in line with inflation, any holding costs can make them a poor investment over time.

2. Liquidity/trading costs - while it is fun to look up approximate valuations for specific coins by year and estimated quality, getting a professional appraisal can be expensive (for example Jaggards in Sydney charges $110 per hour, with a one hour minimum fee. And when it comes time to sell, a dealer will often pay significantly below the appraised value (they have to make a profit as a retailer). Selling at auction can be a bit of a 'lucky dip' in terms of what price may be realized, and there are associated costs which may be in the order of 20%-30%.

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Friday, 16 April 2021

Extrapolating Peter Zeihan's geopolitical thesis regarding the USA-Mexico synergy to Australia-Indonesia

I recently came across several youtube videos of Peter Zeihan presenting his view regarding the future of global trade if/when the USA stops enforcing global free trade, and various countries attempt to transition from domestic consumption to export as their demographics age. All his presentations are quite similar (whether to an Indian economic Conclave or to the Association of Ohio dairy farmers), so you only need to watch one presentation to get the gist of his data and conclusions.

Anyhow, I thought it would be interesting to compare the USA demographics with that of Australia, and found that they are quite similar (despite Peter frequently mentioning New Zealand, because he went to uni there, he tends to ignore Australia). He also paints a rosy picture of the economic prospects for the USA due to the neighbouring consumer market and cheap labour manufacturing resource that is Mexico. So I thought I'd also look into the demographics of Australia's close neighbour - Indonesia.

The comparison shows that the Australia-Indonesia situation is very similar to that of the USA-Mexico, with the proviso that Australia is only 1/12th the population of the USA, while Indonesia has roughly 2x the population of Mexico. Not sure if this makes Australia's future economic situation better or worse than that of the USA.

But in any case, we should do relatively well, compared to the EU, and especially Russia or China.

Whether the details of Peter's prognostications are correct will likely depend on whether or not the USA does or does not continue to act as the 'world policeman' when push comes to shove. The current tensions regarding China-Taiwan and Russia-Ukraine may answer the question one way or the other in the next few years.

At the moment the USA is making all the right noises about supporting Ukraine/Taiwan against any military action by Russia/China, but that could turn out to be all talk if the USA doesn't want to expend any more 'blood and gold' on other people's wars. We'll see,

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DS1 will need to think about getting some private health insurance soon

DS1 turns 21 next month, and since he graduated last year he will no longer be covered by my private hospital insurance plan (that my employer subsidizes). As he will have only been working for 6 months out of this financial year, he won't have to worry about the Medicare Levy Surcharge this FY, but next FY his income will probably put him in Tier 2 (or possibly Tier 3), meaning that unless he has private hospital insurance he will have to pay 1.25% (or 1.5% for Tier 3) MLS on his taxable income. For a taxable income of $120,000 that would mean an MLS impost of $1,500 if he doesn't have basic private hospital cover.

Since a 21 year old can obtain basic private hospital cover for around $104.63 per month ($1,255 pa), it is actually cheaper to have basic private hospital cover (including a basic dental option) than to pay the MLS, especially since he will probably also save a few hundred dollars each year from claiming on basic dental check-ups.

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Thursday, 15 April 2021

Decided to buy an Amazon CFD

Watching a video about the recent progress in AI, robotics, the Armenian-Azerbaijan war (that lasted six weeks last year and I hadn't even heard about - apparently it was won largely using armed drones to take out radar units, and then wipe out lots of tanks, armoured personnel carriers and troops sitting in trenchs etc.), I looked up how Amazon had performed (I knew it was insanely successful and the share price very high, but I hadn't realized that I could have bought shares for $50 back in the GFC that are now worth around $3,300! And the p/e of Amazon is not insane, just very high, at 80.

So having not made any money of the internet/online business boom, despite being around when the internet was first starting up (I was a system administrator back in the 80s) and losing money investing on a pre-IPO internet company (GEN) pre-2000, I decided I should at least have some explicit exposure to one of the FAANG companies. So I used my CityIndex CFD account to put in an order to buy one ( 1) Amazon stock CFD at US$3,330. If the order gets filled the trade cost is USD$15.00, and the margin is 20%, so it will use up a large fraction of the A$1,263 I currently have available to trade in that account.

I won't get rich owning the equivalent of one share of Amazon stock, but at least I'll get some satisfaction if it continues grow rapidly in future (provided my CFD position doesn't get closed out if there is a market correction).

update: The price gaped up at the market open, so I had to change my order price to be filled at a price of $3,377.00. In total my ASX200 and Amazon CFDs have market value of $6,049.55, so the 20% margin requirement is $1,209.91. I currently have $400.09 available credit, so if the overall value of these holdings dropped more than 6.6% I would have to either sell one (or both) holdings, or else transfer some more cash into the account.

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Wednesday, 14 April 2021

Started my monthly bullion investment

A week after submitting my application to open an online depository account with Perth Mint/Gold Corporation (where I had to provide snapshots of my passport ID page and a statement from the bank account I wanted to link to the account) I received an email requesting additional proof of my residential address (the bank statement goes to my PO Box). I sent in a snapshot of my local council rates notice and the next day it was confirmed that my depository account was now 'live'.

I setup an automatic savings plan that will purchase $99.50 worth of gold each month (there is a $0.50 or 0.5% transaction fee) that will happen on the first business day of each month, based on the spot price at market close. To fund this I've also setup an ongoing $100 per month transfer from my bank account into the depository account. I decided on only $100/mo instead of $250 as I don't have much spare cashflow each month due to my existing savings plans.

This will only add $1,200 pa of gold into my overall asset allocation each year, so it will take a very long time to become a noticeable fraction of my overall asset allocation.

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Wednesday, 7 April 2021

Took up DS2's Computershare Renounceable Entitlement Offer

I had bought some CPU (Computershare) stock for DS2 when he was a child, so he currently has 250 CPU shares in his stock 'portfolio'. Computershare recently did an institutional fund raising round at $13.55 per share, and offered renounceable rights to current (as at 31 March) retail shareholders at a rate of one new share for every 8.8 shares held as at the record date. Any fractional entitlement is rounded up, so DS2 was entitled to purchase 29 shares for $13.55 each.

While this $13.55 offer price is not a huge discount to the current trading price (which is around $14.70), there isn't any brokerage cost, and if he didn't take up his entitlement the rights would be sold off and he would receive a small cash distribution (and his existing share value would be slightly diluted). Anyhow, as the stock portfolio of DS2 isn't worth as much as that of DS1 (due to me buying the shares for DS1 a few years earlier, so he benefited from a period of strong growth in the value of the shares I had bought him), I need to add a bit more to DS2's share portfolio to make it 'fair'. So I paid the $392.95 for these additional shares as a gift for DS2. His CPU share holding will now be 279 shares.

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Friday, 2 April 2021

Progress with completing Master of Financial Planning, and a delay

I managed to scrape in a 'high distinction' grade for the 'financial planning research project' course I did this past semester (Q1), with a mark of exactly 85% (the bare minimum mark required for an HD). Fortunately this means that my overall grade average is now 6.0 ('distinction') so I will only need to average a 'distinction' grade on the final two subjects to be able to graduate 'with distinction' ( or 'cum laude' if you want to sound posh). I expect I might only get a credit for the 'contemporary issues in taxation' course (the other tax course I did for this degree was a law-based course requiring legal arguments based on precedents, which I didn't find hugely interesting). so I'd better aim for getting an HD on the other course that I still have to do - the 'statement of advice research project'.

Unfortunately they've cancelled the running both of these courses in Q2, so I'll now have to do one in Q3 and the other in Q4, so I won't get to finish off this masters degree until the end of the year. At which time I'll be able to apply to enrol as a PhD candidate - providing they accept my previous bit and pieces of research coursework done previously (and one paper I co-authored thirty years ago!) as sufficient prior 'research training'. Otherwise I would have to enrol in an MRes degree first, which would take another four years to complete part-time (and cost buckets of money), so I probably wouldn't bother.

As I'll have no other courses to do in Q2, I'll focus on finishing off the two specialist courses in 'self-managed superannuation funds' and 'margin lending' that I've nearly completed with IIT. And also work through the four subjects required for the Advance Diploma in Financial Planning that I enrolled in a while ago, but so far haven't got around to doing much of.

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Thursday, 1 April 2021

Net Worth: MAR 2021

My monthly NW estimate has been updated in NetWorthShare for the end of March. 

Stocks and fund investments gained a bit overall this month, although it was quite a choppy month with concerns about the inflationary impacts of all the stimulus measures vying with the economic stimulus impacts of all the stimulus measures. I used $20K from my 'portfolio loan' line-of-credit to invest in Microequities Asset Management's Value Income Fund, which had no net impact on my NW. Overall my 'stock portfolio' increased by $6,859 (2.09%) to $334,956.

Our estimated house price for March (my half) increased by $10,365 (1.23%) to $852,476. The strength in the housing market continues to increase, but is concentrated in certain suburbs/regions and more in free-standing homes than units/apartments. Not sure how things will be looking by the time my 'off the plan' apartment  construction is completed and I have to 'settle' the purchase in Q2 2023. 

The value of my retirement savings rose significantly during March, to $1,348,789 (up $41,118 or 3.14%). Hopefully I will be able to reach the TBC (currently $1.6m but increasing to $1.7m from 1 July this year) by the time I turn 65 and can transfer up to the TBC out of accumulation phase (where the tax rate is 15%) to retirement phase (where the tax rate is 0%) without having to 'retire'. Any amounts above the TBC will remain in accumulation phase. Part of the TBC might be used to fund the purchase of a deferred annuity to insure against longevity risk.

Overall, my NW reached $2,834,372 by the end of March - up by a healthy $58,617 (2.11%).

Months where my NW increases by almost my annual take-home pay seem quite surreal. But it isn't so much fun when the movement is in the other direction (like in 2008). Looking at the long term chart helps keep the ups and downs in perspective.

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End of MAR 2021 "12% solution" portfolio changes

For the end of March the emailed trading signal was to invest 60% in MDY (SPDR S&P MidCap 400 Index Fund) and 40% in JNK. This is a change in asset allocation from last month so I will need to close out my QQQ position and buy MDY when US trading opens (late tonight in my time zone).

My current account balance is $11,927.81 which represents a cumulative return of 13.94% since AUG 2020 when I commenced this portfolio.

Due to timing differences and fees (and the inclusion of a small holding in ASIA ETF that I had in my IG trading account before adding the "12% portfolio" investments) my portfolio performance won't track exactly against the standard "12% solution" portfolio. According to the monthly newsletter, the 2020 performance for this model was +40.6% and for 2021 YTD performance is now +7.9%.

As I funded this portfolio using my St George Portfolio Loan, my target performance over the long term (10+ years) is for the returns (after admin fees and trading costs) to exceed the interest paid (after factoring tax credit) on the Portfolio Loan.

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Wednesday, 31 March 2021

Thinking about bullion

I've been watching a few youtube videos with interviews of the likes of Ray Dalio, Harry Dent etc. predicting inflation/hyperinflation and/or stock market crashes/lost decades (no real return) as a result of the monetization of the vast amounts of stimulus spending that has occurred around the globe. If stocks and bonds do poorly as interest rates start to move upwards, and returns on cash remain less than inflation, alternatives such as gold (or silver) might be worth including in one's portfolio as a hedge against inflation.

The problem I have with 'investing' in bullion is that it provides no income or dividends (it actually costs money due to buy/sell spread, fabrication costs, and possibly holding costs and insurance) and while it should provide a hedge against inflation in the long run (as the cost of production sets some sort of floor price, and production costs increase with inflation), the short and intermediate price movements are prone to investor sentiment pushing prices too and high or too low over periods lasting decades. I still remember the remarkable silver bubble that occurred when the Hunt brothers tried to corner the market in 1980.

That said, putting a small fraction of my entire NW into gold or silver may provide some diversification benefit. I thought I already had some gold 1/10th bullion coins lying around that I'd bought from the Perth Mint several years ago. I remember I bought about ten of them and gave a couple away as presents. So I should still have 8 or so -- but I only found one of these tiny, encapsulated gold coins sitting in the box where I keep my silver bullion coins (4 one-ounce coins and one 2-ounce coin). I had already looked in other likely storage places, but so far haven't found them. One of the big problems with keeping physical gold!

So I'm wondering what form of investment in gold bullion (as opposed to gold mining stocks, which are generally correlated with the gold price) I might make. I could order gold coins or bars from Perth Mint and store them, but the production costs mean you pay considerably more than the 'spot price'. For example, 1-ounce gold coins cost 5.0% above spot price, 1-ounce minted bars cost 2.1% premium to the spot price, and cast 1-ounce gold bars cost 1.8% above the spot price. Silver is even worse, with physical coins and bars of 1 to 10 ounces costing around 20-30% above the spot price per ounce!

As an alternative to physical bullion, I could buy a gold CFD. One benefit of that would be leverage, but then again I'd be paying a buy/sell spread and also a daily margin interest cost. Not a great idea for an asset that doesn't produce any income stream.

So, I've decided to open a depository account with Perth Mint. I'll be able to transfer a small amount of money into the account on a regular basis, and then go online to buy either gold or silver at the spot price plus a small fee. I'll probably choose to hold any bullion in the 'unallocated pool' which is backed by physical metal, but in the form of gold or silver sitting in the mint vaults as part of their production process. That way the purchase fee will be 0.5% and there won't be any holding/storage costs. If I ever want to take physical delivery, I'd have to transfer my holding into the 'allocated pool' and then order fabricated bars or bullion coins. I've yet to decide how much money I might regular put into the depository account to make gold purchases with. At the moment the gold price (around $2,200/oz in AUD) has been dropping a bit from its recent peak 9 months or so ago, and is back down to where it started 2020. It could continue to fall back to the $1,600 level it was sitting at during 2017-2019. This is still a lot higher than it was back in 2000, when the price was only $500 an ounce or thereabouts. With inflation around 2.5% during the past twenty years, the price only needed to increase to around $820 to have kept pace with inflation. Then again, the gold price had sat around $500/oz during the 1990s, so it is hard to pick a year that represents a 'reasonable' price for gold. Looking at the inflation adjusted gold price for the past 100 years, it doesn't look particularly 'cheap' at the moment though:

While gold was a good store of wealth during 1929-1935, it was an extremely poor investment between 1935-1970, and between 1980-2000.

Investing a tiny amount in gold is hardly going to have any material effect on the overall performance of my portfolio, and investing a larger amount would be a move from investing towards speculation.

I'll probably just transfer $250/mo into the depository account and buy a regular small quantity to dollar cost average a small bullion holding over several years.

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Sunday, 28 March 2021

Australian Green's Party will make theft their official party policy to take to the next election

Apparently the existing top marginal income tax rate of 45%, plus a 2% medicare levy, plus a 1.5% medicare levy surcharge (if taxpayer does not have private medical insurance) i.e. a total of up to 48.5% tax on high level of income isn't enough taxation for the Australia Greens Party. Plus, of course, GST (10%) on most purchases when you spend the after-tax money you have left after paying income taxes. Plus, miscellaneous other taxes and charges out of the same 'after-tax' income...

So, the Greens Party has announced a new policy of a wealth tax of 6% of the wealth (each year? - the details have not been published yet, just a 'thought bubble') on Australia's wealthiest 122 individuals (not sure how they will work out who has exactly what wealth, as the ATO does not collect wealth data, only income - perhaps they will rely on the 'rich list' published by a magazine? That will be a fun court case for the ATO).

If applied, a 6% annual 'wealth tax' would effectively confiscate 100% of the average after-tax return generated on these assets. Some years the after-income-tax ROI would be more than 6%, but many years it would be less than 6%. Effectively transferring ALL the benefit of having these assets from the individual to the state. Which is effectively theft. Just imagine if financial planners or funds managers were charging 6% annual fee on AUM!

The NZ Greens Party has a more 'reasonable' wealth tax policy - they only propose a 1% wealth tax on anyone with a net worth above $1 million, and 2% wealth tax on those with more than $2 million net worth, so would 'only' be about 1/3 of real returns, but apply at a much lower threshold. Indeed 305,000 of New Zealand's 4.9 million adults have a NW over $1MM - which is around 6.2% of the adult population of NZ.

IMHO any wealth tax, inheritance tax, or other form of government confiscation of wealth is unfair, for the simple reason that the income used to accumulate wealth has already been taxed (at up to ~50% for high incomes when the medicare levy and MLS are included). Having already taken about half of a high income earning individual's income via income tax (or 30% if they make use of trusts to reduce the tax rate to that of company tax), to then take ~100% of the after tax ROI on whatever the individual invests is completely unfair. The fact that this will only apply to a small fraction of the population is beside the point - discrimination against minorities is never OK, be it migrants, LBGTQIA, women, children, the elderly, the rich, the poor, or whoever.

Of course the Greens have no chance of winning government in their own right (they only have one lower house seat at the moment - their best result ever), but are free to propose whatever loony ultra-left policies that will appeal to the neo-communist 7%-11% of voters that consistently give them a couple of Senate seats in most States. They currently have 1/151 house of representative seats (as you have to end up with >50% of the vote after preferences to win an electorates seat), but have 9/76 Senate seats (12% of Senate seats will only around 10% of the vote), so can hold the 'balance of power' in the Senate when Labor wins the lower house, so can have a disproportionate impact on government policy. One way to reduce the influence of the Greens would be for the major parties to be more co-operative in the Senate, regardless of which party happens to have won the last general election and have formed government. Unfortunately, the job of opposition is not to seen to be to challenge and improve government legislation, but simply to score political points and improve their own prospects of winning the next election.

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Wednesday, 24 March 2021

Looking into purchasing a deferred lifetime annuity to compliment superannuation account-based pension

I'm fortunate that both my parents are still alive (aged 89 and 85) and reasonably healthy, I also have one great-grand Aunt who is still alive at age 105 (but suffering dementia in recent years), and my paternal grandparents both lived to 94 years of age. So, although the life expectancy of an Australian male my age is currently 85.56, there is a reasonable chance I could still be around in my nineties (especially if I lose my excess weight and exercise more), or possibly even make it to 100. There might even be some novel medical treatments that become available during the next four decades that extend healthy lifespan more than the 0.2% annual increase that occurred in recent years (2018-2020).

Therefore, although I'm currently on track to reach the superannuation transfer balance cap by the time I 'retire' (transition from my current full-time employment to working part-time as a financial planner), which should provide sufficient retirement income to maintain my present lifestyle indefinitely, there is always 'longevity risk' that I may exhaust my retirement savings before I die, especially if sequencing risk has an adverse impact (a few 'bad' years at the start of your retirement have a much greater impact that similar 'bad' years occurring towards the end of your draw-down period, even if the average ROI is identical).

One can however 'insure' against longevity risk by purchasing a lifetime annuity, that will provide a fixed income stream until your death. Of course the net amounts expected to be paid out have to match the premiums paid in, plus investment returns, minus the providers costs and a profit margin. Therefore, purchasing an immediate annuity (that starts making payments straight away) provides quite a low ROI (around 4% pa, which is quite poor considering part of that is simply the return of your principal). But it is also possible to purchase a deferred annuity using superannuation money (once you reach retirement) that doesn't start to provide an income stream (hence is 'deferred') for a chosen number of years.

If the deferral period is quite low (so you are almost certain to receive income for a number of years) or the annuity has a 'death benefit' (life insurance component), or can be withdrawn early (get your money back), or will continue to make payments to a surviving spouse, then the income stream is also reasonably modest. However, if you choose the option to have no death benefit, no option to withdraw, and no reversionary beneficiary, then the amount of income you may receive (especially if it is deferred beyond the average life expectancy period) can be quite high.

For example, at age 60 I could purchase (if I was retired) a $10,000 deferred annuity with a 35 year deferral period (i.e. start paying out at age 95) and no death benefit, withdrawal option, or surviving spouse benefit that would pay $8,225 pa indefinitely. Similarly if I retire at age 65 I could then purchase a $10,000 deferred annuity with 30 year deferral period (still commencing payments only if I live to 95) of about $8,775 pa. So, as long as I don't receive any income unless I live past 95, it makes little difference whether I purchase the deferred annuity now, or in 5 years time.

So, although there is a risk that you might die too soon to receive ANY payment from a deferred annuity (if it doesn't have a death benefit), it does provide a mechanism to ensure you have a reliable income stream in the event that you live a lot longer than you expect.

For example, if I rollover $100K of my TBC into a deferred annuity that doesn't start paying until I reach 95, I would then receive about $85,000 of tax free income from the annuity each year until I die. If I happen to live as long as my great-grand Aunt the total return could be up to $850K on a $100K 'investment'. The annuity payments are increased in line with inflation (cpi), so those figures are all in current $ terms. This isn't quite as much as you *might* end up with by simply leaving the $100K in retirement-phase superannuation *if* you achieved a consistent average 5-6% real ROI, but the difference is basically the cost of insuring against sequencing risk.

Of course if I die before reaching 95 then my $100K will have gone towards funding the income streams of other annuants that live long enough to collect. But I won't be around to be upset by this!

Overall, using $100K (about 6%) of my $1.7m or $1.8m TBC to purchase a deferred annuity looks quite a good option to ensure I have a guaranteed (as long as the insurance company stays in business) income stream if I live to 95+, especially if investment returns during the next 40 years are worse than average.

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Wednesday, 10 March 2021

Looks like I stopped shorting Tesla too soon ;(

It looks that my theory about Tesla being way overpriced was correct, but my decision to stop trading (shorting) Tesla may have been premature. Oh well, at least I made a little bit of money while I was trading.

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Thursday, 4 March 2021

Invested in Microequities Value Income Fund

I've been receiving regular promotional emails from Microequities Asset Management since 2017 when I first responded to an ad about this fund manager via Morningstar. I decided to take another look at their fund offerings, as I was willing to put $10-$20K into one of their funds as small, value equities can often perform well compared to the overall market index, but it is a lot of work to research and select potential winners (so I wouldn't try to pick individual stocks myself).

I found out (again) that their funds are 'wholesale' and normally only available to 'professional' investors with a minimum investment of $100K. Probably why I didn't invest back in 2017!

However, after abandoning my online application when I came to the minimum investment requirement, I was contacted by one of their relationship managers who advised that they had recently started up a new retail fund with a $20K minimum initial investment. So I decided to invest the minimum amount into their retail 'Value Income Fund' via my portfolio loan.

Being a small, boutique fund manager they charge a quite hefty fee of 1.3% PLUS a 'performance fee' of 20.5% of any return above the benchmark S&P/ASX Emerging Company Accumulation Index. There is also a potential liquidity issue, as the PDS notes that redemptions may be suspended or delayed if market conditions result in redemption requests of more than 5%-10% of the fund in one day.

Overall this is a fairly costly and high risk investment, so I wouldn't risk a large fraction of my portfolio on this investment. But $20K is only 0.72% of my NW, so I can afford to make a modest allocation to this investment. The retail fund has only been operating since Feb 2019, so it doesn't have much historic performance data, but it is expected to follow a similar strategy to their wholesale high income value fund, which has averaged a compound rate of return of 11.41% since 2012. As long as the average return is above the interest rate charged on my portfolio loan (currently 4.98% pa) I will do OK. We'll see how things turn out over the next 5-10 years.

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Tuesday, 2 March 2021

Stopped shorting Tesla and switched from buying Alphabet to ASX200 CFDs

My recent brief foray into day trading was profitable overall, making some net gains by shorting Tesla (TSLA) while losing a little bit buying alphabet (GOOGL) just before it dipped in price. I'm not sure if Tesla will continue to weaken towards a more realistic p/e ratio or if the previous enthusiasm for this car-maker-priced-as-if-it-were-a-tech-company returns for a while. Google may well continue to rise (at least until there is an overall market correction), but it has also seen incredible gains over the past last March, so could just as easily drop back to 1700 than continue to rise beyond 2000. I also only started buying alphabet because it has a tiny fraction of its value tied up in SpaceX - which is a pretty stupid reason to buy into a stock when you think about it.

Overall I've decided to stop playing roulette day trading for a while, and instead have just bought a small long position in the ASX200 via the purchase of 50 iShares MSCI Australia Index Fund CFDs at $25.780 on 26 Feb. I'm currently down -20.50 USD on this trade (-0.4 per CFD) due to the market sell-off at the end of last week, but as I have large trailing stop loss set at -4 points (currently set at $21.78), the market would have to drop 15% for the position to be closed out. I'll just leave the long position in place and hope to gain from any long term increase in the ASX200 index over the next few years.

The 50 CFDs had a position value of $1289 USD, but I think the required margin is only 7.5% (A$118.63), so the minimum trade commission of $15USD was a quite hefty impost (the commission rate is only 1c per CFD, but the minimum commission makes small trades uneconomical). So this sort of trade only makes sense if done as a buy-and-hold highly geared strategy, unless you are trading a large dollar amount. Daily interest charged on this small open position appears to be around A$0.11 per day.

So if the Australian share market rose 10% over 12 months, I would make a gain of around A$160 and have been charged around $40 in interest charges. Given the large minimum commission for this trade and the low ratio of required margin to my CityIndex account balance (currently around A$1,600) I probably should have traded 200 or 250 CFDs rather than 50. I'll probably use the 'spare' capital sitting in this account for some further day trading if and when an obvious opportunity arises.

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Monday, 1 March 2021

Net Worth: FEB 2021

My monthly NW estimate has been updated in NetWorthShare for the end of February. The stock markets performed well for most of the month, but then suffered a sell off in the last few days of the month but still ended up slightly overall for the month. I've added my recent Investment Bond investment to my 'stocks' total, and also included my investment in the 'Spaceship' online investment fund (I started that last year but seem to have not been including it in my NW calculations). Overall my 'stocks' figure was up $20,134 (6.54%), but the monthly movement has been exaggerated by the sudden inclusion of the Spaceship fund value (about $6,122).

Our estimated house price for February (my half) increased by $5,182 (0.62%) to $842,111. Due to low interest rates and government stimulus measures relating to first home owner grants and subsidies, the residential housing market in Australia is currently quite buoyant. Around this time last year the 'experts' were predicting falls of up to 30% in house prices, now those same 'experts' are predicting a rise of 10%-20% in Sydney prices over the next two years. Unit (apartment) prices are not a strong as free-standing houses due to the impact of Covid-19 border closures on migration to Australia. So my 'off the plan' unit probably won't increase much in value before construction is completed and I need to get a mortgage to fund settlement in Q2 2023. 

The value of my retirement savings rose significantly during February, to $1,307,671 (up $20,175 or 1.57%). Hopefully I will be able to reach the TBC ($1.7m from 1 July this year) by age 65 when I can transfer that amount from accumulation phase (where the tax rate is 15%) to retirement phase (where the tax rate is 0%). Any amounts above the TBC will remain in accumulation phase.

Overall, my NW reached $2,775,755 by the end of February - up by a healthy $45,758 (1.68%).

Accumulating wealth starts out like someone learning to swim by madly kicking their legs while holding onto a kick-board for grim life - lots of effort for little visible progress. But eventually you reach the stage where the portfolio growth exceeds the amount you are adding each month, so the situation is more like sitting in a kayak gliding along and only having to make the occasional course adjustment and put in a few strokes to keep things moving along. I suppose when I'm retired it will be a bit like sitting on a deck chair of a cruise liner - mostly just relaxing and watching the ship steam ahead, but sometimes still getting a bit anxious when there is a storm and the seas get rough.

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Saturday, 27 February 2021

End of FEB 2021 "12% solution" portfolio changes

For the end of February the emailed trading signal was to invest 60% in IWM (iShares Russell 200 ETF (All Sessions)) and 40% in JNK. As this was the same asset allocation as last month I don't need to do any trades again this month, which will help reduce trading costs.

My current account balance is $11,688.91 which represents a cumulative return of 11.65% since AUG 2020 when I commenced this portfolio.

Due to timing differences and fees (and the inclusion of a small holding in ASIA ETF that I had in my IG trading account before adding the "12% portfolio" investments) my portfolio performance won't track exactly against the standard "12% solution" portfolio. According to the monthly newsletter, the 2020 performance for this model was +40.6% and for 2021 YTD performance is +6.6%.

As I funded this portfolio using my St George Portfolio Loan, my target performance over the long term (10+ years) is for the returns (after admin fees and trading costs) to exceed the interest paid (after factoring tax credit) on the Portfolio Loan.

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Friday, 26 February 2021

I'll be increasing my Salary Sacrifice amounts from 1 July

I currently salary sacrifice $530 into superannuation in each bi-monthly pay ($12,720 pa) in addition to the SGL contribution of  $413.78 each pay ($9,930.72). That adds up to $22,650.72 pa of concessional contributions each year, well below the current $25,000 pa cap. However, there are also some additional employer contributions that get paid into my company-nominated superannuation plan as my employer refunds part of the standard admin fee and also refund the premiums paid out of superannuation for the basic amount of group life insurance. Those amounts vary a bit from month to month, and the timing of contributions actually being credited to the superannuation fund also move around a bit. As both of these additional contributions count towards the concessionally taxed contribution total, I have to be a little bit conservative with how much I contribute via salary sacrifice and then calculate the actual total of concessional contributions in the last few days of June so I can make a personal contribution into superannuation that will bring me up to the concessional contributions cap, and then claim a tax deduction for that personal contribution when I do my annual tax return. Last FY I didn't end up making any extra contribution in June as it turned out that due to a late monthly payment that had been deposited on 1 July 2019 I seem to have actually exceeded the concessional contribution cap for last financial year! (I won't know until my tax return for 2020 has been processed and the ATO decides if there was any 'excess contribution' amount. If there is any 'excess contribution' it will be added to my assessable income for the year and be taxed at my marginal tax rate (minus 15% tax rebate for the amount of tax already paid on concessional contributions by the super fund). The excess contributions will be counted towards the non-concessional contributions for that FY).

The concessional contributions cap will be increasing from $25,000 to $27,500 from 1 July 2021 due to indexation of various superannuation caps in line with increases in wages. So I will notify HR in late June to increase my bi-monthly salary sacrifice amount by $70 per pay period (to $600 of 'salary sacrifice). Hopefully I will receive a small annual pay rise this year (I'll find out the result of the company's annual salary review next month) that will cover this additional deduction, so my take-home pay should remain fairly constant. The SGL will also be increasing from 9.5% to 10% from 1 July, which will add another $522 of annual concessional contributions each year, so I might be getting close to the increased cap and not need to make much of a 'top up' contribution in June 2022 to max out the increased concessional contributions cap.

An added complication is that the admin fee charged by the superannuation fund has recently been cut, so to keep the total admin fee employees actually pay the same, the employer's refund of part of the admin fee will be reduced (so that amount of employer additional contribution into superannuation will be reduced slightly).

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Thursday, 25 February 2021

Tesla short update #7

Opened a sell trade of Tesla last night just after the market opened in the US as the price rebound seemed to have ended and the price was drifting downwards once more. I added a 20 pt trailing stop loss to close out my position if there was a rebound while I was asleep. As it turned out Tesla shares pushed higher after the first hour of trading and then moved even higher late in the day. Fortunately my stop loss closed out my position for a modest loss:

25/2    Sold 4 TSLA @ 705.610    closed out by stop loss @ 717.120    loss: -$58.45 (USD)

I'll wait and see if prices stabilize around this level before deciding whether or not to short Tesla again. The market is quite choppy at the moment, so I'll also defer placing another buy order for GOOGL until things settle down a bit. Trading a trend is only profitable if there is a trend.

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Wednesday, 24 February 2021

Tesla short - update #6

I wasn't watching at the open last night, and when I logged in the market had initially dropped very significantly before rebounding. I'd missed the low in GOOGL so didn't bother placing a new Buy order as I wasn't sure which way the market would trade during the day.

My Tesla position had automatically closed on the rebound due to my trailing stop loss (yay!) so it had locked in a significant profit. I watched the market for a little while and when the initial rebound in the Tesla price seemed to have run its course I placed a new Tesla Sell order, and put in a 25 pt trailing stop loss to limit my potential for a loss overnight. This morning the position had been closed out for another small profit as the share price had dropped after the rebound, only to recover again during the afternoon (US timezone) trading when I was asleep. Fortunately my stop loss again closed out my position for a small profit during the price rise. I'll keep an eye out on the pre-opening action before I place another short order tonight as Tesla may well drift back down to the 620 support level that saw resistance during the price rise back in December. If it breaks through that charting 'theory' could see the price retrace all the way back down to ~440.

My updated TSLA trading history:


17/2    Sold 4 TSLA @ 844.540    closed out by stop loss @ 818.295    profit: $134.74 (USD)

17/2    Sold 4 TSLA @ 806.190    closed out by stop loss @ 777.558    profit: $147.37 (USD)

18/2    Sold 4 TSLA @ 780.520    closed out by stop loss @ 787.860    loss: -$38.08 (USD)

19/2    Sold 4 TSLA @ 788.000    closed out by stop loss @ 793.980    loss: -$30.94 (USD)

20/2    Sold 4 TSLA @ 789.700    closed out by stop loss @ 637.195    profit: $769.52 (USD)

24/2    Sold 4 TSLA @ 700.370    closed out by stop loss @ 694.237    profit: $30.85 (USD)

My CityIndex CFD trading account seems to now have made an overall profit, with the recent trades more than making up for the losses I had manually trading the ASX200 index during 2020. Of course I'll have to pay about 37% CGT for the overall short-term capital gains made trading this FY (assuming I don't end up with a net loss come 30 June).

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Tuesday, 23 February 2021

Tesla and Alphabet trading update

My Tesla short trade is still open, with the trailing stop loss now locking in a profit if there is a sudden rise. I bought a CFD contract for 5 Alphabet shares at the open, but with a lower price as the pre-opening trade was looking weak so I adjusted the order price downwards before the trading day started. I then closed out the first long trade manually when there was a rapid relief rally that petered out, making a small profit on the first Alphabet trade. I then bought it again when it seemed to be trending back up towards its previous support level, but put in a trailing stop loss 25 points down to limit any losses while I was asleep. Overnight Alphabet just dipped into my stop loss price level, so my trade was closed out for a small loss. The share price later rebounded, so my trailing stop loss for Tesla may have been too conservative. So far my trades have been:


17/2    Sold 4 TSLA @ 844.540    closed out by stop loss @ 818.295    profit: $134.74 (USD)

17/2    Sold 4 TSLA @ 806.190    closed out by stop loss @ 777.558    profit: $147.37 (USD)

18/2    Sold 4 TSLA @ 780.520    closed out by stop loss @ 787.860    loss: -$38.08 (USD)

19/2    Sold 4 TSLA @ 788.000    closed out by stop loss @ 793.980    loss: -$30.94 (USD)

20/2    Sold 4 TSLA @ 789.700    position open (currently paper profit of $299.28 USD)


23/2    Buy 5 GOOGL @ 2,055.50    closed out manually @ 2,067.03    profit: $72.65 (USD)

23/2    Buy 5 GOOGL @ 2,065.88    closed out manually @ 2,055.01    loss: -$69.01 (USD)

So far this year's CFD trading in Tesla and Alphabet has made back about 2/3 of the losses I made trading the ASX200 index CFD last year. Perhaps using conservative trailing stop loss orders will allow my winning trades to run with a trend while closing out trades where the price moves against my expectations? Overall out of 76 trades in the past 12 months my win rate has been 38%, which is close to my 'target' of 41% winning trades, but my average loss was -$36, whereas my average win was $39. Letting my winning trades run a bit longer may increase my average winning trade so I become profitable even with a win:loss trade ratio of around 40%. YTD I've done 4 trades with a 50% win:loss ratio and an average win of $141 and an average loss of -$35. Too soon to tell if this is just a random lucky streak or a significant improvement to my trading method.

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Monday, 22 February 2021

A fraudster by any other name

An interesting article in today's SMH about Melissa Caddick who is alleged to have defrauded her 'investors' of more than $25 million. I took objection to the fact that the article referred to her as an  'unlicensed financial adviser' as she has NEVER been a financial adviser (searching for her name on the official Financial Adviser Register (FAR) doesn't come up with anything, so she isn't even a former/de-registered adviser!

To quote the FPA:

"After over a decade of advocacy by the FPA, the use of the terms financial planner and financial adviser are restricted within the law to those authorised to provide financial advice and listed on the ASIC register. The Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 restricting the use of the terms was passed by parliament on 9 February 2017 and will commence on 1 January 2019."

Anyhow, I find it amazing that she managed to bilk her 'clients' of $20.28 million between Jan 1 2018 and Sep 18 2020. In the two years since I became a registered financial adviser I haven't got a single client, yet a total con artist managed to convince up to 61 people to give her $25 million to invest on their behalf.Go figure.

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Sunday, 21 February 2021

My Alphabet long trade

With a long term interest in space (came home from school to watch the first moon landing in '69, and recently did a Masters in astrophysics for a bit of fun) I've been watching the recent SpaceX test launches of SN8 and SN9 with much interest (and the NASA landing of Perserverance on Mars was also cool). Unfortunately SpaceX is still an unlisted private company, so you can't buy SpaceX shares directly. If they were available pre-IPO I'd invest a few thousand dollars for a bit of fun (I invested $5,000 in a pre-IPO internet stock GEN just before the bubble, but it went broke before it got to IPO stage).

Apparently employees of SpaceX get some stock, but getting a job at SpaceX isn't an avenue open to most of us. One US investment fund (Baron Focused Growth Fund - BFGFX) has a small investment (2.7% of its capital) in SpaceX, but that fund is only available to US investors and isn't listed in my City Index CFD trading account. So the only avenue available for me to (possibly) get some exposure to SpaceX seems to be an investment in Alphabet, which invested $900 million USD in SpaceX in 2015, but it is unclear what percentage of SpaceX shares are currently held by Alphabet.

Alphabet shares have also been increasing strongly in price during 2020, so I took a punt and placed on order to buy 5 Alphabet A CFDs at $2,087.50. I'm not sure exactly how much that will cost (if the order is filled when the market opens), but I think the required margin for US stock CFDs is 0.5% on City Index, so it might cost $52.20 or thereabouts. Since a large jump in stock price on 4 Feb it has been trading above $2,035 so a drop back to that level would cost me $250. I'd probably close out the position if it drops below that level, but I haven't placed a stop loss on the order yet - I'll wait and see if the order gets filled on Tuesday night (my time zone) and what sort of intraday volatility is 'normal'. 10 points intraday seems fairly typical on the ATR chart, but there is often much larger gapping overnight.

This is pure speculation/gambling for a bit of fun. If I limit my maximum loss to $250 it won't be any more costly than eating out at a restaurant or going to see a concert or a show would cost.

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