Wednesday 29 December 2021

New Year resolutions for 2022

I must admit I don't really make 'resolutions' (as in I'm definitely going to keep them), but instead I tend to make 'to do' lists of things I would like to achieve (and that are theoretically achievable, even if some of them are challenging). I don't beat myself up (too much) if I don't achieve all of them, but then again I'm not the sort of person who feels any great sense of achievement/joy even if I do 'tick off' everything on my list. So my annual new year's resolutions are simply my 'high level' to do list. Hopefully I can tick most of these off at the end of 2022.

For 2022 my 'resolutions' are:

1. Keep working in my full-time job (i.e. hope that I don't get retrenched). If I keep working full-time for the next seven or so years I should have hit the transfer balance cap in superannuation, plus have some additional super left sitting in 'accumulation phase'. This should be enough to provide more than 100% replacement of my current 'take home' pay on an indefinite basis.

2. Complete my margin lending and SMSF specialist courses from Kaplan I recently enrolled in (I had previously enrolled in similar course (now no longer available) from IIT, but never got around to completing them - which was really annoying as I had done all the assignments and just had to prep and record a final 'role play' video to finish them off).

3. Work on my PhD research/training (if I'm accepted and can enrol at the start of 2022).

4. Complete the courses required for CFP and CFA certifications (I will get 'credit' for most of the required courses from completing the Master of Financial Planning degree, so should only have to do one course for each of these certifications, plus revise and do the requisite examinations). This is sort of a stretch goal, as I may do one or both of these in 2023 if I'm too busy with the PhD.

5. Get some paying clients for my financial planning business. I have one 'warm' prospect that I'll need to follow up in the new year, but aside from that I'll need to do some 'cold calling' of phone numbers in local suburbs to try and line up a few free introductory meetings with prospects each week. Paid adverts, letter box drops, and my business website have resulted in only a couple of prospects getting in touch over the past two years, so I need to be a lot more proactive about marketing. If I end up with a handful of clients by the end of 2022 I'll be happy.

6. Continue with my regular savings plans into various investments (an investment bond, gold and silver 'depository' account, and superannuation salary sacrifice). I'll probably stop making regular payments into online savings accounts, as it makes no sense to add to low interest savings accounts when I am drawing down on my portfolio loan each month to fund my fixed business expenses. Closing some small savings accounts will also simplify my monthly NW calculation and annual tax  return calculations.

7. Lose excess weight and do more exercise. Yes, this is the same 'resolution' I have made each year for the past couple of decades. Doesn't hurt to keep trying. I know what to do (and not do), I just actually have to stick with 'the plan' each day.

8. Waste less time on computer games and  TV/streaming. Mostly this is just procrastinating when I don't feel like doing items 1-8 above ;)

There are a few other things I'd like to accomplish in 2022 (some hobby and household projects that have been on my 'to do' list for a long time, getting my lean six sigma 'black belt' certification done at work, finishing some landscaping tasks at the lake house and arranging for an extension to be built there once my parents have moved there), but I have no idea which (if any) of them might come to fruition in the next twelve months.

I don't have any specific financial goals for 2022 though, as my budget is pretty fixed and regular savings occur automatically (If I eliminate some of the monthly automatic transfers into online savings accounts I'll simply switch those transfers to my business account and reduce the monthly draw-down on my home equity loan by the same amount). Most of my investments are in index funds, so where I end up in twelve months financially depends mostly on how the markets perform.


So, how did I go with the 'resolutions' I had recorded for 2021?: I actually made a post about this last year, so I can check off how things turned out:

1. Lose weight and get fit (exercise and weight training): nope, didn't happen. If anything I've put on a bit of weight and am less fit than I was a year ago (and a year older!).

2. Continue with my savings and investment plans: Tick. I hadn't set specific targets, but had hoped that real estate might 'rise slightly' during 2021, and my super balance end up by 5-10%. So far real estate (our house valuation) has increased by 33.4% and my superannuation balance increased by 17.9% over the past year. Last time things looked this good was back in 2007, and we all know how 2008 turned out...

3. Financial Planning qualifications and study. 50:50 - I finished my masters and got the overall GPA I wanted, but didn't do any of the IIT courses I was enrolled in (ADFP, or the ML or SMSF specialist short courses). Overall I completed the important goal and let the secondary goals slide, which is better than the alternative. I probably could have completed the ADFP and ML and SMSF courses as well, but I was quite busy at work and didn't feel like doing more than my masters courses in the evenings and weekends (instead I binge watched five seasons of The Expanse, Andromeda and watched a whole lot of movies I can't even remember....)

4. Financial Planning business. Big Fat Zero. Zilch. Nada clients. I do have one warm prospect that *might* decide to get an SOA done when she 'downsizes' from her current home into an apartment, but I need to work on having a 'pipeline' of prospects in 2022. I like to think this was at least partially due to Covid-19 lockdowns etc. But I didn't make a single 'cold call' in 2021 even when lock-downs weren't in place.

5. Full-time job, Tick. Still have the same job. Was very busy (lots of unpaid 'overtime' working from home in the evenings and weekends) but that is better than things being 'quiet' and worrying about being laid off in the short term. Working from home was quite enjoyable (saved about three hours each day not having to commute), but it looks like we'll be back in the office for 2 or 3 days each week by the end of Q1 2022.

Overall my financial and educational goals for 2021 were met, but my personal and business goals weren't. Hopefully I can do better in 2022.

Subscribe to Enough Wealth. Copyright 2006-2021

Thursday 23 December 2021

Decided to close my IG trading account

I haven't needed to do any trades on my '12% solution' portfolio for the past few months, which saved on trading costs. However, I got an email reminded from IG that there is a quarterly 'fee' charged on accounts that have any open positions (ie not just holding a cash balance) but haven't done at least three trades in the quarter. I thought the fee was $25 per quarter, but the latest email stated the fee is $50 per quarter (it might have increased recently?), so just have the portfolio sitting there will cost me around $200 pa. AS the portfolio is only worth about $15K, this equates to a holding cost of around 1.3% pa. I also funded the portfolio using my St George home equity loan, which charges around 4.98% interest. So the overall cost is around 6.3%. Theoretically it is still profitable (but risky) to maintain this position, as the '12% solution' portfolio is expected to produce returns of around 12% pa, but in absolute terms the annual pre-tax profit after interest and account keeping costs will only be around $900 pa, or around $600 ($10 per week) after tax. I decided to close out my positions today/tonight and when the funds clear next week (T+3) I pay off part of my St George loan and close my IG account. If nothing else it will simplify my monthly NW and annual tax return calculations slightly.

I'll probably also close a couple of online savings accounts as it doesn't make much sense to have money sitting in savings accounts earning less than the cost of my portfolio loan. I'd also like to shut down my peer-to-peer lending account with Pleni, but I have some 5-year term investments that don't mature for another 3-4 years, and  there would be a 'break cost' to try to liquidate these immediately.

Subscribe to Enough Wealth. Copyright 2006-2021

Friday 10 December 2021

Finished my Masters and applied for PhD candidature

The result for my final subject in the Master of Financial Planning degree came out this morning. I managed to get a Distinction (with a mark of 81/100) in the 'Contemporary Issues in Taxation' subject, so my overall GPA for the degree ended up being 6.0 (out of 7) and the grade average 'Distinction' (with an average mark overall for all subjects of 79/100). So I should graduate 'cum laude' (with distinction) on my testamur. There was a bit of weirdness with the online results posting, as it is showing 12 completed subjects, but was showing only 11/12 as the total completed subjects. I've raised a ticket with the IT department to look into this as the uni no longer requires/allows you to apply to graduate, but instead is supposed to automatically process graduation once you have completed the required courses. If 'the system' is incorrectly stuck at 11/12 completed I'd never graduate ;)

I'm theoretically 'in the running' for an academic medal, having met the minimum required GPA. But to actually get a medal I'd also have to be in the top 2% of the relevant 'cohort' (apparently that would be all post-grad business school students finishing this year). I've not idea what 'percentile' my overall results will put me in. I doubt it is the top 2%. I did get an academic medal for the Master of Astronomy degree I did a few years ago, but I got a GPA of 6.5/7 for that, so I haven't done quite as well in this Financial Planning degree (law subjects aren't anything as hard as astrophysics, but god they are boring, so putting in the hours to get an HD is like an extended visit to the dentist).

I finalized my application to enrol as a PhD student next year - I initially just uploaded photos of my uni degrees and result transcripts, but was told that I had to get 'certified copies' made, and then upload photos of those certified copies. Why a photo of the original isn't as good as a photo of a certified copy of the original makes no sense to me (and I'm a JP!), but 'rules are rules'. I don't know if I'll be accepted. If I am it should be a lot easier to complete a PhD in Financial Planning part-time than it was when I tried doing a PhD part-time in astrophysics a few years ago. We'll see how things pan out. I turn 60 next week, so I wouldn't complete my PhD until 'retirement age', so it is really just a vanity project/hobby.

I have to start doing some cold calling to try and set up some introductory meetings with prospective clients each month, as I *really* need to start getting some paying clients for my financial planning 'business' to at least cover the ongoing fixed running/licencing costs next year. It would also be nice to put my financial planning knowledge/skills to use helping other people ;)

While I'm waiting to find out if I'll be starting on a PhD next year I've enrolled in a couple of 'specialist' short courses with Kaplan learning - one on 'margin lending' and the other on 'self-managed superannuation funds'. Once those courses are completed I should be able to get them added to my FAR record and the 'advisor profile' and would be able to provide advice on margin lending and SMSFs where relevant.

Subscribe to Enough Wealth. Copyright 2006-2021

Tuesday 7 December 2021

Inheritance reduces inequality

According to a new report on inheritance in Australia released by the Productivity Commission, contrary to popular perception, the transfer of wealth via inheritance actually helps reduce inequality. This is because despite the absolute amount of inheritances and gifts being higher for the wealthy, the impact of receiving an inheritance is much greater for less wealthy recipients. Measured as a percentage of the wealth already owned, the poorest 20% of recipients of gifts and inheritances got a wealth boost about 50 times larger than the impact of gifts and inheritances on the wealthiest 20%.

Of course this effect is limited to those families wealthy enough for a bequest to exist in the first place - the poorest cohort of society are unlikely to receive any inheritance as their parents are likely to die without any significant estate to pass on.

Subscribe to Enough Wealth. Copyright 2006-2021

Sunday 5 December 2021

Bought some GEAR shares

I was doing some reading for a Margin Lending 'course' from Kaplan learning (to possibly add margin lending to the list of things I'm approved to give personal financial advice on as a registered financial planner) a couple of days ago, and there was mention of 'internally geared' investments (managed funds). These funds borrow to invest more than the unit holders funds, which should provide larger gains during positive market performance periods and larger losses during negative market performance periods. One advantage of this type of gearing is that you (the unit holder) won't ever get a 'margin call' if the value of the assets decreases (the fund may go out of business and the unit value drop to $0, but you won't lose more than your initial investment). I had a quick look around at what geared investment funds (ETFs) were available, and the GEAR ETF run by betashares looked interesting, as it invests in basically the ASX200 companies. Despite the fund 'fact sheet' stating that the fund invests in the top 200 ASX shares according to market capitalization (which would be a plain vanilla ASX200 index fund) it is actually an actively managed fund, with a quite hefty management fee of 0.8% of the total fund (ie. including the borrowed funds). You also aren't told what the fund's borrowing costs are. Looking at the fund unit price compared to the ASX200 index for the past 5 years it looks like the fund pretty much tracks the index during periods of average market performance, outperforms a bit when the market is doing well, and underperforms when the market performance is below trend. So, whether or not the fund outperforms the ASX200 index over the next decade or two will apparently depend on whether there is a 'bull market' or a 'bear market' overall (i.e. the index performs above or below trend).

I decided to use the available credit in my Commsec margin loan account to purchase ~$20,000 worth of GEAR. As this is 100% borrowed funds, whether or not this turns out to help or hinder my NW over the next decade or two will depend on whether the fund total return (distributions + capital gains) exceeds the interest charged on the $20,000 loan. It won't have a material impact on my NW either way, so it was pretty much a 'spur of the moment' decision to make the investment. It will add a tiny bit more work to doing my annual tax return calculations, and eventually there will be some CGT calculations and payment required when I eventually sell the investment.

Subscribe to Enough Wealth. Copyright 2006-2021

Net Worth: NOV 2021

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

Stocks and managed fund investments increased slightly this month, up $2,907 (0.95%) to have $308,424 net equity in my geared share portfolios. This figure includes the outstanding balance of my 'portfolio loan' (home equity loan) that was used to fund some of my share portfolio purchases, but is also used to cover the $1,150 monthly 'overhead' of my financial planning business and was also used to pay the uni fees for my master of financial planning enrolment. Now that I have completed the last subject for the masters degree, there will be less 'drag' on the porformance of my geared share portfolio valuation next year (If I get accepted into as a PhD student there won't be any fees to pay, as there is RTS (research training scheme) funding available to cover the basic uni fees.

Our estimated house price for November (my half) increased by $75,142 (7.21%) to $1,116,769.

Real estate prices, including home units/apartments in the suburb where I purchased a one-bedroom apartment 'off the plan', continue to rise (there was a bit of a slump in apartment prices in Sydney last year due to Covid), so hopefully I won't have any trouble getting a mortgage for 'settlement' when the construction of the apartment block (88 by JQZ) is completed in Q2 2023. There seems to be a slight slow down in the current 'boom' in residential real estate in Sydney, with some pundits predicting slower rate of gain in the first half of 2022 and then a slight pull-back in prices in the second half of 2022. It's all guesswork of course, and a lot may depend on how the new Omicron variant of Covid-19 plays out - if international travel doesn't resume fully in 2022 then there will be less rebound in migration than expected.

The value of my retirement savings increased during November to $1,513,495 (up $10,297 or 0.69%).

Overall, my estimated NW increased to $3,272,071 by the end of November - up by $90,057 (2.83%). I am still recording the valuation of the lake house I 'inherited' (was gifted) by my parents at 'cost' (the value when I paid the stamp duty on title transfer) and the value of my 'off-the-plan' apartment at the purchase price plus stamp duty. That forms the 'other real estate' figure ($1,377,952) and the deposit+stamp duty+outstanding balance due at settlement (in Q2 2023) is the 'other mortgages' figure (-$1,040,452). I do track a rought estimate of the valuation of the lake house/hobby farm property and the likely value of the investment apartment, and using the current estimated valuations would increase my NW by around $553,976). I might start 'officially' tracking these valuation estimates (and including them in my NW calculation) once the off-the-plan apartment construction is completed and I get an official valuation done when I get the mortgage needed for settlement. That will give me a better idea of how my unit value compares to the median home unit prices for that suburb (at the moment it is a bit of a rough guess based purely on how much I paid compared to the median unit pricing for the suburb at the time I paid the deposit).

Subscribe to Enough Wealth. Copyright 2006-2021

Saturday 4 December 2021

End of NOV 2021 "12% solution" portfolio changes

For the end of November the emailed trading signal is to invest 60% in QQQ and 40% in TLT. As this is the same allocation as last month, I don't need to do any trades this month, which will help reduce trading costs.

My current IG trading account balance is A$14,801.69. In addition to the "12% solution" holdings I have A$488.00 invested in the ASIA (Betashares Asia Technology Tigers) ETF which results in my IG account not tracking perfectly the "12% solution" benchmark.

According to the monthly newsletter, the 2020 performance for this model was +40.6% and for 2021 YTD performance is now +22.3% (in USD terms). My YTD performance is now 34.3% (in AUD terms). The outperformance is mostly due to favourable exchange rate movement (the investment is in USD so the drop in AUD vs the USD has boosted the value of my portfolio in AUD terms).

Subscribe to Enough Wealth. Copyright 2006-2021