Monday, 16 May 2022

DS1 left the nest

DS1 finished his IT degree at the end of 2020 and started working at the Sydney office of a large local IT startup that has grown into a significant international online during the past decade. His starting salary was similar to my current salary, and after a year at work he has received a promotion already earns more than me ;) He wanted to purchase an investment property in Sydney, but prices were too high for any decent property to be within his borrowing capacity, so he purchased a rental property in Brisbane late last year. He had a short holiday (two weeks) in the US in April and when he got back he moved out of home to live in a shared apartment with two of his high school friends. It is closer to his workplace than our house (reducing his commuting time by about 30 minutes each day) and it will also be good for his social life to be living closer to the city.

DS2 us currently in year 10 High School, so has another couple more years before his HSC exam and then (probably) will also do an IT degree like his older brother. So he'll probably be living at home for at least another 6-7 years. He'll probably be moving out around the same time I retire from full-time employment.

My parents are in the process of putting their rural property up for sale, and have decided that they probably won't be moving into the lake house property as it is a bit far from the nearest shops and doctor, and a long (>1 hr) drive from the nearest decent hospital. This would be an issue as mum's eyesight isn't good enough for driving these days, and my dad has also had a few 'dizzy spells' that make driving inadvisable. They *might* move into my 'off-the-plan' investment property in Sydney when it is completed in late 2022/early 2023. I would have to charge them the going 'market rent' (so that the loan interest and other expenses are still tax deductible and the rental income will be taxable). It would probably be a 'good fit' as they will have plenty of cash available to pay rent after they have sold their current property, and as they are both around 90 years old they won't have too worry too much about making their money last (they also get the full Age Pension). The apartment is only a few minutes walk from local shops and restaurants and a major hospital. It is also only a few minutes walk from a train station and will also be a few minutes walk to the new metro station when it opens in a couple of years. As it will only be three train stops (two metro stops) to the Sydney CBD, it will be very convenient if they want to visit museums, art galleries etc. in the city.

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Friday, 6 May 2022

Degearing my stock market positions

As I think I mentioned in my monthly NW update, I decided to liquidate my stock market and mutual fund investments in my St George and Commsec margin lending accounts, as I was concerned that the market may be at the start of a significant bear market/correction phase due to a combination of high inflation, rising interest rates, Covid lockdown impact on Chinese economy, and Russo-Ukraine war impact on global food supplies, etc. All of which could negatively impact global GDP and stock markets over the next 1-2 years. Borrowing at relatively high margin loan interest rates (with interest rates rising) doesn't make much sense in a bear market.

I had sold off my speculative investments in oil (OOO.AX ETF) and food/agribusinesses (FOOD.AX ETF) as the price hadn't moved in the direction I had anticipated at the start of the Ukraine invasion, and as I had decided to ungear overall, I thought I might as well close out those positions. To sell the Vanguard International Index Fund and Diversified High Growth Fund holdings on my St George margin lending account I had to fill in a St George form requesting the Redemption of those managed funds, which SGML then forwarded to Vanguard Australia for execution. That redemption appears to have been processed on 3 May, although the funds haven't cleared yet.

To sell the Colonial First State Geared Global Share Fund holding on my Comsec margin lending account I had to fill in the redemption request from from CFS (which meant filling in the PDF form, printing it, physically signing it, then taking a photo to send as a PDF to Comsec ML for action). I got a response from Comsec enquiries the next day stating that the form was dated more the 12 months old so couldn't be processed. Upon checking it turned out I had put my birthdate in the signature section instead of the current date (D'Oh!). I had been in a rush to fill in the PDF form to email it to DW at her workplace so she could print it out for my signature (as I don't have a printer at home). So I then had to change the signature date and initial that change, take another photo/PDF image and email the updated form to Comsec ML. It doesn't appear to have been processed as yet, so the redemption price will be lower due to the recent slump in the US and local share markets. Fortunately the CFS mutual fund investment was only about $55K whereas the Vanguard mutual fund investments were about $115K, so at least I got the larger holding sold off at the better price.

I'll use the sale proceeds to pay off any remaining margin loan amounts (probably keeping a few hundred dollars sitting in the  ML 'cash' accounts to keep these margin loan facilities active in case I want to invest again in future), and pay off the balance of my St George portfolio loan (that had been used to fund the initial deposit and stamp duty when I bought my off-the-plan investment apartment a couple of years ago). Any residual cash I'll leave in my 'high interest' online savings account (currently paying 0.45% interest) until I need cash to 'settle' my off-the-plan apartment purchase when construction is completed at the end of this year or early next year.

I'll retain my long term investments in the Vanguard High Growth Fund inside out SMSF, as I don't plan to retire for at least 5-7 years, so may as well ride out any market gyrations. I also will retain my current investment allocations in my Investment Bond (as that is intended as a very long term investment to form the core of a testamentary trust investment upon my death).

It will be interesting to see how the markets perform over the next few years. I suspect the US market and European markets will see significant declines, which might also drag down the Australian share market. There may be a good 'buying opportunity' in a few years time if/when markets bottom out. A comparison of the S&P500 US index and the Australian All Ords index shows that often when there is a major correction in the US market the Australian market gets pushed down well below the long term trend line, which suggests it is often a good time to buy into the Australian stock market at the tail end of a major correction in the US share market.

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Tuesday, 3 May 2022

Net Worth: Apr 2022

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

Stocks and managed fund investments suffered from US and local market declines during this past month, down -$16,494 (-5.45%) to have $286,130 net equity in my geared share portfolios. I am in the process of liquidating most of my geared share and managed fund investments outside of superannuation, as the market seems poised for a substantial bear market due to the war, rising inflation and interest rates, and impact of severe Covid lockdowns in China. I can't see much upside potential and I might need liquidity when my off-the-plan investment unit construction is completed towards the end of this year and I need to access funds for settlement (and might not be able to arrange a mortgage). This reduction in geared stock portfolio holdings will be reflected in next month's data.

Our estimated house price for April (my half) rose $30,057 (2.58%) to $1,196,057. There is still a mild decline in Sydney real estate but our suburb reported some price appreciation during the month.

The value of my retirement savings decreased during April due to the stock market weakness to $1,447,656 (down -$40,922 or -2.75%). Overall, my estimated NW decreased slightly to $3,266,965 by the end of April - down by -$25,613 (-0.78%).

However, if I was including price movements in my holiday home (lake house) and the estimated value of my off-the-plan apartment my NW would have slightly increased.

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Thursday, 28 April 2022

Stacked some silver

I normally just have a regular $200/mo savings plan with Perth Mint Online Depository to purchase $100/mo of silver and $100/mo of gold at a 0.5% premium to the spot price. It is one of the cheapest ways to add some precious metals to my overall investment portfolio as there is no fabrication, shipping or storage costs involved. However, there is still something nice about holding physical gold and silver. But as I already have some piedfort proof gold coin sets and some miscellaneous 1oz silvers coins and 'bars' I normally don't both to buy physical bullion products due to the fabrication and other costs.

But the rectangular silver 1oz 'dragon' bars are just so pretty I had to buy one:

I was toying with the idea of buying a 'tube' of 20 coins, or even a 'monster box' of 200 coins (which would cost around A$8,000) but in the end I decided to just buy one coin to admire. The 'premium' above the 'spot price' is pretty horrendous:

1oz coin             A$40.51

shipping             A$17.50

bullion insurance    A$ 0.75

credit card fee      A$ 0.77

TOTAL                A$59.23

This includes A$1.63 GST, which doesn't apply to my online depository account bullion purchases.

At the time of purchase the spot silver price was around A$32.90, so buying the physical 1oz coin cost an 80% premium over the spot price. And about 60x the "face value" (which is $1).

Not a very sensible 'investment' but I can afford this once a year as a frivolous expense for fun.

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Sunday, 24 April 2022

Gotta love Kogan marketing to its 'loyal customers'

My 12 month prepaid mobile phone plan was due to expire in a few days, so my plan provider Kogan conveniently sent me a 'special offer' via SMS. I simply had to reply with coded "PROMO" to get 180GB (15 GB per 30 days) for 'only' $175.

However, being a suspicious person (and having had really poor/dodgy customer service from Kogan previously) I logged in to my Kogan account to see what standard plans were currently available. Turned out I could get a 200 GB (17 GB per 30 days) for $150 as one of their standard offerings.

So the special "SMS promotion" was to pay $25 more and get 20GB less data allowance. Wow!

Conventional marketing theory is that it costs a lot more to gain a new customer than it does to retain an existing customer, hence the typical discounts offered to existing customers to stay with their current provider (the only normal exceptions to this marketing 'rule' appears to be banks, electricity and insurance companies, who often offer special 'honeymoon' rates to attract new customers, but then charge existing customers full ticket price to renew - the assumption being that many customers are too lazy (or the comparisons too complex) to bother switching to a new provider). Kogan appears to have taken this assumption to a whole new level by not only charging existing customers the full normal price for renewing, but to send them a 'special offer' that will actually cost them more than normal!

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Wednesday, 20 April 2022

Did a bit of refinancing

I did a bit of provisional enquiry about getting 'pre-approval' of an investment property mortgage for the off-the-plan apartment I "bought" a few years ago. Construction is due to be completed Q1 of next year, but I have seen some information indicating that it may be completed by the end of this year. Whenever it is finished a completion notice with be sent to my solicitor and I'll have only a month or two to get an inspection done (to identify and defects that need rectification) and a valuation done so I can actually apply for a mortgage.

The government tightened up the rules around 'interest only' loans and also tightened the lending criteria that lenders have to apply when evaluating investment loan applications. Based on the feedback I received I may have trouble getting a mortgage for the full amount due at settlement. There is $900K required at settlement, so if I can't get a mortgage (for at least a substantial part of that amount) I may have to liquidate some of my geared investment portfolio (which would provide around $300K net, but will incur a capital gains tax liability - so I might delay that until I know whether or not I can get a mortgage. On the other hand the Australian share market is currently at near-highs, so there is a risk of a market correction if the Ukraine war expands to involve NATO directly, so CGT might be the lesser of two evils. Hard to know). I also have another $200K available on my home equity line of credit ("portfolio loan") and DW has $450K available on her sub-account which I could draw on (and just make the interest payments). So I can fund the apartment purchase without a mortgage on the apartment, but the interest rate would be considerably higher.

Currently an investment mortgage has an interest rate of between 2% and 3% pa, depending on whether it is interest only (slightly high interest rate than on a standard P&I mortgage) and if it is variable rate, or fixed (for 1, 2, 3, or 5 years) for an initial period before reverting to the standard variable rate.

In comparison, our 'portfolio loan' has an interest rate of 4.98% (but is essentially "interest only" which means the cashflow impact won't be worse than making repayments on a P&I loan). It's not a particularly attractive interest rate, but then again our home loan interest rate is also quite high (3.61%). We'd "shop around" for a better mortgage rate and refinance the home loan, except that our outstanding home mortgage balance is quite modest (around $40K) so the interest rate doesn't have that large an impact, and because the "portfolio loan" might not be available if we pay off the home mortgage (and the bank no longer offers that sort of financing, due to the changes in government lender criteria mentioned above).

So, in case I end up having to finance the balance of the purchase price of the investment apartment using the "portfolio loan" I took up a "special offer" from Citibank to borrow up to 80% of my $60K unsecured 'line of credit' facility at an interest rate of 2.9%pa fixed for three years. At the end of that period I'll have to pay off the balance in full, or it will revert to the normal 20.49% (!) interest rate.

Despite the interest rate being 2.9%, there is also a 'minimum monthly payment' of around 1% of the balance (so I have to repay around $500/mo - mostly loan principal). It will still save me interest for the three year 'special rate' period, as I have used the balance transfer to repay some of my existing 'portfolio loan' balance, so I save the interest differential (4.98%-2.90%). Tand he interest saving is about $1,000 pa initially, but will slowly drop as the minimum payments will be funded from the 'portfolio loan' so around $6,000 pa will shift from the 2.90% rate back to the 4.98% rate each year during the three year 'balance transfer' period.

A mortgage 'pre-approval' would only be valid for three months, and I can't get an approval until the apartment valuation can occur (when construction is completed), so I won't know until the end of this year if the funding for the investment apartment will end up with an interest rate of around 2% or 5%, or somewhere in between (if I can get a small mortgage with low LVR, and fund the rest with the proceeds of my investment portfolio sale, the Citi 'balance transfer' loan, and the residual via the 'portfolio loan').

The average total return on the apartment (rental income + capital gain) should be higher than the loan interest and outgoings (strata levy, insurance etc.), but the interest rate on the loan(s) used to fund the purchase will directly impact how profitable (or how big a loss) this investment turns out to be. Every 1% change in loan interest rate will translate to $10K pa.

Of course with inflation currently running quite high, a general increase in interest rates will also have a big impact on my 'bottom line'. The exact impact is slightly complicated by the fact that the loan interest is tax deductible (via 'negative gearing'), and that the new apartment should also have a significant tax deduction from the 'depreciation schedule'. The net impact will be to reduce taxable income (taxed at my marginal tax rate) and 'convert' it into long term capital gains (which, under current tax rules, will be taxed at half my marginal tax rate).

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Friday, 1 April 2022

Net Worth: Mar 2022

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

Stocks and managed fund investments increased strongly during this past month, despite the Russian invasion of Ukraine (and likely impact on global economy due to sanctions, impacts on wheat, fertilizer and oil exports from the region) up $5,964 (2.01%) to have $302,624 net equity in my geared share portfolios. I bought some oil (OOO.AX) and Global Agribusiness (FOOD.AX) ETFs within my Comsec Margin Loan account, as the war is likely to push up prices of oil and food during the coming months and year or two. At least in theory.

Our estimated house price for March (my half) rose $2,591 (0.22%) to $1,166,000. Prices have stopped rising in Sydney and our suburb had minimal price appreciation during the month.

The value of my retirement savings increased during March to $1,488,578 (up $38,550 or +2.66%) due to strong local and US stock markets during March. Overall, my estimated NW increased to $3,292,578 by the end of March - up by $46,931 (+1.45%).

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Thursday, 24 March 2022

Bought some Oil (OOO)

I keeping with the war profiteering theme, I decided to buy into an oil ETF on my margin lending account. Of course oil would have been a great investment back in 2020 when it bottomed out at $25 a barrel, and with the current price around $120 being close to the previous peak it certainly doesn't seem cheap. But, given the likely impact of the Russian invasion of Ukraine on Russian oil sales and then on their oil production, it seems like oil could remain in an uptrend for quite a while yet.

Apparently the exit of western companies from Russia will leave a large gap in the expertise required to continue to operate their eastern oil fields that sell product to China. And in the west, sanctions and war impact on tanker access to Russian ports will prevent production that normally flows to Europe being sold elsewhere. In the worst case production may have to be scaled down to the extent that it has impacts on the pipeline and oil field infrastructure in Siberia, which would take years to reverse.

Anyhow, there seems more potential for global oil supplies to be restricted further rather than getting back to 'normal' in the short term, so the oil price could continue to rise. This may be a short term trend rather than the longer term impact on food production and prices, but this is probably quite a speculative play.

I bought about $10,000 worth of OOO.AX using some of my remaining margin loan capacity. The BetaShares Crude Oil Index ETF-Currency Hedged (synthetic) OOO.AX enables investors to gain exposure to the performance of the crude oil included in the S S&P GSCI Crude Oil Index Excess Return without the need to invest in the futures market or take physical delivery of the commodities.

Overall my Commsec margin loan portfolio is now quite highly geared and risky (with fairly low maximum LVRs applying to the three investments):

Investment                      Units        Price        Value            LVR

CFS Geared Global Share Fund    38,898       $1.5759      $61,299.88       35%

BETASHARES GLB AGRICULTURE ETF   1,200       $8.40        $10,080.00       60%

BETASHARES CRUDE OIL INDEX ETF   1,000       $9.95        $ 9,950.00       35%

The value of these holdings is likely to be very volatile, so I will have to keep an eye out and be prepared to close out the positions if things start to go pear-shaped. Another risk is that Commsec could suddenly change the LVR on one of more of these risky investments, which could trigger a margin call even if the unit price doesn't drop too much.

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Tuesday, 22 March 2022

Bought some FOOD.AX

Although I had sold off most of my direct share investments recently (to simplify my record keeping and tax returns) I couldn't resist having a bit of a bet that the Russian invasion of Ukraine will create global food shortages in the short-medium term, due to the fact that Russia and Ukraine both export a large fraction of the world's food and fertilizer supplies. Both countries will suffer reduced production and exports due to the war - Ukraine due to the direct impact of the invasion, and Russia due to the economic sanctions imposed on it in response.

So, I just placed an order for about $10,000 of a global agricultural index fund listed on the Australian stock market. The investment objective of the BetaShares Global Agriculture Companies ETF - Currency Hedged (FOOD.AX) is to provide an investment return that aims to track the performance of the Nasdaq Global ex-Australia Agriculture Companies Hedged AUD Index, before taking into account fees and expenses.

There has already been a substantial run-up in the stock price since the start of the war, and it has risen another 4% since I first thought about buying the stock on Friday. But I'm reasonably confident there is potential to outperform relative to the broader stock market over the next 1-2 years. The amount of any potential gain or loss is rather trivial  on a $10,000 investment (I only had about $15,000 lending capacity on my margin loan account, and didn't want to go 'all in' and risk a margin call), but it will be interesting to see if the price moves as I expect over the next 1-2 years.

I do feel a bit guilty about potentially making a profit as a result of a war, even if indirectly. At least I made a donation to a Ukraine relief charity last month, so 'on balance' I don't feel too morally bankrupt making this investment.

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Tuesday, 1 March 2022

Net Worth: Feb 2022

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

Stocks and managed fund investments increased slightly during this past month, up $3,999 (1.37%) to have $296,660 net equity in my geared share portfolios. This change is affected by some cash movements noted below. I have no clear view of how stock markets may perform over the next 1, 5, 10 years - there appear to be plenty of potential risks (aging demographics in many countries, increasing inflation, hence increasing cash rates, reduction in globalization, war in Ukraine, war spreading beyond Ukraine, conflict over Taiwan, impacts of global warming (direct effects, and/or costs of mitigation of impacts or decarbonization of economies), ongoing pandemic impacts, etc.) but the timing and scale of their impacts are unclear.

Our estimated house price for February (my half) rose $10,634 (0.90%) to $1,163,409. Prices rises have dropped off rapidly, with the overall Sydney market declining slightly in February, and our suburb showing little price appreciation during the month.

The value of my retirement savings decreased again during February to $1,450,028 (down -$32,094 or -2.17%) as it is invested in the Vanguard High Growth fund, which tracked the decline in US and Australian stock markets during February. Overall, my estimated NW decreased to $3,245,647 by the end of February - down by $16,685 (-0.51%).

I received an insurance payment for the replacement value of two firearms that were damaged beyond repair when my garage was inundated during a severe storm a few years ago. This added $9,035 to my 'Stocks' figure (as my bank account balance is included in the overall share portfolio valuation). On the other hand a quarterly PAYG tax instalment of $9,744was paid from our SMSF bank account at the end of February, reducing our SMSF valuation and hence my Retirement savings figure (my share of our SMSF is currently around 71%). I also decided to make a spouse superannuation contribution of $3,000 into DWs super - I will get an 18% tax rebate ($540) on the contribution.

My father received an inheritance of around $25,000 from his Aunt who passed away last year at age 104. He is in the process of renovating his farm property at the moment (intending to sell it and move into the lake house he gave me several years ago, where I pay the rates and insurance, so my parents living expenses should reduce considerably). I had lent him $5,000 last year to pay for some of the renovations, so he used part of his inheritance money to repay me, which also added to my Stocks figure. Hopefully they sell the property before rural real estate prices in NSW start to decline.

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Friday, 25 February 2022

Russo-Ukraine war

Interesting to see that although the Dow has dropped about 6% since the latest Russian invasion of Ukrainian territory commenced, and the German DAX has dropped about 8%, the Australian market is only down about 2% and was steady today. Perhaps there is an 'on the beach' effect at work? (we might not survive WWIII, but at least we might survive a bit longer than NATO countries, Russia or China).

Anyhow, I feel sorry for Ukraine. It's a bit tough if your long-term survival as an independent country depends on joining a defense alliance like NATO, but the NATO rules prevent a country from joining if there is any 'active conflict' within that country. Just by occupying Crimea and backing rebels in the Donbas region, Putin effectively prevented Ukraine from joining NATO for the past decade or so, and he then used their desire to maybe, someday join NATO as an excuse for launching an all-out invasion in 'self-defense'. A strange combination of Orwellian "War is peace. Freedom is slavery. Ignorance is peace" mentality with the catch-22 bureaucracy of only being able to join NATO if you don't currently need to join NATO.

I can only think that if Sweden and Finland are contemplating ever joining NATO they had better do it asap - otherwise they could find themselves ineligible due to a manufactured internal conflict (e.g. if Putin grabbed the Aland Islands or Gotland, or simply supported some internal conflict to erupt).

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Tuesday, 8 February 2022

Annual salary review and bonus

I had my annual 'performance review' meeting with my boss today and got a 'expected results achieved' rating (mostly due to working an average of about 50 hours/week last year in order to get everything done by deadline, even when there was work emailed on a Friday afternoon due by noon on Monday that would require a couple of days to complete!) which earned my a standard bonus amount worth 10.8% of last year's salary. After allowing for tax at my marginal tax rate the bonus will provide around $7K, which I will contribute to my QSuper superannuation account via increasing my 'undeducted' contributions from the current $100 per month to $500 each month. I can't claim a tax deduction for any additional superannuation contributions as I make the maximum concessional contributions via SGL and salary sacrifice.

I plan on building up the balance of my QSuper account from now until I retire (or until I hit the total super balance cap and can't make any additional contributions into super beyond any SGL amounts) and will then purchase a lifetime annuity from QSuper ($100K in a lifetime annuity should provide around $7,500 pa, or if I opt for the 'spouse protection' option that continue to pay the pension after my death for the remainder of DWs lifespan, $6,700 pa). I will keep the remainder of my 'transfer balance cap' in our SMSF in 'pension phase' once I retire, which should provided a sustainable pension of at least 4% of the $1.7m (assuming the TBC has indexed to $1.8m by the time I retire), or $68K pa tax free. That would provide slightly more than my curren 'take home' pay. Having some income from the lifetime annuity guaranteed for life is basically a hedge against longevity risk.

I also received a 2% 'raise' in salary for 2022. Considering the CPI/inflation rate for the 12 months to December quarter 2021 was 3.5%, that 'raise' is actually a 1.5% decrease in salary in 'real' (inflation adjusted) terms. But as long as I keep my job until I choose to retire I'm not too fussed.

Hopefully this year I can get some paying clients for my part-time financial planning business, so it achieves 'break even' by the end of 2022. My 'plan' is to complete a PhD (if I get offered a place) part-time while I am still working full-time, and also slowly accumulate some clients for my financial planning business (aka 'side gig'). Then when I 'retire' from full-time employment I'll continue running my financial planning business for another decade or so. We'll see what happens.

Since my investments can gain or lose $50K in a month, the annual salary bonus and pay rise are relatively immaterial.

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Wednesday, 2 February 2022

Net Worth: Jan 2022

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

Stocks and managed fund investments decreased significantyduring this past month,down -$25,217 (-7.93%) to have $292,661 net equity in my geared share portfolios. Fortunately I sold off a large chunk of my direct share investments on my margin loan accounts (retaining mostly the managed fund investments) and reduced my level of gearing, so my loss was more in line with the overall share markets.

Our estimated house price for January (my half) rose $36,276 (3.25%) to $1,153,045. Most 'pundits' predict that price growth will moderate this year, and could drop slightly next year,

The value of my retirement savings decreased during January to $1,482,122 (down -$62,671 or -4.06%) as it is invested in the Vanguard High Growth fund, which tracked the decline in US and Australian stock markets during January. Overall, my estimated NW decreased to $3,262,332 by the end of January - down by $51,051 (-1.54%).

I track my holiday home/hobby farm (the 'lake house') and my off-the-plan investment property (a one-bedroom apartment) at 'cost' in my monthly NW calculations, however I do a rough monthly estimate of their value, and if that had been included my overall NW would have remainined practically unchanged during January (due to rises in house prices in Forster and unit prices in St Leonards).

Things would get a lot more painful if equities and property were both in decline at the same time.

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Friday, 21 January 2022

Equities markets off to a shaky start in 2022

Looks like I *might* have made the correct decision to sell off my margin loan portfolio last week - the share markets are looking decidedly shaky at the start of 2022. The prospect of rising interest rates to combat/avoid inflation also makes longer term bonds a bad investment, and Australian real estate looks likely to weaken during 2022/23. Overall it might be a good time to just accumulate cash for a while.

We will remain in our long term asset allocation within our SMSF, and I have quite a lot of my NW tied up in real estate via our home, the lake house I *inherited* from my parents, and also the investment apartment I bought off-the-plan a couple of years ago that will be completed early next year. So my overall asset allocation remains 'high growth' despite the prospects of a couple of bad years coming up.

I won't be surprised if my NW is lower at the end of 2023 than it is at the moment. But at least I won't have to worry about getting a margin call if the stock market tanks.


I got an email notification that my CityIndex CFD trading account had dropped below 100% position coverage. I wouldn't have to put in more cash or close out a position unless the cover dropped below 50%, but it prompted me to review the positions (SPDR S&P ASX200 CFD and iShares MSCI Australia Index Fund that is denominated in USD) - they were both considerably down, due to a relatively high level of gearing inherent in CFDs.  At yesterday's close my overall A$1,306.48 initial investment was down by -A$298.07 (or 22.8%). I had initially opened these positions as long term 'ride the index' geared plays, but I decided I might as well go more 'risk off' and close out these positions. I sold out of the SPDR S&P ASX200 this morning (the Australian market was down about -0.7% after initially dropping 1%) and I will close out the iShares CFD position once US trading opens tonight. I might just xfer the cash out of this CFD trading account as the amount of money involved is relatively trivial and just creates more work at tax time for essentially no material benefit. If I start working on a PhD this year part-time I will have plenty of other things to keep me occupied!


I also got an email regarding the 12% solution portfolio. It states that although the strategy is based on only doing an end-of-month switch (if required), David Alan Carter does track the various indicators throughout the month and decided to alert subscribers of what he calls a "provisional pick" because the indicators had now started to indicate as shift of asset class (from QQQ to SHY (short term bonds)) rather than just a switch between funds within the same asset class. He notes that this could change by the normal end-of-month decision point if equities markets recover, but thought he'd let subscribers know.

He wrote "Obviously, this is a judgement call. And because every investor is in a different life situation and has a different tolerance for risk, I can't offer a specific recommendation."

Seems like a bit of pro-active "don't blame me if you lose a lot of money, I don't give recommendations, just information" PR to me.

Anyhow, I'm glad I decided to close out my 12% solution experimental portfolio last month, so I ended up with a small profit.

It also highlights that while it would be more cost effective to track this strategy with a larger position that I used for my experiment (which would reduce the relatively high trading costs), you would have to be comfortable with the higher volatility (risk) that generally accompanies higher potential/expected returns.

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Friday, 14 January 2022

Reduced my Geared direct share investments

While I normally don't try to "time the market", I occasionally succumb to temptation when it seems there is lots of downside risk and little upside potential. I did that with our SMSF investment in Feb 2020 (when we switched from Vanguard 'high growth' to a 50:50 mix of 'conservative' and 'bond' funds just before the developing global pandemic started to impact share markets around the world) and then again later in 2020 (when we slowly moved back into our long term 'high growth' fund allocation when markets had settled down and started to recover).

I've been watching the markets (at least the Australian stock market) trend fairly flat for the past 6 months, with occasional dips and rises as day-to-day news impacted sentiment, but over that time we've slowly moved from the prospect of interest rate rises to combat the possibility of rising inflation, to a more certain hike in interest rates around the world as inflation appears to have increased on a more persistent basis than the temporary 'spike' that was initially expected to die down.

We also have various potential negative events sitting in the wings - the Russia-Ukraine-NATO/US tension, the China-Taiwan- everybody tension, the Turkey-economic reality tension, any of which (or none) could 'blow up' unexpectedly and trigger a substantial market decline.

Overall, there seems more downside risk than upside potential for the next year or two, so I decided to close out my direct share investments on my Commsec margin loan account. The value today was about $6,000 (around -3.0%) less than it was worth at the end December, but I decided to sell out so I can pay off the $32K margin loan and use the remaining cash to pay off a chunk of my portfolio (home equity) loan.

I retained my investment in the Colonial FirstState Geared Global Share Fund, and we are still fully invested in our SMSF, so it is only a slight overall reduction in market exposure to eliminate the modest amount of gearing I currently had.

I'll have to pay a chunk of capital gains tax on the realized gains, but after suffering a serious hit to my net worth via my geared share investments back in 2007/8 I've decided to trust my 'gut' a bit more and take action when it seems there is considerable downside risk and little upside potential after a period of strong market gains. It is contrary to my 'buy and hold' strategy as a 'long term' investor, but as it is limited to only eliminating the use of gearing I feel it is only prudent.

We'll see how things turn out during the remainder of 2022 and during 2023... I'll either be glad I reduced my level of gearing, or regret 'bailing out'.

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Friday, 7 January 2022

Opened a new trading account with Superhero

Despite an intention to simplify my finances, I was interested in investing in some of the US defence industry stocks, such as LMT (Lockheed Martin), Ratheon (RTX) etc. There is an iShares Aerospace and defence ETF ITA.US that includes these (and other) defence/aerospace stocks, so I was looking to invest using my trading account, but I couldn't find it in there trading list. I was also a bit put off by their $50 per quarter admin fee, so I had recently transferred all the cash out of that account, so I decided to look into one of the newer trading platforms that offers 'no fee' trading in US stocks. 

I decided to open an account with I has no brokerage fee for trading US stocks, and simply charges a FX fee to convert the initial AUD funds added to the account to USD (for trading US shares and ETFs). It look just a few minutes to setup a new account, and I only had to answer a few questions about citizenship and tax residency (and provide my TFN) to get the account fully setup and funded with an initial A$475.00

I then converted that into my USD 'wallet' which used an exchange rate of 0.71448 USD/AUD which seems reasonable as Yahoo finance is quoting the current AUD/USD exchange rate as 0.7157

There was also a $3.32 FX fee charged, so I ended up with USD$337.01 available to trade. I also ended up with 67 Qantas Frequent Flyer points for the FX (as I provided my QFF # when I signed up), which will offset part of the FX fee I suppose.

I placed an order to buy USD$337.01 of ITA shares 'at market' which I assume will be filled when trading on the US market commences tonight (Sydney time). We'll see how many shares I end up with. Once nice feature is that fractional share trading is available, so I invest the full amount I had transferred into the account and don't end up with a 'cash balance' sitting idle in the account.

I might make some additional transfers into the account and add to the holding over time, but at this stage I am just testing out how the platform works. At the end of the financial year I'll see how the tax reporting also functions.


My order was processed overnight - bought 3.17305 iShares US Aerospace & Defense ETF shares for USD$337.01

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Tuesday, 4 January 2022

Net Worth: DEC 2021

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

Stocks and managed fund investments increased during this past month, up $9,454 (3.07%) to have $317,878 net equity in my geared share portfolios.

Our estimated house price for November (my half) was unchanged at $1,116,769 - it appears that the websource ( where I get the monthly average sales price data our suburb each month has not been updated (despite a footnote stating that the figures were last updated on 6 Dec). So our house price estimate might be slightly understated (although the real estate 'boom' does appear to be rapidly slowing in Sydney).

The value of my retirement savings increased during December to $1,544,793 (up $31,298 or 2.07%).

Overall, my estimated NW increased to $3,313,383 by the end of December - up by $41,312 (1.26%).

2021 closed with a healthy overall increase in my NW of $585,257 (+21.4%) due to the booming stock and real estate markets. As a long term, high risk tolerance investor I will stick to our long term asset allocations, although I suspect that the real estate market could end 2022 at or below current levels, and the stock market could very possibly see a moderate to severe 'correction' during 2022 (there seem to be a growing list of potential negatives - rising inflation, China economic slowdown and property bubble likely to burst, Europe/Russia tensions over Ukraine, US/China tensions over trade, Taiwan  and militarization of South China Sea and rapid growth of Chinese ICBM, aircraft carrier and sub numbers, etc.). The only thing supporting the stock market valuations appears to be the low interest rate environment, so any rise in interest rates to fight inflation could see a dip in the markets. We'll see how 2022 unfolds.

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End of DEC 2021 "12% solution" portfolio changes - terminated the experiment.

For the end of December 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. However as I had no trades during the quarter I would have been charged a $50 fee, so I decided to close out my positions and transfer the cash balance out of my IG trading account. I will use the proceeds to reduce the balance of my home equity ('portfolio') loan. Given the slowing Chinese economy, increasing inflation/interest rates, and concerns over the Turkish economy, tensions between Russia and Europe regarding Ukraine, I thought taking a bit of money 'off the table' might be prudent (especially when it is borrowed money!).

My closing IG trading account balance was A$15,133.93.According to the monthly "12% solution"  newsletter, the 2020 performance for this model was +40.6% and for 2021 YTD performance was +21.9% (in USD terms). My YTD performance ended at +37.35% (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). There will be some tax due on the realized capital gains when I do my FY2022 tax return.

The "12% solution" seemed to work out quite well in practice (although historic performance is not a reliable indication of future performance, yada yada), but it wasn't really worth the hassle given the relatively high trading/admin costs. There is probably a cheaper way of executing this model - possible via one of those 'no fee' trading platforms.

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