Looking at my NW chart there are several significant 'jumps' (up or down) that have occurred during the past 20+ years, so I thought I do a quick recap of the ones that leap out on the chart -- in case anyone is wondering what caused these changes (and can't be bothered trawling through a decade or more of my blog posts).
Events of note:
[1] Stock market was booming, I was using margin loans to gear using 'other people's money' (OPM) and I was dreaming of early retirement. It did seem 'too good to last' so I contemplated reducing my risk by either a) selling off some of my shares and paying off the margin loans - decided against this as I would have faced a hefty capital gains tax bill, or b) withdrawing some cash from the unpreserved, unrestricted part of my retirement savings (superannuation) to pay off the margin loans - decided against this as I didn't really want to reduce my retirement savings, or c) be 'sophisticated' and buy some index put options with a 6+ month expiration date costing about 1%-2% of my portfolio value, that would provide an offsetting gain if there was a significant market correction that reduced my share portfolio value and I need cash to meet any margin calls - I decided to implement this strategy in mid 2007. When the put options expired in late 2007 the market was showing increased volatility and I couldn't (easily) find suitable new put options at a reasonable cost. So I let the options expire and was left holding a $700K+ share portfolio with about $400K of margin loans. Then the GFC started out as a 'normal' dip of 10% in early 2008 caused by the US housing market slump -- 'experts' were on TV assuring everyone that this was just a US problem that wouldn't have global implications. I decided I had already lost quite a bit (due to gearing), so would just 'hold on' for the long term.
[2] I was on holiday in Europe during Q2 2008 when the markets decided the GFC was 'global' and we learned that CDOs had spread the US property market risk through the world -- repackaging really bad mortgage debt into 'A+' rated CDOs. Eventually the market 'crash' got so bad that I was about to receive margin calls so had to start selling off share holdings (at low prices) to clear my margin loans. Ended up selling off most of what was now a $400K share portfolio to clear $400K of margin loans.
[3] No impact on my NW, but we decided to sell our investment residential rental property and use the proceeds to pay off most of our home mortgage. So NW stayed about the same while total assets and total debts both dropped significantly. Gearing dropped to almost zero.
[4] My parents decided to 'sell' their rural farmlet (vacation home/hobby farm) to me, instead of leaving it to me in their will. The 'price' (used for stamp duty calculations) was the market value, which they gifted me (so no money actually changed hands). The benefit to them was that after five years this gift no longed counted as a deprived asset for the Age Pension asset test, so they were able to start receiving the Age Pension. I initially tracked the 'cost price' in my NW calculation, as I intend to leave this asset to my sons, so it didn't seem to make sense counting it as part of my overall NW. Hence the one off $350K jump in NW.
[5] I decided to purchase a $1MM one bedroom luxury apartment 'off the plan' as an investment. Initally only paid the 10% deposit but added the $1MM 'cost price' and a notional $900K debt to my NW tracking. The apartment building took three years to complete. At the time interest rates were very low and it seemed possible that I would be able to get a fixed (for 5 or 7 years) rate loan at 3%-4% at 'settlement'. So the negative gearing would be modest.
[6] Covid happened. From a NW perspective the biggest factor that affected my personal NW vs. the markets in general was that I decided to switch our SMSF investment from 100% 'high growth' to about 50% growth and 50% balanced (ie. went a bit 'risk off' in Feb, when the Covid epidemic was still mostly restricted to China but there was considerable risk it might spread worldwide and impact the global economy. We reverted to our long term 'high risk' asset allocation in Aug/Sep -- so didn't quite get the timing right as we were a bit cautious and didn't go "risk on" again until after the market bottom had passed and we were reasonably certain that the gains were not just a 'dead cat bounce' (there was still talk of a 'great depression' style of market crash).
[7] Construction of my investment apartment completed and I 'settled' the purchase with a $1MM mortgage. I only needed the $900K for settlement but took out a loan for the entire purchase price (using our home as collateral). I left the 'spare' cash sitting in the offset account, so I'm not paying interest on that amount, but can access the funds if needed. I decided to start including the estimated market value of the apartment and my 'holiday home' in my NW calculations, hence the jump in NW due to the adjustment from 'cost' to 'market value' for these real estate assets. Unfortunately inflation and interest rates started to hike about 6 months before 'settlement' was due, so I ended up having to take out a variable rate 'interest only' loan. Paying 6%+ interest made the $1MM investment seem a lot less of a 'good idea' than it had when I bought 'off the plan' and interest rates were around 3%.
I don't expect any events having massive one off impacts to my NW in future -- I will just start paying down the investment property mortgage when it switches from 'interest only' to 'principle and interest' in about 3 years time. By then I should either be covering the running costs of my financial planning business from client revenue, or have switched to 'wealth coaching' and no longer have to pay the $20Kpa or so that it costs to remained registered as a financial advisor (without any clients). That $20K pa will help cover the principle payments on the investment property mortgage. Hopefully rent income will have increased enough by then for the property to no longer be 'negatively geared'. The plan is to fully pay off the mortgage by the time I fully retire at age 80.
My part-time PhD (for the next 7-8 years) shouldn't have any impact on my NW, as the uni fees are covered by the federal government's 'research training scheme' (RTS), so it will only cost me time, not money.
I plan to continue working FT at my 'day job' until about 70, then transition to working PT in my financial planning business until I lose interest (or have health issues). There might be some 'windfall profit' if my financial planning business has sufficient clientele to be sold for around 3x 'ongoing revenue' (which seems to be how such businesses are currently valued). But I'm not counting on the business having any value, so it isn't part of my retirement financial planning.
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