Got our Economic Security Strategy Bonus Payments

Last week we received $2000 in Economic Security Strategy Bonus from the Federal Government. We are eligible for the government hand-out since we get a small Family Tax Benefit Part A payment, and have two children. Although the government would like this money to be spent asap in order to stimulate the local economy and avoid Australia joining the US, UK, Japan and several European countries in recession, we've simply used the money to meet a couple of month's mortgage repayments shortfall.

It will be interesting to see how big an impact this stimulus payment actually has. I suspect that all the bad economic news over the past 6-12 months has tempered Australian consumers love affair with debt-fueled consumption. Perhaps most recipients of this largesse will use it to repay CC debts, or perhaps make an undeducted $1000 contribution into their superannuation fund (and thereby get another $1500 from the government via the co-contribution)?

Subscribe to Enough Wealth. Copyright 2006-2008

Financial Crisis dims Christmas lights

I've been a bit late putting up our Christmas decorations this year. We put up a few inside lights and our artificial tree two weeks ago, but I only got around to unpacking and installing the outside lights today. We went for a walk around our block yesterday for DS1 and DS2 to see the neighbour's Christmas lights and there seemed to be a few less displays than last year. Apparently the financial crisis has caused many people to not "light up" their houses for Christmas this year. I can understand people not buying new lights in the current economic climate, but I can't imagine that people who have been putting up Christmas light displays for years would save a significant amount of money by not turning on the same lights they've used in previous years. It's probably just that people aren't in such a "festive" mood this year, and can't muster the enthusiasm required to set up their lighting displays this year. What do you think?

Anyhow, I've added one LED net light to our collection so far this year (about $20), and I'm thinking of buying one of the larger free-standing garden light displays to "complete" our collection (you have to draw the line somewhere, or it could become an expensive obsession to have the "best" display in your street/suburb/state/the world). There are some nice 3D rope light displays available, but can be quite expensive for something you only use for a couple of weeks each year, and has no resale value. I'll check out what is available in the Christmas Warehouse Sale close to my workplace tomorrow, I'm thinking of something that the kids will enjoy and isn't too "religious". Perhaps something like this one for $100:

Subscribe to Enough Wealth. Copyright 2006-2008

Shifted my son's cash savings into long-term asset allocation

DS1 had $10,000 he'd earned from two years of doing a paper round sitting in a St George online savings account. It was earning a good rate of interest, and was nice and safe (especially since the Australian government guaranteed bank deposits), but cash isn't a sensible asset allocation for an 8-year old with a very long investment time frame. So, with interest rates rapidly dropping as the RBA cut the official rate by 3% in the past 3 months, and the stock markets appearing reasonable value at current prices, I decided to open a Vanguard investment account for DS1 so he could invest his $10,000 in a suitable index fund. The one we (I) decided on is the Life Strategy High Growth fund, which invests in a mix of the other Vanguard Index funds to achieve an asset allocation of:

Asset Sector ..................... Fund ... Target 
...................................Actual . Allocation
Growth Assets
Australian Shares ................43.5% ....44.0%
International Shares .............28.9% ....29.0%
Australian Property Securities ... 5.2% .... 5.0%
Int. Property Securities (Hedged). 5.6% .... 5.0%
Int. Small Companies (Hedged) .... 3.8% .... 4.0%
Emerging Markets Shares .......... 2.9% .... 3.0%
Total Growth .....................89.9% ....90.0%

Income Assets
Australian Fixed Interest ........ 4.1% .... 4.0%
Int. Fixed Interest (Hedged) ..... 6.0% .... 6.0%
Australian Cash .................. 0.0% .... 0.0%
Total Income .....................10.1% ....10.0%

The fund has a fairly high fee (0.9%) for an index fund, especially compared to the US Vanguard funds, but there are fee rebates for larger investments, so you pay 0.6% fee on amounts between $50,000 and $100,000, and a reasonable 0.35% for amounts over $100,000. If DS1 continues to use this fund for investing as he gets older it should be a reasonable investment vehicle for his non-retirement savings.

Subscribe to Enough Wealth. Copyright 2006-2008

Net Worth Update: November 2008

Another exceptionally poor month. My net worth as at 30 November decreased by another -$92,546 (-12.13%) during the month to $670,548 (AUD), due to the continued losses in my geared equity investments (down by $39,207 (64.88%) to only $21,222. At one point during November my stock portfolio had negative value, with my margin loans and HELOC being greater than the value of combined portfolio. The estimated valuation of my share of our real estate assets also decreased significantly this month, by -$43,523 (-5.31%). The balance of my half of the mortgage decreased by $234 to -$367,554/ The RBA interest rate cuts over the past three months have reduced the monthly interest payments, reducing the amount of monthly "redraw" required to cover the interest payments while DW is working part-time. There is speculation that the RBA will cut rates by another 0.75%-1.25% at their next monthly meeting, with the scope for further interest rate cuts to offset the effects of the global recession increasing as inflation fears rapidly subside.

I had to sell off some of my Australian stock portfolio this month to avoid margin calls, and my margin utilisation is now slightly below 90% on all three margin accounts.

The balance of my retirement account also decreased this month, by -$10,050 (-4.00%) to $241,186, as it's invested about 98% in the Vanguard Lifestages "High Growth" fund which is allocated mostly to domestic and international equitites. The market declines were largely offset by two month's worth of employer contribution being deposited into our SMSF account this month.

Subscribe to Enough Wealth. Copyright 2006-2008