DIB DIB, DOB DOB

Now that DS1 is old enough I had another look at what Cub Scouts branches are currently active in our neighbourhood. The closest Scout hall is long-abandoned and derelict, and the next closest packs have their weekly meetings starting at 6:30pm on nights that DW and I both return home fairly late from work. A 6:30 start is not really practical as DS1 and DS2 are at day care/after-school care until 6pm on those days. Fortunately there's another Cub Scout group a few km away that holds their meetings from 7pm-8:30pm on a non-working (for DW) week-night, so we dropped in for a visit last Tuesday to check them out. DS1 enjoyed the activity (building model rafts using corks and paddle pop sticks) and the overall club atmosphere, and he was intrigued by the list of tasks required for the various achievement badges and the bronze, silver and gold "boomerang" awards.

The cost for Cub Scouting is very reasonable ($10 each school term to help pay for materials, around $65 for the uniform shirt, belt and cap, and an annual association and club fee of about $180). I've filled in the application paperwork and will probably join him up after he's attended a few more weekly sessions as a "chum" (to check that his enthusiasm doesn't wear off too quickly).

I found it interesting that the cub "oath" is offered in two versions (one mentions the Queen of Australia and the other that just mentions Australia - to avoid putting off republican supporters I guess) but that both versions include an affirmation of belief in "my God". While the Australia Scout movement is less restrictive that the BSA (the "official" US Scouting body) in that girls have been allowed to join Scouts and Cubs in Australia since the 1980s, it still requires at least lip service to having belief in a God. It doesn't seem to matter WHAT God you believe in, but an expression of faith is an intrinsic part of the weekly meetings. Given the historic background of Scouting I have no problem with them including faith as one of the positive attributes they want to encourage in their young members, but making it a mandatory part of the oath for Cubs seems anachronistic given the relatively secular nature of modern Australian society. Oh Well, DS1 did attend a local church "Kids Club" for several years and knows the basic Christian Sunday school stories and he was Christened when he was one year old, so I suppose making the oath won't really be lying. I left the religion/denomination section of the forms blank though, as we don't attend church and therefore aren't affiliated with any particular brand of religion. There seems to be an assumption that having faith in "my God" means you will be a member of one of the organised religious movements. If I have to fill in the blank on the form it will be a toss up between putting down Methodist Christian (a simple answer) or Naturalistic Pantheist (possibly a more "honest" answer).

Next meeting I'll ask the pack leader what the process is for completing the various "achievement" badge requirements. A lot of the tasks can be done at home, but I'm not sure if DS1 will need to get approval from the pack leader before hand, or if DS1 can just do the required work and then make a presentation at Cubs when he's completed all the required activities. I remember from my short time as a Cub Scout many decades ago that the biggest hurdle to earning more than a couple of merit badges was the lack of interest from the pack leader (especially any topics they weren't "expert" in). There are only so many times that repeating the same course on "map reading" remains interesting for a child! The "new" (since 2004) list of 35 achievement badges includes a lot a topics DS1 is interested in (eg. music, entertainer, scientist, space, information technology) and can easily complete. For the "flight" badge it might also be possible to organise a day-trip for the pack to attend the Scout activity centre at Campden airport (there's a $53 fee that includes all the requirements for completing the "flight" achievement badge and also a half-hour joy flight in a Cesna 172).

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NAB SPP Scale-back Refund Cheque Received

Unfortunately National Australia Bank decided to limit the recent retail investors SPP offer to the $750m, so out of my $15,000 application for new shares only $4,343 was allotted to purchase 202 shares at the offer price of $21.50. The remaining $10,657 was refunded via a bank cheque which arrived a couple of days ago. With the NAB share price currently around $28.75 the SPP still produced a $1,464.50 paper profit (ignoring any dilution effects on the value of my existing NAB shareholding) but not as much as I'd hoped for when I sent in the full $15,000 for my maximum SPP entitlement. With the market recovering and NAB shares trading well above the issue price, most retail investors took up the offer in full it seems. It's a bit annoying that NAB scaled back the offer so severely (the pro-rata issue was 28.82%), especially since they have already diluted the retail investors ownership via the quite large institutional offer. NAB included an explanatory letter trying to justify why they did an SPP rather than a rights offer, and also why they chose to scale back the SPP. They bank's excuse for scaling back the offer rather than accepting the full amount provided by their shareholders ("... the depressing effect doing so can have on return on equity, dividends and the share price") is unconvincing given the dilution effect of the large institutional share placement and the fact that they'd done a previous SPP last December. If they seek to raise any more capital in the next one or two years it will prove that they have little regard for their "mum and dad" retail investors.

ps. It's also annoying that the NAB "bank cheque" still hasn't been cleared in my credit union account several days after I deposited it. I have a 0% balance transfer offer that expires today that I want to pay off in full - every extra day until the cheque clears and I can pay off the CC balance will cost me around $10.

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Net Worth Update: August 2009

My net worth increased 7.21% during August, due mostly to the continued rally in the Australian and global share markets. By 31 August my net worth had increased to $753,137 (up $50,628). At the start of 2009 I had hoped for the economy to stabilise and show signs of recovery by the end of the year, and would have been happy for no further decrease in my net worth over 2009. Things were looking pretty dire by the end of February, having lost another $70K or so of net worth. At the bottom of the stock market slump in early March, my net worth had dropped to only $554,783 - the lowest since August 2003! And unfortunately the prospect of margin calls on my geared stock portfolio forced me to liquidate around half of my remaining portfolio. By mid-year the stock market recovery was well underway, and I had thought I my net worth could realistically recovery to $750K by year's end. That level has already been surpassed, and it looks as if the market has already priced in an economic recovery by the end of 2010. Any significant bad news (eg. China growth stalling) would probably see the market drop steeply again. In the medium term (2-5 years) the economy and company profitability may completely recover from the GFC, but I don't expect the market to reach the previous peak - investor confidence will probably be more subdued than in 2007, and inflationary impacts flowing from government stimulus spending around the globe will see official interest rates at higher levels, which will reduce p/e ratios.

My retirement account (SMSF) gained $18,375 (+6.70%) to $308,631. The gain was entirely due to the stock market rise, with our small geared stock investment (7 ASX200 index CFDs, code: IQ) boosting the gain. The were no employer superannuation contributions banked during August. We have around $8,000 cash sitting in the SMSF bank account, but I'm hesitant to add to either our Vanguard HighGrowth index fund investment or IQ CFD holding when the market has had such a steep rise for the past two months. I'll invest the cash if there is a substantial correction (10%+), or start to dollar cost average by investing our monthly contribution amounts if the market stabilises around the current level.

The estimated valuations for my half of our real estate assets (house and investment property) were up $6,921 (+0.89%) to $781,389 in August, but recent sales data indicates a smaller rise (around $4,000) will be recorded for September. Also, September will see our total mortgage debt increase by about $2,000 due to having to redraw this amount to meet our loan interest payments while the rental property was vacant during August. New housing starts remain below the level of increased demand (there was record high net migration to Australia in 2008/9, surpassing the previous high set in 2007/8), so there is likely to be another "property boom" in Sydney once the economy has started growing enough to stabilise unemployment rates (late 2010?). Higher inflation would also see construction costs for new housing rise, which usually boosts prices of existing stock, while the real value of our mortgage would drop. A decade of higher-than-average inflation would probably see the value of our real estate portfolio rise slightly in real terms, while our mortgage debt would be slashed in real terms (even with our mortgages currently being "interest only").

My stock portfolio showed the benefits of leverage when the market is rising rapidly, but my overweight (13% of total portfolio value) investment in IPE (ING Private Equity fund) shares is having a negative impact on my portfolio performance as the market start recovers. Being a 'fund of funds' that are invested in unlisted private equity, I expect the economic recovery will have to be well underway before IPE trades closer to NAV (currently NAV is quoted as around $0.47 per share, but the shares are trading around $0.21 following a 1:1 rights issue at $0.17 a share in June). Before the GFC IPE shares were trading around 85% of NAV, so I expect IPE will outperform the market in the medium term if the real economy recovers and the prospects for small, unlisted companies brightens substantially. My $51,240 invested in IPE (244,000 shares) is high risk, but theoretically could have great upside potential. For example, if the ASX200 reached 6,000 when the economy has recovered (another 33% rise from current levels, but still around 12% below the 2007 peak), the NAV of IPE should rise to around $0.63 per share. If p:NAV recovered to pre-crisis levels of 85%, this would result in a share price of about $0.53. It's probably an overly optimistic projection, but if it eventuated I would recoup all the loss that resulted from investing $100,000 in IPE just prior to the start of the GFC. (On the downside, IPE could end up worthless if the underlying private equity funds collapse). Converting my "trading" position in IPE options into a large stock holding back in 2007 using HELOC funding was one of my all-time bad investment decisions (the others were: not letting my stock portfolio gearing levels naturally decline during the bull market of 2006-7, not rolling over my index put-options when they expired in December 2007, not taking the opportunity to correct this mistake by investing in new index put-options during the brief bear market rally of March 2008, deciding Microsoft was too expensive to invest in during the early 80s, selling out of my position in Felix resources when the stock had risen from $1 to $2 a share (currently trading around $17!), holding on to my "investment" in Holyman ferries when they'd dropped 50% (they went out of business soon after)... Actually, the list goes on and on). Overall I tend to make the typical amateur stock investor's mistake of holding on to my losers (letting "paper" losses affect my decision making) and selling my winners too soon. That's the main reason our retirement savings are invested in index funds rather than trying to "pick" individual stocks ;)

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Retirement Savings Asset Allocation

The value of my retirement savings (superannuation) account is currently around $304,600. About $8,500 of this is sitting in my old Westpac Business Super account in order to retain my $400,000 life insurance policy (Death and Total & Permanent Disability cover), while the remainder is held within our Self-Managed Superannuation Fund in order to minimise administration and investment management fees.

Overall, the asset allocation of my retirement savings is currently as follows:
Australian Shares: 50.6%
International Shares: 34.5%
Property Securities: 9.5%
Fixed Interest & Cash: 5.4%



That's pretty much in line with my target allocation.

Many people would have a higher percentage allocated to property and fixed interest (bonds), but I already have a large percentage of my overall net worth invested directly in real estate (our home and one investment rental property), and I had decided on a long-term high growth investment strategy (including gearing) prior to the GFC, so I'll stick with that plan (it's too late to lock the barn door after the horse has bolted!)

My rate of retirement savings is currently around $25,000pa via my employer's SGL payment of 9% of salary, topped up with salary sacrifice to the maximum concessionally taxed amount. I'd like to be saving another $1,000 each month via undeducted contributions, but at the moment I'm a bit short of cash flow due to a spate of well-priced share purchase plan offers

I've really no idea how well I'm positioned for achieving comfortable self-funded retirement. It will largely depend on what average rate of return eventuates, at what age I retire, and how long I expect to live (hence the withdrawal rate I choose during 'pension phase').

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