Planes, Trains or Automobiles

We'll be travelling from Sydney to Inverell (in the far north of the state) to stay at my parents' farm over the Christmas/New Year period - a distance of 621 km. The cheapest option would be to drive up in our 10-year-old Festiva, but the car is a bit too cramped for long distance journeys. The drive would take about 6.5 hours each way (longer if we take a lunch break on the way), and cost around $200 or so in petrol for the round trip. A bit should be added on for wear-and-tear on the tyres, car servicing costs etc., but there's effectively no depreciation cost for using the car as it's already more than a decade old and has over 115,000 km on the clock (one careful driver ;). Next year when we visit my parents at their other farm at Forster each school holiday we'll probably trade in the old jalopy for a near-new (1 yo) Hyundai ix35 Highlander (about $41,500 new).


An economy-class return train fare for a family of four costs $356.44 (the adults cost $172.22 each, while the kids are only charged $6.00 each!), and the kids enjoy travelling on the train for a change. The train takes about the same amount of time overall (we have to catch a City train to Hornsby before changing onto the countrylink train). DW is insisting we take the train rather than drive, which is easy for her to stipulate since she won't be paying for the train fares (I can't really complain, since staying a week with her in-laws isn't her ideal vacation!). I don't really mind paying the extra $150 to take the train, since I'll be able to sleep, watch a DVD or read a book during the 6 hour train trip, rather than stare at the road! The train doesn't actually pass through Inverell, so we'll have to get off at the closest station (about an hour drive) and be collected by my parents.

My parents had also asked about us taking a plane, but the cost is exhorbitant. It would cost $1025 for the family - nearly triple the cost of travelling via train. The flight time from Sydney to Armidale is just over an hour, but it would take around an hour to get to Sydney airport from home, plus another hour or so to get from Armidale to Inverell. So the total travel time would be around half via plane rather than train or car. The one-way airfare is $144 per person, so it would be worthwhile for adults (a 60% premium compared to economy train fare, or about the same price as first class train travel), but there isn't any discount available for children.

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Comparing my net worth with that of other PF bloggers

I used to do a monthly summary table of the NW of the various bloggers who posted this data each month. Many of the bloggers were not directly comparible - some were paying off debt/student loan, some were retired, and many were just starting out to accumulate wealth. Although it was a fair bit of work each month, the post was popular - so popular in fact that other bloggers started to do something similar. So I stopped doing the monthly comparison (I think the other blogs then also gave up after a few months...), and now mostly compare my progress against statistical data on income and household net worth (such as from the Australian HILDA reports) and the cut-off for the BRW's annual "rich list". I also compare my NW to that of Moomin, since he is of similar age, income, etc and investment risk tolerance to me, and he tracks his NW each month using NetWorthIQ ;)


I recently did a comparison of my NW over the past decade with that of PFBlog. His NW is currently very similar to mine, although he is younger (~35 vs ~48) and started from a lower base (~$50K in 2002 vs. ~$400K in 2002). I'm not too surprised that his NW is overtaking mine, as he indicates most of the $950K NW accumulated over the past decade is a result of saving around 30% of their gross income each year (he comments that he has had negligible overall investment return during that period). That suggests his household income is around $317K pa, whereas ours is just over $100K.

What is rather disappointing (and shows up clearly in the chart below) is the huge drop in my NW during 2008-9 compared to PFBlog. Clearly using margin loans to gear up my stock portfolio was *not* a good idea in the GFC era. I also had to reduce my gearing levels in the second quarter of 2009 (to avoid margin calls), so the rebound in my NW over the past year has been more subdued than it would have been if I'd been able to retain my level of margin loan debt.

It will be interesting to see how the NW of myself, Moomin and PFBlogs compare during the 2010's - and whether PFBlogs retires by 40 as he originally planned. My target retirement age has slipped from 58 to 67 due to the GFC, but could change again depending on how the economy performs over the next couple of decades.

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Net Worth Update: July 2010

Stock market gains during July resulted in increased valuations for my geared stock portfolio and our Self-Managed Superannuation Fund. Property valuations were not updated this month as sales data wasn't available. From the June Quarter statistics it looks like house prices have flattened out overall, but that may not correlate with the performance of my property portfolio as I'm only interested in the two postcode areas where I own real estate.

On paper a relatively modest 5% appreciation in house prices and 10% total return for the stock market during the current financial year would see my net worth hit the $1m mark again -- in reality the continued global financial crises means negative returns are a distinct possibility. In 20-20 hindsight I should have jumped at the chance to make a large undeducted contribution into superannuation (undeducted contributions below $1 million between 10 May 2006 and 30 June 2007 were tax-free) by liquidating my geared stock portfolio. Any stock investments within the SMSF would have remained ungeared during the GFC, minimising losses, and if I'd invested our super in term deposits my net worth would probably now be twice it's current amount. Ah, what might have been!

Assets___________$ Amount______$ Diff_____% Diff 
Stocks_*__________$11,861______$5,537____87.56 % 
Retirement_______$334,548______$9,913_____3.05 % 
Properties_______$922,625______$____0_____0.00 % 

Debts____________$ Amount_____$ Diff_____% Diff 
Home Mortgage(s)_$364,072________-$34____-0.01 % 

Net Worth________$904,961_____$15,484_____1.74 %

* the Stocks figure is portfolio value - margin loans. As my portfolio value (and margin loan debt) is around $500,000 relatively small movements in the stock market produce huge percentage swings in the net value of my stock portfolio each month.

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Asset Class Performance - when risk is underestimated

I remember reading Bernstein's views on expected asset class performance back in 2006 - he basically held the view that stock and other growth assets were overpriced, as expected returns didn't justify the high prices. While he didn't explicitly "call" the GFC, I certainly wish I adopted his views and wound back my stock market gearing (continuing to invest in stocks using other people's money made no sense if the returns for the next decade were going to be 5% or less, rather than the "historic average" of around 11%)...

As it turns out, Bernstein was right and I was wrong (although I almost redeemed myself by having index put options in place during 2007 - pity I didn't get around to rolling them over in Dec '07...). The actual asset class performance figures for the past ten years (data from Pitcher Partners) make depressing reading (to 30-Jun-10):

......................1 YR.....3YRS......5 YRS.....10 YRS
Australian Shares ....13.1%....-7.9%......4.5%......7.0%
International Shrs.....5.2%...-11.5%.....-2.2%.....-4.6%
Aust Listed Property..20.4%...-23.8%.....-8.0%......2.9%
Australian Bonds.......7.9%.....7.7%......6.1%......6.4%
Cash...................3.9%.....5.6%......5.8%......5.5%

When you take into account the extra cost of trading shares (or fees for investing via managed funds), it really wasn't worth taking on any investment risk during the past decade.



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