Bought some GEAR shares

I was doing some reading for a Margin Lending 'course' from Kaplan learning (to possibly add margin lending to the list of things I'm approved to give personal financial advice on as a registered financial planner) a couple of days ago, and there was mention of 'internally geared' investments (managed funds). These funds borrow to invest more than the unit holders funds, which should provide larger gains during positive market performance periods and larger losses during negative market performance periods. One advantage of this type of gearing is that you (the unit holder) won't ever get a 'margin call' if the value of the assets decreases (the fund may go out of business and the unit value drop to $0, but you won't lose more than your initial investment). I had a quick look around at what geared investment funds (ETFs) were available, and the GEAR ETF run by betashares looked interesting, as it invests in basically the ASX200 companies. Despite the fund 'fact sheet' stating that the fund invests in the top 200 ASX shares according to market capitalization (which would be a plain vanilla ASX200 index fund) it is actually an actively managed fund, with a quite hefty management fee of 0.8% of the total fund (ie. including the borrowed funds). You also aren't told what the fund's borrowing costs are. Looking at the fund unit price compared to the ASX200 index for the past 5 years it looks like the fund pretty much tracks the index during periods of average market performance, outperforms a bit when the market is doing well, and underperforms when the market performance is below trend. So, whether or not the fund outperforms the ASX200 index over the next decade or two will apparently depend on whether there is a 'bull market' or a 'bear market' overall (i.e. the index performs above or below trend).

I decided to use the available credit in my Commsec margin loan account to purchase ~$20,000 worth of GEAR. As this is 100% borrowed funds, whether or not this turns out to help or hinder my NW over the next decade or two will depend on whether the fund total return (distributions + capital gains) exceeds the interest charged on the $20,000 loan. It won't have a material impact on my NW either way, so it was pretty much a 'spur of the moment' decision to make the investment. It will add a tiny bit more work to doing my annual tax return calculations, and eventually there will be some CGT calculations and payment required when I eventually sell the investment.

Subscribe to Enough Wealth. Copyright 2006-2021

Net Worth: NOV 2021

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

Stocks and managed fund investments increased slightly this month, up $2,907 (0.95%) to have $308,424 net equity in my geared share portfolios. This figure includes the outstanding balance of my 'portfolio loan' (home equity loan) that was used to fund some of my share portfolio purchases, but is also used to cover the $1,150 monthly 'overhead' of my financial planning business and was also used to pay the uni fees for my master of financial planning enrolment. Now that I have completed the last subject for the masters degree, there will be less 'drag' on the porformance of my geared share portfolio valuation next year (If I get accepted into as a PhD student there won't be any fees to pay, as there is RTS (research training scheme) funding available to cover the basic uni fees.

Our estimated house price for November (my half) increased by $75,142 (7.21%) to $1,116,769.

Real estate prices, including home units/apartments in the suburb where I purchased a one-bedroom apartment 'off the plan', continue to rise (there was a bit of a slump in apartment prices in Sydney last year due to Covid), so hopefully I won't have any trouble getting a mortgage for 'settlement' when the construction of the apartment block (88 by JQZ) is completed in Q2 2023. There seems to be a slight slow down in the current 'boom' in residential real estate in Sydney, with some pundits predicting slower rate of gain in the first half of 2022 and then a slight pull-back in prices in the second half of 2022. It's all guesswork of course, and a lot may depend on how the new Omicron variant of Covid-19 plays out - if international travel doesn't resume fully in 2022 then there will be less rebound in migration than expected.

The value of my retirement savings increased during November to $1,513,495 (up $10,297 or 0.69%).

Overall, my estimated NW increased to $3,272,071 by the end of November - up by $90,057 (2.83%). I am still recording the valuation of the lake house I 'inherited' (was gifted) by my parents at 'cost' (the value when I paid the stamp duty on title transfer) and the value of my 'off-the-plan' apartment at the purchase price plus stamp duty. That forms the 'other real estate' figure ($1,377,952) and the deposit+stamp duty+outstanding balance due at settlement (in Q2 2023) is the 'other mortgages' figure (-$1,040,452). I do track a rought estimate of the valuation of the lake house/hobby farm property and the likely value of the investment apartment, and using the current estimated valuations would increase my NW by around $553,976). I might start 'officially' tracking these valuation estimates (and including them in my NW calculation) once the off-the-plan apartment construction is completed and I get an official valuation done when I get the mortgage needed for settlement. That will give me a better idea of how my unit value compares to the median home unit prices for that suburb (at the moment it is a bit of a rough guess based purely on how much I paid compared to the median unit pricing for the suburb at the time I paid the deposit).

Subscribe to Enough Wealth. Copyright 2006-2021

End of NOV 2021 "12% solution" portfolio changes

For the end of November 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, which will help reduce trading costs.

My current IG trading account balance is A$14,801.69. In addition to the "12% solution" holdings I have A$488.00 invested in the ASIA (Betashares Asia Technology Tigers) ETF which results in my IG account not tracking perfectly the "12% solution" benchmark.

According to the monthly newsletter, the 2020 performance for this model was +40.6% and for 2021 YTD performance is now +22.3% (in USD terms). My YTD performance is now 34.3% (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).

Subscribe to Enough Wealth. Copyright 2006-2021

Net Worth: OCT 2021

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

Stocks and managed fund investments decreased this month, down -$9,618 (-3.05%) to have $315,135 net equity in my geared share portfolios. Part of this is due to using my portfolio loan to make a contribution into our SMSF to cover a quarterly provisional tax payment that was due. In future I will just sell off some of the SMSF investment in the Vanguard High Growth Index Fund to cover any cash flow requirements for tax or DW's pension payments.

Our estimated house price for September (my half) increased by $41,976 (4.20%) to $1,041,627.

Real estate prices, including home units/apartments in the suburb where I purchased a one-bedroom apartment 'off the plan', continue to rise (there was a bit of a slump in apartment prices in Sydney last year due to Covid), so hopefully I won't have any trouble getting a mortgage for 'settlement' when the construction of the apartment block (88 by JQZ) is completed in Q2 2023.

The value of my retirement savings increased during October to $1,503,198 (up $12,874 or 0.86%).

Overall, my estimated NW increased slightly to $3,182,014 by the end of October - up by $44,971 (1.43%).

Subscribe to Enough Wealth. Copyright 2006-2021