Wednesday, May 04, 2016

April 2016 Report

Spending was a bit lower this month, financial markets had moderately positive performance, but our salary income has now gone down as Moominmama's maternity leave salary has now ended. In the new financial year she will get another 18 weeks of payments from the government at the minimum wage ($30k something per year). We asked for those to happen next financial year to reduce tax.

Here are our monthly accounts (in AUD):


Spending was $4.7k. The biggest single expenditure was the $639 quarterly body corporate (condo association) fee and after that health insurance of $340. 

Moominmama actually got one last partial biweekly salary payment this month, so "current other income" came in at $10.3k and will fall further next month . After taking into account the mortgage payment of $3,567 (which includes implicit interest saving due to our offset account - the actual mortgage payment was about $400 less than this), which shows up as a transfer to the housing account, we saved $2.0k on the current account. We made $3.5k of retirement contributions, and saved a net $1.3k in added housing equity. Net saving was, therefore, $6.8k across the board.

The ASX 200 rose 3.37%, the MSCI World Index 1.54%, and the S&P 500 0.39%. The Australian Dollar fell from $US0.7676 to $US0.7616. We gained 1.96% in Australian Dollar terms and 1.09% in US Dollar terms. So we under-performed both Australian and international markets. The best performing investment (in total dollars not RoR) was again the Colonial First State Geared Share Fund, which gained $6.8k, followed by CFS Global Resources with $3.7k, and Unisuper with $3.5k.The worst performing investment was Cadence Capital, which lost $2.4k. All asset classes apart from hedge funds and commodities gained this month with U.S. stocks and then private equity being the best performers.

As a result of all this, net worth rose $29k including housing equity ($US13k) to $1.499 million ($US1.141 million).

Australian Federal Budget 2016

The budget released yesterday actually turned out pretty well for me despite some of the leaked stories. In the end the income level at which the 30% superannuation contributions tax start was lowered from $300,000 to $250,000 rather than $180,000 and the cap on concessional (pre-tax) contributions for people over 50 will stay at $35,000 per year. The cap for under 50s is reduced from $30k to $25k. The biggest changes are a lifetime cap on non-concessional (post-tax) contributions of $500k rather than $180k per year. I might just contribute $500k just before retiring, but it's not going to change my plans. Also there is a $1.6 million cap on how much you can transfer into a tax free account after you retire from an accumulation fund. This number seems to be designed to be equal to roughly the maximum contributions allowed under the new rules over a lifetime. Effectively earnings in retirement on earnings in the accumulation phase above the rate of inflation would be taxed....  Currently, I have $385k in Australian super. If I work to age 65 and continue my current rate of contribution I would add $450k in concessional contributions. So, I could certainly add the $500k just before retiring, as long as investment returns are not too spectacular in the interim.

Other news in the budget is that the 37% tax bracket threshold will be raised to $87k p.a. instead of $80k. That would reduced my tax by $315. So, all in all, it was an OK budget.

P.S.

Now I just read that the concessional cap has been lowered to $25k for everyone, regardless of age. So, what I read yesterday was wrong. But this is from 1 July 2017. So, in the next tax year I can keep my current contributions rate and then after that I will have to cut them and I will have a $3,000 tax hike. Of course, if Labor come to power at the election on 2 July this year that might not happen...

There are a lot of changes, which mostly make super more complicated.

Thursday, April 21, 2016

Entering the Top Tax Bracket

Only 3% of Australian taxpayers are in the top tax bracket, which starts at $180,000 a year and has a marginal tax rate currently of 49%. And now I'm one of them, I think. IPE just declared a 5.75 cents a share dividend payable next month. I have 100,000 shares and so the dividend is $5,750. And it is a totally unfranked dividend. After this, I'm currently estimating my taxable income for the year at $182k and I'm now expecting to pay $3,000 extra tax at tax time. That also means I'm going to have to pay quarterly tax from now on.

I guess this is a good problem to have, but it feels kind of absurd that I'm now in the top tax bracket. Of course, when I first moved to Australia I wasn't that far from it because it kicked in at $50,000 a year in those days (1996) and my salary was a little higher than that. After "voluntary" super contributions of 7% and some deductions I was out of the zone.

Moominmama's reaction was that I should generate some business expenses to pull my income down. I could buy a nice big computer screen for home use, which I couldn't charge to my employer. It will be half price now I'm in the top tax bracket. I'm already almost maxing out my pre-tax super contributions. But spending money on stuff just to reduce tax is silly.

Wednesday, April 20, 2016

Superannuation Reform Again?

Changes to superannuation are a perennial topic. If the government does this - lower the threshold for the 30% super contributions tax to $180k income per year and cut the concessional cap to $20k p.a. - I figure I will have to pay almost $7,000 a year more in tax. My taxable income this year looks like being just below $180k but the threshold for the super surcharge adds things like employer super contributions and investment losses to the taxable income amount. It would make most sense to cut the non-concessional cap, which is currently $180k per year, dramatically, as that is the way that wealthy people can get really large amounts of money into the super system, which will be taxed at a zero rate once they retire. But, of course, there is no immediate revenue to be gained by cutting the non-concessional cap. To simplify the system the government could just get rid of the concessional/non-concessional distinction, stop taxing earnings and then have a simple US Roth style system. Much too logical, of course. Actually, the optimal solution, assuming that super will be taxed in some way is to go for the US 401(k)/403(b) approach where there is no tax on contributions or earnings and regular tax on payouts. This gives the the money the best opportunity to increase in value... well under some economic assumptions anyway.

Sunday, April 03, 2016

March 2016 Report

Low spending didn't continue into this month... Moominmama (formerly Snork Maiden) is out and about and Moomintroll is in tow. We went to Ikea and spent more than $2,000. Before that, it was a low spending month. Even though everything seems to be cheap in Ikea, it somehow adds up into big numbers :) Costco is also like that and just across the road from Ikea. Yes, we went there too.

Here are our monthly accounts (in AUD):


So, spending was $6,355. The biggest single expenditure was $2,281 at Ikea. Doctors' fees totaled $1245, but we got a total refund from Medicare of $655. The latter is counted as income. Health insurance is $308 a month, BTW. The Australian health care system is a strange mix of public and private care and payments...

We earned $14.2k in salary and other current payments including those Medicare refunds. After taking into account the mortgage payment of $3,541, which shows up as a transfer to the housing account, we saved $4.3k on the current account. We made $3.6k of retirement contributions, and saved a net $1.4k in added housing equity. Net saving was, therefore, $9.3k across the board.

Stock markets rose strongly this month. The ASX 200 rose 4.73%, the MSCI World Index 7.48%, and the S&P 500 6.78%. The Australian Dollar rose from $US0.7152 to $US0.7676. We gained 2.46% in Australian Dollar terms and 9.96% in US Dollar terms. So we under-performed the  Australian market and outperformed international markets. The best performing investment (in total dollars not RoR) was the Colonial First State Geared Share Fund, which gained $25.8k, followed by Unisuper with $3.2k, and Medibank with $2.8k. I sold my Medibank holding during the month, but Moominmama is keeping hers. The worst performing investment was the Winton Global Alpha fund losing $3.2k. All asset classes apart from commodities gained this month with Australian and U.S. stocks leading the way.

As a result of all this, net worth rose $37k including housing equity ($US103k) to $1.470 million ($US1.128 million).

Wednesday, March 02, 2016

February 2016 Report

Yes, little Moomin arrived this month and we are now officially Moominpapa, Moominmama, and little Moomintroll. As a result, this turned out to be a fairly low spending month as much of the ante-natal spending came to a halt. Moomintroll is a very big baby (something like the 99th percentile) with a big head (he is a Moomin after all :)). As a result they needed to do a Caesarian operation to get him out of Moominmama. As she needs to recover, I've taken extra time off work (beyond the 2 weeks paternity leave we get officially) to help her.

Here are our monthly accounts (in AUD):


Spending was $5,191. The biggest single expenditure was $1,105 for annual car registration, which includes third party insurance.

We earned $13.8k in salary and other current payments. After taking into account the mortgage payment of $3,550, which shows up as a transfer to the housing account, we saved $5.1k on the current account. We made $3.5k of retirement contributions, and saved a net $1.3k in added housing equity. Net saving was, therefore, $9.9k across the board.

Stock markets fell moderately this month. The ASX 200 fell 1.76%, the MSCI World Index fell 0.63%, and the S&P 500 fell 0.13%. The Australian Dollar rose from $US0.7070 to $US0.7152. We lost 2.47% in Australian Dollar terms and 1.34% in US Dollar terms. So we under-performed both  Australian and international markets. The best performing investment was, unexpectedly, the Colonial First State Global Resources Fund, which gained $2,057, followed by the Winton Global Alpha fund gaining $1.5k. Commodities was the asset class with the best returns this month, followed by real estate, and then U.S. stocks. All other asset classes lost money.

As a result of all this, net worth fell $19k including housing equity (-$US2k) to $1.433 million ($US1.025 million).

Wednesday, February 03, 2016

January 2016 Report

Here are our monthly accounts (in AUD):


Spending was down but still quite high at $7,770. The biggest single expenditure was an $1,898 payment to the obstetrician.

We earned $15.0k in salary and other current payments. After taking into account the mortgage payment of $3,570, which shows up as a transfer to the housing account, we saved $3.7k on the current account. We made $3.6k of retirement contributions, and saved a net $1.3k in added housing equity. Net saving was, therefore, $8.6k across the board.

Stock markets fell sharply this month. The ASX 200 fell 5.48%, the MSCI World Index fell 6.01%, but the S&P 500 fell 4.96%. The Australian Dollar fell to $US0.7070 from $US0.7285. We lost 4.43% in Australian Dollar terms and 7.25% in US Dollar terms. So we outperformed the Australian market and underperformed international markets, which is a common theme recently. The best performing investment was the Winton Global Alpha fund gaining $3.4k. Medibank gained $2.5k. The only asset class with positive returns this month was, not surprisingly, commodities.

As a result of all this, net worth fell $45k including housing equity (-$US64k) to $1.452 million ($US1.027 million).

Tuesday, January 12, 2016

Annual Report 2015: Graphs

So here is how the last year looks on a graph in the context of everything since 1996:
The blue line is the sum of the other three. Medium term balance is liquid assets. We reduced these near the beginning of the year when we bought the house and the housing equity line takes off. Then mid-year I lowered the carrying value of our house in line with the local market. After buying the house, liquid assets have been pretty much flat as saving has been low and the financial markets performing weakly. The green line - retirement accounts - was also flat in this period. The net result is that we pretty much went sideways on the blue line too since early in the year.

This marks a clear break from the steep upward trajectory we've been on since late 2011. I got my current job in mid-2011 and then the financial markets performed quite well. At that point our spending wasn't that high yet.
This graph provides a slightly different view, breaking things down according to savings and profits. I don't break down housing equity into the two components as it's not worth it yet... You can see here that current savings (blue line) have been pretty anemic since buying the house, though retirement contributions continue on their merry way. Profits have been flat on both retirement and current accounts. In the long run we have done much better with retirement than with current accounts.

The next graph shows actual monthly non-retirement savings since 1996 and a 12 month moving average:


I have truncated the axis at -$15k but we dissaved $53k in January and $118k in February as we bought the house. As you can see, monthly savings peaked at an average of $10k per month in 2012-13. From March to December this year we only averaged $1,700 per month. I hope saving will be higher than that this year, but it's not going to return to its previous level. First, we are paying off our mortgage, which doesn't count as current saving and, second, Snork Maiden will be on maternity leave. She will get her regular salary till 8 weeks after the expected birth date. Later she will receive the minimum wage for 18 weeks and otherwise not receive anything. I think other baby expenses will be like a "rounding error" by comparison.

What about investment performance? This graph compares our "accumulation index" or "total return index" to the market indices since the depths of the financial crisis stock market crash in March 2009:

As you can see, our performance is very closely linked to the Australian stock market. For a few years we lagged behind the market, but more recently we have outperformed it and now have about the same gain as the ASX 200 since the GFC. In the meanwhile, international markets have performed more strongly, at least until the last few months.

Monday, January 11, 2016

2015 Accounts: US Dollar Edition

Here are the 2015 accounts in US Dollars. The main differences are:
  • Smaller numbers for earning and spending due to the difference in value of the two currencies.
  • Negative investment income of -$US 32k due to foreign exchange loss of -$US 98k.
  • As a result almost flat net worth for the year.

Sunday, January 10, 2016

2015 Annual Accounts

This is our annual account - the sum of each of the monthly accounts I've posted - in Australian Dollars. First a reminder about how these accounts are laid out: Current account is all non-retirement account and housing account income and spending. Then the other two are fairly self-explanatory.

We earned $197k after tax in salary, business related refunds, medical payment refunds, tax refunds etc. We earned (including unrealised capital gains) $37k on non-retirement account investments. $10k of the latter was just due to the fall in the Australian Dollar. The investment number is pre-tax. Total after tax income was $233k. We spent $151k but only $92k of that was "core spending". So, I always regard business expenses that are refunded as non-core, but also some one-off things. The biggest of these was stamp duty for buying our house of $27.8k and then $13.5k of gardening. So, that is 2/3 of the non-core expenditure. Then there were moving and settlement costs.

$7.5k of the investment income was tax credits. These increased our after tax "other income" but are also counted as part of the pre-tax investment income. So, they have to deducted to get things to add up tot he change in net worth. Then there was $1k of excess contributions I made to superannuation (not by choice) that had to be withdrawn... Finally, we transferred $194k in down-payment, mortgage payments, and some building work to the housing account. The change in current net worth, was therefore -$119k. Looking at just saving from non-investment income, we saved $148k.

The retirement account is a bit simpler. We made $41k in after tax contributions and the value rose by an estimated additional $67k in pre tax returns. $7k was the estimated tax on that and so the increase in net worth was $100k. Taxes are just estimated because all we get to see is the after tax returns.

Finally the housing account. We spent $19.5k on mostly mortgage interest. We saved about $4k in mortgage interest by keeping money in our offset account. Actually that $4k was part of our "current investment return". So we have to deduct the notional spending here to balance the books. I estimate our house is worth $10k more than we paid for it based on a recent sale in our neighbourhood. So that is an investment gain. We transferred the $194k into our housing account. So housing equity rose $181k with $171k of it being transfer of savings from our current account.

In total, net worth rose $163k, of which $63k was savings from retirement contributions and saving from current earnings. 

Tuesday, January 05, 2016

2015 Outcome and 2016 Forecast

Last year I forecast that net worth would optimistically reach $A1.65 million and pessimistically fall to $A1.15 million by the end of 2015. The US Dollar range was $US1.33 million to $US800k. The result for this year turned out at $A1.50 million (USD 1.09 million). We were in the upper part of the range for both currencies though we were flat in US Dollar terms.

The Australian stockmarket didn't perform that well again, the Australian Dollar fell to 73 US Cents and we spent an even higher amount including moving house and preparing for a baby. Therefore, the result was below the most optimistic projection. I'm actually surprised how well we did do given all that!

So, now is time to forecast for 2016. The optimistic projection is $A1.7 million or USD 1.2 million assuming the Australian Dollar only declines to 70 US Cents. This assumes that Snork Maiden doesn't return to work till 2017.

The most pessimistic scenario is that the stock market falls by 20%, the value of our house falls to $A700k, and the Australian Dollar falls to 60 US cents. In that case, I estimate our net worth would be $A1.25 million or USD 750k.



December 2015 Monthly Report

Here are our monthly accounts (in AUD):


We spent even more money than last month - $21k in total. And this doesn't include our mortgage or amounts I have accounted as investment in our property which totaled another $7.8k (see "transfer to housing". $13.5k of the spending was on gardening, which, fairly arbitrarily, I deemed didn't improve the value of our property and so was accounted for as spending. So, core, non-mortgage spending not counting this once-off number was $7.6k.

We earned $25.3k in salary and other current payments, which was high this month as it was a three paycheck month and I received a big business travel refund for travel I made several months ago. Because of the large transfer to the housing account we dissaved $3.7k on the current account. We made $4.2k of retirement contributions, and saved a net $5.7k in added housing equity. Net saving was, therefore, $6.2k across the board.

Stock markets were more volatile this month. The ASX 200 rose 2.73%, the MSCI World Index fell  1.76%, but the S&P 500 fell 1.58%. The Australian Dollar rose to $US0.7285 from $US0.7233. We gained 1.55% in Australian Dollar terms and 2.28% in US Dollar terms. So we underperformed the Australian market and outperformed international markets strongly. The best performing investment was the CFS Geared Share Fund, which gained $26.8k. Nothing else came close. Commodities did not do well with the Winton Global Alpha fund losing $1.2k.

As a result of all this, net worth rose $A24k including housing equity (+$US25k) to $1.498 million ($US1.092 million).

An annual report is coming soon.

Saturday, December 05, 2015

Pre-Tax (Concessionary) Superannuation Contributions

After thinking about making after-tax retirement contributions, I thought today - Heh, I'm not even making the maximum pre-tax contributions. I've been making about $A28k a year in pre-tax contributions. Actually, that is supposedly my employer's contribution. In the university sector in Australia, employers contribute 17% on top of the nominal salary to superannuation for continuing (=permanent) employees, as opposed to the minimum government requirement of 9.5%. The maximum pre-tax contributions allowed for over 50's currently is $A35k per year ($A30k for under 50s). So, I just submitted the form to add $100 a week to my contributions. I didn't totally max things out to allow for a year or two of growth in salary before having to submit another form.

By the way, the standard agreement in the higher education sector includes another 8.5% pre-tax contribution from the employee's salary. I already opted out of that, because it would have been over the concessionary limit already when I started in 2011, when the concession limit was $A25k a year. Actually, I already had to withdraw an excess contribution to superannuation last year, which was a hassle, before the contribution limit was raised.

I'm still thinking about post-tax contributions. If I do it, I think I will start small at say $A1000 per month. That is small compared to the limit of $A15k per month :)

Wednesday, December 02, 2015

Moominvalley November 2015 Report

Here are our monthly accounts (in AUD):

The headline news is that we spent a lot of money. Some of the biggest expenditures (everything over a thousand dollars):

Gardener - building new garden: $2781 - this is just a first payment.
Obstetrician: $1898 - first payment too - unclear about Medicare/health fund reimbursement at this point.
Ikea: $2705 - hopefully we are more or less done with that. Included a new mattress for the bed in our downstairs room ($700), outdoor furniture, baby furniture, a couple of pieces of indoor furniture etc.

The $14k spending figure doesn't include our mortgage or payment to a builder doing some of the garden related work. With those added we are at about $19k in spending. You can see that extra money in the accounts as "transfer to housing". I'm regarding the payments to the builder as investment in the house as he is adding new structures but treating the gardener as consumption as he is replacing the existing garden. Buying houses and having babies is expensive :)

Stock markets were fairly flat this month. The ASX 200 fell 0.68%, the MSCI World Index fell  0.78%, but the S&P 500 rose 0.30%. The Australian Dollar rose again from $US0.7133 to $US0.7233. We lost 1.62% in Australian Dollar terms and 0.22% in US Dollar terms. So we underperformed the Australian market and the US market, but outperformed the MSCI. The best performing asset class for us was commodities, gaining 3.25%. The worst was private equity, losing 2.91%. The best performing investment was the Winton Global Alpha fund, which gained $3,159. Cadence Capital (CDM.AX) was second best, gaining $2,324.

As a result of all this, net worth fell $A20k including housing equity (+$US4k) to $1.471 million ($US1.065 million). We dissaved $4.1k on the current account, saved $3.1k in retirement accounts, and saved $3.2k in our house. Net result was $418 of saving.

Tuesday, December 01, 2015

After Tax Super vs. Offset Account

At the moment, Australians can contribute up to $A180k per year to superannuation from after tax money on top of up to $A35k (if over 50) from pre-tax income. This seems like a crazy high limit and has no analogue in the US retirement system, for example. There is now a lot of talk about lifetime caps on super contributions. An easy way to do this would be to cut or eliminate this post-tax contribution limit. I had thought about making post-tax contributions starting in about 5 years time (when I would be about 55) and up to retirement. In the meantime, the plan was to build up our offset account and then pay down and redraw the mortgage. But now I am thinking that government might eliminate the post-tax option, I am wondering whether it would make sense to make these contributions sooner.

The gain from adding post-tax money to super is the tax-free earnings on the money after retiring. However, at least at the moment investment taxes are lower than regular income taxes and so we are talking about avoiding an 10% (after franking dividend tax in 38% bracket) to 23.5% (long-term capital gains tax in 45% bracket) tax starting 10 to 15 years in the future. Let's say the super investments make an 8% return, then the extra yield from avoiding tax by investing in super rather than non-super investments is about 1.3% per year. And this won't start to 10-15 years out and it is uncertain that the opportunity will go away and stop us doing that a few years later.

In the meantime the offset account is earning 4.55% tax free virtual interest with perfect certainty. A superannuation account would probably earn that after tax in the next 10-15 years, but there is a lot of uncertainty about that and the money is locked up for the next 9 years.

Is the answer to diversify and do some of both strategies?

Tuesday, November 10, 2015

Moom's Taxes: Part 2

I only underestimated the amount of extra taxes that I owe by $5. I don't know why I also wasn't charged an extra amount of tax for private health insurance. That part of the tax return is complicated to understand. Maybe I filled out Snork Maiden's return incorrectly?

Sunday, November 08, 2015

UBS are Recommending 34% Allocation to US Fixed Income - Really?

UBS recommending 34% allocation to US fixed income. I guess this might makes sense if they mean treasury bills (90 day maturity). Don't pay any interest (but not negative like some places in Europe) but US Dollar might still appreciate. Longer term US bonds seem risky if interest rates will eventually go up. I wouldn't rule out though us being in a new long-term zero risk free rate equilibrium. I suppose that this allocation was intended for US clients?

My Mom's money managed now fully by UBS (but she is near their minimum entry level net worth, not what they think of as wealthy) is mostly in fixed income now due to the court order we got. Actually, it looks like that there are no US government bonds or corporate bonds in her account at all, though they are all US Dollar bonds. Things like World Bank, Province of Ontario, EBRD, African Development Bank, Statoil, Shell, Swedish Export Credit Corp etc.

Friday, November 06, 2015

Snorkmaiden's taxes: Part 2

Back in July I computed Snork Maiden's taxes for the 2014-15 financial year. I estimated she owed $169 in extra tax. When I actually submitted her tax return more recently I had refined that to $147. But in fact the letter from the ATO today says she owes $292. Why? There is a $145 "Excess private health fund reduction or refund (rebate reduced) item" on the notice of assessment. I guess our family income turned out to be too high and we won't get as large a tax rebate on private health insurance?

Tuesday, November 03, 2015

Moomin Valley Report October 2015

This month stock markets rebounded. The ASX 200 rose 4.37%, the MSCI World Index rose 7.87%, and the S&P 500 rose 8.44%. The Australian Dollar rose for a change from $US0.702 to $US0.7133. We gained 5.3% in Australian Dollar terms and 7.00% in US Dollar terms. So we outperformed the Australian market and underperformed the international market again. The only asset class that lost money was commodities. Private equity gained 12.86%! The top individual performer was the CFS Geared Share Fund gaining $23k followed by our two employer superannuation funds. The two private equity funds IPE.AX, OCP.AX, were next. IPE announced a share buyback. OCP sold part of one of its investments for the carrying value. It is still trading a lot below the stated book value though.

Net worth rose $A69k including housing equity ($US65k) to $1.490 million ($US1.063 million). The monthly accounts (in AUD) follow:




Spending was a bit high. We spent $7.4k not including mortgage payments and $6.9k without business expenses. The garden redesign got started. Most of this I will treat as spending but a new additional fence and gate etc. I will treat as investment. There was just a $500 deposit for that this month. That increases the "transfer to housing".

We saved $2.4k on the current account, $3.2k in retirement accounts, and $1.9k in housing equity. We paid $1,757 in mortgage interest, saving $431 in interest due to cash in our offset account.



Thursday, October 29, 2015

Update on House Value

Another house in our development recently sold at auction. The price has just gone online. It sold for $A850k. The original sale price when new was $A735k. Our house originally sold for $A650k. Using the same percentage increase our house would be worth $A752k. We paid $A740k. But I have been valuing it at $A785k based on the valuation we got prior to buying. Not sure if I should lower the carrying value to $A750k?

Sunday, October 11, 2015

Moom's Taxes 2014-15 Edition







































I have now completed my tax return. Looks like I need to pay $590 in extra tax. My salary is flat on last year but my taxable income is up by 5%. Gross cash income is before tax income ignoring franking and other tax credits and adding in net undiscounted capital gains (not deleting losses from previous years). Dividends, franking credits, and foreign source income are all up steeply, but so are most forms of deductions. As a result tax is only up 4%. But because tax withholding is only up 1% this year I owe tax, whereas last year I got a refund.

Previous years:

2013-14
2012-13
2011-12
2010-11
2009-10
2008-9
2007-8

Wednesday, October 07, 2015

Moominvalley September 2015 Report

A volatile month, but in the end not as bad as last month. The ASX 200 fell 2.96%, the MSCI World Index fell 3.51%, and the S&P 500 fell 2.47%. The Australian Dollar fell more slowly from $US0.71 to $US0.702. We lost 1.7% in Australian Dollar terms and 2.81% in US Dollar terms. So this time we outperformed both the international and Australian markets. US stocks were our worst performing asset class and commodities the best with private equity and hedge funds also having positive returns. Winton Global Alpha Fund was the best individual performer in dollar terms, with good returns from Cadence Capital, Ocean Capital Partners, CFS Developing Companies, and Medibank. Platinum Capital, CFS Developing Companies, TIAA Real Estate,  and Cadence are all at all time highs in terms of profits.

Net worth fell $A9k including housing equity ($US18k) to $1.457 million ($US1.023 million). The monthly accounts (in AUD) follow:


Salary and retirement contributions were fairly normal. We spent $5.3k not including mortgage payments and $4.7k without business expenses. Again, a relatively low monthly spend. And that includes spending $929 on health insurance for Snork Maiden's mother who will be visiting us... Soon there will be new expenses including relandscaping our garden and lots of baby expenses...

So, we also saved quite a lot: $5.9k on the current account and $3.2k in retirement accounts, and $1.3k in housing equity. We paid $1,845 in mortgage interest, saving $412 in interest due to cash in our offset account.



Tuesday, September 01, 2015

Moominvalley Report August 2015

My main reaction when doing the accounts this month was: "Could have been worse!" Markets were down strongly, especially in Australia. The ASX 200 fell 7.79%, the MSCI World Index fell 6.81%, and the S&P 500 fell 6.03%. The Australian Dollar continued to fall from $US0.7331 to $US0.71. We lost 5.2% in Australian Dollar terms but 8.19% in US Dollar terms. So yet again we underperformed the international markets but outperformed the Australian market. All asset classes fell but the fall in small cap Australian shares was small and the CFS Developing Companies fund rose. Also at record high profits for us are Platinum Capital and TIAA Real Estate.

Net worth fell $A53k including housing equity ($US73k) to $1.465 million ($US1.041 million). The monthly accounts (in AUD) follow:


Salary and retirement contributions were fairly normal. We spent $5.4k not including mortgage payments. This is now a relatively low monthly spend. So, we also saved quite a lot: $5.3k on the current account and $3.2k in retirement accounts, and $1.3k in housing equity. We paid $1,868 in mortgage interest, saving $391 in interest due to cash in our offset account.

Saturday, August 08, 2015

Becoming Moominpapa

I'm in the process of metamorphosing into Moominpapa and Snork Maiden into Moominmama. If you were wondering what all the large medical expenses over the last year were that was IVF. We've now done a bunch of ultrasounds and genetic tests and everything seems to be OK and healthy with the developing baby and looks like it will be a baby Moomin and not a Snork Maiden. This is what things will hopefully look like here early next year:

Monday, August 03, 2015

Moominvalley July 2015 Report

A milestone this month as we went over $A 1.5 million net worth for the first time. $1.518 million to be precise ($US1.13 million).

Markets were up, especially in Australia. The ASX 200 rose 4.4%, the MSCI World Index rose 0.9%, and the S&P 500 rose 2.1%. The Australian Dollar fell steeply from $US0.7703 to $US0.7331. We gained 5.8% in Australian Dollar terms but only 0.7% in US Dollar terms. So we again underperformed the international markets but outperformed the Australian market. All asset classes rose except private equity. Large cap Australian shares did best. There was a total $71.5k investment gain.

Net worth rose $A85k including housing equity but only $US9k. The monthly accounts (in AUD) follow:


This was a three paycheck month and so salaries and refunds came to $21.9k. Retirement contributions were also higher than normal at $4.9k. We spent $5.8k not including mortgage payments and $5.1k not including business expenses. This is now a relatively low monthly spend. So, we also saved a lot compared to recent months - $11k on the current account and $2.9k in housing equity. We paid $1,842 in mortgage interest, saving $373 in interest due to cash in our offset account. Transfer to housing adds that nominal saving, which we count as an investment return, to the actual mortgage payment to balance the accounts.

Saturday, July 25, 2015

Snork Maiden's Taxes 2014-15 Edition

I've done the calculations for Snork Maiden's tax return for this tax year. The tax year runs from 1st July to 30th June in Australia. The figures ignore employer and employee contributions to superannuation (retirement account) which amount to a lot of extra income. Everything is in Australian Dollars of course.


Looks like she needs to pay extra tax :( Compared to last year the Medicare Levy has increased by 0.5%, which means an extra $450 of tax before anything else So, despite income being up only by 3% taxes are up by 5%. Salary is unchanged because the current Enterprise Agreement has expired and the union hasn't agreed a new deal with the employer. Investment income is up as are tax credits derived from investment income (by more than 50% in the latter case). Deductions are steeply down because there was no unreimbursed work related travel this year. Gifts and donations are up 1100%. Snork Maiden started donating $40 per month to Save the Children a month before the end of the last tax year.

The average tax rate on taxable income is 24.94%. Gross income before deductions and tax credits is not a lot higher than taxable income and so the tax rate on "gross cash income" is only slightly lower. The difference will be much bigger on my own income.

Here are the reports on Snork Maiden's taxes for all previous years:

2013-14
2012-13
2012-13
2011-12
2010-11
2009-10
2008-9
2007-8

Tuesday, July 21, 2015

Mid-Year Update

We are tracking close to the more optimistic projection I made at the beginning of the year. The adjusted optimistic forecast from here is $A1.639 million by the end of the year. So far the Australian stock market hasn't performed that well but the Australian Dollar fell more than forecast and so those two factors balance out. $US1.148 million is the adjusted optimistic forecast in US Dollars. Only down $US50k from the forecast at the beginning of the year.

At the weekend some friends helped us put up some pictures on the walls in the house. We have 8 pictures of African animals that Snork Maiden took * all lined up above the staircase well now. Getting them lined up straight was the issue that needed help. I'm going to call this part of the house "The African Gallery" now :)

* Seems like I never mentioned the African safari on this blog. Was in 2013.

Sunday, July 05, 2015

June 2015 Monthly Accounts

These are the preliminary accounts for June. The main thing that might change are tax credits, which are estimated at the moment. Markets were down, especially in Australia, and as a result investment income was a negative $63k (Australian Dollars) and as a result net worth declined $58k. Salaries came to $13.8k which is what they are in a two payday month with no reimbursements. Retirement contributions were also the normal $3.2k. We spent $11.3k not including mortgage payments and $7.7k not including business expenses. But due to the business expenses and mortgage payments there was negative saving on the current account, offset by positive saving on the retirement and housing accounts. Tax credits, mainly associated with the end of financial year managed fund distributions are estimated as $2,800. These reduce tax payable on a 1:1 basis. We paid $1945 in mortgage interest, saving $350 in interest due to cash in our offset account. Transfer to housing adds that nominal saving, which we count as an investment return, to the actual mortgage payment to balance the accounts.

Thursday, July 02, 2015

Update (from England)

It is always a slow process to get the accounts together at the end of June as it is the end of the financial year in Australia and data on tax credits etc. won't be available till mid-July. I estimate that we lost more than $A40k in net worth for the month and got -4.0% rate of return in AUD terms. The ASX 200 index was down 5.3% though. OTOH the MSCI lost 2.31% and the S&P 500 1.94%. Our estimated loss in US Dollar terms was 3.5%. So, again, we beat the Australian index but lagged the international stock market indices.

It looks like we again had high spending - $A7.6k not including large business expenses. And that doesn't include our mortgage repayments. We did buy a washing machine and dryer. That cost $A3030 in total. So the rest of our spending came to $4.6k. $943 was property tax ($313 per quarter) and body corporate fee ($630 per quarter). Health insurance is $308 (per month) etc.

I'm in England on business. Working on putting together an international consortium to bid for research funding. Round trip of 6 days away. I was in the Middle East for 2 weeks in late May early June - going to conferences and visiting family. My doctor was surprised when I said I was visiting family in the Middle East :) This second trip only came up while I was in Turkey (one of the three countries I was in). Yesterday was the hottest day of the year here in England. In London it hit almost 37C. A bit cooler where I was. Though we were meeting in a room which had air conditioning installed, the air conditioning was broken. So, it was hot work. We had lunch yesterday in the hall in this picture. Our meeting on Tuesday was in the building on the right...

Saturday, June 06, 2015

Moomnvalley May 2015 Report

The Australian Dollar declined from 78.66 US cents to 76.59 US cents. Stock markets were flat to positive. The MSCI World Index fell 0.05%, the S&P 500 rose 1.29%, and the ASX200 rose 0.40%. In Australian Dollar terms we ganed 1.69% and in US Dollar terms we lost 1.00%. So we underperformed the international markets but outperformed the Australian market again. All asset classes rose with private equity doing best.

Net worth rose $27k to $1.294 million not counting housing equity and fell $US6k to $US0.992 million. Including housing equity, net worth rose $28k to $1.495 million - a new high ($US1.145 million). The monthly accounts (in AUD) follow:


Current non-investment income (salary etc.) was $20.2k due to business and medical expense refunds and retirement contributions were $3.2k.  Total investment returns were $21.2k. Spending on the current account was $13.3k. Removing a business expenditure and the cleaning of our old apartment it was $12.1k. We bought a new bed and again had major medical expenses. However, this number doesn't include mortgage interest, which was $2.1k of actual spending, for a total monthly spend of $14.2k (see last column core expenditure). If we hadn't reduced our mortgage interest using our offset account we would have paid $2.5k in mortgage interest. This gap will continue to get bigger. This month we raised cash as a share of gross assets to 5.67% from 5.28% in April.

We (notionally - the actual repayment was smaller by the amount of the gap in mortgage interest...) repaid $3.5k of the mortgage resulting in net saving on the housing account of $1,046. So, we saved a total of $7.6k.

Saturday, May 02, 2015

Moominvalley April 2015 Report

The Australian Dollar rose for a change from 76.24 US cents to 78.66 US cents, which means that this month we did better in US Dollar terms than in Australian Dollar terms. World stock market indices gained but the Australian market fell. The MSCI World Index rose 2.95%, the S&P 500 0.96%, and the ASX200 fell 1.70%. In Australian Dollar terms we lost 1.10% and in US Dollar terms we gained 2.04%. So we underperformed the international markets but outperformed the Australian market (again).

Commodities did very poorly this month - down 3.67%. Partly because of dividend timing private equity was the best performer in our portfolio.

Net worth fell $9k to $1.269 million not counting housing equity and rose $US24k to $US0.998 million. Including housing equity net worth fell $8k to $1.466 million ($US1.153 million). The monthly accounts (in AUD) follow:


Current non-investment income (salary etc.) was $13.7k and retirement contributions were $3.2k.  Total investment returns were -$14.0k. Spending on the current account fell to $8.6k. Removing some business expenditures that will be refunded it was $4.2k. However, this number doesn't include mortgage interest, which was $2.3k of actual spending, for a total monthly spend of $6.5k (see last column core expenditure). I expect that this will be the typical monthly expenditure when we don't make any large extra expenses... If we hadn't reduced our mortgage interest using our offset account we would have paid $2.4k in mortgage interest. This gap will get much bigger next month. I am recording the saved mortgage interest as part of our investment income. But as this isn't actual cash we receive it has to be offset somewhere else in the accounts. We do this by recording housing expenditure - i.e. mostly mortgage interest - to include the saved interest. Core housing expenditure is what we actually spent on mortgage interest.

We repaid $3.3k of the mortgage resulting in net saving on the housing account of $841. So, we saved a total of $5.9k.

Sunday, April 19, 2015

Snapshot at an Inflection Point

Now the house purchase is complete * and we are starting a new financial restructuring plan I thought of drawing up a balance sheet as a snapshot of this "inflection point". It's in a different format to anything I've done before as it is based on the various accounts things are in and how flexible they are rather than asset classes and beta and other investment theory things I've considered in the past. This is all in Australian Dollars:


Long term assets are retirement accounts, checking, saving, cash, and credit cards are short term and everything else is medium term as it can be restructured/sold/closed etc. but probably won't be done fast. So, the goal now is to increase the size of the offset account until it is the size of the mortgage. In the meantime adding a bit to some investments  - we still have $2000 of automatic savings a month outside of retirement accounts for example - and increasing the margin loan. Then one day in a few years there will be a flip - pay off most of the mortgage, redraw the mortgage, then pay-off the margin loan and make investments.

BTW, if you're wondering why we have a thousand dollars in Australian Dollars cash, a big chunk of that is a travel money card.

 * As you can see from the balance sheet we still didn't get the deposit on our apartment back, so everything is not yet settled.

Saturday, April 18, 2015

Redrawing Mortgage for Investment Purposes

Following up finally on comments that bigchrisb made about paying off the mortgage faster and then redrawing the money to investment in shares/refinance margin loans. This appears to be the ATO ruling on this. So, there is no problem to do this, but I have been thinking about the practicalities. It seems to me that if you pay off say $50k of the mortgage and then withdraw the money for investment, then the next $50k you pay off just repays the redraw and so your tax deductible loan gets no bigger. So, it only makes sense then to do the redraw after paying off as much of the mortgage as you want in the long term before doing the investment loan. So, in the meantime I think we will continue to accumulate money in the offset account, which gives more flexibility. If you are wondering why we should pile up cash while having a margin loan, actually the effective untaxed interest on the offset account is higher than the after tax rate on the margin loan. So, it makes sense to borrow more on the margin loan while piling money up in the offset. I think I will stop automatic re-investments of distributions and dividends where there is no discount for re-investment to speed the process a little. The only one I think is with my Colonial First State funds. When we are nearer an amount I think is reasonable then it would make sense to actually sell investments and add that money to the pile. But that should be a final step I think. I do have a lot of tax losses so that the first $60k of capital gains is tax free. This will be a project over several years. Of course, maybe in the end we would take the cash pile and use it as a downpayment on an investment property instead :) So, lots of things are possible.

P.S.
For U.S. readers who might wonder about why go through this complicated plan.... in Australia, mortgage interest is not tax deductible for owner occupiers. But investment interest is, even if it exceeds the income on the investment so that you make a net loss. The latter is known as "negative gearing".

P.P.S.
From March on, I'll include the implicit saved mortgage interest as part of investment return. That means that it also needs to be included in the "transfer from current account to housing" and included in housing expenses in the account in order to balance all the books. I'll also include the "core housing expenditure" in the accounts which will be the actual interest paid to the bank.

Thursday, April 02, 2015

Moominvalley Monthly Report March 2015

The Australian Dollar resumed its fall from 78.09 US cents to 76.24 US cents. World stock markets fell. The MSCI World Index fell 1.49%, the S&P 500 1.58%, and the ASX200 only 0.06%. In Australian Dollar terms we gained 0.50% and in US Dollar terms lost 1.88%. So we underperformed both the international markets but outperformed the Australian market. Actually because some stocks went ex-dividend this month but pay the dividend next month we did a bit better than this and outperformed all markets. But I can't be bothered to do the fussy accounting needed to account for dividends not yet paid.

Commodities and hedge funds were the best performing asset classes in our portfolio with Platinum Capital the best individual fund and Winton Global Alpha Fund second in dollar terms. Medibank Private was the worst individual performer losing $1690 in total.

However net worth rose $5k to $1.277 million not counting housing equity and fell $US20k to $US0.973 million. Including housing equity net worth rose $6k to $1.473 million ($US1.123 million). The monthly accounts (in AUD) follow:


Current non-investment income (salary etc.) was $13.6k and retirement contributions were $3.2k.  Total investment returns were $6.4k. Spending on the current account remained very elevated at $13.9k, which house painting and moving among other expenditures. Taking out the cost of moving (but not painting) and some business expenses that should be refunded it was a bit lower at $11.8k. The $2189 spending in the housing account is mortgage interest, while the $3,179 is our mortgage payments - so we paid back net $990 of our loan.

Sunday, March 08, 2015

How Much Could We Save by Renting Our House out for a Year?

Bigchrisb commented on my recent post that we could save money by renting our new house out rather than going to live in it immediately. This is because the stamp duty paid to buy new properties is in this territory immediately tax deductible for investors. In Australia no costs of owner occupiers are tax deductible. So, I've calculated roughly what I think the financial gain from renting our house out for a year would be and come up with $18k:

The main deductions are the stamp duty, mortgage interest and depreciation. The first two we are going to pay ourselves anyway and so aren't actually additional costs while the latter is probably not a real cost, or we are going to suffer it anyway. Next there are property management fees, which might help in getting a tenant fast etc. and the difference between land tax on investors and rates on owner occupiers. There are real extra costs.

Assuming we could rent the house for one year at $650 a week we would earn $33800 in rent. So, the net income is -$34k and the tax saved at 40% is $13.5k. On the other hand we make $33.8k we would otherwise not have, but pay $25.8k in rent on our existing apartment that we would not have to pay if we lived in the new house as well as $3.7k in extra actual costs. So the net financial gain is $17.8k.

Let me know if you think I got something major wrong.

So, if we don't do this, economists would say that our revealed preference shows that the utility of living in our new house a year earlier and avoiding dealing with the hassles of being a landlord are worth at least $17.8k to us. For me, $17.8k is about 1.2% of net worth and so it's not enough to make a difference. It's not a lot more than our after tax salaries for one month. I asked Snork Maiden how big the number would have to be before she would be willing to do it and she said $50k. I know that if it was $100k I probably would do it :)

Saturday, March 07, 2015

Housing Equity and Other Savings


I've updated my "savings components" chart to include housing equity. You can see the payment from current savings (blue) to the downpayment on the house (red). Also notable is that retirement profits (green) are approaching retirement contributions (pink). Non-retirement savings have performed much worse and profits (brown line) are nowhere near the money saved from salary etc (blue line). However, they are at least above the pre-GFC peak now.

Tuesday, March 03, 2015

Moominvalley Monthly Report: February 2015

The Australian Dollar was finally stable this month rising half a cent to 78.09 US cents. World stock markets rose strongly. The MSCI World Index rose 5.61%, the S&P 500 5.75%, and the ASX200 6.89%. In Australian Dollar terms we gained 4.92% and in US Dollar terms gained 5.57%. So we underperformed both the Australian and international markets but the latter only slightly. Still in absolute dollar terms this month had the highest investment income on record at $65k ($US57k), 55% more than any previous month.

All asset classes in our portfolio apart from hedge funds and private equity gained with small cap Australian stocks being the best performer (7.59%). Colonial First State Geared Share Fund gained the most dollars ($37.7k) followed by the Unisuper ($6.5k) and PSSAP ($3.9k) superannuation funds. I can't be bothered to work out rates of return for individual funds :)

However net worth fell $48k to $1.272 million not counting housing equity and fell $US31k to $US0.994 million. This was a result of the $111k second installment of our house downpayment. Including housing equity net worth rose to $1.468 million ($US1.147 million). The monthly accounts (in AUD) follow:




Current non-investment income (salary etc.) was $14.3k and retirement contributions were $3.3k.  Total investment returns of $108k also include the value of the gain in our house's value. As our house was valued at $785k and we only paid $740k I have credited a total gain of $45k, most of it occurring this month.

Spending on the current account was $11.9k, which include $2.8k in settlement costs and spending on our trip to New Zealand. We also paid car registration this month, which is an $1100 cost... The $693 spending in the housing account is additional costs, which the lender added to our mortgage loan. We have so far made two mortgage payments of $1589 each and so the total transfer to housing was $114k... So far there have been no interest payments on the mortgage. They would come under housing spending when we do make them. The house is currently being painted and we are booking the mover, arranging insurance etc.

Monday, March 02, 2015

Guardianship

My mother suffers from dementia. Up till recently my brother had power of attorney to make financial decisions for her, but financial providers now wanted him to have guardianship. So he is now the official guardian but the guardianship office where he and my mother live says that her investment portfolio is too risky. They want us to not have more than 20% in equities, get rid of all alternative investments and have the rest in cash and AAA bonds. It is not as if my brother and I decided on the current allocation. It's not a lot different to how it was when my mother could make her own decisions. The problem is that cash earns almost nothing anywhere and short term bonds less than inflation. Long-term bonds have the risk that their value will fall when one day central banks raise interest rates again.

We have tried to resist this and the guardianship office people met with my brother and his lawyer but the only concession they made was to give us a year to sort it out. In the meantime we also discovered (I read about this in an article in the New York Times) that the inheritance tax free threshold in the US for foreign estates was only $60k. That means that around 40% of the money in the US based separately managed accounts in my mother's name would be taxed away after she died - the accounts had minimal if any profit - so it would be taxing savings rather than earnings. So, we closed those accounts avoiding US inheritance tax and reducing the equity share of the portfolio to about 20%. Anyway, this is a warning to get good arrangements in place while you are still capable of making your own decisions rather than having a court imposed solution.

I need to think also about how to avoid US inheritance tax. I only have about $60k of direct US investments in stocks and mutual funds. But I also have another $70k in a 403b retirement account (TIAA-CREF). So, if I suddenly died there would be about $30k in inheritance tax that Snork Maiden would have to pay (no spouse allowance for foreigners...).  There are various options including trying to roll my 403b into an Australian super fund now or setting up an Australian self-managed super fund (SMSF) and transferring the US individual investments into it. My thinking is that this would then be like having units in an Australia based managed fund. Would need to get proper advice on that first. Of course, it's not worth setting up an SMSF for just USD 60k in investments - that would be just one of the holdings of the SMSF. So, watch out if you have individual stocks in the US and aren't a US citizen.

Wednesday, February 25, 2015

GMOM vs. GTAA

A few months ago Cambria Investment Management stopped advising the GTAA ETF and launched their own in house GMOM ETF to implement their their global tactical asset allocation strategy. How well has the new ETF performed? So far, so good:


GMOM has risen by about 2% since being launched and GTAA has fallen by about 1%. GTAA had had a fairly disappointing performance up till then. I was an investor in GTAA and switched to GMOM (I have 1000 shares). So, that was a good move so far.

Wednesday, February 04, 2015

ASX at Post-GFC High

Broke out of the trading range of the last year and a half. I had been thinking to rebalance away from large cap Australian stocks at the beginning of the week as US indices were looking like they could be topping out. But various evidence including the behaviour of the DAX index in Germany - which had recently broken out - made me eventually not do it.

Tuesday, February 03, 2015

Moominvalley Monthly Report: January 2015

The Australian Dollar fell by another 4.1 US cents this month to 77.61 US cents. The MSCI World Index fell 1.54% and the S&P 500 3.00%, but the ASX200 rose 3.28%. In Australian Dollar terms we gained 2.99% and in US Dollar terms lost 2.18%. So we underperformed both the Australian and international markets. All asset classes in our portfolio apart from small cap Australian stocks gained with commodities being the best performer. Colonial First State Geared Share Fund gained the most dollars ($14.5k) followed by the PSSAP ($5.6k) and Unisuper ($2.8k) superannuation funds and then the Winton Global Alpha fund ($2k). I can't be bothered to work out rates of return for individual funds :)

But net worth fell $A13k to $1.321 million not counting housing equity and fell $US65k to $US1.025 million. Including housing equity net worth rose to $A1.360 million but still fell in US Dollars to $1.055 million. The monthly accounts (in AUD) follow:


This month's accounts get more complex as we introduce the changes in housing equity and their implications for current and retirement accounts. And this is the much simplified approach. I decided to give up on a full economic accounting.

Current non-investment income (salary etc.) was $16.5k and retirement contributions were $3.2k.  Investment returns were $A42k in total.

Spending was at a record high of $32.5k because we paid $A27.8k in stamp duty tax to the government, which I decided to count as consumption spending. Income tax us treated as negative income in my accounting system but GST is an expenditure. So, logically stamp duty should be too.  Without that we only spent $A4.7k, which is low.

Then there was a $A37k transfer to the housing acccounting representing our 5% deposit with the seller's agent. This means we dissaved $53k from current non-investment income but made $37k in housing saving for a net dissaving (including retirement accounts) of $A13k. Next month will have the second and much larger transfer to housing of the 15% second installment in the downpayment of $A111k.

I just went to do a final inspection on the house. Settlement should be tomorrow.

Saturday, January 31, 2015

Continuing to Recover from the Financial Crisis

This month profits on non-retirement accounts finally exceed the previous peak in June 2007 (in AUD terms at least). Of course, adjusted for inflation that is still a big loss, hence the title of this post. In retirement accounts the pre-crisis peak was $A108k in August 2007. This was exceeded for the first time in February 2013 and we now stand at over a quarter million dollars in cumulative profit this month. The retirement account numbers are post-tax. Cumulative profits on non-retirement accounts are only just over $A80k.

Thursday, January 22, 2015

This is What Buying a House Looks LIke


Each time we tried to buy a house at auction we moved the necessary deposit money into our checking account from this account. The three attempts should be pretty clear on the chart - one in early 2013 and two in late 2014. Then finally we are actually buying a house, but not at auction. You can see the initial 10% deposit money coming out of the account (though the seller actually agreed to 5%) and then the rest of the 20% downpayment and the stamp duty tax - we have to pay a 3.7% tax to the state government to buy a house... The latter really slows people down from buying and selling houses and encourages people to extend, improve, or knock down and rebuild their existing house.

Tuesday, January 20, 2015

Signed Mortgage

Today we signed all the mortgage documentation at the bank to borrow $A592k....

Friday, January 16, 2015

Paid Deposit

I delivered the 5% deposit check for the house to the lawyer this morning and she expects the deal will be locked in today or Monday. Then we sign the mortgage loan documents at the bank and the countdown to "settlement" starts. I had been planning to do a proper economic accounting for the house, but it is getting very complicated and I think I might take a really simple option instead. This would treat principal payments like today's deposit and the capital component of mortgage payments as saving and everything else as just consumption spending. And I won't try to compute a rate of return for this asset. Any gain in value above the amount saved into the asset will be a gain in net worth but won't be included in reports on our investment performance.

Monday, January 05, 2015

Super Funds Make 7.5% in 2014

Says this article in the Australian. We made 12.5% on our retirement accounts this year in Australian Dollar terms. Overall return on all assets was 9.2% against a 4.01% gain in the ASX 200. Diversification away from Australian shares helped this year. OTOH the MSCI gained 4.71% in USD terms, while we lost 0.11% in USD terms overall.

Moomin Valley Annual Report 2014

The accounts for this annual report follow the same format as those in my monthly reports. Here are the accounts in Australian Dollars:

I've also added the change from last year. Salary and similar non-investment income was up 9% and spending was up 45% but investment income, saving, and, therefore, change in net worth are all down on last year. Because the US Dollar rose very strongly this year, the picture is worse in USD terms:

Investment income was negative because foreign exchange losses totalled $US93k, while core investment income was $87k.

Spending was by far at a record level. I don't expect this to be a permanent high level in the future, but definitely the trend is up.

2014 Outcome and 2015 Forecast

Last year I forecast that net worth would optimistically reach $A1.4 million and pessimistically hit $A1 million by the end of 2014. The US Dollar range was $US1.19 million to $US0.75 million. The result for this year turned out at $A1.33 million (USD 1.09 million). The Australian stockmarket didn't perform that well, the Australian Dollar fell to 81 US Cents and we spent a record amount. Therefore, the result was below the most optimistic projection.

So, now is time to forecast for 2015. Buying a house complicates things  even more. The optimistic projection is $A1.65 million or USD 1.33 million assuming the Australian Dollar only declines to 80 US Cents. The most pessimistic scenario is that the Australian Dollar falls to 70 US Cents, the stock market falls by 20%, and the value of our house falls to $A700k. In that case, we would have $A1.15 million or USD 800k.



Moominvalley Monthly Report: December 2014

The Australian Dollar fell by another 3.5 US cents this month 81.71 US cents. The MSCI World Index fell 1.89% and the S&P 500 0.25%, but the ASX200 rose 0.51%. In Australian Dollar terms we gained 2.63% and in US Dollar terms lost 1.67%. So this was a rare month where we outperformed both the Australian and international markets. All asset classes in our portfolio apart from hedge funds gained with private equity doing best. Medibank Private was again a good performer.

As a result, net worth rose $A44k to $1.330 million (new high) and fell $US9k to $US1.087 million. The monthly accounts (in AUD) follow:


Current non-investment income (salary etc.) was very high at $27.5k as were retirement contributions at $4.9k. This was a three paycheck month. Also we got some big medical and work-related reimbursements. Spending was extremely high at $19.5k due to medical related expenses. Still, that means that we still managed to save $8.0k from current non-investment income.

I'll do an annual report next.

Saturday, December 20, 2014

Projected Net Worth in February 2015

If everything goes to plan this is roughly what our balance sheet would look like, using NetWorthIQ's format, by the end of February (in US Dollars):

Friday, December 19, 2014

Made an Offer on a House

After three years of looking for a house and participation in three auctions, I finally made an offer on a house, not through the auction process (This house was auctioned but didn't sell at auction). I think all our friends and family thought we would never buy... The price agreed on is $A740k ($US605k). It's part of a townhouse complex but is a freestanding house and has a "reserve" on two sides and a neigboring house on only one side. It has great views. It's a bit further from the city center than we would really like and less land area than we would like - only a very small garden area. but houses in this condition and size, with more land, nearer the center, and without intrusive electric power poles, which Snork Maiden doesn't like, are very expensive or maybe one a year comes along at a reasonable price range which we could bid on at an auction.



Now the legal/financial wheels begin to turn.

Monday, December 08, 2014

Murray Report on the Australian Financial System and Superannuation

The findings of the Murray review of the Australian financial system have been released. I am most interested in their recommendations for superannuation (retirement accounts). Of course, there is no way to know yet what recommendations the government (or future governments) will take on board. This just adds to the uncertainty surrounding super. I had been thinking that now I am 50 years old, as soon as we buy a house I would start making after tax ("nonconcessionary") contributions to super. This is because once you retire there is no tax on superannuation earnings and it is only 10 years till I am 60 and could withdraw money. Though pre-tax contributions ("concessionary" - actually they are taxed at 15% instead of your marginal rate) are limited to $35k per year, you can contribute up to $150k per year after tax. But if they actually withdraw the advantageous tax status of super and worse still if they end up forcing people to take an annuity instead of being able to access their money as they like then I wouldn't want to put any extra money in super at all. The review recommends making annuities a default option, which people will have to opt out of, but I can imagine it becoming compulsory. So, for now, even when we have bought a house I wouldn't plan on adding any extra non-concessionary contributions to super. And yes I sold Qantas too soon :(

Tuesday, December 02, 2014

Moomin Valley November 2014 Report

The Australian Dollar fell by more than two US cents this month from 87.89 to 85.23 US cents. The MSCI World Index rose 1.72%, the S&P 500 rose 2.69%, but the ASX200 fell 3.25%. In Australian Dollar terms we lost 0.46% and in US Dollar terms 3.47%. So we strongly outperformed the Australian market and strongly underperformed the global markets. Australian stocks and private equity performed very badly with the exception of Qantas and Medibank. Both Snork Maiden and I bought shares in the Medibank float - we should have about 7000 shares between us. On Monday, after the close of the month, I sold out of Qantas. It's been a rollercoaster ride. A price of above $2 seemed good for taking profits. Foreign stocks and the Winton Global Alpha Fund both did well.

As a result, net worth rose $A5k to $1.286 million (new high) and fell $US30k to $US1.096 million. The monthly accounts (in AUD) follow:


Current non-investment income (salary etc.) was a little above normal at $14.6k and retirement contributions were $3.2k as normal. Spending was $8.1k which is high but a lot less than last month! Still, that means that we managed to save $6.3k from current non-investment income. A big expense was a hotel bill for where I was staying in Europe on a business trip which should get refunded. On the other hand, because I accidentally paid this month's rent early, we didn't have to pay any rent this month and these two items just about cancelled each other out. So, the adjusted "core expenditure" is about the same as unadjusted expenditure. We spent some money on traveling in Europe and on the dentist (root canal) and that about explains the high spending this month it seems.

Monday, December 01, 2014

Half a Century





Today is my fiftieth birthday. It feels like quite a milestone. This morning I was sitting in a presentation with a colleague from a unit I used to work in who when I asked him how things are going said: "This is my final year, I'm retiring"... so after discussing that for a bit I told him it was my 50th birthday today. He said he was working too hard to celebrate back in 2000. It's probably the halfway point in my adult life, though you never know how long you are going to live, of course, we can just rely on life expectancies and how long our parents lived.

Careerwise, I think I need to be a bit less like this guy - "my strategic plan is to say yes to everything" and more like this guy. Two of the bloggers I follow. I find it hard to say no, though I am doing it more and more. Early in your career I do think you want to say yes a lot, but then you need to start to get more selective or you'll never get anything good done. You need to decide what to invest time in. I've been fairly successful. Three years ago I was appointed full professor and I am a reasonably well known researcher in some circles. I'm happy with some of my research, but I still think I could do much better work.

I got my PhD at age 29, but in a lot of other ways I've been a late developer. Since my fortieth birthday I achieved one major typical life goal - getting married (six years ago now) but at 50 I still don't have children, have never owned a house etc. I guess these goals were never that important to me or I actually was opposed to them. If you follow the blog, you'll know we are still pursuing those two goals. We probably have achieved the goal of financial security, though it could still all unwind if things go really wrong. I'm definitely not a risk averse person. I have come quite a way though from the crisis point in 2008. I made the right decision to refocus on my academic career.

Tuesday, November 04, 2014

Moominvalley October 2014 Report

The Australian Dollar rose slightly this month from 87.35 to 87.89 US cents. The MSCI World Index rose 0.3%, the S&P 500 rose 2.44%, and the ASX200 rose 4.43%. In Australian Dollar terms we gained 2.02% and in US Dollar terms 2.65%. So we slightly underperformed the Australian market and gained against the global markets. Most asset classes gained with hedge funds, private equity, and Australian small cap stocks falling.

As a result, net worth rose $A26k to $1.281 million (new high) or $US30k to $US1.126 million. The monthly accounts (in AUD) follow:


Current non-investment income (salary etc.) was above normal at $20.5k. This was due to tax refunds and a very large Medicare benefit.* Retirement contributions were $3.2k as normal. Spending was $19.4k which I think is a record. We spent $12.7k on health care - for an IVF cycle. It turns out it didn't work, so maybe we will be spending this again in a couple of months.

Still we managed to save $717 from current non-investment income. We gained $25k on investments.

* Australia has a hybrid public health care, private insurance, and user pays health system. At least for out-patient services we typically get the government contribution as a cash payment to our bank account.

Saturday, October 11, 2014

Didn't Buy


We participated at another auction today and again ended up not buying. Someone bid $850k to open the bidding but then dropped out after that. There were three serious bidders. Most of the time it was just me and a guy whose partner had told the agent at the first showing that if someone made a bid before the auction he should let her know. I went as high as $1,017,500. The other guy bid $1.02 million and then suddenly a third guy behind us jumped in with $1.025 million. The next bid was $1.03 million and then the third guy said $1.04 million and that was the final price. The valuation we got was $950k.

Wednesday, October 01, 2014

Moominvalley September 2014 Report

The Australian Dollar fell sharply this month from 93.43 to 87.35  US cents. The MSCI World Index fell 3.20%, the S&P 500 fell 1.40%, and the ASX200 fell 5.38%. In Australian Dollar terms we lost 1.97%  and in US Dollar terms 8.38%. So we beat the Australian market but lost badly against the global markets. All asset classes apart from hedge funds lost money with private equity down the worst (4.06%) closely followed by Australian large cap (3.87%) and Australian small cap stocks (3.41%).

As a result, net worth fell $A12k to $1.254 million or $US88k to $US1.095 million. I first hit $US88k in net worth in December 1999. Now we can lose that in a month... Our largest ever monthly decline in USD terms was in October 2008 at $90k. This is the second largest in dollar terms. The monthly accounts (in AUD) follow:



Current non-investment income (salary etc.) was about normal at $13.8k. Retirement contributions were $3.2k. Spending was $5.5k which is about average. We managed as a result to save $8k from current non-investment income. We lost $25k on investments.We got $1k in tax credits from non-retirement investments for the month. That's a thousand dollars less tax to pay in the next tax return.

Saturday, September 27, 2014

Moom's Taxes 2013-14 Edition







































I have now completed my own tax return - this goes really fast when you have a good system in place. Looks like I should also get a refund. My salary is only up 3% on last year and my taxable income by 6% but my real after tax cash income (counting realised capital gains and losses in the year they happen) is up 18%. Dividends, franking credits etc. are all up steeply too.

Previous years:

2012-13
2011-12
2010-11
2009-10
2008-9
2007-8

Snork Maiden's Taxes 2013-14 Edition

So, I just finished doing Snork Maiden's tax return for this tax year:
The tax year runs from 1st July to 30th June in Australia. The good news is that she should get a tax refund this year. This is because we now got private health insurance. Income is again up by about 10%. Investment income is up by a lot more than salary as are tax credits derived from investment income. The figures ignore employer and employee contributions to superannuation (retirement account) which amount to a lot of extra income.

Here are the reports on Snork Maiden's taxes for all previous years:

2012-13
2011-12
2010-11
2009-10
2008-9
2007-8