The Australian Reports on Superannuation Fund Performance for the 2024 Calendar Year

The Australian reports on the best performing super funds for 2024. They focus on lifecycle, balanced, and sustainable options. I am sure there is some retail super option invested in international shares that did better than these. How did we do? I compute our SMSF returns pre-tax, while super funds report post-tax results. But anyway, our SMSF gained 34.1%! Estimated pre-tax numbers for Unisuper and PSS(AP) balanced options were 14.3% and 13.4%, respectively.

Annual Report 2024

We are still waiting for the Aura venture funds to report, but I am guessing their values will be unchanged. So, now we can compute reasonably accurate annual accounts. All $ signs in this report indicate Australian Dollars. I'll do a separate report on individual investments. I do a report breaking down spending after the end of the financial year. I'll probably do another report on our SMSF performance then.

Overview 

Investment returns were positive and net worth again increased. We did a lot better than in 2023. This was a direct result of my dis-satisfaction with the 2023 result and my determination to do better. We came in way ahead of the best case net worth projection I made in the 2023 report of $6.7 million with an end of year total of $7.4 million. We took a vacation in Maroochydore, Queensland in July and in December we travelled overseas for the first time since before the pandemic to China and Thailand. I did some short business trips to Sydney during the year as well. My 60th birthday was in December and I started a transition to retirement pension in that month.

Investment Return

In Australian Dollar terms we gained 23.1% for the year while in USD terms we gained 12.1%. The big gap is because the Australian Dollar fell. The MSCI gained 18.0% and the S&P 500 25.0% in USD terms while the ASX 200 gained 13.2% in AUD terms. The HFRI hedge fund index gained 9.6% in USD terms. Our target portfolio gained 19.2% in AUD terms. The new Vanguard 60/40 AUD benchmark only returned 12.4%. So, we under-performed the US Dollar stock indices but outperformed the other benchmarks. 

This chart compares our portfolio to the benchmarks in Australian Dollar terms over the year:

 

I can be happy with this. Beating US tech stocks is hard! The following chart shows monthly returns in Australian Dollar terms:

 

This shows that our out-performance mainly came towards the end of the year. We beat the target portfolio in seven of the twelve months and the 60/40 portfolio in eight of the months.

 

Here are our annualized returns over various standard periods:

 

There is a big improvement over last year. We beat the ASX 200, HFRI, the target portfolio, and the 60/40 portfolio over the last 5 years. We also beat HFRI over the longer time horizons and are close to the target return over 10 years. But we performed much worse than the US stock indices over all time horizons and the ASX 200 and the target portfolio over the 20 year time horizon. The positive news is that our performance is better in the last 10 years than in the previous 10 years. Though not shown here, we also match the target performance over the last 15 years since the GFC. As a result, I have begun to use the returns of the target portfolio over 20 years to project our future returns. I lost big in the GFC due to using too much leverage. I now use only 10-15% leverage and much of that is our mortgage.

Here are the investment returns and contributions of each asset class in 2024 in currency neutral and unlevered terms:

 

The contributions to return from each asset class sum to the total portfolio return. The portfolio shares are at the beginning of the year. Rest of the world stocks did best, because of the performance of Defi Technologies, followed by futures, which includes bitcoin, and gold. These three also made the largest contributions to the total return. All asset classes had positive returns but real assets, private equity, and hedge funds did not perform that well despite some strong individual performers in those asset classes.

Investment Allocation

There were significant changes in asset allocation over the year:

 

Cash, futures, and rest of the world stocks increased their shares, while hedge funds, Australian small cap, US stocks, and bonds reduced their shares by quite a lot. Other asset classes changed their shares by 1% or less.

Accounts

Here are our annual accounts in Australian Dollars: 

Percentage changes are for the total numbers. There are lots of quirks in the way I compute the accounts, which have gradually evolved over time. There is an explanation at the end of this post. 

We earned $208k after tax in salary etc. Total non-investment earnings including retirement contributions were $240k, up 14% on 2022. I'm quite surprised by that increase! Part of it seems to be from timing of payments as well as larger tax refunds.

 

We gained (pre-tax including unrealized capital gains) $577k on non-retirement account investments. A chunk of the gains were due to the fall in the Australian Dollar (forex). We gained $562k on retirement accounts with $32k in employer retirement contributions. The value of our house is estimated to have risen by $51k. As a result, investment gains totaled $1.194M and total income $1.435M.

 

Total spending (doesn't include mortgage payments, life insurance, margin interest etc.) of $169k is up 13% on last year. Again, I am surprised by the size of the increase. Our spending including mortgage interest (but not principal repayments) seems to be up by only 5%. We did reduce our mortgage interest a lot by increasing the cash in our offset account.

 

$20k of the current pre-tax investment income was tax credits – we don't actually get that money so we need to deduct it to get to the change in net worth. We saved $38k from salaries etc. before making contributions of $26k to the SMSF. I also record an $8k "inheritance", which are gifts we received, mostly on our trip to China. Current net worth increased by $577k.

Taxes on superannuation returns are just estimated because, though we know the tax paid by the SMSF, our employer superannuation funds only report after tax returns. I estimate this tax to make retirement and non-retirement investment returns comparable. The total estimated tax on superannuation was $20k. Net worth of retirement accounts increased by $600k after the transfer from current savings. With the gain in the value of our house, total net worth increased by $1.228M.

Projections

Last year my best case scenario for 2024 was for an increase in net worth of $500k to $6.7 million. We actually reached $7.4 million. For this year, my base case scenario is simply a 10% increase in net worth to $8.2 million. The bear case is for a 10% decline to $6.7 million. In 2022, our net worth only fell by 0.7%, so this is very bearish. What about the best case scenario? This is going to seem crazy but I project double the percentage increase of 2024 for a net worth of $10 million. Told you it was crazy.

Notes to the Accounts

Current account includes everything that is not related to retirement accounts and housing account income and spending. Then the other two are fairly self-explanatory. However, property taxes etc. are included in the current account. Since we notionally converted the mortgage to an investment loan, mortgage interest is counted in current investment costs. So, the only item in the housing account now is increases or decreases in the value of our house. This simplified the accounts a lot but I still keep a lot of cells in the spreadsheet that might again be used in the future.

 

Current other income is reported after tax, while investment income is reported pre-tax. Net tax on investment income then gets subtracted from current income as our annual tax refund or extra payment gets included there. Retirement investment income gets reported pre-tax too while retirement contributions are after tax. For retirement accounts, "tax credits" is the imputed tax on investment earnings which is used to compute pre-tax earnings from the actual received amounts. For non-retirement accounts, "tax credits" are actual franking credits received on Australian dividends and the tax withheld on foreign investment income. Both of these are included in the pre-tax earning but are not actually received month to month as cash.... 

 

For current accounts "core expenditure" takes out business expenses that will be refunded by our employers and some one-off expenditures. This year, I didn't bother to note these, which amounted to about $1,000. "Saving" is the difference between "other income" net of transfers to other columns and spending in that column, while "change in net worth" also includes the investment income.

Went Over the Transfer Balance Cap

Intramonth, I've blasted through the transfer balance cap. This is the limit of AUD 1.9 million that you can transfer from an Australian superannuation account into a tax free pension when you retire or reach 65 years old. I'm now nearer AUD 2 million. The important thing is that when you exceed this limit you can no longer make "non-concessional" (post-tax) contributions to superannuation. However, I can continue to make recontributions to superannuation from my transition to retirement pension until the end of June this year. This is because this rule depends on your balance at the beginning of the current financial year, which in Australia starts at the beginning of July. But if I do stay over the AUD 1.9 million level on 30 June this year, I won't be able to make non-concessional contributions to my account next financial year. Instead, I will make them to Moominmama's account.

P.S. 20 January

The Australian is reporting today that the transfer balance cap is likely to be raised to AUD 2 million next July.

Bought a New Phone

I bought my existing phone, a Google Pixel 3a, just before the pandemic in early 2020. The battery has less and less life, it only has 64GB of storage, which is nearing being full, it is only 4G, the case is falling apart (and probably can't get a replacement), and obviously it is not getting any security updates etc. So I decided it was time to buy a new phone. I got a new Pixel 7a online with an original Google case for about AUD 500. This was actually cheaper than a high quality refurbished one. Replacing the battery in the existing phone was another alternative which would cost close to AUD 200.

I don't understand why people buy phones for more than AUD 1,000...

Big Moomin's and Little Moomin's Investment Returns for 2024

A year ago, we reconfigured Big Moomin's portfolio, which is managed by my brother, to provide better investment returns. This really paid off this year with a return of 34.4% in Australian Dollar terms. He now has AUD 73,230 in his account overtaking Little Moomin, who was ahead but now has only AUD 63,650. Little Moomin's pre-tax return is estimated at 15.0%, which at least beat the ASX200. But you have to take off the 30% investment bond tax to find out what he actually received, which is nearer 10%.* I am wondering if my balanced investment strategy is too conservative for Little Moomin.

* Actually, I take the reported 10.3% after-tax return and add back the 30% tax to get an estimated pre-tax return. The latter is definitely exaggerated because franking credits on some funds reduce the tax paid.

December 2024 Report

The numbers in this report may change a little once all data on private investments becomes available. I will write an annual report after all the data are in. In December, the Australian Dollar fell from USD 0.6515 to USD 0.6196. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): -2.33%

S&P 500: -2.38%

HFRI Hedge Fund Index: -0.20% (forecast)

Australian Dollar Indices

ASX 200: -3.10%

Target Portfolio: 0.57% (forecast)

Australian 60/40 benchmark: -0.34%

We gained 1.50% in Australian Dollar terms or -3.48% in US Dollar terms. So we underperformed the USD benchmarks and outperformed the AUD benchmarks.

The SMSF returned 3.58%, compared to Unisuper at 0.43% and PSS(AP) at 0.05%.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and do not include investment expenses such as margin interest, and so the total differs from the Australian Dollar returns on net assets mentioned above. RoW stocks (mostly Defi Technologies) gained 8.4% and made the largest contribution to returns followed by gold. Several asset classes lost money, futures including bitcoin lost the most and made the most negative contribution to returns.

Things that worked well this month:

• Defi Technologies (DEFI.NE) gained AUD 37k, followed by gold at 17k, Pershing Square Holdings (PSH.L) at 15k, and Pengana Private Equity (PE1.AX) at 13k.
  

What really didn't work:

• Bitcoin lost AUD 30k, followed by Australian Dollar Futures at 22k, and 3i (III.L) at 10k.
  

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give the same statistics for three indices. The middle block gives our performance relative to the indices. Our rate of return is now higher than the ASX200 and we have much lower volatility, resulting in a Sharpe ratio of 1.00 vs. 0.54. Our alpha relative to the ASX200 increased to 4.71% with a beta of only 0.46. We capture much less of the downside moves than the upside moves in the market. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. Our volatility in USD terms is now a little lower than the MSCI World Index, but our rate of return is much lower.

We maintained our distance from the target allocation this month. We are now most overweight rest of the world stocks. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. I am now receiving TTR pension payments from both Unisuper and our SMSF and contributing more than the total of these to the SMSF (around AUD 4k net contribution per month). I made the following additional moves this month:

• I bought AUD 30k worth of shares in Regal Investment Fund's (RF1.AX) capital raising.
  
• I bought 100 shares of FBTC, Fidelity's bitcoin ETF. We now have a total position of around 5 bitcoins.

Who to Follow on Crypto?

I've managed to build some confidence in investing in bitcoin and the larger crypto ecosystem by following a few key people:

Oscar Carboni: Technical analyst and futures trader. His analysis of bitcoin prompted me to first get into bitcoin.

Didi Taihuttu: Digital nomad who went all in on bitcoin after previously mining bitcoin. Very skilled at technical analysis of bitcoin.

Anthony Pompliano: Entrepreneur in crypto space. He sold his company Reflexivity Research to Defi Technologies. His analysis of DEFI.NE prompted me to invest.

Raoul Pal: Former hedge fund manager who provides macro-investing services as well as crypto commentary. He links crypto trends to broader macro and especially "liquidity".

November 2024 Report

In November, the Australian Dollar rose from USD 0.6564 to USD 0.6515. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 3.77%

S&P 500: 5.87%

HFRI Hedge Fund Index: 1.51% (forecast)

Australian Dollar Indices

ASX 200: 3.96%

Target Portfolio: 2.43% (forecast)

Australian 60/40 benchmark: 2.47%

We gained 5.89% in Australian Dollar terms or 5.10% in US Dollar terms. So we outperformed all benchmarks apart from the S&P 500. This was the best month ever in dollar terms with a return of AUD 332k (previous best 192k in July 2022, 333k in currency neutral terms, previous best 225k in April 2020). In percentage return terms this was only the 16th best month, but the highest since 2015. We simply have a less volatile portfolio these days. We also went over the next million Australian dollar milestone.

The SMSF returned 11.38%, its best performance to date, compared to Unisuper at 1.76% and PSS(AP) at 2.29%. I had to extend the y-axis on the rate of return graph twice:

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and so the total differs from the Australian Dollar returns on net assets mentioned above. RoW stocks (mostly Defi Technologies) and futures (mostly bitcoin) both gained more than 20%. Gold was the only asset class that lost money.

Things that worked well this month:

• Bitcoin and Defi Technologies gained AUD 226k and 182k, respectively. These are 3-4 times more than the biggest monthly gain on an individual investment previously. Also gaining more than AUD 10k were 3i (III.L) at 36k, Pershing Square Holdings (PSH.L) at 29k, PSS(AP) 12k, and Unisuper at 11k.
  

What really didn't work:

• Gold (-AUD 24k), Tribeca Global Resources (TGF.AX, -20k), and Regal Investment Fund (RF1.AX, -13k) all lost more than AUD 10k.
  

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give results for three indices. Our performance fell back this month compared to the ASX200 but, as we have much lower volatility, we have a higher Sharpe ratio of 0.93 vs. 0.55. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. We have a positive alpha relative to the ASX200 of 3.97% with a beta of only 0.47.

We moved away our target allocation this month as our bitcoin and Defi Technologies positions grew. We are most underweight cash and most overweight futures. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. This month we received tax refunds of AUD 27k. I made the following additional moves this month:

• I paid an AUD 37.5k capital call from Aura.
• I sold 10k shares of Hearts and Minds (HM1.AX).
• I sold 400 shares of the Putnam BDC ETF (PBDC).
  
• I redeemed AUD 60k of units in the Winton Global Alpha Fund.
• I took part in the Regal Investment Fund (RF1.AX) share purchase plan, buying AUD 30k of shares.
  
• I bought 500 shares of the Fidelty Bitcoin ETF (FBTC). We now have 5,500 shares, which is close to 5 bitcoins.

Regal Funds Share Purchase Plan

Regal Investment Fund (RF1.AX) is doing a share placement and a share purchase plan (SPP). Under the SPP you can buy up to AUD 30k of shares at the recent NAV of AUD 3.41. They have made an official 20% average rate of return since inception. My internal rate of return is higher than this. So, I think I should take up all of this, but don't have anything I want to sell in the SMSF's brokerage accounts. I could either make an additional AUD 30k non-concessional superannuation contribution to my account or withdraw something from one of the SMSF futures investments. It's probably the last chance to make non-concessional contributions to my account, as I could hit the balance transfer cap of AUD 1.9 million by 30 June 2025. Also, the futures investments have been weak recently, so I think they might see a return to the mean in terms of performance and selling now might not be a good move.

Australian Government Spending

When you get your notice of assessment from the Australian Taxation Office when they have processed your tax return, they send you statement of how the government spends your taxes, which they quaintly call a receipt:

I was a bit surprised by how little interest they are paying. Only a 2.3% average rate of interest and 3.8% of the budget.

Note that this tax total doesn't include the Medicare Levy, which was another $4,411 tax that I paid.

Gold vs. Bitcoin

 

Our bitcoin position is now more valuable than our gold position. 11.5% of net worth is in bitcoin and 10.2% in gold both via ETFs. We also have 4.5% of net worth in crypto company Defi Technologies. Defi is up 215% since we first invested, bitcoin 78%, and gold 94% (since January 2019). I bought shares in gold ETFs earlier but this was when our current series of investments started. Our return should be lower in all of these as we added to the investments gradually.

It's Feeling Crazy Again

Things are starting to feel a bit crazy again. Yesterday, I was thinking: "Maybe this account could reach AUD 500k today!" It has a 69% return in the last year. All the P&L and changes numbers are for one day.

October 2024 Report

In October, the Australian Dollar fell from USD 0.6913 to USD 0.6564, so US Dollar returns are lower than Australian Dollar returns this month. This was an average month in terms of investing activity. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): -2.21%

S&P 500: -0.91%

HFRI Hedge Fund Index: -0.15% (forecast)

Australian Dollar Indices

ASX 200: -1.29%

Target Portfolio: 2.71% (forecast)

Australian 60/40 benchmark: 0.28%

We gained 2.09% in Australian Dollar terms or lost 3.10% in US Dollar terms. So we underperformed US Dollar indices and the target portfolio but outperformed ASX and Vanguard benchmarks.

The SMSF returned -0.75% compared to Unisuper at 1.47% and PSS(AP) at 0.79%.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and so the total differs from the Australian Dollar returns on net assets mentioned above. RoW stocks (mostly Defi Technologies) lost a lot of money and private equity a little. Gold had the highest rate of return and made the greatest contribution to overall return.

Things that worked well this month:

• Gold and bitcoin gained AUD 62k and 41k respectively. The gain in gold is a new record amount for a gain in a single investment in one month. Regal Investment Fund (RF1.AX) gained 12k.
  

What really didn't work:

• Defi Technologies lost AUD 44k more than offsetting the gain in bitcoin. Australian Dollar futures lost AUD 21k.
  

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give results for three indices. Our performance fell back this month compared to the ASX200 but, as we have much lower volatility, we have a higher Sharpe ratio of 0.88 vs. 0.55. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. We have a positive alpha relative to the ASX200 of 3.33% with a beta of only 0.46.

We moved towards our target allocation this month. We are most underweight cash and most overweight rest of the world stocks. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. This month we had returns of capital from my investment in Integrated Portfolio Solutions (AUD 41k) and Aura VF1 (6k) and lots of dividends. We were also issued shares in Dash - the company acquiring IPS. I made the following additional moves this month:

• I sold 50k shares of Cadence Capital (CDM.AX) and bought 25k shares of Cadence Opportunities (CDO.AX). These were in different accounts. Until last month these two funds returns became more and more correlated until suddenly there has been a change in behaviour and an outsize gain in Cadence Opportunities. CDO is supposed to have a shorter term horizon and be more opportunistic.
  
• I bought 500 shares of the Fidelity bitcoin ETF (FBTC).
• I sold 1000 shares of the Perth Mint gold ETF (PMGOLD.AX). So I swapped this amount of gold for bitcoin.
  

Transition to Retirement

I am thinking of setting up a transition to retirement pension (TTR pension). This allows you to receive regular payouts from your superannuation once you reach the age of 60 even though you are still working. I will be 60 years old in about 6 weeks time! There are lots of strategies this can be used. In my case, I am thinking to continue working full time at least for the next year and to recontribute all the payout to superannuation as non-concessional contributions (post-tax contributions). This has two advantages: 

1. It will convert money that was contributed as concessional contributions (at the 15% or 30% contributions tax rate) and earned as investment returns into non-concessional contributions. If my children inherit some of my superannuation when they are past the age of 18 they then won't need to pay tax on this part of the payout. The "death tax" is only on concessional contributions and fund earnings.
2. Once I hit the transfer balance cap, of currently $1.9 million, I can contribute the money to my wife's superannuation instead. I am currently at $1.7 million and she is at $800k. So, there is still a lot of unused capacity there. 

When you retire or reach age 65 you can transfer money up to the transfer balance cap into a zero taxed pension account. Money over the limit stays in an accumulation account where earnings are taxed at 15% (10% for long term CGT). The TTR pension does not affect the calculation of the transfer balance cap unless you are still holding it at age 65 when it becomes a regular tax free pension account.

My Unisuper account is close to 100% concessional contributions and earnings. So, I would start with that and transfer $600k to a pension account and pay out 10% of it each year, which is the maximum withdrawal rate. You have to leave some money in the accumulation account to receive new contributions... But actually 60% of my SuperGuardian account is also concessional contributions and earnings, and so it would make sense to transfer $400k from that into a TTR pension account too. So I would be withdrawing $100k per year and recontributing. The reason I wouldn't withdraw the maximum annual non-concessional contribution level of $110k is because my employer contributes more than the allowed cap on concessional contributions each year and the excess becomes non-concessional contributions.*

The downside to recontributing to my wife's superannuation is that I could make those contributions from non-superannuation money resulting in getting even more money into super. After all, even if you have more than $1.9 million in super, the amount above the limit is concessionally taxed compared to non-super investments.** But right now I am not making those contributions. Instead, I have been building up a pile of cash offsetting our mortgage. This is partly to reduce our interest bill but also part of a plan to buy a more expensive house in the future. So, as long as I was planning on saving to buy a house, I wouldn't make non-concessional contributions to her account.

Anyway, I sent an email to Unisuper yesterday expressing my interest in TTR pensions and asking what the next step is. 

Originally, I planned on switching to half time work when I reached 60 years old, but I seem to have fallen victim to the one more year syndrome. Seems silly to sacrifice $120k in pre-tax salary and superannuation just to have a bit easier time in the teaching half of my year. Also, my university is enacting a major cost-cutting exercise that likely will see more than 500 jobs cut in total. Academic jobs will not be cut till next year. They are not putting in a voluntary redundancy scheme. But I figure that if I am made redundant then I will get a bigger payout if I am still working full time. I could be wrong about that.

* That's why my Unisuper account isn't 100% concessional contributions and earnings.

** The government plans to tax superannuation in excess of a $3 million threshold at higher rates that include unrealised capital gains. But I think the senate will not pass that legislation and we are still a long way from the $3 million level.

Scammed Again?

About a year ago, I got scammed for more than $2,000. I managed to get the money back from the merchant and only had foreign exchange conversion losses. At the time, Commonwealth Bank said they couldn't do anything because I had approved the transaction. This month, I found a round $50 transaction on our credit card from Seenenergy/Post Melbourne Australia. Neither I nor Moominmama recognized this transaction so I raised a dispute online. Almost instantly Commonwealth Bank refunded the $50! I wonder what is the difference between these two cases. I suppose that I did not actually click anything to authorize this transaction? Maybe it is because this is a credit card rather than debit? Or both? Our credit cards have been cancelled and we need to wait for new cards.

September 2024 Report

This was an average month in terms of investing activity. Spending fell steeply again to AUD 7.4k but it is going to be up strongly in October.

In September, the Australian Dollar rose from USD 0.6772 to USD 0.6913, so US Dollar returns are higher than Australian Dollar returns this month. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 2.36%

S&P 500: 2.14%

HFRI Hedge Fund Index: 1.19% (forecast)

Australian Dollar Indices

ASX 200: 3.30%

Target Portfolio: 1.07% (forecast)

Australian 60/40 benchmark: 1.46%

We gained 1.65% in Australian Dollar terms or 3.76% in US Dollar terms. So we only underperformed the ASX200.

The SMSF returned 1.11% compared to Unisuper at 1.12% and also PSS(AP) at 1.12%. The fund went over AUD 1.4 million for the first time.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and so the total differs from the Australian Dollar returns on net assets mentioned above. RoW stocks (mostly Defi Technologies) lost money, why all other asset classes gained. Australian small cap had the highest rate of return, while futures including bitcoin made the greatest contribution to overall return.

Things that worked well this month:

• Bitcoin gained AUD 28k and was followed by gold (24k), Tribeca Global Resources (TGF.AX, 17k), WAM Alternatives (WMA.AX, 15k), and Regal Investments (RF1.AX, 12k).
  

What really didn't work:

• Pershing Square Holdings (PSH.L) lost AUD 16k and Defi Technologies (DEFTF) lost AUD 14k.
  

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give results for three indices. Our performance fell back this month compared to the ASX200 but, as we have much lower volatility, we have a higher Sharpe ratio of 0.83 vs. 0.57. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. We have a positive alpha relative to the ASX200 of 2.74% with a beta of only 0.46.

We moved towards our target allocation this month. We are most underweight cash and most overweight rest of the world stocks. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. I made the following additional moves this month:

• In addition to the quarterly contribution to the Unpopular Ventures Rolling Fund, I made an additional investment of USD 5k in Kyte and a new investment of USD 3.75k in another start-up.
• I sold 2,000 shares of PMGOLD, the Perth Mint gold ETF, and added to the cash pile in our offset account.
• I sold our remaining holding in the Longwave Small Australian Companies Fund.
  
• I did a trade in Clime Investment Management (CIW.AX) after Geoffrey Wilson recommended it.
  

Moominmama's Taxes 2023-24

I also did Moominmama's taxes for this financial year. It only took me about 2 hours to do both as I am very organized :) You can find previous years' reports here. Here is a summary of her tax return for this year:

Her salary was up 4% this year. Gross income was down 9% mainly because we lost money on futures instead of winning, I think.

Total deductions rose by 19%, mainly because of increased interest costs and futures losses, which are included as other deductions. As a result, net income fell 38%.

Gross tax applies the tax bracket rates to taxable income. This was more than offset by franking credits. So, she gets the franking credits refunded as cash and has a negative tax rate. She also had to pay tax installments. As a result, she should get a large refund, estimated near $12k.

If we get refunds as big as predicted here they will almost be enough to pay private school fees for both children for 3/4 of the year! One term's fees is one of the monetary units I now think in :)

Moominpapa's Taxes 2023-24

I did our taxes earlier this year as Aura sent me a tax statement earlier than in previous years. Here is a summary of my taxes. You can find previous year's taxes here. To make things clearer, I reclassify a few items compared to the actual tax form (such as foreign source income deductions). Of course, everything is in Australian Dollars. 

Overall, gross income fell 6%, while deductions rose 5%, resulting in a fall in net income of 8%.

On the income side, Australian dividends, franked distributions from managed funds, and foreign source income were all down strongly. Tribeca Global Resources paid a much smaller dividend this year, some of my other share holdings were reduced slightly to make new investments, and I didn't get dividends from Fortescue (sold) or Pendal (acquired). I also reduced my holding of 3i (III.L) and so got reduced foreign source income.

My salary still dominates my income sources but again only increased by 3%. Net capital gain is zero due to carryover losses from last year. I am carrying forward $41k in capital losses to next year. Rising interest rates increased deductions, while charitable giving was up 33% after falling last year.

Gross tax is computed by applying the rates in the tax table to the net income. In Australia, you don't enter the tax due in your tax return, but I like to compute it so that I know how big or small my refund will likely be. Franking credits (from Australian dividends), foreign tax paid, and the Early Stage Venture Capital (ESVCLP) offset are all deducted from gross tax to arrive at the tax assessment. ESVCLP was up due to more capital calls from Aura.

Estimated assessed tax fell because of the reduced net income and larger offsets this year.

I estimate that I will pay 24% of net income in tax. Tax was withheld on my salary at an average rate of 32%. I already paid $7,996 in tax installments and so estimate that I should get a refund of $16,942! Let's see.

August 2024 Report

This was a relatively quiet month with little investment activity. I was busy working on my teaching. We spent AUD 6k less than last month though we spent around AUD 9k in travel expenses for a future trip. Flying a family of four internationally costs a lot.

In August, the Australian Dollar rose from USD 0.6531 to USD 0.6772, so US Dollar returns are a lot higher than Australian Dollar returns this month. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 1.64%

S&P 500: 2.43%

HFRI Hedge Fund Index: 1.26% (forecast)

Australian Dollar Indices

ASX 200: 0.67%

Target Portfolio: -0.49% (forecast)

Australian 60/40 benchmark: -0.01%

We lost 0.87% in Australian Dollar terms or gained 2.79% in US Dollar terms. So we beat all the US Dollar indices and underperformed all the Australian Dollar indices!

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and so the total differs from the Australian Dollar returns on net assets mentioned above. Returns varied radically across asset classes. RoW stocks (mostly Defi Technologies) gained more than 13% and contributed the most to the overall return. Several asset classes lost money, with futures being the worst in terms of RoR and contribution to return.

Things that worked well this month:

• Defi Technologies (DEFI.NE) was the top performer, gaining AUD 54k. Australian Dollar futures contributed AUD 13k.
  

What really didn't work:

• Bitcoin lost AUD 39k. I discovered Defi Technologies due to my interest in bitcoin and Defi has so far more than offset my bitcoin losses. In total, I have lost AUD 47k on bitcoin and made AUD 143k on Defi Technologies. Pershing Square Holdings (PSH.L) was down again, losing AUD 11k. Chipotle was to blame this time, losing its CEO to Starbucks.
  

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give results for three indices. Our performance fell back this month compared to the ASX200 but, as we have much lower volatility, we have a higher Sharpe ratio of 0.82 vs. 0.53. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. We have a positive alpha relative to the ASX200 of 2.74% with a beta of only 0.46.

We moved away from our target allocation due to the gains in Defi Technology. We are most underweight cash and most overweight rest of the world stocks. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

The SMSF did have a winning month:

Unisuper did a little better and PSS(AP) a little worse.

We receive employer superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. I only made one additional move this month:

• I bought 5k shares of Regal Partners (RPL.AX) after what I thought was a great annual report. The market agreed for a few hours and then changed its mind...

Should You Keep Your Superannuation in Accumulation Mode?

The accepted wisdom is that as soon as you retire in Australia and are over 60 years old, or as soon as you hit 65 years old even if you are still working you should shift your superannuation from accumulation to pension mode. You can transfer up to $1.9 million per fund member into pension mode currently. Investments in pension mode have zero tax. This is in comparison to 15% tax in accumulation mode with a 1/3 reduction for long-term capital gains.

But what if you have a lot of investments outside of superannuation? These are highly taxed and so doesn't it make sense to run these investments down first to reduce your overall tax? In pension mode there are required minimum withdrawals each year. If you don't spend that money it is simply added to your highly taxed non-super investments. So, despite not having to pay tax on your money in super, you are transferring more and more money out of super into your taxable accounts. Does it make sense to wait till you have spent your non-super investments?

I ran a simulation in my long-term projection spreadsheet. This isn't a Monte Carlo simulation. I just assume my historical average rate of return over the last 20 years applies into the future. I assume that I retire at age 65 and convert my super to a pension and Moominmama converts her super to a pension at age 60. She stops working when I do. I also assume that the tax rate on investments outside super is 20% of returns (without any attempt to define realised and unrealised gains) and in super in accumulation mode is 12.5%. Both are probably at the high end of what might actually happen. But the contrast with zero tax in pension mode, makes pension mode more attractive relative to accumulation mode. The simulation runs to 2050.

I also run a simulation where all our super stays in accumulation mode. This no pension scenario has 8% more assets in 2050 than the pension scenario.

This modelling is still not that realistic. I assume that all our superannuation can be moved to pension mode, even if we exceed the $1.9 million threshold. Also, we are likely to make more non-concessional contributions to Moominmama's account before 2029 and I assume we don't. I'm think that these tweaks won't change the fundamental result. We would have to have a lot less non-super investments to change the conclusions.

New Spending Sub-Category

 

As the Sydney Morning Herald personal finance newsletter, Real Money, is featuring car expenses this week, I was curious about how much of our spending on car went to actual driving vs. maintenance. So, I split the existing "Petrol, maintenance etc." category into "Petrol, parking, tolls" and "Car repair, NRMA etc.". In the last twelve months we spent $2,143 on the former and $1,978 on the latter. So, it is about even. The total transport category was at $9,383, with a total spent on the car of $5,707 (61%) and $3,676 (39%) on taxis, Uber, buses, and scooters. Flying falls in the "Travel" category. Car expenditure also includes registration, insurance, and depreciation.

July 2024 Report

This was a better month, ending with us outperforming all benchmarks apart from the ASX200 and MSCI. Spending hit almost AUD 25k this month, the highest since the month we bought our house in January 2015. We paid quarterly school fees, half the cost of a new air conditioning system and went on holiday in Queensland. A lot of the Queensland trip was already paid for before July but probably a couple of thousand in expenses wasn't.

In July, the Australian Dollar fell from USD 0.6671 to USD 0.6531 so US Dollar returns are lower than Australian Dollar returns this month. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 1.64%

S&P 500: 1.22%

HFRI Hedge Fund Index: 1.27%

Australian Dollar Indices

ASX 200: 4.20%

Target Portfolio: 1.79%.

Australian 60/40 benchmark: 2.86%.

We gained 3.55% in Australian Dollar terms or 1.37% in US Dollar terms

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and so the total differs from the Australian Dollar returns on net assets mentioned above. Returns varied radically across asset classes. RoW stocks (mostly Defi Technologies) gained more than 20% and contributed the most to the overall return. Gold had the second highest return and contribution. Only hedge funds lost money due to the fall in Pershing Square Holdings.

Things that worked well this month:

• Defi Technologies (DEFI.NE) was the top performer, gaining AUD 61k. This is a new record for the most any one investment has gained in a month. Also gaining AUD 10k or more were: Gold, 38k, Bitcoin, 30k, 3i (III.L), 10k, and Regal Partners (RPL.AX), 10k.
  

What really didn't work:

• Pershing Square Holdings (PSH.L) lost AUD 32k. It fell steeply after Universal Music Group – one of its main holdings – fell sharply following its earnings report. Nothing else lost AUD 10k or more.
  

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give results for three indices. Compared to the ASX200 we have a slightly lower average return but also lower volatility, resulting in a higher Sharpe ratio of 0.89 vs. 0.53. But as we optimize for Australian Dollar performance, our USD statistics are much worse and worse than either the MSCI world index or the HFRI hedge fund index. We do beat the HFRI in terms of return, but at the expense of much higher volatility. We have a positive alpha relative to the ASX200 of 3.59% with a beta of only 0.45.

We moved towards our target allocation. I raised the desired level of cash and reduced all the other asset classes accordingly. We are most underweight cash and overweight rest of the world stocks. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

It's time for a check-in with the SMSF. This was a good month with a return of 6.15% after a few months of underperformance:

Performance since inception has been 9.8% per year compared to 6.7% and 7.2% for the Unisuper and PSS(AP) benchmarks. Volatility has been greater than either of these, but that includes volatility to the upside. Compared to Unisuper, we have captured 81% of its upside but only 29% of its downside. Put another way we have a beta of 0.43 to Unisuper but 6.8% of alpha annually.

We receive employer superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. We made the following additional moves this month:

• We made our annual concessional superannuation contribution to the SMSF for Moominmama. AUD 22.5k this time.
  
• I sold all our 96k shares of Platinum Capital (PMC.AX) following the announcement of their restructuring plan. I bought 17.5k shares of Pengana Private Equity (PE1.AX) and 6k of Regal Funds (RF1.AX) in place of our SMSF holding. I am transferring most of the proceeds of the sale in my own brokerage account to our offset account.
  
• I bought another 250 shares of the Fidelity bitcoin ETF (FBTC) in the SMSF.
  
• I bought 400 shares of the Putnam BDC ETF in the SMSF.
  
• I redeemed all units of the Longwave Australian Small Companies Fund in my name – 118k units worth about the same number of dollars. I reinvested half in the First Sentier Imputation Fund and sent the rest to our offset account. I also redeemed AUD 25k of Moominmama's holding. This funded her superannuation contribution above.
  
• By the end of the month we had around AUD 125k in our offset account, which is a big change.
  

June 2024 Report

I was dissatisfied with my investment return of only 5.69% last year and so decided to eliminate some of my boring funds and take on more risk. Well, this month we got a lot of intra-month volatility, so at least it wasn't boring!

In June, the Australian Dollar rose from USD 0.6650 to USD 0.6671 so US Dollar returns are slightly better than Australian Dollar returns this month. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 2.26%

S&P 500: 3.59%

HFRI Hedge Fund Index: -0.20%

Australian Dollar Indices

ASX 200: 1.08%

Target Portfolio: 1.59%

Australian 60/40 benchmark: 1.04%.

We lost -0.51% in Australian Dollar terms or -0.19% in US Dollar terms. So, we underperformed all benchmarks.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral returns as the rate of return on gross assets and so the total differs from  the Australian Dollar returns on net assets mentioned above. Returns varied radically across asset classes. Futures (including bitcoin) lost the most and detracted the most from total return. RoW Stocks gained the most (mostly due to Defi Technologies) and contributed the most to total return.

Things that worked well this month:

• Defi Technologies (DEFI.NE) was the top performer, gaining AUD 29k. The next three best were 3i (III.L, 11k), Pershing Square Holdings (PSH.L, 11k), and Unisuper (10k).
  

What really didn't work:

• Bitcoin lost AUD 45k and is one of the main reasons we underperformed this month. Tribeca Global Resources (TGF.AX) lost 13k.
  

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give results for three indices. Compared to the ASX200 we have a slightly lower average return but also lower volatility, resulting in a higher Sharpe ratio of 0.87 vs. 0.61. But as we optimize for Australian Dollar performance, our USD statistics are much worse and worse than either the MSCI world index or the HFRI hedge fund index. We do beat the HFRI in terms of return, but at the expense of much higher volatility. We have a positive alpha relative to the ASX200 of 3.45% with a beta of only 0.45.

We moved away a bit from our target allocation. We are most underweight private equity and futures and large cap stocks and overweight RoW stocks and hedge funds. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

We receive employer contributions to superannuation every two weeks. We are now contributing USD 10k each quarter to Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. It was another busy month. We made the following additional moves this month:

• I sold 500 shares of 3i (III.L), which brought our invested capital close to zero.
  
• I sold 50k shares of Cadence Capital (CDM.AX). Another example of a boring fund, though in this case it is boring in practice, not theory. I added 18k shares of Cadence Opportunities (CDO.AX) instead, though recently it hasn't performed much differently to CDM.
  
• I sold 25k shares of Tribeca Global Resources (TGF.AX) and bought the same amount in a different account realising a capital loss. This has been a very underperforming fund since inception, with one good year, but I haven't given up yet.
• I sold 50k shares of the US Residential Property Fund, URF.AX.
• I sold 2k shares of WCMQ.AX.
• I sold 5k shares of Hearts and Minds (HM1.AX).
• I sold 7k shares of Platinum Capital (PMC.AX).
• I sold AUD 7.5k of the Longwave Developing Companies Fund. This was once CFS and then FS. The manager has changed now to Longwave. I plan to run down the holding in my wife's account to fund capital calls for venture capital funds and her retirement contribution for next year.
  
• I bought 1,000 shares of the gold ETF PMGOLD.AX.
• I bought 15k shares of Defi Technologies (DEFI.NE).
  
• I bought 7k shares of Regal Partners (RPL.AX). This hasn't turned out to be a good move so far.
• There were also some largely unsuccessful futures trades.
  

Sold All My Shares in Platinum Capital

The company announced the result of its strategic review: They will merge the listed investment company PMC.AX and their ETF PIXX.AX. The price jumped on the news to the $1.45-1.46 range. This leaves about a 5% potential gain to the current NAV of PMC.AX. But we have to wait probably till the end of the year for the plan to come fruition, and if PMC.AX continues to underperform as it has recently, the NAV can fall. So, I sold all my shares today.

It was one of my oldest investments. I first invested in 2001 but sold during the dot.com crash. I then reinvested in 2005 and have held varying amounts of shares since then. The internal rate of return has been 12.02%, which was enhanced by trading the shares. Total profit AUD 100,530.

Integrated Portfolio Solutions Acquired

Back in 2021, I co-invested alongside Aura AUD 100k in Integrated Portfolio Solutions, a private company. At the time, I thought there wasn't a lot of downside risk as an acquirer would be willing to pay to obtain the client accounts they were advising. The company didn't manage to execute on the expansion plans that they touted at the time. In the wealth management/advisory/platform business there are economies of scale needed to achieve profitability. Today it was announced that the company is being acquired for roughly the value at the point when we invested. Various closing costs are going to result in about an 8% loss. Part of the consideration for the acquisition is going to be in terms of equity of the acquirer, DASH Technology Group, but now my position will be a much more reasonable amount for an investment in a non-profitable private company. I feel lucky I didn't lose more!

Longwave Small Australian Companies

Recently, what used to be the First Sentier Developing Companies Fund became the Longwave Small Australian Companies Fund. In other words, First Sentier dropped managing the fund and transferred it to Longwave. I checked Longwave's track record and it wasn't that great. So, I decided to close our holdings of this fund. I withdrew part of Moominmama's holding to fund her concessional superannuation contribution for this financial year. Then I wanted to withdraw half of my holding and switch the rest to the FS Imputation Fund that does manage to beat its benchmark. 

As my holding of this fund is under my CommSec margin loan, I had to send the Colonial First State forms requesting the transaction to CommSec. Then CommSec sent me back their own withdrawal form, which was super unclear. Turns out that they have switched 50% of my Longwave holding to FS Imputation. But then instead of withdrawing the rest, they have withdrawn 50% of the rest! I can't be bothered to fill out another set of forms to submit right now as I don't need to withdraw the money...