Monday, June 29, 2009

Endowments Update

Barrons' has updated the portfolio allocations for Yale, Princeton, and the average US educational endowment:



Compare these to a previous table they produced. Yale's allocation has shifted very little so maybe it isn't very up to date. Princeton and the average endowment has been forced to increase the allocation to private equity and real assets and reduce the allocation to stocks due to the moves in the markets.

Sunday, June 28, 2009

Income Replacement Rates of Mandatory Retirement Schemes


The table is from a paper by Richard Disney presented at a conference on taxation held as part of the Australian tax policy inquiry. It shows the percentage of income replaced by mandatory retirement programs at different levels of average earnings. The Australian data includes both the means tested age pension and the 9% superannuation guarantee! The two together are estimated to replace only 52% of average earnings. Australia's outcomes are very similar to those of the US which only has one mandatory program: social security. With Australia's government worrying about the tax benefits provided to superannuation and raising the age of eligibility of the age pension to 67, you can see just how unsustainable the US program must be. I won't even talk about some of the European schemes :)

Bottom line: You probably need to save more than the 9% superannuation guarantee.

Saturday, June 27, 2009

Couches



Today, after much searching, we finally bought a couple of couches - a two and a three seater. Yes, they are leather but not the ones in the picture - I couldn't find a picture of exactly the ones we got. Over the last month we've seen the price decline from a deal of about $A4,000, through $A3,500, to $A3,000 today for the two couches from the showroom floor. We could still have ordered some at $A3,500 but decided that these two suited us. They are some of the more comfortable couches we've tried. They won't actually fit in our apartment in a traditional L-shape configuration - not with room for other furniture or for people to get through, but we won't always live here and we've figured a couple of different set ups that will work. Up till now, we've only had the one futon sofa we brought with us from the U.S. It's quite nice but not so great for sitting on for extended periods and it'll be good to have more seating for guests.

Wednesday, June 24, 2009

We'll Call You (or Not)

I haven't heard back from the headhunter so I guess I wasn't shortlisted for an on-campus interview. The department I interviewed at before here just advertised four senior positions. I doubt it makes sense to apply after I was rejected for a more junior position but I guess that means the local hiring freeze is off.

Sunday, June 21, 2009

Conspicuous Blogging

An interesting article about changes in the ways people are signalling status - a switch from conspicuous consumption of material goods to online signalling through the number of Facebook friends say. I'm not sure quite how important this is as a trend in quantitative terms but there is certainly something in it. It fits in with similar news from Japan. Of course those of us in academia have long signalled our status through publication, citation, winning research grants etc. and the same has been true of other professions such as art or music. Conspicuous production rather than consumption. The paradox is I'd love to tell you right now about an article I wrote where I referred to this issue 12 years ago. But I can't without revealing my identity. An anonymous blog is very unconspicuous production in it's nature. Maybe I should go down the road of other non-anonymous academic bloggers :)

Friday, June 19, 2009

TFS Market Neutral Fund Closes to New Investors

The TFS Market Neutral Fund which I've often blogged about and am invested in, is closing to new investors. The fund's assets stand at around $US600 million. It's not a complete closure. Financial advisers and 401k, 403b plans etc. who have clients already in the fund will be allowed to open accounts for new clients. And, of course, existing investors will be allowed to add to their accounts. So the aim is to slow down the influx of capital. The fund has doubled in size in the last year I believe.

You have till 30th June to invest in the fund if you are not already invested.

Thursday, June 18, 2009

HFRI Performance May 2009



HFRI came in with a 5.58% return for May - one and a half percentage points more than Credit Suisse's estimate - and positive returns for all sub-categories.

Tuesday, June 16, 2009

Face to Face Interview

So I went out to the airport today to meet the partner of the recruitment firm at the Qantas Club (=Lounge). I think the interview went well and that there is a good chance he'll put my name forward at the meeting with his client on Monday where the short-list of candidates to be interviewed on campus will be composed. The taxidriver on the way there told me he studied accounting but the economics part was hard. I told him I found it hard the first year or two as well, the concepts took a while to sink in.

Credit Suisse/Tremont Returns for May 2009

Credit Suisse/Tremont hedge fund indices have now reported for May. They are reporting a 4.06% gain for the month, which they say is the best month for hedge funds since some time in 2000:



HFRX reported somewhat lower returns. HFRI is still to report. Most strategies did well apart from short bias. Managed futures were rather mediocre.

By the way, I just realised that my last post about the suit was my 1000th!

Saturday, June 13, 2009

Suit

I bought a suit for my interview today. Only the second suit I've ever bought. We went to Myer because there are sales on. But the suit department was a bunch of racks behind the escalators there and nothing appealed to either Snork Maiden or me and there was no salesperson in sight. So we headed to David Jones next where there was a salesperson in the much larger suit department. I liked all the lighter colours and Snork Maiden darker ones with stripes preferably. She soon despaired of the process. So I phoned a friend who lives nearby whose taste I trust and I know has bought lots of suits. He came over and his first piece of advice was: "There are only two colors: Charcoal and navy blue". "What about lighter greys?" I asked. "You won't be taken seriously". Pretty soon I was trying on a couple of suits by Anthony Squires (the only ones in my size - I'm 6' 3" (1.9m) and around 108kg (240lbs)). They were both comfortable and both were originally priced around the $A1200 mark. The first one I didn't like so much and only had 10% off. I preferred the second one and it was going for $649. That's the one we bought. Alterations which should be done by Monday afternoon will cost an extra $34. We went and had some coffee with my friend and invited him to dinner this evening. Preparation now under way...

Friday, June 12, 2009

Coldest Day in 43 Years

A couple of nights ago it hit -6C here in Canberra which is near the coldest I've seen here (-7C). The record low for Canberra is -10C. And then today was the coldest day in 43 years with the temperature reaching just 4.1C at Canberra Airport and only 2.6C in Tuggeranong. I felt like I was back in America today :) Though of course the bad days in Troy NY were when it wouldn't get above -18C which was once or twice (and that was the coldest night time temperature I remember from Boston where I lived in 1990-93 and 1995-96).

The Phone Interview

The phone interview with the headhunter went well. It started with me asking questions about what the job really is. He said that they basically just posted a standard description for a full professor though this job is somewhat different. It is a research chair and may include teaching in a masters program. The direction of research sounds a lot more applied than I would really be comfortable with. If we go to another level of interview I think I will tell them that they need a mix of basic and applied research if they want to have a good research profile in terms of publication and citation and getting grants from more prestigious sources. If that's not their goal it probably doesn't match me well. The job sounds less daunting than the description that was sent to me which sounded like it would solve all of their problems.

After that he went through my CV and got me to expand on each item. That included explaining what I did in 2008 and more about the nature of my current position. He seemed to be OK with my explanations. "So if you had stayed with your Australian employer of 1996-2002 you'd probably be a full professor now". I said yes either Associate or Full and if I'd stayed with my US employer I would be seeking promotion to full professor about now. So he said he sees merit in me as a candidate and he might be in town in the next couple of weeks and would like to meet for a chat then. I should also send him Snork Maiden's CV...

Now I need to go buy a suit. My current one doesn't fit any more. I bought it in 1996 for an interview at Ohio State University. I had it reduced in size in 1999 after I lost a lot of weight. But now I've put most of that weight back on... I could get it let out again I suppose, but having more than one can't hurt?

Thursday, June 11, 2009

Preparing for Interview

I've been preparing for my phone interview with the headhunter tomorrow morning. I'm not sure what to expect as I've always been interviewing with the people I will actually be working with before. I did some searching on the web about how to deal with such interviewers and came up with more tips from headhunters about how to interview with employers. The little I gleaned suggested headhunters are more likely to throw off the wall psychological questions and ask what you would do in different situations. Makes sense, because they can't ask you anything technical. Academic interviews at research universities are mostly technical discussions of your research with a few questions thrown in about what you would like to teach. At least at more junior levels. Anyway, I've done a quick analysis of the research weaknesses and strengths of the department in question as I've been told this position is to some degree to be a research coach/mentor/coordinator. They've mostly been pretty busy publishing research but generally they publish it in low ranked journals and don't get cited a lot. Maybe this is a product of the Australian government's past policy of rewarding research quantity over quality. When I worked here before in 1996-2002 universities received base research funding according to a formula that awarded one point to a refereed journal article and half a point to a book chapter in an edited book. It didn't matter how prestigious the journal was (the rest of the funding was based on how many PhD students they could graduate). This is still the case for the smaller part (10%) of research funding based on publications. The largest portion (60%) is now allocated on the basis of competitive research grants won. My impression is that in the near future the system will shift towards assessing research on the basis of citations. This is a positive direction.

Government Job?

I heard yesterday about a position in a government department here doing more or less on the public policy side what I do in academic research now. They want someone immediately as an internal transfer in the public service or on a contract basis, so my guess it is to replace someone. I have my current position till the end of February... The e-mail said that they may be wanting to hire more permanent positions in the near future. So I'm thinking to e-mail the guy in charge of the section who sent the e-mail and whom I know reasonably well and say I may be interested in those positions and that he should keep me in mind? My first preference is for an academic research oriented position. This would be a second best from my perspective as a long-term situation but it could be interesting as a shorter-term thing. In which case I should apply for the current position. But I don't need a job now and am in a contract to deliver something to my current sponsor. This whole job timing thing is a dilemma....

Tuesday, June 09, 2009

May 2009 Monthly Moomin Valley Report

I finally worked out the fault in my accounts: a minus sign instead of a plus sign in front of the gain for Platinum Capital for the month! The following is based on the available data as a couple of funds as usual won't report till near the end of the month, when I'll give a final asset class performance report. As usual everything is in US Dollars unless otherwise stated.

The MSCI World Index rose 10.08% in USD terms and the SPX rose 5.59%. We gained 8.84% in USD terms (-0.34% in AUD terms zand 2.73% in currency neutral terms). The Australian Dollar again appreciated strongly against the USD from 73.17 US cents to 79.91 US cents.

Performance was strongest in Australian small cap and foreign stocks and weakest in real estate and private equity. Alpha measured against the USD MSCI was 2.1% with a beta of 1.11 currently. Though performance for the month was good in USD terms it was below par in risk adjusted terms. The fitted rate of return from the model was 11.4% while we only returned 8.8%.

We spent $3,570, which is surprisingly low given that we and the Snorkparents went to Queensland in May. Most of the Queensland expenditures had already been incurred up front though. In Australian Dollars we spent $A4,468. Since Snork Maiden and I have lived together there have only been six months with lower spending (14 with higher spending). So it really is near the low end:



Non-investment income was boosted above our regular salaries by a $A900 stimulus payment from the Australian government and $A1,200 in cash that the Snorkparents insisted on leaving with us rather than taking back to China to exchange...

Net worth reached $261k ($A327k). Asset allocation moved away from our target but there were no dramatic changes this month:



I plan on trimming the allocation to Australian large cap stocks if and when the stock market recovers further while increasing allocations to managed futures etc. In the meantime we are trying to rebuild our allocation to foreign stocks from the bear market devastation we suffered. Leverage again reduced a little mainly due to paying off $A2,000 of my CommSec margin loan as well as bit of reduction in credit card debt and positive investment performance.

Tianjin Eco-City


We also visited the area of the planned Tianjin Eco-City on our trip to China last year. We saw even less of the site than these guys did. We did see lots of non-specifically Green development in neighboring Tanggu. Snork Maiden's father knows a bunch of people in the planning department there.

Aurora Sandringham Income Trust


I just bought 5000 shares in AOD.AX at $A1.10 a share. This used about half my available margin. The fund is not marginable with CommSec. I've long wanted to invest in this fund and brought forward the investment due to the CommSec offer of free brokerage. Eventually, I plan to reduce my holdings of other listed funds like Clime and Platinum Capital and this move is aimed at increasing diversification.

I'm classifying this as a hedge fund investment as the fund hedges its stock market exposure. I'll provide more details about this investment soon.

The picture is of the Queen's palace at Sandringham in Norfolk, UK.

From Croesus to Sirius


The news is coming thick and fast this morning. Croesus Mining is to be renamed Sirius Resources and become a base metal explorer rather than a gold explorer which once was a gold miner. There will be a capital raising via private placement. I own 2666 shares which were valued at less than 2 cents each prior to this announcement. The placement is at 0.85 cents - about half price and will increase the shares on issue by 200%. At the same time Croesus is acquiring the nickel assets of a company called Apex Minerals. Apex will receive 67 million shares and 600 million options with an exercise price of 3 cents. Mark Creasy (self-styled (?) "prospector of the century")who currently owns 45% of Croesus and some fraction of Apex will receive 267 million shares. The management of Croesus is also being changed.

The image shows the binary system of Sirius. Sirius A is the brightest star in the sky as seen from Earth. Sirius B is a white dwarf which can be seen at lower left.

IPE Placement and Rights Issue

IPE, a private equity fund of funds listed on the Australian Stock Exchange placed around 6 million new shares with a fund manager for 19 cents each and announced a 1:1 rights issue at 17 cents. The current share price is around 30 cents while net tangible assets are supposedly 84 cents per share. I had been looking to double my position anyway in order to recycle the capital return that Allco Equity Partners will be paying out and rebalance my private equity portfolio. It's good I didn't buy more shares at a higher price... on the other hand this announcement seems to have pushed up the share price, so maybe I should have... I will participate in the rights issue.

The equity raising will be used to pay down existing debt. The fund has negotiated a new $20 million line of credit with National Australia Bank contingent on the equity raising (which is underwritten). The new loan will be used to meet future expected cash calls from the private equity funds that have already been invested in. I suppose, originally they expected to meet these using distributions from other funds, which in the current environment have dried up.

Hidden in the announcement though is a plan to eventually liquidate the portfolio. Of course this is subject to shareholder approval. This would be a pity. I'd prefer them to delist as EAIT has.

P.S. 10:52am
IPE's price is now down on the announcement.

Monday, June 08, 2009

CommSec Special Offer

Commonwealth Securities are offering up to $A500 of free buy trades on a CommSec margin loan if you make the purchases before 30th June. The offer is a little odd, in that you won't be reimbursed until August. I only found out by reading the letter they sent me announcing the new portfolio LVR. As I already knew about portfolio LVR, I'd ignored the letter until today. Seems that the offer applies to existing loans as well as new ones.

I'm having a hard time reconciling my accounts this month and have put them aside for the moment. I can't figure what is wrong but a residual amount (the difference between two ways of computing investment profit), which should equal net interest and other investment fees for the month is out by more than a thousand dollars. There are a couple of other discrepancies. I'll come back to it sometime and report then.

Thursday, June 04, 2009

Headhunting Progress

So I spoke with the "senior associate" from the headhunting firm that contacted me yesterday. She tried to downplay the rather ambitious job description and selection criteria, which make it seem like they want someone to solve all their problems, some of which I thought would be the role of the department head. She confirmed what I thought that there really aren't any people in Australia that specifically match the field they are interested in hiring in who have a sufficient academic track record. There are plenty of people working in industry in this area. The courses I can find online tend not to be offered by economics departments. They're in engineering schools. So while stating one area of interest they are trying to recruit people in related areas like myself. The next step is speaking to one of the partners of the recruitment firm next Friday.

HFRX up 3.15% for May 2009


HFRX - Hedge Fund Research's daily hedge fund indices based on a small sample of funds - was up 3.15% for May. By comparison, MSCI World Index was up 10.08% and the S&P 500 5.59%. As you'd expect, therefore, equity related strategies performed well. Macro and diversified systematic (which seems to include managed futures) performed poorly. As usual, these are the first hedge fund results for the month - other indices may produce different figures.

Wednesday, June 03, 2009

Headhunter Calls



I got a call from a "headhunter" today. That's a first for me, I think. The position is a full professor at an Australian University. They seem to think my profile fits the position though they'd need a pretty wide definition of the position if I'm going to fit in it. Well, it can't hurt to get more information. There are other academic jobs out there being advertised but I'm either under or over qualified or the fields within the discipline they have a preference for do not include mine. At this stage I don't plan to apply for jobs unless they are a good fit or are here at this university (where there are none at the moment). It's the same conundrum I faced in trying to relocate in the US. I'm overqualified for lecturer/senior lecturer positions (= assistant to junior associate professor in the US) which are most commonly advertised. But I'm probably underqualfied for full professor positions where they involve a signficant leadership/management role. And I'm not keen on that role. And those are the second most likely to be advertised. There aren't usually many ads for "Associate Professor" (=senior associate prof to junior full prof in the US).

Tuesday, June 02, 2009

Another Review of Taleb



I wrote a very short review of "The Black Swan" a little while ago. Here is a good but very long review of Nicholas Nassim Taleb. A summary would be: "Taleb is unoriginal when right, otherwise wrong (especially about option pricing), and a dilettante/crank".

Unisuper & Civic Video

Another two weeks on and Unisuper still haven't transferred me to the defined contribution scheme. Will I need to send in the form again?

Yesterday, I managed to lose a DVD we'd borrowed from Civic Video. I tripped over in the street and it ended up flying out of my coat pocket and down a storm drain! I phoned the store immediately and they told me to go buy one at JB HiFi in the next two weeks and bring it to them, "because that will be cheaper". There is something weird there economically, that it is cheaper for me to buy one in a retail store than for them to replace it themselves and charge me?

Luckily my wallet and keys were inside zipped/velcroed pockets on my cargo pants :)

Monday, June 01, 2009

Most Expensive U.S. Suburbs by State

Business Week has a list of the most expensive U.S. suburbs in each state. What's stunning from an Australian perspective is that in many states the most expensive suburbs are far cheaper than the median prices in all major Australian metropolitan areas.

Sunday, May 31, 2009

Diversifying a China Oriented Portfolio

Glitzer asked me a little while ago to simulate a China oriented portfolio diversified with the Man-AHL managed futures fund. She specified two US listed stocks for the base portfolio - CHN - the China Fund and IFN - the India Fund with 80% allocated to CHN and 10% allocated to IFN and the remaining 10% in Man-AHL. If you invested a lump sum in these three securities at the beginning of October 1996 and rebalanced the portfolio monthly this is how they would have performed till now (ignoring transaction costs):



Everything has gone up very nicely. CHN gained 508%, IFN, 640%, and Man-AHL 724%. Glitzer's allocation would have gained 558%. But CHN and IFN have been very volatile with monthly standard deviations of 10.9% and 11.4%. Man-AHL's standard deviation is 5.2%, which is more than most developed country stock indices. Glitzer's portfolio would have had a monthly standard deviation of 9.4%. Can we improve on this?

Keeping the 8/1 ratio of CHN to IFN the allocation to Man-AHL that minimizes the portfolio standard deviation is 78% in Man-AHL (!), 19.6% in CHN, and 2.4% in IFN. This portfolio has a standard deviation of only 4.6% and ends up increasing by 805%. More than any of the funds due to the wonders of rebalancing!

Now Glitzer actually proposed dollar cost averaging - adding $1000 per month to the portfolio in the 80:10:10 proportions and not rebalancing. How would this have turned out since 1996?

We would have invested $153,000 and the current value of the portfolio would be $565,000. The current allocation would be: CHN, 80.1%, IFN, 11.4%. Man-AHL 8.5%. So there would have been a little drift from the original allocation. The total gain over the period would have been 490% and the monthly standard deviation is 9.1%. Dollar cost averaging a fixed allocation doesn't work here - it underperforms a lump sum investment with rebalancing. The optimal allocation to Man-AHL here is actually 83%. Investing a lump sum 80:10:10 in 1996 and not rebalancing would have resulted in a 463% gain with a 8.6% standard deviation. The current allocation would be 72:13:15.

The bottom line here is that based on historical performance very large allocations to managed futures are justifiable in order to improve volatility and return of equity oriented portfolios. Rebalancing helps a lot. Dollar cost averaging less so.

In the real world rebalancing costs money. But if you are investing regularly, adjusting your allocation to effect rebalancing might make sense. We don't know whether managed futures will perform as well in the future and I would not risk putting 80% of my portfolio in a single fund. I would use a smaller allocation to managed futures and distribute it across managers and use other asset types for additional diversification. And unless you live in Hong Kong like Glitzer or have your managed futures in a retirement account, you need to think about the tax implications of these funds.

Moominmama Performance: May 2009




Moominmama gained 9.21% for the month. The MSCI World Index was up 10.08%. Both gains were in large part due to the fall in the US Dollar over the month. The MSCI gained 6.51% in local currency terms and 3.06% in Euro terms. As you can see, Sterling rose about 9% against the USD. All the same, this is by far the biggest one month recorded gain Moominmama has had. Asian and Brazilian equities were the outstanding performers with commodities (including managed futures) and hedge funds lagging. Moominmama is now down 20% from the all time peak value in June 2008. We were down 31% at the worst point in February 2009. Beta to the MSCI is estimated at 0.47 with an annual alpha of -3.35%.

It's looking like Moom and Snork Maiden's gain for the month was a bit above 7.1% and a loss in Australian Dollar terms though net worth increased. The MSCI in Australian Dolalrs gained 0.8%.

Saturday, May 30, 2009

April 2009 Performance Report



Now all the unlisted fund returns are in for April I can present the final performance numbers. Australian Large Cap stocks, mainly via the CFS Geared Share Fund, provided the largest returns in dollar terms while private equity mainly due to Allco Equity Partners (AEP.AX), IPE.AX, and Leucadia had very high percentage returns. The rise in the Australian Dollar over the month from 69 U.S. Cents to 73 U.S. cents caused exchange rate losses in AUD terms and exchange rate gains in USD terms.

Friday, May 29, 2009

Long-Term Returns in the Housing Market

This article from the Wall Street Journal seems pretty solid. Let me know if you can see any flaws. The bottom line is that you shouldn't pay any more to own than to rent a house (principal + interest) because the real capital gains about match the other costs including maintenance and property taxes. Of course, that ignores any utility you get from owning rather than renting...

Tuesday, May 26, 2009

George Friedman

If you've been around the investment blogosphere for a while, you've probably come across the writings of George Friedman, CEO of Stratfor, a "private global intelligence firm". Today, I heard George Friedman of Stratfor speak here in Australia. I guess it was part of his global book tour. His book - the next 100 years - was on sale. Usually, I don't read the stuff he writes as it seems very boring to me. I often rely on the spin a friend in Hong Kong puts on his stuff (usually negative). It was much better in person in that regard. He started out pretty well talking about the constraints that political leaders like Obama face and the lack of choice they have with some reference to Machiavelli. He then went on to say what one would have liked to predict about the 20th century and that covered three of the major points - decline of European powers, quadrupling of global population and rise of transport and telecommunications technology. After that, the stuff about Turkey or Poland as "great powers" that I've heard mentioned in regard to his book was OK but speculative when conditioned on "only because the US will invest in Poland like in S. Korea". But whenever he talked about my areas of expertise in economics and energy or to some degree about China he made little sense and sounded very clueless or flat out wrong. For example, he stated that space based solar is inevitable because land based solar would need so much land it would be an "ecological disaster". The latter is clearly not true and no-one I know who knows anything about energy thinks that the gains from 24/7 cloudfree solar could overcome the energy costs of launching a satellite. At least not with any current technology for the size of the solar collector. His other stuff about capitalism requiring a rising price of land which can only occur due to population growth made no sense to me either... and so forth. I didn't have a very high opinion of Stratfor going in - most bloggers like John Mauldin think he is great - and this didn't change my opinion.

Monday, May 25, 2009

Extended Family Update

The Snorkparents finally left on Friday morning. We had to wake up at 4am to take them to the airport. Since then we have been reorganizing and cleaning our apartment (including moving almost all the furniture to different rooms, back where it was). It's nice to have our space back to ourselves again. I'd say, that if you have a choice don't have your parent-in-law (or your own parents) live with you unless you can divide your house into two self contained apartments. I'm not talking about a short visit of course and even 3 months is on the edge of tolerable but beyond that is a major lifestyle change...

Portfolio LVR

From 1st June, Commonwealth Securities will introduce margin lending rules that allow more borrowing against securities for more diversified portfolios including raising the loan to value ratios from 0% to 40% for one hundred stocks. You need to have 5 or more securities in your portfolio to take advantage of the new rules. Anything that reduces the risk of a margin call is good news :)

Update on Repeal of FIF

There is already more information available on the web (e.g. here and here) about the repeal of the FIF rules proposed in the budget. "The government has announced that the current FIF rules will be repealed and replaced with a "specific, narrowly defined anti-avoidance rule". According to Malleson's it's possible that funds such as Man-AHL that don't make distributions (they don't mention it by name) will be targeted by the new regime. But at least it should make investing in foreign stocks more straightforward. We'll have to wait and see as more details won't be available until the government tables legislation.

Monday, May 18, 2009

Changes to Health Insurance and Superannuation

The recent Australian federal budget announced changes to arrangements for health insurance and superannuation. The former surprised me because it made me aware of a tax concession I didn't even know existed. I'll also comment on how easy it is to exceed the new superannuation contribution limits for some middle income people.

Health Insurance Australia has more or less free government health care under Medicare (with very hefty copays effectively) but also since the late 1990s has tax incentives to encourage people to take out private insurance. When the Howard government introduced the current tax incentives (I lived in Australia at the time) I was under the impression that people earning less than $A30k a year would get a 30% rebate on the cost of their health insurance while people earning more than $A50k a year (which was the top tax bracket when the Howard government came to power!) would be taxed 1% extra a year - the Medicare Surcharge - if they didn't have private health insurance. This 1% wasn't marginal but applied to your entire income. Earn $A1 over $A50k and you got hit by a $A500 charge. The surcharge was also raised higher for a while. I knew that the threshold for the surcharge had been raised to $A75k a year, but what I didn't know was that rebates for private health insurance appear to apply at every income level. I found this out only because of the Rudd government's decision to means test them. Did I misunderstand the original structure of the Howard scheme? Or were the rebates extended to higher incomes at some point?

Back when I lived in Australia in 1996-2002 I never found it worthwhile to get private insurance as mostly I got my income below $A50k and even if I hadn't the insurance seemed to cost about as much as the charge and I like to avoid this kind of hassle. And I had no idea what benefits private insurance might give me. Now both Snork Maiden and I will probably earn less than the $A75k threshold for the 2008-9 and 2009-2010 tax years. When we had to take out private cover for Snork Maiden it cost around $A1,000 per year. Australian Unity quote a rate of $110 per month for the most minimal coverage for the two of us together and I think that is after the rebate of 30%. So it would make sense if both of us earned more than $A75k per year but not before we hit that level...

Superannuation The government lowered the maximum limit for concessional contributions to superannuation (taxed at 15% instead of your marginal rate) from $A50k per year to $A25k per year. It's important to note that required employer contributions are included in this limit. If you exceed the limit you are hit by an extra 31.5% tax on the contributions. The Unisuper superannuation scheme in the higher education sector has extremely high contribution rates. Employers contribute 17% of salary to the fund (instead of the legally required 9%) and employees contribute 8.25% from pre-tax salary. Any academic earning more than $99k per year - i.e. the Associate and Full Professor levels at most universities - will exceed the new limit. You can instead pay the employee contribution post-tax. Then you'll need to earn $A147k to exceed the limit which covers all regular full professors. But anyone in those ranks needs to switch to post-tax contributions.

I'm sure most senior administrators come in above that level - e.g. a department head who is a professor will probably earn an administrative supplement on top of the professor's salary and deans must earn more than that. Also some professors earn more than this due to supplements for people in some areas like law or additional fellowships like the Federation Fellowships. John Quiggin, for example, has one of these and, therefore, has a salary close to $A 1/4 million. These people will need to get their employer contributions lowered and their salary raised (with larger post-tax contributions) to reduce tax. I don't know if that flexibility is available.

Saturday, May 16, 2009

Hedge Fund Returns for April 2009

HFRI returned 3.74% for April while Credit Suisse/Tremont estimate that hedge funds only gained 1.68% which is very close to the HFRX estimate of 1.61%. Both providers agree that convertible arbitrage did very well (5.73% or 4.52%). Short bias of course did horribly, macro not very well, and hedged equity strategies OK to good.

For comparison the MSCI World Index gained 11.90% in USD terms, while Moom gained 12.76%. Our target portfolio would have gained 7.32% (in AUD terms: 5.89%, -1.29%, 6.75%). The AUD target portfolio suffered due to a loss in Australian shares and managed futures plus the rise in the AUD.

Thursday, May 14, 2009

FIF Rules to be Repealed

Apparently, the Australian federal budget announced on Tuesday repeals the Foreign Investment Fund (FIF) rules which apply to investments in foreign domiciled managed funds and stocks. These rules are rather complex but essentially mean that with many exceptions you must pay tax on the annual change in value of your foreign investments whether you actually sold that investment or not. In essence they are all treated as trading assets and you do not have access to the lower rate of capital gains tax applicable to investments held for more than 12 months. These rules don't apply to funds based in Australia that invest in foreign assets.

If they are really repealed that would be very good news. One of the effects would be to advantage investing in Man Financial's managed future products over the alternatives. Man does not distribute income on a regular basis but instead accumulates it within the fund. However, Man funds are FIFs, while the competitors products are not. We'll have to see the exact details to know all of the implications.

Unisuper Member Pack Arrived



My membership certificate and other info finally arrived from my new superannuation fund, Unisuper. They completely ignored all the choices I made on my application form (apart from noting my tax file number - equivalent of the SSN in the US) and so now I need to submit them again. Including switching to the accumulation plan from the defined benefit plan. This seems to be par for the course for every retirement plan I or Snork Maiden have joined. No wonder people tend to stick in the default options provided by retirement plans!

I also added $A2,000 today to Snork Maiden's non-retirement account with Colonial First State and paid off another $A2,000 of my margin loan with CommSec. It's nice to have money to save again!

Wednesday, May 13, 2009

Back from Queensland



Got back last night from our trip to Port Douglas in Northern Queensland with the Snorkparents. Yes, we did see two cassowaries just like these crossing the road in the Daintree National Park. We'd already passed them as they came out of a "concealed driveway" when Snork Maiden spotted the flash of blue color from the corner of her eye. There was lots of other cool stuff. I tried snorkelling for the first time and saw some coral, a fish, a sea cucumber, and a sea slug kind of thing. I found it pretty challenging though. Sooner or later I made some mistake with breathing and had to surface to breath properly. I was managing longer stretches each time so think I need a lot more practice... The others didn't try it or get wet apart from the rain. It rained every day, but then it is a tropical rainforest, even if it was at the beginning of the dry season or end of the rainy season. On the other hand, I felt more comfortable than I ever have in a tropical climate due to the lack of sunshine. At times I even felt a little cold!

Back down south and back to "reality". Another paper I submitted for publication was rejected - par for the course - I still have two out there under review. One referee said they had no idea about the topic, the other said it was great, and the third actually had substantive criticism. So it shouldn't be too much work to get it ready to submit to another journal. OTOH, checking my citations for the week I found I have 8 new articles in the Web of Science citing me for a total of 11 citations. I'm up to about 90 citing articles year to date which is pretty good in my discipline. So getting a paper rejected is less upsetting than it might be if I was a beginning researcher. Of course, when I was a beginning researcher I expected to get rejected and so wasn't so upset by it. If you've ever heard that almost no-one reads any given scientific paper, that is incorrect - the distribution of papers by number of readers and citers is very unequal. Many are never cited and probably little read. Others are very highly cited and read.

Today, I did the "induction course" at my workplace. I did learn some things despite having worked at this university in the past. Some things have changed and some I never knew.

Thursday, May 07, 2009

Hedge Fund Returns for April 2009 Begin to Trickle In

The HFRX is reporting a gain of 1.61% for April. Equity market neutral and macro strategies lost money while convertible arbitrage did well. HFRX is based on a sample of 55 funds with a proprietary weighting scheme.

Currency Allocation

Our currency allocation is getting really out of whack as the Australian Dollar rises and Australian shares perform well and we spend USD. We currently have 60% roughly in AUD associated investments and 20% in USD and 20% other. The goal was to be 50:50 exposed to the AUD and other currencies. It makes sense to try to find foreign investments and maybe stop spending USD, but the AUD seems near fair value, so despite the imbalance we won't be selling AUD investments and buying foreign exposed ones yet.

It's the same with our stock exposure. It's way above the long-term target, but with stocks probably still undervalued it doesn't make sense to sell, I think.

Monday, May 04, 2009

April 2009 Moominvalley Report

This month saw one of the largest gains in net worth in dollar terms USD 31,220 (second biggest after April 2008) and was the biggest percentage gain in USD terms (14.31%) since October 2001. Not so spectacular in Australian Dollar terms - a gain of $A26,968 (third biggest after August 2008 and October 2001). Only a 9.22% gain in USD. What happened in October 2001? I quit my job at the university I'm now again working at (well it was the end of my contract but I still got a substantial termination payment). And the stock market was rebounding from the September 2001 low. This time we are also in rebound mode, I got my first pay (2 months worth) for my new job, Snork Maiden got paid 3 times for the month and we got some refunds for trips from her employer (which we make money on effectively). The crisis feeling has certainly relaxed. But at this point in 2001 it looked like the bottom was in the stock market too...

The following is based on the available data as a couple of funds as usual won't report till near the end of the month, when I'll give a final asset class performance report. As usual everything is in US Dollars unless otherwise stated.

The MSCI World Index rose 11.90% in USD terms and the SPX rose 9.57%. We gained 12.33% in USD terms (6.30% in AUD terms). Performance was strongest in private equity (34.66%) followed by US stocks (10.42%) and the Australian Dollar gained. Leverage also helped for a change. Alpha measured against the USD MSCI was 3% with a beta of 1.16 currently. Beta has had some crazy fluctuations through the financial crisis:



We spent $6,153, which is very high. More than $2,000 was on flights for four people and accommodation in Queensland (upcoming trip). Actually, we spent $3,189 from Snork Maiden's U.S. accounts which have been designated for expenses on the Snorkparents visit. No idea what we spent the other $1000 on apart from some restaurant meals in Sydney. So cutting that out, expenditure was pretty normal:



Transfer to super is my after tax contribution to my super account in a bid to get the government's "co-contribution".

As you can see from these accounts our retirement accounts and non-retirement investments gained about the same this month. Net worth reached $233k ($A319k). Asset allocation moved away from our target as Australian stocks gained strongly and the shares of everything else in our portfolio fell:



The main move I made was to reduce hedge fund exposure by selling some shares of Platinum Capital and to consolidate our U.S. brokerage accounts with Interactive Brokers, in the process paying off two small margin loans in Euros and Pounds. So our leverage continued to decline this month. Paying off credit cards also helped. We are now borrowing just 12 cents for each dollar of equity (we hit 38 cents per dollar at the peak) and including borrowings by levered funds we are borrowing 51 cents per dollar of equity. This measure reached 90 cents at the worst point.

Saturday, May 02, 2009

Sixteen (or twenty four) Accounts

I'm just checking all our bank accounts, credit cards, and loans at the end of the month to record the data in my monthly accounting exercise and pay any bills that need to be paid. I made a list on my computer to check off against and realised there were sixteen accounts to check. Of course we have more total accounts than that. Actually, another six investment and retirement that don't have cash or debt balances to check and then there is the apartment deposit and the car value. So twenty four accounts in total. And I just closed one this month (TD Ameritrade - I still have a Roth IRA with them).

Don't know if this is a lot. Some bloggers have reported higher numbers...

Friday, May 01, 2009

Moominmama Performance April 2009



Moominmama gained 3.91% for the month. Pretty nice, though not much compared to the MSCI World stock index. Brazilian stocks did very well, unfortunately we only had 0.60% of the portfolio in them. Equities and bonds generally did well and alternatives poorly.

MSCI World Index Up 11.9% for the Month

In USD terms. Currently I have us up 12.65% in USD terms and 6.62% in AUD terms - likely that the final numbers could be slightly higher - Snork Maiden's retirement account has a scheduled outage till Monday morning... Of course we won't have a real final number for April till the end of May when Everest and Man get around to reporting their unit prices for April...

The MSCI is up just 0.07% YTD. Been a bumpy path.

Got Our "Stimulus Payment"!

Checking our bank accounts in preparation for the monthly report I noticed a discrepancy in the numbers and realised that our $A900 stimulus payment arrived today (1 May) from the Australian government. As I explained only Snork Maiden will get a stimulus payment which was reduced to $A900 instead of $A950 following the bargaining process in the Senate.

Thursday, April 30, 2009

I Got Paid!

Finally. It's two months worth of pay. I paid off the credit card bill which was around $A3,800. Now we have $A6,000 worth of borrowing capacity there. $A5,000 available on the Australian margin loan, and about $A4,000 in our Australian bank accounts. Of course there is more cash and borrowing capacity in our US accounts. We don't have an emergency fund as such. The goal now will be to build more borrowing capacity again. The money that is in the bank accounts that isn't spent in the next month will be allocated to investment and reducing the margin debt.

One of the things I want to do is take advantage of the Superannuation Co-contribution Scheme. Low income individuals (who get more than 10% of their income from employment or business) are eligible for a government contribution of up to $A1.50 per $A1 contributed from after-tax income to a superannuation (retirement) fund up to a limit of a $A1,500 government contribution. I should qualify for the full co-contribution I think as I'll only be employed for 4 months this tax year (which ends on 30th June).

Wednesday, April 29, 2009

Target Portfolio and Asset Class Performance: Australian Style

As promised this post looks at the performance of our target portfolio from the perspective of an Australian investor. As I did in a post in December I am representing foreign shares by the MSCI World Index converted into AUD and Australian shares by EWA converted into AUD. The other asset classes are as in the U.S. post but again converted to AUD. However, the managed futures fund and hedge fund index have the exchange rate risk hedged out as is standard for products of this type offered in Australia, but the foreign stocks, bonds, and real estate are not hedged. The target portfolio is modeled as:

EWA: 30%
MSCI: 17%
CREF Bond Fund: 10%
TIAA Real Estate Fund: 10%
Credit Suisse/Tremont Hedge Fund Index (hedged into AUD): 14%
Man AHL Managed Futures (hedged into AUD): 14%
AUD Cash: 5%

Again 20 cents is borrowed (in AUD) for each dollar invested.



The target portfolio performs pretty nicely - it doesn't manage to avoid losses in either bear market but it doesn't suffer a sharp drop in the current bear market, outperforming Australian shares since the market peak. The target portfolio has a mean monthly return of 0.78% and a Sharpe ratio of 0.69 vs. 0.65% and 0.28 for Australian shares. Again, a mix of hedge funds and managed futures would have done even better (ignoring tax implications).

March 2009 Final Performance Report


Now all the unlisted fund returns are in for March I can present the final performance numbers. Australian Large Cap stocks, mainly via the CFS Geared Share Fund, provided the largest returns in dollar and percentage terms.

Our foreign stocks appeared to perform poorly relative to the benchmark indices. But the numbers are confusing because there is an important distinction here between individual stocks and Australian based foreign stock funds. In the former, performance is computed as total return in USD, Euros, or Pounds. I then convert those numbers to Australian Dollars at the end of month exchange rate (and to USD too for the European investments). The effects of changes in the exchange rate on the value of these investments are then included in the foreign exchange item below the subtotal line in the table. The returns on these stocks should be compared with the MSCI in USD terms. By contrast an Australia based managed fund reports monthly returns in Australian Dollars and incorporates any effects of the exchange rate on asset values in that number. Therefore, those funds' returns need to be compared to the MSCI in AUD terms which only rose 0.39% for the month.

Real Estate had a negative impact on returns as did private equity and commodities (Man OM-IP fund).

The rise in the Australian Dollar over the month from 64 U.S. Cents to 69 U.S. cents caused exchange rate losses in AUD terms and exchange rate gains in USD terms. Either way we beat the market though time series estimates of our portfolio beta are around 1.2 so we should expect to outperform a rising market.

Tuesday, April 28, 2009

Asset Class Performance Through the GFC



This post follows up with the performance in the last 4 month of the asset classes I discussed in the context of endowment style portfolios in December. The chart shows a bunch of funds and indices and a simulation of my current "target portfolio" - the thick brown line - through the end of March. That's not the portfolio I have, which is heavier in stocks and lighter on managed futures but the one I am aspiring to in the next few years. The simulation uses:

47% MSCI World
14% Credit Suisse/Tremont Hedge Fund Index
14% Man AHL Managed Futures
10% TIAA Real Estate
10% TIAA Bond Market
5% AUD Cash

Then a 50% hedge into the Australian Dollar is applied and the portfolio is invested in with 120% of equity (i.e. borrowing an extra 20 cents for each dollar). Returns are in USD terms. The portfolio certainly does not escape the financial crisis and by following the path of the AUD you can see that the hedge into Australian Dollars exacerbates the bad performance.

The portfolio did well in the previous bear market but except for a portfolio constructed of bonds and managed futures this bear market has been too sharp for anything to do well.

The target portfolio has a beta of 0.86 and an annual alpha of 5.66% relative to the MSCI World Index. Not considering tax consequences, you could have constructed a smoother and better performing portfolio from managed futures, hedge funds, and real estate. Or really just managed futures and hedge funds...

Next up, I'll look at the problem from the Australian investor's viewpoint (i.e. in AUD)

Sunday, April 26, 2009

You Don't Have to Pay Cash to Save by Paying Cash


A phenomenon we've encountered in Australia but didn't see in the United States is discount department stores that give a lower price if you pay in cash instead of either using a credit card or EFTPOS card. First we came across "The Good Guys" when we were first setting up our apartment in Australia. We didn't end up buying much there, because there cash price was usually no better than Harvey Norman's regular price. Then yesterday we encountered the same thing at "Clive Anthony's" a store I'd never heard of till one popped up recently at DFO in Fyshwick. We had finally decided to buy a Sony music system (like the one above except the wood bits are black). The marked price was $A228 but the guy on the floor said he could give it to us for $208 if we paid cash. We then started discussing with him how we'd have to go to the ATM and withdraw the money from our credit card anyway and I was starting to calculate the fees... I think when he saw a sale possibly slipping away he told us we could have it for $208 even if we paid by credit card!

Now the difference in price in this case can't account for credit card fees or even interest if there is some delay in them getting their money this way (and there are costs to the store in handling cash). And we got the price even when we imposed those costs on the store. So this has to be a method of price discrimination on the assumption that credit card buyers are less price sensitive than cash buyers.

Any other ideas?

Tuesday, April 21, 2009

Take an Economics Test

U.S. High School "Advanced Placement Economics Test courtesy of the New York Times. I got 18/18 but for a couple of questions that was because I knew all the other answers had to be wrong rather than I knew the one I selected was right. It's all macro-economics questions.

Monday, April 20, 2009

Transferring TD Ameritrade Account to Interactive Brokers

As there is so little in both my US brokerage accounts, I can't see much sense in keeping both open. Though Interactive Brokers charges monthly fees if you don't make sufficient trades their other services are all cheaper and they allow access to markets worldwide. So I've decided to close my Ameritrade account and transfer it into my IB account. I could do this transaction online on Interactive Brokers website.

Sold Some Platinum Capital Shares

I sold some shares in Platinum Capital (PMC.AX) to bring my allocation to the fund back under 5% of net assets and the gross asset allocation to hedge funds back to about 15%. Also the market has risen a lot very fast and it feels good to sell something. I now have $A5,000 of available buying power on my Australian margin loan which feels good too, after all that time in the buffer or getting margin calls.

Sunday, April 19, 2009

Monthly Automatic Saving


The table shows our total automatic saving on a monthly basis. Unisuper and PSS(AP) are superannuation funds - the Australian equivalent of US 401k's and 403b's. The employer contributions are 17% and 15.4% of stated wages for Moom and Snork Maiden respectively (The amounts shown are after deducting the 15% contributions tax). In Moom's case the employee contribution of 7% is required, in Snork Maiden's case it is voluntary. We also each have standing orders to put money into accounts at Colonial First State - an Australian mutual fund provider.

Our total joint pre-tax salary including the employer retirement contributions is now $A155,173 or $US111,724. Automatic saving is, therefore, 25.54% of total pre-tax income.

In 2005-06 our income would have put us just on the edge of the top 10% of households. We're clearly in the top 20% but not top 10% currently.

BTW when Moom last worked in Australia in 2001 his salary was $A60,562 and now it is $A61,831. That's not adjusted for inflation.

Thursday, April 16, 2009

Hedge Fund Returns for March 2009

Credit Suisse/Tremont have lowered their estimate of hedge fund returns for March to 0.68%. HFRX have not changed their estimate from -0.03%. But the HFRI index is reporting a 1.84% gain for March and the numbers are better than Credit Suisse/Tremont in most fund styles. HFRI is equal weighted while Credit Suisse/Tremont is capitalization weighted. Fixed income and long/short equity did well and short bias (not surprising) and managed futures did poorly.

Investment Choice

In this final post in this series I'm going to look at the investment choice in my super fund. You can either choose a preset mix of asset classes or make your own choice from a short menu. The premixed options have slightly higher percentage management fees but choosing the a la carte option incurs an extra $60 fee per year. I suppose the extra percentage fee is either for rebalancing or for access to the alternative asset class that is not included in the menu. And the property component is a mix of direct property investments and REITS while the a la carte option is REITS only. The "Growth" portfolio costs 0.57% vs. 0.37% for "Australian Shares" and 0.33% for "International Shares".

These are the returns of the different pre-mixed options over the last 5 financial years, the current financial year till the end of December and the current quarter.







Over 5 years till June 2008 the High Growth portfolio has the highest return. Over 7 years though (not shown) the Growth Portfolio had slightly higher returns (7.14%, after tax of course).

The Growth portfolio is invested 32.5% in Australian Shares, 30% in International Shares, 15% in Fixed Interest, 12.5% in Alternative Investments, and 10% in Property. In other words it is a 60/40 portfolio with a diversified 40 component. The High Growth portfolio is invested 40% in Australian Shares, 32.5% in International Shares, 17.5% in Alternative Investments, and 10% in Property. The Balanced portfolio is 30% Fixed Interest, 27.5% Australian Shares, 25% International Shares, 10% Property, and 7.5% Alternatives.

My current target is 28% Australian Shares, 14% International Shares, 10% Bonds, 9% Property, 33% Alternatives, and 6% Cash and Other Assets. But it turns out that Unisuper's alternatives are infrastructure (which I classify as real estate) and private equity. And, in fact, all current alternative investments are infrastructure or timber plantations.

It turns out that the Growth Portfolio is nearest to my target allocation, though it is still further from my target than our current portfolio is. Snork Maiden's superannuation is closer to the target than the current portfolio. Compared to other portfolios I track it is the following "distance" from:

Moom 28%
Moominmama 47%
PSS(AP) 28%
CALPERS 38%
Yale 47%
Harvard 36%
Princeton 51%
Average US Endowment 39%
The Future Fund 28%

Not surprisingly, it's most similar to other Australian funds. It is also a good diversifier relative to Moominmama. It's not possible to get closer to my target using choices from the a la carte menu. So the choice is made.

Defined Benefit vs. Defined Contribution: Analysis

I've run a few different scenarios to work out whether I should go for the defined benefit or defined contribution option.

Scenario 1: Work 1 Year at an Australian University

This is the simplest scenario as the only variable is future rates of return in the defined contribution scheme. I don't need to project my future salary. I assume that the tax on superannuation earnings averages 7.5% (15% on general income, 10% on capital gains, and zero on fully franked dividends). All numbers are in 2009 Australian Dollars. I don't worry about projecting inflation. I am currently 44 years old.

The results of the analysis are also very clear cut. I and my employer would contribute a total after tax amount of $13,262 this year.

Under the defined benefit scheme I would receive $13,603 if I retired at age 60 (the earliest age I could access the benefits) and $14,221 if I retired at 65 or older. Clearly this rate of return is very low. A 1% real rate of return gives a lump sum of $15,450 at age 60 and $16,181 at age 65 in the defined contribution scheme. A 5% real rate of return gives $28,460 at age 60.

Selecting this option only makes sense in this scenario if you are extremely averse to market risk. Unless you expect hyperinflation and negative real interest rates in the future it will make more sense to invest in the cash option in the defined contribution scheme.

Scenario 2: Work Till Age 60 at Current Salary

Under this scenario total contributions are $225k and the age 60 defined benefit is $231k. Again, a 1% real rate of return beats the defined benefit.

Scenario 3: Smooth Rise in Salary to Full Professor (E1) at age 60

An E1 Professor currently earns $133,901. This scenario is not clear cut. The defined benefit is $505k if taken at age 65 but actually quitting at 60. A 3% real rate of return gives $508k. Continuing to work at that salary till age 65 favors the defined benefit a little bit more.

Scenario 4: Switch to Full Time Next Year and Then Smooth Rise to E1

Now the age 65 defined benefit (working till 60) is $513k and a 2% rate of return gives $516k.

Scenario 5: Switch to Full Time Next Year and Fast Promotion to E1

I assume I rise one salary notch every two years. I become a full professor in ten years. Defined Benefit is $523k at age 65 and the 2% rate of return yields $535k.

As you can see, the earlier promotion comes or if promotion doesn't come at all the lower the require rate of return in the defined contribution scheme. I reckon scenarios 1 and 5 are most likely. I'd assign them a 40% probability each and the other 3 scenarios (20/3)% each. The expected value of the defined benefit is then $299k of a 1% real rate of return defined contribution it is $273k, at a 2% real rate of return $309k , at a 3% rate of return $350k.

Using expected value assumes I am risk neutral. If I am averse to career risk then I should put a heavier weight on Scenarios 1 and 2 than on the more positive career scenarios. Those scenarios have lower required investment rates of return.

Given this low required rate of return and the advantage of portability I am going to choose the defined contribution scheme.

Defined Benefit vs. Defined Contribution

The major decision I need to make in response to receiving my job contract is which type of superannuation (retirement) scheme to join. Yes, we have a choice between defined benefit and defined contribution (or accumulation in the Australian jargon). Defined benefit is mainly based on your average salary in the last three years that you work for a university that is a member of the Unisuper fund (indexed for inflation) and the number of years that you contribute to the fund. So here the main risk is career risk. This option performs best for someone who will work their whole career at Australian Universities and get promoted to professor or dean right at the end of their career. In defined contribution you have both a career and a market risk but much more of a market risk. An important benefit of the defined contribution is that you can rollover your benefit into another superannuation fund - i.e. it is portable - while the defined benefit is not.

When I previously worked at an Australian university we initially had no choice and were all in a defined benefit scheme. Then when we were given the choice of switching to defined contribution I did it immediately as I didn't expect to stay in the Australian university system in the long-term. After I left the university I rolled my super into Colonial First State. That was all going well until some unfortunate investment decisions last year.

Given my great career uncertainty at this point it seems obvious to go for the defined contribution scheme. But I will do a proper analysis and report back with the results.

The Unisuper scheme has, on top of a massive 17% employer contribution, a required 7% contribution from the employee's nominal salary. To balance things out, and given our higher income now, I will start 7% "salary sacrificing" (pre-tax employee contribution) for Snork Maiden too. Her employer contributes 15.4%. As her salary is higher, it seems fair to me to go for the equal percentage salary sacrifices.

BTW I'll see no gain from salary sacrificing this tax year as my marginal tax rate is 15% which is the same as the superannuation contributions tax.*

* In Australia retirement contributions are usually taxed at 15% going into the fund. You can choose to make employee contributions pre- or post-tax. Post-tax ones don't attract the contributions tax but obviously you pay your regular income tax on them. If your marginal tax rate is above 15% (as most people's is) then it seems like a no-brainer to go for the pre-tax contribution known as "salary sacrifice".

Australians' Loss of Wealth

According to an article in the Australia the Treasury Department says that the average wealth of Australians fell from $A249,000 in 2007 to $A225,000 at the end of 2008. This is described as unprecedented. Well, I can't find any information on Treasury's rather uninformative and unattractive website about this. A Google search reveals that the data is included in the "Modeller's Database" released today by Australian Bureau of Statistics. It appears that the numbers given by the newspaper are "private sector wealth" averaged over Australians of all ages. So I downloaded the population figures from ABS too and came up with some charts. First up is wealth per capita in December 2008 dollars (GDP Implicit Price Deflator):



In real terms, Australians' wealth is at the same level as in late 2003.

While doing the calculations I noticed that from when we arrived in Australia in September 2007 till the end of December prices rose 9.1%. Snork Maiden's salary rose 8.9%. Some of that salary increase was supposedly due to a rise in the pay scale. But we are just keeping up with inflation.

The next chart shows that we were near average wealth levels for Australia in late 2007 but since then have dropped dramatically below the average:



These numbers are not adjusted to inflation. The Moominvalley variable is our net worth divided by two.

Wednesday, April 15, 2009

Contract

I finally got my contract today. Last night on Snork Maiden's insistence I sent another e-mail to human resources and my supervisor immediately also sent one. Today the guy sent me an e-mail at 3:17pm that it was ready and I went downstairs from my office and picked everything up. I'll be busy this evening going through the details and filling in the forms but the key details are:

Official worktime is 65% of full-time

Nominal salary is $A95,126

Employer superannuation (retirement contribution) is 17% on top of that or $A16,171 (the minimum required in Australia is 9%).

So actual salary is $A61,831 and superannuation of $A10,551.

That's about $A10,000 a year less than Snork Maiden earns in a full-time position.

Rather ironically, after taking almost 3 months to come up with this contract, they give me till Friday to complete all the paperwork and return it to them!

****************

Follow up on the conference situation - they didn't agree to swap my papers. I expect I'll end up withdrawing both papers. It's quite a lot of money relative to my earnings.

Sunday, April 12, 2009

Venice

My paper was accepted for the Venice meeting. But as I mentioned, I can't use project funding for the trip. Registration would be E450 and the hotel E230. Flying on Ryanair from London would be just £10. The train from Brighton to Stansted airport would cost much more than that! So I estimate a total Australian Dollar cost of about $A1,300. My marginal tax rate is 16.5% so after tax we're looking at about $A1,100. Originally, when I submitted to the conference I didn't know whether Snork Maiden would get accepted for the course in England. But now she can't come with me to Venice and I was there before anyway (1998). So I expect I'm going to have to withdraw my paper. I'll state the reason of course, just in case they have some funds to help out... The Amsterdam meeting is a similar cost and the same story pretty much if they don't agree to swap my papers.

Saturday, April 11, 2009

Port Douglas


Last night, Snork Maiden and I booked a trip to Port Douglas (about one hour's drive north of Cairns in Northern Queensland) for us and the Snorkparents. The thing the Snorkparents most wanted to see in Australia was the Great Barrier Reef so it's worth spending quite big on doing this. Snorkmama has actually been there before but she wanted to show it to Snorkpapa. We're flying on Virgin Blue (which was the lowest fare we could find on Webjets - but we bought the tickets on Virgin's own site to avoid Webjet's fees) leaving Canberra at 6:30am in the morning and flying via Brisbane. Return times are much more flexible for the lowest fare.

We started looking at Cairns. There are really a lot of great accomodation options there in both hotels and apartments. Snorkmama, though, had expressed a desire to stay in a small town and Moom had recently been to Cairns. So we then looked at Port Douglas and settled on this apartment complex:




which is close to the centre of town, and the beach, has a decent swimming pool, looks nice, and is a reasonable price. We used Wotif.com, tripadvisor.com, and Google Earth to make our decision. There are cheaper choices, but they are either not as nice or further from town or the beach.

Snork Maiden's next task is to explore whether renting a car makes sense. It might be cheaper than paying for all four of us to travel from the Cairns airport to Port Douglas and perhaps we can then construct our own rainforest tour rather than paying for a trip. There is no need for a car if you just want to hang out in town and the beach and go on a trip to the reef. Moom will look at tour options - does it make sense to buy/book upfront or wait till we get there.

Oh, and the money for the trip came from the money the Snorkparents gave us before we married and when we were in China.