Monday, January 28, 2013

Evolution of Yale's Portfolio

A topic I haven't covered for a while - endowments. The Yale portfolio is the most dissimilar to our own portfolios of those I track. They have very little foreign equity and lots of private equity and those trends have been accentuated over recent years. Their allocations to hedge funds and domestic (US) equity have also almost halved. I have an update on Harvard's rate of returns but they are vague on portfolio allocation.

Sunday, January 13, 2013

Update on Rates of Return

I just realized that I'd been computing the rate of return over the last 10 years incorrectly in earlier versions of this chart that I'd posted. The new calculation increases the variance a bit - so low and high returns are lower and higher than before. The graph only goes to the end of December. The rate of return over the last ten years was almost 10%. So far this month we are now over 10%. But these returns from the end of the tech crash market slump in 2002. Going forward, returns will fall again so that 6% seems like a more realistic long-term RoR. At the moment 2-3% is a realistic return for the S&P 500. Yes, that includes dividends. Of course, at some point this decadal bear market may end and a new bull market become apparent and RoR increase.

Wednesday, January 02, 2013

2013 Forecast

We came in near the top of 2012's predicted range for net worth. For this year, the optimistic forecast is $A975k or just over $USD 1 million. Buying a house would cost about $50k in costs and then around $2,500 a month in higher costs. So let's assume a $75k hit. A fall in the Australian Dollar to 75 cents would increase Australian Dollar net worth to over $A1 million and reduce US Dollar net worth to $US765k. While we are expecting a 10% investment return a 10% fall instead would mean net worth was $175k lower. So the expected range in Australian Dollars is $A700k-$A1 million and in US Dollars $500k to $1 million.

Annual Review 2012

This year was less eventful than last year, but I was very busy, mainly with my career and a few international and domestic trips. We also put a lot of effort into looking for a house, but didn't decide on anything. Snork Maiden got her job turned into a permanent position. She was recently shocked to find out that she is now earning $A93k per year. And that's not counting 15% superannuation contributions from her employer :)

The last couple of years' career events and a reasonable investment market meant that we hit new records in income and net worth. This is the annual accounts that sum each of my monthly reports for the year:
The numbers are on an after-tax basis but investments are shown pre-tax and any tax refunds or payments are reported under "other income" which otherwise is mainly from salary. Also the investment returns include tax credits, which reduce our tax bill but don't add to net worth directly. Therefore, these have to be deducted to get to net worth changes. It's an odd way of accounting, but it is the easiest one to put together and it works for me :)

The non-investment income after tax totalled $180k with an additional $40k in retirement contributions. Total investment income was $113k with almost all of it being "core income" and not just the result of exchange rate movements. Spending was actually a few hundred less than last year, so no new record there. That's despite giving $5,000 to Snork Maiden's parents which I counted as spending.

I closed my Roth IRA due to a bungle by Ameritrade. This results in the transfer of $9k from retirement to current accounts. So, we saved $A106k from non-investment income for the year, or $8,800 per month vs. $6,200 in spending per month. That's a record high savings rate, but only 1% higher than in 2006! I only spent $25.7k back then. I was single and lived in the US in a cheap area.

Investment rate of return for the year in USD terms was 18.76% vs. 16.8% for the MSCI. In Australian Dollar terms we made 17.14% (18.11% in currency neutral terms). After the last several years it's good to be making money and doing better than the market.

Moominvalley December 2012 Report

This was the 6th month of positive investment returns in Australian Dollar terms (7th in USD terms). We yet again hit new net worth highs in both Australian and US Dollar terms of $A754k (+$A38k) and $US784k (+37k). The Australian Dollar was fairly stable.

Our rate of return was 3.74% in USD terms versus 2.31% for the MSCI and 0.91% for the S&P500. In Australian Dollar terms we made 4.01%. Performance has outstripped the MSCI for the last several months:
The graph shows the annual rate of return above the MSCI All Country World Index for money invested in the month indicated. We have had periods of both under and over performance with the differences getting smaller as we go back in time.

This month's gains were mostly due to strong gains in Australian shares but all asset classes except commodities rose. The monthly accounts (in US Dollars) look like this:
Spending was lower than it has been recently at $,4401($A4,235). The monthly accounts show that we earned $13.4k in salaries etc. Retirement contributions were $2.4k. My employer delayed making one payment due to Christmas. Total investment returns were $27.9k with little contribution from exchange rate moves. Saving in the table is saving from non-investment income.

The house-buying fund reached $A152k, so we have reached our goal.

Tuesday, January 01, 2013

Follow up on Aletheia

A couple of weeks ago I blogged about the trouble at Aletheia fund managers. Well they are going out of business and we are shifting the account to Boston Advisors Large Cap Growth.

I didn't have access to the account for almost a year as the portfolio information service provider changed and I didn't have the login details. I just checked the acount now and they really didn't perform well before going under. The account was 16% below where I had estimated it would be based on the last known value in January 2012 and the S&P 500 index. In other words they underperformed the index 16% in one year. In absolute terms down 0.03% for the year. By comparison the Thomas White account my mother also has was above where I expected based on the MSCI All World Index and up 18.6% for the year.

Housing Search Roundup

December and annual reviews are coming up. One finance area I talked about quite a bit on the blog this year was looking for a house to buy. We looked at a lot of houses in the course of the year but have found it hard to find one we both like, that we can afford, in a good location. We got close a few times. The last one was the closest yet. I thought the living room was a bit small though and Snork Maiden didn't like the large amount of electricity transmission cables in the backyard:
There are electric cables in the middle of the block in all the older suburbs here. But sometimes they are not so noticeable as other times. But the house was in "move in" condition though we'd like to do some work on the kitchen and in our price range in a good location. Another recent one is a townhouse with the best garden with seen for a townhouse here. This is a quarter million less... Snork Maiden doesn't like the neighborhood and thinks the bedrooms are too close together if her mother came to stay with us. So, we'll be looking again this year...