Getting Ready

We are getting ready for the auction this weekend. If we end up buying we need to give the owner a cheque for 5% on the day. So I'm moving that money out of our savings account and into our checking account. There is a $20k a day limit on transfers which is kind of annoying. But I've now done two in a row and so am more or less at the 5%. Snork Maiden's job for today is phoning a lawyer and seeing if they need to see a copy of the contract before the auction. I'd much prefer to just be able to make an offer rather than this auction mechanism, but the best houses tend to go to auction here.

Things are Getting Serious

We went to see this house for the second time today. We took along a couple of friends/colleagues. One has some architecture background. They liked the house too. So, I just ordered an independent valuation. The standard way I value in houses here is to use the taxable value of the land and for a house in excellent condition $A2,000 per square metre. Using that this how comes in at $A775k. But houses seem to sell for more than that in this area. So, going into an auction I need a better sense of the fair price. Oh, yes, it's going to be auctioned in a few weeks time. I contacted the bank and they said I don't need to do anything else at the moment. The bank might accept the auction price or get their own valuation, it depends.

All Time Highs

The profits on a lot of our investments are currently at the maximum since we started investing in them. This is only remarkable because of the financial crisis and bear market we've been through in the last few years. Many of our investments have now fully recovered or more. They include:

CFS Developing Companies
CFS Future Leaders
Unisuper Superannuation Fund
CFS Diversified Fund
Clime Capital (CAM.AX)
PSSAP Superannuation Fund
TFS Market Neutral Fund (TFSMX)
CREF Global Equities Fund
IPE.AX (Aus private equity) BT Property Securities Fund
Aurora Sandringham Fund (AOD.AX)
Boulder Total Return (BTF)
CFS Geared Global Share Fund
Generation Global Shares
Celeste Small Australian Companies Fund

What isn't:

CFS Geared Share Fund
CFS Conservative Fund
CFS Global Resources Fund
Platinum Capital (PMC.AX)
TIAA Real Estate
Oceania Capital Partners (OCP.AX)
Cambria Global Tactical (GTAA)
Qantas (QAN.AX)
Man Eclipse 3 (Managed futures)
Bekaert
China Fund
3i (iii.l)
Legend International (lgdi)
Leucadia (LUK)
EAIT and EDIF (Funds of hedge funds)

Any pattern here? Australian and more generally small cap stocks and diversified portfolios are doing well. Larger cap stocks and non-Australian private equity resources/China themed stuff are not doing well.

And Yet More Proposed Changes to Superannuation

Turns out the government has decided to abandon the idea of taxing distributions from larger superannuation accounts. The latest idea they are floating is taxing earnings of larger accounts. But the threshold would be much higher than $800k. This after destroying further the confidence of investors that superannuation payouts won't be taxed. And of course, this further complicates the system. Probably this won't happen because there is no chance I think that this government will be re-elected in September. Of course, none of these changes applies to the huge superannuation benefits that members of parliament receive. Those should definitely be abolished.

More Changes to Superannuation?

The Australian Labor government is floating the idea of taxing distributions from superannuation accounts (retirement accounts) if the balance is above $800k. Currently distributions are tax free but there are taxes on contributions and earnings though these are below the usual income tax rates. The tax free distributions were introduced by the Liberal government in 2006. That was a step towards moving the Australian system towards the Roth IRA model. The US Roth IRA taxes contributions at normal rates and then has no tax on earnings or distributions. The Australian government recently made changes to increase the contributions tax for earners above $300k and reduce it for those under $30k that seemed a further step towards the Roth IRA model. But this new move would just complicate things. It is the fact that earnings in the fund are taxed and that there have been so many changes to the system that has resulted in superannuation being so complicated in Australia. The US system is much simpler. There is a variety of different account types but none of them have earnings taxed - only contributions or distributions. Therefore, no tax return or audit is needed for a retirement account. As a result it is easy to set up an IRA, the US equivalent of a self managed superannuation fund, while it is complex in Australia and only worthwhile for large amounts of money because of the costs.

If the Australian government really wants to tax distributions I recommend they just move to the US 401k model where only distributions are taxed and contributions and earnings are not. I doubt they will do that. The Labor Party and the Treasury see any "tax concession" as equivalent to a government expenditure and they want to eliminate all of them if possible.

This has implications about whether to make "nonconcessional contributions" i.e. after tax contributions in the next decade. If distributions will be taxed there is little point in making after tax contributions of course, given that I don't pay tax on the earnings of my investments outside super at the moment (due to accumulated capital losses and deductions which result in surplus franking credits). Currently, I have $215k in my super accounts. In the next 12 years until I am 60 my contributions will be $300k assuming the current limit remains what it is. A 5% rate of return keeps me under $800. Assuming that the limit would be adjusted for inflation that's a reasonable rate of return. Of course, if I keep working and contributing past 60 then I will go over the limit. Snork Maiden would hit the limit in 2028 when she would be 53 me in 2024 when I'm 60.

Moominvalley Monthly Report January 2013

This was the 7th month of positive investment returns in Australian Dollar terms (8th in USD terms). This long streak of gains is making me nervous... We yet again hit new net worth highs in both Australian and US Dollar terms of $A808k (+$A54k) and $US843k (+59k). The Australian Dollar was fairly stable. Many of our investments are at all time high profit levels but overall, profits are still down relative to the peak before the financial crisis:

Profits in retirement accounts are almost back to pre-crisis highs but in non-retirement accounts we are still at a negative net profit and only halfway back to the pre-crisis high from the trough.

Our rate of return was 5.81% in USD terms versus 4.64% for the MSCI and 5.18% for the S&P500. In Australian Dollar terms we made 5.44%. All asset classes had positive returns. The monthly accounts (in US Dollars) look like this:

We each received three paychecks this month boosting non-investment earnings. Spending was lower $7,700 ($A7,384) but $A3,000 of that was money we gave to Snork Maiden's mother. Without that we spent $A4,384 which is pretty reasonable given recent spending levels. Total investment returns were $41k with little contribution from exchange rate moves. Saving in the table is saving from non-investment income.