Tuesday, January 12, 2016

Annual Report 2015: Graphs

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

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

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

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

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

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

Monday, January 11, 2016

2015 Accounts: US Dollar Edition

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

Sunday, January 10, 2016

2015 Annual Accounts

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

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

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

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

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

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

Tuesday, January 05, 2016

2015 Outcome and 2016 Forecast

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

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

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

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

December 2015 Monthly Report

Here are our monthly accounts (in AUD):

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

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

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

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

An annual report is coming soon.