Moominmama's 2020-21 Taxes

I finished Moominmama's taxes for this financial year. I still need the details of my venture capital investment tax offset to complete mine. The post about last year's taxes is here. Here is a summary of Moominmama's tax return:

Her salary was down steeply as she went back to work part time after being on maternity leave at full time, though the full time pay was only paid for part of the year she took off. Dividends managed fund distributions, and foreign source income were all up steeply. A quirk of the system is that foreign gains are treated as income and losses on trading foreign instruments are recorded as deductions. Capital gains were up 148% and dominated her income. This was largely due to recording capital gains on investments that we transferred into our SMSF. On the deductions side, other deductions includes interest for foreign source income and trading losses.

Net income increased 55% and tax 110%. The latter is my estimate of the tax she owes. You don't need to calculate this number on an Australian tax return. Her average tax rate was 20%. Remember, that there are no state income taxes in Australia. Only AUD 2,808 was withheld from her salary. We paid AUD 3.886 in quarterly installments. I calculate that we still owe AUD 11,203.

FI or FIRE?

 

I wrote about FIRE (Financial Independence Retire Early) at least once before. The Retire Early bit is the problematic bit. It makes much more sense for people to use financial independence to do what they want to do rather than just stop working.

A while back I heard that Mr Money Mustache got divorced. Seems his wife wanted to spend more money given their high income. But that wouldn't fit with his frugality message. Now here is a FIRE blogger who retired with a small nest-egg - so-called "lean FIRE". His wife got tired of not spending much either and of having too much leisure time and not making "progress" in life. And here is another blogger who is tired of not having enough money. Many FIRE bloggers who supposedly retired actually work on their blogging business. They stopped being an employee and became self-employed. This is great.

With a net worth of approaching AUD 6 million we are financially independent by any reasonable definition. But I'm not planning on retiring. As I mentioned before, I like my job, at least the research part. I am hoping to not ever teach more than one course a year again. I am sacrificing more than AUD 40k to take long-service leave next year to reduce my teaching load. After that I am planning to take on a "leadership role" for a while and once I turn 60 I hope to go part-time. Also, I don't want to sacrifice the "prestige" and become a nobody. Unless we plan on moving somewhere else, it seems to make sense to do my very flexible job.

And actually I am thinking that our money isn't enough. Our older child is going to private school and the younger one probably will too. The alternative is to move to a top public school catchment area. My wife isn't happy with the public schools here, though I think they are fine. With the way the property market is going that means an AUD 2 million + house price. Or maybe move to Sydney because the best public schools in Sydney are better than the private schools here. My wife puts a big weight on education. I thought Jewish parents like my parents and me were into education. Chinese parents are at another level.

And, actually, I did the retire early bit already. I just wasn't financially independent.

August 2021 Report

It was another month of increases in world stock markets. The MSCI World Index rose 2.53%, the S&P 500 by 3.04%, and the ASX 200 rose 2.75%. All these are total returns including dividends. The Australian Dollar fell from USD 0.7350 to USD 0.7314 We gained 0.51% in Australian Dollar terms or  0.01% in US Dollar terms. The target portfolio is expected to have gained 1.89% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 1.23% in US Dollar terms. So, we underperformed all benchmarks, which is exactly opposite to what happened last month. The most important reasons for underperformance were losses in Tribeca Global Resources (TGF.AX), Fortescue Metals (FMG.AX), and Hearts and Minds (HM1.AX). Here is a report on the performance of investments by asset class (currency neutral returns):

Hedge funds had the best performance and contributed the most to performance despite the bad performance of TGF.AX. Large cap Australia stocks were the only asset class with a negative performance.

Things that worked well this month:

• Cadence Capital (CDM.AX) was the top performer, gaining AUD 16k (or 9%) with good performances from Pershing Square Holdings (PSH.L), Regal Funds (RF1.AX), Unisuper, PSSAP etc.
  

What really didn't work:

• The worst performers were Tribeca Global Resources (-AUD 22k or -10%), Fortescue Metals (-AUD 16k, -17%), and Hearts and Minds (-AUD 11k, -5%). The latter two have regained most of their losses so far in September.
  

The investment performance statistics for the last five years are: 

The first two rows are our unadjusted performance numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices. We show the desired asymmetric capture and positive alpha against the ASX200 index. We are doing a bit worse than the median hedge fund levered 1.6 times.  

In Australian Dollar terms we haven't had a losing month since March 2020, which must be a record. It feels like this can't continue, but on the other hand, Central Banks continue to print money. I long projected that we would reach a net worth of AUD 6 million by my 60th birthday. We are now at AUD 5.7 million and the projection has gone up to AUD 8 million. This seems pretty crazy. But the way house prices are going and the probability that we might want to move means that I will continue to work full time for now. As long as my job doesn't stop us doing something else we want to do, I might as well do it, I think.

We moved closer to our desired long-run asset allocation by buying RF1 shares (a listed hedge fund) and investing in pre-IPO company IPS (see below). Private equity is the asset class that is now furthest from its target allocation (3.6% of total assets too little). This problem will solve itself as Aura Venture Fund II calls more capital. Our actual allocation now looks like this:

Roughly two thirds of our portfolio is in what some consider to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month:

• I bought 100,000 Australian Dollars by borrowing US Dollars.
• I invested AUD 100k in a pre-IPO company, Integrated Portfolio Solutions.
• I bought back 46,871 shares of Regal Funds (RF1.AX) after the price fell to a lower premium to NAV. I sold 20,000 shares of MOT.AX to help fund it.
• I bought 1,000 shares of PMGOLD.AX, a gold ETF.