Guardianship

My mother suffers from dementia. Up till recently my brother had power of attorney to make financial decisions for her, but financial providers now wanted him to have guardianship. So he is now the official guardian but the guardianship office where he and my mother live says that her investment portfolio is too risky. They want us to not have more than 20% in equities, get rid of all alternative investments and have the rest in cash and AAA bonds. It is not as if my brother and I decided on the current allocation. It's not a lot different to how it was when my mother could make her own decisions. The problem is that cash earns almost nothing anywhere and short term bonds less than inflation. Long-term bonds have the risk that their value will fall when one day central banks raise interest rates again.

We have tried to resist this and the guardianship office people met with my brother and his lawyer but the only concession they made was to give us a year to sort it out. In the meantime we also discovered (I read about this in an article in the New York Times) that the inheritance tax free threshold in the US for foreign estates was only $60k. That means that around 40% of the money in the US based separately managed accounts in my mother's name would be taxed away after she died - the accounts had minimal if any profit - so it would be taxing savings rather than earnings. So, we closed those accounts avoiding US inheritance tax and reducing the equity share of the portfolio to about 20%. Anyway, this is a warning to get good arrangements in place while you are still capable of making your own decisions rather than having a court imposed solution.

I need to think also about how to avoid US inheritance tax. I only have about $60k of direct US investments in stocks and mutual funds. But I also have another $70k in a 403b retirement account (TIAA-CREF). So, if I suddenly died there would be about $30k in inheritance tax that Snork Maiden would have to pay (no spouse allowance for foreigners...).  There are various options including trying to roll my 403b into an Australian super fund now or setting up an Australian self-managed super fund (SMSF) and transferring the US individual investments into it. My thinking is that this would then be like having units in an Australia based managed fund. Would need to get proper advice on that first. Of course, it's not worth setting up an SMSF for just USD 60k in investments - that would be just one of the holdings of the SMSF. So, watch out if you have individual stocks in the US and aren't a US citizen.

Made an Offer on a House

After three years of looking for a house and participation in three auctions, I finally made an offer on a house, not through the auction process (This house was auctioned but didn't sell at auction). I think all our friends and family thought we would never buy... The price agreed on is $A740k ($US605k). It's part of a townhouse complex but is a freestanding house and has a "reserve" on two sides and a neigboring house on only one side. It has great views. It's a bit further from the city center than we would really like and less land area than we would like - only a very small garden area. but houses in this condition and size, with more land, nearer the center, and without intrusive electric power poles, which Snork Maiden doesn't like, are very expensive or maybe one a year comes along at a reasonable price range which we could bid on at an auction.

Now the legal/financial wheels begin to turn.

Managed Accounts Finally Above their Pre-GFC Investment Values

Two of my Mom's managed accounts - one in US stocks and one in international stocks are finally worth a bit more than the amounts we invested in 2007 and 2008 in what were retrospectively ill-timed moves and in one case with a manager who turned out to be have serious issues down the track. Like going out of business issues. This is why it has taken so long to get back above what was originally invested despite the strong performance of U.S. stock indices for a while now. Several funds in her main account are also still losing money. They are all the commodities/futures funds investments and several emerging markets funds (Brazil, India). But this month the portfolio hit a new high, though numbers aren't very accurate as I only update data on spending accounts once a year or so. Investment return this month was 1.25%.

Investments Update

Stock markets remained very strong globally, and particularly in the United States, this month, but not so much in Australia. The ASX 200 actually fell 1.31% while the SP 500 rose 3.05% both in local currency terms. The MSCI World Index was in between with a 1.46% increase in USD terms. Australian small caps were particularly weak. Our small cap investments lost 2.58% while our large cap Australian stocks bucked the trend and gained 0.82%.

A lot of our funds and stocks are hitting all time max profits for us

Colonial First State Geared Share Fund (Aus managed fund)
Unisuper (industry superannuation fund)
PSS(AP) (industry superannuation fund)
Colonial First State Diversified Fund (Aus managed fund)
CREF Global Equities (US retirement fund)
Colonial First State Geared Global Share Fund (Aus managed fund)
Generation Global Fund (Aus marketed managed fund from Generation)
Boulder Total Return Fund (BTF)
Colonial First State Diversified Fixed Interest Fund(Aus managed fund)
Macquarie Winton Global Alpha Fund

So diversifed and international funds and large cap Australian stocks are providing us with good long term returns. Australian small caps have been good but not in the past month.

Looking at my Mom's investments, finally we seem to have exceeded the pre-global financial crisis peak. Some funds though are worth less than what we paid for them and some more (we don't track the dividends from funds that pay out dividends so this isn't very accurate). What has done really badly are India and Brazil funds and commodities funds somewhat less badly. Hedge funds, large cap developed country stocks, diversified funds have done well in the long run.

Snork Maiden's Taxes 2012-13 Edition

I've finally done our tax returns for this year. First, is Snork Maiden's taxes. Blogpost on last year's taxes in order to compare with this year. In Australia there is no such thing as a joint tax return but increasingly married couples have to enter data in their tax return on their spouses finances as more things are being assessed on a household basis such as the Medicare Surcharge Tax. So, actually I need to do them at the same time. Anyway, here is a summary for Snork Maiden:

Her salary is actually higher than this. Employee superannuation (retirement) contributions are not counted in the taxable income - so-called "salary sacrifice". They amounted to about $A10k. Salary was up 11.5% on last year and taxable income including investments was up 12.5%. Distributions from managed funds and capital gains were up dramatically. I also compute a real income number before and after tax (up 15.2%) that puts back in some of the deductions which are purely imaginary. For example, long-term capital gains are taxed at half the rate of ordinary income but instead of using half the tax rate, half the capital gain is deducted from taxable income.

It looks like she owes about $500 extra tax this year.

Money Burning a Hole in Your Pocket

Snork Maiden's stepfather died. He was 80 years old. Her mother is much younger. Snork Maiden has gone to China to be with her mother for a while. Her mother wants to visit Australia later this year, maybe starting in late October for a while and think about spending more time here in the future. She wants to transfer some money to our account here to help pay her expenses in Australia so that she can be more independent than when she and her husband visited last time. If we still are living in this apartment we could try to rent her a furnished unit somewhere nearby. We saw a couple of these last year when were looking for accommodation for a colleague (in the end they stayed on campus), but they weren't that near here.

But she wants to transfer the money today. One reason is so that Snork Maiden can help her with the transaction, which involves moving a "pile of cash" between two banks. Snork Maiden said as well that:

"She is in a hurry because she doesn't want to sit on a pile of money for long.  She got a fixed-term pile of money that is ready to be harvested today, and she wants to decrease the number of transactions as much as possible. I suggested we could put the money in her saving account for the time being, but she said that was too complex and she has never had that much money sitting in her account.    It was my stepfather who dealt with their money, so she has never touched so many cash before, and even the thought of having that much of money in her bank account somehow worries her. "

In the past I heard she would give money away to relatives rather than hold onto too much. It made me think of this story. A lot of people asked how it could be that a 68 year old full professor in a low cost of living location didn't have any savings. One answer is that some people just don't seem to be able to hold onto money for psychological reasons. Obviously, I don't have that problem. So, I'm going to look after her money for her.

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.

Aletheia

This is not good news. My Mom has money invested with this firm via a local broker where she lives. The losing trades don't seem to affect separately managed accounts, but it can't be good news if the management firm is declaring backruptcy. I haven't been able to access the account for a while as the broker moved firms and is using a new platform which we haven't been able to get the passwords to work for properly. So I don't even know how much is in the account. I estimate $US180k. I asked my brother to follow up urgently on this.

Snork Maiden's Taxes 2011-12 Edition

I've more or less finished Snork Maiden's tax return for this year (Australian tax year ends on 30th June) but I can't submit it till I do my tax return. This is because they need to know my income in order to compute the correct Medicare Levy (tax that supposedly funds health care). For households earning more than $A160k per year without private health insurance the rate is 2.5%. That includes us. I've thought of getting private health insurance but it doesn't seem to save much money in net and just sounds like an extra hassle. Maybe it's because I've never really understood how the Australian medical system works. I am still waiting for one final investment statement for last year before I can do my taxes. The deadline is 15th October.

Anyway, so here is Snork Maiden's summary for this year:

 

For comparison, here are last year's taxes. There have been some changes in categories reported on this year's tax return and some big changes in her deductions but otherwise there has been fairly minor increase. Real cash income rose by 2.98% and the tax rate rose from 22.12% to 23.58%. As a result, after tax income rose by only 1.05%.

Real net income takes out various tax credit and capital gains adjustments to get back to the real cash income rather than the taxable income.

Of course, not included here are all her superannuation (retirement) contributions, which add in another $22k pre tax. If we add that back in, income is above $96k and the tax rate is around 21.5%.

Transferring Money to China

Snork Maiden wants to give money to her parents in China to help them out with medical bills. I've been telling her that all I need is bank account details and I can transfer the money there either using our regular bank account or a service like Ozforex. She is also going to open a new bank account in China because she thinks her mother's account is up to the task of handling transfers or they can't get the necessary details. A Chinese colleague recommended using a company called Superforex instead. The set up is pretty weird - first you transfer the money to their account - then send them an e-mail with a scan of your transfer receipt and then they'll allocate the money to you to transfer on. Ozforex's rate is only 6.4353 Yuan per AUD while Superforex claim to offer 6.5685. Anyone heard of them?

Moominmama Portfolio Performance May 2012

Everything lost money in USD terms because both stock markets were down globally and the US Dollar strengthened a lot this month as you can see from the losses in non-US cash. Alternative investments did relatively well but still lost money. The US Dollar rose on most days of the month:

Moominmama Portfolio Performance February 2012

A respectable rate of return and most asset classes did well with the USD falling a little against Sterling and Euros. The MSCI World Index gained 5.08% and the S&P 500 4.32%. So the non-US equities beat the market a little.

National Savings Certificates and Lloyds Bank

We finally have managed to get a UK national savings certificate worth about £40k that was in my father's name only transferred to my mother's name. My father died almost ten years ago. The truth is though that we didn't start trying to fix this till recently. My brother dealt with getting a lawyer etc. to complete the UK probate and get this sorted out. They wouldn't accept the inheritance documents from the country where my father died...

But now we have the problem of what to do with the certificate. They will only allow us to cash it out if we transfer the money to a bank in the UK. But my mother's bank, Lloyds (which I was once a customer of too*) is extremely difficult to deal with, even though my brother has a power of attorney. In my brother's words:

"the people in the branch don't really care and the call center is worse. They all stick very closely to the letter of their regulations. I have a limited power of signature there. They don't respect faxes, generally ignore letters, don't use email... in short useless. The problem appears to be that it is a regular banking account and they are not set up to work internationally. When I tried to make a transfer of GBP 700 to the UK lawyer for the probate they said I could only do it if a came into the branch, so I did it in the end from UBS..."

They'll only do anything if they talk to my mother on the phone but then they will likely decide that she is incompetent... So even closing the account seems impossible. To complicate things further, my mother still has a small pension that is paid into this account.

So it looks like we will keep the certificate renewing in her name now.

* My first bank account was with Lloyds. I entered some competition where they opened an account with £10 in it. That was back in 1983 I think. I got rid of the account some time around 1997 probably and no longer have any financial connection to the UK.

Snork Maiden's Job Made Permanent

She had the interview about four weeks ago but had to wait till today to get confirmation that her position which was a temporary one has been converted to a continuing one. This also means a promotion to what would be the assistant professor level if she was at a university rather than a government lab.

Moominmama Portfolio Performance January 2012

As usual, this much more conservative portfolio returned less than the stock market or the Moominvalley portfolio. And with dissaving rather than saving it is off the historic highs. The strongest performing asset classes were Brazilian and Asian stocks. But all categories gained money.

Moominmama Portfolio Performance Dec 2011

Happy new year! Hopefully, this year will be better than the last. For US investors things weren't so bad but the Australian stock market has suffered two losing years in a row, which hasn't happened since the early 1980s. As you can see it was a losing month for Moominmama too. The MSCI index was down 0.17% for the month and the S&P 500 up 1.02%. For the year the MSCI lost 5.96% but Moominmama lost 6.31% with a 1.31% loss in this final month. The only bright spots were Brazilian stocks and Sterling.

Moominmama Portfolio Performance November 2011

And back down again this month. The portfolio was heavily affected by the rise in the US Dollar reducing the value of non-USD assets in USD terms.

It was Moominmama's 80th birthday today, by the way, and my 47th birthday. Yes, we have the same birthday. We did a Skype video hook up across the time zones. Snork Maiden, my brother (doing the tech stuff at their end), and the live in helper that looks after my Mom (though she only lives in the next building to my brother) were all in on the call. My brother is moving to a bigger apartment, but it is just a block away. Hopefully, I'll visit some time next year.

Moominmama Portfolio Performance October 2011

Finally a positive month... The MSCI World Index gained 10.74% for the month while the S&P500 total return index gained 10.93%. But the portfolio only gained 4.85%. Beta is estimated at 0.49 so this is roughly what you'd expect to see. Alternative investments lost money while equities actually outperformed the indices.

My preliminary estimate is that we gained more than 15% in USD terms in October.

Moominmama Portfolio Performance September 2011

The portfolio got slammed this month by a double whammy - stock markets fell with the MSCI World Index falling 9.4% and the US Dollar rose sharply with the Euro falling more than 9% and other currencies by smaller amounts. The loss was 6.55%. The least badly performing areas were hedge funds and commodities. The Man/AHL managed futures fund actually gained just under 1%.

Moominvalley July 2011 Report

Another month has flown by... I'm getting tired of losing money. In Australian Dollar terms the last 5 months have all had negative returns on investment. That's a long-run of negative returns. The accounts for the month look like this in USD terms:



Our trip to Asia didn't end up costing us very much at all. My flight and first week hotel was paid as I was on business. I also got an $A1,100 expenses payment up front with no need to prove any expenses and then I got another $US500 for a presentation I gave the next week. So this more than paid for our expenses in Seoul ($A800 hotel bill etc.). Snork Maiden's parents gave her a RMB15k gift, though she was expected to pay for some family meals etc. But that is about what her flight cost. As a result, income was high and so was expenditure. Total expenditure also included a ticket to India. Core expenditure, which excludes this amount which I expect to get refunded was still high but not above the normal range.

In USD terms we lost 2.86% this month against an MSCI World Index loss of 1.60%. We're now down 1.92% for the year in USD terms while the MSCI though has gained 3.32% for the year so far. Due to the continuing rise in the Australian Dollar (hitting a post-float high above USD1.10), AUD performance looks much worse - a 5.23% loss this month and a 9.10% loss YTD.

As a result net worth fell USD 6k to USD 547k and fell AUD 18k to AUD 498k, down below half a million dollars again.