L1 Global Long-Short Entitlement Offer

The L1 Global Long-Short Fund (GLS.AX) announced a 1 for 2 entitlement offer (known as a rights issue in the UK). You can buy one new share for every two you have for $1.76 a share. The current share price is $1.84, but they have traded as high as $2.17 in the recent past. You might think that issuing that many new shares will crash the share price. My recent experience is that isn't the case for funds like this, so it is likely to be possible to sell for a profit. 

I have 170,000 shares and am taking up the full 85,000 new shares. I am planning to hold onto 30,000 of them and to sell the rest. I am buying from my Commonwealth Bank offset account rather than trying to buy on my margin loan, which is a hassle. As the issuer has my CHESS HIN (Australian Stock Exchange ID) the shares will appear in my margin account. The highest you can raise your BPAY (an Australian payment system) limit to online is $100k. Until recently, $20k was the maximum you could raise it to yourself. So, I had to phone the bank and ask to raise it for the $149,600 payment. They then subject you to a bunch of questions about scams... They actually had to raise it to $2 million, as that is the next limit. I have now sent the money to L1 and then lowered the limit back to $20k. You don't need to submit a form, just pay via BPAY with the correct individual reference number. It's very convenient.

Money Scripts

Ramit Sethi is always talking about "money scripts"–deeply embedded ideas that affect how you deal with finances. Now you can take a test (it doesn't take long) to see which ones you have. There are four main scripts: Money avoidance, money focus, money status, and money vigilance. I came out equally strongly on money focus and vigilance. So, I think money can solve problems and I am very vigilant about our money. This makes sense. I had low scores on money avoidance–that makes total sense–and money status–I don't spend money on showing off. Of course, I think I have a healthy combination. Too much focus on just one of the two scripts would probably not be good. How did you do on the test?

Upcoming Millionaire Interview

I did a "Millionaire Interview" for the ESI blog. It took a couple of days of work! Even though I keep accounts in both AUD and USD, quite a lot of things I hadn't done in USD before or needed updating. Also, I had never calculated our saving rate. I had focused on the dollar amount.

I think it will be a while till it appears on the site. Friday was the deadline to be in the draw for the 500th interview, but as you can see the latest interview is #479 and took place in March!

P.S.

It will be on 12th March 2027! Number 503. 

Updated Australian Wealth Distribution

Economists at ANU have used a simulation model and other data to update the Australian Bureau of Statistics household wealth distribution. The ABS haven't done a detailed survey since the pandemic. 

These figures are higher than recent estimates by the Grattan Institute. I believe these more. Due to data limitations they only estimate the threshold for the top 1% for all age groups together. I am guessing based on this that the top 2% is around $8.5 million. So, we are just on the borderline of the top 2% but a bit lower among households with a head between 60 and 64 years old.

I am surprised by the high estimate net worth to be in the top 5% of 25-29 year olds! 

Another Attempted Scam

Recently, someone used our CBA credit card in California. Now, I got a message from MyGov that someone has been trying to sign into my account. I just learned that you can check the account history on the site, and someone has been making multiple attempts to try different passwords with my email address. I have now upgraded my security (I wasn't using my email address anyway) to use the government run MyID. It is important to take a separate second step to turn off access via password.

I guess the scammer was hoping to claim a benefit from Centrelink? Or just get more information on me for identity theft? They can't have been wanting to pay tax for me! 😅

Someone Used Our CBA Credit Card in California

 

They used it at a Rite Aid in the Sacramento suburbs and at a gas station in Tracy, CA. Commonwealth Bank queried the transactions and now I have cancelled the card. Definitely, only use a credit card for online transactions. If this was a debit card, the charges wouldn't be reversed as they are immediately deducted from the account. But really the banks need to make the whole payments thing more secure as this seems to be a more and more frequent occurrence. 

Probably, there is nothing stopping us from using credit cards for everything? Currently, we each have an account at HSBC with a debit card we use for most day to day spending. These accounts have little money in them. But HSBC is closing its retail banking in Australia.

Yes, that's the actual gas station they used it at in the picture. 

Cancelling Moominmama's Insurance

I cancelled life and disability insurance on Moominmama's superannuation account. Here in Australia there are number of different types of insurance that are tied to your retirement account (health insurance isn't one of them!).

Her job will end in either 1 week (fast track) or 8 weeks (slow track). By law, superannuation funds cancel all insurance if there haven't been any contributions for 16 months. I did not know this till now. The insurance is costing us more than $200 per month. I don't see the point in continuing to pay. Not being a big fan of insurance in general, I probably should have cancelled ages ago.

I think she should take the fast track–quit in one week's time and get a bigger redundancy payout–rather than the slow track, which means working another 7 weeks and getting a smaller payout, but earning salary, superannuation contributions, and leave entitlements during that time. The fast track pays about $1,500 more and you get the interest on getting the redundancy payment earlier. But for unclear reasons she is leaning towards the slow track, even though she essentially has no work to do. I told her she can do this if she wants as $2,500 is not that much money 😂. She did this analysis using Gemini, which produced about the same result as I calculated and argued it said the slow track was better. But that was ignoring tax, which is higher on the slow track. Gemini did include the tax on a separate line and then on the final line gave the net result.

20 Years of Moomin Valley

Reading Sam's post on 17 years of Financial Samurai, I realized I missed the 20th Anniversary of Moomin Valley! These were the first two posts. In the early years, I posted a lot. Since the GFC and even more since 2012, I have posted less. The nadir was in 2017 (25 posts)–the year after our first child was born. But I still managed a few posts beyond the monthly and annual reports. 2018 was a bumper year for posting and since then, I've stabilized at around 60 posts a year on average. In total there have been 2,270 posts or about 110 per year.

At first, I wasn't sure what I would use the blog for. Mostly, it has been for accountability for myself. I know I need to post about the ups and downs each month. Writing about investments means that you need to think about them. I hoped my wife would read it to learn about our finances, but that didn't really happen. 

USVC

AngelList have announced a new mutual fund investing in venture capital called USVC. You can invest as little as USD 500. I have been thinking about investing in this via our SMSF. Previously, I wanted to invest in Unpopular Ventures on the AngelList platform using the SMSF but SuperGuardian, our administrator, said it wasn't allowed because of the partnership structure. Instead, we invested in Moominmama's name. This isn't a partnership, so it should be OK. It seems to be open to non-US investors despite the mutual fund structure. On the other hand, I feel I am too contrarian to be happy investing in all these US AI companies at this stage. At least 80% of the fund will be in US venture. That is why I like Unpopular Ventures because it is truly global. In retrospect I would have done much better with my investments if I had been less contrarian. But it is just this fundamental character trait. So, I try to work with it rather than against it. I feel uncomfortable going with the majority.

Closing US Bank Accounts

Keybank are increasing the security precautions on their bank accounts. You will need either a US phone number or a "passkey" to log in. Apparently, a virtual phone number won't work, it must be a real mobile phone. Up till now I had a virtual US number, used a friend's address as my mailing address, and used "secret questions" to log in. I tried to set up the passkey but it would only accept US government issued photo IDs. I don't understand why they are so US-centric. Don't they even have Canadian citizens as customers? Once upon a time this was an account at the globally focused HSBC. But mergers and acquisitions moved it to Keybank. This was my bank branch when it was temporarily owned by First Niagara:

So, I moved the money I had out of the accounts to Interactive Brokers. Now I need to get a USD account here in Australia to receive transfers from the US without getting terrible exchange rates. Moominmama has one at HSBC Australia. I might do that, but first I am investigating whether I can get a receiving account at OFX.

Update 4 April

In the end, I decided to go with HSBC Australia as it is a known quantity and setting up a business account with OFX seemed like it might be more complicated than what I need.

IWT Conscious Spending Plan 2024-25

I updated the I Will Teach to Be Rich Conscious Spending Plan that I last did more than a year ago. I used data for the 2024-25 Australian financial year. Here it is (as before in Australian Dollars):

In our CSP, the gap between gross salary and take home pay is purely taxes. We count the employer retirement contributions as part of take home pay. A big shortcoming of Ramit's conscious spending plan is that it doesn't differentiate between taxes and pre-tax retirement saving as deductions from gross earnings. The show also ignores social security. So often he is telling people to increase their investment rate when they may already be investing enough for retirement between pre-tax retirement and social security contributions. 

What has changed since I last did this? The biggest differences are that, first, we now have about AUD 1 million more net worth achieved through growing investments and savings and reducing debt. Second, we now have a lot of savings, which is a response to higher interest rates, as most of these savings are in our "offset account" that reduces the mortgage interest we have to pay. I still haven't added any savings goals though. This time I computed the miscellaneous spending category as the sum of medical, department stores, and home maintenance categories rather than just using 15% of everything. "Fixed costs" remained around three quarters of take home pay. Estimated "guilt-free spending" went up to 13% of take home pay, which is still below Ramit's guideline. This is mainly because travel spending was up. But everything in this category was up. 

The way I computed things this time, we end up with AUD 2,300 per month in dissaving to fund our lifestyle... AUD 1,675 of this is mortgage principal, which I usually count as savings but count as spending here. Actually, I count mortgage interest usually as an investment loss... *  I included the total mortgage payment in spending here. If we make those two adjustments we are actually saving money each month in addition to the pre-tax retirement saving.

I wonder what advice Ramit would give us? I think he'd say that we are doing OK. We are investing 10% per month the way I have computed things and we have a high net worth that we increased substantially despite our high "fixed costs", even though if I had excluded the employer superannuation contributions from take home pay we would be dissaving.

* In my annual financial year spending breakdowns I count mortgage interest as spending, while in my annual accounts (and monthly investment returns) I include it in investment return rather than spending. So, I am now reporting this in three different ways...

What it Takes to be in the Top 1% in Australia

Interesting article in the AFR on what it takes to be in the top 1% in Australia currently by both income and wealth. You can go to the free article to see lots of charts, so I won't post them here.

To be in the top 1% by income, you need a household income of AUD 532k. The top 5% is above AUD 306k. The top 10% starts at AUD 235k. I predict that our taxable income will be AUD 263k for this tax year. So we fall within the top 10%.

The wealth data are also broken down by age group. For the 41-64 age bracket the top 1% starts at AUD 7.7 million, while the top 5% starts at AUD 3.8 million. At AUD 7.4 million we are just outside the top 1%. Our average adult age is 55. The top 1% for 65+ starts from AUD 10.9 million!

There are also breakdowns by type of asset. The top 5% by home equity for our age band starts at AUD 1.42 million. So we are well below that. The top 25% is AUD 650k and above. We are within the top 25%.

A top 1% household superannuation balance is one of more than AUD 2 million. We are definitely in the top 1% by this criterion. Moominpapa alone has almost 1.9 million and Moominmama more than 900k. The top 1% of individuals starts at 1.4 million.

VSS

VSS stands for "Voluntary Separation Scheme". The details were announced this afternoon. There are three weeks to apply for it from today. They are offering 3 weeks pay per year of service as a severance payment. That means I'd get about 3/4 a year's pay in a tax advantaged way. So maybe a year's after tax pay. I estimate now that net worth in 2029 would be only 5% lower than it would otherwise be. It's beginning to look like a no-brainer. Next step would be meeting with my director.

P.S. 8:50pm

I sent the email to my director about discussing the VSS and other options. Apparently, there is also a retirement scheme they are progressing with the ATO and the FAQ discusses working part time etc. I ran the numbers on the payout calculator they provided. Including annual leave and long-service leave, my estimated pay out is AUD 269k. There would be an estimated AUD 40k of tax on that.

Scammed Again?

About a year ago, I got scammed for more than $2,000. I managed to get the money back from the merchant and only had foreign exchange conversion losses. At the time, Commonwealth Bank said they couldn't do anything because I had approved the transaction. This month, I found a round $50 transaction on our credit card from Seenenergy/Post Melbourne Australia. Neither I nor Moominmama recognized this transaction so I raised a dispute online. Almost instantly Commonwealth Bank refunded the $50! I wonder what is the difference between these two cases. I suppose that I did not actually click anything to authorize this transaction? Maybe it is because this is a credit card rather than debit? Or both? Our credit cards have been cancelled and we need to wait for new cards.

Relative Wealth

Take all the bitcoin in the world and divide by the number of people - how much is an equal share? About 0.0025. Similarly, an equal share of the world's mined gold is about 0.8 ounces. Our family of four people has about 400 times its equal share of bitcoin and 50 times its equal share of gold currently. The dollar value of our gold holding is about 1.5 times our bitcoin holding.

Chosing a Fixed vs. Variable Interest Rate Again

I fixed the rate of my CommSec margin loan over the last year. I now have a choice for next year. The variable rate is 9.65% while the fixed rate is 7.79%. For the variable rate to pay off, the Reserve Bank would have to cut its interest rate by more than 1.86% on average over the course of the next year. So, for example, if they don't start cutting interest rates till the middle of the year they would need to cut by 3.75% in total. I can't see that happening and so it makes sense to choose the fixed rate again.

Capital Calls

So, as soon as I had increased the cash buffer in our offset account, I got AUD 40k of capital calls, so back to square one again. The capital call from Unpopular Ventures was expected. We have completed our first 2 year subscription period and are renewing for another two years. We need to make quarterly contributions of USD 10k. This is an act of faith that our investments will eventually be as good as their earlier investments. Ten years of fees come out of the investments up front, so we are underwater on our investment so far.

The other call is from Aura Venture Fund II for AUD 25k. These don't come on any schedule. When they need more money they make a call with about two weeks of notice. We have now contributed 55% of the total capital we pledged. There is no choice about this one. It's also losing at the moment.

Life Insurance and Cash Buffers

This post follows up on EnoughWealth's comments on my previous post on Ramit's Conscious Spending Plan. In that post, I commented that I should have more cash in our offset account, in case I die or something, as otherwise bills might start to bounce (like the bill for tuition for the term for two children... or an AUD 25k capital call from Aura), especially once my salary was stopped. Even though I now have my salary coming into our offset account I am finding I have to shuffle money around quite frequently to able to pay the bills. This is because investments like in Unpopular Ventures are also coming out of this account. We are earning the mortgage rate implicitly on money in the offset account. But as that is less than our top margin rate that we are paying I have been reluctant to just put a lump of tens of thousands in the offset account.

EnoughWealth said that that is the purpose of life insurance. Yes, we both have life insurance attached to our employer superannuation. But getting life insurance paid out could take weeks. Only in 50% of cases is it within 2 weeks. My death cover is AUD 168k. This number seems to be falling as I get older.

So, probably I should hold more cash in our offset account despite the interest cost. I also need to write an "operating manual" and get Moominmama who has no interest in finances to read it... 

I recently learned that I have an above average probability of getting a heart attack for my age (59). I am taking statins now to try to reduce that rate, but who knows how effective that will be.

 

IWT Conscious Spending Plan

I like to watch Ramit Sethi's podcasts where he has an in depth discussion with a couple about their finances. These sessions usually involve the "Conscious Spending Plan", which is basically a type of budget. You can get a copy of the spreadsheet here. I was curious how our numbers compared to the guests on the show and so filled in the template myself.

My main issue was deciding what income number to use. At first, I tried using our income as reported in our tax returns plus employer superannuation contributions. That includes net investment income outside of superannuation. But then it was pretty tricky working out what amounts to put in for investment flows. I switched to using just our salaries plus employer superannuation contributions and it all made much more sense. I added a childcare and education category as that is our largest expense. For the "clothes" category I used our spending on mail order and groceries is what we spend in the supermarkets category. Transportation includes all our transportation spending including petrol, car repair, buses, taxis, e-scooters etc. Saving is our employer superannuation contribution plus the concessional contributions we make for Moominmama to our SMSF. All the numbers in the following are in Australian Dollars:

What do I notice in the results? One is that we don't really do "savings" both in terms of saving towards goals and having savings. Our savings are basically money in "checking" accounts. If we need more money we take it out of an investment account or borrow money. I am thinking I probably should get the savings buffer up more in case something happens to me. Otherwise, the family will quickly have payments bouncing without someone to make sure there is always enough money to cover bills. We used to keep about 1% of net worth in our offset account.

Our total "fixed costs" are at 76%, which Ramit considers too high. On the other hand, our investment contributions are at double the recommended level and I think they are now very low.

The amount left over in the "guilt-free spending" category is only 4%, which Ramit considers to be very low. There is a lot of flexibility here in what should fall into the fixed cost and this category. Is subscribing to e-scooters, which saves me a lot of time and is fun, something I should consider a fixed cost or "guilt-free spending"? Should private school and music lessons be considered a "fixed cost"? I have included some hobby-related subscriptions in the subscription fixed cost...  But moving those would only change things by $100 a month at most.

What is in the guilt-free spending is in practice spending on eating out (mostly lunch these days) and travel - mostly the money we spent on renting a house for our vacation. The recommended 20-35% of spending is really a lot!

Lost Money Found

Got an email from Commonwealth Bank that mentions their "Benefits Finder" button in the CommBank App. This can help you find missing money. Turns out I have about $650 with ASIC in liquidator dividends from the collapse of HIH Insurance. I owned 7,500 shares when it collapsed. Need to have a document with my name and address on at that time. I even have the ASX holding statement for my shares! Get a certified copy, a certified copy of my passport, and a statutory declaration and send it all to ASIC.... Will be paying a visit to the Post Office tomorrow to do all this...