Moominvalley January 2012 Report

This was a good month with decent market returns, a relief after a year where most months we were losing money. The big news is that we hit a record net worth in both Australian Dollars and US Dollars. Here is what it looks like in AUD:



The new net worth is $A553k. The previous high water mark in Australian Dollars was $A527k in August 2007, which was the month Snork Maiden and I merged finances in preparation to move to Australia. So in that sense we have finally recovered from the trauma of the GFC (and the costs of moving to Australia) but profit levels are very depressed and so in that sense we haven't recovered at all. It's mostly down to saving:



As you can see from both these graphs, non-retirement savings is the main driver. We also hit a new high in USD at $US586k. The previous high was $US574k in April last year. The income /expenditure accounts in US Dollars look like this:



Investment income was high and the Australian Dollar gained to almost $US1.06. Expenditure was higher than last month but within recent norms. Net worth increased by $US50k ($A30k).

The MSCI World Index gained 5.84% in USD terms and the S&P500, 4.48%. We gained 7.55% in USD terms (4.05% in AUD terms and 4.90% in currency neutral terms). We reduced cash and net loans and the allocation to large cap Australian stocks increased most (to 44.76%) due to market performance. US stocks were our highest performing asset class.

Failed Auction

We went to our first home auction today. There was a big crowd but in the end only 4 people seem to have registered to bid in the auction. The auctioneer called for bids and no-one bidded. Not even "$500k" say. Maybe those people were just too embarassed to say they weren't bidding? So the auctioneer went inside and phoned the vendor and came back and made a bid (he's allowed to make one) at $820k. No-one bidded and the house was passed in without sale. It will now be remarketed with a fixed price. It will be interesting if that will be at $820k or less. This is a further sign that the property market is softening here. There are few auctions now. Most properties are marketed with fixed prices and there are a lot for sale compared to the number that have sold recently. A year or two ago it was mostly auctions.

P.S.
This house that we saw last weekend has already been slashed by $70k. It started way too high of course.

House Hunting

The last couple of weekends we have been to open houses in neighborhoods we might like to live in. I think the nicest house we've seen is this one. We're not really serious about this at this stage, just trying to get a feel for the market. Definitely it seems that houses recently put on the market are asking for ridiculous prices and dropping them over time. This one was $990k-$1,040k. Given the market here the price is reasonable. The garden is really beautiful with several mature trees.

We saw one earlier in the day that wanted $1.22m for what I thought wasn't as nice (though Snork Maiden disagrees). That house has only just been put on the market. We were the only people at the showing and the owner is trying to sell without an agent.

With one exception all the agents we have encountered were driving luxury cars - Mercedes, Audi, Porsche Cayenne etc.

Concessional Contribution Cap and Unisuper

Unisuper say they are concerned that the Australian government will not index the concessional superannuation limit this year. The issue is that employers in the university sector are contributing 17% of employees stated salaries to the Unisuper superannuation fund. In other words, for someone earning $A100k per year they contribute $A17k to this retirement fund in addition to the salary they pay. Somewhat similar to the "matching contribution" idea in the US, though no match is required from the employee. This is greatly in excess of the 9% which the government mandates employers to pay.

The problem for high earning employees is that the limit on pre-tax (or concessional or salary sacrifice) contributions is $A25k a year. I'm just below this threshold at the moment. Probably, when our salaries go up in July I'll be over it. Concessional super contributions are taxed at 15% rather than your usual marginal tax rate (mine is 37% + medicare). If you try to contribute too much the fund will accept the money but the government taxes it at the top tax rate - 46.5% (including medicare). So a little bit of my salary will get taxed at the top rate and then stuffed in an account I can't access for at least another 13 years...

The logical thing would be to reduce the contribution from 17% for high earners and pay that out to employees as extra salary. But that seems to be too simple for the convoluted Australian super system. Instead, Unisuper just lobbies the government to raise the cap. I guess it's not in their interest to reduce contributions and the unions who negotiated this deal (which I don't belong to) don't care that some full professors have to pay some extra tax.

It won't amount to much money for me, but it just seems silly. For those earning more than $A180k a year, the rate is no higher than their usual marginal tax rate.

New Investment: Argo Investments

Back in 2008 I blogged about traditional Australian Listed Investment Companies. These have lower management fees than Australian index funds and in the long-run seem to slightly beat the index by selecting investments and selling options. I finally made an investment in Argo investments. The current book price relative to net asset value is better than Australian Foundation or Djeriwarrh and unlike Milton it is marginable at CommSec. They also have an annual share purchase plan, which I might participate in. I started small with 1900 shares - just a bit less than $A10k.

This investment is despite really being overweight in large cap Australian share according to my criteria and desiring to increase liquidity. My last post showed that our allocation to large cap Aussie stocks, though still high has been coming down. And I think we can increase liquidity and invest a little.

And I'm not even sure it makes sense to borrow money at CommSec's high rates. The alternatives are to borrow at lower rates via Interactive Brokers (but I need to get money into the account and do currency conversions along the way) or invest in the CFS Geared Share Fund. The latter has a very high management expense but they access funds at lower interest rates. Also, holding this investment with Interactive Brokers probably will make it hard to participate in dividend reinvestment and the share purchase plan. I guess I'll do a bit of each. None is ideal.

Annual Review: Part III

This is what happened to asset allocation over the year:



Cash and bonds went up and large cap Australian stocks went down. This is due to market weakness and a purposeful policy of increasing liquidity in recent months. The large cap Aussie stock weighting fell from 51% last December to about 43% now. In the long-run for diversification reasons I'd want to get that smaller still but it is hard to resist the benefits of franked dividends.

Annual Review: Part II

Not sure how serious this annual review is going to be. I'm just going to post what I feel like. This is what happened to net worth in Australian Dollars over the course of the year:



We ended the year with somewhat higher net worth but retirement savings actually declined while non-retirement savings overtook retirement savings for the first time since the onset of the financial crisis. This trend will continue this year, I think. Maybe once I turn 50 I might increase retirement savings above the tax concessional level * as the money can be accessed from age 60.

This chart shows underlying story:



Persistent saving throughout the year in both types of accounts and persistent investment losses at a similar rate on both.

*$A25k a year for each of us can go in after 15% tax. Contributions above this rate are taxed at our marginal rates.

Debit Card Fraud

I got an e-mail from HSBC in India today telling em to phone a US number because my debit card may have been used fraudulently. I did a Google search for the number and came up with what looked like an HSBC site with that number on it. So I called up and soon was speaking with someone in India. They asked for a lot of identifying detail but it wasn't what I was used to banks asking for. I started getting suspicious and started Googling them while talking to them and found some sites claiming that that number was a fraud. I stopped the conversation after they claimed that they had cancelled my debit card and refused to give them more information. I asked them whether they could prove they were from HSBC and they had no answer to that. All the guy could say was that he worked for the fraud department.

I then went to my regular HSBC site and phoned the regular customer service number. They told me that yes my card had been cancelled and it was a legit call. The woman there arranged to send me a new card.

Was I overly suspicious? The bank has a problem if people might think that legitimate workers for the bank are fraudsters.

My card was only defrauded for $6 in the original transaction. I was much more worried about the guys I was now talking to ripping me off for a lot more.

Weird Price Discrimination

So we were in Dick Smith (electronics store) about to buy something that costs $A250. Snork Maiden asked the cashier if any deals were available. He looked at his computer for a while and said - I can give you a two year extended warranty and reduce the price to $A225 - the price of the item was now only $A170 and the warranty $A55. This makes no economic sense to me at all. How can it make sense for them to give away more stuff for less money? I can understand where he'd reduce the price if we asked or throw in the warranty for free, but why do both? Anyway, of course I agreed to that deal.

Annual Review: Part I

It was a big year careerwise. I got a permanent job in Australia after working temporarily for the same department between January and August. I was promoted to the top rank. Snork Maiden is still trying to turn her position into a permanent one. She has an interview later this month for that purpose. Still this meant that our income (not counting investments) reached a record high this year and will likely be even higher next year:



This table is based on my monthly reports. The numbers are in US Dollars. The USD/AUD exchange rate didn't move much over the year as can be seen from the line labelled "Forex". Salary etc. came in at $165k for the year. This is after tax. Retirement contributions were $35k for a total of nearly $200k. Investment generated a loss of $92k (pre-tax). 9 out of 12 months saw losses. A pretty dispiriting year. On the other hand we saw the highest percentage gain ever in October. More on investment performance in an upcoming post. Expenditure was $75k or more than $6k per month. This does include some travel that was later reimbursed. In AUD terms total expenditure went up from $A62k in 2010 to $A71k. So there may be some lifestyle inflation there... But non-investment income doubled so it was a lot less than the income gain.

In the end net worth rose by $36k to $535k for the year or $A33k to $A522k.

Moominvalley December 2011 Report

I'll do an annual review soon, so this will be pretty brief. As usual the numbers are in US Dollars. Non-investment income was on the high side as I finally got a reimbursement for my trip to India. These business expenses get included in our regular spending and income figures and exaggerate them a bit. I do try to compute "core expenditure" that excludes this sort of spending. Retirement contributions were lower than normal because some payments seem to have been held up by the holidays. Another losing month on the investment front. We lost 1.31% in USD terms (and about the same in terms of other currencies) though the MSCI only lost 0.17% for the month and the S&P 500 gained 1.02%. Still we managed to increase net worth by $6k and it's close to a new all time record in Australian Dollar terms at $A522k ($US535k).

Expenditure was very low compared to recent levels at just $3,864 ($A3,769). Snork Maiden thinks I must have made a mistake in my computations as she remembers spending a lot of money at Costco, that opened here recently...

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.

Street Scenes from the Other Side of the World

Third post in this series:

1996-2002:

2007-Present:


The most noticeable thing about these pictures I think is the sunshine :) It's not been like that much recently.

Another Continent

Street scenes from the other side of the ocean:

1990-1991:


1991-1992:


1992-1993:


1995-1996:


2002-2007:


Yes, when I was in grad school I ended up moving every year. Since then, I've been much slower to move.

Revisiting the Old Neighborhood

I was inspired by these posts to put up some pictures of places I used to live. The difference in my case is that they all look much the same as when I lived there and I'm twice the age of Ken! For three countries I've lived in I could just go to Google Earth and capture pictures. No need to actually travel :) So to kick off here is Britain below. I've tried to capture a feeling of the streets and I've just labeled them by when I lived there. It's pretty easy to guess where they are though :)

1964-1966:


1966-1983:


1989-1990:


1993-1994:


The only changes are really the models of the cars and in the 1966-1983 place the size of the plants in the gardens and the recycling bins.

Qantas Technical Analysis

I haven't done this kind of thing for a while :) Looking at the Qantas chart there is a clear resistance line at $1.80. TA theory would say that if we get above that we probably won't go below it again in a hurry. It's interesting a friend said he thinks there will be a new buyout offer at $1.80 - Seems very low though to me... Don't know if it based on anything solid or just rumors he heard (my friends are in places where you can hear interesting rumors). Anyway, there is also an inverse head and shoulders formation in Qan that would take it to about $2.10 if it works. The most recent low in QAN is higher than the previous one and there is some sign that volume is declining through the formation, though hardly a classic pattern.

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.

Moominvalley November 2011 Report

Things reversed again this month but the losses were actually less than I expected. IN USD terms we lost 6.35%. In AUD terms we lost 3.05% and in currency neutral terms 3.65%. But the MSCI World Index only lost 2.94% for the month. The reason for our underperformance is that the Australian market largely missed out on the global 30th of November rally induced by globally coordinated easing by central banks. The World Index rose by 3.71% on 30th November. So the day before the index was down 6.54% on the month, which is roughly what we lost.

Anyway, here are this month's accounts in USD:



USD net worth fell by $20k but in AUD terms we were only down $A1k. . Net worth is at $531k or AUD 519k. Total non-investment income was $20k. Just over $3k of that came from a refund I got for our trip to the US in September-October. I'm still awaiting a couple of other travel refunds. Retirement contributions are now running at $4k a month as we are both contributing near the maximal concessional amount ($A25k per annum) including employer contributions. Investments lost a total of $35k with $15k of that due to foreign exchange movements as the US Dollar rose against other currencies. Total spending was $6,065 but almost $1,000 of that was a trip I took to Queensland which should be refunded. So spending was around our "new normal" of $5,000 per month.

Yeah, these numbers in terms of non-investment income are feeling pretty crazy to me. You can see how quickly things have changed when you look back over the last several months of reports.

More Liquidity

With potentially large expenditures in the next year or two we need to have more liquidity. So going forward I'm going to focus discretionary saving more on short-term investments and paying down debt. Our automatic investments will continue as before at $5000 plus a month. Just over $A3,000 per month going into superannuation (after the 15% contribution tax) and $A2,000 a month into managed funds.

Show of Confidence in Qantas?

It looks like the chairman and a bunch of other directors of Qantas went out and bought shares on the market. It's nice to see a vote of confidence in the company from the board. But really 100,000 shares at $1.60 each is not going to be much of an investment for Leigh Clifford given that he was previously CEO of Rio Tinto. Anyway, the stock price is up a little this morning on this news (as I can't see any other reason apart from the positive performance on Wall Street on Friday).

Invest in Multifamily Houses in Jersey City?

I saw an ad in the Australian Financial Review today to invest in the US Masters Residential Property Fund. I already invest in US property through the TIAA Real Estate Fund, which does include apartment complexes but not small multi-family or single family houses like this fund does. The supposed advantages are a high yield relative to investing in single family homes in Australia, the low price of housing currently in the US, and the high value of the Australian Dollar. The fund is not hedged, so if the Australian Dollar falls the value in AUD terms will go up. Also it is cheap to borrow in the US, though currently the fund is not borrowing. The management fee is about 1.6% per year. There are a few possible downsides:

1. The fund is currently trading at $1.64 on the National Stock Exchange (formerly the Newcastle Stock Exchange), but it's NAV is $1.54.

2. The application fee amounts to 4%. Combined, this means that you lose more than 10% of your money right away.

3. Selling units would mean trading on the NSX. Neither CommSec nor Interactive Brokers trades on this exchange.

4. All the houses bought so far are in Jersey City, which isn't very diversified. At least it isn't Michigan I guess...

Point 3, rules out buying units in the market unless I was to set up an account with Macquarie say... So I think I'll pass on this. What US REITs invest in this investment class that I could buy through my Interactive Brokers account?

Of Course Compulsory Super is a Cost to Employees...

A reader asks the Sydney Morning Herald:

"Q The money that an employer ''compulsorily contributes'' to my super * comes from where? Is it my money contributed on my behalf by the employer, or is it the employer's money, begrudgingly contributed to my super because the government orders it?"

and the answer:

"A The contribution is a cost to employers and, although contributed on behalf of the employee, is not a cost to them unless they are employed under a salary-packaging arrangement."

While this might be legally correct it is absolutely not correct from an economic point of view. It reminds me of the claims back in 2000 from the government that the GST (=value added tax) wasn't a tax on business but just a tax collected by businesses from consumers for the government. If employers didn't have to make 9% contributions to super they would pay workers higher nominal wages by the same amount (presuming that workers value super and extra salary the same and so labor supply was unaffected which wouldn't be quite true). It is very much forced saving by workers. That doesn't mean there is anything wrong with it. It is a kind of behavioral economics policy - forcing people to save in their own interest because they wouldn't do enough of it otherwise.

* Super(annuation) is the retirement account system in Australia. Employers must by law contribute a minimum 9% of the stated salary on top of the salary actually paid to a superannuation account. This will be rising to 12% if current legislation is passed.

Security Clearance

If you ever have to do a security clearance - at least in this country - these are some of the things you'll need:

1. Everywhere you ever travelled overseas down to the months for the last 10 years and by year for previous years. And for your spouse too.

2. Addresses with proof in the form of utility bills for last ten years.

3. Everywhere you worked with months and times you weren't working for the last ten years.

4. Birth certificate etc. of course

5. You can get away with minimal info on your parents and your spouse's parents.

They'll also want to know all the accounts you have and their value and your credit card numbers etc.

Luckily I can provide all the info more or less. So that's a good reason not to throw things away...

This is the lowest level clearance so I can be granted free access to a federal government department. Working for a university is not working for the government. It's a public sector non-profit or something...

Vice Chancellor of University of Queensland was Paid More than $1 Million

The Vice Chancellor (i.e. President) of the University of Queensland is resigning. But what shocked me in the story was that he was paid over $1 million! And his deputy was paid almost $1 million. Recently there was a controversy that the head of the Reserve Bank had an increase in salary to $1 million and that several other public officials saw increases to around $800k. The Prime Minister gets less than $400k and government department heads were in the $400k or so range. A full professor gets $145k base salary with more senior and star people up to $250k (Laureate Fellows get this much). My impression was that a Dean would get around $200k and so I assumed that the VC would be in the $400k range. But apparently not. Or is it just Queensland? Apparently this is not unique. Ian Young got about $900k at Swinburne and so presumably gets much more now he moved to ANU.

Australia is the Richest Country in the World by Far

When measured in terms of median wealth per individual in US Dollars at $220,000. Switzerland is richest in terms of mean wealth per individual. Both facts are in the Credit Suisse Wealth Report.

(HT: Enoughwealth)

15.01%

Yes our rate of return in USD was 15.01% for October which is a record. But it was largely due to the rebound in the Australian Dollar. In AUD terms we only made 5.61% and in currency neutral terms 8.57%. And after 7 months of losses in AUD terms it doesn't get us back to where we were either. And now Greece seems to have gone crazy and called a referendum on a deal which would have written off a large amount of their debt. I didn't think Greece would end up exiting the Euro. But at this rate it might. I still think the Euro project as a whole won't be reversed. Anyway, here are this month's accounts in USD:



A gain of $87k in net worth. $30k came from foreign currency movement. $40k from core investment returns and $23k from salary, tax refunds, and retirement contributions. Spending was at $5,672. It seems that $5,000 is the new normal for spending. Net worth is at $551k or AUD 519k.

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.

Average Australian Households

Thanks to high house prices and compulsory superannuation the average Australian household is much wealthier than the average American household.

We are below average with a net worth of about $A510k vs. $A720k for the average household. The average house was worth $A541k for those who owned their home outright and $A521k for those with mortgages. The average superannuation (retirement) balance was $A154k. Here we are above average at $A261k. That includes a couple of US retirement accounts though.

Our income (not discussed in this article) puts us in the top 10% or so probably of households and in the long-run I expect we will end up wealthwise in the top 20% of households who average $A2.2 million.

Yoyo in Hollywood

Seems like it was hard to get both Yoyo and the Hollywood sign in focus.

Costco

We went to the (relatively) new Costco store at Canberra airport today. You have to buy a membership ($A60 p.a.) before you can look inside the store, though the membership is refundable. Some things are very cheap and others are near prices at other discount stores. For example, wine sells for the same price as 1st Choice Liquor. Levis 501 jeans were on sale for a price lower than in a Levis outlet in Los Angeles we were recently at (i.e. just $A45). Post-it notes etc. were about half the price that they are at OfficeWorks. We mainly bought food. Things do come in large sizes but there are some smaller ones too. You can buy a regular 3 litre bottle of milk, 250 gram Camembert cheese etc. and individual cakes etc. as well as the larger sizes. The price for TVs was the same as Harvey Norman.

If you are already shopping at 1st Choice, Aldi, and fresh food markets you probably won't save a huge amount in Costco and the range is limited.

We ended up spending $A155.93 somehow or other...

Moominvalley Report September 2011

Another month of negative returns. Seven straight months of losses. Returns in USD terms were heavily affected by the rise in the US Dollar which reduced the value of all our non-USD investments. As a result net worth fell by $US56k:



In Australian Dollar terms the loss was "only" $A11k. The USD rate of return was -13.26% compared with the MSCI World Index's loss of 9.4%. In AUD terms we lost 4.38% and in currency neutral terms 6.07%. Expenditure was high. We went to the US and bought a lot of stuff there - clothes, kitchen stuff, a new camera etc. Our first trip back since we left in 2007. I don't really feel like writing a lot more about this.

P.S.
In response to the comment from Financial Independence, I've introduced a new format for these monthly income/expenditure statements. Hopefully, they give more intuition about how the numbers are calculated.

Get Done What You Want to Do Now

I just heard that Steve Jobs died at age 56. I felt sad but my immediate thoughts were that he got on with doing the big things he wanted to do and it's good he did because he died relatively young. I've often commented (in contrast to some but not all personal finance bloggers) on not worrying too much about saving for retirement over more immediate life goals and not putting off dreams until you "retire". This just reinforces it. Also in the news is the Nobel Prize in Physics awarded to ANU astronomer Brian Schmidt (and two Americans). He is just over two years younger than me and the key paper that won the prize was published in 1998 when he was just 31. Of course, this is the advice that Steve Jobs himself gave in his graduation address at Stanford.

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%.

Google Plus

Google finally opened Google Plus to anyone who wants to join rather than by invitation only. So I joined to see what it was about. I get this one even less than Facebook so far. It invites me to add names to circles, but I get no indication of whether people I know are already on Google Plus. I'm mystified. I guess I'm "doing it wrong". Any enlightenment?

Rome

I was just invited to come and talk in Rome. But I turned it down. I think I will have done enough traveling for the year and I don't feel particularly expert in the specifics that they are interested in. I don't see it adding a lot professionally in other ways. It's more like a training session for the participants (from developing countries) from what I can understand. It's a pity because I like Rome and I have a friend I could visit there and even in theory visit family from there. But that's a big trip and would take me away from Snork Maiden for a long time and she isn't very keen on that. So, I think I'll stay home this time. I expect only to get more such invites in the future.

Consulting

How much should I charge as a consultant? My employer allows us to spend 20% of our time on consulting. So I figure I should take my salary + employer retirement contributions and divide by 4*52 days to work out a daily rate. And add on any expenses too, of course. Snork Maiden thinks that is too low. And it seems to be lower than what one of my colleagues quoted. I'm not really interested in making money from this project but more about developing a long-term relationship with the client which would be valuable in terms of science and policy impact. I wouldn't really spend time consulting for a purely commercial client as I think we don't need the money. Unless they offered a really large amount of money of course :)

Four Years in Australia

We arrived in Australia four years ago today. From today Snork Maiden can apply for Australian citizenship, though now she doesn't seem to be in so much of a hurry to do that now. She just got a visa to visit the US (Australian citizens don't need visas) so won't bother with the citizenship until getting back from the US. We're still living in the same apartment as we were when we got here. We're now earning a lot more money but our net worth is about the same due to the financial crisis that intervened. I got a permanent job though Snork Maiden hasn't yet. There is still plenty of demand to hire her on a temporary basis for the next couple of years. But she hasn't looked for a permanent position outside her current employer and they are taking their time. Lots else has happened in the last four years too. We got married. We've travelled to Europe and Asia and around Australia. We've had people come visit here...

Cambria to Offer More Actively Managed ETFs

Cambria manages the GTAA ETF. Manager Mebane Faber also writes an interesting blog. Now they have filed with the SEC to offer more ETFs.

Getting on Track for a Sustainable Retirement: A Reality Check on Savings and Work

A recent paper by Wade Pfau really overturns some standard ideas about retirement planning. The usual story includes picking a "number", planning how much you need to save to get to the number and starting early with saving in order to benefit from compounding interest. This table from the paper:



shows what percentage of final retirement assets could be explained by accumulated wealth a given number of years before retirement for a bond-stock portfolio simulated over the last century or so for the US. Even with an all bond portfolio only 43% of final wealth could be explained by accumulated assets 10 years from retirement. For stock oriented portfolios very little of the variation could be explained. It's all down to the luck of the market returns in the final 10 years. So tracking net worth doesn't really help much in telling you how much you'll have to retire on after all... Early compounding doesn't make much difference because there isn't much wealth to benefit from compounding.

So what does Pfau recommend? Calculating a minimum safe savings rate based on age, accumulated assets, and allocation. For someone of 55 years old who has saved 4 times their salary and wants to replace 50% of their salary and retire in 10 years and has 60% in stocks, the minimum safe savings rate is 52% of income! For a 50% chance of success of achieving a sustainable retirement only an 18.2% savings rate is needed. Having more wealth earlier does help reduce these rates. Not because of compounding but just in terms of piling up more savings. There are more analyses in the paper of the effect of retiring later etc.

Superannuation Trends

This is a graph of our three Australian superannuation (retirement accounts). The green is Snork Maiden who has now been working for four years and accumulated $A50k. The blue is my current account where I worked one part-time job in 2009-2010 and then a full time job from the beginning of 2011 and accumulated about half as much. The red is the account from when I worked in Australia previously that is heavily invested in Australian stocks. So it fluctuated dramatically through the GFC and the recent market correction. The accounts that are currently accumulating were little affected by market fluctuations. They are also much more diversified.

How Much Money Should You Give as a Present if You are Invited to a Wedding?

If you ever wondered how much money to give as a gift at a wedding, there is an "app" for that if the wedding happens to be in Israel. Unfortunately the link is in Hebrew (I can read it...). I wonder if there are similar sites for other countries?

Snork Maiden said that in China RMB 1000-2000 would be expected, which sounds like a lot of money to me as RMB 2000 could be a month's wages for a factory worker or even a new graduate.

Moominvalley August 2011 Report

Six losing months in a row now... The accounts for the month look like this in USD terms:



Non-investment income was very high as was spending. This was a triple pay month - we get paid every two weeks as is the norm in Australia and every few months there is a month with three payments. Also my pay rose as I took on my new position.

But in USD terms we lost 7.25% this month against an MSCI World Index loss of 7.26%. We're now down 9.31% for the year in USD terms while the MSCI has lost 4.19% for the year so far. The Australian Dollar fell back a little to USD 1.07 and so Australian Dollar returns were "only" -4.67%.

Expenditure was very high at $9,743. But a third of this was another long haul plane ticket I bought which I should be reimbursed for (I still need to be reimbursed for my trip to India). Core expenditure was still high. There was about $1000 of medical and dental expenses. We'll get reimbursed about $200 for those.

As a result net worth fell USD 27k to USD 520k and fell AUD 11k to AUD 487k. Due to buying shares asset allocation was pretty much unchanged for the month as stocks fell.

Was There a Lost Decade?

An interesting article in the NY Times about whether investors should have had a lost decade - losing money over the last ten years or for the first decade of the 21st Century. The author argues that if you were properly diversified then you wouldn't have lost money. So I decided to check it out based on the data I have collected. I have been keeping accounts and returns on investment in a spreadsheet since 1996, so I have several years of data shown in the graph above. As at the end of last year the S&P 500 had a very meagre positive return over the previous decade. It's a little better now because it is coming off a lower base in 2001 in the tech crash. After inflation you would have lost money investing in the index. The MSCI World Index though had a return of 3.07% and would have about broken even after inflation. I was a little ahead with 4.31%. Right now I'm at 4.57%, MSCI at 3.77% and the S&P500 at 1.52%. So the author's point about diversification holds up. Back in the depths of the GFC all three were losing money. If you had a lot of relatively safe bonds you might have been above water. Not if you had a lot of Australian Dollars which fell dramatically in value in the crisis. So it depends what period you pick exactly, what result you get.

Are Tech Stocks Cheap?

Most large cap tech stocks now have fairly low price earnings ratios and some are even paying big dividends:



Historically, tech stocks paid very low or no dividends and utilities great big fat ones. From Tickersense.

Buying Shares

I've actually been buying shares recently. Adding $A5,000 to the CFS Geared Share Fund (large cap Australian shares with in built borrowing and today I bought 5000 shares of Qantas (QAN.AX). That was a departure from my recent investment plan. The only other stocks of individual companies I hold are Legend International (LGDI.OB) and Bekaert (BEKB.BR) and neither has been doing well lately. Still, if analyst forecasts are even slightly right, Qantas is very cheap and it is trading a lot below book value. The two moves are about a 2.5% investment of net worth. Of course, we have automatic investments of more than $A5,000 happening every month anyway. $A1,000 in each of mine and Snork Maiden's CFS managed fund (mutual fund) accounts and retirement contributions - about $A2,000 for me and $A1,400 for her. These are in diversified but equity biased funds.

I also just bought a ticket to the US today. On Qantas.

Superannuation and Life and Disablement Insurance

I finally got my job contract and have signed and returned it, so now I have a permanent job. As I discussed, I decided to make no additional contributions to superannuation (retirement) beyond the 17% my employer is contributing. Additional contributions have to come from after tax income as the employer contribution already almost hits the annual $A25k ($US26k) ceiling on pre-tax contributions. As I won't be paying any capital gains tax for a while and franking credits help reduce my tax bill it seems to make sense to invest outside super for the moment. There will be plenty of opportunity to invest extra in super nearer retirement (assuming the laws don't change). The cap on after-tax contributions is $A150k per year and at the moment for over 50s there is a $A50k cap on pre-tax contributions. I'm 46. So from age 50 to 65 I could in theory put $A3 million into super! I don't think I need to make extra contributions now.

I think we will instead increase Snork Maiden's superannuation contributions to the maximum pre-tax level. Currently her employer pays 15.4% on top of her salary. We contribute $A225 every two weeks from pre-tax salary. We could double that to $A450 and stay within the $A25k cap.

I did opt for the maximum life and disability insurance that is allowed by my superannuation provider without providing health information. This would be a lump sum payout of $A255k currently. That declines to $A231k next year and so forth. It makes sense that the number goes down as there are less years of salary to replace and savings will increase at the same time. The premium is $A218 a year for that amount. I'm not a big fan of paying premiums to insurance companies given the insurance company failures I've seen. But this amount made Snork Maiden feel more comfortable.

Hedge Fund Performance in the Recent Market Correction

The Dow Jones Credit Suisse Core Hedge Fund Index is a hedge fund index that is updated daily. This allows real time tracking of hedge fund performance vs. other asset classes:



Hedge funds declined much less than stocks in the recent correction. Particularly noteworthy have been the gains in managed futures.

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.

HSBC Sells Upstate NY Branches to First Niagara

HSBC lost a lot of money from it's venture into North America. Now they are withdrawing and have sold their upstate New York branches to First Niagara Bank. I have a checking account with HSBC at an upstate NY branch as well as a credit card account and an online savings account. Apparently, all these accounts, including the online only account, will transfer to First Niagara:

"9. I have an Online Savings/Advance Account, and also accounts at a branch which is included in this transaction. Will my Online Savings/Advance Account transfer with my other accounts?

Upon completion of the sale, if you have a branch relationship, all accounts associated with your branch relationship (including Online Savings/Advance) will be automatically transferred."

Snork Maiden has an online only account with HSBC and so apparently her account will stay with HSBC. The full FAQ is here.

Moom's Taxes 2010-2011

I can't submit my tax return yet as I don't have details of the tax treatment of a couple of distributions I received. But I did all the other calculations now to get this out of the way. In the following table I make some assumptions about the distributions:



Click here for the 2009-10 data. For those of you outside Australia, the Australian tax year runs from 1 July to 30 June. There are no state income taxes and no joint taxation of married couples. All numbers are in Australian Dollars (1 AUD = 1.10 USD).

I was only employed in Australia for 6 months of the year, hence the relatively low salary, which is after 10% voluntary super (retirement) contributions. Gross interest and Australian dividends are pretty self explanatory. Dividends are just direct payments from companies. Dividends and other Australian income not including capital gains paid out by a managed (mutual) fund is include in the Income Distribution from Trusts. I had a net capital loss, but you can't deduct any of that against general income (unlike the US), so zero is entered here. Foreign source income is a lot bigger than last year because I worked in Sweden for a month. It's also the reason why I have such a large foreign tax credit as I was charged 25% flat tax on my earnings there. Total income comes in 28% higher than in the previous year.

The work related travel expense is due to not being fully refunded for flying to CCL. Australian dividend deductions are mostly margin interest. Taxable income was up 32%.

Gross tax is the tax due on taxable income if no credits were allowed. The low income tax offset is a credit available if your income is under $67,500 and is maximal at $1,500 if your income is below $30,000. Franking credits are credits on Australian dividends for corporation tax paid by the companies. This is Australia's way of reducing the double taxation of corporate profits. As noted above, I paid a lot of foreign tax, mostly to Sweden this year. As a result I should only owe $6,624 to the Australian government, which is an 11.82% tax rate. As $12,266 was withheld, I should get a $5,642 refund. Withholding was very high because it is based on me earning my salary for 12 months rather than just 6.

High End Japanese Restaurant

When I posted a picture of Yoyo looking at Sushi I said that was a high end Japanese restaurant too. This place was on the 39th floor of a building in a Seoul satellite city with a great view. You had to take your shoes off outside the private dining room and then get up into the room. In the middle was a table over a sunken well. So you were sitting on the floor Japanese-style but actually your feet were in the well and so you were actually sitting at a table Western-style simultaneously. There were endless courses.



In the picture there is sashimi (on balls of shredded radish) on the right and sushi in the plate. The mug has hot sake with fugu fins in it. My host said that his grandfather liked to drink this. It was interesting and not bad at all. There was also beer.

Bibimbap at the National Museum

Bibimbap can be served in a sizzling bowl which you are supposed to add soup and hot sauce to complete the preparation. But, then, sometimes it isn't, like this example at the National Museum:

River of Alcohol

A bar with a river of alcohol! The traditional Korean drink makoli to be precise:




This was in the Sinchon neighborhood. You can drink as much as you like for W4,000 each (just under $4). You can also order food. The main menu was in Korean and Japanese, but there was also a Chinese menu. No English menu. Again, recommended by our Hong Kong guide. So, the dishes cover holes in the table. You lift the dish and ladle out some drink into your cups. It is about as strong as cider or a strong beer. It is the first stage in the production of rice based liquor before distillation.

Sovereign Credit Ratings

With all the talk about the U.S. credit rating possibly being lowered to AA from AAA due to the debt ceiling debate debacle, I was wondering what the credit ratings of other countries were as a point of comparison. Wikipedia, helpfully has a list. According to Standard and Poors, other AA countries include:

Belgium
Bermuda
China
Japan
Kuwait
New Zealand
Qatar
Saudi Arabia
Slovenia
Spain
Taiwan

Not such a bad club to be in. Some are countries with un-democratic governments but low debt like China and others democracies with very high debt levels like Japan. Apart from the U.S., the AAA club currently includes:

Australia
Austria
Canada
Denmark
Finland
France
Germany
Guernsey
Hong Kong
Isle of Man
Liechtenstein
Luxembourg
Netherlands
Norway
Singapore
Sweden
Switzerland
UK

These are democracies with reasonable debt levels and good track records or tax havens. Yes, Hong Kong is a tax haven. I don't think that Singapore counts as a tax haven and isn't a democracy really (despite having elections) but it does seem to have very good and reliable financial regulation.

Neighborhood Restaurant

We found lots of attractions and places to eat in Seoul by following a guidebook that Snork Maiden bought at Hong Kong airport. First she had to translate from Cantonese to Mandarin and then to Korean though some things were actually labelled in Korean. This was very helpful. By the end of the trip I could read all the Korean consonants. One of the places recommended was just round the corner from our hotel and we ended up eating there twice. We would never have tried some place like that without the guidebook. The basic menu consisted of 20+ dishes (and rice and soup) for W7,000 (about $6) per person. This is what it looks like (with an additional dish in the middle):



As here, you can order "additional dishes" in addition to the basics. The restaurant is in a traditional house with a tiled roof. The host brings the menu on a giant wooden spoon:



There is actually a menu in English, surprisingly enough. We actually asked for one in Chinese first. Here is a Korean pancake (W10,000):



The dish we were least enthusiastic about were these leaves (I think it is perilla):

Snork Maiden's Taxes 2010-2011

Time for the annual report on Snork Maiden's taxes. For some reason, these are some of my most popular posts. For comparison here is last year's report. I can't actually submit her return until I do my taxes which won't be for a while (I need to gather a lot of tax statements from investments first). This is because they are now requiring full details of a spouse's income in order to avoid paying the Medicare surcharge. This is an extra 1% tax on total taxable income for household's earning more than $A146,000 a year who don't have private health insurance. Our income for the 2010-2011 tax year was about $A120,000 but we need to prove that.



Compared to last year salary (after superannuation (retirement) contributions rose by 3.3%. Distributions of Australian income from managed (mutual) funds almost doubled but foreign income fell a little. She had about double the amount of unrefunded work expenses. As a result, taxable income was up 3.0%.

The amount of tax due in last year's post is wrong. In fact, tax due rose by 2.7%. This year's tax refund should be $A633 compared to an actual refund of $A203 last year. The estimated tax rate is slightly down at 22.11% of taxable income. There are no state income taxes in Australia so this federal tax is the total income tax.

End of an Era

Soros to return all outside money to investors. I didn't realise that it was down to just $1 billion in outside money. The Alchemy of Finance was one of the books that got me interested in trading. In the end that didn't turn out to be a very productive thing for me to try to do, but it was fascinating.