Saving More Each Month than I Earned as a Graduate Student in a Year

As a relatively old PF blogger :) I've occasionally mentioned that young people shouldn't worry too much about saving for retirement and should enjoy life. Of course, if you are earning a high salary when you are young then go ahead and save. But there is no sense in depriving yourself if your income is low and expected to increase. I just realized that our average saving (not counting investment returns) per month is now more than I earned in a year as a graduate student twenty years ago. I earned between $9k and $10k a year back then (around 1992). Yes, prices have probably about doubled since then, and the Australian Dollar is extremely strong now which makes our current savings particularly high in US Dollar terms, but then let's say we save in 3 months what I earned in a year in real terms and we would not be wrong. Back then I was spending more than I earned then but not dramatically so. I ended up with a negative net worth of about $11k. I expected to certainly earn more in the future than I was then and so thought this was entirely justified. On the other hand, my Dad told me I should be saving money. Of course, maybe that was because he was lending me money :) * I think the investment in my graduate education has certainly paid off. Of course, it might not have but it was hard for me to imagine that I wouldn't be earning a lot more in some job in the future.

But, I think you'll find that most people save the most for retirement in the years leading up to retirement despite all the rhetoric from the financial management industry about starting early and compounding. There is a good reason for this - their income is highest here and for most people other life expenditures are maybe declining (buying a house, having children). The latter isn't the case for us, of course. We are still looking at buying our first house.

* About $9,000 by the end. I was studying in the US as a foreign student so my ability to work while studying was very limited and I depended on what the university would pay me as a grad student. After I paid off my credit card bills in 1995 I started to pay him back. I owed about £5k when he cancelled the loan after he sold some art works he inherited 25 years earlier.

Moom's Taxes 2011-12 Edition

After doing Snork Maiden's taxes my final investment tax statement arrived and I could do my taxes:

It's a huge contrast to my 2010-2011 taxes (Follow through to earlier years and it is even more dramatic):

• My salary has almost tripled.
• Interest is almost 10 times as high.
• Foreign source income is a fraction of what it was (2010-11 included foreign employment income).
• Deductions are similar though I am now attributing some expenses to my mutual funds which I previously attributed entirely to stock investments.
• Gross tax has quadrupled and net tax is about 6 times higher with almost three times the tax rate, now at 29.51%.

I'm expecting a rather small tax refund, barely offsetting the extra tax that Snork Maiden owes. I used to get massive refunds. I actually used up some of my CGT loss carry-forward this year, taking it down from $82k to $80k! That's a tax asset worth about $30k, which we don't include in our regular net worth spreadsheets. Maybe I should.

Moominvalley Monthly Report September 2012

Financially, things went OK again this month. We hit new net worth highs in both Australian and US Dollar terms of $A678k (+$19k) and $US705k (+23k). The Australian Dollar was pretty stable, up 0.5 US cents.

Our rate of return was 2.94% in USD terms versus 3.19% for the MSCI and 2.58% for the S&P500. In Australian Dollar terms we made 2.40%. The monthly accounts (in US Dollars) look like this:

This was a very high spending amount as Snork Maiden gave $A5,000 to her mother and also bought a ticket to China ($A1,400). I also bought a ticket for a trip next month, though my employer is paying most of it, I'm paying $A600. Taking all of this out we still spent $5,000, which I guess is the new normal. We did go to Western Australia and spent quite a bit there on car hire, restaurants etc.

The monthly accounts show that we earned $13.5k in salaries etc. . Retirement contributions were $2.8k. Total investment returns were $20.0k. There was very little change in the portfolio over the month as all asset classes made money. I did withdraw $A1000 from one of Snork Maiden's mutual funds to add to the house-buying fund. That fund reached $A131k up from $A126k despite transferring $A6k from this account to China ($A1000 is spending money for Snork Maiden there).

Will Close Roth IRA

I blogged a few days ago about Ameritrade dropping support for foreign investors. I got a reply from Interactive Brokers - they can't open a Roth IRA account for me and, therefore, I can't transfer that account from Ameritrade to them. So I will have to sell my investments (one mutual fund and one closed end fund) and transfer the money to my US bank account and from there to my regular brokerage account at IB. I have to pay taxes anyway on my Roth IRA account in Australia so it makes no difference as long as I live here how the account is structured. And this will be one less account to deal with.

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?

Ameritrade No Longer Supports Foreign Customers?

I got a letter from TD Ameritrade saying they will no longer support customers in my country from 30th October. Either I need to open a new Roth IRA account with another institution and ask the new institution to transfer my account or I will need to liquidate my account. I have a brokerage account with Interactive Brokers but I suppose that I won't be able to open a new Roth IRA account as I'm not resident in the US. Anyone who has better information on this let me know, please. So, I'm guessing my best option is to just close the account. There are no net profits and there is no penalty for withdrawing your contributions. I have less than $10k in the account. PS - I just sent a "ticket" to IB asking this question.

Rich or Poor?

Interesting set of profiles in the Guardian. For a comparison, we make around £150,000 a year and have £230,000 in savings. Professor married to a researcher. Our monthly rent is £1300. I think we feel rich until we go to look at houses to buy :) The mortgage on the kind of property we are looking at would be £3,000 a month (we now got pre-approved to borrow up to $A780k). We don't live rich apart from living in exactly the location we want to live in and paying the rent that that means. We have an eight year old Ford car for example.

$700,000

Yes, we are over $US700k in net worth after passing $US600k for the first time in February. Can't promise that it will hold up to the end of the month though!

Premier Banking

So, we've been looking at houses and find some of the sort we might be interested in are above our pre-approved borrowing limit. So, we tried to get the limit raised as we have been increasing the size of our deposit pretty rapidly. Turns out the guy we spoke with before is no longer working for the bank. So, we've now been referred to a relationship manager who works with the banks Premier Banking division. If you have more than $750k borrowed and/or in investments with the bank you qualify for this service. If and when we get a mortgage from the bank we will be in that category. So, I guess this makes sense. Anyway, one lesson is that it really matters who you bump into when you walk into the bank what kind of service you get directed to.

We just need to send the relationship manager our latest payslips and bank statement (from another bank) and he will see what he can do.

BTW it is 5 years to the day since we left the US and moved to Australia. We didn't arrive till the 15th.

Three Bikes for Three Hundred Dollars

We went shopping for bikes with a couple of friends who are visiting our city for a few months. When we were at the store I decided to buy a bike too. Each of us ended up buying a bike for exactly $100. All second-hand of course. Mine is a Nakamura Cougar mountain bike - 21 speeds, old fashioned cantilever brakes, big knobby tires. Plan is to ride it to work which is 2 1/2 km and so is a bit far to walk both ways each day and seems a bit near to take the bus that only actually covers about half the distance, though that's what I've been doing. I have a road bike but keep it in our apartment and it has the wrong pedals for ordinary shoes and just seems like a hassle. This bike, I'll keep in the underground parking beneath our apartment building. And won't worry about bumping over kerbs and stuff. I couldn't find any pictures that are much like this bike, even though I think it is just a classic mountain bike.

It's the first bike I've bought since 1985! Yeah, there aren't many original parts on my road bike and that includes the frame.

Moominvalley August 2012 Report

Financially, things went OK again this month. We hit new net worth highs in both Australian and US Dollar terms of $A659k (+$33k) and $US681k (+22k). The Australian Dollar fell a little.

Our rate of return was only 0.78% in USD terms versus 2.22% for the MSCI and 2.25% for the S&P500. In Australian Dollar terms we made 2.61%. The monthly accounts look like this:



The monthly accounts (in US Dollars) show that we earned $20.2k in salaries etc. as this was a three pay month. Retirement contributions were $3.3k. We spent $5.0k but around $500 of that was implicit depreciation on our car and so actual spending was relatively low compared to recent months. Total investment returns were $5.1k but earnings would have been $15.4k without the changes in exchange rates.

Moominhouse Fund Progress

The fund rose from $116k to $125k this month. Progress has been pretty steady since February:



This is actually just the cash in the bank account which we also pay our rent from. So that is why it also dips down. I think we need to get to $150k before we'll be in a position to bid for houses at auctions and have back up for contingencies. Well, at least for houses in the price range we seem to be targeting.

Facebook Investor Peter Thiel Makes Thousand-fold Return

The fall in Facebook shares since the IPO isn't much of a worry for the earlier investors. Peter Thiel sells 80% of his Facebook shares for $400 million. He bought his stake in the company for $1/2 million. Another way to look at it is that he made a 137% p.a. return in the eight years since investing.

P.S. 22 August

Actually, he made more than a 2000-fold gain.

Bill Gross is Wrong

In this piece, Gross says that stocks have had a 6.6% real return historically and asks how that can continue if the GDP grows at only 3.5% per year.

The answer is simple - you get a dividend of 3% and the value of your stock goes up by 3.5% in real terms to reflect the growth of future dividends in line with the growth of the economy. If you don't pay any taxes and reinvest all your dividends, the value of your asset grows at 6.5% per year and you would own an increasing share of the stock market. But in the long-run no-one can do this. At least they haven't. Even endowments like Harvard spend some of their earnings all the time. The stock prices of companies that don't pay dividends but make normal profits would go up at 6.5% per year. Berkshire Hathaway is a company that hasn't paid dividends for more than 40 years and its stock price has gone up enormously. At some point the model of buying more and more companies will run out of steam. In fact, I expect that after Buffett dies the managers will end up breaking up the company.

Moominvalley July 2012 Report

A whole month has gone by with no posts since the first day of the month... This seems to be the fate of a lot of personal finance blogs, eventually after a few years they die out. But I have been blogging on my professional blog quite a lot this month. I guess there isn't much nowadays that I feel like sharing with the rest of the world on personal finance. Things have been very busy at work and I have also had flu too.

Financially, things went well. We hit new net worth highs in both Australian and US Dollar terms of $A626k (+24k) and $US659k (+42k). As you can see the Australian Dollar is again rising.



Non-retirement assets are now substantially ahead of retirement accounts again. Our rate of return was 5.26% in USD terms versus 1.4% for the MSCI and S&P500, which is nice. Only 2.87% in Australian Dollar terms though. The monthly accounts look like this:



The monthly accounts show that we earned $14.5k in salaries etc. (this includes some reimbursements) and $3.3k in retirement contributions. We spent $6.3k but some of that was work related and will be reimbursed and so the core expenditure is $5.2k in line with recent behavior. Total investment returns were $32.4k but $14.7k of that was due to the rise in the Australian Dollar. All in, net worth rose $42.3k.

I have computed Snork Maiden's taxes for this year and it looks like she owes a little money. So I won't submit the return until October when I do mine. My taxes for the year are now in the region of $A42k. My tax reducing strategies are having little impact now given my large rise in income. I guess that is a good thing.

Also, after both our salaries went up my employer is contributing more than the $25k annual concessional limit to superannuation. This means that $500 of it will be taxed at the top marginal rate. There is no way to reduce this contribution. Snork Maiden is now just below the cap including her salary sacrifice contributions. In future, we will have to reduce those, assuming the super rules stay the way they are.

Moominvalley June 2012 Report

Accounts for June in US Dollars:



These accounts aren't totally final due to the slow reporting of tax credits etc. at the end of the Australian financial year which was on Saturday. Net worth rebounded strongly (by $33k) from May in USD terms as the Australian Dollar rose over parity again. Net worth is now $US617k or $A602k. We spent $US5754 but some of that was work related and without that we spent $5,319. $1,000 of that was a coffee machine that was supposed to be a present for Snork Maiden's dad. Or maybe not. He told us to use it ourselves so that we can teach him. Seems to require some skill still in the milk department despite being an "automatic" espresso machine.

The rate of return in USD terms was 3.96% vs. 4.99% for the MSCI World Index and 4.12% for the S&P 500. In Australian Dollar terms, though, we lost 1.37% (-0.46% in currency neutral terms).

Lost Decade Update

Back in September last year I discussed the idea that the last decade was a lost decade as far as investment returns were concerned. Back then the MSCI World Index was outperforming the S&P 500 with almost twice the rate of return over the last ten years. And I had been outperforming both indices over that timespan. Now, 10 months on, the picture has changed a lot thanks to the ongoing European crisis and the underperformance of the Australian market:



The S&P 500 has caught up a lot and now has a 4.42% rate of return over the last decade, which at least beats inflation. This partly reflects, however, that June 2002 was in the depths of the "tech crash". The MSCI is now on 5.2% up from 4.15% last September. And I am at 4.54%, down from 4.61%.

Half Year Report

These accounts are for the first six months of this year in Australian Dollars:



As they even out the month to month volatility they are perhaps a bit easier to get the big picture from. The first two numbers on the top row are after tax salary etc. and retirement contributions. After that we have non-retirement investment income which netted out to $174. Snork Maiden said: "At least it is positive!". Retirement accounts did a lot better on investment income. We spent $33k which means we saved $54k from the non-retirement stream while retirement accounts rose $26k. The savings rate from regular income is then 62% with roughly 70% of spending on "needs" and 30% on "wants". We can save around $100k per year at the moment ($9k per month) which is much more than enough for the increased housing expenditures that would come with the kinds of houses we are looking at (about $4k higher a month).

Moominvalley May 2012 Report

This month, stock markets fell sharply and the USD rose sharply. The MSCI World Index fell 8.88% and the S&P 500 6.01%. The Australian Dollar ended the month at 97.11 US cents, down from 104.11 cents at the end of April. This meant we lost a lot of money in US Dollar terms and quite a lot in Australian Dollar terms. We lost 11.56% in USD terms and 5.18% in Australian Dollar terms.

May's accounts in US Dollars:



Spending this month was pretty average at $4,475. There weren't any unusual expenditures. Foreign exchange losses ($35k) were almost as big as actual underlying losses ($38k). Current other income was higher than normal due to refunds of last month's business expenses of about $3k and a small consulting type fee received. Retirement contributions were also higher than normal as each of us got three retirement contributions added to our accounts this month rather than the usual two. There is a contribution every 2 weeks as our salaries are paid every two weeks as is the norm in Australia. So some months there is a third salary and contribution.

Net worth fell by $56k to $584k. In Australian Dollar terms the loss was only $A14k to a record $A601k.

Our cash allocation is now 18.48% of net worth. Up from 16.81% in February. The house fund account stands at almost $A100k.

For a few more details you can check me out on NetWorthIQ.

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:

House Buying Account

It stands at $A99,773 up from $A92,038 at the end of April. I now realize that we need to get to way over $100k. More financial reports for May coming up soon.

Financial Planning

Life is very busy recently and so I don't have much time to blog. I haven't even posted much on my professional blog. There hasn't been much new on the financial front to write about. Anyway, today I had an appointment with a financial planner at Commonwealth Bank. It was a bit strange as a financial planning session. She didn't really seriously try to get a picture of mine and Snork Maiden's finances. She was just interested in selling me on a couple of products. One was insurance and the other superannuation. She tried to interest me in "trauma insurance" and "income protection". I'm generally a big skeptic of insurance. I promised to look into whether I already had income protection from my superannuation provider and to think about whether I need it. But I think not. On super, she could put me into a wholesale fund that has lower management fees in exchange for a $1500 up front financial advice fee. It probably will pay off. I'll look into it in more detail and report here.

Going, going, gone

We went to the auction today for this house. This is the first house we actually saw sell at auction - only the second auction we've been to. No-one even bidded at the previous auction. The opening bid today was for $750,000 and that bidder never bidded again. I wonder if they were a friend of the owner just trying to get the bidding started? The price rose to $850k, which was my estimate of what the house would sell for and seemed to stop. One of the three agents at the auction then went inside the house to talk with the owner on the phone. When she came back she said "it's on the market", which apparently means that $850k would be an acceptable offer. I would have thought there simply was a reserve price up front that the owner had given to the agent. But after this the bidder who had bid $850k and a young couple started bidding again, sometimes in increments of $1,000 until eventually $870k was reached and the young couple gave up. There was a round of applause after the auctioneer said "Going, going, gone" and hit a pile of paperwork he was holding with his hammer.

Snork Maiden asked me whether I'd be willing to pay $870k for this house when my estimate was $850k (I know all these numbers will sound crazy to many of you in other parts of the world...). I said the best way to think of it really was thinking how much extra your mortgage payment would be for each $10k. For a 30 year mortgage that is currently $63 a month. So the extra $20k would cost $126 a month. Snork Maiden didn't think that was much. I feel that that is quite a bit.

Actually, the Amount We Can Borrow is Rather Less...

The lender phoned me this morning. We could borrow up to $690k for a house with a price up to $750k. This is because the stamp duty is about $30k and that has to come out of our deposit and then what's left is not that large a deposit... $750k is about in the middle of the price range of places we have been looking at. So maybe that will work for us. Or maybe we should talk to another lender. In the meantime we will keep saving.

Another Meeting with the Lender

Back in February, we met with a mortgage lender at Commonwealth Bank. He told us that we need to have a reasonable sized deposit on deposit for three months in cash in a single account before we could be preapproved for a loan. We've now had the deposit for about 2.5 months and it is growing (now $A92k) so we set up another meeting for yesterday. He seemed a bit surprised by the credit limit on the credit card in Snork Maiden's name $A20k and other details of our finances. I guess there aren't many first time home buyers coming in who are as wealthy as us.

One interesting thing that came out of the meeting was that since Snork Maiden is a lot younger than me we can get a 30 year mortgage probably. That would reduce the payments on a 90% loan for an $A800k house to $A4,500 per month from near $A6,500 for a 15 year loan.* That sounds a lot more affordable - about 25% of pre-tax income - my ideal would really be to not ever pay off the loan so that is getting there :) It's interesting that he didn't run any numbers by us at all though apart from briefly mentioning the maximum he thought they could lend us. Those are my calculations using SOLVER in Excel. He was more interested in selling us car insurance for $10 a month cheaper than our current provider. We did discuss variable versus fixed rate loans. You can get up to a 15 year fixed rate loan here now, but the interest rate is much higher than the current rate on a variable rate loan.

Anyway, he's working on the pre-approval at the moment and we should hear in a day or two.

* The median house in our city is $A550k.

Moominvalley April 2012 Report

As usual, everything is expressed in US Dollars unless indicated. This month exchange rates were relatively stable for a change and investment returns near zero. A quiet month.



Spending this month included a lot of business expenses that will be refunded. Without those we spent $3,837 (core expenditure), which is near our minimum montly expenditure. Investment income in USD terms was slightly positve, but adjusting for the changes in exchange rates we lost $1,513. Net worth increased by $12,668. In Australian Dollar terms $10k to a record $A615k ($US640k).

Investment returns were 0.25% in USD terms compared to -1.08% for the MSCI World Index and -0.63% for the S&P 500. In AUD terms we made -0.17%. Our cash allocation is now 16.91% of net worth. Up from 14.78% in February. The house fund account stands at $A92k.

Really nothing exciting happened apart from cash piling up :) For a few more details you can check me out on NetWorthIQ.

US Tax Code is Particularly Lopsided against Individuals and towards Corporations

The US has a particularly punitive tax regime on individuals. Not only are they taxed on their worldwide income but even if they move abroad they are still taxed. Even if you renounce your US citizenship there is a big expatriation tax to pay. They used to try to collect tax for another ten years...

By contrast, companies are only taxed on the profits they earn within the US and can employ all kinds of strategies to reduce tax by earning profits offshore. Though I am against double taxation of income (taxed at corporate and then again at individual level) this kind of lopsided tax regime is unfairly taxes different companies at different rates and makes the whole tax system look manifestly unfair.

Government Wimps Out and Makes Super More Complicated

So the government will increase the superannuation contributions tax to 30% but only for people who earn more than $300k per year. This is said to reduce the budget deficit by $1 billion. But if there are only 128,000 people earning more than $300k per year the total is:

128,000*$25,000*.15 = $480 million

To get to $1 billion you either have to assume that they are all over 50 with less than $500k in super in their accounts, or use 30% by mistake in the calculation. So everyone from $180k to $300k per year in income will get a 30% concession and those of us earning between $80k and $180k will get a 23% concession. But those earning more than $300k only a 15% concession. Of course, this doesn't make a lot of sense and makes super more complex. It would make much more sense to abolish the concessional tax on contributions and if that is too severe an increase in tax also cut the rate on superannuation earnings a little. This would make the system much simpler by getting rid of the distinction between concessional and non-concessional contributions, salary sacrificing etc. Of course, Labor is still hoping that public servants and maybe some others earning between $80k and $300k a year will still vote for them. So they haven't raised their tax.

Someone Else Noticed

that Google is defying the trend to smaller screens.

Budget Cuts and Superannuation

Here in Australia we are now in the run-up to the annual federal government budget announcement. All kinds of ideas that might be in the budget are always floated in the run-up. One big one in the last few days is the idea of cutting superannuation tax concessions. Superannuation is the Australian retirement account system. It is very complex due to the nature of the tax regime. At the moment contributions are taxed at 15% rather than at people's marginal tax rate. Earnings of the funds are taxed at concessional rates and there is no tax when the money is withdrawn and once you are in the withdrawal phase there is no tax on earnings either. The latter two concessions were introduced by the previous Liberal government. So the most likely outcome is to remove the concessions for contributions. This will be a further step towards making our system like the US Roth IRA. But we will still be tax fund earnings which is the main contributor to complexity in the Australian system.

Even though obviously it is personally a bad thing for contributions to be taxed more, I think it is a sensible move. Why should high income earners get such a big concession and low income earners none? * It is the easiest way to push the budget towards surplus without raising tax rates or cutting welfare payments. All government departments in Canberra are already getting massive cuts to their operating budgets, but really there just aren't that many public servants in Canberra that this can make a really big difference, especially as in the short-term they are getting redundancy payments. I would be in favor of cutting some of the family welfare payments that the former Liberal government introduced and that Joe Hockey seems to regret, but I can't see Labor doing that.

* Of course you can flip this argument and say we should have a flat tax and super contributions are a good first step towards a flat tax. But that ain't happening any time soon...

Houses, Google Rant...

We continue looking at houses... As we look more we gradually understand better what we are looking for. Houses vary a lot in location, age, style etc. Our ideal house now has a much smaller garden and is very new. This means it has windows already fitted with flyscreens for example - you can add them to houses from the 1950s and 1960s but they will be really ugly. Also it means that the bathroom will be much bigger and usually have a separate bath and shower. All the older houses in our price range have tiny bathrooms and it would be very hard to expand them. The whole house would need to be rebuilt and I don't think we want to do that. The houses in the new suburbs are typically on very small blocks (=parcel of land) of around 400 square metres. If the house is a single storey, little land is left over. We don't want to live in those suburbs anyway due to transport issues. We're looking now more at the 600 square metre block versus the 1200 square metre block shown in this post.

As far as finance goes we've had a deposit in a single account growing for the last 2 months now. The lender said the money needs to be there for 3 months before they can lend. It started at $71k and is now $88k. I aim to keep saving to at least $100k. I guess in a month we'll go back and see the lender again. In the meantime we can't really buy anything, and certainly not at an auction. Anyway, most houses do not sell at auctions though many are put up for auction.

When I tried to log on to Blogger today I found myself in the "new" interface. Somewhere, there was a button for the old one and I got back to my familiar world. This button is no longer available though on Google Analytics. I think the new Gogole interfaces are worse than their predecessors. What I don't understand is why when more and more people are using laptops, phones, and tablets to access the web Google is going to interfaces with heaps of white space which can only be really seen properly on a huge desktop screen? At least Reader allows you to get rid of some of the white space and was tolerable after that. But it doesn't look like the Blogger interface has that option. Please let me know if you find it. I also hate Microsoft Office's post 2004 versions - Word 2008 is OK but Excel was horrible and what I've seen of the even newer versions on PCs is no better. So I use Word 2008, Entourage 2008, and Excel 2004. I try to avoid Powerpoint. But when I use it I switch between 2004 and 2008. It's particularly annoying that when you open 2004 Excel graphs in 2008 they are completely reformatted and a total mess in many cases... And 2004 Powerpoint slides don't always look right in 2008 either...

Platinum Capital Launches Share Buyback

A lot of Australian closed end funds - known as listed investment companies in Australian jargon - have been trading well below net asset value since the Global Financial Crisis. Some like Platinum Capital (PMC.AX) used to trade at a premium to NAV probably because of accumulated undistributed franking credits.* Some funds have introduced capital management plans to try to boost their share prices. PMC recently announced that it was implementing a share buyback and also it is now posting the daily NAV on its website. I have about 20,000 PMC shares...

* Franking credits are credits for Australian corporation tax paid that are distributed with dividends in Australia. These can be used to reduce investors' personal tax bills. If distributed dividends are less than profits, undistributed franking credits will accumulate. This is what drives the relatively high dividend yield of Australian stocks. They are not included in stated net asset value.

Moominvalley March 2012 Report

As usual, everything is expressed in US Dollars unless indicated:



Spending this month included a hotel bill that has since been refunded. Without that we spent $4622 despite traveling overseas for 10 days. Because the Australian Dollar fell, investment income in USD terms was negative, but adjusting for the changes in exchange rates we would have made $13,129. Net worth increased by $3,786. But in Australian Dollar terms net worth rose by $A26k to a record $A605k.

Investment returns were -1.10% in USD terms compared to 0.71% for the MSCI World Index and 3.29% for the S&P 500. The Australian stock market languished in relative terms even in local currency terms. In AUD terms we made 2.80%. Our cash allocation is now 15.51% of net worth. Up from 14.78% in February.

For a few more details you can check me out on NetWorthIQ.

Preliminary Monthly Report

Doing the accounts for March this morning... Looks like we hit a net worth of $A600k for the first time, partly because of the fall in the Australian Dollar to $US1.03 this month. But I'm noticing that quite a lot of our investments are hitting all time highs in terms of the profit we have made on them. These are:

CFS Developing Companies Fund
CFS Diversified Fund
PSS(AP) (Snork Maiden's superannuation fund)
Qantas
Celeste Australian Small Companies
Acadian Global Equity Long-Short
Argo Investments
CFS Geared Global Share Fund

Some others are also quite close to peak profit levels. Of course a lot of other investments are still way down from their peak profit level or are underwater... Two common themes among the winners are small cap stock funds and recent investments. Small caps have been doing very well - they usually do at the beginning of the business cycle, which is why we have invested in them quite heavily. Recent investments haven't yet had a chance to lose money :)

Our house-buying fund has reached $A82,973 from $A77,386 last month. The goal is to reach around $A100k.

Apart from computing rates of return, I use the monthly accounting to check up on whether all our retirement contributions have been properly made by our employers, whether the fees we are being charged are correct, and whether we have been paid money we are owed. I found that my superannuation provider has been charging around $A100 a month for "inbuilt benefits" since I cut my member contribution to zero in September. This makes no sense to me as there is nothing in the prospectus (PDS) about increased fees if you cut your contributions. It does say that you can't get optional life insurance etc. and in fact the fund refused me the coverage, which I tried to get. So I think they are now charging me for coverage that I don't have. I sent them an e-mail querying this...

Anyway this is how our Australian superannuation accounts are doing:



The green line is Snork Maiden's account and the blue line my current account, both of which we are contributing to. The red is my account from when I worked in Australia previously. I rolled it over into a commercial fund manager and it is invested rather riskily. Hence the big fluctuations. We have now managed to save $100k in our new super accounts.

I'm also still owed money for travel to a conference back last November, and for consulting over the last six months. In the latter case, government budget cuts and local circumstances look like I lost the gig now (right after my security clearance was finally approved at the end of February, but it would be nice to get paid for what I already did! The conference money is also owed by another university. My own employer is actually great at reimbursing money. I submitted a bill for our recent overseas trip this Tuesday and already the money was in my account on Friday!

Moominvalley February 2012 Report

The numbers are mostly in now. As usual, everything is expressed in US Dollars unless indicated. February managed to squeeze in three pay checks and so "other income" which is mainly salary is particularly high. But we actually got less retirement contributions credited and so that number is a little lower than normal. Investment income was also good with about a 1/3 from the gain in the Australian Dollar, again near record highs. above $US1.07. Expenditure was on the high end above $5k. Partly due to car registration ($A959...) and spending on an upcoming trip ($A741). Also, Snork Maiden applied for Australian citizenship ($A260). Net worth increased $38k ($A26) to $624k ($A579k). Both all time highs.

Investment returns were 3.67% in USD terms compared to 5.08% for the MSCI World Index and 4.32% for the S&P 500. The Australian stock market languished in relative terms. And due to the gain in the Aussie Dollar investment returns were only 1.95% in AUD terms. As a result our allocation to Australian stocks fell... well allocation to everything except cash fell. Our cash allocation is now 14.3% of net worth. Up from 4.7% in January.

For a few more details you can check me out on NetWorthIQ.

Australian House Price Index

The US has the Case-Shiller indexes and now Australia has a potentially tradeable house price index too.

February 2012

More data than usual is delayed this month so I'm planning to wait to report fully when I have a bit more. As you can see from NetWorthIQ we exceeded a net worth of $US600k for the first time and we also hit a new record high net worth in Australian Dollar terms, though it is still below $A600k. We moved a lot of money into cash over the month. Our house-buying account now has $A77,386. But that is still at the low end of the necessary 10% deposit.

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.

Meeting a Lender

Today we went to meet with a mortgage lender. We didn't get far though. I thought I would be OK that I had easily accessible money in managed funds but they want to see at least a 5% deposit held in cash for at least 3 months. So I've been busy selling some of Snork Maiden's managed funds - mainly a bond fund - and redrawing money I had deposited into my margin loan account since last August and we now have $A70k in cash in Australia. I'm aiming for a 10% down-payment. So we now meet the 5% requirement and are well on our way to the 10% down-payment (assuming the house we buy would be $750k +).

Sydney is the 7th most expensive city in the world to live in and 50% more expensive than New York. As Melbourne is 8th, I'm sure Canberra is also in the top 10. To bear in mind when reading my blog and comparing to US costs and prices :)

2012 Forecast

If the stock markets do well, the Australian Dollar stays high, and we don't buy a house we might hit $US800k this year... Buying a house would reduce net worth by about $50k due to purchase costs - mostly "stamp duty". If the Australian Dollar fell to its purchasing power parity level we'd more likely be at $US600k. If the stock market is flat we'd probably be $100k lower. I doubt after two negative years in Australia there will be a third negative year. I also doubt the Australian Dollar would really fall to 70 US cents... But $US500-800k is probably a good range to expect. In AUD expect $A600-800k.

It is looking like Snork Maiden's job will be converted to a permanent position (and a promotion) but the paperwork is still being processed...

Commonwealth Bank Don't Seem to Want to Lend Money

So we (Snork Maiden and me) went into a Commonwealth Bank branch and talked to the person at the customer service desk about getting pre-approved for a mortgage. She said she would get someone to call us about setting up an appointment. After a week, no-one has called us. So I next thought I'll phone the bank to set up an appointment. But I got into the automatic phone system and without a "phone banking password" I couldn't continue to talk to anyone. I don't have one because usually I do everything online. This would stop any new customers either... I could send them an e-mail, but instead I will go to the central branch in Canberra first and see if that works. Otherwise, we'll have to go to a different bank, it would be nice though to have everything consolidated together...

One Million Kilometres

I'm planning a trip next month to a neighboring country and just realized I will hit 1 million kilometres of flying during my flight there. I've kept a spreadsheet of my travel from when I first moved to the US and hadn't flown much yet recording all flights I've ever been on. A professor in an environmental studies class noted he didn't have a car but had flown as far as the moon and back (I think that is what he said) and so wondered if he was hypocritical and I wondered how much I'd flown. I use a piece of software called anAtlas to compute the distances. It's a long way to go to match George Clooney's character :)



Yes, I didn't fly anywhere until I was 18 years old.

Saving and Buying a House

This graph explains our sudden interest in the housing market. It shows monthly saving in Australian Dollars outside of retirement accounts and not including investment income or losses. The dark line is a 12 month moving average. Negative numbers mean that we spent more than we earned in that month. The main reasons for that have been major international trips or moves and a period of unemployment when I was single back in 2001-2 followed by an international move. The record high saving in 2001 is due to a termination payment when my job ended.

There is a recent move up to a much higher level of saving, which means that we could, in theory, afford mortgage payments that are going to be $2000-$4000 more than our current rent (plus other housing costs). As you can see, there's never been a saving level like this in my financial history. After we moved back to Australia in 2007 saving was minimal and then jumped to about $3k per month for a short while. So we definitely could not afford to buy a house during that period. I now have a permanent job. Snork Maiden is still waiting to find out if her job will be converted to permanent status.

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.

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.