It's Feeling Crazy Again

Things are starting to feel a bit crazy again. Yesterday, I was thinking: "Maybe this account could reach AUD 500k today!" It has a 69% return in the last year. All the P&L and changes numbers are for one day.

October 2024 Report

In October, the Australian Dollar fell from USD 0.6913 to USD 0.6564, so US Dollar returns are lower than Australian Dollar returns this month. This was an average month in terms of investing activity. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): -2.21%

S&P 500: -0.91%

HFRI Hedge Fund Index: -0.15% (forecast)

Australian Dollar Indices

ASX 200: -1.29%

Target Portfolio: 2.71% (forecast)

Australian 60/40 benchmark: -0.27%

We gained 2.09% in Australian Dollar terms or lost 3.10% in US Dollar terms. So we underperformed US Dollar indices and the target portfolio but outperformed ASX and Vanguard benchmarks.

The SMSF returned -0.75% compared to Unisuper at 1.47% and PSS(AP) at 0.79%.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and so the total differs from the Australian Dollar returns on net assets mentioned above. RoW stocks (mostly Defi Technologies) lost a lot of money and private equity a little. Gold had the highest rate of return and made the greatest contribution to overall return.

Things that worked well this month:

• Gold and bitcoin gained AUD 62k and 41k respectively. The gain in gold is a new record amount for a gain in a single investment in one month. Regal Investment Fund (RF1.AX) gained 12k.
  

What really didn't work:

• Defi Technologies lost AUD 44k more than offsetting the gain in bitcoin. Australian Dollar futures lost AUD 21k.
  

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give results for three indices. Our performance fell back this month compared to the ASX200 but, as we have much lower volatility, we have a higher Sharpe ratio of 0.88 vs. 0.55. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. We have a positive alpha relative to the ASX200 of 3.33% with a beta of only 0.46.

We moved towards our target allocation this month. We are most underweight cash and most overweight rest of the world stocks. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. This month we had returns of capital from my investment in Integrated Portfolio Solutions (AUD 41k) and Aura VF1 (6k) and lots of dividends. We were also issued shares in Dash - the company acquiring IPS. I made the following additional moves this month:

• I sold 50k shares of Cadence Capital (CDM.AX) and bought 25k shares of Cadence Opportunities (CDO.AX). These were in different accounts. Until last month these two funds returns became more and more correlated until suddenly there has been a change in behaviour and an outsize gain in Cadence Opportunities. CDO is supposed to have a shorter term horizon and be more opportunistic.
  
• I bought 500 shares of the Fidelity bitcoin ETF (FBTC).
• I sold 1000 shares of the Perth Mint gold ETF (PMGOLD.AX). So I swapped this amount of gold for bitcoin.
  

Transition to Retirement

I am thinking of setting up a transition to retirement pension (TTR pension). This allows you to receive regular payouts from your superannuation once you reach the age of 60 even though you are still working. I will be 60 years old in about 6 weeks time! There are lots of strategies this can be used. In my case, I am thinking to continue working full time at least for the next year and to recontribute all the payout to superannuation as non-concessional contributions (post-tax contributions). This has two advantages: 

1. It will convert money that was contributed as concessional contributions (at the 15% or 30% contributions tax rate) and earned as investment returns into non-concessional contributions. If my children inherit some of my superannuation when they are past the age of 18 they then won't need to pay tax on this part of the payout. The "death tax" is only on concessional contributions and fund earnings.
2. Once I hit the transfer balance cap, of currently $1.9 million, I can contribute the money to my wife's superannuation instead. I am currently at $1.7 million and she is at $800k. So, there is still a lot of unused capacity there. 

When you retire or reach age 65 you can transfer money up to the transfer balance cap into a zero taxed pension account. Money over the limit stays in an accumulation account where earnings are taxed at 15% (10% for long term CGT). The TTR pension does not affect the calculation of the transfer balance cap unless you are still holding it at age 65 when it becomes a regular tax free pension account.

My Unisuper account is close to 100% concessional contributions and earnings. So, I would start with that and transfer $600k to a pension account and pay out 10% of it each year, which is the maximum withdrawal rate. You have to leave some money in the accumulation account to receive new contributions... But actually 60% of my SuperGuardian account is also concessional contributions and earnings, and so it would make sense to transfer $400k from that into a TTR pension account too. So I would be withdrawing $100k per year and recontributing. The reason I wouldn't withdraw the maximum annual non-concessional contribution level of $110k is because my employer contributes more than the allowed cap on concessional contributions each year and the excess becomes non-concessional contributions.*

The downside to recontributing to my wife's superannuation is that I could make those contributions from non-superannuation money resulting in getting even more money into super. After all, even if you have more than $1.9 million in super, the amount above the limit is concessionally taxed compared to non-super investments.** But right now I am not making those contributions. Instead, I have been building up a pile of cash offsetting our mortgage. This is partly to reduce our interest bill but also part of a plan to buy a more expensive house in the future. So, as long as I was planning on saving to buy a house, I wouldn't make non-concessional contributions to her account.

Anyway, I sent an email to Unisuper yesterday expressing my interest in TTR pensions and asking what the next step is. 

Originally, I planned on switching to half time work when I reached 60 years old, but I seem to have fallen victim to the one more year syndrome. Seems silly to sacrifice $120k in pre-tax salary and superannuation just to have a bit easier time in the teaching half of my year. Also, my university is enacting a major cost-cutting exercise that likely will see more than 500 jobs cut in total. Academic jobs will not be cut till next year. They are not putting in a voluntary redundancy scheme. But I figure that if I am made redundant then I will get a bigger payout if I am still working full time. I could be wrong about that.

* That's why my Unisuper account isn't 100% concessional contributions and earnings.

** The government plans to tax superannuation in excess of a $3 million threshold at higher rates that include unrealised capital gains. But I think the senate will not pass that legislation and we are still a long way from the $3 million level.

Scammed Again?

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

September 2024 Report

This was an average month in terms of investing activity. Spending fell steeply again to AUD 7.4k but it is going to be up strongly in October.

In September, the Australian Dollar rose from USD 0.6772 to USD 0.6913, so US Dollar returns are higher than Australian Dollar returns this month. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 2.36%

S&P 500: 2.14%

HFRI Hedge Fund Index: 1.19% (forecast)

Australian Dollar Indices

ASX 200: 3.30%

Target Portfolio: 1.07% (forecast)

Australian 60/40 benchmark: 1.28%

We gained 1.65% in Australian Dollar terms or 3.76% in US Dollar terms. So we only underperformed the ASX200.

The SMSF returned 1.11% compared to Unisuper at 1.12% and also PSS(AP) at 1.12%. The fund went over AUD 1.4 million for the first time.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and so the total differs from the Australian Dollar returns on net assets mentioned above. RoW stocks (mostly Defi Technologies) lost money, why all other asset classes gained. Australian small cap had the highest rate of return, while futures including bitcoin made the greatest contribution to overall return.

Things that worked well this month:

• Bitcoin gained AUD 28k and was followed by gold (24k), Tribeca Global Resources (TGF.AX, 17k), WAM Alternatives (WMA.AX, 15k), and Regal Investments (RF1.AX, 12k).
  

What really didn't work:

• Pershing Square Holdings (PSH.L) lost AUD 16k and Defi Technologies (DEFTF) lost AUD 14k.
  

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give results for three indices. Our performance fell back this month compared to the ASX200 but, as we have much lower volatility, we have a higher Sharpe ratio of 0.83 vs. 0.57. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. We have a positive alpha relative to the ASX200 of 2.74% with a beta of only 0.46.

We moved towards our target allocation this month. We are most underweight cash and most overweight rest of the world stocks. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. I made the following additional moves this month:

• In addition to the quarterly contribution to the Unpopular Ventures Rolling Fund, I made an additional investment of USD 5k in Kyte and a new investment of USD 3.75k in another start-up.
• I sold 2,000 shares of PMGOLD, the Perth Mint gold ETF, and added to the cash pile in our offset account.
• I sold our remaining holding in the Longwave Small Australian Companies Fund.
  
• I did a trade in Clime Investment Management (CIW.AX) after Geoffrey Wilson recommended it.
  

Moominmama's Taxes 2023-24

I also did Moominmama's taxes for this financial year. It only took me about 2 hours to do both as I am very organized :) You can find previous years' reports here. Here is a summary of her tax return for this year:

Her salary was up 4% this year. Gross income was down 9% mainly because we lost money on futures instead of winning, I think.

Total deductions rose by 19%, mainly because of increased interest costs and futures losses, which are included as other deductions. As a result, net income fell 38%.

Gross tax applies the tax bracket rates to taxable income. This was more than offset by franking credits. So, she gets the franking credits refunded as cash and has a negative tax rate. She also had to pay tax installments. As a result, she should get a large refund, estimated near $12k.

If we get refunds as big as predicted here they will almost be enough to pay private school fees for both children for 3/4 of the year! One term's fees is one of the monetary units I now think in :)

Moominpapa's Taxes 2023-24

I did our taxes earlier this year as Aura sent me a tax statement earlier than in previous years. Here is a summary of my taxes. You can find previous year's taxes here. To make things clearer, I reclassify a few items compared to the actual tax form (such as foreign source income deductions). Of course, everything is in Australian Dollars. 

Overall, gross income fell 6%, while deductions rose 5%, resulting in a fall in net income of 8%.

On the income side, Australian dividends, franked distributions from managed funds, and foreign source income were all down strongly. Tribeca Global Resources paid a much smaller dividend this year, some of my other share holdings were reduced slightly to make new investments, and I didn't get dividends from Fortescue (sold) or Pendal (acquired). I also reduced my holding of 3i (III.L) and so got reduced foreign source income.

My salary still dominates my income sources but again only increased by 3%. Net capital gain is zero due to carryover losses from last year. I am carrying forward $41k in capital losses to next year. Rising interest rates increased deductions, while charitable giving was up 33% after falling last year.

Gross tax is computed by applying the rates in the tax table to the net income. In Australia, you don't enter the tax due in your tax return, but I like to compute it so that I know how big or small my refund will likely be. Franking credits (from Australian dividends), foreign tax paid, and the Early Stage Venture Capital (ESVCLP) offset are all deducted from gross tax to arrive at the tax assessment. ESVCLP was up due to more capital calls from Aura.

Estimated assessed tax fell because of the reduced net income and larger offsets this year.

I estimate that I will pay 24% of net income in tax. Tax was withheld on my salary at an average rate of 32%. I already paid $7,996 in tax installments and so estimate that I should get a refund of $16,942! Let's see.