Superannuation Reform Again?

Changes to superannuation are a perennial topic. If the government does this - lower the threshold for the 30% super contributions tax to $180k income per year and cut the concessional cap to $20k p.a. - I figure I will have to pay almost $7,000 a year more in tax. My taxable income this year looks like being just below $180k but the threshold for the super surcharge adds things like employer super contributions and investment losses to the taxable income amount. It would make most sense to cut the non-concessional cap, which is currently $180k per year, dramatically, as that is the way that wealthy people can get really large amounts of money into the super system, which will be taxed at a zero rate once they retire. But, of course, there is no immediate revenue to be gained by cutting the non-concessional cap. To simplify the system the government could just get rid of the concessional/non-concessional distinction, stop taxing earnings and then have a simple US Roth style system. Much too logical, of course. Actually, the optimal solution, assuming that super will be taxed in some way is to go for the US 401(k)/403(b) approach where there is no tax on contributions or earnings and regular tax on payouts. This gives the the money the best opportunity to increase in value... well under some economic assumptions anyway.

How Come Australia Has Less Government Spending than the US and Has Free Healthcare for All?

Following up from my comments on this post of Madame X, I thought I'd have another go at comparing Australian and US government spending:



As you can see from the chart, Australia spends less as a share of GDP than the US does. Only Korea and Switzerland spend less than Australia among the OECD countries for which there is data. Australian government revenue is slightly higher as a share of GDP than the US, because we have a budget surplus whereas the US has a large deficit. But we have more or less free healthcare for all, while the US does not. Australia encourages people to get private health insurance through tax incentives, and around 35% of people do have private healthcare. This makes free healthcare easier to provide than in other OECD countries where there is less private insurance. So how does Australia achieve universal healthcare when the US does not? Here are some suggestions:

1. Our defence budget is smaller. Also we have far fewer people in prison. The US has 4.5 times as many prisoners per capita as Australia.

2. Because we run surpluses our government has net assets rather than net debt. So we don't have to pay any net interest on the non-existent national debt. There are government bonds outstanding just to keep the market open.

3. Retirement benefits are means tested and less generous than average US social security benefits. Whereas the US gives more retirement and unemployment benefits to people with previously higher incomes, Australia does the opposite. Over time retirees will be more and more self-funded due to compulsory superannuation saving in Australia. Since 1992, employers have been required to put at least 9% of salary into a superannuation fund - the equivalent of a 401k. It's much harder to get the money out before retirement too.

4. Our medical care is much cheaper than the US. Reasons include the high level of litgation and consequent insurance and overtreatment in the US and price discrimination by drug companies due to the fragmented nature of demand for drugs in the US. Doctors earn less in Australia.

So, in order to get "socialised medicine" you don't need "socialist" levels of government spending ;)

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.

January 2019 Report

In January stock markets rebounded but because the Australian Dollar rose, we didn't gain a lot in Australian Dollar terms. The Australian Dollar rose from USD 0.7049 to USD 0.7274 The MSCI World Index rose 7.93% and the S&P 500 8.01%. The ASX 200 rose 3.87%. All these are total returns including dividends. We gained 0.49% in Australian Dollar terms and 3.79% in US Dollar terms. So, we underperformed the markets. This is not surprising given the weight of cash and bonds in our portfolio. Our currency neutral rate of return was 1.89%. I estimate that the target portfolio gained 1.57% in Australian Dollar terms.


Here again is a detailed report on the performance of all investments:

The table also shows the shares of these investments in net worth. At the bottom of the table I also included the Australian Dollars return from foreign currency movements and other net investment gains and losses - net interest and fees. The loss on the apartment is the estimated sale costs.

Things that worked very well this month:

• The China Fund - the fund has announced a tender for 30% of outstanding shares at 99% of NAV. The share price is rising towards NAV as a result. I tendered my shares into the buyback. At least it will probably realise a small capital loss.
• Pershing Square Holdings. This bounced back nicely from December losses and we are now up in this investment.  
• Unisuper. This is after a steep fall in previous months. I continue to be surprised how much higher the beta of Unisuper is compared to PSS(AP). Both are public sector superannuation funds and we supposedly have a similarly aggressive stance in each.

What really didn't work:

• US Dollars - The Australian Dollar rose, especially after the statement from Jerome Powell.
• Cadence Capital - It continues to lose money and is now our third worst investment ever in terms of dollars lost. The fund manager explained that they focus heavily on value stocks and those got trashed.
• Yellowbrickroad...

We moved towards the new long-run asset allocation:*

The main driver is continued movement of cash from my US bank account to Interactive Brokers where I am buying bonds before eventually transferring some of the money to our Australian bank accounts when the broker allows. Also, we sold the apartment we inherited.

On a regular basis, we also invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Then there are distributions from funds and dividends. Other moves this month:

• I moved AUD 30k from the CFS Geared Share Fund back to the CFS Conservative Fund in my CFS superannuation account. I originally moved this money in October to CFS Geared Share Fund. I made a small profit on the roundtrip trade, but the main motivation for closing the trade was to reduce risk.
• I bought 1558 shares in OCP.AX at AUD 2.07 a share just because they were being offered so low.
• I sold 15,000 shares in PMC.AX and bought 5000 shares in PIXX.AX as the PMC premium to NAV was still high.
• I bought AUD 24k during the "flash crash" and sold them after the Australian Dollar recovered a few cents.
• I bought 1000 shares of PERLS XI as I can't move the Australian Dollars I bought in December to our Australian bank account yet.
• I bought USD 100k of treasury bills maturing in February.
• I bought USD 100k of Santander UK bonds maturing in March. 
• I bought 1000 shares of the gold ETF, IAU.

* Total leverage includes borrowing inside leveraged (geared) mutual (managed) funds. The allocation is according to total assets including the true exposure in leveraged funds.

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.

Division 293 Humblebrag

It looks like I will have to pay Division 293 superannuation contributions tax for the first time. This is an extra 15% tax on superannuation contributions that you have to pay if your income including concessional super contributions is above AUD 250k. My preliminary estimate of my taxable income is already above AUD 250k. So, for sure the total including around 30k of super contributions will be even if the final income number is a little lower. This is probably going to mean an extra AUD 4,500 of tax. 

I'm also currently estimating I'll owe more than AUD 13k in extra tax after paying AUD 6k in tax installments. Last year I got a tax refund because of the Virgin Australia debacle. Bond losses can be deducted immediately from your income unlike losses on shares. The tax installments were because the previous year's tax return...

I'm reluctant to stuff more money into super as non-concessional contributions to reduce tax in case we'll need it. For example, to buy a bigger or better located house. If I continue to work, we can't withdraw the money from my account till I'm 65 in 8 years time. And much longer in Moominmama's case. That liquidity costs in taxes. 

In the last couple of years we made large non-concessional contributions. I also have illiquid investments in venture capital and art. Our liquid investments are 46% of gross assets not including our house. I doubt I can get a bigger mortgage given my age and Moominmama's low wage income.

Endowment Asset Allocations II

Following up on my recent post about endowment asset allocations I've updated Moom's and Moominmama's numbers for November and also added the allocation of the Public Sector Superannuation Scheme (Accumulation Plan) which is Snork Maiden's retirement account:



The PSS(AP) allocation is the "trustee choice" or default option. We are investing 90% in this and 10% in the "Sustainable Option" which is Australian shares with a green bias. That increases the equity percentage of her portfolio and brings it closer to our developing target allocation.*

The top panel in the table is the allocation of each of the portfolios to the different asset classes while the bottom panel is the Euclidean distance between the portfolios on the left and the those listed on the top line. Moom is closest to the PSS(AP) portfolio, which is not so surprising as they are both Australian based allocations. Moom is also nearer the average US endowment than to Moominmama. This diversification is probably a good thing. While Moominmama is nearest to the average US endowment she is also quite close to the PSS(AP) portfolio.

Moom's allocation moved further from the US endowments and from Moominmama's portfolio this month, mainly due to selling US equities.

* Snork Maiden's retirement portfolio is 17% from our target portfolio and 23% from our current overall portfolio.

P.S.

The New York Times reports on the losses of the Harvard endowment. Their losses in July-October pretty much match the S&P 500's losses (23%) but are better than the MSCI World Index (33% loss). And they are far far better than Moom's performance (47% loss in USD terms).


P.P.S. 8th December

I just found more accurate information on the PSS(AP) superannuation fund's current allocation (rather than the targets in the prospectus):

Hedge funds 15%, Domestic Equity (US) 9%, Fixed Income 10%, Foreign Equity 33%, Private Equity 7%, Real Assets 15%, and Cash 11%.

Given this Moom's distance from this portfolio is 26% and Moominmama's 28%. So we are both closer to this portfolio than to any of the US endowments.

P.P.P.S. 10th December

Harvard's actual allocation to foreign equity is 22% not 2%!

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.

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.

July 2022 Report

July was a reversal of June. The S&P500 gained more than it lost in the previous month and gold fell more than it rose in the previous month. Investors seem to think that the Federal Reserve will raise interest rates by less than originally expected. The MSCI World Index (USD gross) rose by 7.02%, the S&P 500 by 9.22%, and the ASX 200 by 5.77%. All these are total returns including dividends. The Australian Dollar rose from USD 0.6900 to USD 0.6968 increasing Australian Dollar returns and reducing USD returns. We gained 4.11% in Australian Dollar terms or 5.13% in US Dollar terms. The target portfolio gained 3.75% in Australian Dollar terms and the HFRI hedge fund index was up only 1.65% in US Dollar terms. So, we out-performed the latter two benchmarks but under-performed the stock indices. The AUD return for the month is more than what would be expected historically given the ASX 200 performance for the month.

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

The asset class returns are in currency neutral returns as the rate of return on gross assets. I have for the first time added in the contributions of leverage and the Australian Dollar to the AUD net worth return.

Hedge funds were the biggest contributor to performance while Australian small cap had the best return. Gold was the worst performer and a significant detractor. Rest of the World stocks had a relatively poor performance because of our weighting to the China Fund.

Things that worked well this month:

• Regal Funds was the best performer (AUD 25k) followed by Pershing Square Holdings (18k), Tribeca Global Resources (18k), and another seven investments that gained more than AUD 10k.
  

What really didn't work:

• Gold was the worst performer (-24k) followed by the China Fund (-9k) and Winton Global Alpha (-5k). Only six investments lost money while 29 gained.
  

The investment performance statistics for the last five years are: 

The first three rows are our unadjusted performance numbers in US and Australian dollar terms. The following four lines compare performance against each of the three indices over the last 60 months. This month, I have added another three rows to report the performance of the three indices themselves. We show the desired asymmetric capture and positive alpha against the ASX200 but not against the hedge fund index and not really against the MSCI. Compared to the ASX200 our rate of return has only been 0.6% lower but our volatility has been 5% lower.

We are performing 2% per annum worse than the average hedge fund levered 1.7 times. I'm not sure why this alpha has deteriorated sharply recently. July 2017, which was dropped from the estimation this month, was a good month for hedge funds but both June and July 2017 were particularly good months for us in USD terms as the Australian Dollar rose sharply.

We moved a bit away from our target allocation. This was mainly because of the redemption of Pershing Square Tontine Holdings that reduced our private equity allocation. Our actual allocation currently looks like this:

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 contributions to superannuation every two weeks. We are now contributing USD 10k each quarter to Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. In addition we made the following investment moves this month:

• I sold 4,000 shares of WAM Leaders to get some cash. 
• I made an AUD 20k concessional superannuation contribution for Moominmama. 
• We combined these to start an account at Colonial First State for the SMSF investing in Aspect Diversified Futures with an initial AUD 25k (the minimum investment for Class A shares).
• As mentioned above, PSTH returned the cash to shareholders. There is a placeholder position still in our account which might turn into SPAR warrants at some point.
• I bought a net AUD 75k, mainly with the US Dollars from PSTH.
  
• I invested around AUD 10k in 64 Devonshire Road, Rossmore, NSW.
• I bought 1,250 PMGOLD shares (12.5 ounces of gold).
• I bought 3,000 more shares in Pendal (PDL.AX), when it was announced that merger talks were back on.
  

Spending Breakdown

After a discussion with friends at lunch yesterday and some blogposts I read recently, I decided to try to find out what we are spending on. I haven't done this in more than two decades I think. I looked at the 2017-18 financial year so that I can also easily include official income and tax figures in the total. It's all in Australian Dollars of course:

Income is gross income from our tax returns plus employer superannuation contributions which which don't enter taxable income. Income includes salaries and investment income etc.

Next we deduct taxes. As franking credits – tax credits for corporation tax paid by Australian companies are included in taxable income, they need to be deducted as we don't actually get the cash.  Then there is 15% tax on superannuation (retirement) contributions. In total tax is 26% of gross income. Next I deduct some financial costs that are deducted from gross income to get to taxable income. There are more of these deductions actually, but some I have included in our spending.

Of the AUD 216k of net income half was spent and half saved.

The big spending items are mortgage interest, supermarkets etc, cash spending, mail order, childcare etc, and travel (flights, accomodation etc). Cash spending includes both spending actual cash and spending using our Qantas cash cards. I haven't gone into the accounts for the latter, though maybe I should. Some of the other spending categories very low compared to the actual amount spent on these because a lot of the spending is in cash. Possibly the most important of these is restaurants. Yes, there is a lot of fuzziness in these numbers because we don't budget and spend a lot in cash.

Am happy to get feedback on how we can save money, though I'm not really into "frugality" for it's own sake. Or maybe you would just like to compare the differences with other posted spending breakdowns.

P.S.
Qantas only provide online statements for the last 13 months. So, I can't now do a breakdown of those accounts for 2017-18. Maybe next year.

All Time Highs

The profits on a lot of our investments are currently at the maximum since we started investing in them. This is only remarkable because of the financial crisis and bear market we've been through in the last few years. Many of our investments have now fully recovered or more. They include:

CFS Developing Companies
CFS Future Leaders
Unisuper Superannuation Fund
CFS Diversified Fund
Clime Capital (CAM.AX)
PSSAP Superannuation Fund
TFS Market Neutral Fund (TFSMX)
CREF Global Equities Fund
IPE.AX (Aus private equity) BT Property Securities Fund
Aurora Sandringham Fund (AOD.AX)
Boulder Total Return (BTF)
CFS Geared Global Share Fund
Generation Global Shares
Celeste Small Australian Companies Fund

What isn't:

CFS Geared Share Fund
CFS Conservative Fund
CFS Global Resources Fund
Platinum Capital (PMC.AX)
TIAA Real Estate
Oceania Capital Partners (OCP.AX)
Cambria Global Tactical (GTAA)
Qantas (QAN.AX)
Man Eclipse 3 (Managed futures)
Bekaert
China Fund
3i (iii.l)
Legend International (lgdi)
Leucadia (LUK)
EAIT and EDIF (Funds of hedge funds)

Any pattern here? Australian and more generally small cap stocks and diversified portfolios are doing well. Larger cap stocks and non-Australian private equity resources/China themed stuff are not doing well.

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.

Superannuation Co-Contribution

I just contributed $A1,000 to my superannuation (Australian retirement account) in order to get the government's co-contribution. Last year, I got a $A1,500 "match" from the government for putting in the money. This year the maximum match is down to $A1,000 and as I earned more money I won't get the full match. I still look set to getting something though.

Projected Retirement Income

If we retired today, how much would our retirement income be? To answer the question, I updated an analysis I did a few years ago and came up with this graph:

Passive income is what our combined tax returns would be in each year if we had not received a salary nor made any work related deductions. I also added back charitable deductions and personal concessional superannuation contributions to our SMSF as these aren't costs in the same way that margin interest is, for example. So, it is not 100% passive as it includes realised capital gains and losses. I also plot how much a 4% withdrawal from our superannuation accounts and US retirement fund would amount to under the assumption that we apply the 4% rule to these accounts. My thinking is that unrealised gains on the non-retirement funds would be sufficient to maintain purchasing power. Taxes are likely to be very low, so I just ignore them.

Last tax year our income would have been AUD 154k. Our spending not including mortgage interest and life insurance was AUD 152k. So, this is one reason why I don't feel comfortable retiring as we are spending very close to our sustainable income and spending is likely to continue to rise. On the other hand, if we apply the 4% rule to our entire portfolio at 30 June 2022, it would yield AUD 175k. But maybe the 4% rule is not conservative enough. My recent analysis of how much of our returns is needed to compensate for inflation, was much more pessimistic than this.

If we were forced to stop working we could easily slash spending by taking the children out of private school, which accounts for an expected 30% of our budget.

Saving

Now that I am going to have a job I'm setting up a regular savings plan of $A500 a month from my salary to match the plan we already have going for Snork Maiden which is also now $A500 per month. I'm going to invest it in the CFS Diversified Fund in an account inside of my margin account at CommSec. I'm not going to be adding borrowed money to this investment but rather it will help reduce the loan to value ratio on my loan over time. If my job contract includes required salary sacrifice into superannuation (i.e. employee contributions to a retirement fund on top of the employer contributions) I plan to also set up salary sacrificing for Snork Maiden. Her employer currently contributes 15.4% on top of her salary to superannuation (the legal minimum is 9% in Australia).

Non-concessional Superannuation Contributions

Does it make sense to make non-concessional superannuation contributions? These are after tax contributions to a retirement account in Australia. In other words, the money is taxed at your marginal rate and then put into a retirement account and locked up until you are least 60 (if you are born in 1964 or later as I am). The advantage is that the tax rates on earnings are lower than in non-retirement accounts for high income earners. Instead of a 38.5% marginal tax on regular income (interest, unfranked dividends, and short-term capital gains) there is a 15% rate and the long-term capital gains rate is 10% instead of 19.25%. Of course, for so called "franked dividends" the effective tax rate is 8.5% outside of super and 0% in super. So, do the lower tax rates make it worth locking up the money for 14 years at least (in my case)? I'm expecting to pay zero capital gains tax for a while given accumulated losses and after interest and expense deductions I don't pay any tax on dividends anyway. So, I think the answer is no in my case, for the moment. My employer will be putting almost the maximum pre-tax contribution allowed into my super anyway.

When I get nearer retirement age I expect to stuff the maximum allowed non-concessional contributions into my super account for a few years. This is because there is zero tax on earnings once the super account is paying out distributions.

Investments Update

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

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

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

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

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

April 2022 Report

World markets fell sharply with the MSCI World Index (USD gross) falling by 7.97%, the S&P 500 falling 8.72%, and the ASX 200 falling 0.85%. All these are total returns including dividends. The Australian Dollar fell from USD 0.7494 to USD 0.7114 increasing Australian Dollar returns and reducing USD returns. We lost only 0.16% in Australian Dollar terms but lost 5.23% in US Dollar terms. The target portfolio lost by 2.34% in Australian Dollar terms and the HFRI hedge fund index is lost 0.93% in US Dollar terms. So, we out-performed all benchmarks apart from the HFRI index. I felt like I was losing a lot of money, but in Australian Dollar terms it wasn't that bad.

Here is a report on the performance of investments by asset class (currency neutral returns in terms of gross assets): 

In a reversal of last month real assets, gold, and futures gained money, while other asset classes lost. Real assets were negatively affected by the URF debacle. Rest of the world stocks were negatively affected by the China Fund. Gold rose in Australian Dollar terms, though the USD price fell. US stocks performed worst and detracted from performance most, while gold performed best and contributed most to performance.

Things that worked well this month:

• Gold gained AUD 21k, Winton Global Alpha 10k, Tribeca Global Resources (TGF.AX) 11k, and Aspect Diversified Futures 8k.
  

What really didn't work:

• Pershing Square Holdings (-22k), Australian Dollar Futures (-17k), and Hearts and Minds (HM1.AX, -11k) all lost more than AUD 10k.

Our SMSF continues to perform quite well compared to our employer superannuation funds:

They're all indexed to 1000 in April 2021.

The investment performance statistics for the last five years are: 

The first two rows are our unadjusted performance numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices over the last 60 months. We show the desired asymmetric capture and positive alpha against the ASX200 and the MSCI but not against the hedge fund index. We are basically performing a bit worse than the average hedge fund levered 1.67 times. Hedge funds have been doing well recently.

I adjusted the leverage on the URF.AX investment  to roughly 3:1 in our gross asset allocation as there still seems some possibility that the wind-up deal will be voted down by the shareholders.

We moved a little bit nearer to our target allocation. Our actual allocation currently looks like this:

70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month. It was a busy month.

• I invested in the Unpopular Ventures rolling fund on the AngelList platform. The initial investment is USD 10k and then the same amount each quarter for eight quarters.
• Our listed investments trusts are now all in a CommSec account within the SMSF, which means I get accurate tax reporting and can subscribe to dividend reinvestment, which I did.
  
• I sold 10k shares in Pengana Private Equity (PE1.AX). These were shares in my name that I held to get accurate tax reporting, which I don't need any more. I sold at AUD 1.69 and the price is now AUD 1.49. So, that was a good move.
• I sold AUD 30k for USD and bought one more AUD futures contract, increasing AUD exposure by about 100k, which was a mistake.
  
• I withdrew AUD 25k from Domacom Investments after two crowdfunding campaigns just vaporized. 
• But I started accumulating units in another property at Domacom. It is a market garden property near the planned Badgery's Creek Airport. 60 Devonshire Road, Rossmore.
  
• I bought 12.5k WAM Leaders shares (WLE.AX).
• I invested AUD 10k in the Winton Global Alpha Fund, which has been doing well recently, for a change as I predicted. Seems futures work well in inflationary environments but not in low inflation environments. I based this opinion on this research.
• I invested AUD 10k in the Australian Unity Diversified Property Fund.
  
• I bought AUD 7k shares in Pendal as a merger arbitrage play.
• I invested in a new painting at Masterworks: "No Hopeless". I felt this might be over-valued but took the plunge anyway.
  

After Tax Super vs. Offset Account

At the moment, Australians can contribute up to $A180k per year to superannuation from after tax money on top of up to $A35k (if over 50) from pre-tax income. This seems like a crazy high limit and has no analogue in the US retirement system, for example. There is now a lot of talk about lifetime caps on super contributions. An easy way to do this would be to cut or eliminate this post-tax contribution limit. I had thought about making post-tax contributions starting in about 5 years time (when I would be about 55) and up to retirement. In the meantime, the plan was to build up our offset account and then pay down and redraw the mortgage. But now I am thinking that government might eliminate the post-tax option, I am wondering whether it would make sense to make these contributions sooner.

The gain from adding post-tax money to super is the tax-free earnings on the money after retiring. However, at least at the moment investment taxes are lower than regular income taxes and so we are talking about avoiding an 10% (after franking dividend tax in 38% bracket) to 23.5% (long-term capital gains tax in 45% bracket) tax starting 10 to 15 years in the future. Let's say the super investments make an 8% return, then the extra yield from avoiding tax by investing in super rather than non-super investments is about 1.3% per year. And this won't start to 10-15 years out and it is uncertain that the opportunity will go away and stop us doing that a few years later.

In the meantime the offset account is earning 4.55% tax free virtual interest with perfect certainty. A superannuation account would probably earn that after tax in the next 10-15 years, but there is a lot of uncertainty about that and the money is locked up for the next 9 years.

Is the answer to diversify and do some of both strategies?