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.