Consumerism commentary had a post today about getting a student loan refund cheque for $1.57 in the post. I can do better than that - for the past SIX MONTHS I've been getting a monthly bill from our Telecom company for $0.06 owing (This wasn't even due to a payment error - the charge was actually $0.06 for a particular service!). It also has a printed message that, due to the small amount, I don't have to pay it this month - but they keep sending a bill each month! As they don't charge any interest on such small amounts (well, maybe they do, but what is 6%pa of 6c each month?), I haven't bothered paying the bill. I could make the payment electronically via B-Pay, so it wouldn't cost me anything more than $0.06, but I haven't got around to it.

As a shareholder of this particular Telecom, I should ring them up and tell them what a stupid idea it is to mail out bills for less than $1 - especially ones that say they don't have to be paid! But I think I'll wait a few more weeks until after the T3 float goes through - at the moment the Telecom is still 51% owned by the Australian government, so I probably wouldn't get anywhere appealing to common sense.

Has anyone got a cheque, or bill, in the mail for less than six cents? (Bills that show a previous payment don't count).

money

A couple of month after our last tenant moved out, and we're getting a bit desperate - with the wife on unpaid maternity leave, getting no rent will mean the mortgage payments eat through the extra that we'd paid off our mortgage at an alarming rate. Finally, the estate agent called today to advise that she has someone wanting to rent - but only on a short (4 month) lease with an option to then continue on a month-by-month basis at the end of the lease, while their new home is being built. She'd already rung the wife, but just wanted my OK to lease the property for this term.

With Christmas soon upon us (and hardly anyone moves house over the holidays), if we didn't take this tenant the rental property could be empty till the end of January. So, better to take a short lease and hope that the building takes longer than expected and they stay a while, than hold out for an "ideal" tenant.

Anyhow, the worst* that can happen is that we are looking for a new tenant again in four months time, and have to pay another week's rent to the agent to find us another tenant.

*OK, the worst is actually that we have a "tenant from hell", who trashes the place and then moves out without notice owing some back-rent, and disappears interstate. (I've had this happen before...)

The rate of income generated by an investment is calculated by dividing the total dividend per share paid during the past one year period by the current share price, and expressing it as a percentage. Make sure you use the same unit for both dividend and share price (ie. cents and cents, or dollars and dollars).

*OK, this is actually two words

jargon

There is much to be said for starting an investment portfolio as soon as possible - compound interest works it's magic over long periods, and you can set your asset allocation to a much more aggressive "high-growth" mix if you have a very long time horizon. So, starting an investment portfolio for your kids is one of the best possible strategies, and is even more so with the proposed changes to superannuation tax in Australia - ie. that there will be no tax on superannuation withdrawals made during retirement.

This means that if you set up a child superannuation account into which you (or any relatives or friends of the child) can contribute up to $1000 each year. (There is a cap of $3,000 every three years PER ACCOUNT - if you wanted to save more than $10 per week you just setup several accounts for your child). There will be no tax due on deposits (as they are made as undeducted contributions), no tax on pension or lump sum payments over 65 years of age, and a maximum 15% tax rate on earnings (likely to be reduced below 15% due to the benefit of franking credits on share dividends).

For example, if you contribute around $10 each week ($250 per quarter) into a child superannuation account from birth until 18 years of age, and then no additional contribtions are made, at retirement age (65) the account would be worth $2,218,843 (or $317,898 in today's dollars) - assuming an average return of 10% pa for a high-growth asset mix (shares (preferably geared), some bonds and some property), and an average inflation rate of 3% pa.

For a total contribution of $18,000 your child's retirement fund will have added $300,000 (in today's dollars) by the time they retire - with no further contributions required after they turn 18. This will let your child concentrate on paying off a mortgage or investing outside of super when they start working.

personal finance, investing, money, saving, wealth, investment

Derivative: A financial contract whose value is based on, or derived from, another financial instrument (such as a bond or share) or a market index (such as the ASX100 index, or Nasdaq Index QQQQ)

jargon

Often you can buy "old" calendars and diaries for almost nothing when the year is half over - stores don't want to hold onto stock and there's little chance of selling a calendar that only has a few months of useful life left.

If there were no leap years, then every calendar would be recycled on a 7-year cycle, the first day of the year moving forward by one each year (because there's an extra weekday each year: 365 mod 7 = 1). Due to leap years making non-leap year calendars incompatible with leap-year calendars that start on the same day, the calculation of reusable calendars is a bit complicated - usually a calendar can be reused 6 or 11 years later. I've listed the reusability years for the next 10 years worth of calendars below.

Therefore, if you find you have an unused calendar at the end of the year, and you have some spare storage space, just put it aside and you can probably reuse it in 5 years time. If you're really frugal you could wait for the chance to buy calendars for 80% off, and put them aside for 5 (or more) years until you can use them. Although you'd miss out on interest on the money paid for the calendar, the price of printed items tends to go up faster than the general inflation rate, so it's a pretty good hedge against inflation. Of course you have to be prepared for some odd looks when you use a calendar that appears to be half a decade out of date

Calendar Re-use 1-JAN 1-MAR
Year Year is a is a
2006 2017 SUN WED
2007 2018 MON THU
2008 2036 TUE SAT - it's probably not worth keeping this one!
2009 2015 THU SUN
2010 2021 FRI MON
2011 2022 SAT TUE
2012 2040 SUN THU - and you can toss this one out too
2013 2019 TUE FRI
2014 2025 WED SAT
2015 2026 THU SUN

Here is a list of the eight best and eight worst money moves you can make, and why:

Eight Best Moves:
1. Pay Yourself First - no matter how much you earn, you should put aside a fixed percentage of your income as savings each pay day. This will develop good savings habits. You can start off with a small and painless percentage and build up slowly to a significant amount, for example when you get a pay rise.
2. Cut up your credit cards and pay cash for everything. This will ensure you never run up credit card debt.
3. Borrow against your home equity. You can borrow at very competitive interest rates and invest this money in high-growth assets, boosting your returns using gearing. Home equity loans also have an advantage over margin loans because they aren't subject to margin calls.
4. Invest in index funds. The market is reasonably efficient, and studies have shown that very few professional fund managers can "beat the market", after allowing for the higher fees compared to index funds.
5. Invest in managed funds. Some managers (Buffet, Lynch) have consistently produced superior returns, so it is worth seeking them out.
6. Diversify to reduce risk without reducing your returns. Your portfolio asset mix should be on the efficient frontier.
7. Put all of your eggs in one basket and watch the basket carefully. You should spend enough time and effort to identify a few excellent companies and buy them at the right price for the long term. This is what Warren Buffet does.
8. Borrow to invest. Also known as "gearing" this will boost your returns and can provide tax benefits if the interest on the loan is tax deductible and long-term capital gains are taxed at a lower rate than current income (dividends).

Eight Worst Moves:
1. Pay Yourself First - if you have any "bad" debt (loans for non-investment items such as clothes, toys, cars, holidays etc.) you should pay this off before you even consider a savings plan.
2. Cut up your credit cards and pay cash for everything. Several reasons you should keep your credit cards and learn to use them responsibly
- they can act as your "emergency fund" so you can be fully invested without having to keep an "emergency fund" in a low-interest cash account.
- they are much safer than carrying wads of cash around, and are especially convenient overseas.
- by paying off the balance in full each month you can get up to 55 days interest free credit on your day-to-day purchases, so you can keep an extra month worth of expenditure invested.
3. Borrow against your home equity. People who borrow against their home equity or against the 401K to pay of credit cards often run up the credit card debt again. Others use HELOC to spend more than they earn on things like cars, holidays and lifestyle. You can end up still having a mortgage when you retire, or, in the worst case could put your home at risk.
4. Invest in index funds.You are condemning yourself to mediocre (average) investment returns. Some managers (Buffet, Lynch) have consistently produced superior returns, so it is worth seeking them out.
5. Invest in managed funds. Although some managers (Buffet, Lynch) have consistently produced superior returns, you have Buckley's chance of picking who are the superior managers - last year's (or five year's) performance is no guide to next year's winners (but everyone can identify them in hindsight).
6. Diversifying your portfolio (also known as "di-worse-ification") will drag your investment returns towards back down to the average.
7. Put all of your eggs in one basket. If you make one or two bad calls you'll put your portfolio in the toilet. Do you really think you're the next Warren Buffet?
8. Borrow to invest. Gearing will magnify any gains or losses, but, if the market tanks you can get a margin call and be totally wiped out, so you never get to benefit from the magnified gains when the market recovers.

Confused? Well, it just goes to show that there are no "one size fits all" answers in personal finance. Some would argue that this is why you need to get help from a financial planner. My view is that you need to learn enough about yourself, your position, and available options to form an educated financial plan. The fees you'd pay a financial planner are high enough to eat into your investment returns, and, at the same time are too low to buy enough time and effort from a professional financial planner to really get to know you and your situation well enough to give an optimum plan customised for you. The best you'll get is a fairly vanilla plan that is "reasonable" for your situation.

OK, these probably aren't the top eight anyhow - I just wanted to make the point that in personal finance there are many shades of gray. If you read about technical analysis and want to try day trading, first read all the evidence supporting the weak version of efficient market theory, and, remember, in day trading it's a zero-sum game, so you have to be smarter than more than 50% of other traders (allow for trading costs) to hope to make a profit. If you like fundamental analysis, remember that companies makes honest mistakes in their reports, they sometimes obfuscate (or downright lie), and, even if the figures are correct, they are historic, so are a pretty poor guide to the future.

I spent a lot of time for my first decade of investing learning everything I could, and trying to find out the "truth" about investing - what is the "correct" way to invest, and the "best" strategy. What I've come to realise is that no-one knows - especially not what is best for YOU. So, just keep learning all the time, and remember, it's always just going to be your "best guess", so always evaluate and manage your investment risk.

At the end of the day, you've really got no-one to blame for your investment performance but yourself. On the bright side, at the end of the day, we're all dead, so it doesn't really matter anyhow

Way back in the middle ages, thieves used to risk life and limb climbing onto church roofs to steal lead plate. It seems the recent commodities boom has brought this type of theft back into fashion, with a new shocking twist. A worldwide spike in metal prices has been blamed for a surge in the theft of copper and other metals, with copper fetching up to $10 a kilogram and brass about $4.50. Homes, building sites, scrapyards and even schoolground water bubblers have been targeted by gangs.

What's next, stealing gold fillings from people's mouths?

You can read the full story at SMH.

Yet another article about the abyss facing baby boomers in retirement - there won't be enough tax payers to fund pension payments for everyone, and baby boomers haven't been saving nearly enough to have a "self-funded" retirement.

An article in the Sydney Morning Herald lays out the problem very clearly. Some of the points are universal, applying equally to baby boomers in the US, UK and Australia:

"To give you some idea of the challenge, to retire on 45 per cent of your pre-retirement income you need to have contributed 12 per cent of your salary every year for 40 years."

"With the male retirement age averaging 58 years, drawing on retirement savings at 60 per cent of salary will see the money run out at age 72. But, if retirement is postponed for only two years (until 60), the money would last until 79. Working an extra two years funds a further seven years of retirement."

An interesting read, though everybody should be thoroughly familiar with all this by now, and have an action plan in place to look after themselves in retirement.

personal finance, investing, money, saving, wealth, investment

The past month was very good for my finances:
* Average property prices increased a little bit, boosting my property equity $5,198 or 0.71%,
* Both Australian and International stock prices moving sharply higher during October (so much for the theory of typically "up" months and "down" months). My stock portfolio equity went up an incredible $24,700 (8.85%) and my retirement account also increased by $13,077 to $301,646 (4.53%).

My Networth as at 31 Oct now totals $991,006 (AUD), an overall increase of 4.58%. Just for fun you can annualise this to 55% pa and say I'm the "Sage of Sydney" - at least for this month

It will be interesting to see if I manage to break through A$1,000,000 this month - although I suspect it may be a short-lived visit to the "millionaires" club, depending on how "mr market" is feeling.

I don't whether my next short-term goal should be a NW of AUD $1 million when my home is excluded, a total NW of US $1 million, or just focus on achieving net worth AUD $2 million...

personal finance, investment, wealth, stocks, real estate, saving