Home > Archive: February, 2007

Archive for February, 2007

It's Nice to have some Market Insurance

February 28th, 2007 at 08:48 am

Well, a correction was well-overdue, so a one-day drop of around 3% in the stock market was no great surprise, although the alleged "trigger" for the event (the Chinese market taking a hit) was a surprise, as is normally the case. On the up-side it makes the $5K I spent on buying 3 Index Put Option contracts on 9 Feb look more like sensible insurance, rather than simply throwing money down the drain.

I'd need to be holding 12 5500 ASX Put contracts to fully cover any losses to my stock portfolio due a bear market (or severe correction), so I'm not fully insured yet. I was hoping to pick up some additional ASX 5500 Dec Put Options as the market continued it's bull run - on Friday the Australian market had closed over 6000 for the first time and the cost of the Put Options had dropped as low as $0.98 at one stage (I had bought the previous 3 contracts for $1.58 on 9 Feb). Although I thought about buying some more Put options last Friday, in the end I didn't bother. (If I had I'd be thinking how great I was at market timing! Wink

Unfortunately the price for the options probably won't be as attractive even when/if the market recovers back to the 6000 level as the increased volatility will make the options more expensive.

Zero Balance Transfer CC Arbitrage Update

February 27th, 2007 at 08:55 am

HSBC sent my new CC yesterday. When I checked my everyday CC account the $13,500 balance transfer had already gone through into the account on the 19th, so I withdrew $10K and deposited it into my Credit Union account where I can leave it in the high interest account until the 0% balance transfer period ends on 1 October. As part of the balance transfer was used up on the current months accumulated charges on my everyday CC, I'll deposit the remaining $3,500 into the Credit Union account next month instead of having to make a CC payment.

I should earn around $480 interest on the $13,500 "free" loan from HSBC by 1 October, and the only cost was a $10 cash withdrawal fee from my everyday CC account and about 10 minutes work all up to apply for the card and shift the $10K cash from one bank to another.

I'll just have to remember to cancel this HSBC CC once I've repaid the balance transfer amount in October, otherwise they'll start charging an annual card fee next year (this particular card only waived the annual fee for the first year).

Uni has Started and the Bills follow soon after

February 26th, 2007 at 01:16 pm

Autumn Semester started last week. I'm taking two courses for the Graduate Diploma in Secondary Education I've just commenced, and one course for the Master of IT I'm halfway through. The fees are similar for both - around $800 HECS (I pay in advance, rather than accumulate a tax debt) for the two Education subjects and $800 fee for the one IT subject. I also had to purchase a textbook for the IT course ($111.55 even with the Co-op bookshop member discount!), so the total education costs for this semester are around $1710. Luckily there are too many students enrolled as Distance Education students in the Education at CSU this year, so the Uni cancelled the one week residential school in Bathurst. That would have cost another couple of hundred dollars for little benefit, so I'm glad it's not on anymore.

I worked out that if I quit my current position to start teaching in about three years, I'd have to work two extra years as a teacher to make up for the reduction in annual pay. I've no idea yet if I'll actually enjoy being a High School teacher, so I can't tell if I'd want to work longer as a teacher compared to my current job. Then again, I should have enough for a comfortable retirement whether I work to 61, 65 or 68.

House Hunting with a Difference

February 25th, 2007 at 11:15 am

A few years ago had a scottish manor house (Merton Hall) for sale for around A$1m (it was before the recent boom in UK house prices, and was in need of renovation as it had been used as a boarding house for a boy's school). I was keen enough to go to the trouble of getting my father to join me in making a bid on the property, although in the end we were not the winning bid. I've always fancied buying an "estate" with an historic house and grounds, although it's currently still way out of my price range, and country houses have never really been much of an investment in the long term (although if we had succeeded in buying Merton Hall it would have done well in the past three years due to the real estate boom in the UK).

So, I still browse around what is available, looking for bargains and being amazed at some of the massive prices asked for some modern "estates". Recently two extremes caught my eye - the world's most expensive house (at A$138M), and a real "fixer-upper" in Poland that is going for around A$62K:

What I'd like is somewhere between these two extremes, but, when I'm in a more sensible mood I realize that I'd be much better off investing my money and just staying in a castle of manor house on my holidays.

Predicting the Market

February 24th, 2007 at 02:09 pm

No matter whether you've been investing for a day or a decade, there's always the niggling thought that someone out there knows the "secret" to timing the market. So you may give your money to a professional to manage (eg. Actively Managed Funds), or read books or take courses on a technique to boost your returns above the market average. All these things will cost you time and/or money. Occasionally one method you try for a while (day/month/year) will actually produce good results, so you'll tend to think you've discovered the "secret" and stick to that method until it ultimately fails (and in the meantime possibly blog about it, tell your friends, write a book, or teach your "secret" in seminars).

I must admit that I've done this over the years, and I still will invest a portion of my money using particular techniques in attempt to boost returns - for example my "Little Book that Beats the Market" US Stock Portfolio (Value Investing), and toying with the idea of moving some of my domestic stock investments from my geared personal stock portfolio (stock picking) into a professionally managed individual stock account (with Direct Portfolio) within a self-managed super fund (SMSF). But my preference over time has shifted towards low-cost index funds where available (I'm thinking of moving my retirement account from my employer's default fund (Westpac/BT Employer Super) into a SMSF where I can invest in Vanguard Index Funds or ETF such as the Commonwealth Diversified Share Fund (CDF)

One of the main reasons I've drifted towards a preference for Index Funds is that although I recognise that some actively managed funds outperform for extended periods (eg. Berskshire Hathaway), most funds that outperform for a while (up to a decade) can be simply put down to "luck" or random chance. Similary, techniques such as charting, while always able to explain stock movements in hindsight, don't appear to have any real predictive power. If you ever need reminding that a LARGE component of stock price variations (and market variations) is purely random, despite the appearance of clear patterns or "trends" in the charts, just do a simple random walk simulation in excel.

For example, just as a reminder to myself, I ran a simulation in excel to model the coming year in the ASX All Ords using a few basic parameters and a random number generator:

Simulation Period: Daily Index Value for next 250 days
Starting Value: 5800 (around the current Australian market level)
daily movement formula: new value=P+(10%/250)*P+RAND()*200-100
where P=previous cell's value (eg. B4, if calculating value for cell B5)
I picked an overall 10% pa ROI as a typical stock market trend and a daily random move of + or - up to 100 points as a fairly "typical" market movement.

It's amazing how realistic the "chart" for this simulated market is every time you press F9 to recalculate the random numbers. For example, just from random numbers, you can get a continuing "bull market", a sudden "crash", a "bear market", or a "correction":
Bear Market:

Bull Market:


Crash: (just a little one)

Of course the market (and individual stock prices) isn't purely random - but key events that will shift the market in a particular direction by a significant amount aren't known in advance (otherwise the effect would already reflected in the price by other investors trades adjusting the price level).

Ultimately, I think the time spent trying to uncover "secret" techniques to predict the market would be better spent by a novice investor in a second job earning more funds to invest, and for a more seasoned investor with a significant amount already accumulated, just concentrate on diversification, asset allocation, tax-effective investment structures and try to avoid high fees, churning or other return-diminishing behaviours.

Free DayRunner inserts

February 21st, 2007 at 11:36 am

I remember when having a DayRunner or Filofax (preferably leather) was a status symbol for all the "executive types". Then it was a PDA, and now a BlackBerry is the cool executive toy (soon to be replaced by the iPhone ?).

Work was clearing out some old stationery items, so I grabbed half a dozen packets of DayRunner inserts they no longer used (receipt envelopes, finance pages, and calendar pages). The original prices marked on them totalled $45 -- goes to show how fast a trendy or fashionable item can depreciate! I noticed that they weren't giving away any rulers or pencils. Wink

You Call That a Ship? Now, That's a Ship.

February 21st, 2007 at 11:35 am

The QE2 Cruise Ship arrived in Sydney today. It's a magnificent ship which DW and I had the pleasure of sailing on from New York to Plymouth on our honeymoon back in 1999. However, it was positively dwarfed by it's "big sister" the QM2 which also happened to be in Sydney Harbour today!

Although even a short cruise or trans-atlantic crossing in one of the cheaper cabins is not "cheap" by any stretch of the imagination, it is definitely value-for-money for the unique experience.

Free Money Comics for Kids

February 19th, 2007 at 12:23 pm

The comics I had ordered from the Federal Reserve Bank of New York's educational website (available for free) arrived today. When I got home from work DS1 was busy reading the first one and after dinner he wanted me to read through it and discuss some of it with him. He thought some of the jokes were quite funny, so it seems these are pitched just right for an intelligent 6 year old. He'll probably take one to his "news" day at school on Thursday to tell the other kids.

The ones I got seem the most useful:
The Story of Money
Once Upon a Dime
A Penny Saved
They arrived via airmail from the US (and cost the Fed USD3.70 in postage!). I can recommend these to anyone with 5-10 year old kids.

Long Term Tax Planning

February 18th, 2007 at 04:09 am

Although it's always risky to make long term plans based on the assumption of status quo - especially where tax laws are concerned - the recent changes to the Australian Superannuation rules bring some interesting long term tax planning ideas to mind.

Basically the new Superannuation rules are that any withdrawals (lumpsum or pension payments) from a "tax paid" superannuation fund will be tax free after age 60. One possible side effect of this change will be to make it more tax-efficient to realise capital gains on investments held outside of super once you are retired, over 60, and getting most of your income as an untaxed superannuation pension. The ATO information about the new rules states that "Individuals will not need to include lump sum superannuation benefits and superannuation pensions from a taxed fund made after 30 June 2007 in their tax returns. Superannuation funds will not need to report benefit payments made after 30 June 2007 to the ATO for RBL purposes." Presumably this would mean that such amounts are not taken into consideration when calculating capital gains tax for your personal tax return during retirement.

I'm thinking that I'll be able to live off my tax-free superannuation benefits during retirement, make use of margin lending to offset any non-superannuation investment dividends with tax-deductible margin loan interest, and thus have almost no taxable income during retirement.

This should mean that I could sell off, say, $100,000 worth of my non-superannuation portfolio each year during my retirement and have a fairly low capital gains tax liability each year (as the CGT calculation is based on the normal personal marginal tax rates applied to 50% of the realised gain for assets held more than 12 months).

For example, selling $100,000 worth of my portfolio during a retirement tax year, with say 75% of the amount being a "capital gain" would result in a CGT bill of:
75% realised capital gain = $75,000
50% discount applied = $37,500 taxable CG
tax on $37,500 = $6,600 (using 2007 tax rates)

I'm trying to do a spreadsheet comparison of holding my current non-superannuation geared stock portfolio until retirement and liquidating it during retirement using this technique, vs. liquidating the geared stock portfolio now (and paying considerable capital gains tax due to my taxable salary income) and contributing the after-tax amount into my superannuation account where concessional tax rates would apply to the investments. Regardless of what the modelling tells me is the more tax-efficient plan, putting all my investments inside superannuation may not be a wise choice due to the restrictions on accessing any superannuation investments prior to "retirement age". Although I do have an adequate undeducted, non-preserved amount within my superannuation account that could be withdrawn in an emergency.

I'll let you know if my spreadsheet modelling comes up with any useful insights.

US Stock Trade and Portfolio Update

February 16th, 2007 at 08:56 am

This month I selected VRGY from the MagicFormula listing to add to my "Little Book That Beats The Market" Portfolio of US Shares (100% geared). I bought 270 VRGY @ $18.29. My US Stock Portfolio currently stands as:
Symbol P/E Last Shrs Trade Date Paid Comm Value Gain
HRB 25.28 23.83 200 28-Jun-06 24.16 130 $6,074.43 -$ 214.12 - 3.40%
MOT 13.14 19.24 265 24-Jul-06 18.98 130 $6,498.34 -$ 42.18 - 0.64%
MSFT 25.13 29.46 200 21-Aug-06 24.64 130 $7,509.56 $1,098.65 +17.14%
ASEI 24.67 55.95 100 18-Sep-06 49.51 130 $7,131.02 $ 690.80 +10.73%
PWEI 4.11 33.10 150 13-Oct-06 33.29 130 $6,328.07 -$ 166.32 - 2.56%
OVTI 9.72 12.59 300 13-Nov-06 16.47 130 $4,813.92 -$1,613.56 -25.10%
EPIQ N/A 17.98 320 11-Dec-06 15.65 130 $7,333.16 $ 820.29 +12.59%
CRYP 12.23 24.91 200 10-Jan-07 23.92 130 $6,349.73 $ 122.36 + 1.96%
VRGY N/A 18.66 270 14-Feb-07 18.29 130 $6,421.36 -$ 2.67 - 0.04%
9 symbols Total(AUD): $58,459.61 $ 693.24 + 1.20%

As I intend to build up a portfolio of 18 stocks, and then start selling the oldest holding each month and replacing it with a new pick, I'm not doing much investigation of the individual stocks I pick each month. Basically I just run the MagicFormula filter and select half a dozen stocks that have the best looking stats. I exclude any stocks that I feel may have their performance temporarily boosted by the resources boom - ie. any railroad, oil or mining stocks. I then have a look at the 1-yr chart for each of the stocks on my short list, and exclude those that appear to be in a downtrend or starting to drop. With a total holding of 18 stocks I think I'll have enough diversification to basically just pick a random selection of the stocks thrown up by the MagicFormula search tool. After all, it's only supposed to list stocks that have met its "Value" criteria.

My US Stock Portfolio now has the following composition:



And the Poor Shall be made Millionaires.

February 16th, 2007 at 08:53 am

Imagine a world in which every man, woman and child had their income increased 10-fold overnight. You'd think that while the rich would be even richer, the poor would also become quite well-off - having ten times their current income would let them pay off their debts, buy a new car, send their kids to college, and so on... But you'd be wrong. The poor would still be poor, and they'd be just as many poor people as there are now.

Don't believe me? Well, just consider this quote from an article today regarding a study by the United Nations Children's Fund on wellbeing in more than 20 countries :

"Nearly 12 per cent of Australian children fell below what the UNICEF report considered the poverty line - a household where the total income is less than half of the country's median."

The way UNICEF (and social welfare lobby groups) measure "poverty" is in purely relative terms. So it doesn't matter how high a household's income becomes, if their income is less than half the median household income then they're classed as "poor".

While I agree that poverty is relative to some degree (ie. a family in a developed country may have enough income for all the basics of life, yet still be considered "poor" if they cannot afford expenses that are normal for the society they live in, such as a colour TV), logic dictates that there must be some absolute level of income above which a family living in an affluent society is no longer really "poor" just because their income is considerably lower than the typical (median) income.

Otherwise there is no relationship between GDP, incomes and poverty - and the only way to "reduce" poverty is to have everyone on nearly the same income levels.

Zero Balance Transfer CC Arbitrage Update

February 13th, 2007 at 10:49 am

I currently have a total of $18,000 on two CCs (Virgin Money and Coles/GE) as 0% balance transfers, which has been invested in an online account earning around 6% pa. Both these cards mature soon ($6K next week and $12K in March), so it was very timely that one of my other CC accounts (from Bankwest, which I originally opened in order to get a free $100 credit on the account, but don't normally use) sent me an offer to do a balance transfer of up to 95% of my credit limit at 0% for 6 months. I'll take out a $13,500 balance transfer on this card and invest the funds at 6% for the next 6 months, earning $405 for about ten minutes "work".

I still haven't sent in the other new CC app that arrived from HSBC a few weeks ago - I need to complete the application form and send it in tomorrow. I only requested a $10K balance transfer on the application as I don't know what credit limit they'll give me.

Assuming the new card is approved I'll have a total of $23.5K invested at 6% for the next 6 months and I'll have earned around $1,250 interest on OPM in 12 months. Even after paying tax at my marginal rate it will have been worth the small amount of time and trouble involved in getting the cards, applying for the balance transfers, setting up automatic payments of the card minimum payments each month, and shifting funds around at the start and end of the balance transfer period. As I keep the balance transfer amounts invested in an online bank account available at call there's no significant risk involved.

Link Page

February 13th, 2007 at 10:47 am

My Link Page:

A Penny Saved
Credit Card Blog
Everybody Loves Your Money
Financial Page
Free Money Finance
Investor Geeks
It's Your Money!
Make Love, Not Debt
Money For Military
My 1st Million At 33
My Money Blog
My Open Wallet
NCN Network
OC Budget Living
Quarterlife Finance
The Frugal Duchess
The Internet Cashflow Guy

Blog Monetization: Review My Post

February 13th, 2007 at 10:45 am

Well, I got very confused. According to the "opportunity" on PayPerPost, there is a new PPP Affiliate program the builds traffic and links called "Review My Post". Unfortunately when I followed the instructions provided (Click "Affiliate Tools" in your blogger interface then, select review my post for details. Let us know what you think about this new program that pays you and others to blog about your blog.) I couldn't for the life of me find anything in the blogger dashboard that looked like "Affiliate Tools". I even checked the help page in blogger and did a search on the terms "Affiliate Tools" and "Review My Posts". So, for an exciting new program that is supposed to build traffic it had gotten off to a rocky start.

It was only after wasting time searching my blogger account screens for a while that I went back to the PPP screen and noticed that there is a "Affiliate Tools" link there! D'Oh!

PPP call their interface the "Blogger Dashboard" - it goes to show how confusing it is having a google blogging service being called "blogger" at the same time other people use the term "blogger" in it's more generic sense.

Anyhow.... I eventually found the "Affiliate Tools" and followed the link to the "Review My Post" section. Apparently the way this will work is that by including a special link at the end of a post (the blurb says *EVERY* posts - but I assume putting this link at the end of each and every post is not actually a condition of this new process working) - if someone clicks on this link and joins PPP I'll get a referral fee. The new twist is that the new member will then also get a "personalised" opportunity to make a paid post ($7.50) about one of my posts - which should give me the added bonus of getting an extra link, and the new member an easy $7.50.

I'll start adding the new html link to my posts (see below) and see if it does anything spectacular... I'll let you know how it works out.

ps. I'm reasonably happy with PPP so far - I've been only doing around 1 PPP post per week as I only select opportunities that are relevant to this blog's theme. Plus there are getting to be more restrictions by advertisers around page rank of blogs that can do paid posts. Yet I've still managed to get paid nearly $200 so far, which covers off my hosting and pfblogs gold membership fee. It is also a lot more than I've generated via Amazon affiliate links or Blog Ads.

Australian Online Brokers for OS Trades

February 13th, 2007 at 10:44 am

James recently asked:

Are there any online Australian share brokers that you recommend? Ones that you know of that have a wide range of both Australian and International shares? Ones with low overhead and low fees, while still being trustworthy?

While I don't know about all the online brokers, I have used a couple of Online Brokers for overseas trades that have provided statisfactory service at a reasonable cost.

For selling some HK shares (that used to be listed on the ASX but later delisted from the ASX and only traded in HK) I was originally going to use ComSec - but after opening up an account for OS trades (via their arrangement with Pershing in the US) I found out that they were unable to register my certificated HK shares (HK is moving to an electronic system similar to the Australian CHESS system, but lots of stock certificates are still in existence and need to be converted to electronic registration if you are going to trade them via the 'net).

Because of this difficulty I then opened up an Online Broker account with HSBC Australia. They processed by certificated HK shares without any problems and I was able to then trade them via my HSBC broking account on the 'net. However, HSBC has since got out of the Broking business in Australia, so my HSBC broking account is now with E*Trade Australia, which has improved its overseas trading system to cater for the HSBC clients and others.

I do use my ComSec pershing account to trade US stocks directly (see my posts about my "Little Book" Portfolio), and it generally works fine - I've had one occasion where a BUY order was cancelled overnight for no apparent reason, so I had to reenter the trade the next day. Having said that, I'm a long-term investor, and for my "Little Book" portfolio I buy US stocks in parcels of around US$5000 and hold them for 18 months before selling. So I can't say if the Comsec Pershing system would work well if you wanted to do day trading in the US market from Australia...

Overall I can recommend both E*Trade and Comsec for trading OS markets. Your choice would be influenced by whether you had an existing account with either of these for trading Australian stocks, and if you need to link the account to a margin loan. Comsec provides Margin Loans inhouse, and E*Trade allows you to link your account to a margin lender (but I'm not sure if you can still trade online using E*trade and settle using the margin loan).

Insuring My Portfolio against a "Crash"

February 9th, 2007 at 12:15 pm

I've finally bitten the bullet (gently) and bought my first real "derivatives" - I placed an order today to BUY 3 contracts for the S&P/ASX-200 index PUT option, 20-Dec-2007 expiry date. Each contract is for 1,000 'shares' (a strange terminology when you're buying index options) and the price range quoted when I placed the order was $1.44-$1.63. I started out telling the broker to set my buy price at $1.50 but he advised that this would take a long time to fill. I asked if the price varied more with time (ie. as we get closer to the expiry date the price should drop) or with the current value of the index (once you are "in the money" the contract is worth $10 per point at the expiration date). He wasn't terribly helpful, so I decided to bid $1.60 - so hopefully this order was filled.

The whole options trading thing is a bit of a pain - rather than just login and place an order with my normal online broking service, they have a special "power trader" application that provides live option pricing, charts etc. I looks really cool, but unfortunately I can't install it at work, and options trading is only available during market hours, so I can't use the software to trade options at home anyhow. So I have to phone the broker during business hours to trade options. Probably a good idea to start with, as I don't really know what I'm doing.

My geared stock portfolio is worth around $525,000 at the moment, with margin loans of $264,000. Hence my equity is around $261,000 at present. Although my portfolio doesn't exactly track the ASX-200 index, it does have a high correlation with the index. A change in the ASX index of 1 point is worth about $90 to my equity. Thus at my current gearing level a 2900 point drop in the index (just under 50%) would wipe out my equity entirely (but I'd be getting margin calls long before that!).

As each 1 pt decline below 5500 is worth $10 at the expiration date of an ASX200 5500 20-Dec-2007 PUT Option, I'd have to own around 9 of these PUT option contracts to offset the losses on my portfolio entirely below the 5500 level. I've started out by buying just 3 contracts today, as the market still seems to have upward momentum, and I might be able to buy additional contracts in future at a lower price (or ones with a higher strike price for the same cost). The three contracts will cost around 3*1,000*1.60 = $4,800 plus $100 brokerage. This equates to an "insurance premium" of 1.87% of my current equity. These contracts will reduce my losses below the 5500 level by around 1/3:

Full coverage for losses below 5500 up to 20-Dec would cost three times this amount (ie. 5.61%), so this strategy isn't sustainable indefinitely.

I'm only doing it now as the market seems to have reached dangerously high levels, plus the fact that I don't want to sell off significant holding and realise capital gains this tax year. I expect to start selling off some of my stock holdings after 1 July to reduce my gearing and start shifting my equity investments into a self-managed superannuation structure. This will mean that by the time the PUT options expire in December I won't have much of a geared exposure to shares (you can't directly use gearing within a superannuation account), and may have diversified some of this investment into other asset classes (eg. foreign stocks, commercial property, bond funds).

We'll see how this works out over the next 6-10 months.

Compulsory Share Aquisition

February 8th, 2007 at 02:02 pm

The takeover of Mayne Pharma by Hospira was finalised last week and a cheque for $11,389.80 arrived in the post yesterday. I don't mind the price ($4.10 per share) as I made a decent profit on this stock, but compulsory takeovers are always a bit of a pain as they don't necessarily fit in with your ideal schedule for realising capital gains.

Anyhow, it could be a lot worse - a few years ago (before the commodity boom and oil price increases) I had a long-term view that commodities in general, and oil in particular, would go up in price over the medium to long term. To get maximum benefit for such a price rise I decided to buy some shares in an oil-share company (Southern Pacific Petroleum) that had a working test-scale oil shale plant in Queensland, and mining rights to a massive oil shale deposit. Unfortunately there were a few problems with the test plant (smelly emissions annoying the nearest townsfolk), and they ran out of money while trying to develop the pilot-plant stage of the project. The very low prices for oil at the time also didn't help. I'm still annoyed that they didn't try to raise further capital from the existing shareholders. Instead they simply sold off the entire company to a US investor who assumed their liabilities. The existing shareholders ended up with no return and no interest in the oil shale deposits. Now of course the company would be worth a fortune.

One lesson from that debacle is to not try to be too "smart" (aka. greedy) - rather than investing in a small, speculative oil-related mining company, I should have just invested the money in an established oil company, such as Woodside, or an oil refiner, such as Caltex Australia.

yet another case of "what might have been" - just like the time I invested in a pre-IPO internet company (called Global Entrepreneurs Network "GEN") in the late 90s, rather than in

Net Worth - PF Bloggers progress for JAN '07

February 8th, 2007 at 02:00 pm

Here's the latest round-up on how the various PF bloggers who post their Net Worth each month are progressing. I've updated this post to include a copy of newcomers. Leave a comment if I've missed yours out!
Monthly Net Worth of PF Bloggers for JAN 2007:

Blogger Age Net Worth $ Change % Change
Accumulating Money 2x $49,287.71 $3,582.55 7.8%
Binary Dollar 2x no Jan data no Jan data N/A
Blogging Away Debt 2x -$38,182.00 $509.00 1.3%
Blunt Money 2x $232,481.25 $4,246.93 1.9%
Consumerism Commentary 30 $75,173.52 $6,306.91 9.2%
Crazy Money 27 $247,301.00 $5,316.00 2.2%
Enough Wealth 45 $1,058,372.00 $25,589.00 2.5%
Financial Freedom 30 no Jan data no Jan data N/A
Financial ladder xx $140,597.24 $5,750.69 4.3%
Finance Journey 25 $153,284.00 $3,655.00 2.4%
It's Just Money 32 $157,013.01 $2,691.53 1.7%
Lazy Man and Money 2x $184,349.19 $2,561.58 1.4%
Make love, not debt 2x -$66,274.27 $4,513.67 6.4%
Making Our Way 37 $639,201.77 $34,000.00 5.6%
Mapgirl 3x $36,183.00 $2,183.00 6.4%
Money Blog Site 25 -$34,038.84 N/A N/A
My Money Blog 28 $123,489.00 $8,980.00 7.8%
My Money Path 29 no Jan data no Jan data N/A
My Open Wallet 37 no Jan data no Jan data N/A
New Age Personal Finance 31 no Jan data no Jan data N/A
Savvy Saver 27 no Jan data no Jan data N/A
Seeking Wealth xx no Jan data no Jan data N/A
Tired But Happy xx $133,712.00 N/A N/A

nb. Some ages have been adjusted as follows:
exact age provided = listed as given
"20's" = listed as 2x
"early 20's" = listed as 22
"mid-late 20's" = listed as 27
and so on.

Top 100 Personal Finance Blogs

February 7th, 2007 at 11:14 pm

Your Credit Advisor has a good listing of "top" personal finance blogs. Rather than just list them based on alexa ranking or similar, YCA has provided a summary of each blogs focus and grouped them into meaningful categories. This listing also gets my tick of approval because enoughwealth is listed as #45! Wink

Comparison of Australian and US Lending Criteria

February 7th, 2007 at 11:31 am

Gerad emailed me an interesting question in response to my post "It's Raining Credit":
I was wondering if you could do a post on how the credit system works
in Australia... i.e. do you need to have a credit card to get a good
interest rate for a car loan etc/if the situation is similar to the US.
I've been reading a lot of US literature but being in Sydney, I don't how
things work here...

I don't claim to be an expert, but I can summarise the main differences as I see them:
In the US you get a CREDIT RATING (FICO score) based on details of your credit history. In Australia your CREDIT REPORT doesn't provide an expliciti SCORE, it just records who has accessed your credit history, and will record details of late payments, defaults and so on.
In the US the interest rate you pay on home loans, credit cards etc. appears to be based largely on your FICO score. In Australia lenders will assess applications based on information provided (income, other debts etc) and use your credit report to check for bad debts and so forth. As your credit report doesn't include a specific score, the interest rate on home loans, credit cards etc. is generally standard for all borrowers - the lender just decides whether or not to extend credit to you.

The benefit of the Australian system is that it is probably much easier to get your first loan, credit card or whatever. As long as you have sufficient income, and a stable residential address, lenders will be happy to approve credit to a new borrower. The downside is that if you have an excellent credit history they will throw offers at you to increase your credit limit, but generally don't adjust the interest rate (one common exception is that home loan interest rates are generally a bit lower for "gold" customers - those with large loan balances and good credit history).

Recently GE Money has started to increase its presence in consumer lending in Australia, and I've seen ads with "interest rate FROM x.xx%" which indicates that they will be setting interest rates individually for each borrower, based on their credit history.

Retirement Attitudes around the world

February 7th, 2007 at 11:30 am

A new detailed report is out that gives an interesting summary of the results of a global survey on retirement plans, attitudes, and status. The survey covered topics such as:
Attitudes towards retirement.
Comparison of retirement perceptions with reality: from working and retired people.
Identifying perceptions of the working and the retired on various issues.
Identifying changes in perceptions of retirement between 2004 and 2005.The report is mainly in the form of charts, so its a quick read. I recommend that you check it out.

How to save on telephone costs

February 7th, 2007 at 11:28 am

I remember back in the early days of the "mobile" telephone when the handset was the size of a brick and the battery pack was a separate, even larger brick that took all night to charge up and then only lasted a couple of hours on standby. In those days I was a volunteer for the State Emergency Service and the "duty officer" had the dubious honour of lugging this "mobile" phone around with him or her all weekend.

Times have sure changed since then, with current mobile phone models that fit in your pocket lasting a week between charges, and let you browse the web etc. The other thing that has changed a lot is the cost of using a mobile phone. It's common to get a current model phone for "free" when you sign up for a mobile phone contract - DW and I got two phones (of the same model so that we can exchange batteries, chargers etc) for free under a 12 month contract at $14 a month per phone, with $14 worth of included calls. The included call balance is shared between the two phones, so we can run up a combined phone bill of $28 in calls each month without paying anything above the basic plan rate. As we don't make that many calls, we haven't ever exceeded our included call limit in a month.

In comparison, our landline costs us $32 a month just for the line rental - any calls are extra. In the near future we will dump the landline and just use our mobile phones for all our calls.

If you're looking around for the best possible cell phone plans and phones, have a look at Wirefly. They even have some free cell phones available, and family plans from all major service providers including cingular, T-mobile, verizon, sprint and nextel. You can get two free phones with a family plan. Family cell phone plans (also known as shared plans) can be great value for a single household or family compared to using an individual cell phone plan. A family plans mean all your talk time minutes are pooled for common use, so you'll need to have an idea of the total talk time required for all members of your family.


Land Tax Sux

February 3rd, 2007 at 10:18 am

One of our myriad state taxes is land tax. It's not that I hate land taxes per se, it's just that the state government keeps changing the rules, making it impossible to budget or plan for this tax. For example, our past bills (with no change in the properties we own and pay land tax on) have been:
Year Tax Due Taxable Exempt * Tax Rate
Land Value Land Value Formula

2001 $695.00 $240,000.00 not provided $100
+ 1.7c per $1 over $205,000 threshold

2002 $848.00 $264,000.00 not provided $100
+ 1.7c per $1 over $220,000 threshold

2003 $814.00 $303,000.00 not provided $100
+ 1.7c per $1 over $261,000 threshold

2004 $372.00 $333,000.00 not provided $100
+ 1.7c per $1 over $317,000 threshold

2005 $1,332.00 $333,000.00 not provided 0.4c per $1 up to $400K,
0.6c per $1 on next $100K,
1.4c per $1 above $500K

2006 $0.00 $349,000.00 not provided $100
+ 1.7c per $1 over $352,000 threshold

2007 $451.30 $372,667.00 $407,000.00 $100
+ 1.7c per $1 over $353,000 threshold

* Land used for principal place of residence (ie. our home) is tax exempt

Apart from a short lived attempt to remove the tax threshold (which was repealed after one year due to all the "small" landholders who just had a tiny tax bill due on the land associated with a investment apartment), the rate has been fairly constant but the thresholds were adjusted based on average state property values, whereas land values in Sydney tend to change more erratically, and outpace the threshold increase over time. The government reintroduced the old tax rates and threshold for 2006, but didn't index the threshold in 2006, which has brought our one investment property back over the threshold.

Due to sudden jumps in land valuations under the old method of reviewing land values every 3-4 years, a new method has been introduced that provides a valuation each year, and averages the past three years valuations to smooth out any tax increases.

Year Property #1 Property #2
Valuation Valuation *
2005 $333,000.00 $387,000.00
2006 $349,000.00 $406,000.00
2007 $436,000.00 $428,000.00
Avg: $372,667.00 $407,000.00

At least this allows me to make a rough guess of what the land tax bill will be for the next two years, assuming
a) rates stay same and threshold goes up 5%pa
b) land valuation only goes up 5%pa for the next 2 years (due to the property slump)

Estimated Values and averages:

Year Property #1 Property #2
Valuation Valuation *
2006 $349,000.00 $406,000.00
2007 $436,000.00 $428,000.00
2008 $458,000.00 $449,000.00
Avg: $414,333.00 $427,667.00

2007 $436,000.00 $428,000.00
2008 $458,000.00 $449,000.00
2009 $481,000.00 $471,000.00
Avg: $458,333.00 $449,333.00

My estimates for 2008 and 2009 are therefore:
Year Tax Due Taxable Exempt * Tax Rate
Land Value Land Value Formula

2008 $836.67 $414,333.00 $427,667.00 $100
+ 1.7c per $1 over $371,000 threshold

2009 $1,261.67 $458,333.00 $449,333.00 $100
+ 1.7c per $1 over $390,000 threshold

We'll see if this comes anywhere close to the actual bills. As there is a state election due next year I wouldn't be surprised if the rules are changed again!

Net Worth Update: Jan 07

February 3rd, 2007 at 10:15 am

The past month provided more good gains in my stock portfolio and retirement account, offset only slightly by a small drop in the valuations of my real estate assets:
* Average property prices were slightly down, dropping my property equity by $4,146 or 0.58%. We also had to redraw $3,500 from our home loan prepayments to meet our repayments as DW is on maternity leave and not earning any income at the moment.
* My stock portfolio equity went up another $19,568 (5.50%) this month and my retirement account also increased significantly, although it was boosted a bit by some extra contributions being deposited by my employer this month - up by $12,561 to $324,598 (up 4.03%).

My Networth as at 31 Jan now totals $1,058,372 (AUD), an overall increase of 2.48% for the month.

As discussed in a previous post, I'm looking into either buying Index Put options to protect against significant losses if the market drops, or else selling off some of my stocks to repay my margin loans and eliminate my gearing while the market is at the current high level. I'm leaning towards the Put Options idea as I don't want to realise capital gains this financial year, and most of my margin loans have had the interest prepaid until 30th June, so I should keep my investments until then (and keep my fingers crossed that the market goes up a bit more until then).

It's Raining Credit

February 3rd, 2007 at 10:14 am

Now that the holiday season is over everyone must be back at work over at the credit card companies - they've started sending out offers to increase my credit limits. Yesterday I received an offer to increase the credit limit on one of the CCs I used for a 0% balance transfer for the past 6 months, from $6500 to $9750. And then today I received an offer from Citibank to increase my line of credit limit from $35K to $45K. I'll accept both these credit limit increases as it doesn't hurt to have more credit available (except when applying for a home loan, where they count all the available credit limits as if you had borrowed that amount). But I won't be using any the CC as I have another one for my day-to-day purchases which I pay off in full each month. I may use the Citibank line of credit account at the end of the financial year to prepay a year's margin loan interest (to get an immediate tax deduction on the interest), and then pay off this balance over the following few months.