As Dr. Evil would say "ONE, TRILLION, DOLLARS!"

That is the amount the Australian Household debt is likely to hit this year. Despite three interest rate rises by the Reserve Bank last year, which temporarily dented consumer confidence and slowed the growth in consumer debt, the rate in growth in credit for households and business was 1.4% last month - the fastest it's been in four years. This could trigger another rate rise at the Reserve Bank Board's monthly meeting next Tuesday, but many economists expect them to wait until they get the latest quarterly inflation figures next month. Borrowing for housing made up 86 per cent of the household debt figure ($840 billion) and the remaining $137 billion is personal debt (including credit card borrowing and personal loans).



Enough Wealth

It's not a trick question. I was just wondering today what is the ultimate effect of adding $1000 to my "family fortune". As I think I'm on track to have enough to live off by the time I retire, additions to my net worth over the next 20 or so years should end up increasing the size of my estate. Of course one has to make a lot of assumptions to model this. My assumptions are:
* my kids and descendants either make their own way, or at least live off the income of the "family fortune" rather than blow the lot. A big assumption, but at least I won't be around to find out if I'm wrong
* the "estate" will be invested tax effectively and in a sensible asset allocation that provides a reasonable "real" return - say 4%. This could be conservative, if the assets are mainly "high growth" ones such as stocks, real estate, and some bonds. But, looking at the long term there is the risk on entire markets doing very poorly, hyperinflation, and so on. Imagine if your family fortune had been entirely invested in Russia, Germany or Argentina 100 years ago. So there is probably a need to diversify between markets and also to spread the actual holdings to several different countries to minimise sovereign risk. This is likely to diminish to overall returns achieved.

So, what might $1000 be worth? It could provide a weekly income of around 77 cents per week on an indefinite basis. Not as much as you might have thought.

Enough Wealth

My company provided free 'flu shots to any employee that wanted one today, so I got one. Unfortunately I had caught a cold yesterday, so that combined with the effects of the 'flu vaccine made me feel pretty poorly. Hopefully I get over the cold tomorrow.

Enough Wealth

I collected DWs mobile phone today - I'm glad the repair report showed that a short-circuit in the speaker had been found and the speaker replaced. There's nothing worse than dropping in electrical equipment that has an intermittent fault, only to get it returned a few days later with the dreaded "no fault found" message. The warranty doesn't run out 'til next monday, so it didn't cost anything to have it repaired. Hopefully both our phones will last for several years.

The dentist didn't have a vacancy until next Tuesday, so it's lucky that my molar with a large chunk of tooth missing isn't hurting. Upon reflection maybe this shouldn't be a surprise, as this is the tooth that previously had root canal -- so there won't be any live nerve left in that tooth? Dental costs aren't covered by medicare, so, unless you have a comprehensive private health insurance plan (we just have basic hospital cover to avoid the extra medicare levy) it is normally an out of pocket expense. It does count towards our total non-reimbursed medical expenses for the year - anything over the threshold (around $1500 I think) gets a tax rebate (of around 30%). If you can't afford to pay, and don't have private insurance, there is free public dental care available from the State government. But it's got a limited budget, so there are very long waiting lists for anything except emergency dental work.

The bathroom plumbing has been playing up - taking a long time for the bath and toilet to drain sometimes, and making strange "blup, blup" sounds. DW arranged for the plumber to drop by and clear out the waste water pipes with an 'electric eel'. Unfortunately this is a different pipe to the one he cleared out last year, and he couldn't find the access point. The drainage diagram that was attached to the documentation we got when we bought the house doesn't show much detail - and I think it shows the original plans, without some additions that were added to the house later on. The plumber had to leave to locate some more detailed plans - hopefully he'll be back tomorrow and the total bill won't be too high. I have a new flush valve assembly to install in the toilet - I'll have a go at doing that myself, but I draw the line at clearing out blocked sewer lines. I'm quite happy to spend my money for someone else to do THAT job!

While I was collecting the wife's mobile phone at lunchtime I dropped into the Aldi store closest to my workplace. They had a USB high-definition DVB-T received on sale this week for $79. Hopefully I can just plug it in to my laptop and watch TV - I'm not 100% sure it will work as the specs say it requires a 64MB Video card, so it may not work on the laptop. I'm also not sure if we have any reception of terrestial digital TV signals where we live (it's in a bit of a valley). Sigh -- another $79 that would probably have been better spent going into my retirement fund, or one of my kids retirement accounts ;0

The market was up 39 points today, which approximates to about $3,500 profit "on paper". I ignore such ups and downs in my daily net worth figure (although I like to plot the chart) - if I let how my investments were going affect my day-to-day outlook on spending I'd alternate between days of buying big-screen TVs and days of eating leaves and water. I find it relatively easy to stick to my "budget" for spending, and just treat by investment performance as an intellectual curiosity. I find that doing this also helps me to stick to my long-term asset allocation when, for example, the market crashes or is in a prolonged slump.

Enough Wealth

I've been posting updates of my Australian and US stock portfolios each month, so I may as well post a monthly snapshot of my mutual fund holdings. I've excluded my shares in the Commonwealth Diversified Share Fund (CDF) as it is an exchange traded fund (ETF) and already appears in my stock portfolio posts.

After investing in several actively managed funds in my early days as an investor (in those days a monthly $50 or $100 savings plan was more in line with my available savings than buying blocks of stock), I've slowly moved away from funds, aside from low-cost index funds and some "hedge" funds. I found that, apart from often poor performance relative to the index they were bench-marked against, there were often problems with funds being "wound up" if they were performing badly.

My current Managed Fund investments are:
St George Margin Loan;
Code Fund Name Price Qty Value Margin
FSGSF Col First State Geared Share Fund $4.9418 4,427 $21,879.71 70%
OMIP320 OM-IP 320 Diversified Limited $1.8899 5,000 $9,449.50 65%
OMIPSL OM-IP Strategic Limited $2.2971 5,000 $11,485.50 60%
OMS1220 Series 1 OM-IP 220 Limited $4.1063 5,000 $20,531.50 70%
VIISF Vanguard Index International Share Fund $1.1462 13,046 $14,954.28 70%
VLHGF Vanguard LifeStrategy High Growth Fund $1.7237 18,453 $31,807.49 70%

Comsec Margin Loan;
FSF0169AU CFS Geared Global Share Fund $0.777 8,241 $6,403.47 50%

Enough Wealth

A strange mix of events today. I finally got around to taking DWs mobile phone to be repaired under warranty. It's had an intermittent problem with the sound sometimes not working, and then starting to work OK again (it's amazing how useless a mobile phone that doesn't ring is!). The warranty expires on the 31st March, so it was now or never. Hopefully they'll have it fixed (or replaced) by Thursday and it will then work OK. We have two identical mobile phones on a combined $18 a month plan, which is enough credit to cover all our normal phone calls. If the mobile is working reliably I'll think about getting rid of our land line - it costs over $30 a month and we hardly use it at all. The only downside of getting rid of the land line is that I've had the same phone number for 40 years! (I had it transferred to our new house when I moved).

A couple of packs of information arrived today regarding some of my shares. A 2 for 15 entitlement offer from Suncorp (at $15.15 a share). The share price is currently $20.40, but if everyone takes up their entitlement the dilution should (theoretically) drop the share price a bit:

expected new price = (15*20.40 + 2*15.50) /17 = $19.82

In practice the price probably wouldn't drop that much, as some people won't take up the entitlement, so the dilution won't be as great.

The second info pack that arrived was from the US regarding a proposed merger (takeover) of PW Eagle for USD$33.50 per share (cash only). The pricing seems a bit mediocre, as PWEI was trading as high as $36-$37in January. I bought these shares at USD$33.29 last October, so I wouldn't make any significant gain.

Finally, a piece of a molar that had had root canal therapy and a large filling a couple of years ago broke off this evening. Hopefully it can just be filled and won't cost too much. It doesn't hurt, so I'm hoping I don't need any more root canal work (it costs around $1,000 each time!). I thought there might be further trouble with this tooth when the dentist completed the last lot of root canal work and replaced the temporary filling with a permanent filling - there was a distinct cracking sound while she was working on the filling...

Anyhow, lots things that have potential to impact on my finances occurred today, but not much actual cashflow (yet).

Enough Wealth

I'm always fascinated to read studies on income, wealth, savings patterns etc. for different countries and demographic groups. But there are some key variables that always seem to be missing from such studies:

1. Correlation of Net Worth and IQ
- yes I know that there are lots of studies showing that higher education leads to higher income, but the link to higher wealth isn't so strong. There are even indications that education isn't much help in getting rich - lots of self-made millionaires built up a business without a college degree. But, this doesn't mean that these people weren't intelligent. Forrest Gump not withstanding.

2. Correlation of Net Worth and religion.
- you'd think that some religions would be more compatible than others with accumulating wealth. And within a religious grouping you'd expect a correlation with how "strictly" religious someone is and their net worth. After all, you'd expect Christians that don't tithe 10% of their income to end up with greater net worth. But this relationship might be skewed by a small number of high net worth tele-evangelists!

Then again, such studies would not be PC.

Enough Wealth

Having done a rough risk estimate on Friday night as to whether or not Qantas shares were worth a punt at $5.06, and concluding that they were. I proceeded to second guess myself this morning when I checked the share price half an hour after the market had opened. QAN was trading down at around $5.03, while the general market had shot up at the open. This of course meant that either QAN was an even better buy, or that, with QAN continuing to head south while the market was trending up, I'd misread the prospects for the QAN share price. As I lack the "killer instinct" a successful trader requires (the same instinct that also made Leason loose 827 million pounds), I proceeded to dither and decided against placing an BUY order with a $5.00 limit.



Of course, after dipping briefly below $5.00, QAN shares ended the day up 1.8% from there at $5.09. If I buy some tomorrow the market is certain to drop a bit, and QAN shares will dip back below $5.00. And if I do nothing, they'll continue upwards and eventually they'll exceed the takeover price of $5.45...

This indecision is why I'm tending more towards geared investments in the market index. And, as many wiser investors than I have said before me, I hate losing money more than I enjoy making it.

Enough Wealth

I haven't posted an update of my Australian Stock Portfolio for a while. I don't have much turnover in my Australian stock portfolio as I generally follow a "buy and hold" strategy.

I'm tending more towards index investing these days, although at the same time I've started experimenting with direct stock picking for my US stock portfolio. My excuse for the US portfolio is that it gives me something interesting to do, and, once I'm fully invested with 18 US stocks it will be pretty well diversified and track the index reasonably well anyhow - I'm just hoping for some outperformance.

I've been sorting through my old records to get my transaction logs up to date for calculating how much capital gains tax I'd be liable for if I sold off my stock holding so I could invest my money in a tax-sheltered superannuation account (SMSF). It's interesting to be reminded of what "might have been" when going through these old transactions

- the purchase of Southern Pacific Petroleum as a long-term oil-price play, which ended up being worthless when the company went broke and sold off all the oil shale assets to a texas oil billionaire! If only they'd raised some more capital from the existing shareholders and hung on for another year or two the spike in oil prices would have made the stock skyrocket!

- the purchase of CSL stock at $2.50 which I sold off at $3.40 less than a year later for a quick 40% profit. I was quite pleased with that trade. Unfortunately the company has continued to appreciate over the years and is now worth $83.70 a share!

Current holdings:
Leveraged Equities Account (loan balance $155,620.68, value $307,620.68)
stock qty price mkt value margin
AAN 295 $14.15 $4,174.25 70%
AEO 1,405 $2.00 $2,810.00 65%
AGK 510 $15.80 $8,058.00 70%
AMP 720 $10.37 $7,466.40 75%
ANN 480 $11.51 $5,524.80 70%
ANZ 1,107 $29.52 $32,678.64 75%
BHP 748 $29.18 $21,826.64 75%
BSL 781 $9.94 $7,763.14 70%
CDF 6,943 $1.85 $12,844.55 70%
CHB 118 $50.00 $5,900.00 65%
DJS 2,000 $4.68 $9,360.00 65%
FGL 3,751 $6.66 $24,981.66 75%
LLC 481 $19.76 $9,504.56 70%
NAB 316 $40.54 $12,810.64 75%
QAN 2,175 $5.06 $11,005.50 70%
QBE 966 $31.95 $30,863.70 75%
SGM 830 $22.89 $18,998.70 70%
SUN 850 $20.65 $17,552.50 75%
SYB 2,848 $3.70 $10,537.60 70%
TLS 5,000 $4.47 $22,350.00 80%
TLSCA 3,000 $3.02 $9,060.00 80%
VRL 1,500 $3.25 $4,875.00 60%
WDC 783 $21.23 $16,623.09 75%

Comsec Account (loan balance $106,302.53, value $219,712.40)
stock qty price mkt value margin
AGK 240 $15.80 $3,792.00 70%
AAN 139 $14.15 $1,966.85 70%
APA 4,644 $4.19 $19,458.36 70%
ASX 200 $42.90 $8,580.00 70%
CBA 130 $50.27 $6,535.10 75%
CDF 43,997 $1.92 $84,474.24 70%
IPEO 54,000 $0.048 $2,592.00 0%
IPE 8,000 $0.985 $7,880.00 60%
IFL 1,300 $10.10 $13,130.00 60%
LDW 1,350 $7.70 $10,395.00 0%
NCM 300 $23.56 $7,068.00 60%
OST 2,000 $5.08 $10,160.00 70%
QBE 607 $31.95 $19,393.65 75%
RIO 60 $76.85 $4,611.00 75%
THG 4,000 $0.925 $3,700.00 50%
WBC 300 $26.15 $7,845.00 75%
WPL 220 $36.96 $8,131.20 75%


Enough Wealth

A funny thing has been happening with the new Credit Cards that I obtained just to make use of the 0% balance transfer offers that were available. Many of the issuers are now sending offers to increase my credit limit! Apparently having a balance on the card and making the minimum payment each month makes me a model consumer, and the credit card companies are falling over themselves offering increased credit limits. I can only assume that either the system they use to decide who should be offered more credit only looks at the repayment history, and doesn't care about the interest rate being charged. Or perhaps they are just hopeful that once the 0% period expires I'll just keep making the minimum payment each month, rather than pay it off in a lump sum. Anyhow, there's not really any downside to accepting the increased credit limits from my point of view - we don't have a "credit score" as such in Australia, so I may as well have a large line of credit available in case of emergencies (it lets me keep all my funds invested according to my asset allocation, rather than keeping an "emergency fund" invested at call at somewhere).

For US readers taking out new cards and accepting higher credit limits may adversely affect your FICO score temporarily - but after a while it may still be a positive as an increased credit limit will mean that the amount of debt on your cards (for 0% balance transfers) would be a lower % of the total available credit.

Enough Wealth