With the 4% drop in the Australian stock market on Friday the "correction" is now about 8%. While there could be further drops in the coming weeks, even if this is just a correction rather than the start of a bear market, I think it may be time to start looking at stocks to buy for DS2's portfolio. DS2 turns 1 next month and I'd like to buy him a couple of stocks to establish an investment portfolio - perhaps some

CSL or COH. I'm looking for stocks that over the long term should have good growth prospects but don't pay out large dividends - getting too much "unearned income" results in punitive childrens tax rates.

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DS1 is quite interested in the financial topics I've discussed with him. He enjoys doing his banking, earning some money busking, and I showed him how to apply for a business number online and how I fill in his eTax return. He's also been keen on using the computer - drawing using MS Paint and has worked his way through the QBasic tutorial I gave him. It therefore seems quite logical to combine his interest in computers and money-making to start his own blog. I don't want him to be posting anything personal on the web, but blogging about his busking and other financial adventures anonymously should be OK. So today I registered a domain name for him to use - Dotster has a special on 1-yr rego of .info domains, so I registered jobsforkids.info and will show him how to setup a blog using blogger and to setup some adbrite banner ads and inline ads. If we can setup a PayPal account for him linked to one of his existing online bank accounts I'll do that, otherwise we'll use my paypal account and I'll just keep track of how much he makes and add it to his pocket money. Hopefully a blog using the domain name jobsforkids.info and some strategic use of suitable keywords in posts should generate some traffic from search engines.

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Enough Wealth 2007

DS1 has been enjoying going to Judo training on Monday nights for the past three weeks, so tonight we formally signed him up. Membership of the State Judo association cost $60pa, his Judo-gi (uniform) cost $65 and the club fee for training is $45 per month. I think the class is quite good value for money. There are usually only three kids in the Junior class (a bigger class runs on Wednesday night at the Olympic Centre, but it's too far to travel unless DS1 gets very serious about his training) so he gets lots of attention from the instructor. He's the smallest in the class, but he's very enthusiastic and isn't put off by his larger training partners. Aside from being great exercise, Judo training is good for learning discipline and focus, and can provide some self-defence benefits (as long as you don't kid yourself that it's much use against an armed threat!). One advantage of this sport for DS1 is that competition is based on weight grades, so he can aspire to do well if he trains hard and has ability, even though he's quite small for his age.

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Enough Wealth 2007

It's a pity that I already have several online savings accounts and mututal fund investments, because the new offering from rabobank looks very attractive. They offer an online savings account with no fees or minimum balance with an interest rate of 6.6%, and from this account you can invest in wholesale mutual funds for a low entry fee of only 0.75% (compared with up to 5% entry for retail funds going direct or via a planner, or 0% for a retail fund investment via a discount broker). They are offering 0% entry fee, but only until the end of July. But the 0.75% fee is still good value as it gives access to wholesale funds (which usually charge lower management fees than their retail fund equivalents) with a minimum investment of only $250.

I'd try out this account and fund investment option if I didn't already have more accounts than I know what to do with. They do offer the account for use with a DIY Superannuation account (SMSF), but I'll have to check carefully how their costs and range of available funds compares with accessing mutual fund investments via e*Trade (I already have an e*Trade account setup for use with our SMSF). One benefit of making out SMSF mutual fund investments via e*Trade is that eSuperFund (which administers our SMSF) has access to transaction data from our e*Trade account. If we invested for our SMSF via Raboplus we'd have to send copies of all the relevant financial info to eSuperFund each year.

I was also thinking about opening a Raboplus account for DS1 and/or DS2, but unfortunately you can't open a raboplus account if you're under 12, so the kids will have to make do with their St George bank accounts and Commonwealth Bank 'dollarmite' savings accounts. It's funny how some banks and Superannuation funds have no problem with opening accounts for a minor (with an adult having authority to operate the account), while others either don't handle accounts for minors at all, or insist on the account being opened in the name of the adult trustee(s).

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Enough Wealth 2007

The Australian Treasurer handed down the annual budget tonight, and, as expected in an election year, there are some generous handouts to "middle Australia" (ie. swinging voters). Those of personal interest are:
* A "one off" doubling of the government superannuation co-contribution for the 05/06 financial year. This means that DW and DS1 (who both made $1000 undeducted contributions into their superannuation accounts that year), will get a total of $3,000 in co-contribution, rather than the expected $1,500.
* Tax cuts at the "bottom end" starting from 1 July 2007. The threshold for the 30% rate has been increased from $28,000 to $30,000, and the low income earners tax rebate has increased from $600 to $750, which means anyone with taxable income less than $30K will pay 0% tax on the first $11,000 of income (the 15% tax rate normally applies above $8,000).

Having recently withdrawn $34,000 of unrestricted, undeducted, non-preserved money from my superannuation account (prior to the rule changes taking effect on 1 July), I'll now be able to salary sacrifice a large fraction of my salary for the next two years. This will
a) save tax on the sacrified amount (super contribution tax rate is 15% rather than the income tax rate of 30% which would otherwise apply)
b) reduce my taxable income down to around $30,000, so I'll be eligible for the $1,500 government superannuation co-contribution if I make a $1,000 undeducted super contribution (it may even end up being $3,000 if this year's "one off" increase ends up being repeated!)
c) substantially reduce our combined family taxable income so we are eligible for some Family Tax Benefit payments.

The others changes won't immediately affect us, but the childcare rebate changes should be good once DS2 starts preschool in a couple of years.

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I'm not sure, but the investment options I picked for the Personal Superannuation account I opened for DS2 on 10 Nov 2006 (DS2 was born last September) were:
Initial Current
ING Global Emerging Markets - Entry Fee 10% 1.4382 1.52460
OptiMix Geared Australian Shares Entry Fee 30% 1.2060 1.38040
OptiMix Global Smaller Companies Shares - Entry Fee 10% 1.6289 1.73940
Vanguard Australian Shares Index - Entry Fee 20% 1.2370 1.38410
Vanguard International Shares Index - Entry Fee 20% 1.2491 1.25220
Vanguard Property Securities Index - Entry Fee 10% 1.2090 1.33700

The entry fee for the ING OneAnswer Personal Superannuation scheme is quite hefty (around 4%), but doesn't matter as I made the investment application via

http://www.count.com.au/Count who rebate the upfront fee 100%.

Total initial investment was $1000, with quarterly additional investments scheduled to start from next July. The current value of the investment is $1,091.

When DS2 is older I'll help him find a casual job, such as delivering letter box junk mail on the weekends. Although it is quite easy for kids to earn some pocket money doing odd jobs, it's a much harder task finding a "real" casual job for the under-15s. The benefit of having such a job (apart from the life lessons around working, earning money etc.) is that if he earns more than 10% of his income working for an employer he can make an undeducted contribution of up to $1000 each year and get a government co-contribution of up to $1500 per annum.

I already did this for a couple of years with DS1 while he had a job doing a paper round. Boosting retirement savings at such an early age should have a huge impact on their final benefits, as they have 60 years for the magic of compounding to do it's thing.

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