Most of us would have a mix of asset in our investment portfolio - ranging from the low-risk, low-return government guaranteed bank account, through stock and real estate investments, and up, up and away into the stratosphere of geared, high-risk, high-return investments. Rather than invest in just one asset class of investment product that matches my risk-tolerance and desired return I have a mix of different investments, accumulated over time via deliberate diversification strategies and a large dose of "it seemed like a good idea at the time" strategy. In this post I'll look at what is probably my highest-risk investment, track how it's performed so far, and establish a baseline for keeping an eye on it's long-term performance over the coming years.

Investment: Hedge Fund (Macquarie Equinox Select Opportunities Fund), 100% geared using funding from a Macquarie Structured Products Investment Loan and annual interest payments capitalised using a line-of-credit loan against my property portfolio equity.

Principal Loan: $50,000 borrowed for the initial investment @7.75%pa fixed, paid annually in advance each June ($3,875 pa interest)

Interest Capitalisation Loan: The $3,875 pa interest payment on the principal loan amount is borrowed each June using my home equity line of credit, @ current variable home loan interest rate -0.7% "professional package" discount +0.1% "portfolio loan" premium. Currently the interest rate is 7.33% pa. This interest is paid monthly from my credit union savings account. (I could have also capitalised this interest on interest, but I couldn't be bothered as the amount each month is quite small, and I'd be pushing my luck regarding the tax-deductibility of such interest payments).

Investment Performance:
14.46% in the first year

Tax Considerations:
In order to ensure that the interest on any loan used to purchase the investment is tax deductible, the Macquarie Equinox fund is designed to pay a small "dividend" each year - estimated in the PDS to be around 1% pa. The dividend for the year ended 30 June 2007 will be declared by the end of August. For the evaluation of the tax effects of this investment I've assumed a 1% dividend is declared.

Taxable income from investment: 1% x $50,000 = $500

Deduction for interest paid on investment loan:
7.75% x $50,000 = $3,875

Deduction for interest paid on capitalised interest:
7.33% x $3,875 = $284

Net effect on taxable income:
$500 - $3,875 - $284 = $3,659 reduction

Marginal income tax rate = 30%
Reduction in income tax payable for 2006/7 FY: 30% x $3,659 = $1,097.70

Unrealised Capital Gains for 2006/7: 14.46% x $50,000 = $7,230
Capital Gains tax rate = 50% x marginal income tax rate = 15%
Unrealised CGT due when investment is liquidated: 15% x $7,230 = $1,084.50
Net Unrealised Capital Gain: $7,230 - $1,084.50 = $6,145.50

Net after-tax profit calculation:
= Investment Value - Loan balance - interest paid + tax refunds - CG tax due
= $57,230 - $53,875 - $284 + $1,097.70 - $1,084.50
= $3,084.20

It's a bit hard to work out a ROI as I used OPM to fund this investment, but as a ball-park figure I assume that I "used" $3,875 of home equity that could have otherwise been invested elsewhere, plus I paid out $284 in interest on this home equity loan. So, ROI becomes $3,084.20/($3,875+$284) = 74.16%

On the face of it this looks like a great little money-maker, BUT the potential riskis huge. Worst-case the investment could become worthless, leaving me with a $53,875 in debt to repay. So, as nice as a 74.16% pa return is, I'll restrict my total investment in this high-risk asset class to the current $50,000 - which is around 4.3% of my net worth. This limits the potential maximum loss to around $88,750 after ten years, vs. a "likely" net profit of around $90,980 after ten years (assuming interest rates stay the same, tax rates stay the same, and the investment return averages 14.5% pa).

Break even requires an averaged investment return of 5.98% pa (It's less than the cost of borrowing to invest due to the tax effectiveness of the investment).

Best-case scenario would be a net profit of $191,674 if the investment return averaged 20% (a figure quoted in the PDS as a "projection" based on historical returns for the underlying investments used to value to investment). This best-case scenario is highly unlikely, with the "historic" return data for many of the underlying investments being only a couple of years!

Doing a back-of-the-envelop estimate of "probable" outcome, I get the following:
Outcome Probability Scenario
-$88,750 10% Stay invested for 10 years, then investment goes bust
-$ 6,930 20% Stay invested for 10 years, investment return avg 5%
$16,264 25% Stay invested for 10 years, investment return avg 8%
$90,980 25% Stay invested for 10 years, investment return avg 14.5%
$131,567 19% Stay invested for 10 years, investment return avg 17%
$191,674 1% Stay invested for 10 years, investment return avg 20%
The Weighted average outcome is a profit of $43,464. (As a reality check this equates to an average return of 10.77%, which seems realistic)

Overall, I estimate that the likelihood of losing my entire 4.3% of net worth that I've put into this high-risk is only around 10%, and that there's a reasonable chance that this investment could increase my net worth by an extra $100K to $200K in ten years time.

This is a good illustration of how slack my investment due-diligence and risk analysis really is. Checking through the PDS again I found that:
a) The 10-year historic return of the underlying investments is actually around 15%, not 20%
b) This investment is supposedly "capital guaranteed" - so worst-case I *should* get back the initial $50,000 at the maturity date
c) There is a "rising guarantee" that "locks in" a part of the increased fund value each year (if any) - this may mean that by the end of August the rising guarantee has increased to maybe $53,000 - which would then become my "worst-case" scenario
d) The investment matures after 8 years, not 10. But at that time the fund "rolls over" into an investment in the top-10 ASX listed stocks, so it won't trigger a CGT event at that time. I may need to refinance to $50,000 loan at that time though.
e) I really don't understand exactly what mix of underlying investments the fund performance is linked to and I don't know what fees are being siphoned off - probably a lot, as exotic investments tend to have high management fees, and capital protected products tend to be loaded up with hidden costs.

So I've violated the cardinal rule to "only invest in things you understand". Then again, although $50,000 is a sizeable investment in one product, it's only 4.3% of my total net worth, and an even smaller % of my total investment portfolio. And some of the benefits (income tax deductions, investment asset diversification into non-correlated asset classes) are pretty certain.

If I was a more risk-averse investor I'd not invest in this product in the first place - instead I'd make a "risk free" 7.33% after-tax ROI by not drawing down my home equity loan to pay the interest on this investment.

On the other hand, a more risk-seeking investor might add $50K or $100K of such an investment to their portfolio each year, using every bit of available equity to fund the investment borrowings. If things worked out, after ten years you could have made an extra $1m or so and be able to retire, or possibly write a book and teach seminars on how to make a fortune through speculative investing

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Enough Wealth 2007

Probably not, but the financial institutions would. Aside from the amounts I owe on our property mortgages and stock portfolio margin loans, I have the following unused credit limits available:
Credit Cards
#1 $9,250 @ 18.99%
#2 $23,000 @ 17.49%
#3 $8,000 @ 14.74%
#4 $45,000 @ 11.99%
#5 $17,000 @ 13.74%
#6 $27,000 @ 12.99%
#7 $20,000 @ 15.95%

Mortgage redraw available
$50,800 @ 7.37%

Portfolio Loan (like a HELOC)
$138,000 @ 7.47%

Stock Portfolio Margin Loan available cash amounts
#1 $85,985 @ 9.15%
#2 $34,859 @ 8.90%
#3 $60,170 @ 8.85%

Overall approved credit available:
$519,064 @ 9.97% average interest rate

It's interesting to see how much the standard rates on my various credit cards vary. Of course most of these cards aren't in use - they were only used for 0% balance transfer arbitrage and have no outstanding balance. The one CC I use for all day-to-day bill payments and shopping usually has a monthly balance of around $2,000-$3,000 which is paid off in full each month.

The margin loans limits are also just for making a cash withdrawal (ie. 0% margin value), if they were used to purchase stocks the available funds would be 2-3x the listed amounts.

I only use credit to purchase investments, and nothing too speculative, but it's easy to see how someone could get into a LOT of trouble if they were to suddenly make use of the credit that is on offer to make "lifestyle" purchases... Of course the lenders aren't too worried since most of this lending would be secured against real estate or company stock, with the maximum possible LVR getting to around 75%-80% if I maxed out my credit.

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Enough Wealth 2007

Mighty Bargain Hunter recently posted about paying off Mortgage debt sooner rather than later. The point being that a mortgage is like any other debt and in the early days of a loan the interest cost eats up a huge amount of each repayment, so making some extra payments can have a huge impact in getting the loan paid off sooner.

However, while it is true that most people want to pay off their home loan as soon as possible, or at least before they retire (so they don't have to fund loan repayments out of their retirement income), it's not true of all mortgages. In particular many people will borrow to invest in a rental property, and, at least in Australia, most of the long term benefit of this type of investment is expected to come from eventual capital gains, rather than the rental income. For example, rent yield is taxable income, but at around 3%-4% of the value of the property, it will be less than the tax deduction provided by the interest on the property loan (say 8%). This means that you will be losing money on the investment property on a cash flow basis, at around 4% of the property value each year (this is known as "negative gearing"). But this interest is tax deductible, so 30%, 40% or more of this amount is effectively being paid from money you'd otherwise lose to income taxes anyhow. The payoff comes (hopefully) when the property is eventually sold for a capital gain. As the Capital Gains Tax rate for assets held over 12 months is half the normal marginal income tax rate the total return on the investment property (rent plus capital gains) can be slightly less than the interest cost and you will still end up ahead due to the tax savings. Many property investors therefore choose to use "interest only" loans for the purchase of investment properties, and would choose to use any spare cash flow to pay interest on an additional investment property rather than pay off principal on one of their investment properties. Not to say that this is the best option for all investors, or even most real estate investors, but it just goes to show that paying off the morgage as fast as possible doesn't apply in all situations either.

Enough Wealth

As the end Australian financial year draws to a close on 30th June, it's time to make arrangements to pre-pay up to 12 months interest on my margin loans. I owed $116K to Comsec, so I prepaid the next 12 months interest on $100K of the balance. I also took up the option to capitalise the prepaid interest. I had some other funds sitting in online savings accounts, so I used that money to repay the remaining $16K of variable rate margin loan. This will mean that I don't have to make monthly interest repayments on the Comsec account for the next 12 months.

I expect I'll soon receive the paperwork to prepay interest on my other margin loan account with Leveraged Equities. I currently have $150K prepaid with them, which I'll reduce to $140K as I have around $6K sitting within the cash management account in my LE due to recently selling my Qantas shares. I'll put that money towards the interest prepayment, so I'll only have to come up with another $6K for the interest prepayment. This will leave only a few thousand dollars of margin loan debt requiring monthly interest payments.

One benefit of making the interest prepayment is that you get a slightly lower interest rate than the monthly variable rate (but this is offset by the opportunity cost of the prepaid interest amount for an average of 6 months). But the main benefit is that you bring forward the tax deductible interest expense by 12 months, so you gain an extra tax deduction the first year you do this. However, each subsequent year you are simply using the prepayment of the next year's interest to substitute for the current year's interest (that was prepaid the previous tax year). At some time in the future you have to unwind the prepayment arrangements by having a year with no tax-deductible interest payment, or possibly a series of years with slowly decreasing interest deductions. I plan to schedule this to occur when I'm retired and over 60. At that time (under the new Simpler Super rules) I'll be living off tax exempt Superannuation pension income, so the tax I pay on any dividend income from my margin loan portfolio will be very low, so getting the tax deduction for interest payments will no longer matter.

Anyhow, interest prepayment on margin loans is just the "icing on the cake" - the main benefit of using margin loans is to get a bigger stock portfolio, but have tax deductible interest payments slightly larger than the dividend income from the portfolio. This basically means that you have no net taxable income from the stock portfolio, and instead only make capital gains on the portfolio. If the gains are on assets held more than 12 months before sale, the applicable tax rate is half your marginal tax rate.

Enough Wealth

I had planned on selling off my portfolio of Australian stocks during the next financial year to reinvest the proceeds within our SMSF, but I've decided against this course of action as the realized capital gains would minimize the benefits of shifting the investment into the tax-sheltered SMSF. Instead I'll just salary sacrifice a large part of my salary into super each year (up to the A$50K deductible contributions limit). Since I'm not planning on selling off my portfolio in the next year I've decided to prepay 12 months interest on the bulk of my margin loan balances, so that I can take the usual tax deduction this financial year. For my Comsec loan I've sent in the paperwork to prepay $100K out of the $116,612.16 loan balance, at an interest rate of 8.75%. If I have any spare income during the year (eg. from takeovers) I'll pay off the remaining $16K of variable rate loan remaining. I'll also prepay $120K of the $150K loan balance on my Leveraged Equities margin loan before the 30th June.

For the next two years I'll be supplementing my salary income with the $34K I withdrew from my superannuation account. This will allow me to salary sacrifice at a high rate for those two years. After that time I'll look at slowly selling some of my Australian stock portfolio each year to allow me to continue salary sacrifice into our SMSF. If I get enough pay rise in the next couple of years to offset the amount I wish to salary sacrifice, I'll retain the existing stock portfolio holdings until I retire, at which time I'll have a very low assessable income (under the new Simpler Super rules pension income isn't taxed after you turn 60) and I could then sell off a portion of my holding each year without accruing much CGT liability. Until 75 I would still be able to contribute the proceeds into super while drawing a pension. After 75 I wouldn't be able to contribute into my own super, but I could start to contribute any excess funds into the super accounts of DS1 and DS2. Under current rules up to $150K a year of undeducted contributions could go into each of their accounts each year. As they will be in their 30s by that time I don't expect that they would be contributing that much into their super accounts yet.

All this planning assumes that the superannuation tax rules don't change much in the next 30 years - a most unrealistic assumption! This plan will obviously have to be updated as the rules and our financial situation changes over time.

Current holdings:
Leveraged Equities Account (loan balance $150,000.00, value $316,303.73)
stock qty price mkt value margin
AAN 295 $15.22 $4,489.90 70%
AEO 1,405 $2.04 $2,866.20 65%
AGK 510 $15.32 $7,813.20 70%
AMP 735 $10.01 $7,357.35 75%
ANN 480 $12.00 $5,760.00 70%
ANZ 1,107 $28.78 $31,859.46 75%
BHP 748 $31.06 $23,232.88 75%
BSL 781 $11.27 $8,801.87 70%
CDF 6,943 $2.02 $14,024.86 70%
CHB 118 $51.01 $6,019.18 65%
DJS 2,000 $5.13 $10,260.00 65%
FGL 3,751 $6.27 $23,518.77 75%
LLC 481 $19.82 $9,533.42 70%
NAB 316 $42.40 $13,398.40 75%
QAN 2,175 $5.06 $11,005.50 70%
QBE 983 $31.56 $31,023.48 75%
SGM 830 $27.08 $22,476.40 70%
SUN 963 $21.16 $20,377.08 75%
SYB 2,880 $4.37 $12,585.60 70%
TLS 5,000 $4.78 $23,900.00 80%
TLSCA 3,000 $3.31 $9,930.00 80%
VRL 1,500 $3.20 $4,800.00 60%
WDC 783 $20.77 $16,262.91 75%

Comsec Account (loan balance $116,612.16, value $229,848.59)
stock qty price mkt value margin
AGK 240 $15.32 $3,676.80 70%
AAN 139 $15.23 $2,116.97 70%
APA 4,644 $4.22 $19,597.68 70%
ASX 200 $48.39 $9,678.00 70%
CBA 130 $55.03 $7,153.90 75%
CDF 43,997 $2.02 $88,873.94 70%
IPEO 54,000 $0.019 $1,026.00 0%
IPE 8,000 $0.995 $7,960.00 60%
IFL 1,300 $10.25 $13,325.00 60%
LDW 1,350 $7.81 $10,543.50 0%
NCM 300 $21.68 $6,504.00 60%
OST 2,000 $6.52 $13,040.00 70%
QBE 607 $31.60 $19,181.20 75%
RIO 60 $94.55 $5,673.00 75%
THG 4,000 $1.02 $4,080.00 50%
WBC 300 $26.03 $7,809.00 75%
WPL 220 $43.68 $9,609.60 75%


Changes to portfolio since last update:

I sold my Qantas shares on the market for $5.39 on the last day before the takeover offer closed. I guessed correctly that the APA offer would fail to reach the required acceptances to proceed, and over the next few days the QAN share price dropped, as had been expected. However I had expected the price would drop to under $5.00. In fact the stock price has since increased after the Qantas management released an upbeat assessment of their prospects, and is now trading around $5.60. The proceeds of the sale reduced my loan balance below the $150K I had prepaid interest on for this financial year, so Leveraged Equities automatically moved the surplus amount into the linked Cash Management Account so I'm at least getting some interest on this bit of borrowed money.

My AMP holding increased by 15 shares due to a dividend reinvestment. I no longer enrol in DRP for new stocks I buy as there is little if any price discount and the hassles of keeping records for CGT calculation outweighs the benefits. I simply use dividends to help pay the interest on my margin loans.

My QBE holding increased by 17 shares due to a dividend reinvestment.

My SUN holding increased by 113 shares due to a Share Purchase Plan offer I took up.

My SYB holding increased by 32 shares due to a dividend reinvestment. This company is currently subject to a take over offer, which pushed the price up from $3.70 to $4.37. As the offer is a cash plus stock mix I may decide to sell my holding on the market rather than accept the offer.

I happened to come across the website for

Shearwater Capital the other day. Their investment approach seems sensible and their published fees reasonable, but that isn't what caught my eye. I was more interested in their model portfolios and using the data on the 20-year performance to evaluate the effectiveness of gearing as an investment strategy.

Looking at their "Aggressive" portfolio (80% stocks/20% bonds, which is similar to my target asset allocation) you have a Twenty Years Annualized Return of 12.3% with a Thirty Three-Year Model Annualized Standard Deviation 11.8%. The "Very Aggressive" portfolio (100% stocks) has a Twenty Years Annualized Return of 13.7%, but the Thirty Three-Year Model Annualized Standard Deviation shoots up to 14.6%.

This shows that, as can be expected from modeling of the efficient frontier of a portfolio composed mainly of stock and bonds, the optimum return-risk outcome is achieved from a portfolio comprised mostly of stocks, but with some bonds included. The mix within the stock component is usually around 60% domestic:40% foreign, although in various ten-year periods you would have done better with the opposite ratio (so a 50:50 split may be a good bet).

Moving from the "Aggressive" to "Very Aggressive" asset mix boosted returns by 11.38%, but the "risk" (variability of returns, as measured by the Standard Deviation) increased by 23.73%.

For this reason, if you are seeking higher returns over long time periods, it seems a better strategy to use gearing of an "Agressive" portfolio, rather than moving to a "Very Agressive" portfolio.

Taking the Twenty Years Annualized Return of the "Very Conservative" portfolio (100% bonds) as a proxy for the interest rate cost of gearing (via margin loans or a real-estate backed investment loan such as a HELOC), one can make a rough estimate of the Twenty Years Annualized Return and Thirty Three-Year Model Annualized Standard Deviation that would result from a 100% geared (50% LVR) "Aggressive" portfolio:
20-year 33-year
Annualized Annualized
Return Std Devn
Ungeared "Aggressive" 12.3% 11.8%
Estimated Cost of Loan 5.9% 2.4%
Estimated 100% geared 18.7% 23.6%
Estimated 22% geared 13.7% 14.4%
Ungeared "Very Aggres." 13.7% 14.6%

Using gearing could therefore increase your average returns by 52.03% at the cost of increasing standard deviation by 100%. This is somewhat better than shifting your asset allocation from "Agressive" to "Very Aggressive". However, the absolute "risk" has increased 100% compared to 23.73%, so the strategy of making use of 100% gearing ratios should probably be called "Hyper Aggressive". A more modest use of gearing (say, 22%) would produce similar average return as a "Very Aggressive" asset allocation, but with a slightly lower standard deviation.

It was interesting to see that the returns for the 100% geared "Aggressive" portfolio are very similar to the long-term increase in value of my own investment portfolio. When I started out I didn't use gearing and had a more conservative asset allocation, but this was offset by the relatively large impact my savings had at that stage. These days my savings have a more modest impact on my overall increase.

One final note, when using gearing the cost of funds (interest rate and any annual fees) can have a major impact on the long-term performance of this strategy, so it is worth shopping around.

Enough Wealth

I've been building up a portfolio of US stocks (my "Little Book" portfolio) since the middle of last year. One of the problems of trading US stocks from Australia has been the relatively high brokerage costs - using Comsec-Pershing it costs AUD$65.00 per trade. E*Trade Australia charges even more, and I haven't been able to find any Australian brokers that will trade US stocks more cheaply. Some readers have recommended US-based brokers which are cheaper, but before I take that route (with the associated hassles around transferring funds in USD to a US brokerage before making trades) I've decided to experiment with using Contracts for Difference (CFDs). These are quite a popular tool for day traders, as you can gain market exposure with low costs per trade (as little as $1) and trading CFDs has a built-in gearing effect (usually the trades are based on a margin of between 5% and 20% of the stock value being traded). I don't intend to try day trading (I think it's a zero sum game, which generally just transfers wealth from the casual day trader to commercial traders), but it looks like it may offer a cheaper method to implement by US stock portfolio strategy.

I applied online for an account with CMC Markets on Friday, and today their representative phoned to request a fax of some identification (drivers licence and a rates notice) to finalise opening my account. As soon as this is processed I'll be sent a login and can transfer the initial $1000 required to begin trading. Although there is a normally a monthly fee of around $40 to use their trading software with live stock price data from the ASX, as I only intend to trade US stocks this data isn't needed and I won't have to pay any monthly fee.

Trades of US stocks are generally on a margin of 5%, so I should be able to buy a CFD to gain equivalent exposure to a US stock as my Comsec-Pershing $5000 trade for only $250. The minimum fee of $10 is high as a percentage of the trade value (4%), but is very reasonable compared to the underlying stock exposure (0.2% of $5000). I'm not sure that all the US stocks I've picked for my "Little Book" portfolio would be available as CFDs - only 541 "constituents" of the US market are available from CMC markets.

There's also a fundamental difference between buying stocks and trading CFDs - in the case of CFDs you are basically buying a promise from the issuing company, in this case CMC Markets. The CFDs issued by CMC Markets are not tradeable by any other CFD company, and if CMC Markets went out of business my investment in their CFDs would be worthless.

Anyhow, to replicate my actual US stock trades with Comsec-Pershing over the next 12 months (US$60K worth) will only cost me around US$3K to buy the equivalent CFDs, so it's not going to be a hugely expensive experiment whatever happens. If it works out I could save US$600 a year in trading costs, which would add directly to the ROI of my "Little Book" portfolio.

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.

I continued to build up my "Little Book" portfolio of US stocks with my regular US$5,000 stock purchase of one of the stocks listed by the magic formula investing website. This month I chose Crytologic (CRYP) . Some of my previous picks have dropped considerably, especially OVTI, so my overall portfolio now has around 0% return after deducting buy/sell costs. Taking into account the interest on the money I've borrowed to make the stock purchases, I'm under water at this point. Not that it really means anything - I plan to stick to my investing plan for at least ten years before looking at the average return and volatility to decide if the risk-adjusted return is as expected.