Enoughwealth's Personal Finance Blog

The paperwork from eSuperFund confirming the establishment of our Self-Managed Superannuation Fund (SMSF) arrived today. Overall the process has been very quick and efficient. The initial online application only took five minutes to complete and gave a false sense of simplicity - when the actual "paperwork" to create the SMSF arrived it was a very thick package with FIFTY of the little, yellow "sign here" stickers attached! Anyhow, the paperwork has now been processed by the ATO (Australian Tax Office) and everything is now in place. In total we received:
* A TFN (Tax File Number) for the new fund from the ATO
* An ABN (Australian Business Number) for the new fund
* A "V2 Plus" Bank Account with the ANZ (to handle all deposits into the fund)
* A Share Trading account with E*Trade for the fund
* A second ANZ Bank account to hold funds to settlement of SMSF share trades

The next step is to visit the local ANZ Bank branch and present passport, drivers licence etc. for myself and DW (the trustees of the SMSF) to complete the 100 point identity check required for any new bank account. At the same time I'll get a CRN (Customer Registration Number) and "telecode" from ANZ so we can register online for online access to the ANZ Bank accounts.

This should all be in place by next week, at which time I can do the paperwork required to transfer funds out of our current Employer-sponsored Superannuation fund (run by Westpac/BT) and into the new SMSF. DW has around $50K in her account, so we'll transfer the entire amount and arrange for future SGL (Superannuation Guarantee Levy) amounts to be paid from our employer into the new account. This will mean she loses the current life insurance cover we have via the BT Super Fund, but she only had a nominal amount of cover anyhow. I have a $400K policy through the BT Super Fund, so I'll probably transfer the majority of my balance into the new SMSF, but leave a small amount there to maintain my life insurance cover. I'll also let my future employer SGL deposits go into the 'old' BT account to cover the ongoing insurance premiums. I can always withdraw the remainder of the balance if I change jobs or have a large balance build up in that account. I wouldn't want to do too many transfers out of the BT Fund though, as they charge $35 for each withdrawal! There will also be the ongoing annual member fee if I keep my BT Super account open (around $55 pa), but at least I'll be avoiding the fairly high fund management fee of around 1.25% (even after our employer's fee rebate has been applied). Overall, with a combined Super balance of around $350K in the SMSF we'll save around $3,500 each year in management fees, even after deducting the $600 pa management, audit and reporting fee charged by eSuperFund on our SMSF.

In the future we will probably add any future savings into the SMSF as the tax benefits are considerable, especially under the new "Simpler Super" changes that apply from 1 July. With a maximum annual contribution limit of $400K ($50K each of pre-tax contributions (SGL and salary sacrifice), and $150K each of post-tax contributions) we would be able to put all our future investments into the SMSF if we want to (the only significant draw back of this strategy is that we can't get money back out of superannuation until we reach 60).

We run a 2000 Ford Festiva which we bought new just before DS1 was born (my old Ford Capri convertible didn't have a big enough back seat to take a child seat). Up to now it has been pretty reliable, but yesterday it started missing and then stalled when I was parked with the engine running and the air con on. It took a couple of attempts to get it restarted and I noticed that the LCD display on the clock radio flickered and went out - a sure sign of an electical problem. Luckily there's a garage close to my workplace where I normally get the car serviced, so I dropped it in for a quick check. Sure enough the battery wasn't being charged when the engine was running, so the alternator needed replacing. As this would be done the next day I decided to also get the routine 10,000km service done at the same time. I got a lift home from someone at work that lives close to home, and this morning had to catch the bus to work. Even though a city express bus departs only 200m from my front door, having to change buses in the city to get to work means that the bus trip takes just over an hour, whereas the trip by car usually takes around 45 minutes. Public transport is quite relaxing - I can close my eyes and nap on the way - but it isn't as economical as you might expect.

The two bus fares required to get to work cost a total of $8.80 each way, so travelling to work by bus each day would cost around $4,224 pa. By comparison our car uses $35 in petrol each week (including a couple of trips on the weekends), and probably an extra $1000 each year in servicing and tyres. Depreciating the full purchase price over a ten year worklife, costs around $1,300 pa and insurance and registration another $800 or so each year. Hence taking the car to work each day costs around $4,780. Even if I can slightly cheaper bus fares by buying weekly or return tickets, the car isn't that much more expensive to run than using public transport for one person. Once DW goes back to work (she works in the same suburb as me) we will share the car costs, so it will be cheaper to travel to work by car than it would be taking the bus! And the ability to use the car in the evenings and on weekends definitely makes it good value for money.

Anyhow, the car wasn't ready to take home this afternoon - although the alternator had been replaced, the service had required a clip for the brakes that wasn't in stock, so I had to get another lift home tonight, and will catch the bus to work again tomorrow.

Our Real Estate "Portfolio" consists of just two houses in adjacent suburbs. With the ridiculously high property prices in Sydney, it's amazing we even managed to end up owning two properties. The first one was an investment property we bought soon after we were married, at which time we were both living rent free in my parent's old house (they've moved to a "retirement" farm up north, and are in the process of renovating the old family home in order to sell it and help fund their retirement). We were lucky to buy the investment property just before the last Sydney property boom really gathered steam, but even so it consumed all the equity DW had from selling her unit and an equal sum from me to meet the deposit.

The Sydney property boom gave us a significant boost in equity, and this, combined a promotion and increased salary allowed us to purchase our current home. We had previously been toying with the idea of buying an investment unit in Queensland or New Zealand (both of which has since had property booms, so would have been good investments), so when my parents decided to renovate and sell their Sydney house it wasn't too much of a stretch to buy another house - with the minimum deposit needed to avoid paying mortgage insurance, and taking out a 25-year loan.

Soon after moving into our own home the Sydney property boom ended. Fortunately the suburbs where our properties are located only declined 5% or so in value, before levelling off. The past current months have shown good increases in the median sale price for houses in both suburbs, so it looks like prices may be starting to pick up again. Despite prices being very high, and almost unaffordable as a multiple of average weekly earnings, there is an undersupply of new housing construction in Sydney, and a shortage of new land zoned for development. This has started to force rents to increase, which is encouraging people to look at buying their own homes, even though mortgage interest rates have increased 0.75% since the start of 2006.

Our property portfolio is shown below:



A plot of monthly changes in estimated house valuations clearly shows the recent "boom and bust" housing cycle in these suburbs of Sydney:

My problem at the moment, aside from the fact that I'm losing money trading, is that I haven't been able to stick to a trading plan. After losing a large chunk of cash by holding a short position open for several days, only to finally close out just before the AUD started a major downtrend, I had decided that I wouldn't keep positions open when I couldn't monitor them - such as overnight or while I was at work. However, after dropping US$30 on a quick $100K AUD/USD spot trade on Friday morning (Buy @ 0.8256, closed out @ 0.8253), I managed to make back the $30 that evening, buying $100K @ 0.8280, and getting out at 0.8383. I was very nervous in that trade - after watching the AUD go up to 0.8386 I closed out when it dropped quickly to 0.8383. It then (of course) rapidly moved up to 0.8300, which would have made me $170 if I hadn't panicked at the slight drop earlier on. As this was at the top of the current trading band, I then Sold $100K at 0.8300, and was pleased to see it soon drop back to 0.8290 as expected. At this point I thought about closing out a making a $100 profit on the day and calling it quits, but, having missed out on making $170 by closing my earlier position too soon, I decided to hold on to see if it dropped all the way back down to 0.8380.

The AUD then started a major uptrend (although it didn't seem like that at the start!), so I was soon in the red on this open short position when the AUD climbed above 0.8300. I missed a few opportunities to close out at 0.8300 on dips, as I was still hoping to make a profit on this trade, and in the end sat by and watched it climb to over 0.8330 shortly before the market closed. It did drop back to 0.8322, so I then dumped my earlier resolve to not leave positions open, and left my $100K short position on the AUD open while the market has been closed over the weekend. I'm now waiting to see if the AUD drops against the USD when the market opens in a couple of hours. The AUD seems to be at the high end of the recent trading range, so it seems more likely to drop back further than to resume rising. BUT, this is based on historical patterns, which are not really and guide to future behaviour if something fundamental suddenly changes. Just ask the guys who used to work for Long Term Capital Management.

Trading this way is totally illogical - I seem to be just mentally crossing my fingers and hoping things turn my way when I'm in a losing trade, rather than closing out when my loss reaches $100 on a trade, which was my original trading plan. I think the fact that on the some of my first trades where I did close out on a $100 loss, holding on to the position for a few more minutes would have seen the trend reverse and my losses recover shook my faith in that plan. As it is, I'm making trading decisions on an ad hoc basis ("gut feel"). So far it seems that the old adage that "people don't plan to fail, they just fail to plan" is holding true for my day trading.

According to a study made last year by Professor Donald Black from the Univerity of Iowa, and published in World Psychiatry, 5.9 per cent of Americans have a shopping addiction. The compulsion seems to run in families, which also tend to suffer from mood and substance abuse disorders. See

My Mum is clearing out some old junk and found a folder of my old receipts and financial records. Looking through it I found some interesting tid-bits:
* My accounts record book from 1978, when I was working part-time in a market garden and at the local supermarket on weekends while in High School. One entry records that I was paid $10.50 for an 8.5 hour day's work.
* I found the cost of my very first computer system - a Sinclair ZX80, with accessories - bought in 1980 for around $550. If I'd saved this money (the computer was outdated and superceeded by the IBM PC soon after) I could have bought Microsoft for the equivalent of 8c per share (adjusted for splits since then), and my $550 investment would now be worth around $250,000 - even without any dividends being reinvested. Contrary to what you might expect, I actually find this reassuring. I'd always remembered thinking when I first heard about Microsoft being listed that it was already expensive on p/e basis, and that all the big gains had been made by private investors pre-IPO, so I didn't investigate how to invest in a US stock (at that time it was hard enough to trade Australian stocks, let alone arrange to buy a foreign stock directly). Now that I realise that even if I'd invested 10% of my entire net worth in this one US stock when it listed, it would only have added about $150K to my current net worth. So I can forget about this "one that got away".
* I also found some annotations in my accounts books listing my total assets back then (I didn't have any debts, so this is the same as net worth). I'll add some of these ancient figures to my long term net worth plot. As an example, I had the following;
date net worth
30 Aug 79 $1,330.00
30 Aug 80 $700.00
30 Aug 83 $2,518.00
30 Aug 84 $3,168.00
30 Aug 85 $5,070.00

* I also realised that I was a lot more enterprising in those days than I remember. I have entries for my casual weekend jobs, but I also have some cash entries for payments received for getting computer programming articles published in an electronics magazine in 1981, and some payments for some craft works I sold in a local gallery. It seems I had the drive to make some extra money back then, but I had a problem finding a money-making scheme that was scalable during my uni days. That's probably why I stuck to a salary job and concentrated on learning how to invest my savings.

I bought DW a pair of diamond earrings last year for her birthday, on the understanding that, being a large one-off item she wouldn't expect much for future birthday or Christmas presents (we tend to only exchange token gifts between the adults anyhow). So, for this year's Mother's Day I simply gave DW a tin of "deluxe" hot chocolate drops, and a $20 gift card (one of the ones I'd redeemed using my accumulated points earned scanning the snack food items in my shopping for the past year). DS1 made a Mother's Day card at the church kids group on Friday, which I think is enough of a gift from someone that just turned seven. My own mother I just gave a $20 gift card, although a might also buy one of her favourite pot plants tomorrow morning before we drop in for a visit after lunch.

This month I selected Jakks Pacific (JAKK) from the MagicFormula listing to add to my "Little Book That Beats The Market" Portfolio of US Shares (100% geared). I bought 200 JAKK @ $24.96. My US Stock Portfolio current situation is listed in the sidebar.

My portfolio had recently reached an annualised ROI of 20%, but in the last few days it has dropped back considerably. I won't be doing a serious review of performance and comparison to a benchmark (such as the Russell 2000) until I have a track record of at least five years to evaluate. My success criteria is to achieve a return greater than the cost of funds invested (borrowed as part of a "Portfolio loan" from St George bank, so the interest rate is the standard variable home loan rate), and my target is to achieve a ROI of 10-20% pa over the long term.

When I'm fully invested this December (approx. US$90K) I'll have a portfolio of 18 individual stocks (I'm buying one US$5000 lot of stock each month), and I will then start to sell off the oldest holding each month and replace it with a new pick from the current MagicFormula list. Rather than rollover the exact amount realised from each sale into a new stock, I'll invest 1/18th of the current portfolio value, adding in some extra cash when needed. That way I'll be investing roughly equal dollar amounts each month.

This morning my short position of $50K AUD/USD spot at 0.8244 wasn't looking too bad - although the price had gone as high as 0.8308 a couple of times, in the morning it had dropped to around 0.8372 and from the 1 month plot it was looking like it might drop back further and erase my losses on this trade. Unfortunately while I was at work a lower than expected unemployment figure of 4.4% came out (general expectation had been steady at 4.5%) which meant the chances of another interest rate rise later in the year increased. I'm not sure exactly why this translated into an immediate 0.5c gain in the AUD, but it did - so in the afternoon at work I could see the AUD bobbing around 0.8315-0.8325, but I was willing to hang on for a bit longer. However, around 5pm the AUD started appeciating rapidly against the USD, so I rang home and got DW to close out my position at 0.8334, crystallising a US$450 loss!

Of course the AUD started dropping back slightly shortly after I'd bought back my $50K position. This evening it has been oscillating between 0.8310 and 0.8335, so I made a few $50K sells above 0.8322, and buys around 0.8312. In three trades I made back US$100, but I still have a lot of work to do to make back the $450 I lost by sticking with a bad position for the past three days.



I'm currently short AUD$100K at 0.8320, as the AUD is close to recent all time highs, and, having gone up over 1c in the past few days, it has a good chance of dipping back to below 0.8320 in the next few hours. If it doesn't, and starts going above 0.8330 again I'll have to close out at another loss, as I'm not game to leave my positions open while I'm asleep or at work after this recent fiasco.

I haven't posted about my forex trading for a couple of days because I'm sitting on an open short position that is in the red. Having made several trades which I closed out once my losses exceeded my planned stop-loss of $100, only to see the price move in my favour shortly afterwards, I decided that I wouldn't close out my position this time. The theory being that while the AUD/USD was bouncing up and down within a trading range, a position opened somewhere near the middle of the trading range should eventually become profitable if I held on long enough.

Of course, having sold $50,000 AUD at 0.8244, after a run-up from previous lows around 0.8200, the AUD then rose slightly and, despite dropping slowly over the next few hours didn't drop enough to make it worthwhile closing out my position. I then decided to go to bed and see what had happened by morning. Of course the worst case scenario resulted - with the AUD appreciating strongly while I was asleep. Sticking to my new "plan" to just ride out this setback until the AUD dropped back down, I've now been watching the AUD hover around the 0.8280-0.8300 region for a couple of days.



My email box is getting full of margin call and liquidation warnings from CMC Markets every time my cash balance drops below the required 1% margin. But I'm not too fussed if they liquidate my position as I'll only lose $1,000 maximum (my initial account balance). And this would only happen if the AUD goes above 0.8360, which would be close to a 17-year high.

Meanwhile, my real investments are all doing nicely - my "Little Book" Portfolio of US stocks is doing quite well with the annualised ROI getting above 20%, even after deducting the exhorbitant buying and selling costs. My Aussie stock portfolio is also doing very well, with the local market hitting new all time highs, which is also boosting my retirement account. And my real estate is also moving up again, now that the Sydney housing market is starting to recover.

BTW - my sitemeter stats for enoughwealth.com registered a huge spike today. All from a mention of one of my posts on The Simple Dollar"! I usually get around 50 visitors each day - so far I've already had 126 visitors in three hours!

The cheque for my $34,000 withdrawal of money from my retirement account arrived today. As it was an undeducted, unrestricted, non-preserved component of my super account balance there wasn't any tax deducted and I don't expect it to be subject to any income tax (although the Eligible Termination Payment statement that accompanied the cheque looks like its something that has to be attached to this year's tax return). I emailed the payroll office at work a few days ago to organise a salary sacrifice increase to $1600 per fortnight next financial year, so I'll be using the $34,000 as supplementary income for the next couple of years. For that reason I think I'll just leave it in the high interest online account with my Credit Union (earning 6.10%) and transfer $650 each fortnight into my main Credit Union account where my pay gets deposited.

A dividend payment notice arrived today from David Jones for a fully franked interim dividend of $180, with a $77.14 franking credit.

So far this financial year I've received the following dividends from my Australian share portfolios:
UnFranked Franked Franking Credit TOTAL
FY 06/07 $1,607.90 $10,408.32 $4,460.68 $16,476.90

When I started out in my first full-time job out of uni, I was saving around 25% of my gross salary, of about $10K pa in today's money. This obviously had a huge impact on how fast my net worth increased - in the second year my savings alone boosted my net worth by around 100%, and the relative impact of how much you save is massive when you first start out.

These days I save around 35% of my gross salary - as my salary has increased I've tended to spend roughly the same amount on "needs" and not increased my consumption of "wants", so I'm able to save a bigger slice of my salary. However, now that my net worth is around $1.15m this years "savings" will only add 2.6% to my net worth. It's still worth saving, as it helps boost my overall rate of increase in net worth from what can be achieved from my investment income and capital gains, but it's not hugely significant any more.

My contributions into my superannuation account are similar. The 9% employer contribution and my 13% salary sacrifice add around 4.5% to my retirement account balance - nice, but these days my asset mix and investment returns are getting to be much more significant that saving a few more percent of my salary.

I intend to boost my savings into my retirement account via salary sacrifice for the next couple of years, but that is in order to arrange my income and investments in the most tax efficient manner rather than a need to boost my savings rate in order to meet a retirement target.

In a few more years the impact of my savings will be negligible on my net worth, but I still intend to save the same amount. Why? Several reasons:
1. I intend to live of the same amount during retirement as I currently spend, so any increase in spending now will have a large impact on how much I need put aside to fund my retirement years.
2. I enjoy my current lifestyle and don't actually enjoy "wasting" money. I used to spend more on books, hobbies etc. but I now have more than enough "toys" to last the rest of my life.
3. One of my more nebulous goals is to leave create the basis of a "family fortune" - although it will take more than one generation to accumulate significant wealth based on modest living and sensible investing rather than a establishing family business empire.

So the answer for me is "never", but I suspect that this isn't the answer for most people.

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.

I'm still not sure if selling my Qantas shares last Friday for $5.39 was a great move, or a real dud. QAN has been in a trading halt all day today. The company which mounted the takeover (APA) has apparently not decided what they're going to do, or if their takeover bid really did fail to make the 50% control required for the bid to get a two week extension. Initially they announced on Friday night that they had failed to get 50% acceptances by the deadline. Then they convinced a US hedge fund to sell at least half their stake, pushing APA over the 50% mark, but after the deadline for acceptances had passed. Over the weekend the takeover review board didn't allow an exception to the deadline, so the bid appeared to have definitely failed. Then today there was talk that apparently the offer document included a clause stating that partial acceptances were not allowed, and would be deemed to be a full acceptance, so the takeover *might* have actually achieved the required 50% before the deadline - but no-one is sure, and applying this clause would probably end up in the courts.

Meanwhile, the Australian government has sent Qantas a "please explain" memo regarding a possible breach of the legislation that requires foreign ownership of Qantas to be less than 50%. Apparently with all the share trading in the past few days, much of it controlled by foreign hedge funds, this rule may have been broken. If so, Qantas has to go through all the transactions and reverse out enough done by foreign parties to get back to the 50% limit.

Hmmmm... no matter what does eventually happen to the takeover bid and the listed share price, I think I am better off having sold out after all.

After a call to the CMC Markets helpdesk I got the CFD trading software running under Vista using XP compatibility mode, and everything seems to be going OK. The wireless network router and USB adapter didn't arrived today, so I don't know how setting that up will work out. Meanwhile though, I'm having problems running both Firefox and Explorer. Firefox freexes up ("not responding") every time I try loading my blog site (although it loads perfectly well using the same version of firefox on my laptop running XP), and on a couple of occasions Explorer has tried to "connect" to the internet when it is launched, even though the internet is already available (as I have the CFD displaying live data in the background).

I'm not sure if the fix will end up being upgraded versions of Firefox and IE, or a fix to Vista. I've also had one "blue screen of death" event, even though only application (the CFD trading app) was running at the time. As I haven't changed anything from the initial configuration of Vista that came with the new PC from Dell, it looks like these problems may be with Vista itself.

Vista looks very pretty, but so far I'm not overwhelmed by the reliability.

After posting about the large bill the plumber had sent for some recent work ($850+), I received a number of comments prompting me to negotiate the amount with the plumber. Although I'm normally reticent about arguing about charges (I hate haggling), I thought I had nothing to loose in at least discussing my concern with the plumber. It took a while for the plumber to finally call back after I had left a message querying the bill, but, in the end, he called to say that he could see me point of view (although they had spent the amount of money charged in finally getting the work completed) and I should just send in a cheque for whatever amount I thought was reasonable. This was a good move on his part, as we have had work done on both our home and rental property so he wouldn't want to loose our business. Also, when left up to me I didn't want to be unreasonable about the bill, so I ended up just knocking $100 off the orginal invoice amount. So, thanks to all those who commented - you saved me $100!

Another easy $120 came in the form of gift vouchers I earned for scanning the barcodes of snack food items in my grocery shopping for a survey company during the past year or so. The scanning didn't really take any extra time or effort while packing away the shopping at home, so it was easy money. Unfortunately the survey company has now terminated the home scanning program.

Here's the latest round-up on how the various PF (Personal Finance) bloggers who post their Net Worth each month are progressing.

Monthly Net Worth of PF Bloggers for APR 2007:

Blogger Age Net Worth $ Change % Change

So far the new PC is going well. I got my cable modem working and registered the McAffey security suite that I'd bought with the system (15 month rego). I then had a go at installing the MarketMaker CFD trading software that we use for our forex trading. After downloading the installer .exe I tried running it - no go. However, having a background in chemical engineering as well as computers, I knew enough to try the "if it doesn't work give it a kick" approach - I simply ran the installer .exe a second time. Vista somehow recognised that the app needed to be run in "compatible" mode, and this time the installer ran OK. Then the fun began...

Unfortunately MarketMaker is written as a whole lot of java code, and every time you launch the app it first checks for updates, which it will install before allowing you to login (it also only loads additional modules as you use various features). Every time I tried running MarketMaker it simply stopped midway. After emailing CMC Markets help regarding any tricks getting their software to run under Vista, I browsed through their help FAQs and noticed the bit about having to configure any firewall to allow three programs to both send and receive data via the internet. (I remember this happened on my laptop - but in that case I was running Norton security, and in "learn" mode it automatically prompted me to flag these programs as "trusted" when they tried to transfer data via the internet). I managed to find where the relevant firewall settings were configured, but, MarketMaker still fails to run properly. I'll have to wait until Monday and see if I get a reply from the helpdesk - I may also have to phone them while I'm at the PC at home - hopefully they answer the helpdesk phone outside business hours!

Meanwhile the cable modem is back with the laptop. I'll shift it to the new PC again on Monday if the Belkin wireless router and USB adapater arrive on schedule during the day. If I get the wireless network working I can then leave the cable modem permanently connected to the desktop PC, and run MarketMaker on the laptop until I get it working under Vista.

Once I get the wireless network and MarketMaker app working I'll do a full system backup onto a DVD, so I can restore to this "basic" configuration. I usually dive straight in and start loading heaps of software onto a new PC, but this time I want to be more methodical about what I load on, and also take the time to sort out all my personal data files and copy them to the new PC in an organised structure.

The new PC/Vista will run dual screens, so I may hunt around for a very cheap, small LCD screen to add on - that way I can leave the forex trading window running on the second screen to keep an eye on our trades, while using the main screen for blogging etc.

We missed out on the big slide in the Aussie dollar yesterday (it was caused by the RBA announcing that inflation was lower than expected last quarter and had a good chance of staying under control for the next 12-18 months). DW was out of the house during the day and by the time she got home and started trading the dollar had already dropped to around USD$0.8190. I did a $50K trade when it spiked up to 0.8212, and for a while it was looking good as the AUD slide back down to 0.8202 - I was holding on hoping it would go back down to previous intraday lows of around 0.8175 or so. However, it slowly began to climb back up, and I eventually closed out at 0.8208, making just USD$20 on the trade.

The Qantas takeover offer by APA closed a little while ago (7pm AEST). The offer price was $5.45 cash per share, but I chose to sell my shares on market this morning for $5.39, even though this also meant having to pay $128.95 brokerage (1.1%). My reasoning is that there is a risk that the offer will lapse, as it requires 70% to succeed, and at least 50% by 7pm tonight in order to be able to extend the offer period a further 2 weeks. As of this morning APA reported having 35% of Qantas. They might make their target (they'll announce the final figure during this weekend), but, if they fail there's no guarantee that a higher offer would be forthcoming. If that happened the share price could easily drop back to under $4. As I was happy to take the offer price, I prefer a bird in the hand to a bird plus 12c that might get away...

Sell QAN QANTAS Airways 09/05/2007 2,175 $5.39 -$11,594.30

One of those pleasant days when everything worked out nicely
- I didn't spend anything today,
- The stock market was up 13 points, which meant my geared Australian Stock portfolio was up around $2,000,
- I did one forex trade, selling $50K AUD/USD spot at 0.8254 and closing out at 0.8243, making a $55 profit.*
- My US Stock Portfolio is up, currently having a calculated annualised return (XIRR) of 19.55%

Of course, not all days are like this, so it's good to savor them when they occur.

* A slight fly in the ointment was the fact that immediately after I closed my position the AUD dropped further to 0.8227 - if I'd held on for another few minutes I could have made an extra $85 profit, which would have moved me closed to an overall break-even position in my forex trading account. Then again, the last time I was too greedy when trading I ended up with no profit at all.

A quiet couple of days - DW has been hogging the laptop trading forex madly. After some big losses she clawed back almost to her previous high, before having another bad day today. She's still up a couple of hundred dollars overall, but has been up $700 on a couple of occasions. As my CFD trading account is currently in the red, I'm not in too much of a hurry to trade.

Meanwhile my new Dell PC arrived - plugging all the bits and pieces together went without a hitch, although I had one D'Oh! moment when I was wondering why the bluetooth wireless keyboard and mouse weren't working when I turned on the screen and PC. After rechecking the setup instructions I noticed that you had to turn on the mouse and keyboard, not just insert the batteries! I'm not sure how long the batteries last in wireless mouses and keyboards - especially if I don't bother to turn them off when not in use.

I tried plugging my Optusnet cable modem into the new PC, but the internet setup wizard couldn't find the service. I'll check what the settings are on my laptop configuration, but if I can't work it out I'll have to call the Optusnet service desk tomorrow after work.

The wireless network router and USB adapter kit hasn't arrived yet from Mitec. Hopefully it will come in the next couple of days (it was on back order and expected to take 5 days from last Friday). The payment via Paypal was initially confirmed, but then the "eCheque" transfer from my bank account into Paypla failed (Paypal reports it as "insufficient funds" but it's actually because my ING online account will accept online deposits from anywhere, but will only transfer funds out into the original bank account I used to setup the INGdirect account). I expect Mitec will send me an invoice if they ship the order. If the order status changes to cancelled, I'll try to call their service desk to arrange alternate payment. I would have done this today, but their web site has a notice that they often don't answer the phone, and recommend contacting them via email. This payment issue is too complex to fix via email tag, so I'll wait and see whether they invoice me or if I have to contact them to make payment.

I received a dividend cheque from Ludowici for $195.75 with a $83.89 franking credit. As I've put in a request to redraw the undeducted, unrestricted, non-preserved $34,000 from my superannuation account, I won't be selling off my stock portfolios for a couple of years. I already have some put contracts on the All Ords Index in place to protect against any major declines in the Australian stock market between now and December, so I'll review my situation towards the end of the year.

The Australian stock market was down the last couple of days, but today it rebounded over 1% to set yet another "all time high".

My Networth as at 30 April totalled $1,116,129 (AUD), an impressive overall increase of $45,141 (4.21%) for the month. My stock leveraged stock portfolios increased by a net 5.10% during April, and the estimated valuations for my share of our home and investment property increased 2.10% compared to last month, continuing the mild uptrend that began last month. The property gains were slightly offset by our mortgage loan balances increasing by a net $1,082 (0.30%) due to our monthly redraw of $3,500. We're continue redrawing some of our advance mortgage payments each month to help meet our mortgage repayments while DW is on maternity leave for another two months. Unlike last month's big drop in the valuation of my retirement account, this month my retirement account balance went back up $10,919 (3.37%).

So far this year my Net Worth has gone up by $83,346 (8.07%), which is 59.53% of my goal for the entire year.

Amid all the hoo-ha about the changes to "Simpler Superannuation" from July 1 this year are some less-pleasant, little-know aspects. For example, from 1 July all payments made out of superannuation will be treated as a mixture of undeducted and deducted amounts per the overall mix across all your superannuation accounts with a particular trustee. For example, if you had a total balance of $400,000 and $100,000 of this was due to "undeducted" contributions, any withdrawal after 1 July will be deemed to be 25% undeducted and 75% deducted.

What does this matter? Well, some people will have amounts within their superannuation accounts that they can withdraw at any time. Called unrestricted, non-preserved amounts, I think these are generally undeducted contributions made into superannuation prior to 1999. (All contributions after then are preserved until retirement age). Currently, if you decide to withdraw an unrestricted, non-preserved amount you can nominate how much of the withdrawl is to be from the deducted and undeducted components of your superannuation account.

For example, of the $335,000 in my superannuation account, $55,000 is an unrestricted, non-preserved amount that I can withdraw at any time. My undeducted amount is $34,000, so under the current rules I can withdraw $34,000 as an unrestricted non-preserved amount and don't have to pay any tax on that amount. If I withdrew the maximum possible ($55,000) I'd have to pay some tax on the $21,000 "deducted" component (which was contributed into the fund out of pre-tax salary).

However, if I withdrew the same $34,000 unrestricted amount after the new rules come into force on 1 July, the amount would be treated as roughly 90% (34K out of 335K) "deducted" and only 10% "undeducted" - and I'd have to pay around 20% tax on the $31,000 undeducted component. So, withdrawing this $34,000 after 1 July would cost me an extra $6,000 or so in tax!

But wait, there's more...

Another other benefit of withdrawing $34,000 tax-free from my superannuation account before 1 July is that I could then use this amount over the next two years to replace around $48,500 of my taxable income (with a marginal tax rate of 30%), and I could therefore afford to salary sacrifice an extra $24,000 pa [1] into superannuation without reducing how much cash I have available to pay my bills. The benefit of doing this is two-fold. Firstly, the salary sacrificed amounts will only be taxed at the 15% superannuation contribution rate, rather than my expected marginal tax rate of 30% (which applies to income between $25K-$75K). The second benefit is that be doing this large salary sacrifice my taxable income should be reduced from around $55,000 to around $30,000 and I'll then be eligible to get a government co-contribution of up to $1,500 if I make a $1,000 undeducted contribution into my superannuation account.
Current Situation If salary sacrifice an
extra $24,000 pa
Taxable Income $55,000 $31,000
Salary Sacrifice $10,400 $34,400
SGL contribution $ 7,400 $ 7,400 [2]
Income Tax due -$11,850 -$ 4,650
Super Tax due -$ 2,670 -$ 6,270
Super co-contrib $ nil [3] $ 1,300
(if make a $867 undeducted contribution)
Total after tax $58,280 $63,180
This means I'd end up with an extra $4,900 pa (tax saving and co-contribuction) by making the increased salary sacrifice. However, this is only possible as I have the extra $34,000 tax-free withdrawal from my superannuation account to supplement my income for the next two years. Otherwise my after-tax "take-home pay" would have been reduced from $43,150 to only $26,350.

By making these arrangements I'll end up with the following over the next two years:
Current Situation New Situation
Super Balance $335,000 $301,000 (withdraw $34,000)
Take-home pay $43,150 $31,000 (salary sacrifice)
Super withdraw nil $17,000 pa (split over 2 years)
Total cashflow $43,150 $48,000
Super contrib. $17,800 pa $43,100 pa
Super tax. -$ 2,670 pa -$ 6,270 pa [4]
Super balance $365,260 $374,660
after two years (ignoring earnings)
The only material impact of thisarrangement will be that the ratio of undeducted:deducted money in my superannuation account will be higher if I withdraw $34,000 of undeducted funds and recontribute via salary sacrifice (deducted funds). However, as all pension payments made from a superannuation account after you retire (and are over 60) are tax-free under the new "Simpler Super" rules, this shouldn't have any real effect in the long run.

Notes:
[1] Under "Simpler Super" there will be an overall cap of $50K pa in deducted contributions - so you have to make sure your total of salary sacrifice and employer SGL amounts doesn't exceed this.
[2] My employer calculates the required 9% superannuation contribution levy based on my original salary (ie. before salary sacrifice is deducted). Legally it is possible for an employer to only contribute 9% of the actual salary paid (ie. after deducting the amount salary sacrificed). So it's important to check this with your employer before making salary sacrifice arrangements.
[3] The government superannuation co-contribution (up to $1500) is available on a 1.5:1 basis for undeducted contributions made into superannuation by employees with incomes up to $28,000. For incomes above $28,000 the maximum amount reduces until for incomes over $58,000 you're not eligible.
[4] There's no 15% contribution tax on the government co-contribution

DISCLAIMER: I'm not a financial planner, accountant, tax lawyer or in any position to give advice. This is just information about what I'm currently planning to do, and what I *think* the implications are. I checked my superannuation details (unrestricted non-preserved balance and undeducted component) with my superannuation fund, and I asked the Australian Tax Office "Simpler Super" help line about whether the new rules treating all withdrawals as being in the same undeducted:deducted ratio as the overall account would apply to unrestricted, non-preserved amounts. The ATO help line rep didn't know, and he had to go ask a "specialist" in this area to come back with the opinion that yes, this rule seemed to apply to all withdrawals by persons under age 60. As the ATO only gives binding private rulings about income tax questions and not superannuation, this seems about as definitive an answer as I can obtain. You could get professional advice from a financial planner, if so make sure that they really know the answer (since the ATO wasn't even sure!).

With the US and Australian stock markets at, or near, all time highs, many pundits are predicting an imminent plunge. The fact of the matter is that the market will always be hitting "all time highs" as it follows its long-term uptrend over the centuries. The question is whether or not a particular high is associated with the excessive exuberance, or if it is supported by fundamental values, profitability and projected continued economic growth.

Alan Kohler had an interesting article outlining the case for viewing current market levels as reasonable, and even provides a rationale for a further gain of 25% or more in the next couple of years:

In 1987 the trailing price-earnings ratio of the Australian market was 20.4, which produces an earnings yield of 4.9 per cent. The 10-year bond yield was then 12.5 per cent. Today the earnings yield is 6.4 per cent and the bond yield 5.9 per cent.

As we stand here with the Dow at 13,000 and the ASX S&P 200 at 6150, shares are cheap.

It is now equivalent to about December 1986. History never repeats itself exactly of course, but if it did, the Australian index would hit 13,000 next January - before crashing spectacularly.

The point is that the sharemarket has not yet had the price-earnings multiple "blow-off" that usually marks the end of the bull market.

The 1987 blow-off took the average P/E ratio to only 20.4 because inflation was 8.5 per cent and the bond yield was 12.5 per cent - more than double what it is now. But that P/E was double the then 10-year average.

Now the trailing P/E is 18 times, but inflation is 2.7 per cent and the bond yield 5.9 per cent (3.2 per cent real versus 4 per cent real in 1987). Times change, but in my view people do not. At the end of a long bull market, with abundant cash and rampant optimism, people tend to go nuts. They start extrapolating existing growth forever and price assets accordingly.

So far that has not happened: share prices have merely kept pace with earnings as they are now, not what optimistic forecasters think they might be.


While I don't necessarily think Alan is right, it's nice to read that your stock market portfolio could increase another 25% by the end of next year. Of course, if it did increase that much, I'd be even more tempted to abandon my long-term asset allocation and lighten up on my stock holdings in an attempt to "time the market". The only justification for such a radical change of investment strategy would be that having experienced many years of exceptionally high growth, my net worth would be well above where I need to be to attain my retirement and investment performance targets, so I could shift to a lower-risk, lower-return asset mix and have greater certainty of reaching my original goals. The alternative would be to stick with my original asset allocations, and hope that the returns reverted to average performance which would result in my final outcome exceeding my initial expectations.

A little while ago I wrote that I'd be interested to see any research on whether or not wealth is correlated to intelligence. Well, a recent study, has found that there is no link between how intelligent people are and their net worth. Although income is related to intelligence this doesn't translate into wealth. Having a big income doesn't guarantee wealth if you spend more than you earn, and it seems that the discipline and motivation required to accumulate wealth isn't related to intelligence.

Yesterday's second trade was looking good for a while - the AUD had dropped from 0.8265 to 0.8250 USD. I thought about closing out at that point and making a $150 profit, which would have more than made up for the earlier $110 loss. However, as is always a danger, I got greedy and changed my mental exit point to 0.8240, as the trend seemed to be continuing. Of course the AUD then changed direction and I ended up watching it ever so slowly drift up, with occasional dips to give me false hope, until I gave up and sold out at 0.8264, netting a minimal $10 profit.

Today DW had made three trades before I got home from work, each one placed just before an apparent trend reversed direction. Her fourth trade was a more successful and she managed to claw back most of today's losses before calling it quits. I then logged in to my account and was going to also buy the AUD and hope the strong uptrend continued, but by the time I logged in there was a pause and a slight drop in the AUD. I should have waited a while and watched what happened next, but instead I decided it was likely to be a pullback, so I sold the AUD at 0.8306 instead. It then resumed it's uptrend and I intended to wait a while and see if it peaked and started to drop as expected. Unfortunately I decided to bail out when it reached 0.8334 (a $280 loss!), and then sat by the uptrend did finally peter out and it started to drop.

By this time my account balance was below my intial A$1000 level, so I could no longer trade A$100,000 on 1% margin - I instead sold A$50,000 and am sitting here hoping that this time the expected correction will materialise and I make a small profit on this trade... It does appear to be dropping slowly at this time, unfortunately with a A$50,000 position opened at 0.8323 I'd only make back about 1/3 my loss if it retreats back to the level I initially sold at this evening.

If I lose my entire A$1000 trading stake I'll call it quits and do paper trading for a while.

The Dell PC I ordered a couple of days ago is "expected" to be delivered next Wednesday. It will have a wireless keyboard and mouse so I can sit in comfort in our lounge room, with the 20" LCD screen sitting next to our TV (which also happens to be a modest 20" CRT TV). I had been thinking of moving the current cable modem box from my computer table in the next room (where it's currently attached to my Toshiba Satellite notebook) into the lounge room, and then running an ethernet cable from the desktop PC to the notebook. However, I've decided to have a go at installing a wireless network, as there are some instructions on how to do this on my ISP's website (Optus), and Dell offers a Belkin wireless router and USB adapter, so they must be compatible with the PC I've ordered.

I was going to check if I could add the router and adapter to my existing order (as the Dell website says that accessories are shipped separately anyhow, and if they're not part of a computer system order they get charged shipping). However, I didn't have my order number with me at work today, so I searched the internet for an alternate supplier (and to check pricing), and found that I could order a package deal of the Belkin router and a USB adapter for less money ($101 plus $11 shipping) from Mitec.

I ordered the Wi-Fi router this afternoon (payment using a Paypal eCheque from my linked ING online bank account), and it should ship in 4-5 days, so will probably arrive around the same time as my Dell PC. I worked as a computer systems administrator several years ago, and networked PCs and macs using thin ethernet cabling, so hopefully setting up the Wi-Fi and getting the cable modem to work with the new PC and being accessible via the USB network adapter on my notebook PC won't be too much of a hassle.

Ideally I can use the desktop PC while relaxing in the lounge (ie. I can keep an eye on my forex trades while watching the cricket or "Lost" on TV), and can also use the notebook at my computer desk for uni assignments, or even while sitting next to the pool or having breakfast in bed.

DW has been on a trading hot streak since she opened her own account. She is now up almost 100% in just a few days. However, nine trades isn't a statistically valid sample - I'll reserve judgement on her trading "knack" until she's been at it for a couple of months.

My forex trading has been a disaster these past couple of days. Each time I've taken a position in what appears to be an established trend, then next few ticks are a major reversal. I'm now back to the starting capital, and every time I drop below $0 available margin with my $1,000 open position I get an automatically generated margin call email. Luckily I can just ignore these as I'll have a positive balance when I close my position (I wouldn't let it run to more than -$200 margin). The margin call emails warn that if I don't add in additional funds to bring my account back into the positive they may close out my open positions - I've no idea how large a negative margin would be required to trigger this. Perhaps if a went to -$1000 margin, so my overall account balance was $0, I'd automatically be closed out. Hopefully I'll never be in this position. At the moment I'm short the AUD with an apparent down trend underway - we'll see if this time my luck changes and the trend continues for a while, rather than reversing as soon as I've taken a position!