Tuesday, October 13, 2015

The Time Sink House: Weeding and Gardening

The effort it takes to maintain the house is getting ridiculous. 

Before when I ignored the garden for the most part (except for my veggie patch), it wasn't too bad. Sure, it takes an hour to water my veggie patch and fifty pots of plants but that was somewhat relaxing. Plus, getting to reap the harvest of passion fruit, herbs, pumpkin, celery and raspberries is pretty delicious:
 Veggie patch of rhubarb, Thai basil, mint, thyme and green onions:
 Passionfruit is one of the best thing you can plant and enjoy all Summer long. I'm looking forward to enjoying this Summer's batch of passion fruit again:
Vacuuming, dusting, cleaning and other house work duties duly took its time however it wasn't consuming outrageous hours of spare time.

Now that work has settled somewhat for a breather, I finally had a bit of time to really look around these past two weeks. Our weedy lawn has deteriorated so badly after two years of neglect. Mr SMG had seriously given up on the lawn and had plans to rip out the entire thing and replace it with new lawn. Gardening isn't something he enjoys anyway so I'm sure given half the chance, he'd be content to change the lawn every few years.

But I'm not the sort to give up and I was adamant that we would not be defeated by weeds. Like everything in life, allocating regular time and dedication to any task is like an avalanche collecting snow along the way down. The results will happen, it's only a matter of time. To-do lists really work. Sometimes I find an old list from years ago with tasks and goals that I thought I would probably not end up accomplishing due to the challenge, difficulties or time restraint, but I have and every single task was ultimately achieved. Now, I put everything I want to achieve, experience or to accomplish on my list and I just know that I'll get there in time.

Every single day, I have spent about thirty to sixty minutes of weeding.The goal is to get rid of at least one wheelbarrow of weed every single day. It's really amazing that the lawn is starting to finally show the effects of being a time sink. Dandelions, bindis and onion weeds are starting to tremble in fear :p

There's a childhood story about the King and the grain of rice. There was a guy that wanted to marry the King's daughter after doing him a favour (something like that) however the King declined. So the King in gratitude, said he would give the guy anything he desired. The guy said, a grain of rice, doubled every single day. The King scoffed at what he thought was an easy, humble request to meet. 

So on day one, one grain, day two, two grains, day three, four grains, day four, eight grains, day five, sixteen grains and so forth. 

Ultimately, within a few weeks, the King was unable to meet the request, which wasn't so easy after all, and so gave his permission to the guy to marry his daughter. 

I guess I might have messed up the finer details of the story, but the moral of the story was the power of compounding and how it can really snowball with great effect. 

The practical application of that concept really is phenomenal in every way and every aspect of our life. Even with regards to weeding!! :p



Monday, October 12, 2015

Medallion Signature Guarantee and our Apple Stock Saga

No wonder people buy foreign stocks and leave it under the custody of their financial institution or broker. Computershare lodged all the Apple stocks in our names incorrectly and it has been a long saga trying to correct the mistake. 

We are still receiving correspondence from the U.S. by post. Snail mail, in this technological world. I contact our broker, our broker contacts Computershare in the U.S. and then we wait four to eight weeks before we get our documents in Sydney. It's a long protracted and torturous process. It would be easy to leave it under the custody of our broker but then having to read sixty pages of fine print from the broker is also a long and arduous process of due diligence.

I thought it was prudent to register the Apple stocks that we bought under our direct name rather than custody of the financial brokerage institution after the financial crises of 2008 resulted in many banks and brokers collapsing. Those who had margin loans collateralised to their stock portfolio in Australia, meant that they lost all their stocks including the ones that were fully owned when the brokerage company collapsed. It's really important that everyone reads the fine print and the terms and conditions.

To transfer the stock to different owners, we needed to 
1. Complete the transfer request form and have the signatures authorised with a Medallion Signature Guarantee
2. Complete the Form W-9 for tax certification(to prevent backup withholding tax)
3. Post the documents to Computershare in the U.S.

What is a Medallion Signature Guarantee?

Computershare's definition is, 'A Medallion Signature Guarantee is a special stamp provided by a bank, broker or credit union (guarantor institutions) that indicates that the individual signing a form is legally authorised to conduct the requested transaction. The guarantor institution should verify the medallion stamp is sufficient to cover the value of assets being transacted upon.'

The Medallion Signature Guarantee can be provided by a qualified financial institution such as a 'commercial bank, savings bank, savings and loan, US stockbroker and security dealer, or credit union, that is participating in an approved Medallion Signature Guarantee Program'

Residents of the United States who own less than $10,000 in total account value can utilise the Medallion Waiver option. For us, those waiver options are not applicable. 

What is the purpose of the Medallion Signature Guarantee?

It's designed to protect shareholders by making it difficult for people to take assets by signature forgery on security certificates for related transfers or sales documents.

Who can provide a Medallion Signature Guarantee in Australia?

Good question >.< After researching on the net, I know plenty of institutions DON'T provide the Medallion Signature Guarantee in Sydney. From the US Embassy in Canberra, 'U.S. Consular Officers are not authorised to provide signature guarantee/medallion stamp guarantee service. Only a financial institution participating in the SEC (Securities Exchange Commission) medallion signature guarantee program is authorised to affix a medallion imprint.'

Computershare Australia supposedly offers the Medallion Signature Guarantee service but currently I don't know because I have rang their contact line twice only to be greeted with an automated voice service which diverted my call only to disconnect my call twice. A poster on the AussieStockForum posted that Computershare Australia offers the service for a small admin fee. 

The posters in that forum wrote in 2014 that they tried asking U.S. branches of credit unions and banks to no avail. 

Further research led to P&G shareholders requiring Medallion Signature Guarantees and they were advised to seek a local financial institution that has a correspondent replationship with a U.S. Medallion Program member with whom the investor has a business relationship as that firm may be a source of a Medallion Signature Guarantee

If Medallion Signature Guarantees Can't be Obtained

If Medallion Guarantees couldn't be obtained, Computershare was also accepting signature guarantees from:

* The U.S. Consulate
* A Non-U.S. Bank when it has one of the following:
 - A New York Correspondent bank referenced in the foreign bank's guarantee stamp
 - An overseas branch of a United States Bank or a member firm of the New York Stock Exchange referenced in the foreign bank's guarantee stamp
 - A correspondent branch in the United States, which is referenced in the foreign bank's guarantee stamp
* A Computershare office located in either the UK or Australia accompanying the appropriate Computershare transfer form and a valid passport as long as the value of the transaction is less than $100,000 USD

Seeing as it has been a drama, I hope this helps some poor soul in Australia from having to go through the same process of having to research the web only to find a smattering of the above same information scattered across several web pages and assorted links. I have now compiled it all in one post for you.

Friday, October 2, 2015

20 PF Life Hacks From Melissa Browne

Melissa Browne is an accountant and author who writes really simple stuff in the paper. I would like to see her writing more gritty articles for us to read. When she writes about the meatier subjects, I do enjoy reading her work. 

She wrote about personal finance life hacks that I thought readers might find to be of interest:

1. Remove the credit cards from the wallet
2. Annually review your loan rates for the best competitive offer
3. Pay yourself first, automate it if you have weak will power
4. Put all excess funds and savings in your offset account
5. Pay for deductible expenses on your credit card so that lost receipts can be backed up with credit card statements as proof of expenditure
6. If you have credit card debts incurring interest charge, setup zero interest credit cards and roll the balances over, pay them off completely before the interest free period ends
7. Buy property in an SMSF (I think this is more applicable for the over 50s. The under 50s have uncontrollable and unpredictable expenses such as kids/education, single income households, unknown health issues etc and super is a long way off being accessible for emergencies. My friend's aunties had cancer and even when very sick and couldn't work, super was not accessible under the hardship provisions)
8. Unsubscribe from online shopping sites and remove your credit card information which reduces impulse buys
9. Try going through 30 days of no spending, coined as 'financial detox'
10. Pay down bad debts which are non-deductible
11. Cook, "more time in the kitchen means less time at the doctors, dentists and therapists"
12. Shop with a grocery list
13. Share and rent items that are not going to appreciate in value over time
14. Teach your kids about money and say no to them
15. Use the cloud for free and cheap software and applications
16. Renegotiate monthly payments and if not necessary,cancel them
17. Buy a quantity surveyor report for your investment property
18. Travel in the off season
19. Build multiple streams of income such as through shares, properties, online businesses, consulting, blogging, importing, exporting and selling products
20. Manage electricity costs such as switching off unused appliances, energy efficient light bulbs, air dry clothes (For us we use blinds, curtains, drapes to keep the room warm in Winter and block sunlight in Summer, door snakes to stop winter drafts and rugs for warmth)

Other life hacks that I can think of to add to her comprehensive list is:

1. Mulch your garden to reduce moisture evaporation and watering needs
2. Switch all your loans to interest only with offset accounts attached. Divert all rental income, dividends, salary, savings and funds into your PPOR's(main residence) offset account to minimise your non-deductible loan interest
3. Stock staples in your pantry such as tinned tomatoes, corn, beans, rice, tuna, flour etc so that you can knock up something to eat when you are ravenously hungry or tired without having to resort to take away and junk food
4. Before you buy more 'stuff', stop and think, is that just ultimately contributing to landfill and will the item contribute benefits to your life
5. Grow plants and herbs, it will inspire you to cook more often
6. Compost, it makes free fertiliser and reduces land fill
7. During council clean up collection, go for  a walk and see if you can salvage anything of use from going to landfill(do not hoard by any means =) )
8. Get income, trauma and TPD insurance, you are the asset so protect your income earning abilities!
8. Read all my other blog posts =) 

Wednesday, September 30, 2015

APRA Tightens Investor Loan Market: Will Property Prices Dive?

The Sydney median house price is currently at a whopping $1,017,000.

Speculation is always rife regarding property with many campers on both sides of the coin, the ones that believe property will be resilient and appreciate in time and the ones holding out and waiting for the 30-40% market 'correction'. The Australian Prudential Regulation Authority (APRA) has been tightening up the investment loan market by restricting financing in many ways.

These APRA changes will surely impact the market in the short to medium term however, banks have intelligent and crafty people working for them who will always find a way to mitigate the APRA controls. They'll discover ways to circumvent the regulation changes and find ways to increase financing while complying with laws. 

More recently, banks have been issuing notes and participating in capital raising to meet the APRA requirements of higher capital adequacy ratios. 

What sort of changes has APRA implemented and in what ways have the banks reacted?

* Banks potentially delaying finance approvals for buyers of subdivided greenfield lots until preliminary works such as roads have been completed and the land is ready for development. This will hamper developers reliant on presales. 
* I've been told by two of the big four banks that rental property income is now only factored into your repayment abilities at 50-60% of the year, it varies with banks. Banks are assuming that your investment property is untenanted for half the year, each year (this reduces your calculated repayment capacity)
* Discount incentives on investment loans have been reduced, for example, CBA raised rates on IP(investment property) mortgages by 0.27% and so has ANZ
* Growth of investment loan book is capped to 10% per annum
* Up to 20% deposits required as opposed to writing higher LVR loans, Westpac requires 20% deposit on investment property loans now
* Repayments can be factored at principal and interests on all loans even if you are taking out or have an interest only loan (this reduces your calculated repayment capacity)
* Banks are required to hold more capital, possibly an extra 200 basis points in capital as per APRA which is approximately an extra $2 billion for each bank. Previously, banks could self-assess the riskiness of their loan and set their own capital requirements. APRA plans to raise capital threshold from 16% to 25% on each home loan
* APRA has requested banks ensure that borrowers can afford to repay the loans on all their properties if mortgage rates reach 7%.

Currently, NAB's investor lending has been growing at 14% per annum, CBA at 9.9% per annum and ANZ at 10.6% per annum.

Thus, I conclude that property prices may take some sort of hit in the short to medium term such as six to twelve months by being discounted or prices being stable, however, it will be on its trajectory up again within the next seven to ten years. There is still an inherent under supply of housing being built and with the tightening of investor loans, building projects will slow down and this will again be the impetus for housing development bottlenecks. 

APRA tightening bank loan lending may potentially create a poorer subclass of society. If the investor loan book is restricted to 10% growth, the lenders are more likely to provide preferential investment funding to those with larger deposits and or equity, with higher incomes, those with more savings and those who are generally already, richer and earning good incomes. There would be less incentives for them to take risks with poorer loan applicants. 

1. The Sun Herald, Domain, 'Affordability the biggest loser' by Shane Oliver
2. Random

Monday, September 28, 2015

Troubleshooting Ezytouch: How To Change SMTP Email Setup Using Different ISPs

It's been frustrating to see the lack of free, online troubleshooting support for the POS Ezytouch program that I have been working on. I've decided to write some support posts. 

WARNING: I am not in technology. Mr SMG is the technology expert. I provide user feedback to help others using Ezytouch software.

If you are using Ezytouch and find that you have problems with emailing invoices and statements from the software when you are using a different ISP then this post is for you. The software is extremely customised and every single software is different and unique after their custom programming. Some features however overlaps and this is what I hope to resolve if you are encountering the same issues.

Problem 1: Ezytouch software emailing problem resulting in sent mails labelled as spam or malicious mail 

If you use an email such as abc@gmail.com and wish to email a customer with an @gmail.com domain, then the recipient email server tends to label the incoming email as spam. Lack of a user interface that allows the user to specify the email server and the credentials result in this problem. Because the sender's domain (eg: gmail.com) does not belong to the sending mail server (eg: tpg.com.au).

Problem 2:
Ezytouch software is unable to send software using different ISPs unless you change the codes in the SMTP mail configuration.

If you are using Ezytouch from different locations and therefore different ISPs(they provide portable solid state servers), then you will encounter the inability to email invoices and statements from the different locations unless you change the mail configuration.

How to change the mail configuration:

1. Note that Vodafone ISP doesn't have an SMTP password
2. Note that the SMTP password for TPG is 'password'
3. Contact your ISP if you cannot find the information available on the internet
4. If this doesn't help, you will need to call the technical support guys at Ezytouch

Problem 3:
Emails successfully sent when they have not been sent. 

The program lacks the ability to distinguish between emails that have failed to send and emails that have been actually successfully sent. If your mail setup in the config folder is perfect, you will not get any reject nor error messages. Every email will indicate that it has been sent. You will need to setup all emails to be cc'd to yourself so that you can check off which ones have been actually sent.

See the image above. You can insert the programming into the above section as 'cc=youremail@youremaildomain.com' OR you can open up the customer/supplier file, in the section where you input the customer/supplier email, you add your email after a semi colon with no spaces or otherwise your multiple emails will not work due to the programming. For example, sarah@gmail.com;admin@yahoo.com

Wednesday, September 23, 2015

Planning For Retirement In Your Twenties Is Never Too Early

When you are in your twenties, setting goals such as saving for retirement is really unfathomable to most. The better goal would be to think that you are saving to give yourself choices and freedom in life. 

To enable you to give the finger to any ass* who really disrespects you along the way and not have to faint financially from the repercussions. To be able to travel anywhere at a whim without having to work out a savings plan or put it on the credit card because you are moneybags.

I received an email a while ago from another blogger and personal finance writer, Marianne Ahlmann. It's probably a copy and paste job to many other blogs, however, I thought the questions were interestingly posed:
Good afternoon, 
How is your Monday going? I'm Marianne with Personal Capital, a company helping people achieve financial success through technology. I came across Smart Money Guide as I was looking into how young adults can take more control of their money and lives. 
Your 20s are typically the perfect time to start planning for retirement, but sometimes life gets in the way. What did you do successfully in your 20s, or if you could go back in time, is there anything you would have done differently to ensure a better financial future sooner in life? In a post on Smart Money Guide, I would love to hear your thoughts on how you built your financial safety net in your 20s--and how young adults can start now if they haven't already. 
Let me know if you'd be interested in sharing! 
Marianne Ahlmann Content and Social Media 
Thought it would be worth expanding on the financial questions asked. Personally, I would say it's been an amazing investment journey and there has been lots of lessons and strategies evolving over the years. I had a head start considering my educational background in school was heavily weighted into economics, business, maths and English. At 16, I met a super intelligent guy who was an economist at the Reserve Bank of Australia and he sparked off a life long interest in economics and financial maths.

Upon leaving school, I obtained double degrees in Accounting(B.Accg) and also Applied Finance(B. App Fin). And post University, I finished my CPA. Both Mr SMG and I started saving and investing the moment we left University. We bought into non-performing managed funds. We bought blue chip stocks in the ASX100 which paid dividends twice per year, we bought real estate. We leveraged using the bank's money. We both did that individually until our paths collided and then we combined our assets and the combination of joint finances really took off. 

I'm a pragmatic type of person. Every action has its consequences. If you save and invest from your twenties, of course you will have assets and most likely be a millionaire, probably many times over, by the time you retire. If you are a spendthrift and blow everything you earn, of course you are likely to be a pauper, struggling financially and living some sort of financial nightmare.

Based on my own personal experience, let's cover the things I have learnt and what you can do in your twenties to ensure a better financial future:

* Build multiple sources of passive income streams as early as you can. If you're not working, your money is still working hard for you
* Embrace leverage and good debts, borrow more money to invest in more property and shares
* Don't listen to the naysayers and the doom and gloomers, do your own thing and buy when you can afford
* Diversify across asset classes. The various asset classes usually have alternating cycles so when one, such as the stockmarket is in the doldrum, the other such as real estate is experiencing growth. Many investors will pull their funds out from one class and invest into a different asset class. They don't like dumping their funds into bank deposits and cash accounts to earn 0.01% per annum interest. Gross interest of 5% yields 3.5% after tax on the average 30% tax rate and after head line inflation of 2.5-3.5%, your funds have experienced zero growth and zero capital appreciation. 
* Save as much as you can and buy assets as early as you can, use leveraging and investment/mortgage loans to grow your wealth faster (only as much as you can afford to borrow and commit to)
* Don't buy managed funds unless you wish to have your funds consumed by the investment banks. The entry, management and exit fees will erode your funds.
* Learn about assets, liabilities, investment terminologies and strategies as early in life as possible
* Read lots of investment books, read financial news, learn financial maths about how to calculate returns, ratios, mortgages, how to compare returns
* Keep learning and building on your knowledge every single day. Do not stagnate. Do not let your knowledge erode
* Do not let swindlers and scamsters take your money and run, if it's too good to be true, it is
* No one cares about your money more than you do. Not the financial adviser, the mortgage lender, the banker, the accountant, the lawyer or solicitor, your friends or your family. Lend only what you can afford to write off and don't expect to be repaid what you have loaned out.
* Embrace technology and use it for investing, for learning, for managing your portfolio.
Don't overstay at any particular company
* Watch out for fees and charges. As Jack Bogle, the Father of Index Funds has been quoted, the "miracle of compounding returns is overwhelmed by the tyranny of compounding costs"
* Travel slightly more because now commitments are so intense that it's almost impossible to get away (have travelled a couple of times to Cananda, US, Japan, Hong Kong, Singapore, London, France, Germany, Italy, New Zealand but wish I could have travelled a bit more, but can't complain)

In 2013, I wrote a post about pro-property enthusiasts posting about regrets and what they would have done ten years ago with what they know now. Here is part of the post below. If you(or we) had bought as much property as possible, we would all have been several more millions better off and closer to financial freedom.

The real estate boom in Sydney from 2013 to now 2015, has been incredible. I wrote in 2013 that our house would have costed $100k more back then, today, our house would cost about $500k-$700k more to buy. And that's just two years. Imagine trying to save up $250k to $350k after tax per year. Here is the extract from my post two years ago which I obtained from Somersoft forumites:
*  "buy something, for goodness sake. Get into real estate. Be careful- but not so careful as not to buy...If someone was going to buy another property, I would be suggesting, as Rolf de Roos does, to at least aim to look at 100 properties.I'm not sure about his other figures- but, at least, if you look aim at looking at 100 properties, you'll start to get at some ideas of good vs bad value"
 "Get a real education, a financial education. Read as many books on financial topics as you can...Your borrowing capacity is not a problem (if you know the rights things and speak to the right people)"
"Educate myself on all things financial, Property, Tax, shares etc...Invest as early as possible as time is the essence of good investing...Do not be suckered into public or media hype or fear...Device a plan and stick to it...Keep all things in perspective...By(sic: buy) all the property you can! "now"!!!!!!!!"
"If I was to give myself advice for 10 years ago it would probably be to put into practice the principles from the book The Richest Man in Babylon."
"FINANCIALLY – Educate yourself. Don’t follow the crowd. Take a chance now and then. MORALLY – Stubbornly believe in your abilities and be good to those less fortunate.For one thing I would have hugged and kissed my mum a lot more often and not taken her for granted."
"1. First, last, foremost: Educate yourself financially, friend. Read some good books, it's not really difficult, get to know the basics and understand how this money stuff works!! Learn, learn, learn so you can work smarter, not harder. 2. Spend less. Those doodads add up. Did you know you can afford a property on what you spend on lunches/coffees/etc? 3. Use 1 and 2 to buy effective investments. Buy property now. Don't wait to 'save up the deposit', don't wait 'to pay off your mortgage'. Use the house equity & buy now. Balance negative geared with positive cashflow."
" I would have got into property and not share traded or bought into managed funds like I did then!! That is for sure!" [Must have been burnt by the stock market]
"What I would do differently if I could go back would be to purchase a property as close to the beach or city as possible, take interest only loans for 90% of purchase price (and pay the LMI), wait 6 - 12 months to see the effect on my cashflow and use surplus savings from my income to fund the next purchase....quite a conservative strategy but one that would have me sitting on at least 5 properties that as a group would be putting cash in my pocket and worth substantially more than my purchase costs. I would have my current accountant preparing my tax returns and give me advice on how to structure investments."

"I wish I had read the book E-Myth by Michael Gerber back then. The best book for business owners I have read... I invest in what I know, which is real estate and I always have a plan "B", my what if it doesn't work plan. I have written goals, a business plan and I let those around me know what they are and try to keep them focused on them also. Being part of a great network is a very big help, I now know the advantage of franchises although I had never before been an advocate."
"*make sure you are armed with information     *develop your strategy and then make a move     *don't blindly follow the advise of someone else     *don't be complacent, know what's going on at all times     *use the rental income to your advantage     *do everything possible to avoid selling."
" 1. Invest whilst you are living at home with your parents. It would seem to be the easiest way      to gain a good foothold for achieving financial independence.    2. Buy property that you can rent out, not land. I bought land at the age of 21, with the              intent of building my future home on it in X years time. Would have been much smarter to buy      a rental property, especially one I could live in later, perhaps.    3. Obtain financial education - not from your parents because more likely than not their              "advice" will be ultra-conservative and keep you in the rat race (but you still gotta love your          parents).    4. Get into the habit of saving a'la Richest Man in Babylon. Material possessions are not             everything.    5. Balance your life and your work, and value your health."

"Don't waste your time on jealousy. Sometimes you're ahead, sometimes you're behind. The race is long and, in the end, it's only with yourself...Get to know your parents. You never know when they'll be gone for good. Be nice to your siblings. They're your best link to your past and the people most likely to stick with you in the future. Understand that friends come and go, but with a precious few you should hold on. Work hard to bridge the gaps in geography and lifestyle, because the older you get, the more you need the people who knew you when you were young."
"Keep going with your plan. It works out. Don't get scared as the numbers get bigger." 
 Anyway, I do love reading the financial and personal advice that the forumites gave and it is true, your family and friends are very precious. Appreciate and love them and let them know. Life is just too brief.

And that concludes this mammoth post. I sincerely hope that this post will help and contribute to someone's life in a beneficial way. I am always forever grateful to the generous community out there posting up and sharing freeware, shareware, widgets, apps and knowledge. I am hoping to do my part too with beneficial contributions.

Monday, September 21, 2015

How To Calculate Return On Investments (ROI)On International Stocks

Lately I've been keeping track of the Australian dollar for a few reasons. Not because I'm going on a holiday overseas but for more mundane reasons such as investing. We bought Apple shares a few weeks back and have yet to add Google stocks into our portfolio. Travelling overseas more frequently would be nice, of course =)

I've been checking out a site that has a few popular currencies readily converted. As an example, let us use today's AUD foreign currency exchange rate, 1 AUD buys $0.71 USD.

Calculating the return on investment (ROI) on foreign owned stock involves:
1. Calculating the ROI on the actual stock
2. Calculating the ROI on the stock taking into account, the stock price movement and the currency conversion movement

Bear with me as I dislike rounding up or down when doing my calculations. It's a bit confusing to explain because, firstly it involves working out returns as per usual, and then converting the return to your local currency. Let us ignore brokerage fees as it will just complicate this, however note that brokerage fee will reduce your ROI.

1)Calculating your foreign stock purchase:
Buying the foreign stocks:
If you have $10,000 AUD to buy Apple stocks at yesterdays closing price of $115.21 USD, AUD to USD exchange rate is 1 AUD buys $0.71 USD

$10,000 AUD*$0.71= $7,100 USD
$7,100 USD/$115.21 = 61 Apple (AAPL) stocks, rounded down

Total cost of AAPL portfolio is precisely 61*$115.21 USD = $7,027.81 USD
Total cost of $7,027.81 USD = $9,898.32 AUD

So if you have $10,000 AUD to buy AAPL stocks at $115.21 USD, you can afford to buy 61 stocks at $115.21 USD and it will cost you $9,898.32 AUD

A)Calculating the ROI on the actual stock:

If for example next week, AAPL's price appreciated to $120 USD and $1 AUD depreciated to buying only $0.69 USD, let's calculate the ROI:

ROI on AAPL stock without currency movement is 4.157%:

$120 USD-$115.21 USD = $4.79 USD increase per stock
$120 / $115.21 = 4.157% return

B) Calculating the ROI on the stock taking into account, the stock price movement and the currency movement:

So if AAPL price went up to $120 USD and the AUD depreciated to $1 AUD=$0.69 USD, the ROI is 7.176%

Your portfolio in AUD is now worth $10,608.69:

(61 AAPL * $120 USD)= $7,320 USD
$7,320 USD/ $0.69 = $10,608.69 AUD
$10,608.69AUD / $9,898.32 AUD = 7.176% ROI

So the total return on investment after accounting for stock and currency movement is 7.176% 

Wednesday, September 16, 2015

Is It Worth Outsourcing Home Maintenance?

There have been many days where I have deliberated over whether to hire a house cleaner or a gardener for our garden. Time is valuable right?

A regularly weekly cleaner would cost $100 to $150 per week. A regular gardener would cost $100-$150 per month. A four week month would optimistically cost $500 extra and pessimistically $750 extra on the higher range of fees.

In the end, we've always decided to veto that option and do everything ourselves in our 'spare' time. $500 per month could be better spent elsewhere was our conclusion. What ended up happening was that we have been so busy working and spending our spare time with family and friends that the 'spare' time was never allocated to gardening. We clean the house as a priority but the garden was neglected.

Sure it has been mowed regularly and looks great when freshly mowed and the edges trimmed but after a few weeks, the weeds have popped up in the lawn and we can see how disastrous our lawn is.
Onion weeds are growing prolifically in the garden bed (previous owner didn't lay weed mats underneath the mulch) and the bindi and clover is smothering our lawn. Can't even call that a lawn! Those three set of weeds are collectively the worse to have. The onion weeds grow from a bulb which splits off into piles of little bulbs. the bindi and clovers have adventitious roots that will just spread like pumpkin plants. Wherever the vines touch soil, a root will set.

When we first moved into the house, I wrote a post about big houses and the endless hours of cleaning and gardening. Two years later, nothing has changed haha. I would love to turn the entire weedy lawn into an edible garden, however Mr SMG is into the sculptured garden look (when it has been mowed and the weeds pulled out).

Lately I've had enough so I have spent about 30 minutes on daily gardening! After work, 15 mins. Before sunset, another 15 to 30 minutes. 3.5 hours to 4 hours gardening weekly. Could my time be better spent? Yes but it has its upsides =) Been outside in the warm Spring air and doing a bit of physical activity is relaxing.

Think I'd rather take that $500-$750 per month and spend it elsewhere. And work on convincing Mr SMG to let me convert all our lawn into an edible garden...

Loving our garden in Spring:

Thursday, September 3, 2015

Reverse Mortgages Suck: Don't Use a Reverse Mortgage If Other Options Exist

After seeing the option of reverse mortgages being mentioned in the papers too frequently as an option for 'asset rich retirees who are income poor', I just have to put my thoughts out there for those who are investigating reverse mortgage as an option.

Don't take out a reverse mortgage if you can avoid it.

You have probably spent the past twenty to thirty years paying off your mortgage where the first ten to twenty years was all interest payment and barely any principle. Do you really want the amortisation to work against you again in the last decades of your life when you should be enjoying life?

With reverse mortgages, there are no repayments, loan interest is added onto the principal amount borrowed to be paid off when the property is sold. The debt will grow fast. It will be interest debt compounded with interest charged on interest. 

Compound interest works in your favour when you put your savings in the bank. Interest charges compounded year after year will destroy the equity in your home when it's left to accumulate in the typical reverse mortgage structure.

Ever heard of a loan amortisation schedule? I really recommend looking it up if you haven't. 

When someone buys a property and takes out a mortgage, the first few years of payments will be almost all interest and barely any principle. Most people's eyes will glaze over when they read about an amortisation schedule and the break down of interest to principle in a monthly repayment. Let me illustrate with an example:

Scenario: Jack and Jill takes out a mortgage for $300,000. Principle and interest. 30 year term. Interest rate of 5%. 

1.Principal and interest monthly repayments = $1610.46 ; interest=$1250.00, principal=$360.46

2. After 195 months (just over 16 years!) = P+I monthly repayment =$1610.46; interest=$802.88, principal=$807.59. The monthly repayments will now start eroding your loan principal faster and faster from 195 months

3. After 360 months (30 years)= P+I monthly repayment =$1610.46; interest=$6.68, principal=$1603.78. Loan is finally repaid

With a reverse mortgage, you would replay that scenario backwards! Where the 360 month(30th year) redraw from the mortgage of $1610.46 means $1250.00 is the interest charge and you effectively get only $360.46 to spend out of that $1610.46.

But you don't need that much? But you won't be redrawing for that long? It doesn't matter how much or the time frame of the redraw, the amortisation schedule is an eye opener and you are really giving your future, older self a hard time if you take out a reverse mortgage because the interest charge compounded on interest will erode your equity.

You could live to 100 years old and beyond. You could be homeless. I'm not even being dramatic. It's just the way the maths work. So don't take out a reverse mortgage if you have other options or you can avoid it. Just thought I would analyse that for anyone who is trying to do research because it is such a detrimental option but it is being bandied about in the news as an attractive option with no draw backs mentioned or high lighted.

I haven't come across a single article in mainstream news yet that highlights and objectively analyses the pros and cons of reverse mortgages. Only the benefits are discussed. 

Wednesday, September 2, 2015

Be Fearful When Others Are Greedy and Greedy When Others Are Fearful

"Be Fearful When Others Are Greedy and Greedy When Others Are Fearful" is Warren Buffet's famous quote. 

The market is really taking a dive currently due to the woes in China. Mr SMG and I have been accumulating stocks over many years now. I'm rather impervious to the ups and downs of the market emotionally. When it's taking a dive like right now, I just want to buy more stocks. I've been blogging publicly for six years now and all my investing strategies, thoughts and opinion has been there for the public to read and critique. So far, so good, really good.

The huge volatility that we see in the stock market over recent years have been in part due to economic reasons, swing traders, technology such as online trading, the ability to short stocks instantaneously and the average and ordinary Mum and Dad investors out there reacting out of fear. Margin loans and activated stop losses further compound the volatility. 

Central Banks, politicians and investors tend to turn the other way when it comes to acknowledging the intrinsic problems such as the US federal deficit and the Japanese deficit ballooning as opposed to shrinking or that most nations are struggling with growth, however, people get richer so there's simply more and more money out there being ploughed into investments.

Over the duration of the GFC subprime crisis I picked up a lot of stocks at ridiculously cheap prices. I haven't had time to follow the news intensely these last two years, so I'm not as well versed this time around in terms of forecasting how long the downturn will be for and when the recovery is expected, however Buffet's adage has worked perfectly to our benefit in the past and I fail to see why it wouldn't apply over the next hundred years. Warren Buffet is the investment version of the economist Adam Smith. 

Jessica Irvine published an article in the Sydney Morning Herald where she quoted Roger Montgomery, the private fund manager of $800 million worth of funds. "We've been a net buyer...we purchased some additional shares in Challenger and iSentia. Globally, we purchased some more Apple...When they're on sale, you get a bit more excited. Although you have to be selective- the outlook has deteriorated."

Montgomery is quoted as a follower of the value investor, Benjamin Graham who is famously quoted saying, "choose (sic: stocks) them the way you would buy groceries, not the way you would buy perfume...Individuals who cannot master their emotions are ill-suited to profit from the investment process." That is, don't be driven by emotion but be driven by values and the business/stock fundamentals.

Personally, I really dislike the whole doom and gloom mentality and those who constantly spruik that the sky is falling. If you keep banging on about the crash, doom and gloom happening, eventually you will be right. But meanwhile, miss out on the gains. If you had waited for property to crash 40% like how some economists were forecasting during the GFC, you would have sat on the sidelines while property has been appreciating in value. The Sydney median property price was approximately around $600k during the GFC and now the Sydney median property price is over $1m. 

What 40% crash? Short of pulling out that $400k from your back pocket, you could now be renting for life.

Another doom and gloomer quoted by Irvine is Damian McBride, former adviser to British Prime Minister Gordon Brown, "Get hard cash in a safe place now-don't assume banks and cash points will be open, or bank cards will work...do you have enough bottled water, tinned goods and other essentials at home to live a month indoors? If not, get shopping." McBride appears to be watching too many seasons of The Walking Dead. One month only? Is there some sort of miraculous recovery after one month? Life goes back to normal after one month? All you'll end up doing is sitting on your boring old cash on the sidelines and when the market bounces up again eventually, you'll end up missing the entry points and back to where you started, over paying for stocks just to enter the market again. 

There is substantial difference between the market volatility during the GFC and the market volatility right now triggered by the Chinese stock market and their trading conditions. In the US, the GFC sub prime crisis was triggered by many shifty and dodgy practices such as junk bonds being rated AAA, collapse of investment banks holding these sub prime, poorly rated AAA bonds, pension funds collapsing due to investing in sup prime loans, the ability of US mortgage home owners able to walk away from their mortgages without future repercussions like how the banks in Australia can pursue mortgage debts. 

Approximately 1% of Chinese stocks are being held by foreigners. The global economy is affected if the Chinese economy is depressed due to the negative wealth effect on the Chinese population(if people have lost money in the stock market, this will negatively affect consumption which will affect economic growth which will affect the stock prices). If China reduces their demand for raw, mined resources, this will affect the world. However, this will be a gradual process and not instantaneously like investment banks in the US having their portfolio revalued during the sub prime.

Having illustrated all that, does McBride expect banks around the world to collapse simply because Chinese shareholders have lost money? Or that Chinese consumers will spend less? China is a net exporter (unless things have changed since I have been out for these last two years) and thus, their economic growth and GDP is still hugely influenced by worldwide consumption of nations such as the US. 

There are so many rich and wealthy investors out there. Can you really see them parking their stash of millions and billions in term deposits and cash for the next decade? They have so much money that ultimately it will find its way back into property and shares. 

That's SMG's take on this Chinese stock market crisis. The outlook isn't exactly rosy but it's not at McBride's doom and gloom level either where anyone should be liquidating their stake in everything and pulling their funds out of the bank. His sort of 'advice' is what compounds problems and create liquidity crises and the collapse of banks by creating run on deposits.