Monday, 22 June 2015

Niche Website Update - June 2015

This is a new series of posts that I'm going to be doing tracking how my niche websites are doing.  Up until this point I have just been referring to one website (Banker's Pitch) however when time permits and once Banker's Pitch has settled down I plan on creating several more niche websites.

I don't know whether this is a strategy that will work for me but I'm keen to find out!

Monthly performance for May 2015

This month was all about getting my website up to speed.  I also spent some time optimising the site to get better search results.  These efforts were not in vain as you can see from the traffic results below:



As you can see the number of sessions in May was more than double that in April.  Some of that was a bump I received from people on this blog but a lot of it had to do with the fact that I was starting to get ranked much better in Google for some of my keywords.

I'm still not getting any meaningful revenue from the blog however monetisation is not one of my top priorities at the moment...I'm still trying to generate traffic and get my blog name out there.

Below I have outlined a breakdown of some of the activities I have been undertaking to try and get the website up to date.

Monday, 15 June 2015

Negatively Gearing the Stock Market

This is a guest contribution from Jeremy Kwong-Law

We have a national obsession with property investment in Australia. A key reason is because of the tax benefits of negative gearing. The idea of paying less tax is simply too appealing to most people (who can afford it).

Negative gearing only makes sense if the capital gains on the asset is more than the interest cost. Otherwise paying less tax is really because you are making less money, and losing wealth along the way.

Most people only think of investment property when they think about negative gearing. But there are actually other asset classes where negative gearing can be effective. The stock market is one of those.

Individual stocks are too risky to apply a long term negative gearing strategy. However, index based Exchange Traded Funds (ETFs) could be a suitable option. I previously wrote about why ETFs are a better way to achieve a diversified portfolio compared to direct stock holding (here).

With this concept in mind, I tested a $500K investment in the SPDR ASX 200 ETF (STW) using a negative gearing strategy. A $500K negatively geared investment property in Sydney was the comparison case. I selected the SPDR ETF because it is the oldest index ETF listed on the ASX, providing the most data points.

Over an investment time-frame from 1 Jan 2005 to 31 Dec 2014, the investment property offered better outcomes through negative gearing:
  • Return on Equity on the property was 206% compared 104% from the ETF
  • Total tax offset for the property was $214K compared to $116K from the ETF


 Despite this, the analysis shows that negatively gearing the Aussie stock market is a viable option. In fact, ETF offered a few benefits compared to property investment:
  • Lower entry cost - A deposit for an investment property is likely to cost more than $100K, whilst you can start an ETF portfolio with a few $1,000s
  • ETFs are much more liquid than property
  • there is a lot less hassle compared to property investment. ie. no need to manage tenants / real estate agents
  • lower transaction costs - buying an ETF is as cheap and simple as buying a stock with your online broker. Buying an investment property is difficult and expensive. You need to consider legal fees, stamp duty, and other costs

Funding


To fund the two investments, I assumed a loan at 65% LVR or $325K. This leaves a $175K equity / cash investment at the start. The mortgage's variable rate is based on the RBA’s published rate across the 10 year period. The Margin Loan for the ETF is assumed to be 2.85% p.a. more expensive than the mortgage. This difference is the spread between a CommSec Margin Loan and a CBA mortgage as at May 2015.



Both loans are repaid on a monthly basis, to the same dollar value. At the end of the 10 years, principal outstanding is $256K (79% of the initial loan amount).


Running costs & other tax offsets


The cost of the ETF is completely absorbed within the unit price so there are no other fees to pay - ever. For the investment property, there are a few costs:
  • Real estate agent management fee of 6% of rental income;
  • Depreciation on the property - I assumed 40% of initial investment is depreciated (some consultants suggest you can depreciate up to 60%!).

Income


The ETF pays a semi-annual dividend. Over the 10 years, it provided an average annual yield of 4.7%. I did not factor in franking credits.

The property starts off at 3.5% gross rental yield. Rent rise every year in December, at the rate of Sydney rental growth (ABS data). Over the period, average annual yield is 3.8%.

Asset Value


Property value in Sydney achieved big growth in the past decade, gaining 58%. The $500K property in Jan 2004 was worth $792K in Dec 2014. The Aussie stock market didn’t do as well over this period. The ETF share price increased from $40.79 to $50.25, a rise of 23%.

The higher asset value growth of property also translates to much higher equity value growth. Equity in the property grew from $175K to $536K, an impressive 206%. The ETF equity value grew from $175K to $357K, a 104% increase.



Tax offset vs cash flow


Obviously this whole strategy is about tax offsets - both investments achieved this. The property had tax offsets of $213K over the 10 years, whilst the ETF offered $117K of tax offsets.

Interestingly, the property offsets were achieved with lower impact on cash flow. Negative cash flow for the property investment was only $82K over the 10 years. The ETF had $117K of negative cash flow. This is mainly because property is able to claim non-cash tax deduction in the form of depreciation.

What does it all mean?


This is another example how why Aussies love investment property and negative gearing. You can achieve strong net wealth growth and tax offsets - a double whammy. This also shows that a negative gearing strategy can be applied to other asset classes.

Investing in ETFs is a way of achieving negatively geared investment in the share market. A core benefit of ETFs over individual stocks in this content is diversification - reducing risks. The risk of investing in a Sydney property and the SPDR ETF was similar in the 10 years. Sydney property prices had a standard deviation of $83K, whilst the SPDR ETF measured in at $84K.

On the face of it, investment property seems to be a more compelling investment class. They offer higher returns, more tax offsets and lower negative cash flow. However, I didn't account for a few things that are negative for property investments:
  • stamp duty and other taxes;
  • vacancy risk - if you can't rent out your property you get no income;
  • significantly higher legal fees;
  • higher transaction costs when you sell the asset, real estate fees of at least 1%.

The high cost of entry is also a critical issue for investment property. Currently, 1-in-3 Sydney suburbs have median home price of more than $1M. The initial cash deposit required is well north of $100K. For younger investors, this is a tough ask – an idea of reaching that deposit sooner is HERE.

Younger investors can explore the benefits of negative gearing through other asset classes. The asset must be able to achieve higher capital growth than the interest cost. One obvious option is the stock market, which usually delivers higher long term returns than all other asset classes. If negatively gearing the stock market is an interesting strategy, an investment in index based ETFs are a good option to start.

Do you negatively gear the stock market?  Share your thoughts in the comments below!

Jeremy Kwong-Law (@jeremykwonglaw) is Cofounder of www.BetterWealth.com.au. He is a former investment banker turned technology entrepreneur, a muru-D alumni (Telstra startup accelerator). Passionated about leveraging technology to provide better financial products & services to consumers. Coffee snob, business book reader, and fitness fan.


Tuesday, 9 June 2015

How do you keep track of your share trades?

It's coming up to tax time and normally at this time of year I write a post on how you should start to think about your tax time affairs and start to get your affairs in order.  This year however I'm going to do something different.  I'm going to present a problem that I have...the solution I current use...and see if you have a better solution to this problem.

Problem: I don't have a good system of keeping track of my share trades for tax purposes


One of the biggest problems I have as someone who buys and sells shares is keeping track of the trades for tax purposes.  

It's not that I don't record every transaction that I make - I do and I am meticulous about it.  The biggest problem is working out the tax implication of every sale that I make.
The problem I have is keeping track of working out what is the optimal parcel of shares to sell and the number of shares remaining in the parcel
The problem really exists where you have bought shares over a period of time, either through dollar cost averaging your way into a stock or when you have been participating in a DRP and have been accumulating shares

Monday, 1 June 2015

May 2015 Net Worth: $566,000 (+2.6%) and Goal Tracker

I just had one of my best months ever in terms of net worth performance and it was completely unexpected.

I'm actually also getting rather close to $1 million in assets which is exciting (although as it comes to crunch time for my wedding my cash balance is going to go significantly which will take me further away from this point).

Before I dive too deep into the detail let's look at how this month panned out for me in terms of my net worth and savings goals.

Tuesday, 26 May 2015

How is my Investment Banking Website going? May 2015 Update

Just over a year ago I launched Banker's Pitch, a website dedicated helping aspiring investment bankers get in, make the most of their time in Investment Banking and then get out to other careers. As an ex-banker myself I definitely thought I had knowledge that would be valuable to others out there.

However it wasn't purely altruistic.  I also wanted to generate an income from this site.  I had a plan - both in terms of content (the topics I would write on), marketing (how I would get the word about my site out there) and monetisation.  At a very basic level my plan looked something like the following:

  1. Create awesome content
  2. Let people know that the content exists
  3. Reap the rewards for my hard work

Things didn't quite go to plan...



Ahh I'm such a planner but with my business ideas and projects things never really seem to go to plan.  I got my website up and running and created some kick-ass content but I choked on the marketing aspect of the project (and as a consequence the rewards definitely didn't flow my way).

Marketing does not come naturally to me.  Whilst I'm more than happy to let my network of friends and colleagues know what I am up to and promote my material that way, commenting on related blogs and building an online network is not something I'm really good at.  This is something I definitely I need to work on.

Because I wasn't out there promoting my material I was barely getting any visits at all to the site which in turn makes it pretty challenging to keep generating awesome content.

I was depressed at the lack of progress I was making...and then one day I just stopped writing...

 It wasn't a conscious decision I made to stop writing...it just kind of happened.  The last scheduled post I had went out and I couldn't get up the will to write any more.

But then recently I noticed something about Banker's Pitch


Banker's Pitch was honestly the last thing on

Tuesday, 19 May 2015

What does Financial Freedom look like to me?

When I uploaded my recent post on what I would need to be financially free I didn't realise the impact that it would have on my life and the way I thought about it.  I did it because I thought it would be a cool thing to do and to track.

However thinking in terms of financial freedom has really changed the way I look at my approach to wealth generation.  Previously (as the name of this blog would suggest) it was all about becoming rich.  I didn't really have any plans for those riches...it just seemed like the right thing to aim for. Financial freedom is something else though...it allows you to choose the lifestyle that you want, when you want.

What does it mean to be financially free?


People describe financial freedom in a variety of different ways.  For some people it's about not having to wake up every day and go to work.  For others it's about having a security blanket so you know that you are never going to end up on the street.

Here is the definition I am using:
To be financially free is to be able to choose what I want to do, when I want to do it and not worry about the financial consequences of my decisions
Why did I underline the word 'worry' in the sentence above?  Well that's because most decisions have financial consequences.  Some of them large and some of them small.  If you run your own business, your decision to take a few months off can have huge financial consequences.

I'm not aiming for a system where

Thursday, 14 May 2015

What do you like on this blog and what can be changed?

Today I'm asking for your help and advice.  I have been writing this blog for almost 4 years now and as I approach the 4 year anniversary of this blog I'm considering making some big changes to it.  So I have two questions for you:

  1. What do you like about this blog?  Why do you read it and what do you get out of it?
  2. What can be changed and what would you like to see more of?

Why do you visit Journey to 90 Million?

I confess that I'm not 100% sure why people like visiting this blog.  I get great traffic but honestly some of the traffic baffles me.  Occasionally I'll spend hours writing a post with a huge amount of research behind it and it will only get 30 or 40 views.  Other times I will spend far less effort and that post will become incredibly popular and have visitors coming back for years.

So why do you visit the blog?  I certainly don't want to make assumptions about what people get out of it so send me your feed back.

What can be changed?

What do you tend to skip over when you visit the blog?  Is there something I used to do which I no longer do which you liked?  I know the format and design of this blog is incredibly outdated - this is something that I am working on...is this something that bothers you?

I have a pretty thick skin so feel free to lob any criticism that you like...it's all a learning process.  When I started this blog I knew nothing about blogging and honestly half of what I've learned is because I've made some pretty big mistakes in the past.

Feel free to post in the comments section below or send me an email at 90millionblogger (at) gmail.com

Thanks heaps in advance and I'll be back to posting regularly next week!