Friday, 29 November 2013

How much cash should I give as a wedding gift?

It seems that I have hit an age where a significant proportion of my friends are starting to settle down and get engaged.  This year I had 5 weddings in total and next year I already have invites or 'save the dates' for 7 so the chances are that I will be going to something more than this.

Wedding gifts have gone through an interesting evolution.  Historically there was not 'list' or preferred gift and so people typically got several presents which were exactly the same.  Then came the wedding registry which lasted for a quite a while - you set a list of items at a large department store and people went in and paid what they wanted to buy you one or more items on that list.

The next evolution of the wedding gift trend has emerged in recent years - the cash gifts.  I spoke to some people in older generations and they said that cash gifts used to be seen as almost taboo and impossible to get right because of the risk of giving too little money.  However in the last year I only received one wedding invite which had a gift registry and the rest invited you to give cash to help towards their honeymoon.

So what is the right amount of cash to give as a wedding gift?

The old problem of not knowing the right amount of cash to give as a wedding gift still exists.  Because it is a relatively recent phenomenon there is no set rule or expectation about the right amount of cash to give as a wedding gift.  The dilemma is as follows:
If I give too little I look like I'm tight and if I give too much then I'm just wasting money
I don't know about most of you but I'd rather be in the giving too much category than in the giving too little category.  However there is a limit to this.  What made me think about it was the first time that I gave an amount and then later though..."that was a lot of money".

A rule of thumb for giving cash at a wedding: give slightly more than it would cost them to have you at the wedding

This is the most basic rule and only really applies for

Wednesday, 27 November 2013

Travelling Overseas: Saving on airline fares which code share

As we come into the Christmas season and the summer holiday period (for Australians and all those in the southern hemisphere) many people will be well advanced in their vacation planning.  If you are travelling overseas and not going on a cruise you are going to be booking flights and in this day and age of global air alliances, the chances are that you may book with one airline but be flying with another (aka code sharing).
You may be in a situation where you are paying a very different price for exactly the same airline seat because you have booked through a different carrier.  
When I recently travelled on holiday, my destination was a small island in the Pacific and there were only two carriers that flew there: the local carrier and Qantas (an Australian airline).  If I'm going to be honest I had reservations about travelling on the local carrier - when it comes to air travel, safety is the most important factor and I had no idea what this small airline's safety record was.

The local carrier's price was ~$750 return and Qantas was ~$100 more than this.  In the end I decided to go for the local carrier to save the $100.  It's not that I valued my safety at $100, it was more I considered my fear of the small carrier to be irrational and I wasn't about to pay more for an irrational fear.  I was surprised when I boarded my flight and noticed that Qantas was actually code sharing with this small regional airline - paying the $100 would have gotten me nothing more than a Qantas boarding pass.

Airlines generally disclose when they are going to put you on a different carrier

I went back to Qantas' website and found out that when you selected a flight they did disclose

Tuesday, 26 November 2013

Should I move into my investment property?

Recently I have been posting about buying a house for myself to move into.  This is not going to be a very short term thing - I was giving myself enough time to look and consider what I actually wanted and where I wanted to live.  What happened though was that I found out that property in Australia is much more expensive than I first imagined - in fact I found myself looking in the same area which my parents live (and I didn't grow up in a great area at all).

This didn't deter me though - I had a decent budget and I could get somewhere ok...certainly not where I thought I would be able to buy but I wasn't going to be buying in the middle of nowhere.  My girlfriend then asked me a question I hadn't really considered before: why don't you move into your investment property for a few years while you save up for a deposit on the place you actually want?

At first the idea of moving into my investment property didn't appeal to me

I think I was most opposed to the idea of taking something that was definitely an investment of mine and converting it into something which was not an investment - i.e. something which I was using for my own benefit.  In my mind I think I thought of that as reducing the amount I had 'invested'.

This was a really short term way of thinking about things and as I thought about it more I realised that perhaps it was not as bad a suggestion as I first imagined.  There are definite draw backs to such a move (which I will outline below) however there are a significant number of advantages (which I will also outline).

The benefits of moving into your investment property (while you save for another place)

When I outline the benefits of moving into your investment property please keep in mind that I am not comparing this to continuing to rent a place - renting is almost always going to be cheaper than buying a house (otherwise negative gearing wouldn't exist).  I am comparing this against buying a house that I can afford at the moment.

The benefits of moving into my investment property include

  1. Being able to save for a place I really want
    • I am currently priced out of those areas that I really want to live in.  Property in the areas that I want to buy are currently in the ~$1 million mark while I can only really afford around $700,000 mark
    • Moving into my investment property will give me a few more years to save up and buy in the area that I want to live in
  2. I already own the place I live in - no further sunk transaction costs
    • Transaction costs (such as stamp duty) when you buy a property run into the tens of thousands of dollars
    • I already own my investment property - I can invest those transaction costs which would have been sunk
  3. My loan is currently at a very manageable stage
    • My investment property loan is currently very manageable - I could pay it down very quickly and save for the place I actually wanted to buy
  4. I can always convert the property back into an investment property
    • When I eventually buy where I want to live I can convert my investment property back into an investment property, leverage against it (and so get a tax deductible loan) and use this to pay down my non tax deductible home loan
The cons of moving into your investment property

The cons of moving into an investment property instead of buying a new house are also very

Monday, 25 November 2013

Don't get ripped off when converting currency

I recently returned from my overseas holiday and realised that although people shop around a lot to reduce the costs for their flights and accommodation we rarely ever really shop around for a good deal on the currency that we exchange.  We normally go for safety and convenience, which are undoubtedly important, but given the amount that you are likely to spend in cash on your travels (from trinkets and souvenirs to meals, drinks and transport) it is always worth remembering that you can save a lot by shopping around for a good exchange rate

You can never change cash for anything like the actual exchange rate

I think we are all used to the idea that we are going to get screwed when we exchange cash.  Anywhere that retail punters typically go, there is a large spread between the buy and the sell rate with the actual exchange rate somewhere in the middle.  The first time it happened to me I was outraged but then I (like most people) got used to the idea of being screwed.

On my recent overseas holiday though I was once again reminded how badly you could get screwed.  I am going to call out one company which was particularly bad: Travelex.  They were offering to convert my currency at 20% less than the official exchange rate

Even by the regular standards of exchange rate rip offs - this one seemed particularly bad.  What was even worse was that this was their rate when I was looking to change a rather large amount of cash.  On top of this outrageous rate they were going to charge me a 'transaction fee'...normally this is built into the spread but Travelex believed that they could convince me that this was their charge.

Always shop around for a better may even do better next door

Obviously I wasn't going to exchange cash at this rate...I walked less than 10 meters to the ANZ branch that was right next to them at the airport and I got a rate that was only a 10% discount to the official exchange rate (with no transaction charge).  I wanted some cash for when I landed at my destination so I exchanged a bit at this (still exorbitant rate).

You can often get a better rate if you wait until you get to your destination

I'm not sure if it is only Australia which rips people off so badly when it comes to exchange rates but I always seem to get a better rate when I exchange cash at my destination rather than before I travel.  I exchanged more cash when I got to my destination airport at a

Thursday, 21 November 2013

Board Appointments: A flawed process

Corporate governance is one of those things which shareholders take an occasional interest in but can really make a difference to your investment.  The way in which executives are remunerated is important as are the directors who represent YOUR interests on the board of the company.

However for reasons I have posted about before, people very rarely get involved in the decision making process of their company.  Retail shareholders rarely vote and all too often institutional shareholders rely on proxy advisers to tell them which way to vote.

I have recently come to realise that there is also an inherent flaw in this process.  Even if you ARE interested in the way the company is being run you have little input into WHO gets to run the company.

But...don't I get a vote as a shareholder?

In principle yes.  You get to vote on all resolutions that are brought to an AGM or other EGM.  You get to vote for directors that stand for election and if you want to you can vote for or against directors based on their decision making.

But there is an inherent flaw in the way these resolutions are structured

  • It is the directors of the company who effectively determine who and what gets included on the ballot
  • When it comes to new directors, the current board will propose ONE name and you get to vote on whether you want that person on the board
  • When it comes to existing directors, you are not given any alternative choices if you would like to see a director of the board replaced
Effectively the board has too much power over their own appointment

The board should be there to represent the interests of shareholders, but the way in which the election process is set up means that effectively the board is representing their own interests.  The process is structured so that you are given a false sense of choice.

Further you are given insufficient information
  • When an external candidate is proposed the board often recommends shareholders reject their appointment and gives the reasons why they should not be voted for.  You are rarely given the reasons why you should vote for this person
  • When the board talks about themselves they talk about you should vote for them not why you would consider note voting for them
  • Boards often talking about new potential members as having the skills that the board needs (e.g. financial, operational etc.) however they never give you a choice of multiple people who have the same skills - i.e. give investors a real choice about who they want to represent them
This all makes sense when you think about the fact that directors do not want to lose their very comfortable corporate jobs or reputations.

What is an alternative?

The solutions all have to do with the information available to shareholders.  There are two solutions which I find particularly persuasive
  1. Make disclosures around how board members voted on EVERY vote available
    • Individual board members can then be held to account for every bad decision that they made as a director in a very real and direct way
    • Boards cite confidentiality and business imperatives as the reason that there is not more disclosure about how votes are taken and what options are considered...but as owners of the company we are the ones who have the right to know how are boards are acting
  2. Make a full list of candidates available for every directors vote
    • Companies always talk about screening several candidates for a board before putting one up for election
    • I am all for them screening candidates but why don't they put up several candidates instead of just the one that they want - why don't they give the investors the choice about who they want representing them
    • Further if I don't like the existing members of the board I want real alternative choices - there should be real, credible alternatives put up for every single current board member
Boards are never going to do this of their own volition.  They are too interested in protecting their own privileged positions but it is something that is a real concern and which people should pay attention to.

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Wednesday, 20 November 2013

How to respond if someone asks you what stock to invest in

I actually re-wrote the title to this blog about 10 times before I settled on what I was going with.  Originally I wanted it to be "No, random stranger, I will NOT tell you what to invest in"...then I realised that it may look like I was saying that to my readers which was not at all what I was going for.  This post is something that almost every professional faces and it's a pain in he backside so I'm going to tell anyone who works in the finance industry how to deal with it.

It drives me nuts when family, friends AND strangers ask me 'what should I invest in?'

Anyone who works in and around finance would know this feeling.  It is a question that gets asked all the time and it's insanely annoying for several reasons

  1. I don't know your financial situation and your risk profile
  2. I don't know how much you know about finance and I'm pretty sure you're mooching off my because you find learning about it boring
  3. There is no way I'm ever going to give you a stock that I'm thinking about...if it goes down you're never going to accept that stock investing comes with risks so I could have been right in my rationale and been wrong in the short or long term
I know it is not only financial professionals who get this.  I imagine doctors and dentists get it all the time - I have seen family members bother others about all sorts of conditions in social settings when it is clearly inappropriate.

What also drives me nuts is when complete strangers ask me what to invest in.  I was recently at my high school reunion and I was chatting to someone who I hadn't seen in a decade who I wasn't even friends with in high school and he asked me what he should be investing in.  At least with family and friends I felt some sort of obligation to educate them a little...with way!

So here is a 'safe' answer you can give if you work in the finance industry

I found a really safe answer

Tuesday, 19 November 2013

Penny wise, Pound Foolish

My dad is full of clichés - in fact I am pretty sure I once heard him use 3 of them to complete a whole sentence.  One of his favourite though is that "if you take care of the pennies and the dollars will look after themselves".  Unfortunately I think I fall within another common cliché - I am most definitely "penny wise and pound foolish"

I had always subscribed to the first one - I am very careful with my small expenditures and save quite a lot of money by doing things like bringing my breakfast and lunch from home and for looking for the best ways to save money on meals when I go out.  The problem is that, even though I look after the small stuff so much, I lose most of these savings by blowing a significant amount of money on large expenditures.

You can lose all the benefits of careful saving through a few big expenditures

I only realised that I operated in this way because I have been trying to keep to my expenditure goals (which I reset recently after not being able to keep to my first set of goals).  I was discussing it with a friend and he got me to walk him through where all of my money went to.  I rattled off all the items which were 'quasi compulsory' and I knew and accepted where a lot of that money went and where I was happy to pay a premium.

However I then started to think about bigger ticket one off items which do not reoccur and I realised that this is where I spend so much of my money.  I think very little of going away for a weekend with my girlfriend or of an overseas holiday for 2 weeks.  The former is expensive and the latter can really blow a budget quite easily because I hate backpacking and I love experiencing everything.  Further I love a night out on the town as well as nice dinners (which can easily come to $200 a night).

This is a lifestyle choice...and I need to change it

I have traditionally held the view that the solution to budgeting and investing is just to earn more.  I wrote about this a long time ago but I think this is something I need to change.  The further I get into my career, the more I realise that I want

Friday, 15 November 2013

Weekend reading: The Truth About Marissa Mayer

This post will be very short from me as I thought I would post up something incredible that I read recently.  It is a biography of Marissa Mayer, the CEO of Yahoo and covers her life from growing up to college and her stellar career at Google and then the transition to being CEO of Yahoo.

The link to the article is here and I really recommend you spend the time reading it.

A few comments about the article

I really like it when a good piece of investigative journalism is done.  With our shorter attention spans, the trend towards more news, not more in depth news and the days of 140 character updates news, information seems to be focusing on the highlights and not the details.  This article is different though - it is seriously long and well researched.  I confess that I first looked at it the length of it intimidated me slightly and I thought I would read the first few paragraphs (at work) and then print it to read at home.  I got so engrossed in the article that I spent the next 30 - 45 minutes reading it from start to finish.

I like it when a biography is more than a puff piece.  All too often biographies are either puff pieces or hatchet jobs.  This seems to be exacerbated when the person is particularly powerful like a billionaire or the CEO of a powerful

Wednesday, 13 November 2013

Beware travel medications: You can get ripped off

I am used to losing cash pointlessly when I travel - in fact when I am going to the third world I expect to pay 5 times what I should because I have no idea what the cost of something is meant to be.  But when it happens at home it really irks me.  This is a warning for all those who simply assume a doctor is going to prescribe the cheapest medication because it's the right thing to do: they aren't and you can get stung for hundreds of dollars.

I was travelling and left my medical appointment to the last minute...

I am going on holiday to a part of the world where you really need malaria medication and I had completely forgotten about it.  With 2 days to go before I leave (don't worry - the posts will keep coming - I learned my lesson from the last time I travelled) I scrambled to make an appointment with the doctor.

I have been going to the same doctor for as long as I could remember however he retired earlier this year and this is the first time I've needed to go to one.  I went to one in the CBD next to work.  I knew it was going to be expensive...but $70 for an appointment which took exactly 6 minutes seemed a little excessive to me.  I'll get a bit back on Medicare but it is still ridiculous.

I was actually going to post about this - about trying to find a doctor who bulk billed because it could save you a lot of money if you went several times in a year - but then I got stung really badly.

I had a doctor who was not interested in providing me the full information

The doctor I got stuck with did not bother to provide me with the information I needed.  I went in and asked for a prescription for malaria medication.  I have travelled overseas a fair bit and I know what I usually take: Doxycycline.  I mentioned to him that I have a real sensitivity to light when I take it (a common side effect) and asked whether it was the only medication out there.

He said there was - it was just as good and then he prescribed me Malarone which seemed like a magical drug when he described it - you don't need to take it as often as Doxycycline, you don't need to take it for as long and it works just as well which sounded like a miracle replacement...

However when I went to the chemist...10 days worth cost me $150!

Doxycylcine costs ~$30 for a 10 day trip...I was out of pocket more than $120 to solve a problem that I had been dealing with for years.  The doctor I had a relationship with never bothered to prescribe this other drug for me because he knew it was super expensive.

I know I should have asked about the cost.  I know that it was on me to get the right prescription...but when a doctor doesn't mention to you that the cost is significantly higher...and the only way you can get another prescription is to pay another $70 then it does feel like a bit of a rort.

The moral of the story is...don't trust that a doctor is prescribing you the most cost effective medication

If it is not life and death it is worth asking them about the relative cost and benefit.  For me the difference between the two drugs was a sensitivity to light but they worked to stop malaria just as well as each other...I would have taken the cheaper drug.

If you don't have a relationship with a doctor that you trust to do the right thing by you it is worth asking the questions.  It is sad that you have to but you could get stung like I did. It pays to question what you are being told (whether it is by financial professionals, lawyers, accountants - or as it turns out here...medical professionals).

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Tuesday, 12 November 2013

Interactive Brokers - BPAY makes funding even easier

As regular readers may know, I use interactive brokers for most of my share trades.  It is cheap, simple and easy to use.  It has some big draw backs including not being able to invest in dividend reinvestment plans which they really should fix, however they also have some quirky benefits like being able to get over-allocations for rights plans due to the way in which they hold your shares.

It was always quite easy to fund your account with Interactive Brokers

I have covered before how easy it was to do a wire transfer into Interactive Brokers and how my account funded the very next day.  One of the slightly more frustrating things about wire transfers is that often financial institutions would limit how much you could transfer to another account per day.  These limits were quite large - for my financial institution there was a maximum of $20,000 per day - however there were situations where I wanted to do more than this.

The first time I participated in a rights issue I wanted to transfer about $50,000 into my Interactive Brokers account to apply for an over-allocation.  I had to do this over 3 days which didn't limit my ability to participate, but if I was not on the ball about this issue then it would have become a problem.  If I wanted to participate fully in the over allocation it would have taken me 5 days to transfer all the funds.  This can be a problem, especially when the election window is quite small.

The cap on transfers was not Interactive Brokers' limitation and I thought that there was no solution to this issue and when I went to transfer another $50,000 into my account for my latest rights issue participation I was pleasantly surprised to find out that they had made funding your account even easier.

You can now fund your account using BPAY

Instead of having to

Friday, 8 November 2013

How to avoid getting caught in a financial scam: Ask yourself "why me?"

People get sucked in by scams all the time.  From thinking that they are going to make it rich by funnelling cash through their bank account for someone trapped in the third world to allowing someone who says they are from Microsoft to take control of their computer and steal their identity.  Some of these are so obvious that we wonder "How could they possibly fall for that?"...however people seem to fall for scams and dodgy investments all the time.

This will be a rather short post which will encourage you to ask one of the most important questions when trying to work out whether something is legitimate or not.  It is will deal with financial related scams and dodgy investments (but will not save you from the tech scams like the Microsoft one mentioned above).

Always ask..."why me" before investing in a 'great deal'

Financial scams are almost always pitched as a once in a lifetime opportunity that is being offered to you so that you can make a lot of money in a short time.  Always take a step back and ask yourself 'if this is such a great deal why am I being offered it?'

Very few people (and certainly not a stranger on the street, or someone that is part of a social club or church congregation) will give you something for free. Even if you know what they are getting out of need to ask yourself why you are being offered the deal of a lifetime or the great deal that not everyone has access to.

I have written about this before but if something seems to be too good to be true then it usually is.  But even if you get sucked in at this point and think that it may actually be a good deal then think about this...why is it being offered to you...Mr or Ms Ordinary Investor.  I work in the investment world and trust me when I say that these sort of 'super return' investments do not exist in our world...why?  Because we know how the game is played and fraudsters are not going to make money off us.

If something is guaranteed to make a huge or abnormal amount of money, especially in the short term then ask yourself why they are selling it to you and not mortgaging their house to invest in whatever they are trying to sell you.

Ignore them when they say that they are investing alongside you...and don't ask them why you've been chosen

The thing about investment scams and confidence scams

Thursday, 7 November 2013

FKP: Another year, another rights issue

When I write posts about stock investing I generally try and stay away from stock specific examples especially when I am writing about ways to make money because I don't want readers to invest in anything I am doing unless they really understand it.  That being said, one of the stocks that I do write about reasonably often is FKP because so much seems to be happening with it.

I have posted several times on the stock because

Now the stock is back again and I seem to have done everything right this time around (by absolute fluke).  The day after I sold my partial holding in FKP taking a large profit, they announced a large rights issue which once again offers to the potential to make quite a bit of money.  You can't buy into the rights issue unless you hold stock so please keep that in mind as I'm writing this post.

A recap on how rights issues can make you a lot of money

As I have posted about before, rights issues can make you a lot of money.  For the full details see the prior post that I wrote on this topic.  However basically it came down to
  • You can buy stock at a discount (in this case significant discount) to the prevailing share price
  • If you buy your rights (proportionate to your share holding) you are typically even if the share price trades at TERP (the theoretical ex-rights price - see how to calculate TERP here)
  • However if you apply for an over-allocation of shares that people don't take up then you can make instant profits by selling the shares at the market price and buying them at the discounted price
The biggest risks involved in this are
  1. The share price trades below the issue price straight away or by the time you get around to selling the stock
  2. You get scaled back significantly and the company just returns your cash but you've lost any interest you could have been making on this in your home loan or savings account

FKP traded really poorly last time after their rights issue...what is different this time?

After FKP did their rights issue last

Tuesday, 5 November 2013

October 2013 Expenditure Tracker

This is the third month of my reset expectations and the second month in which my smoothing technique has started to come into effect.  Although I am still spending far too much on my personal expenditures and not saving enough this month did represent an improvement.  I am starting to control and think about my small expenditures better - things that I don't normally think about but which add up.

ItemOct 2013Target (new)Over/(Under)Target (old)Over/(Under)
Share Investments+$1,094+$2,500-$1,406+$2,000-$906
Offset Acct.+$3,050+$2,400+$650+$3,500-$450
Personal expenditure+$4,305+$2,800+$1,505+$2,200+$2,105

As you can see above I performed quite well in my offset account target and my personal over-expenditure almost exactly offset my share under-investment.   The major movements in my 3 accounts are discussed below.  I will discuss my share investments first as it had the most moving parts

  • Share investments
    • Although you can't see it in the numbers above there was a fair amount of movement in my share investment account this month
      • I sold a portion of my holding in FKP because the price was getting a little ahead of itself and I wanted to take some of my gains
      • I kept this cash in my share trading account because (as I will discuss tomorrow) the company decided to do another rights issue almost as soon as I had sold out
    • I continued to invest in my employee share plan
    • I have been holding onto cash that I want to invest in the share market for quite a while however I am assessing my current portfolio before I go out and start looking for new ideas.  I am also uncomfortable at the moment with investing in index funds because the market has run so much
  • Home Loan Offset account
    • I actually didn't save as much as I wanted to from my wage this month due to several factors including
      • An over-expenditure in my personal expenditure account
      • I had run

Friday, 1 November 2013

October 2013 Net Worth: $414,000 (+5.0%)

Value% Change
Net worth$414,000+5.0%

My target this month was for a significant net worth increase from the previous month and I wanted to get over $400,000 (which I thought may be a bit of a stretch).  As you can see above I smashed through this because of a really strong share market performance which I will discuss below.  The volatility in my net worth in recent months has almost entirely been driven by my share market performance.

An interesting thing I noticed was that, because I have been concentrating on the small factors - i.e. controlling my expenditure and saving and investing where I can and ignoring to a large extent my overall portfolio (other than this update every month) the growth in my share portfolio and the impact this has on my net worth continues to surprise me.  It is now a significant portion of my net worth (whereas before much of my wealth was tied up in my investment property).

Below I have outlined some of the factors (both positive and negative) which have impacted my performance this month

Positive factors
  1. A continued positive performance in the stock market
    • After the US government stopped it's shut down the market responded quite positively and this impacted a lot of my investments (as I tend to have a risk on portfolio)
    • One of my shares, FKP had a very strong run and I partially sold out some of them, taking a nice profit along the way
      • Because I had different entry prices I wasn't burned by a CGT liability at all (which I include in my tracking).  Any further sales in this stock will incur capital gains tax however I have held a significant number of them for longer than 12 months so will be entitled to a discount
  2. Strong savings into my offset account
    • I did not manage to save a great deal from my wage this month into my offset account - my personal expenditure is still not under control (although is much better than in previous months) however some of my restricted cash bonus from last year vested which allowed me to save more than I had originally expected
Negative factors
  1. Low levels of cash
    • Although I have improved my cash position