Know your investment bias

I have posted about investment psychology before and particularly how you often need to follow your instincts rather than listen to the noise around you.  Conversely there are times when you need to dampen the impulse to act straight away and to think about actions before you take them.

We all have our own individual psychology and the way in which we approach everything.  This is a function of our experiences and our upbringing. Some people are risk takers and others are not, some people like particular things that others wouldn't touch with a 10 foot pole.

Why is this important?  Knowing what makes you tick is important in investing because you know where your biases lie.  Biases are not always a bad thing but it often makes us over-cautious or over-confident with respect to certain issues.  Knowing your own psychology allows you to make more thought through decisions.  When you make a decision you want to be comfortable with the fact that you are not, for some quirk of your own psyche, making a bad one.

Investment bias can cover a variety of situations

Investment bias can cover such a broad spectrum of different activities and ways about thinking about things that it is impossible to list and name all of them.  Here are a few personal examples of my investment biases.  Think about whether you have any that are similar or perhaps completely different:

• I inherently distrust internet / tech stocks
• Why?  I started to get interested in investing around the time of the tech boom in the late 1990s and early 2000s when we were looking at a 'paradigm shift' into a new era.  Things were not trading on current fundamentals but rather on where things were going to be.  I then saw the crash and everyone fall back to reality and from then on have been completely distrustful of anything internet or tech related
• How does this impact my investing? As a result of this bias I refuse to go near anything tech related.  This means that

Save money off your electricity bill: Always compare prices!

Before I moved out of home I never really thought about electricity bills and the fact that one supplier can charge significantly more for an electricity bill than another.  However they do.  The difference in prices can be stark!

This fundamentally does not make sense:  electricity is the very definition of a homogeneous product (i.e. one that is undifferentiated in any way from it's competing product).  There is no difference in quality and regardless of who your energy company is, it is going to come down the same power line (which incidentally, is owned by another company altogether) and power your house in exactly the same way.

This means that in the case of electricity you should ALWAYS go for the cheapest provider

When I did my post on how to save money on car insurance I mentioned that you need to weigh up the reputation of the supplier and whether they are likely to pay out when you claim and weigh this against the cost savings that you get.  You do not need to do this with an electricity provider.  The energy is going to come down the line regardless of who you are with!

This is the truly amazing thing...the product they are selling is exactly the same but some companies manage to charge more than other!

It is amazing how much money you can save

Given the type of product they are selling, I always assumed (and I think most people assume) that the prices companies charge would be pretty similar and that it probably wouldn't be worth switching for the sake of a few dollars.

However if you are with one of the big providers (e.g. AGL or Origin) the chances are that you can save a lot by moving to a

Advice from an entrepreneur: You have more hours in the day than you think

About a year ago I was in full swing setting up my business - and I got very close to launching...but then life got in the way.  My day job got very busy, I got a girlfriend and I was trying to get back into shape after the years of weight gain during investment banking.  This meant that my plans to start a business fell by the wayside.  I thought that if I had more time, or if I was confident enough to quit my job and do the business full time then I could make a proper go of it.

Recently though I was chatting to a close friend of mine who has a day job (he also used to be an investment banker but left for industry) and who had started a business which going very well.  He was also about to launch his second business and run the two side by side and eventually the plan was to quit his day job when the two businesses were throwing off enough cash.

It struck me that perhaps I was making excuses and that it was in fact possible

I grilled him for a while on how he was managing to do run a business, work a day job, keep fit and still have a life...and what he said to me was quite simple: You have more hours in the day than you think!

Now I'm one of those people who hates the simple clichés and feel good mantras that a lot of self help gurus spout...though I couldn't deny that my friend was doing exactly what I wanted to be doing so I decided to dig into it a bit deeper.

Our lives were not exactly the same and although there were some differences in the time we were able to spend building a business, it was not as significant as I first thought

• His new job requires similar hours to my new job (~11 hours a day)
• He also is trying to lose weight after years of investment banking weight gain so goes to the gym everyday
• He doesn't have a girlfriend
• He moved to a new city and so has less friend related time commitments

Of those, the only real difference was the girlfriend and the time spent with fiends.  When I thought about it though...I only meet my girlfriend once during the week, and I spend time with her and friends over the weekend.  It struck me therefore, that perhaps he may be onto something...

...so I drilled down a little further

When I got him to go into the specifics of how much time he spent on everything I realised that I actually have close to the same amount of free time as him...I just don't use it as well

• He finishes work at 6.30 and then goes to the gym until 8 (approx the same as me)
• From 8 until 11 or 12 he gets 3 - 4 hours work done on his business per night
• He sleeps 6 - 7 hours which is more than enough

This is broadly the same pattern of life that I have although the more I thought about it, the more I realised how much I waste those

THIS is why I'm finding it so hard to remain below budget

Regular readers of this blog would know that at the start of the year I set personal expenditure goals and savings goals and try and keep to those goals.  I also measure those goals month to month on my expenditure tracker.

It has been an interesting exercise however I always manage to far exceed what I plan to spend on personal expenditure and I never seem to be able to invest enough as a result.  I had thought about what my personal expenses were and I thought I was setting a reasonable limit.

However in last month's expenditure tracker I suddenly realised that I may not have thought about how I spend money in the right way at all.  All the financial books and budgeting books you read talk about first budgeting for the essentials and then everything else on top of that becomes a luxury and in this way you can save a significant amount of money.

Then generally define essentials quite narrowly (i.e. those things you absolutely need) and I think, for many of us - this is what causes the problem.

I am going to define 'essential' differently...

From now on...I'm going to define essential as 'those expenses which I need or want to spend in order to maintain my lifestyle'

Purists and those who are very good at living on tight budgets will tell you this is a recipe for disaster...that this way of thinking will get you further and further into debt.  However after setting my goals and constantly failing at them even after making some quite dramatic changes (e.g. I stopped eating lunch out almost entirely - I pack a lunch every day and I think quite a lot about big purchases) I realised that I was thinking about it wrong.

All of us have a lifestyle that we like to keep to.  For every person it is different - however we all have expenditures which we think are important or that we are unable to change for a particular reason.

• For example - I spend ~$100 a month on gym membership which is much higher than I could get it for...but I know what I'm like and if my gym was not right next to work I would never go and it would be an even bigger waste of money

If, like me, you have tried setting a budget and wonder why you keep busting through even through it may be because you have a whole heap of expenditures which you have to make every month which you don't even think about.

Go through the exercise...you may be surprised

I was genuinely surprised at how much I spend before I even get to things like entertainment, holidays and other truly discretionary items.  I did a quick calculation and each month I spend:

• $1,150 on living expenses including rent, a very cheap mobile plan, dry cleaning and groceries
• $140 on donations (which I refuse to cut back on)
• $430 on

Renewing your home insurance in 2013...don't forget the fire service levy

This post is for Victorians (in Australia) renewing their home insurance in 2013.  If you have already received your home insurance renewal you will have noticed something strange. Instead of the usual hikes in insurance which you then have to negotiate down your insurance may have been rather flat, or even dropped this year.

Before you go out and celebrate don't forget to adjust for the change in the fire service levy!

What is the change?

From 1 July 2013, the fire service levy (which you were already being charged) has changed from being part of your insurance cost to being part of your rates bill.

For once this is a political change that actually makes sense - it was recommended by the Victorian Bushfires Royal Commission and is fairer for a number of reasons including:

1. All property owners now have to contribute.  Previously if you didn't have insurance you didn't have to pay anything at all
2. People who insured their property for less used to pay less than people that fully insured their properties and so could game the system
3. It was previously at the insurers discretion how they recovered their costs so it was not always an equitable system
4. GST and stamp duty were charged 

That is some background to the why the system was changed but suffice to say that the change make sense and when I compare how much I used to pay and how much I pay now, the change was minimal so there is not that big a difference for me.

Why is it important to keep in mind when renewing your insurance?

If you do not take this into account you could get slugged with a large insurance premium increase and not even know it.  Typically we have some sort of idea what our insurance premium was last year and so if it does not change at all we are pretty happy about this.

However this is not the case this year.  Your insurance should be falling because you are no longer

July 2013 Expenditure Tracker

If you read my July 2013 Net Worth post you will have noticed that I was pleased as punch with how I performed.  However this result was driven almost entirely by existing asset performance.  My actual savings for the month were not as good as they should have been although compared with previous months it certainly wasn't as bad!

Item	July 2013	Target	Over/(Under)
Share Investments	+$1,268	+$2,000	-$732
Offset Acct.	+$1,966	+$3,500	-$1,534
Personal expenditure	+$3,951	+$2,200	+$1,751

The major movements in my 3 accounts are discussed below

• Share investments
• Although I had transferred money into my share market trading account as discussed in last month's expenditure tracker post, I didn't end up investing any in the stock market this month as the share market started to rally almost as soon as I had transferred the money in
• Unfortunately, while I was waiting for a dip this money could have been earning a return
• At the moment I have a dilemma about what to do with some of my shares
• There are some which are good assets which have performed very strongly and I feel like taking my profits
• There are others which have not performed to expectations and I don't know whether I still believe in the story and I certainly don't want to be holding on to dogs
• While I mull about what to do, I have a significant amount of 'lazy capital'...that is capital where I do not have a strong belief in the value of the investment
  
• Home loan offset account
• My home loan offset account was a bit of a non story this month
• I managed to save a bit of

July 2013 Net Worth: $385,000 (+4.6%)

	Value	% Change
Assets	$742,000	+2.4%
Liabilities	$357,000	+0.2%
Net worth	$385,000	+4.6%

After a very disappointing month in June 2013, which was the first month where I recorded a negative net worth performance, I rebounded strongly and recorded a very strong increase in my net worth in July 2013.  Not only was this a very strong performance in a relative sense however after looking through all the data, I discovered that, other than months where I had received a bonus this was my best monthly performance ever.

The share market was once again the primary contributor to my performance.  My share portfolio returned more than 10% over them month and even if I hadn't saved a single dollar from other sources my net worth would have still increased by 2.7% (excluding the very strong performance from my superannuation funds).  However this month was also good from a general saving point of view and I managed to save money into my home loan as well as into an emergency fund and forecast expenditure fund that I have set up.

I had targeted a net worth of $373,000 for July and so as you can see I really shot the lights out compared with what I was targeting.  Some of the factors which affected my performance included

Positive factors

1. As discussed above the share market returns were a strong driver of my results this month
• Of the ~$16,000 increase in my net worth this month, ~$12,000 of this came from