Average Net Worth Statistics by Age

The graph above from an ABS article titled Household Wealth Through the Lifecycle suggests that the average household in Australia has a net worth of about $200,000 when the "reference person" is aged 35. This suggests that if I am able to become a millionaire by 35 I will be far above average.

Household wealth I think is misleading. Currently there are six people living in my household. Add up all their income and you get a household income of $205,000. However, this is not because any one of us is rich. Rather, it is because so many people live under one roof. Thus household wealth is not something I pay much attention to. My brother, who lives with me, I doubt will let me share some of his wealth. When looking at my net worth then I must focus on my own assets that I control. This doesn't mean that family is not important.

In another ABS article titled Components of Household Wealth I am shocked to read about the degree to which the rich (defined as the top quintile in terms of household net worth) have separated themselves from everyone else here in Australia:

This article focuses on three groups of households: low wealth (lowest quintile), middle wealth (third quintile) and high wealth (highest quintile) households, and examines the net worth of each of these groups. In 2003–04, low wealth households held an average of $35,000 worth of assets, middle wealth households $379,000, and the households with the greatest wealth on average held $1.5 million of assets. In terms of liabilities, low wealth households on average held $11,000 worth of liabilities, middle wealth $84,000 and high wealth households $104,000.

Even though my household's income is high, I have no idea what the value of total assets is. I know for a fact that I control about $33,000 so far, made up of my car, managed funds, and super funds. The value of the house is about $400,000. My parents have super balances that total maybe $100,000. I know my brother is saving up for a house. He is using term deposits. I saves $1250 per month, which is more than I am able to save up. My grandma, who is on the aged pension, I don't think saves anything. Being so old, she probably thinks there's no point. All in all, this suggests that my household is not in the top quintile but rather in the third or maybe the fourth quintile. The ABS finds that household wealth makes up a large proportion of wealth among the middle class and upper class. It seems as if the poor are renters who don't save up, that the middle class are home buyers who also don't save up, and the upper class are buyers who do save up.

The statistics also suggest that richer people tend to have more debt (or liabilities) and that liabilities seem to be correlated with asset size. A huge 86 per cent of liabilities is for the home, suggesting that the primary divider of wealth in Australia comes from property. The greater the debt you take on, the more money you made during the boom. This is interesting because property will play very little role in my plan to become a millionaire by 35. My parents (my dad especially) is very interested in property investing.

Almost three-quarters (74%) of all of the liabilities of middle wealth households related to loans on their own home with a further 16% relating to loans on other properties. By comparison, high wealth households had a smaller proportion of their liabilities relating to their own home (35%) compared to middle wealth households, but more relating to other property (51%).

For the average household, super makes up about 10 per cent of assets. The average person has a peak super balance at age 55-64 of about $120,000.

Interestingly, it seems as if everyone has high credit card debt around $10,000. Poor people tend to take out loans to buy cars. Also, rich households are more able to borrow to invest.

High wealth households had a greater proportion of their liabilities relating to investment loans (8%) than did middle wealth households (1%). This is consistent with high wealth households being in a better position to borrow money to invest.

Myanmar Cyclone and Chinese Earthquake

Last month I calculated my net worth to be $32,746. Right now with the improvement in global stock markets that would probably be around $33,000 or $34,000 if I'm lucky. I have given about $350 to charity so far this year.

Giving to charity for me is a difficult thing and I have mixed feelings about it. I would love to be able to give more of both my time and money but I do realize that at this stage in my life I need to save up.

The charity I would most like to give to is the World Food Programme since I consider starvation to be the worst pain that could be inflicted on a human. However, WPF is a non-Australian organization and as a result there is complexity of whether my donation is tax deductable. To get around this, I donate instead to Unicef Australia. I hate to be superficial but I really don't like Unicef Australia's website. In my opinion, the humanitarian organizations that operate in Australia that have nice-looking websites are Care Australia, Oxfam Australia, and World Vision Australia. Of all these Australian humanitarian organizations only World Vision offers child sponsorship. Australians collectively sponsor 400,000 children. What I like about child sponsorship is that donors have the ability to one day visit their sponsor child, which allows them to see first-hand whether the child is treated well by the aid organization.

Hopefully in the future I might get an opportunity to actually volunteer my time to worthy causes. This may not be a waste of time since I will be able to put such an experience on my resume.

Using Index Funds to Hedge Against Rising Petrol Prices

The rising price of petrol is making news here in Australia where petrol is reaching unprecedented highs of $1.60 per liter. I drive to work and to the train station to go to university. I also drive my grandma around sometimes. I fill up approximately every fortnight. I pay approximately $70 each time I fill up. Since my parents fully subsidize my food and accommodation costs, just about all my spare money goes to petrol. It is by far my biggest expense. Crude oil futures on the New York Mercantile Exchange is about $130 per barrel now.

If I lived in the United States it would be easy for me to buy oil ETFs (AMEX:USO) that would go up in value as oil goes up in value. It'd be as if I'm buying barrels of oil on the stock exchange. But alas I live in Australia so access to American investments are complex and costly. Investing in American crude oil is not a perfect hedge against rising petrol prices in Australia because crude oil and refined petrol are different products. Exchange rates between the Australian dollar and US dollar would also add another layer of complexity.

How then can I hedge against the rising costs of petrol? One of my friends jokingly told me to buy a bike. With the distances I have to travel this is just not practical. Plus I'm scared of loud trucks. Hopefully with higher petrol prices these loud trucks will go out of business.

Another idea is to invest in the resources, energy, or materials sector. One of the best performing and one of the most popular managed funds in Australia today is the Colonial First State Global Resources Fund. In the past year it has given investors a return of 27 per cent. In the past five years the average annual return is 30 per cent. Looking at this fund's top ten holdings, I notice that there are many familiar Australian faces like Rio Tinto, BHP Billiton, Xstrata, and Lihir Gold. There are also some Canadian companies in there like the Potash Corporation and Nexen. Instead of investing in the high-cost actively managed CFS Global Resources Fund, why not invest in an index fund that tracks the top Australian companies? This may work since Australia's top companies are heavily biased towards the resources and financial sectors. The financial sector is the largest sector in the MSCI Australia Index, making up approximately 40 per cent of the index. However, together the energy and materials sector make up 35 per cent of the index, which is quite a lot. Simply by investing in, say, the Vanguard Index Australian Shares Fund or the SPDR ASX200 ETF, you can probably get good exposure to Australian companies that deal with commodities.

Why just look at Australia? The MSCI Emerging Markets Index is very heavy with commodity companies, many of which are state-owned. The energy sector makes up 17.04 per cent of the MSCI EM Index while the materials sector makes up 12.99 per cent of the index. The energy sector and materials sector make up 11.39 per cent and 8 per cent of the MSCI World Index respectively, which is relatively low. This suggests that if you want exposure to resources companies, go to the emerging countries and Australia.

It is not that simple. Just because you invest in companies that deal with commodities, it doesn't mean you've hedged yourself against rising commodity prices. The cost of mining and transport might be higher, which may affect profitability. Even though commodity prices go up you may simply be investing in a bad company with bad managers and bad workers. Furthermore, many of these resource companies may specialize in gold, silver, and materials like iron ore. These may have little if not anything to do with oil or petroleum.

Investing in Emerging Markets Through Sunsuper

For a long time I've been looking for a way to invest in emerging markets. Problems I usually encounter are high fees and savings plans that force you to invest, say, $100 per month. I was thinking of buying an iShares MSCI Emerging Markets ETF from the ASX but recently there has been an announcement that ETFs will be purged on the ASX. All this has left me scared to invest in ETFs.

While looking through Sunsuper's investment options I noticed that they do provide a fund that allows you to invest in emerging markets. It is the AMP Capital Multi-Manager Emerging Markets. Its MER of 0.9 per cent is fairly high compared to the other funds offered by Sunsuper, but it's quite cheap for an emerging markets fund. Another issue is that it's actively managed. Some say that active management is a plus for emerging markets.

I am thinking of putting 30 per cent of my super into emerging markets. The rest will go into the SSgA Global Index Plus, which is an enhanced index fund. There is a hedged version and an unhedged version. The AMP Emerging Markets fund is unhedged, I think. Vanguard recommends I invest half in unhedged and half in hedged if I want to get rid of currency risk. This means I'll have to invest 50% SSgA Global Index Plus Hedged, 20% SSgA Global Index Plus Unhedged, and 30% AMP Multi-Manager Emerging Markets.

I won't be modifying my super till I get a new job, so all this is just research at the moment.

The reason why I want to invest in emerging market is because I believe that if you do not have the ability to pick stocks you should simply diversify across all stocks of all companies. Why then would you not invest in developing countries since they make up 40 per cent of the world economy?

Earning Money Through Online Surveys

There are many online survey scams out there on the Internet, so be very wary!

There is one company I have noticed that seems legitimate, and it is Pure Profile. Basically you sign up for this company and you don't have to provide any banking details. Then companies send you surveys every now and then and then when your balance is over $25 you can have the money put into your bank account.

I have just redeemed my $25 and I am waiting for the money to be put into my bank account right now.

I am told that I have to wait at least 2 weeks. I haven't received the money yet. The bank account I provided is almost empty so if this turns out to be a scam then I won't waste much.

I love doing online surveys. This is because I suspect I have a need to tell other people about myself, hence the existence of this blog.

One thing about doing online surveys I believe is that you shouldn't lie. If companies find out that you're a liar then maybe they might stop givng you surveys to do. Some people might lie if they think that by doing so they are more likely to get more surveys. For example, marketers might be more interested in high-income people rather than low-income people.

I've searched the web and found a site called Survey Police that claims to rank online survey firms so that you can figure out which ones are scams or not. Hopefully Survey Police is not a scam itself! The Survey Police Rankings give you the best survey sites.

Don't quit your day job because doing online surveys I doubt will make you much money. It took me about 10 months to make that $25. However, doing online surveys is not much of an inconvenience. For low income people it may be worth the time.

Update 28/5: I have just checked my bank account and indeed the money has come in! It seems as if Pure Profile is not a scam.

Is Status Seeking Rational?

A Knowledge at Wharton article titled Conspicuous Consumption and Race: Who Spends More on What claims that poor people in poor areas spend more on status symbols than poor people in rich areas. For example, poor people in Alabama spend more on highly visible status symbols than poor people in Massachusetts. The reason why is because poor people in Alamaba who buy status symbols can stand out because everyone else around them is poor. However, in Massachusetts, where most people are rich, a poor person buying status symbols will not stand out at all.

The article claims that it is not right to criticize those who buy visible status symbols because they may be using it for networking and job hunting. Most people thinking wearing nice clothes to a job interview is a good idea. However, most jobs, maybe 70 per cent, are found through networking. When networking, you don't go to formal job interviews. Rather, you go to dinner with your networks, play golf, etc. The dinner, the golf game, etc are the interviews. If it's okay to wear a suit to an interview because first impressions matter, then why is it not okay to wear certain clothes while networking or to drive a certain type of car? If first impressions matter, and you knew that cars do make an impression on people, why wouldn't you drive a nicer car?

If this networking hypothesis of status symbols is correct, I suspect that using status symbols to further your career is a high-risk investment. Status symbols almost by definition are expensive. You are gambling a lot of money on something with the hope that this expensive status symbol will impress a potential employer. The status symbol is just one thing you are trying to use to impress the employer. You still have to show basics like communication skills, computer skills, and so forth. Variations in what the employer will want and so on mean that using status symbols for leverage in the job market is high-risk. Some people claim that it's more suitable for rich people who can afford status symbols while poor people who buy status symbols for job market success may lose their whole life earnings and thereby may starve to death.

This I believe is why rich people tend to get university education. There are two schools of thought on university education. Some believe you actually learn things in university that make you more productive. Most, however, believe university is simply a status symbol. If it isn't, why is a Harvard degree so valuable? High-status degrees are those that are costly, either in money terms or difficulty of subject matter. By getting a high-cost degree you signal to others that you have the ability to withstand great pain. This is the same as status symbols like luxury cars. A luxury car is high cost, and you have to make a lot of money to get one. That is, you have to work hard to get a luxury car.

Many poor people believe getting a university degree is the only way for them to escape their position in life. However, if the university degree is merely a status symbol, then getting a university degree is akin to them taking out massive loans to buy a Mercedes with the hope that they can impress potential employers. Furthermore, in Australia the Government, believing in the goodness of university degrees, subsidizes fees for local students. This is akin to the Government lowering the price on luxury cars. What this would do is make the luxury car no longer a status symbol since everyone has it. What I predict we will see in the future then is more and more people wasting time and money in university. The big winners from this will be the education providers.

I believe that status seeking is unavoidable if you want to earn money. Status seeking is an investment. And just as investment in the share market can be risky or safe depending on how you invest, so too investment in in status symbols in the job or labor market can be risky or safe depending on how you invest. A safe, low-cost status symbol may include such things as combing your hair nicely or wearing nice clothes. Then there are high-risk status symbols like buying a Lexus or a yacht. My solution is to status seek according to your wealth and stop yourself from going any further. Once you have enough wealth, stop status seeking.

The Wharton article claims that older people who have retired buy fewer status symbols than younger people, likely because older people are not looking for jobs and have less need to make good first impressions.

I believe status seeking not only applies to goods like luxury cars, university degrees, or business attire, but also to behavior and speech. Some ways of speaking are used to convey status. When you are at a job interview and you tell the interviewer that you are good (e.g. you say, "I have a degree from Harvard.") then you are status seeking. A university degree is not as visible as a car. You can hang it up on a wall, but a more effective way to advertise is to simply tell other people that you have a Harvard degree. The same can be said about accents. In Britain the received pronunciation also known as Queens English is associated with Royalty. Some people then try to affect that accent in order to sound good. Other status symbols may include jobs. Some jobs carry more prestige than others because of perceived earning potential. Saying that you are a CEO, doctor, or lawyer, is likely to impress people regardless of whether you are capable of saving money effectively. These impressions are colored mainly by unintentional (or maybe intentional) marketing from television from shows that glamorize these prestige occupations, such as The Practice or House.

The Wharton article claims that mutual funds tend not to be status symbols because they usually are invisible. If I put money into my mutual fund, I do so by transferring money from my bank account to the fund management organization. Nobody sees anything. As a result, I get no thrill from letting others know that I invest. However, I do have a net worth badge that I display on the bottom of this blog. However, I say to myself that I use this to track whether I am reaching my goals or not. I also tell other people that I have a managed fund, which may also be form of status seeking. I have tried not to do these things, that is I try not to tell others that I have a managed fund or even a university degree, and the reason why is because I am now aware of these dynamics and because I want people not to be envious of me or to hate me. Merely because of prejudice, different status symbols provoke more envy and hatred than others. For example, university degrees tend to be admired. Luxury cars tend to be envied.

In the mutual fund world, just about everyone has a mutual fund. In America, 401(k) plans mean that everyone has a mutual fund they use to invest for their retirement. That same applies in Australia. Everyone has a compulsory superannuation fund they use to fund retirement. Thus a managed fund is not really that impressive. This is why many rich people like to invest in hedge funds. The hedge fund is a misnomer since most hedge funds don't hedge their bets like they used to. Hedge funds are high-risk, unregulated investments not available to the public. You must be an experience investor (SEC defines an experienced investor as someone with net worth over $1 million) to invest in hedge funds. Because of this exclusivity and high cost, hedge funds have become status symbols. Good hedge funds can make investors lots of money but bad ones can leave you bankrupt. In the same way a brand new Mercedes loses many thousands of dollars in depreciation per year, investing in a hedge fund and losing money shows others that you are so rich you can waste it on depreciating assets and not even care.

I lump status seekers into two types: investors, those who use status symbols in a conscious and calculated way to to get a job; and compensators, those who use status symbols to compensate for feeling of inadequacy. Of course, people may look for jobs because of feelings of inadequacy and low self-esteem, so these two types may simply be one universal type.

I believe status seeking is deeply entrench in society and is ingrained in human behavior. I believe I too am tempted by the desire to seek status in the same way that humans are tempted by the desire to have sex. In fact, status seeking and sex may be related since status seeking can be used to facilitate reproduction.

However, I do believe that even if instincts drive us to do something, we humans have a propensity to regret what our instincts tell us to do, and because of this it is prudent for a conscious, aware individual to suppress his instincts.

For Christians, the Bible states that coveting another person's belongings is sinful. Furthermore, when we dress we must dress modestly and not emphasize outer appearances. It is what is inside us that counts.

The Stock Market Strikes Back

Since hitting lows of about 5200 earlier this year, the Australia stock market seems to have rebounded. Today the All Ords is nudging towards 6000. This result vindicates Dollar Cost Averagers like me who continued to invest about $500 per fortnight every Thursday payday no matter how pessimistic the pundits were or how sharp the drops were. Some said things like, "With all the volatility, now is a bad time to invest in the stock market." These people would have missed out on an opportunity to profit.

While the blue line above shows the All Ords for the last three months, the red line shows the S&P500 (American stock market) for the past 3 months. It shows that the American market looks like it's heading for a recovery as well.

There are still uncertainties ahead. Nobody knows what long-term effect the sub-prime property crisis in America will have in the long-run. House prices are still going down in America. The IMF claims the Australian property market is overvalued by 25 per cent and that the risk of a severe correction (or crash) is high. Some people take out loans against their homes to buy shares. Most however take out loans against their property to buy even more property. This is what many Americans did before it triggered a house price crash.

The Best Things in Life Are Free

I subscribe to podcasts from EconTalk and just a moment ago I received an e-mail reminding me of the latest podcast. I haven't listened to it yet. What I do is I download the audio file into a folder on my desktop. Then when I have listened to all the audio files on my portable audio player I delete everything on the disk and refill it with new audio files on my desktop.

Even though I haven't listened to this podcast yet, I know what it's about because I have read about it. It is called Chris Anderson on Free. Below is a summary from EconTalk:

Chris Anderson talks with EconTalk host Russ Roberts about his next book project based on the idea that many delightful things in the world are increasingly free--internet-based email with infinite storage, on-line encyclopedias and even podcasts, to name just a few. Why is this trend happening? Is it restricted to the internet? Is there really any such thing as a free lunch? Is free a penny cheaper than a penny or a lot cheaper than that? The conversation also covers whether economics has anything to say about free.

This idea of the proliferation of free things is very relevant to me since I like to use free things on the Internet. For example, Google provides many services such as word processor, e-mail, notepad, videos, and so on all free. I also listen to an endless supply of audio podcasts and they are all free. I ignore of course the cost of Internet connection.

This idea of free things is not just limited to the Internet but also the television. I am not talking about cable TV but free-to-air television, which contains many great shows that are all free.

What makes these things free yet profitable for the provider is the advertising. For the individual who can wade through all the free stuff without buying what is being advertised, then life is good. He is essentially free riding off the weakness (or lack of self control) of others.

I am a big free rider. For example, when I am at university and I feel the need to go to the toilet, I usually don't go to the university's toilets. This is because these toilets in the Department of Mathematics and Statistics are used heavily by students and the staff here don't have any incentive to make the place nice. Therefore, the toilets at the Math building smell bad. What I do instead is travel via tram to McDonald's and use the toilets there. At McDonald's the quality of the toilets directly affects how many customers come in or not. They have a profit motive, an incentive to make their toilets clean. On the way to the train station home I often stop off at these toilets to urinate but I don't actually buy anything from McDonald's. This allows me to free ride of the good quality of the toilets without actually paying for it. I can do this because statistically I have more strength than others to resist the temptation to buy McDonald's when I am in close proximity. Thus in an almost Darwinian way there is a transfer of wealth from the weak willed to the strong willed. I realize I sound arrogant here when I call myself strong willed, but I admit to others and myself that I am tempted my advertisers. I am tempted to buy things. I believe that acceptance of weakness is an important first step before the next essential step of self-restraint.

Another area where suppliers of good may take advantage of the weakness of others is in the market for credit cards. The credit card I use is the Coles Group Source Credit Card. This credit card is free. There is nothing to pay. There are no annual fees. If you pay your balance before 2 months, you don't pay any interest. I am sure Coles makes money by tempting credit card holders with promises of cheaper petrol if they buy from Coles stores. I try not to fall for this. I have their credit card but I have never ever purchased anything from Coles. Unfortunately, I got what I paid for. This credit card is very annoying. It is starting to charge me interest of about 50 cents even when I pay off everything every month. I also had a lot of trouble activating it and I still cannot get the Internet account working.

Good free things can also exist when the supplier does not have a money maximizing motive. For example, Wikipedia is free, yet nobody makes money on Wikipedia. Those who write on Wikipedia do so not for money but for some other mysterious reason. I write on this blog not for money either. Clearly I don't have any advertising on this website other than ads for charities. This means that for those who want free stuff not only can you exploit from the weakness of others in media in which there is advertising but you can also exploit the desire of others to simply give stuff away. Of course, the problem with stuff produced not for profit is that the incentive to produce a good quality product are not as strong. For example, while I write this blog, I don't really have much of a money incentive to write good things. It makes no difference to my bottom line. Nevertheless, I still try hard to write good things because I do want to give others good information. Whether this mysterious intrinsic motivation to do something because of love is as strong as the profit motive is something I don't know.

Grow My Own Food?

For some people, growing their own food is not worth it. This is because producing, say, 10 kg of food for them may require 20 hours of labor. If they had instead applied that 20 hours of labor in something like accounting, engineering, or office administration, they may make enough money to buy 100 kg of food.

However, some people are not able to increase their hours easily. For example, last week at work I asked the supervisor if there was any extra work the next week. She said no. Thus the next week I stay home and do nothing. I may as well use this time to do something useful, such as grow my own potatoes. At the moment I don't need to do this because my parents fully subsidize my food costs. However, if I am at home and I am bored and I wanted exercise, why not use this time and effort to grow my own potatoes and then try to sell these potatoes to a local store?

The reason why I am interested in growing my own potatoes is because I hear that they are easy to grow. Rice and wheat require lots of labor. This is an area in which I am not an expert, so don't quote me on what I have just said. Of course, I won't just eat potatoes all my life. Potatoes will be my core food. I will buy other foods for the sake of diversification across different nutrients and also because of taste and variety.

Using Salary Sacrifice and Super Contribution to Boost Net Worth

Right now I am in university (Melbourne University, if anyone is interested), which means I don't have enough time to work. As a result, I earn less than $20,000 per year. Looking at the individual income tax rates from the ATO, this means I am taxed at 15 per cent for every dollar above $6,000. I will only be charged more than 15 per cent if I earn more than $30,000 per year.

Suppose I finish university and work longer hours or get a high paying job. As a result I earn more than $30,000 and I will be taxed at 30 per cent for every dollar over $30,000. How will I fix this? Simply, I will salary sacrifice into my super fund. A Colonial First State article titled Boost Your Retirement Fund - Salary Sacrifice claims that salary sacrifice is especially good for those in the top tax bracket, i.e. those earning over $150,000 who have to pay 45 per cent on every dollar over $150,000. Taxation in Australia rises steeply as income rises. Personally I am not bothered by this, and when elections come around I always vote for the party that advocates the highest taxes. This is because, even if I earn a high salary, I can simply salary sacrifice and pay only 15 per cent income tax. The Colonial First State article claims that money going into super is taxed at only 15 per cent. This means that if you earn less than $30,000 per year, there is no point salary sacrificing into super, which is why I don't do it now.

That's not all. Once you salary sacrifice into super, you are eligible for the Government's Super co-contribution. This co-contribution is pretty much a government subsidy for saving. The maximum the Government will give you is $1,500 and this can only be achieved if you earn less than $28,980 per year. This means that you must salary sacrifice to the point where your taxable income is $28,980. Then you will not only get the maximum co-contribution ($1,500 per year) but you will minimize your income tax payments since the most you will pay is 15 per cent. Getting $1,500 from the Government may not sound like much for some, but I am 24 now and super will be paid out to me when I'm 65. Assuming my super fund grows on average 8 per cent per year, then $1,500 invested when I'm 24 becomes $35,193 by the time I'm 65. That seems like a lot!

There's another good reason why I should salary sacrifice to the point where I earn a taxable income of only $28,980. That reason is HECS. If I keep my taxable income low I won't have to repay my HECS debt. According to David Potts in Best to Wait Before HECS, I only have to pay back HECS (student loans) if I earn over $41,595 per year. Maybe people say that debt is bad and that I should repay this student debt as fast as possible. Not necessarily. Credit card debt is bad because credit cards usually charge maybe 15 per cent interest rates. However, HECS is a zero-interest loan from the Australian Government. Your HECS debt is only indexed to the CPI, which means that your debt does rise in nominal terms from not in real terms. In theory the best thing to do is to keep your money in an investment that beats inflation--shares or maybe property--and then pay back the debt just before you die. Potts says the following:

Because there's no interest accumulating, usually the longer you hold a HECS debt without having to pay any of it off, the better.

You might even hit the jackpot of never paying it off. This could be for any number of reasons ranging from the positive (an extended stay overseas or salary sacrificing into super) to the negative (you bomb out of uni and never make enough to reach the threshold).

I don't know whether it is necessary that you pay back this loan before you die. Perhaps you never have to pay this loan back if your income never goes above the compulsory repayment threshold. If that is the case then I can just let this debt accumulate till the day I die and in effect I will have received free university education. Even if it was free the education did cost me in terms of time wasted as well as cost of textbooks, petrol, and train tickets.

Update 15/5/2008:

The Australian Labor Party has announced massive tax cuts to help low income people. The Liberals call this "the politics of class envy" but I am happy since at the moment I am a low income person and even if I am a high-income person I will become a low-income person through salary sacrifice.

Thanks to these ALP tax cuts I will no longer be forced to live off $30,000 per year since the 30 per cent threshold will increase from July this year to $34,001, in July next year to $35,001, and in July 2010 to $37,001.

Some people claim that if I continue to salary sacrifice to minimize tax and to minimize HECS repayments, assuming that tax rates and HECS compulsory repayment thresholds are not adjusted for inflation, then I will have my real wage eroded in real terms over the long run. This not true because the $30,000 or so dollars of take-home pay I will get will mostly be invested in a mutual fund that I assume will rise greater than the rate of inflation.

Update 16/5/2008:

I have heard that reportable fringe benefits (i.e. amounts salary sacrificed) are included in HECS repayment threshold calculations. Therefore, this whole plan of salary sacrificing to avoid HECS may not work.

Another person, however, told me that salary sacrifice is not included in reportable fringe benefits. However, he claimed all this could change with the new Budget.

I'll probably need to talk to an expert. I hate it how tax rules are so arbitrary and complex.

Indiana Jones and the Temple of Doom (1984)

It's been a long time coming, but Indiana Jones 4, better known as Indiana Jones and the Kingdom of the Crystal Skull will come out very soon. As a result, the TVs have been playing the original Indiana Jones movies.

Today I watched Indiana Jones and the Temple of Doom. Many fans say this is the poorest of the three Indiana movies. That may be, but in my opinion Temple of Doom is a great movie.

Temple of Doom is a prequel to Raiders of the Lost Ark. Indiana escaped from Shanghai and arrives in an Indian village where he discovers an underground cult that has stolen sacred rocks. This underground cult engages in ritual torture and child slavery. The movie is definitely violent while also being a family movie. I remember watching this movie as a child and being extremely scared with the infamous heart ripping scene.

Another problem I had with this movie is the annoying woman who is a dumb blonde stereotype.

Equity Linked Compensation and the Efficacy of Ethical Investments

There are many ethical investments on the market today. Here in Australia, Hesta has a socially responsible Eco Pool Fund. This fund looks at different sectors and invests in the best in that sector. The best is defined as the company that best adheres to the ethical standards of the fund manager. The benefits of Hesta's Eco Pool is that fees are fairly low, probably due to economies of scale. The main problem with the Eco Pool is that Hesta won't give us any idea of what companies they are investing in, which means that investors will have to simply guess or have faith that the fund manager is investing in ethical companies.

Two very prominent ethical funds management companies in Australia are Hunter Hall Investment Management and Australian Ethical Investments. Hunter Hall has a value investing fund that has produced spectacular performance. Their newest product is a Global Deep Green Trust that doesn't just avoid unethical companies but also seeks out ethical companies. Australian Ethical is worthy of mention because they provide a list of all the companies in which they invest.

Some people criticize ethical funds, saying they make no difference. One argument is that companies only issue stocks during the IPO (initial public offering). The company will definitely care about the demand for stock at this stage. However, once the IPO is finished, the stocks are then traded on the secondary market. The company has little or no say in what happens in this secondary market. The critics of ethical investment argue that whether or not stock prices are high or low is irrelevant because the company has already received all the capital it needed from the IPO.

I would like to now give a reason why ethical investing may work very well. The reason is because the board of directors nowadays are increasingly using equity linked compensation. That is, the CEO is paid in stocks of the company. The better the CEO performs, the higher the stock price, and the higher his or her pay. This then provides an incentive for CEOs to do a good job. If they don't, stock prices will fall and the CEO's net worth will drop.

Since ethical funds have the potential to affect equity prices by changing demand and supply for stock depending on how ethical the company is, CEOs then have a powerful incentive to clean up the companies they lead.

Tom Cruise Release His Own Website

Whenever I do a search for Tom Cruise on the search engine I only ever read sites that criticize the star.

I read on the news today that Tom now has his own site. The Official Tom Cruise Website contains lots of moving images. Unfortunately, the sound on my computer is not working at the moment, so all the videos that played downloaded for nothing. Another issue I have with the website is that it seems to freeze up often. I have to wait usually for a minute or two before the site unfreezes. I suspect it does this because of all the videos it is loading up.

The website also contains far too many close-up poses of the star, especially ones taken when he has too much facial hair. This is especially evident in the gallery section where I was hoping to see pictures of his wife Katie Holmes and child Suri.

Tom Cruise has received plenty of criticism for trying to spread Scientology, his religion, to others.

I have read about Scientology and in spite of what Scientology the organization is alleged to have done, Scientology the religion itself seems very helpful. For example, Scientology's Study Technology, a way of learning, seems to have the potential to help many students struggling at school.

The next big movie Tom is making, one I am looking forward to seeing, is Valkyrie, a World War II movie.

Am I a Tom Cruise fan? I don't consider myself a celebrity worshipper. However, Tom cruise is an interesting character because as a child he was labeled dyslectic and was told he could not learn or even memorize, which is an essential skills for actors. With everyone holding him back he still managed to become one of the highest paid actors today.

Babies Found in Freezer

It seems as if a lot of psychotic things are happening in Austria and Germany. Children are being locked in dungeons, men are meeting each other for cannibalism, and now I have just read about some children who went into the freezer and found some frozen babies inside.

It seems as if nothing crazy happens in Australia. Perhaps it's because the population is not large enough.

The Most Hated Family in America

I have just watched The Most Hated Family in America on TV. It was a very interesting documentary about the Westboro Baptist Church, a group of Christians who believe that God hates homosexuals and that God hates America and wants to kill American soldiers in Iraq because America supports homosexuals. These people by far the strangest people I have ever seen, and their message is very provocative, much more so than religions like Scientology. The ADL describes Westboro Baptist Church as a racist and anti-Semite cult.

What was striking is just how nice and friendly many of the girls and children seem. At the end when the teenage girl tells us how she tries to spread the Word of God but only received hatred and abuse from others, she seemed to be sad. The guy doing the documentary, Louis Theroux, was trying to suggest to her that spreading hateful messages to others makes others hateful back to them and that it is her fault for being hateful to others. But in a way I admire these people because they truly are being true to themselves rather than just conforming to what other people expect. When Louis keeps asking the women whether they want to get married, have boyfriends, date, and so on, he is trying to persuade them to conform to the culture of mainstream society.

Jeepers Creepers II (2003)

I watched Jeepers Creepers II on TV last night. The film is about a group of students on a bus heading home from a sports game. While heading home, the tire on their bus blows up. They realize the tire didn't blow up for no reason, that someone sabotaged the bus. The monster in this movie then attacks them.

I've watched the first Jeepers Creepers. I think the sequel is better than the original. Some moments in the sequel are rather scary. The monster, a cross between Freddy Kreuger and Alien, is innovative.

Some of the characters are very annoying. Most of the students are homophobic. The girl who keeps telling everyone that the monster will eventually kill them all is annoying. The bus driver is also annoying. The reason why these two characters are annoying is because I just can't imagine anyone acting the way they acted.

One of the good points of this movie is that you don't know who the lead character is and it's difficult to predict who will die next.

To conclude, Jeepers Creepers II is a fairly good movie. It's a reasonable and clean horror movie for the whole family.

Gold Prices Going Down

Gold looks like it's going down. When Ron Paul was starting to get popular, gold prices went up considerably. Many were saying gold would reach US$1000 per ounce. Some were saying it would go up to $1500 per ounce.

Most of the gold nuts were those with a conspiracy theory background. They believed that governments were corrupt and couldn't control inflation and thus leaving your money in fiat currency was dangerous. The answer would be gold.

Gold is used as a store of value because of its properties. It is malleable, it has consistency of quality, it is scarce, and so on. But otherwise, gold, unlike oil, doesn't really have any useful purposes. Dentists can use gold for fillings, but there are substitutes.

Many people say gold is a disaster hedge. I would imagine if there is a collapse of civilization we would be trading in gold or at least the consensus would be that gold would be the new standard currency. But I'm not sure. In the event of a disaster, e.g. a collapse of the global financial system, wouldn't it be better to have a tonne of potatoes or rice rather than a tonne of gold? You can't eat gold. Of course, potatoes or rice may perish after a few years while gold lasts forever. Plus if gold becomes the new post-apocalyptic currency you can purchase rice from other survivalists with your gold.

One of the major problems with gold is that gold does not do anything. If you invest in a company by buying its stock, you can expect this company to do something useful--e.g. Coca Cola will sell Coke to people--and make profits. These profits are distributed to shareholders like you and me through dividends. However, gold doesn't do anything. It is a useless, pointless piece of metal. As such it has no future stream of income and therefore has no present value. You buy it only for speculative reasons, that is, you buy it because you hope the price will go up.

Some argue that gold is not going up because it is more valuable but because gold is priced in US dollars and the US dollar is suffering from inflation at the moment. The ultimate measure of gold then is not the nominal measure whereby we measure the value of gold in terms of US dollars but measure the value of gold in terms of its purchasing power, that is how much useful goods we can buy with that gold.

I suspect that many of those who try to encourage others to buy gold are those who want to engage in a practice called pump and dump. They hold heaps of gold ETFs and then go on Internet boards saying things like, "It's the end of the world! Buy gold!" Then all the scared people buy gold, prices go up, and then once these gold ETF holders see the value of their gold rise they dump it and make a quick profit. Making a profit off those inclined towards conspiracy theory is nothing new. David Icke has been doing it for years and he makes a lot of money.

Should I Use Leverage?

At the moment I put about $1000 per month into a diversified global stock mutual fund. In 2009 I hope to be able to increase my savings from $1000 per month to $4600 per month. However, what if I can't get a higher paying job by next year? What if I am not good enough?

There may be a way I can still be a millionaire by 35 and that is through gearing, or borrowing money to invest.

I've heard horror stories about margin loans, so I am a little hesitant. However, I am drawn to the idea because of the potential gains.

By the end of this year I should have a net worth of $40,000 and if I assume that I am not able to increase my savings and still save $1000 per month, I can still become a millionaire by 35 assuming stocks grow at 8 per cent a year and I leverage with gearing level (or LVR) of 60 per cent. I calculated this using BT Financial Group's Margin Lending Calculator.

One way I can avoid the messiness of margin loans and escape the threat of margin calls is to invest in an internally geared mutual fund. The website 2020 Direct Invest has a list of geared mutual funds. Most seem to be offered by Colonial First State, which is a subsidiary of the Commonwealth Bank.

Suppose I am not able to invest $2,300 per fortnight next year, which is my plan. What I can do then to be a millionaire by 35 is to salary sacrifice into super to minimize taxes and get co-contribution from the government and also to put a certain amount into CFS geared funds (investing in both Australian and non-Australian companies). The degree to which I will gear depends entirely on how much I need to gear to become a millionaire by 35. I understand that if I invest $2,300 per fortnight and gear completely, I can have not $1 million by 35 but about $1.6 million. However, gearing this much does make me nervous somewhat, so basically I will aim to get $1 million by 35 and not be too greedy since by doing so I expose myself to more risk.

This concept is expressed in the saying, "If you reach for the stars, you'll fall harder." In the career world it is the reason why most parents try to get their children to become accountants or engineers when they grow up as oppose to movie stars. An accountant or engineer will get paid an average salary of maybe $60,000 a year, which is nothing compared to Tom Cruise's $20 million per movie, but how likely is one person going to be the next Tom Cruise compared to getting a job as an accountant or engineer? As John Bogle said, "The greatest enemy of a good plan is the dream of a perfect one."

I have a lot to do next year. I will switch from Hesta to Sunsuper to exploit lower fees. I will also think about gearing. However, I will take baby steps by maybe putting 5 per cent of my portfolio into a geared fund. When I feel comfortable with the taxes, fees, and so on, I may start to divert more of my savings into the geared fund. Virtually all the geared funds in Australia seem to be actively managed. This approach of having core low-cost investments in index funds and satellite investments in riskier investments is quite common and is known as the core-satellite approach to investment.

The core satellite investment strategy proves that indexing and active funds can comfortably sit side by side in a portfolio. Michael Houlihan, Vanguard's Retail Products and Technical Services Manager said: "Many of the large Australian superannuation funds currently use a 'core-satellite' investment strategy and we are seeing an increasing number of advisers applying this strategy to their client portfolios. The main benefit of this approach is that advisers can efficiently implement their asset allocation targets using low-cost index funds and alter the active fund exposure to achieve a desired risk/return profile."

Source: http://www.vanguard.com.au/.../indexdl_2290.aspx

One of the coolest financial innovations I have seen in America is the leveraged ETF. Proshares offers both leveraged ETFs and inverse ETFs. The former is designed to double the returns or losses of a particular index while the latter is designed to give the opposite. That is, if the index goes down, the ETF price goes up and vice versa. For example, the Ultra S&P500 ETF gives double (200%) the performance of the S&P500 index. I wish these products were available in Australia. I probably wouldn't use the inverse ETFs much but I would used the leveraged ETFs. The two can combine to form an inverse leveraged ETF, such as the UltraShort Dow30, which you can use to make money from a long position if you expect the Dow to go down.

Charity as Punishment

So far in 2008 I have given about $200 to charity. The way I give to charity is slightly unusual. I force myself to give to charity if I have sinned. When I use the word "sin" I am not talking about religion. Rather, I sin when my actions do not reflect my intentions or my ideals about how I should be. I will not be specific about my ideals about what I should do, but let's just say it's similar to this: I should exercise X hours per week, study Y hours per week, invest Z dollars per fortnight, and so on. I use a spreadsheet to record the quantity with which I am doing all these things and if I am deficient, I punish myself by giving to charity using my credit card. I hate losing money, so this drives me to become ideal.

When I give money to my parents, I do not count this as charity because really I am compensating them for my living expenses, e.g. water, electricity, and food.

Figuring out how much I am donating with Kiva loans was also difficult because the money I give will eventually come back to me since it is a loan. I decided to count as a donation the interest that I lost. I assume that I can earn 8 per cent on investments, and since Kiva gives no interest then I lose 8 per cent.

My iGoogle

Here is what my iGoogle looks like. I think it's pretty good now. I like the world map that tells me in real time where the sun is shining. I also have a market summary gadget that I made. It simply revolves through Yahoo! Finance charts giving the AUS/USD exchange rate as well as four indices, the All Ords, the S&P 500, the FTSE 100, and the Nikkei 225.

Net Worth Report for April 2008

I am now reporting my net worth at the 1st of each month instead of, say, the 15th, which is what I used to do. As a result, the increase for this month may seem smaller. This is all artificial.

Cash: $717
Stocks: $22,967
Retirement: $3,130
Cars: $5,825
Kiva: $107

Net Worth: $32,746

This is looking good because my goal for this month was $31,560, and I am beating that comfortably!

My aim is to have a net worth of $40,000 by the end of this year. In 2009, I plan to get a second job and then increase my savings rate from $500 per fortnight to $2,300 per fortnight.

The recent good performance mainly comes from what looks like a rebound in the global stock market. I should say that in the bad moments I lost up to $2,000 in the stock market. Last year in November the All Ords, which measures the performance of the Australian stock market, was at highs of 6600. It dropped to about 5200 at the beginning of this year and now it seems to be rebounding to 5700.

The performance of my stocks depends mostly on the Australian stock market but it is also affected by other stock markets around the world. Nevertheless, the world's stock markets seem to move roughly in tandem in the short-term.

When I say I lost $2,000 in the stock market, that can be misleading. What I mean is that the value of my stocks went down by $2,000. However, I never sold any stocks or mutual fund units and over time it went back up again, so I have recovered some of those losses. Did I really lose the money then? Some people argue that I did because I could have sold stocks or units before the downturn and then purchased them when prices bottomed. This assumes that I have the psychic abilities to actually pick when prices will peak and bottom. If I had these psychic abilities, why not play the lottery and win million of dollars instantly. If we use the argument that I could have picked the right times to get out and into the stock market, why can't this ability be used to say that all of us are losing millions every second because we could have chosen the right numbers for the lottery?

This little thought experiment shows that it's best to not be fussed when the mutual fund statement report says your investment performance for the last financial year is negative. There is nothing wrong with this.

Austrian Dad's Treatment of Children and Parents' Rights

An Austrian dad has locked his daughter in a dungeon for 24 years. He raped her and produced seven children with her, one of whom died and was incinerated in an oven. The dungeon was soundproof and had a keyless entry system.

Many conservatives especially argue that parents have the rights and the privacy to take care of their children as they please. This is the argument behind homeschooling. Parents are also given privacy.

So you think that this Austrian dungeon case highlight how privacy and choice given to parents can be dangerous? In this case, one child attempted to escape and run away but the police caught her and returned her to her parents. They assumed that parents know what is best for their children. Austrian police did not want to let the children go to another family because they prefer the child to be with the biological father rather than an unrelated family. But this case clearly illustrates that a father doesn't necessarily care for his children.

The only solution to this problem then is more government intervention. E.g. regular checks to see if the children are okay, using sonar to find cavities in concrete, etc.

If this is not implemented and if the conservative idea that parents are made free to do as they wish to their children, then I believe this dungeon scenario will be replicated. The demand for child sex is strong. If there is a way to supply that demand that is safe and protected by privacy and freedom laws, it will be done. Right now there may be hundreds of children locked away in underground dungeons and we may not know.

This I would argue is a case for government intervention.