Retirement villages

The aging population is mentioned a few times throughout the course and it is natural to assume that demand for dwellings like Retirement villages would eventually increase (not very popular in Hong Kong, home for the elderly seems to be the favored choice). I myself know a few elder relatives who are living in one of these elderly homes, and I must admit there isn't much enjoyment in living in one of these places as far as I have seen. It is very depressing and lonely to be living in this "concentration camp” (concentrating all the elderly in one place). That said, it has made me re-evaluate the need for having children and owning a home, and that we have to take good care to our parents when they have reached retirement.

Negative Gearing

When I first hear about negative gearing, the one question that comes to mind is that: How can you lose money and be happy with it? Negative gearing being a tax-reduction strategy that is Australia-exclusive, I must say it is one of the most confusing topics I have encountered in this course. Although now I have a clearer understanding of the concept by now, it still doesn't make sense to me why Australians would favor negative over positive gearing. The tax reduction accompanied with negative gearing is certainly a nice treat, but it is just a treat, the main motivation with gearing should lie with the rise in value for the property you invested in, rather than the reduction of tax. I have found an article on the web where Clithoroe explains how negative gearing works (http://money.ninemsn.com.au/article.aspx?id=143509) and I must agree with his viewpoint that a loss is still a loss.

Managed Funds

After reading through the chapters regarding managed funds, I am surprised to see how both the book and slides favor investing through them, and it seemed far superior to all the other options mentioned in the previous chapters, a bit too good to be true in my opinion. After consulting my family and colleagues on this issue, I found out none of those I asked have ever used a managed fund before. Their reasons vary between managed funds being too risky (where the slides and the book prove otherwise), and that it lacks the psychological security of managing your money since someone else is taking care of it (the lack of financial control).

To me, all of this sounds very attractive, since there are many other things to cater for in the future apart from investments (work, leisure, childcare etc.), there will probably be insufficient time to manage investments by myself. Maybe this will be a viable option for me to both spare time (and stress) while gaining some profits at the same time.

Ethical Investing

The mentioning of ethical investing is something I would least expect from a financial planning course, and I must add that it is a nice reflection on how we put our money to better use. Shares investment, from many of my colleagues' and family members' point of view, is such a profit-driven process that many simply do not care about ethics as long their shares rise in value. I am not sure if you are implying that the ethics of a company passively affects the returns from investment, but in a very truthful manner, I doubt that the share market would ever become a place for ethical behaviour.

Shares versus property

There is one comment I would like to add about choosing between shares and property. I myself think that neither option dominates the other, investing in property seems to have its fair share of advantages compared to investing in shares. For one, investing in property (in my understanding) has less fluctuation than shares, two reasons are that price change in property is not as dependent on speculation than that of shares, and there is always demand for property. But aside from these, I think the most important criteria is still a good understanding of the shares or properties you are investing in.

Bonds/Debentures

For now, I myself am very skeptical about buying bonds/debentures from companies, and I doubt that I will ever buy one in the future. Apart from the Australian Capital Reserve mentioned in the slides, which is a good example of the cons of lending money to risky companies, but another great example would be the 2008 Lehman Brothers incident in the US.

From my own understanding, the Lehman Brothers were an investment company who offered subprime mortgages to people with insufficient savings who plans to invest into property, in turn charging these “high-risk” borrowers a higher interest rate. On the other hand, they also sell bonds/debentures to another party of lenders whom they promise a high return from interest (since the mortgages they offer have been charged with high interest rates). In fact, what they promise do not differ greatly from that of the ACR. And once these “high-risk” borrowers are unable to repay their mortgages, a chain of reaction occurs, with most of the lenders suffering great loss or losing completely.

The tragic realization behind this is that even a company with such a good reputation (Lehman Bros.) could go completely wrong and this serves as a crucial reminder for me to think twice before buying bonds/debentures.

Warren Buffett

Mentioning Warren Buffett reminded me of a discussion I had with my family in regards to his success. They all agreed that Warren Buffett had a full understanding of the companies he invest in and is a great evaluator. They explained that he first invested into shares when the share market was not even mature yet, and evaluated the prospects of investing into various companies before anyone else thought of it.

However, a note to add from my parents is that total understanding about the invested companies are only viable for some people like Warren Buffett (or other rich investors). The reason behind this as they explained is that due to Buffett's reputation and massive wealth, companies tend to voluntarily hand over all necessary information about themselves to Buffett if he ever chose to invest in them since its a significant neutral gain for both parties.

I do not know if this is true or not but it does sound logical, and it makes me wonder about the odds of successful share investing with only a limited cash flow and understanding of the invested companies.

Taxation in Australia versus Hong Kong

Taxation in Australia turns out to be a much greater issue than that in Hong Kong, I am amazed to see tax rates as high 30-45% for the high income earners, compared to the maximum of 16% income tax we pay in HK. I believe this is one of the main reasons why Australians are far more concerned about tax reductions, while significantly more tax strategies are introduced compared to that in my home country.

Superfunds

Superannuation is something unfamiliar to an international student like me, I have seen advertisements from TV (mainly AustralianSuper) which briefly talks about the advantages of having a superfund. It sounds like a very simple system, but after reading all the materials regarding this topic, it becomes even more confusing than before since there are apparently many complications and considerations in selecting a superfund, putting and withdrawing money from your superannuation account.

For simplicity's sake, i have decided that my strategy after graduating would simply involve consolidating into one superfund with co-contribution from parents, salary sacrifice when possible, withdraw after 60.

Australian Healthcare

One of the great advantages I find about studying in Australia has got to be the Australian Medicare system. I agree that this is one of the most well-executed health systems in the world. It is affordable with extensive covers and I have so far enjoyed its benefits.

On another note, some country's health care system are not as forgiving though, the obvious example is the US. Inability to afford the sky-high health insurance fees and bankruptcy of hard-working families due to medical fees are common stories reported from the US. The recently passed reform on healthcare by Obama is proof of how unsuccessful the original system was, and I hope there will be change as promised by the new president.

Risk and Insurance

A recent unfortunate accident, which happens to be a burglary in my own rental apartment (I was lucky not to be at home), had really made me rethink about the need of buying an insurance. The irony of all this is that the year before, I did actually acquire a theft insurance for my apartment (it was not cheap), which I have discontinued this year when the burglary happened.

Therefore. reading the slide regarding excuses for the young not to buy insurance was really a smack in the face. It's quite embarrassing that I have actually made most of the mistakes listed in the slide, including underestimating the risk, having poor financial planning and being ignorant of the consequences. I hope this will be a harsh reminder whenever I think about skipping insurance.

Mortages

I previously have always thought mortgage as something not preferable, due to its great financial burden, its long repayment period, and most importantly, the high interest fees involved in borrowing money. There is also the fact that I myself am not fond of borrowing money, because the burden, both psychologically and financially is quite unbearable.

The introduction to the mortgage system was clear and understandable, and the part that I find most enlightening is the effect of your payment amount to the duration of the repayment period. Never have I thought that repaying only half the amount more of your base repayments each month could drastically reduce more than half the time of paying back the loan. That is certainly reassuring and also gives me some motivation to save up for mortgage in the future.

Renting versus Buying

Regarding the issue of renting versus buying a home, personally and logically thinking, the advantages of renting is clearly superior over buying for a few good reasons. Your financial burden of paying rent is less than having a mortgage, spare money will be available to spend on other investments, and finally you are less attached to your dwelling (less incentive to renovate) etc.

Although the advantages favors the rental side, my parents in Hong Kong eventually chose to buy a home after more than a decade of renting apartments. I have asked them the reason behind this decision, and the obvious answer was the psychological security of ownership, accompanied by the ever rising property and rent prices years back. However, their final reason was surprising: they considered owning a home to be an investment to me and my brother. The apartment is not just for their own security in old age, but also provide us security in the future. Touched by their actions aside, it made me reconsider the option of purchasing my own home as an investment for my own children.

DELIs and Job finding

I think the first part of unit 3 is really intriguing since it is a relevant topic in my home country, Hong Kong. Things are quite different in HK compared to Australia, there are usually two camps of thought, one insists on finding a job with greater prospect and profits regardless of satisfaction, another camp thinks the exact opposite. A main reason for this split of thoughts is that it is a general believe that the former would achieve more lifelong savings than the latter.

I myself lie towards the latter camp of thinking, that satisfaction is crucial in job finding. However, I think aside from relying on the DELIs to pursue a suitable job, maintaining a positive attitude is more important. I believe most of the time you will not find a job that perfectly suits your personality, but if we are more optimistic, we could adapt quickly and learn to enjoy our work.

Savings and Deferred spending

For one, I have to say that I am confused with the slide “Saving versus deferred spending”. I understand the difference of not spending and delayed spending, but we would have to spend our money one way or another in the future, wouldn't we? It's just that the occasion is not as immediate as “going on a holiday”, for example saving to buy a house, saving money for childcare, saving money to spend after retirement etc. So after listening to the slide cast, I believe the definition could be refined as follows:

Real Saving = Saving to spend on investment, that is the second chunk of the pie, while;

Deferred spending = Saving to spend on personal expenses, that is the third chunk of the pie.

If you put in this way, its more easily comprehensible and does not turn“real saving” into something that sounds both impractical and impossible (i.e. not touching the money for the span of your lifetime).

Budget and Expense Tracking

On the discussion about difficulties in budget making, I think the main problem is that we lack the incentive to do so. First we students are not yet financially independent (not referring to the term“financial independence” mentioned later in the course, but just meaning income not mainly dependent on family), secondly not many people have the perseverance to execute a budget after planning it, and besides nothing in life really goes according to plan anyways. However, when we make our budget flexible, it may become too loosely planned to follow.

On another note, the extreme tracking method, which we are doing for our assignment seems quite a hard task to maintain. We may be only tracking expenses for two months, but its hard to imagine following the same routine for the next 40-60 years.
Therefore, I feel that the electronic tracking method would suit myself better despite the fact that I am not fully aware of the details of my spending. I would prefer getting a big picture on how much on average I am spending daily before digging into details. Besides, daily spending patterns usually remain similar (unless you have a very exciting life), and it would probably be hard to forget any major transactions that happened during the month.

Unit 1 and Chunks of Pie

To start off, I find that the first chapter, although very informative, seemed a bit far-fetched for my current situation. I understand that it is crucial for us in this stage to start planning on how to utilize our money, but for an international student like myself, not only have we hardy any investment experience, most have a part-time job at best. Beside, a majority of our expenses right now lie in the third chuck of the pie as mentioned in the slides, including transport, food, rent etc. My thoughts for the chapter in summary is great in theory, but a bit doubtful in action.

I would also like to compliment on the pie system introduced (found out it is not mentioned in the book), its really easy to understand and gives us a big picture on how to prioritize our spending in the near future. It is also much more suitable introduction than clithoroe's tips, since I feel the book is targeting a more mature audience. I find it a great start to the course, and I hope the later chapters would expand on the pie chunk theory.