Save Money so You Don’t Need to Think About Money

In the podcast Don’t Brag About Money, I speak about why it’s not a good idea to talk to others about how much money you have or make. The main reason is because it is dangerous. If someone knows you have considerable wealth, you have a target on your back. You will be under the microscope, and any mistake can lead to a frivolous lawsuit. In this podcast, I recommended that you be ignorant of your wealth. Choose an investment whose risk level you are comfortable with and simply stick to it. Focus on your savings rate, e.g. save up 80% of your salary, and then don’t think about it. This strategic ignorance means that others cannot figure out how much you have simply because you don’t know yourself.

The market is not something you can control. You cannot control the global economy. However, you can control how much you save, so focus on that, and let the global economy be.

Another reason why I think it is important to not think about your wealth or earnings from investments is because it can be stressful. Reading finance news all the time, talking about money, etc can fill you with anxiety and stress. Talking about money with friends and family is also stressful and can lead to envy and probing and unwanted questions.

If anyone talks to you about money, my opinion is to simply shrug and say you don’t know. You don’t keep track of anything. Your accountant handles everything.

Technocapitalism, Human Evil, and Sedation Through Technologically Induced Dopamine Spikes

I am a misanthrope because I hate people. It is not one particular factor that makes me disgusted with humanity but various factors. At work yesterday a colleague spoke to me about how he loves to go to the gym to build muscle so he can attract women. He is so superficial and status conscious that it disgusts me, and he is not the only one who behaves like this. This is normal behavior. If you are not working to make yourself appealing in the eyes of others, you are abnormal. You are not trying hard enough to get a promotion, get a wife, and have a family. Society and its cultural norms promotes conformity, superficiality, and a culture of appeasement and slavery.

Something I have been trying to do more of recently is to be more anti-social. I have a habit of catching up with people. I have lunch or dinner with various colleagues and friends, but often these catch ups are nothing more than bragging sessions for others to go on and on about how great they are. Many complain about narcissism on Facebook, but social media merely accentuates what happens in real life, and at least most social media apps such as Facebook allow you to effortlessly block or unfollow someone whereas blocking or unfollowing someone in real life is far more awkward. Nevertheless, I have tried to reject many offers to catch up with people. Sometimes I will just tell people directly that I don’t like something e.g. someone invited me over to a wedding, but I told her that I don’t like weddings. Sometimes I will just make up some excuse not go.

I hate being around people, but I cannot simply walk away from humanity because I need a job in order to build dividend income so that I can shield myself from humanity, so it is a gradual process. I need to learn how to be more assertive so I can be more anti-social so that I can isolate myself more, but at the same time I need to work in order to earn money, and I need to learn how to cope with being constantly exposed to the corruption of humanity yet not being affected by it by being fake and by numbing or sedating myself with technology.

I commute via train, and something that first shocked me about commuters was how fixated they were to their smartphones, but I realized that they are probably like me. Being around people takes its toll. You need to be fake, conform, and be a witness to the superficiality and vulgarity of humanity. When you walk away from work, you have a choice: dwell on it and hurt yourself more, or crowd out these thoughts by consuming something else from your smartphone.

Human history is marked by war and conflict. There is innate in humans greed and ego, and these emotions lead to conflict, violence, and oppression, which result in suffering and pain.

When you’ve spent your life trying to appease others and then when you stop because you realize that the opinions of others do not matter, then you feel an emptiness. You felt that life was all about impressing others, e.g. impress your manager to get a promotion or impress a girl to get married. But when you realize this is all a sham designed to enslave you, there is no point in your life anymore, and you must build for yourself a new reason for living. For me it is about escaping, being free, and being autonomous.

I need to learn how to clear my mind. I have heard that meditation is healthy because it allows you to focus and clear out distractions. I am mostly distracted either because I dwell on the evil of humanity or I am engrossed in stimuli that I have consumed in order to distract myself from the evil of humanity. I need to eliminate my exposure to humanity and then if thoughts of humanity emerge in my mind, I need to expel so I can focus on more important things rather than try to displace it with stimuli. The problem is that the evil of humanity is a potent stimulus, so to overcome it you need a stimulus more potent, e.g. pornography, and this is why I believe pornography is so popular. However, if you consume potent stimulus like pornography, you can become addicted to it. It distracts you from the evil of humanity yet it also distracts you from important tasks you need to do.

 

The Problem with HVST (Betashares Australian Dividend Harvester Fund)

For probably two years now I have been buying up the Betashares Australian Dividend Harvester Fund (HVST), which is a exchange traded managed fund listed on the ASX. The appeal of this fund is that it pays a very high dividend yield (about 10% to 14%) and pays this dividend monthly. The monthly dividend payment normally gets paid into my bank account in the middle of the month, and every payment is roughly the same. Hence HVST makes living off dividends very easy. This is why I have accumulated over $100k worth of HVST.

However, it is becoming increasingly clear that there are many flaws with this fund, the main one being that it has not performed well in the last few year compared to the ASX 200.

HVST vs ASX 200 from 2014 to 2017
HVST has significantly underperformed the ASX 200 over the last few years (chart from CommSec).

That being said, I am not criticizing the fund or Betashares. I was well aware that the dividend harvesting technique employed by the firm would result in less upside when markets were going up. This is a result of the fund manager buying high dividend paying stock just before dividends are paid and then selling the stock after the dividend is paid. As stock prices normally go down after dividend payment (as the company’s value goes down in line with its reduction in cash) then naturally a dividend harvesting technique would result in lower capital gains.

Something else surprising is that during downturns in the ASX 200, HVST also went down considerably as well, which makes me question the firm’s risk management overlay employed. According to the article Managing risk: the toxic combination of market downturns and withdrawals in retirement on the Betashares Blog:

One way to help manage sequencing risk is to apply a dynamic risk exposure strategy, which seeks to reduce downside market risk…. BetaShares combined its expertise with Milliman to launch the BetaShares Australian Dividend Harvester Fund (managed fund) last November. The fund invests in large-cap Australian shares with the objective of delivering franked income that is at least double the yield of the Australian broad sharemarket while reducing volatility and managing downside risk.

Based on this description, I was hoping that the fund’s risk management overlay would reduce downside movements, but the chart of the performance of HVST against XJO shows that when XJO turns downwards, HVST goes down by as much. When XJO goes up, HVST tends not to go up much if at all, which results in HVST falling by about 20% over the last few years while XJO has managed to increase in value by a modest 5% during the same time period.

As I said, this does not mean I will not continue to invest in this fund. The regular and high monthly dividend payments are extremely convenient, and any capital losses made by the fund over time, in my opinion, can be compensated for by investing in ETFs in riskier sectors e.g. investing in tech stocks, emerging market, or small caps or even by investing in internally leveraged ETFs such as GEAR. For example, if you invest half your money in HVST and half in GEAR, you get the convenience of monthly regular dividends from HVST and any capital loss is compensated for with your investment in GEAR which should magnify upside market moves. Note that a limitation of the half HVST and half GEAR strategy is that when the market goes down, GEAR will go down significantly as well. Furthermore, another problem with both GEAR and HVST is that they have management expense ratios that are significantly higher than broad-based index ETFs mostly from Vanguard or iShares. Both HVST and GEAR have management expense ratios of 0.80 percent whereas Vanguard’s VAS is 0.14 percent and iShares’s IVV is 0.04 percent.

Nevertheless, I do recommend many products from Betashares. One ETF that I am interested in from Betashares is their new sustainable ETF called the Betashares Global Sustainability Leaders ETF (ETHI). I normally buy ETFs in batches of $10k to $25k at a time, so I intend to buy a batch of ETHI and write a blog post about it later. I have mostly positive views about Betashares as they provide a great deal of innovative ETFs.

Update 18 June 2017: The poor price performance of HVST is explained in the Betashares blog article Capital vs. Total Return: How to correctly assess your Fund’s performance. If performance includes income as well as franking credits, the gross performance of HVST looks more favourable.

Agricultural Commodities Bottoming? ASX: QAG

The prices of agricultural commodities such as sugar, wheat, and soybeans have been falling for some time now. This can be seen in the performance of the QAG ETF.

For a number of months now I have been thinking that these commodities cannot go down forever. If this were the case, soybeans, sugar, etc would eventually be free. Could this be a buying opportunity?

QAG ASX price from 2012 to 2017
Source: Google

Hating Humanity and the Dream of Being an Urban Hermit #Podcast

Humanity is fundamentally and inherently evil, and being happy about humanity depends on delusion and ignorance. The only way to sustain lasting happiness is to turn a blind eye towards human atrocity. If you know the truth, you cannot unknow the truth. You are destined to being exposed to reality, which can disappoint you and lead to permanent depression. The solution is to shield yourself from humanity and live off dividends. Gradually transition away from forced interactions with people e.g. through work and family and move towards a more flexible lifestyle that allows you to move in and out of relationships and friendships with ease. There is nothing wrong with moving closer to feel warmth, but you must have the freedom to step back lest you burn yourself trying to achieve warmth.

Buy Banks, not Houses #Budget2017

Buy bank ETFs and rent a cheap unit instead.

Recently the Australian government has announced in its Budget 2017 that there will be a bank tax applied to the five biggest banks in Australia. This may affect me because I live off dividends, and much of these dividends come from Australian banks via ETFs. When I mentioned my concerns to others, I was surprised at how much hatred others have for banks in Australia, which is surprising to me.

I am not too concerned by the bank tax, and I will continue to invest in ETFs that invest in high-dividend paying stocks (e.g. HVST) as well as the finance and banking sector (e.g. OZF and MVB).  The reason why I am confident is because I feel that banks can simply pass on the tax expense to borrowers by raising interest rates and fees. Many people may be unhappy about this, but they have the freedom to take their business to other banks.

Banks should also benefit from the cutting of the corporate tax rate from 30% to 25%.

The housing affordability scam

The budget also includes a complex scheme whereby people saving up for a deposit to buy a home can salary sacrifice at most $30k per year into their superannuation fund thereby obtaining tax benefits and then taking that money out to use as a deposit on a home.

This, in my opinion, is such a scam because it is effectively the same as the various grants that the government gave to home buyers. Why put first home buyers through the whole process of putting money into super to get tax benefits and then taking it back out again? Why not just give the expected tax savings to these first home buyers directly?

suburbs-2211335_1920

The scheme also does nothing to address housing affordability because every economist knows that the price of housing will go down if demand goes down and supply goes up. If there are tax benefits to using super, and if super is used to buy houses, this will only increase demand, which increases prices. Make no mistake, this scheme does not help buyers. It is designed to prop up the market.

Once again, first home buyers are being scammed. The major problem is that most first home buyers don’t understand economics and believe that the government giving them money will help them buy a house. Rather, it will simply drive house prices up even more thereby requiring them to get into even larger debt. The debt that they’d be getting themselves into will also be nondeductible debt, which means they pay more tax than if they had borrowed the money to buy a investment property or other investment e.g. ETFs.

What should you do?

Unfortunately I don’t see the housing affordability issue being addressed because too many people benefit from high house prices, so governments will do what they can to prop up the market. Homeowners benefit from higher prices; banks earn interest from mortgages; and real estate agents, property developers, builders, and lawyers also make money from the property boom. Those hoping to buy a house suffer, but the solution seems to be to help them become homeowners, and when these young homeowners finally buy a house with government support, they have a vested interest in high property prices, but what many of them don’t seem to understand is that they are buying into a very expensive market by loading themselves up with so much debt they effectively become slaves to the bank.

Those who borrow from banks to buy houses believe they are oppressing renters, but really in most cases it is the other way around. Rental yields are so low that the average Melbourne house only produces about 3% in rental yield. If you had $1 million and invested it in a house and rented it out, you make $30k in rent. Had you invested that money in NAB shares as of today you’d be earning 8% dividend yield, i.e. $80k per year if you invested $1 million, which means you could invest your $1 million in bank stocks, earn $80k, rent that house you wanted for $30k, and have $50k leftover. By buying the house, you lose $50k in opportunity cost.

The market will continue to be propped up because everyone benefits, and those who don’t benefit think they are benefitting. First home buyers think that by receiving government money they are closer to buying a home, but they don’t realize that homes will be more expensive. Those who recently bought a home think they are better off than if they rented, but they don’t understand how much they will pay in interest nor will they understand how much opportunity cost there is in owning property. The best slaves are those who believe that they are the oppressors.

The major problem with housing is that it is commonly associated with a debt-fuelled depraved and wasteful materialistic lifestyle. Once someone borrows large sums from the bank, it is not just a massive house that they buy. They increase their spending in other ways, e.g. furniture and renovations. The debt that they hold tricks them into believing that they have more than they actually have.

The solution then is to go back to basics. Own bank ETFs and live cheaply off the dividends. You can rent a cheap self-contained unit in the outer suburbs for less than $250 per week and then wake up early to commute to work via train. Insecure tenancy is not a problem in the age of Airbnb. Renting gives you the freedom to move to different areas to minimize costs and maximize opportunities. Renting also frees up cash flow to enable you to seek out the best investments.

 

Netflixing to Save Money

When I was younger, I rarely went out. I preferred to stay inside and indulge in cheap electronic entertainment. As I invested more and more and started to earn more dividends, I found myself in a position to go out every now and then, but I have realized that I actually hate going out. I would prefer to stay home and watch Netflix. It just so happens that netflixing is much cheaper than going out, and it is very enjoyable as well.

Netflix pours billions of dollars each year into content production, which means they are able to provide extremely good entertainment to its customers, and customers only need to pay $12 per month. It’s a good deal, in my opinion. It is far better than going out. When people at work show off to me that they went out to a restaurant to a vineyard, I am not afraid to just tell them that I am a hardcore netflixer.

I was talking to colleague earlier this week about how Netflix is an investment because you save up so much money on Netflix that you are able to pour massive sums of money into ETFs. What I hate about “going out” is that it has become such a status symbol. People brag about going out and socializing as if there is something so special about it when really all they are doing is moving themselves to a new location and spending significantly more for it.

When I started working full-time, I was saving about 80% of my salary whereas now I am saving 100% of my salary and living off dividends. I think what is most important is that you pick a savings rate and stick to it. Whether you eat out, pack your lunch, buy coffee, or whatever is irrelevant as long as you stick to your savings goal. Many people focus on small things such as skipping coffee and saving $4 per day, but I find that many of these people skipping coffee are blowing their money on holidays, cars, and so forth. Often skipping coffee is not a savings plan but a reaction to blowing your money elsewhere. Picking and choosing isolated examples of how you save money is meaningless. It’s the overall savings rate that matters.