Author Topic: Criticise my ideas and help me succeed (Aus content!)  (Read 5065 times)

LonerMatt

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Criticise my ideas and help me succeed (Aus content!)
« on: January 29, 2014, 01:45:18 AM »
Hey guys,

I'm in drastic need of a second, third, fourth and fiftieth opinion. I think, like many here, it's difficult to find friends and peers to talk about ERE, ER, or alternative lifestyle stuff with. After a honey moon with ERE, followed by decent savings, I got a bit bored and spent a bit more money, now I'm back and considering ER/AL - not ERE. Been reading MMM since Jacob mentioned him way back in 2010, or so.

Basically, my goal is this: In 5 years time I'd like to be able to travel long-term without destroying/eroding my finances completely.

I estimate that, after air fares, my average per week travel costs are somewhere between 200-300 AUD (varies WIDELY on location, etc - this is on the higher scale of things). Looking at that figure, I'd need around $340,000 invested for the 4% rule.

This is, simply, too large a figure for me to achieve in 5 years.

Hence why my goal isn't to travel indefinitely, and it's not to have my investments cover my expenses, and I'm not ruling out working OS (teaching, which is what I do now and enjoy), volunteering, etc.

I'd like to travel for 3-5 years, and then return back to Australia to settle a bit more permanently, and as mentioned above I don't want to come back with $0 in the bank (I'd like to return with most of my principal).

Currently I:
- Earn around $65000 AUD a year (increases each year)
- Have $35k in cash
- Have 6k in bonds (returning 6%)
- Have 6k in shares (doing well)

I've read a bit about finance, but am a relative noob - a lot of what holds me back is that:
- Many resources are pitched for the US (especially blogs) that, while providing nice general information are very difficult to implement
- I could research a lot more but I don't really have the inclination to, say, research specific stocks for ideal divided growth possibilities
- I'm fairly wary and risk adverse

What I'm hoping for is that people could look at my strategy below and let me know their thoughts. I'm aiming for investments that:
1. Provide some income
2. Are not super high risk
3. Are low cost

Here's what I've come up with:
30% Australian Government Bonds (mid-long term - returning 3-5%)
30% International Bonds (held through an ETF - Vanguard/ishares)
20% Australian stocks (split between High Dividend ETF and an Australian ETF)
20% International stocks (split between dividend/high value)

Some options:
- Purchasing whiskey barrels, which returns about 10% annually (except one has to wait until maturity for a payout)
- Buying more international stocks/bonds - it appears the AUD will be declining in value (it has already started), so the relative appreciation of international currencies will be higher
- Simply going 60% Government Bonds, 40% Australian stocks

Ideally, I'll have about $250k invested when I decide to leave (unless things change) which, is about $10,000 a year - or about 70% of what I'd need. If I reinvest everything, I'll be closer to my goal, although not sure how much.

What am I doing right? Where is my thinking falling apart? How could my strategy be improved? What would you do if you were me?

Thanks!

limeandpepper

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #1 on: January 29, 2014, 02:37:01 AM »
Basically, my goal is this: In 5 years time I'd like to be able to travel long-term without destroying/eroding my finances completely.

I estimate that, after air fares, my average per week travel costs are somewhere between 200-300 AUD (varies WIDELY on location, etc - this is on the higher scale of things). Looking at that figure, I'd need around $340,000 invested for the 4% rule.

This is, simply, too large a figure for me to achieve in 5 years.

Hence why my goal isn't to travel indefinitely, and it's not to have my investments cover my expenses, and I'm not ruling out working OS (teaching, which is what I do now and enjoy), volunteering, etc.

I'd like to travel for 3-5 years, and then return back to Australia to settle a bit more permanently, and as mentioned above I don't want to come back with $0 in the bank (I'd like to return with most of my principal).

Your goal sounds very similar to mine! I am planning to quit my job later this year to travel indefinitely with my boyfriend. Like you, I do not have enough investments or passive income to be able to cover all my expenses, but this is something I want to do sooner rather than later. I don't have much to offer in terms of investment advice (I'm a newbie myself), but just want to say hi and good luck!

AdrianM

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #2 on: January 30, 2014, 07:59:27 PM »
Hi Mate,

As none of the other Aussie contingent has weighed in with their thoughts i'll share mine with you.

Your Goal.
Save and Invest for 5 Years, then travel for another 3-5 years, before returning back to Australia
With as much principle intact as possible.

Financials
Currently you have $47k in assets, no liabilities and earn $65k a year (before taxes I am assuming)
Is this correct?

What am I doing right?
Not sure as you left out what are your expenses.
If you want a good tool to track your spending try ANZ money manager
https://secure.anzmoneymanager.com/apps/login.anz.do?_flowId=login
You don't need to bank with ANZ to use them and they are allowed read only access to you accounts with other banks and brokerages.
I have used them for over 2 years now to track all my finances, and am happy to recommend them.

Where is my thinking falling apart?
Have you factored in taxes or inflation?

How could my strategy be improved?
Tangible assets, your current plan is pure paper.

What would you do if you were me?
Whiskey barrel ladder
Now I am making the assumption that you are talking about http://nant.com.au/
The plan would entail you buying a X number of whiskey barrels each year.
When they mature in 4 years you roll the principle over into another barrel and what is left after taxes is yours to spend or reinvest.
This way you preserve your capital but still generate an annual return.

LonerMatt

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #3 on: January 31, 2014, 06:58:33 PM »
Hi Mate,

As none of the other Aussie contingent has weighed in with their thoughts i'll share mine with you.

Your Goal.
Save and Invest for 5 Years, then travel for another 3-5 years, before returning back to Australia
With as much principle intact as possible.

Financials
Currently you have $47k in assets, no liabilities and earn $65k a year (before taxes I am assuming)
Is this correct?

What am I doing right?
Not sure as you left out what are your expenses.
If you want a good tool to track your spending try ANZ money manager
https://secure.anzmoneymanager.com/apps/login.anz.do?_flowId=login
You don't need to bank with ANZ to use them and they are allowed read only access to you accounts with other banks and brokerages.
I have used them for over 2 years now to track all my finances, and am happy to recommend them.

Where is my thinking falling apart?
Have you factored in taxes or inflation?

How could my strategy be improved?
Tangible assets, your current plan is pure paper.

What would you do if you were me?
Whiskey barrel ladder
Now I am making the assumption that you are talking about http://nant.com.au/
The plan would entail you buying a X number of whiskey barrels each year.
When they mature in 4 years you roll the principle over into another barrel and what is left after taxes is yours to spend or reinvest.
This way you preserve your capital but still generate an annual return.

Hey Adrian - really appreciate you weighing in. To answer some of your questions/respond to ideas:

- You're correct - my 65k is before tax - I'd include post tax, but I recently got a 15k raise, so I'm not quite sure how it'll work out (if I'll need to pay additional tax, etc). I also get 2 raises yearly (teacher's union, bitches)

- I've started tracking expenses (today actually), so we'll see how that goes - I want to get a sense of what my average daily expenses are, and go from there. I think the biggest things I could reduce would be food, clothes and books (I share with 2 other people, etc)

- I have not really factored in taxes or inflation - taxes are a bit of a mind fuck for me right now - I'm not great with maths to start with, so trying to preditc assets, appreciation, tax laws (which I don't really understand beyond income tax), etc isn't exactly my strong point. Furthermore, I'm sure there's a simple way of simulating inflation, but I don't know what it is.

- I am aware of Nant! I was thinking about doing that, so I'll add it to my portfolio and work it out.

I posted this on ERE and so far there are several conversations we're having:
- Whether it is worth having a split of top 50/100 companies (value) and High Dividend ETFs (so owning 50% value and 50% dividend stock for Australia/international)
- How to own international bond indexes
- Whether it is worth owning slightly more international assets as it seems the AUD will be dropping, so the payous/value will be relatively higher (a prediction, yes, but that's ok it's all hypothetical)

Care to weigh in?

bigchrisb

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #4 on: February 02, 2014, 05:10:35 PM »
(teacher's union, bitches)

Consider ditching the union dues.  At $550/year in union dues, if you invested that over the 5 years, and got a say 10% return, you would have an extra ~17 weeks of travel funded at $200/week.  Money for jam.

melonade

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #5 on: February 03, 2014, 12:02:07 AM »
Firstly, sounds like a cool plan so best of luck to you!

What Aussie ETFs are you looking at? I am currently invested in VAS and VHY at a 25:75 ratio but I'm pretty sure I want to get out of VHY and be wholly in VAS. This is mainly to minimise expenses by only paying brokerage once when I top up and by lowering the management cost (VAS is cheaper than VHY by 0.1% per year)

What attracts you to bonds? I'm not sure about them myself so I currently have some money in a Ubank Usaver Ultra account paying 4.62% (used to be well above 5%, I hope rates go up again soon!).

I've only started investing a few months ago so would be keen to hear other opinions too!

LonerMatt

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #6 on: February 03, 2014, 12:21:14 AM »
(teacher's union, bitches)

Consider ditching the union dues.  At $550/year in union dues, if you invested that over the 5 years, and got a say 10% return, you would have an extra ~17 weeks of travel funded at $200/week.  Money for jam.

Yeah I'll do that right away. They go up this year too.

Firstly, sounds like a cool plan so best of luck to you!

What Aussie ETFs are you looking at? I am currently invested in VAS and VHY at a 25:75 ratio but I'm pretty sure I want to get out of VHY and be wholly in VAS. This is mainly to minimise expenses by only paying brokerage once when I top up and by lowering the management cost (VAS is cheaper than VHY by 0.1% per year)

What attracts you to bonds? I'm not sure about them myself so I currently have some money in a Ubank Usaver Ultra account paying 4.62% (used to be well above 5%, I hope rates go up again soon!).

I've only started investing a few months ago so would be keen to hear other opinions too!

I already own IOZ (ishares), so I'll stick with that for simplicity's sake. I'll probably buy some VTS (or is it VIS) for overseas exposure (.05 fee!).

I love bonds - they are perfect for me. I'm the sort of guy that likes dependability. I don't mind if I'm getting a bit less as long as I know it's coming so I can adjust my life and expectations - I don't like guessing, I prefer planning. Bonds offer a good interest rate (above the Ubank Saver) and are regular like clockwork. Of course they are not risk free (government collapse, or the much more likely inflation can erode them quickly), but they are suited to my temperament very well.

Thanks for your support.

LonerMatt

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #7 on: February 05, 2014, 03:44:00 AM »
Hey guys, I'll put things into a journal soon (especially the above table), but broadly here's my 'final' thinking.

- 60/40 split between fixed income/stock

Fixed income:
Whiskey Barrel - 6.6k - returning 9.5% annually
Government Bonds - 18k - returning 5.75-6% (for 20/10 years)

Stock:
Australian top 200 - 7k
USA - 5k
Non Aus, Non US - 5k

My plan is to, twice a year reinvest - the idea here is to have a bit of cash handy if I need/want it, and also to stagger the barrels so that the large sums (when they come in in 4-5 years) are spread out relatively helpfully.

I chose to go for more fixed income partly because it seems a good deal for my purpose (protect my principal, provide stable and consistent money). However, I suspect I'll have around $180-190k when I leave, which if I'm receiving 4% from - will only be around 8k annually - meaning I'll have to work while traveling, or travel really cheap (like walk and camp everyhwere).

So - I'll see how this year pans out - I might invest more aggressively in stocks after I have some consistent bond money coming in, or I might not. Any last comments would be definitely apprecaited, otherwise I'll take the plunge over the weekend.

Thanks for your help all.

limeandpepper

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #8 on: February 05, 2014, 04:08:26 AM »
I'm also doing a larger percentage of fixed income investments, because like you, I feel a bit risk-averse as I need that money in the near future, so your 60/40 split sounds fine to me. The whiskey barrels sound interesting - I might have a look at it. If it's absolutely guaranteed and secure I'd totally go for it. I've also considered art investment before (where you buy a piece of art that will be rented out to corporate buildings, for example) but in the end just decided it wasn't for me. I look forward to reading your journal when you start it!

melonade

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #9 on: February 06, 2014, 08:45:14 PM »
Sounds like having a bigger amount of fixed income investments will suit your purposes best. Where are you getting the 5.75-6% figure for Govt. bonds though? As far as I can see the highest yield is currently around 4.7% http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND.

Do you think interest rates will continue to fall? Perhaps having some cash in a high interest savings account could be a good idea?

LonerMatt

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #10 on: February 06, 2014, 11:20:27 PM »
I have about 5k as emergency, that'll get added to as I save. I'm planning on investing every 6 months, so I should accumuate around 12-15k in that time.

As for interest rates, I predict stangnation with some minor tweaking for 2014, we'll see how we fair after that.

As for the bonds - I was quoting the coupon rate - I just bought GSBM22 (coupon 5.75 - yielding 3.9%, not sure why there's that discrepancy, but it is what it is), I also own some bonds that are returning around 6.5% but bought them before bonds were tradable through ASX.

Pinball

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #11 on: February 07, 2014, 02:15:23 AM »
The whiskey barrels sound interesting - I might have a look at it. If it's absolutely guaranteed and secure I'd totally go for it.

Return and risk are the same thing.  I don't know anything about whisky barrels but if it's supposed to earn 5% above government bonds then it absolutely is not guaranteed.

Wildflame

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #12 on: February 11, 2014, 11:31:16 AM »
I have discussed this a few times with my close friends, and have come to the conclusion that long-term travel is entirely doable without having 100% FI - 50% will do nicely, so long as you are willing to make up the difference with part-time or (ideally) contract work.

I suspect your assumption of $300 a week is optimistic for Western Europe and North America, if you're planning on including those locations in your itinerary. How did you calculate that figure?

Given your expenses are around $400 a week (including $5k a year for airfares), you need $20k a year or so to get by. If you have $200k in investments returning 5% real, you are halfway there, and only need another 10k to avoid dipping into your capital. If you could do a job similar to your 65k job for a two-month contract (not quite one full term's relief teaching, maternity leave contract?), that's your $10k right there with change. As a bonus, you would only fall just outside of the tax-free threshold and so attract a minimal income tax burden (though you would need to submit a withholding variation form in order to not have your payroll take taxes on the assumption you are earning the 65k for the whole year). Side bonus: contract roles tend to pay better than permanent roles thanks to the 'sacrifices' involved (boo, no job security or leave). Though given your location, such roles may be few and far between - you may need to relocate, which will increase your expenses.

Alternatively, if your skills are transferable internationally, you could attempt to get work in foreign workplaces, but this would raise visa issues which I am not familiar with (and will vary by country anyway). Perhaps ESL teaching, seeing as that's your subject area? I hear East Asian countries in particular love themselves some Aussie ESL teachers. Or you could do what my cousin did and become a male model in China if you're over 6'2. =P

A third option is to develop location-independent skills that you can use to create revenue over the 'net (design, coding, proofing, travel blogging, etc) and continue to work ad hoc while overseas.

It may be worth considering taking a more aggressive risk/return profile during the accumulation phase. What are the tradeoffs?

Also note that with $200k returning 5%, $20k pa expenses and NO additional income from work of any kind, you will end up with ~$139k after five years (assuming full $20k drawn at start of year, 5% applied after). Is losing $60k over five years really that bad a loss for living free for five whole years?

Disclaimer: salt well.

marz1982

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #13 on: February 11, 2014, 05:29:48 PM »
I'm *close* to Australia so I think I can help :) 

IOZ has a slightly higher expense ratio to Vanguard, so I would recommend Vanguard in the long run over IOZ, but otherwise a great investment.
Ideally you'd want a long term investment horizon if you're investing in shares - at least 5 years if not more.  If the stock market crashes in 4 years, your travel plans would be out the window.  It's good then that you have the bonds to stabilise the volatility.

What bonds are you investing in that return 6%?  That's really good!  I'm invested in the Vanguard total bond ETF and I don't think it's getting close to 6% at the moment.  I'm familiar with stocks but not with bonds, so I went with the easy package instead of picking bonds individually to invest in!

I must admit, I raised an eyebrow at Whiskey barrels.  Seems like a really strange thing to invest in...  Firstly you're relying on the company being sound and the company continuing to get good reviews (for the next 4 years when they sell it) - they rely on great review to be able to sell their whiskey at such a high premium.  I'd be surprised if they didn't have some clause in the contract to get out of the 100% guaranteed return, if something goes belly-up.  Assuming it's a sound business and they really can guarantee a 10% annual return, it means they are making money so hand-over-fist (Great, then invest in the company itself!)?  Sounds like the barrel of whiskey will be your responsibility for those 4 years even though not in your possession.
I guess be prepared to have to sell the whiskey yourself if the company goes up and they just hand over your whiskey barrel instead of selling it?




LonerMatt

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #14 on: February 12, 2014, 04:02:26 AM »
There's been a lot of questions regarding the whiskey thing, and I suppose that's fair because it's unusual, especially over the internet. To explain a little, for me it costs $6600 to buy 100 liters of whiskey (or 25 gallons), and I get paid $9500 after 4 years, or an additional 10% after 5, depending on the barrel's aging.

Now this frees the company up to make more whiskey, to age. Given that 500ml of this whiskey sells for $200 or so, the company makes around $15-$20k per barrel, according to my goofy math. For small distilleries, this is common practice (as it is in other areas of alcohol production: wine, and other aged products). What makes this offer different is that it is public, usually it's made privately, or to partners.

In Australia, I'm aware of 3 distilleries that have offered, publicly something like this: one isn't doing it any more (obtained enough capital not to need injections), and the other two still are, I believe. The terms and conditions are available with an email. To cut a long story short - the price comes with insurance (in case of destruction, natural disaster, or bankruptcy - I believe) and additional insurance can be bought. That being said, it;s something I wanted to try out - if it works then I can get a solid $2.5k 2-3 times yearly and reinvest the money back into the company.

As per why not just own the company - because it's not publicly traded, and I don't have the capital to buy into it, other than to own some assets.

Now - onto two other things brought up.

Marz: I'm quoting the yield price on the bonds I own, which is perhaps different from the real interest returned (not sure why, or how, but hey maybe someone more informed can help us).

Wildflame + all:

A friend suggested putting my accumulation on the backburner and, instead, using my skills as an English teacher to travel and live (easy enough to get 12 month contracts in Asia and South America, even in the US and UK doing 1/2 year's work is simple enough. This can solve several problems:
1) Free airfare
2) Free/subsidised accommodation
3) Reduced living expenses
4) Money to spend on travel (can potentially save half and spend half, or something like that)

Additionally, it's been suggested that, perhaps teaching English over the internet allows me to work remotely/wirelessly, this is something that I have literally no idea how to start, or how to organise, so I'll have to look into it.

In any case, I would love to hear people's thoughts on the opportunity cost of staying here and working for 3, 4, 5 years then traveling, compared with doing both and juggling both. In absolute terms, the pay is better here, in relative terms (perhaps the more important terms) the pay is often better OS.

limeandpepper

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #15 on: February 12, 2014, 04:32:02 AM »
In any case, I would love to hear people's thoughts on the opportunity cost of staying here and working for 3, 4, 5 years then traveling, compared with doing both and juggling both. In absolute terms, the pay is better here, in relative terms (perhaps the more important terms) the pay is often better OS.

I know someone who taught English in Japan and loved it. She ended up staying longer than originally intended.

I think it depends on your personality and what you're interested in. How much you enjoy teaching, and whether you're okay with still being somewhat tied down to a location and a job while you're traveling, instead of having all your time free to do whatever and go wherever you fancy.

LonerMatt

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #16 on: February 12, 2014, 04:41:19 AM »
In any case, I would love to hear people's thoughts on the opportunity cost of staying here and working for 3, 4, 5 years then traveling, compared with doing both and juggling both. In absolute terms, the pay is better here, in relative terms (perhaps the more important terms) the pay is often better OS.

I know someone who taught English in Japan and loved it. She ended up staying longer than originally intended.

I think it depends on your personality and what you're interested in. How much you enjoy teaching, and whether you're okay with still being somewhat tied down to a location and a job while you're traveling, instead of having all your time free to do whatever and go wherever you fancy.

I think this is the crux of it, really, and to be honest, I don't know exactly. I am interested in teaching, but increasingly only on my terms which aren't unreasonable (don't tell me to 'fuck off' or get in the way of others' learning are basically where I draw the line), while a lot of my 'ideal' traveling involves long stints of hiking or camping, these aren't actually activities I've done before - what I usually do is find a cool city and chill there until I have to go home.

So I suppose this complicates things: am I aiming for the sort of traveler I'd like to be, that I think I'd prefer, or do I stick with the sort of traveler I am (and enjoy already)?

If it's the former, my current plan is fine, if it's the latter, my current plan is, perhaps, unnecessary.

Thinking out loud is really helpful, thanks for prodding and poking guys. I hope someday to be as helpful to others.

AdrianM

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #17 on: February 12, 2014, 05:36:43 PM »
I have attached the Nant 225 Litre Cask Offer.

Read it through, The first half is PR but the back half is the terms and conditions, covering all the what ifs.

Wildflame

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Re: Criticise my ideas and help me succeed (Aus content!)
« Reply #18 on: February 13, 2014, 11:23:06 AM »
I have heard that overseas teaching contracts heavily subsidise your expenses (rent, bills allowance, etc) so you can save and work. If true, best of both worlds! I must admit, if I had the skills and no other commitments, I'd do it as soon as I had maybe $20k saved and some form of health/travel insurance to cover worst-case scenarios.

Regarding the whisky barrel investment, I suggest applying the rule: "don't invest in what you don't understand". The math does check out, though.
The extra insurance is not available to individual investors, meaning that unless you arrange additional insurance yourself, you are not protected against damage or loss. That is a substantial risk you are taking on. In addition, your maturity date is not fixed - it could be 2, 5, or 10 years at the discretion of the distillery. You have to be certain you're happy with the extreme illiquidity that entails. Lastly, you only get repaid if the distillery does not fold - sure, you could take the barrel, but there's a world of fun and games I dare not get into beyond the phrases "excise tax" "climate controlled storage" and "not a brewmaster".

I would construe it as a secured bond, but with almost no secondary market for the bond or resale market for the collateral asset. Yeah, I think 9.55% is probably a reasonable amount to promise for such an instrument... but for that risk level, I'll take shares.