Where to go fishing? – Part 1 – Profitablity and Growth

A Day’s Fishing (circa 1923) – Edward Henry Potthast

The obvious answer is … where there are fish.

Slack Investor is always on the lookout for growth companies … particularly when he is on the BUY! Since retirement, I haven’t had much chance to be on the Buy side of a transaction lately – as there isn’t that flow of fresh new money coming into the coffers from employment. Pre-retirement, any new money would flow into the cash reserves of my Super (SMSF -Self Managed Super Fund). When a sufficient amount of cash had built up, I would look around for some company shares to buy.

However, with the expected inflow of a bit of cash with the impending sale of Altium, I am starting to look around for suitable receivers of Slack Investor loot. Slack Investor is “Going Fishing”. The first thing I want in my pond is profitable companies – but I also want them to have a record of growth. In the second part of this fishing series, I will try to narrow things down to companies that I would actually like to buy.

Measures of Profitability

Slack Investor likes a company, that he invests in, to not only make a profit – but to use its shareholder funds in the best way to make a profit. There are many ways to look at profitability, but Slack Investor is pretty lazy in this regard and you won’t find him forensically gazing over profit and loss statements from a company report. I prefer couple of simple ratios to get an overview – I am no expert accountant.

Return on Equity (ROE)

ROE = Net Income/Shareholder Equity

I have always used Return on Equity (ROE) as a simple measure to give an idea on how a company is growing. Strictly speaking, the ROE is more a measure of profitability and how well it grows each dollar of company funds.

The higher the ROE, the more efficient a company’s management is at generating income and growth from its equity financing.
Investopedia

This metric is very easy to find in market aggregator sites such as Yahoo.com, Morningstar, or Investing.com. For a deep dive, I prefer Marketscreener.com – which has the advantage of showing Predicted ROE for the next few years on each companies financial page. One of the problems with ROE is that, companies with debt can present an inflated ROE.

Return on Invested Capital (ROIC)

ROIC = Net Profit (After Tax)/Average Invested Capital

The purest way of looking at how good a company is in converting shareholders money into profit is the ROIC. Unfortunately, this figure is harder to come by on the generic financial aggregator sites. This ratio is superior to the ROE as it accounts for the debt levels of a company – as the Average Invested Capital is the Average Equity – Average Debt.

Measure of Growth

Compound annual growth rate (CAGR)

A quick way of determining if a company is growing is the CAGR. It is often constructed from past , data. The “Compound Annual Growth Rate”—is the annualized rate of growth in the value of the Earnings, or Revenue, over a stated period. The maths is a bit complicated and best done on a spreadsheet or a search around the financial sites. I found limited CAGR data for stocks at Morningstar and finbox.com

CAGR is defined as the annualized growth rate in the value of a financial metric – such as revenue and EBITDA – or an investment across a specified period.
Wall Street Prep

Putting together Profitability and Growth

Fortunately there are some really nice blokes in the financial world that share the burden of responsibility to educate people about the share market as well as operating a profitable business. A shout out to Owen Raszkiewicz of the RASK Group. A great place to start your financial education with Owen is his Australian Finance podcast that he co-hosts with Kate Campbell. Slack Investor will often tune in to their discussions.

Below is a table Owen prepared in August 2023 that ranks Australian stocks in terms of their profitability (ROIC – Return on Invested Capital – Column F). He also shows, in the last column, the stock’s historical growth rate for the 5 years 2017-2022.

From Rask Media – ASX’s best companies published August 2023 – ranked in order of ROIC- Click on image to enlarge

This is a great place to start fishing, metrics for profitability and growth in one place. Pro Medicus is standing out here – High profitability (ROIC 55.48%) and high historical growth (5-yr CAGR 24.22%). A complete picture needs both of these metrics. For example, Woolworths has a high profitability (ROIC 41.28%) but is laggard in historical growth (5-yr CAGR 2.10%).

The next article in this series will look at how Slack Investor narrows these stocks down and then screens them further with the P/E Ratio to try to make sure that each potential buying stock is not overpriced.

First Home Super Savers Scheme (FHSSS)

After discussing how hard it is for those trying to buy their first home. Slack Investor is compelled to provide some hope in the desire to own your home before you retire. The numbers are in … and, not owning a house in retirement or, losing your job before you retire, puts you at real risk of not reaching a comfortable financial position.

Whereas very few retired home owners are in poverty, most retired renters are …
Helen Hodgson – Professor, Curtin Business School

From – Retirement Income Review Final Report (2020)

There are very few existing incentives on the dusty twisted road to home ownership. They include Stamp Duty exemptions/concessions that vary from state to state. In Victoria, they are available for homes less than $750K. There is also the First Home Buyers Grant (FHBG), which, again, is dependent on which state you live. In Victoria, that comes in at a measly (but I’ll take it!) $10K.

All of these things are worth considering and applying for when you finally purchase a home, but the First Home Super Saver Scheme (FHSSS) is a lesser known arrangement that seems to make sense – but it requires a bit of “setting up”.

In order to make the most of the FHSSS, you’ll need to start planning well ahead of the time to buying a house/apartment (3 – 4 years?) – But planning ahead is the very trait that Slack Investor loves!

First Home Super Saver Scheme (FHSSS)

I did refer to the First Home Super Saver Scheme (FHSSS) way back in 2017 when it was just a twinkle in ScoMo’s eye – it started as an election promise to get the “young folk” on board as the government felt a need to at least be seen to be doing something to help first homeowners.

Normally, your super is a beautiful one-way savings vehicle where your retirement money is locked away, and compounding, until you meet a condition of release or, when you reach your preservation age. For most people, the big taxation benefits kick in after the age of 60 – but that’s another story.

However, the treasure chest of the FHSSS, is opened when you first start to make some extra super contributions (up to $15K per year).

These voluntary contributions can be withdrawn from your super when you finally ready to purchase a home – by filling out an ATO form for a ‘determination’. The determination will tell you exactly how much you can withdraw – it will be a little more than you have put in (your contributions – up to $50K – plus deemed earnings)- and waiting a month.

Getting the money out usually takes 15–25 business days … once you withdraw money to buy a house, you have one year to use it
Choice – First Home Super Saver Scheme: Can it help you get on the property ladder?

These extra contributions are over and above the compulsory super that your employer makes. The scheme works by making an arrangement with your paymaster to salary sacrifice into your super – up to $15K per tax year. Contributions can also be made by arranging with your super provider to make a personal super contribution.

The tax savings come about as, you only pay 15% tax on these super contributions – rather than your marginal rate of say, 32.5%. Plug in your own details into this calculator to determine your possible tax savings.

There are complexities and limitations that include not exceeding your concessional contribution cap of $27,500 – but your super provider will help here.

I would recommend all prospective home owners to take a look at this scheme. Assessment for eligibility is made on an individual basis … so couples and friends can combine their amounts – but start now – it will take a few years to get a useful house deposit.

Colonial First State outline a case study of a couple that have each started voluntary extra super contributions of $15K – After 15% tax this comes down to $12 750 p.a of contributions into their funds. After 4 years, they each have amassed $55K (4 x $12 750 plus deemed interest). A combined house deposit of $110K was possible using the FHSSS – and, using a favourite Slack Investor way of saving – deductions from your salary before you even see it! All of this with tax advantages.

Homework (get it!): – Potential homeowners – read about it – and get on the FHSSS!

Super, a home, and the Pension … a fruity mix! – and February 2024 – End of Month Update

Even Superman has his limits – Is it Kryptonite OR Brussell Sprouts?

Slack Investor writes a lot about Superannuation because it is a fantastic component to have in your armoury to establish financial independence – in a tax-effective way.

The ultimate aim for Slack Investor is to fund your own retirement, but in reality, according to the Association of Superannuation Funds of Australia (ASFA) estimates, a minority (43% ) of Australians of retirement age would be self-funded by 2023 – this percentage should increase as the compulsory superannuation system matures.

On 31 March 2023, 63% of the population aged 65 and over were receiving the aged pension (full or part), or other government-funded income support.

As so many Australians rely on a mix of both their super and the aged pension for retirement, it is worth revisiting the perverse ways in how superannuation interacts with the pension under the Assets test devised in 2017.

Your own Home

Before we get to this mix, by the time you retire, you do want to have a place to live and be free of landlords. This may sound impossible to some at the moment – but it is a vital part of financial independence. It can be a “tiny home”, an apartment, a place in a regional area …. as long as it is yours!

Tiny Homes – This 20 sq m little bewdy will set you back $32 000 – however, you still have to find land for it – and connect to services.

It is so important to aim to own your own home by the time that you retire – even if it is a 1-br apartment. Admittedly, this is so much harder than it used to be! Looking at the figures below, it is vital to get as large a home deposit as you can to reduce your borrow amount – this should be one of your early financial goals. However, without help, a multi-bedroom home near a capital city now seems near impossible.

If you dont have a deposit, October 2023 data showed that Australians need an income of more than $300,000 a year to buy a median priced home. Household incomes required were considerably less, but still “eye watering”, for outer suburbs and regional cities. e.g. Geelong $243,333, Brisbane $223,333. Apartments are usually less expensive – and require less income to service the home loan.

Things are really bad at the moment for future home owners. It was assessed that for the home market to “affordable” home prices needed to be on average 3.0 times the average median income. Currently, Australia’s housing market has a median multiple of 9.1! I am hoping that future governments will adopt policies that will reduce house prices – But I am not holding my breath.

Super and the Aged Pension

At its most basic level, superannuation is forced retirement savings for all working Australians. A compulsory contribution of 11.5% of your salary (from 1 July 2024) that will compound till your preservation age (between 55 and 60).

According to Treasury projections, about 60% of retirees will have less than $250 000 in super in 2024. This amount of super is not enough to fund a comfortable retirement. $250 000 in pension mode at the official Age 67 drawdown rate of 5% generates only $12 500 income per year. Clearly, many Australians will need to rely on a mix of their super and the aged pension for retirement income. The Aged Pension is available to Australians over 67 – but, it is means tested.

The bare minimum to aim for is the “sweet spot” in the aged pension asset test where your assets are a bit more than the maximum allowed for the full pension. Under current rules (2024), home owning couples can have $451 500 in assets (singles $301 750) and still qualify for the full government aged pension (at age 67).

In 2020, the Alliance for a Fairer Retirement System pointed to a super sweet spot of around $400,000, which can see a pensioner (home-owning) couple “earning $1,000 a month more than a couple with $800,000 in savings.”
Nicola Field (Using data for 2020/21)- Canstar

The first chart shows 20 different amounts of superannuation that you might have saved up by the time you are ready to retire – ranging from $150 000 to $1 100 000 above chart – from saveoursuper.org.au.

This next chart is far more interesting, it shows your total income from different amounts of superannuation (shown in the above table) mixed with the aged pension – for a home owning couple. For simplicity, these tables assume your only non-home assets are in super and the aged pension rates were those applicable in 2021 ($34 777 per couple). The essence of the table is still valid.

Total amount of retirement income – **for a home owning couple** – Combination of Part-Aged Pension (orange) and 5% of Superannuation Balance (Blue) for each of the 20 amounts of Superannuation Balance shown in the first chart (Using data for 2020/21)- saveoursuper.org.au

Bizarrely, there is a point on the total retirement-income (couple) table corresponding to around $400 000 in assets/super where an increased assets/super balance does not lead to an increased total income due to the asset test pension taper rate. Above that point, for those on the part-pension/super mix, the more super you have, your total income actually goes down. This strange anomaly exists for assets/super between $400 000 and $800 000 (2021/2020 data).

Clearly, the current assets test to qualify for the aged pension is unfair and provides a disincentive to save -and should be changed. But, until then, a major retirement goal is to use your super to get your total assets to near the sweet spot before you reach age 67.

(It)is not fair that people who forgo consumption and save more to increase their living standards in retirement and reduce their reliance on an Age Pension should instead get less retirement income. This is the perverse outcome for a large range of savings under the 2017 assets test.
Jack Hammond and Terrence O’Brien – saveoursuper.org.au

How the Assets test works (in real life) for the aged pension (2024 Data)

According to Services Australia, for the aged pension, assets are property or items you or your partner own in full or part – this does not include your home! It does include Financial Investments (Bank accounts, shares, managed funds, annuities, etc), Personal assets (Home contents and vehicles), Superannuation and Real Estate.

I had a recent example of filling in an assets form for a close relative. Her bank statements and investments were easy to quantify. We were advised that personal assets should be valued according to what we could get if we were “keen sellers”. It was suggested to us that, other than vehicles, most peoples personal effects would amount to between $5000 and $10 000. This proved to be near the mark as most furniture and home items end up having to be donated when finalizing a deceased estate.

For the table below, the aged pension and asset limits are current values* and correct at February 2024. Using 2024 data, the “sweet spot” for assets is now near $451 500 for couples ($301 750 for singles). If you had $250 000 in super, and your “other assets” added up $60 000 (Car $13 000, Bank Ac’ts/Shares/Funds $35 000, Home Contents $12 000). Your Total assets would be $310 000.

For a couple with similar “other assets” and a combined super of $400 000, your total assets would be $460 000.

Situation	Asset Limit	Other Assets*	Super	Drawdown from Super @ 5%	Age Pension	Total Income
Single Home-owner	$301 750	$60 000	$250 000	$12 500	$28 514	$41 014
Couple Home-owner (Combined)	$451 500	$60 000	$400 000	$20 000	$42 988	$62 988

Table based on a single home-owner with $310 000 total assets ($60K + $250K) and a couple home-owners with $460 000 total assets ($60K + $400K) – using Feb 2024 values for the Aged Pension and Asset Limits.

Using this mix of super and the pension, when reaching the pension qualifying age , a modest to comfortable retirement is possible under current rules when you own your own home. Also, under the Work Bonus Rules, singles can earn up to $5304 (Couples $9360) in a part-time job without affecting their aged pension.

Comfortable lifestyle (p. a.)	Modest lifestyle (p. a.)
Couple $71,723	Couple $46,620
Single $50981	Single $32,417

ASFA calculated annual retirement requirements for those aged 65-84 (September quarter 2023) for both “comfortable” and “modest” lifestyles

February 2024 – End of Month Update

Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.

Little movement this month for the ASX200 (+0.2%) – but, it is testing new all-time highs. Nothing happening with the FTSE 100 (0.0%) at the moment.

The S&P 500 (+5.2) and the NASDAQ 100 are hitting new record highs and Slack Investor is pleased to go with the momentum but remains nervous for these markets.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Savings Rate and … December 2023 – End of Month Update

My last post on “Salary Sacrifice” got me thinking on the other things that I did to help myself on the journey towards financial independence. I have before stressed the importance of your savings rate as the primary tool in the box – and, more than anything, this is the number that will affect when you become financially independent.

This figure can be calculated a few ways, but for simplicity, let’s define it as your retirement savings as a percentage of your take-home pay (disposable income after taxes and deductions) – this can be calculated using fortnightly, monthly, or yearly data.You can work out your own savings rate or, if you are in a stable relationship with a combined goal, include your partner’s savings and take-home pay.

SAVINGS RATE (%) = 100 x (Total amount of Savings put aside for Retirement/Take-home Pay)

This savings rate is the percentage of your after tax income that you must be putting towards retirement – and it defines the number of years that you have to work until you can sustainably generate your expenses from your investments. There are some assumptions for the following chart:

Your investments earn 5% after inflation
You can live from the “4% safe withdrawal rate” after retirement.

This magical curve is presented below to bring a bit of clarity to your goal. The object is to get to the stage when your annual return on investments (Passive income) cover 100% of your expenses. This represents the beautiful state of financial independence.

From The Escape Artist – using the conservative assumption of a 5% return on your retirement portfolio after inflation.

In Australia, with compulsory superannuation, 10% of your gross salary is deducted from your wages. Taxation rates will vary, but lets just say that 10% of your gross salary is the equivalent of about 15% of your net salary (disposable income). You add your superannuation to any other retirement saving that you are doing to get your total amount of savings put aside for retirement.

Starting from scratch, from the above graph, if you worked continuously, and only relied on compulsory superannuation you enter the full-time work force and you are 42.8 years away from a retirement – where your living expenses are covered by the passive income from your retirement savings. In other words, if working continuously, a 22-year old starting full-time work will have enough passive income to cover expenses when reaching the age of 64.8 – relying solely on compulsory super.

In Australia, there is also the aged pension to kick things along after age 67. Obviously, if you want to retire sooner and have a bit extra for holidays, and to allow a bit of a safety margin, and be financially independent – You will have to do some extra savings towards retirement yourself.

How are people going with their savings rate?

For Australians, the compulsory superannuation system provides a sound base for retirement savings (with a working life of 42.8 years). This doesn’t factor in the government funded aged pension – subject to a means test. Currently the pension (September 2023) is $28,514 per year for a single person – But who knows if this will still be available at present levels in the future. It is best to plan for your future without it – and then accept it as a bonus if you qualify.

Although this sounds OK, any disruption to your working life (ill health, family, education, retrenchment, etc) will be a real setback to your retirement plans – Any work breaks will require additional savings for your retirement. In the US, the “average” savings rate was between 5-10% for many years. Despite some impressive savings rates during COVID-19, in July 2023, the personal saving rate in the United States amounted to 4.1 percent.

Statistic: Personal savings as a percentage of disposable income in the United States from June 2015 to August 2023 | Statista

From Statista

You would have to say … this does not bode well for a satisfying retirement for the “average” US Citizen.

What was the Slack Investor Savings Rate?

Rusted on followers of this blog will recall that I had a bit of a delayed start to thinking about retirement. I had just arrived back in Australia after a 6-year working holiday overseas. I was aged 30, broke, and the only thing I knew was that I didn’t want to continue working in the field that I was trained in – high school teaching.

Clearly Slack Investor had a bit of work to do. Once I was in regular employment again, I set about getting the financial building blocks in order. Emergency fund, house deposit … and then savings for my retirement. I did this mostly using salary sacrificing into superannuation and building up my own private share portfolio.

There is nothing Slack Investor likes more than burrowing into my financial history using the excellent and free “Sunset” international release of Microsoft Money. I use the Australian Version. I have been using this software to track my finances since 1990 (33 years!)

Including superannuation contributions, my savings rate for retirement fluctuated between 20% and 45%. From the top graph, this represents a shifting rate that was equivalent to an overall retirement goal that required between 36.7 years and 19 years of working. Since “ground zero” at aged 30 and some extra education, I ended up working mostly full time for 28 years. Luckily, I had found a job as meteorologist that I really enjoyed.

This is not the “hard core” road to financial independence (i.e retire at 35, etc) – but Slack Investor thinks a reasonable compromise with the competing priorities of raising a family and buying a house.

Savings Rate is so important. Determine what your own savings rate needs to be to achieve your retirement goals – and automate your savings deductions as much as possible – and get cracking!.

December 2023 – End of Month Update

Happy Days. The year closes and, Slack Investor was definitely not naughty … a big December “Santa Rally” this month. All followed markets rose. The ASX 200 up a mighty 7.1%, the FTSE 100 up 4.0%, and the S&P 500 up 4.4%,

Slack Investor remains IN for the FTSE 100, the ASX 200, and the US Index S&P 500.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been completed.

Sacrifice

The Self-sacrifice of a father – Jacques Sablet (French, 1749–1803)

Slack Investor likes a bit of old art – and a picture that tells a story really floats my boat. But firstly, a bit of recognition to the fabulous Artvee site that gathers public domain files of artworks from around the world from galleries and museums.

This Jaques Sablet oil painting depicts a father returning home with a bandaged arm – where he reveals some loaves of bread to his hungry family. He has previously allowed a trainee surgeon to extract his blood in exchange for money.

Not suggesting a blood sacrifice is required these days for a loaf of bread – but a form of sacrifice that could help you on your journey to financial independence is Salary Sacrifice.

Salary Sacrifice

The key to tax-effective salary sacrifice is for the employee to take some of their remuneration in the form of concessionally taxed benefits instead of taking it all as fully assessable salary.
H&R Block

Australia has a progressive tax system that steps up at critical income values. The advantages of salary sacrifice are that you are buying a benefit in pre-tax dollars in an arrangement with your employer – who takes out the money before you see it. For example, if you sacrifice some of your pre-tax salary for superannuation contributions – instead of being taxed at your marginal rate, you are being taxed at the superannuation contributions rate of 15%. There is a tax saving.

Australian Residents Personal Tax Rates 2023-2024

Taxable income	Tax on this income
0 – $18,200	Nil
$18,201 – $45,000	19c for each $1 over $18,200
$45,001 – $120,000	$5,092 plus 32.5c for each $1 over $45,000
$120,001 – $180,000	$29,467 plus 37c for each $1 over $120,000
$180,001 and over	$51,667 plus 45c for each $1 over $180,000

The above rates are from the Australian Tax Office (ATO) and do not include the Medicare levy of 2%. There are defined things that you can “sacrifice” and pay for with pre-tax dollars. They include car expenses (loan, running costs and parking) and superannuation.

Salary Sacrifice For Superannuation

Slack Investor has always been a good saver and would save up and pay cash for a second-hand car rather than getting a car loan. The benefits of sacrificing salary for a car were small without the a car loan element. I did however see the advantages in sacrificing part of my salary for superannuation.

United Global Capital (UGC) provide the case study for worker William aged 45 who plans to retire in 20 years. He was given a pay rise of $5,000, bringing his total salary to $90,000 pa. Rather than pocket the gain, he uses the pay rise to boost his retirement savings and salary sacrifices the extra $5,000 salary into super each year

By using this strategy, he’ll sadly have less take home pay ($3275), but he will save on tax and have an extra $975 in the first year to invest into super, when compared to receiving the $5,000 as after-tax salary (see Table 1).

The real benefits are in the disciplined automatic saving of $5000 per year and the magic of compounding over 20 years. If he continued to salary sacrifice this amount into super, this could lead to William having an additional $228,500 in his super after 20 years (see Table 2).

You can enter your own salary details using the Industry fund salary sacrifice calculator.

There is also another advantage of salary sacrifice – for getting into the property market using the Australian Government First Home Super Saver Scheme. It has some complexity and form filling – but it does allow you to load up your super with salary sacrificing and then withdraw up to $50 000 from your super as a first home deposit.

There are drawbacks to salary sacrifice … the main one being that even though there is an overall benefit to your wealth position – it is not realised till you retire and start using your superannuation – this may be many years away. Your overall take-home pay will immediately reduce – which is a tough ask in these higher prices times.

Slack Investor is no stranger to delayed gratification and loves to automate his savings … so salary sacrificing to super was a good strategy for me and my partner. There was always competition for funds with paying off my home loan – and, I never got to using the maximum amount allowed for salary sacrificing per year (Currently $27 500 per year) … but it was always my aim.

Salary sacrifice was a worthwile element in the Slack Investor path to financial independence.

FY2023 Nuggets and Stinkers and … July 2023 – End of Month Update

“Life is not a bowl full of cherries, there’s good and bad stuff“
Fuzzy Zoeller (American professional golfer)

Fuzzy Zoeller does not always say wise things, but his quote above is on the money. Slack Investor takes the good with the bad.

The trampoline effect of stinkers becoming nuggets in consecutive years reared again, with REA making the transition this year. Also, Nuggets … might end on the Stinker pile the year after. Slack Investor puts more emphasis on growth over a multi-year period, but compiles the yearly Nuggets and Stinkers list …. because its fun!

Growth stocks (usually high Return on Equity (ROE >15%), as with other stocks, often have cycles of price – bouts of overvaluation followed by a period of undervaluation.

The percentage yearly returns quoted in this post include costs (brokerage) but, the returns are before tax. This raw figure can then be compared with other investment returns. I use the incredibly useful Market Screener to analyze the financial data from each company and extract the predicted 2o25 Price/Earnings (PE) Ratio, Dividend Yield, and Return on Equity (ROE), on the companies below. This excellent site allows free access (up to a daily limit) to their analyst’s data, on the financials tab for each stock, once you register with an email address.

Slack Investor Stinkers – FY 2023

Financial year 2023 was a welcome recovery in the technology sectors. All of Slack Investors followed markets Australia, the UK and the US having gains over the financial year 2023. However, Slack Investor is always ready for lessons in humility and still managed to pick up a few stinkers along the way.

Integral Diagnostics (IDX) -19% (Sold Oct 2022)

(IDX – 2025: PE 18, Yield 3.8%, ROE 10%) Integral Diagnostics provides medical imaging services at a number of urban and regional locations in Australia and New Zealand. This company was also one of my stinkers last year (FY2022 -39%) The sinking feeling that I got during my monthly chart reviews was just too much … and I finally gave into that negative energy in October 2022 – and sold. This, unfortunately, turned out to be the bottom of the market – and IDX has made a modest recovery since.

Computershare (CPU) -18% (Sold May 2023)

(CPU– 2025: PE 16, Yield 3.8%, ROE 29%) Computershare is well known to owners of some Australian shares as they run the registry for many Australian companies. It started as an Australian technology business in 1978 and since has become a major global player in financial services. Slack Investor just bought at a bad time … and I sold in May 2023 to make another share purchase. CPU seems to be a solid global business though – Will look at buying this one again.

Dicker Data (DDR) -18% (Still held)

(DDR – 2025: PE 14, Yield 6.8%, ROE 42%) Dicker Data is the only Australian owned and ASX-listed major IT provider. It is a hardware, software and cloud distributor for most of the well known US IT companies (Microsoft, Cisco, HP, etc). The business is projected to continue to grow and, as the share price seems to have “bottomed out”, Slack Investor will continue to hold on because of the companies excellent projected PE, Yield, and ROE.

BetaShares Asia Technology Tigers ETF -7% (Sold Sep 2022)

(ASIA – 2023: PE 17, Yield 2.6%,) Growth in Asia … What could go wrong! Plenty it seems. These “technology tigers” that make up this ETF have been part of a global selloff of tech-related shares in Asia since 2021 as many US investors take flight from the China market due to US/China tensions.

This company was also one of my stinkers last year (FY2022 -33%) and was “on watch” during my monthly chart reviews. Sadly, the pain became too much and I unloaded near the bottom of the market again … and, it has since made a modest recovery. I have maintained at least some exposure to the Asian tech sector with with Vanguard FTSE Asia ex Japan ETF (VGE.ASX).

Slack Investor Nuggets – FY 2023

Nuggets made a comeback this Financial Year. Slack Investor continues to invest in high Return on Equity (ROE) companies with a track record of increasing earnings, Companies with these qualities sometimes behave as “golden nuggets”.

Technology One (TNE) +48%

(TNE – 2025: PE 37, Yield 1.5%, ROE 34%) This Software as a Service (SaaS) and consulting company continues to be profitable. This great business was also a nugget last year (+17%). A high 2025 PE of 37 (Expensive) is a little scary but, if the high Returns on Equity (34%) remain, on balance, this is OK. I found this company through the writings of Rudi Filapek-Vandyck – a great Australian Investor and writer, when he talks, Slack Investor listens.

Altium (ALU) +40%

(ALU – 2025: PE 34, Yield 2.3%, ROE 32%) Altium is an Australian based developer and seller of computer software for the design of electronic products worldwide. It focuses on electronics design systems for 3D printed circuit board (PCB) design. Slack Investor has part-owned this business since 2009 and has enjoyed the increasing value that ALU has created. This sector is very now … and remains a favourite of Slack Investor.

CarSales.com (CAR) +37%

(CAR – 2025: PE 28, Yield 3.0%, ROE 10%) CarSales.com is the go to for selling cars, boats and other vehicles. It does, in an efficient way, what the classified ads used to do. I have noticed that the Return on Equity is dropping (Now 10%) and will keep this company on watch – but I cant argue with the recent price rises.

BetaShare NASDAQ 100 ETF (NDQ) +36%

(NDQ – 2023: PE 26, Yield 1.0%) Exposure to the powerhouse of US Tech companies with the simplicity of an ASX ETF. Management fees are reasonable at 0.48% – Slack Investor remains a fan.

Pro Medicus (PME) +36%

(PME – 2025: PE 78, Yield 0.6%, ROE 46%) Pro Medicus is a developer and supplier of healthcare imaging software and services to hospitals and diagnostic imaging groups. Slack Investor actually met the CEO and co-founder of Pro Medicus, Dr Sam Hupert, at an investment seminar last year. His modesty, US foothold, and debt-free approach to expanding his business impressed me – I’m obviously glad I bought in – but the very high PE ratio (+78) is worrying – expensive.

REA Group (REA) +30%

(REA – 2025: PE 39, Yield 1.5%, ROE 29%) Like Carsales.com, REA has dominated the space left by the old newspaper classifieds in selling real estate in Australia. REA has expanded into India and other global locations. A high PE ratio (39) but while projected Return on Equity (ROE) remains high (29%), this is OK.

VanEck Wide Moat ETF (MOAT) +30%

(MOAT – 2023: PE 19, Yield 2.6%,) The Wide Moat ETF run by VanEck is a rules-based selection of “attractively priced US companies with sustainable competitive advantages” Sounds good doesn’t it. The management expense ratio of 0.49% is OK for such curated US exposure.

Slack Investor Total SMSF performance – FY 2023 and July 2023 end of Month Update

After a difficult 2022, FY 2023 is described by J. P. Morgan as being “kinder to balanced portfolios”. True That! The growth stocks that were punished last year bounced back strongly. In the Australian superannuation scene, the median growth fund (61 to 80% in growth assets) returned +9.2% for FY 2023. The ASX 200 chart shows a gradual climb for the financial year.

ASX 200 Weekly chart for FY 2023 – From Incredible Charts

After a tough FY 2022, the FY 2023 Slack Investor preliminary total SMSF performance looks like returning to form and coming in at around +18%. The 5-yr performance is a more useful benchmark to me – as it takes out the bouncing around of yearly returns. At the end of FY 2023, the Slack Portfolio has a compounding 5-yr annual return of around 10%.

The new financial year started of positively for Slack Investor markets. The ASX 200 + 2.9%; FTSE 100 +2.2%; and S&P 500 +3.1%. He remains IN for all index positions.

All Index pages (ASX Index, UK Index, US Index) and charts have been updated to reflect the monthly changes.

The Long View

“Astronomie”, Georg Leopold Hertel and François Boucher, 1750 – 1778 – Rijksmuseum, Netherlands

What exactly these angelic cherubs are up to in this etching will remain a mystery to Slack Investor, but he would say that looking at things from a distance is a worthwhile trait in the stock market world. Slack Investor is currently in Europe on holiday and the geographical distance and time zone shift have helped him take more of a holiday from the markets … and just let them get on with it – without interference!

Take the long view

There are some scary headlines and plenty of volatility on the stock markets with worries about inflation and international bank collapses. Slack Investor will just pass on some sage advice. Here is the secret to being a good investor …

Don’t get caught up in what happens in three months, six months, or 12 months. It’s about the next five to seven years.
Paul Taylor, head of investments for Fidelity Australia and Portfolio Manager for the Fidelity Australian Equities Fund

Paul Taylor is no mug … his Australian Equities Fund is of the managed fund variety and, despite a slug of 0.85% p.a. in management fees, his fund has kept pace or slightly bettered the performance of the ASX 200 Accumulation index over the 5 and 10-yr periods. Even though the managers of the fund appear to know what they are doing, the difficulty of beating index funds over every time period is shown by the negative relative performance over 1 and 7-yrs.

Fidelity Australian Equities Fund performance compared to the ASX 200 Accumulation index – up to the end of February 2023.

Now, Slack Investor completely agrees with Mr Taylor, when investing in equities (shares), you should be locking them up for at least 5 years so that any volatility will be swamped by the beautiful long-term march of increasing value for Australian and International Shares. See the latest Vanguard Long Term Chart to see what I mean.

Slack Investor is still “pretend hurting” from his own last year’s (FY22) annual Slack performance (-14.3%). However, he realises his 5-yr and 10-yr performance is the critical measure for his Slack Fund. As these returns p.a. (13.5% (5-yr) and 15.2% (10-yr), are comfortably above benchmarks, I have reconciled the poor one year figures as just part of the volatility of owning mostly growth shares.

Contribute regularly to your savings

Whether adding to your super, or investment savings, the best way to do this is to add regularly, without even thinking about it. Set up an automatic personal deduction from your salary to your super – or automatically contribute to your savings through a vehicle that is in sync with your risk tolerances (e.g. Stockspot, Pearler).

As my super was accumulating, it was mostly in broad-based index funds (Australian and International). My other investments were mostly in individual companies.

While it’s possible to beat index funds, it’s not easy to do over the long run … and as it isn’t worthwhile for most of us to try.
Paul Samuelson, American Nobel prize winner in economics – from johncbogle.com

Slack Investor has some exposure to index-type ETF’s but continues to dabble in individual companies. Despite the above warning, Slack Investor will continue to “have a crack” at stock selection and portfolio management – but only while his long-term performance still stands up.

Things a Financial Advisor might tell you … and May 2023 – End of Month Update

Slack Investor has blogged about financial advice before – and although an advocate of trying to do as much as you can by researching finance world yourself, it can be a very difficult journey to be across all the fields of saving, mortgages, investment loans, insurance, superannuation, taxation, and investment.

Most people want financial advice but the problem is that it is so expensive. MoneySmart.gov.au outline a case study where “Rhett” has $400 000 to invest – He might be hit with fees of $13 600 in his first year of advice . These fees include a Statement of Advice and Insurance premiums and layers of platform and investment advice fees.

Where to invest your money is the easiest thing to sort out for yourself – with the key words being diversification and low fees. There are cost-effective ways of investing in a diversified way that will suit your risk tolerance without involving a financial advisor (e.g. Stockspot, Pearler). But some people (Not Slack Investor Readers!) need a trigger to just start investing. Finance world is much more complex than just investing your money. Slack Investor can see the need for finance professionals

Things a Financial Advisor might tell you

Firstlinks have trawled the data to determine the most recommended strategy used by financial advisers – the most common of these are listed below.

Let’s just have a look at some of these in more detail.

Rollover Your Super – “Rolling Over” your superannuation is just a way of describing the transfer of your “protected” super into another protected super fund. Slack Investor readers will be all over this one – Of course it makes sense to put all of your super with one provider to avoid multiple administration fees. Combine your super into one fund – preferably an industry fund (lowest fees) with a good 5-10 yr performance record.

Retain Your Super – This is again good advice for the long-term accumulators of wealth. Unless under extreme hardship, resist all attempts for early access to your super. During the COVID-19 outbreak, $4 billion was paid out to 456,000 people under the early super access scheme. This would have helped distressed businesses and individuals in the short-term but may not have been a great idea in the longer term.

Super Contributions – This is a more complicated area and, it might be good to have advice on when, and by how much ,you should boost your super contributions above those which are compulsory. This is tricky when you have competing loads on your take-home pay (Family, Mortgage, etc). Slack Investor was big on maximizing his super contributions once he had a firm grip on his home mortgage.

Apply for Insurance – When you have a family or debts (home loan?) to cover, life and disability insurance is a good idea. You don’t need an advisor to tell you this. Insurance through your super fund is usually the most cost effective way to do this.

Estate and Aged Care Planning – This area is really complicated for the layman. Professional Advice, or much research, needed.

Commence, Rollover, Retain Pension – You may need advice here if planning to mix aged-pension and super to fund retirement. If there are no aged-pension issues, Slack Investor believes that it is best to start an account pension (from your super) as soon as possible and re-contribute any surplus funds as non-concessional contributions.

Commence, Rebalance Investment – An old truth – Best time to start investing? 20 years ago. Next best time to start investing? Now! Rebalancing can be done automatically with cost-effective platforms e.g., Vanguard Super, Stockspot.

What Types of advice Do You Really Need?

The current financial advice system is complicated by well-meaning regulations that are in dire need of reform. In 2022, the Australian Treasury provided a consultation paper seeking feedback on changes to the regulatory regime that would allow financial advice on specific matters without the obligation that the advisor should know everything about your financial situation – No need for the expensive Statement of Advice (SOA).

Ideally, in a future world, you could get advice at various stages in your life from finance professionals at an hourly rate – perhaps in the same way you would consult a medical specialist about a problem. For Instance

Early/Mid-Career Advice: Am I on track with my savings, super contributions and retirement plan? What strategies should I employ to achieve my goals?
Pre-Retirement: Am I ready? Taxation Issues? Aged-pension/Super mix?
Estate and Aged Care Planning: Complicated – Many issues to discuss here.

Alternatively, you could just turn your financial future into a hobby (Like Slack Investor did), and use the internet and books to educate yourself.

May 2023 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. It was a dreary month for the Slack Investor followed markets. The ASX 200 performed poorly this month – down 3.0%, and the FTSE 100 even worse – down 5.4%. The S&P 500 was flat (+0.2%) for the month.

In this month of turmoil for stock indexes, the Slack Portfolio did quite well. This is because it is heavy with technology stocks that are having a moment in the sunshine. The Nasdaq 100 index was up 7.7% for the month of May.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Vanguard Super … and November 2022 – End of Month Update

Slack Investor Hero, Jack Bogle, reflecting in casual ware – on how to keep costs down – New York Times

Jack Bogle created Vanguard as a “penny-pinching” financial powerhouse that was owned by the shareholders of its funds. Vanguard pioneered the low-cost index funds revolution.

The Vanguard Effect

The cost of financial products is important, and Slack Investor does his best to minimise any fees that come with financial transactions. It is not often I get to talk about two of my favourite finance things in one blog. Vanguard, the low-cost fund trendsetter and superannuation.

Vanguard have long been a fund manager and ETF provider that have been at the forefront of lower fees in the finance sector. The term “Vanguard Effect” has been coined to explain the phenomena that when Vanguard competes in an area, the expense ratios from their competitors tend to decrease.

Tracking the average Management Expense Ratio (MER) **for US Index funds** – Vanguard

Vanguard Superannuation in Australia

This month, Vanguard launched into the Australian Superannuation space with a product that is transparent and amongst the lowest fees for an accumulation account. The beauty of their offering is the straight up bundling of all their fees into one simple number – 0.58% of your super balance. Of course, Slack Investor would like a lower management fee – but this is a good start.

0.35% (Administration) + 0.21% (Investment) + 0.02% (Transaction) = 0.58%

The Vanguard MySuper Lifecycle product fees depend on how much Super you have. For a $50,000 balance, the total annual fee would be $290, for a $500,000 balance, the total annual fee would be $2900. The transparency is good – Drag out your own Super annual statement and try to work out your own total fees.

Using the ATO’s comparison of MySuper products tool for a few of the popular industry funds for a $50K balance.

	UniSuper	AustralianSuper	HostPlus	Hesta
5-yr Net Return	6.44%	7.07%	7.58%	6.53%
Annual Fee	$316	$452	$619	$510

Of course, fees are not the only consideration. Many of the Industry funds use some sort of stock picking, and may use private equity to enhance their performance. Vanguard Super is made up of a mixture of index funds. I do like the way that the Vanguard Lifecycle automatically adjusts your exposure to risk as you creep towards retirement. 90% growth assets till age 45, then tapering to below 50% when you reach 60. All this is done automatically by Vanguard.

The adjustment of exposure of the Vanguard Livecycle super between growth and defensive assets as you age – Vanguard

Despite this juicy offering, there is often a lack of engagement of Australian workers with their superannuation. Vanguard will probably have a bit of trouble gaining traction in Australia due to the size and popularity of their industry super competitors. This product is currently only for accumulation accounts at this stage. It is a decent starting point by Vanguard and l0ok forward to details of their pension option (coming soon!). I also am hopeful of a bit of the “Vanguard Effect” to put a bit of pressure on existing superannuation fees – which are still too high.

A note that Slack Investor is not sponsored by Vanguard (or anyone else!), but I own a few of their ETF’s and their original founder, Jack Bogle, is one of the Slack Heroes.

November 2022 – End of Month Update

Slack Investor is now back IN for Australian index shares, UK Index shares and UK Index shares.

Last month’s update describes why I feel glad that my 20-yr index timing experiment is coming to an end in 2024. The frustrating moving out … then quickly back in to my Index funds is getting tiresome. I am likely to become just a “buy and hold” investor for my small portfolio of Index funds.

This month, all markets found there were “Reasons to be Cheerful”. There were positive movements all round. The ASX 200 +6.1%, the FTSE 100 +3.3% and the S&P 500 +5.4%.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Retirement Income

I am hoping that your retirement does not upset as many people as in this James Gillray (1756-1815) painting of “Integrity Retiring From Office”. You can hopefully avoid this by leading a good life and providing yourself with income for this wonderful stage of your life.

There are lots of ways to do this – Slack Investor likes to separate his non-house assets into a Stable Pile and an Investment Pile in his Self Managed Super Fund (SMSF). Most of the commentary on this website has been about the Investment pile as this is the most exciting – and produces the most gains – and lately, the most losses. My Investment pile is volatile as there is greater risk (and opportunity for growth) in this part of the portfolio.

The Stable Pile is mostly to supply me with guaranteed income during the market downturns. Slack Investor’s Stable pile consists of Cash, Term Deposits, An Annuity, Fixed Interest, Real Estate and Bond ETF’s, and some dividend-producing consumer-staple shares.

If the previous financial year has been a good year for investments, my next years annual income requirements can be withdrawn from the investments pile. If you get a bad year for investments, then, I dip into the stable income pile. I try to keep my ratio of Investment Pile to Stable Pile at about 70%:30% and I roughly rebalance at about this time of year (July/August/September).

Using this method, you are always selling from your investments pile when the market is high and buying when the market is low
Slack Investor – A Further look at three pile theory

This method suits Slack Investor, but there are other ways to provide yourself with income in retirement.

Dividends

The well known Australian investor Peter Thornhill, is a great proponent of using dividends to provide retirement income. His MySay articles are well worth a read. Peter maintains that dividends supply an inflation-protected, income that doesn’t vary as much as stock prices do. He supports this strategy by keeping sufficient cash in his superannuation account to fund the next 3 years minimum pension withdrawals (For the Australian superannuation system) – this helps avoid forced selling. The rest of his fund is in Industrials and Listed Investment Companies (e.g. Argo (ARG), Whitefield (WHF)). He has tested his strategy through market cycles and his strategy has been vindicated through the Covid-19 downturn with even some LIC’s using maintained profits to keep dividends going.

Whitefield Ltd is a Listed Investment Company (LIC) that has generally maintained its dividend Per Share (DPS – blue columns) for the past 50 years – even during periods of downturns where the Earnings Per Share (EPS – Red line) of its contributing companies were declining. From Peter Thornhill

Lifetime Annuity Payments

There are many different types of annuity. Annuities have not been very popular in Australia due to their pricing, relative complexity and inflexibility. Challenger has a few of these products available in Australia with rates at September 2022 for a lifetime inflation-protected annuity of $5104 for a 65-yr-old male for every $100000 invested. There are other options for payments that can be either deferred or market linked. Although you can access these annuities directly through their website, the current model that Challenger prefers is access through a financial advisor.

Retirement Income Stream products

Way back in the Australian 2016/17 government budget, Treasury proposed a series of reforms that included removing barriers to innovation in retirement income stream products. This tinkering was brought about by the realisation that the Australian Super model was mostly fit for purpose in the “accumulation” stage – but was lacking in retirement income stream products that address Longevity Risk – the risk of outliving your savings.

Hopefully, with the benefit of compulsory superannuation, most people would have a pile of superannuation money when they retire – and a desire to turn that pile into income (after paying off any debts). Everybody wants to maintain their standard of living in retirement and would prefer something to invest in that would give them the peace of mind of having a guaranteed income stream for life.

At last some new products are staring to emerge from the super funds. Slack Investor was excited to come across the MyPension income stream from Equipsuper. It is a “set-and-forget” investment strategy that nicely mixes a bit of risk assets (to keep your pension fund growing) with more conservative elements (to maintain a more steady income). This fund uses a similar method to the Slack Investor strategy of using “piles” or “buckets”.

To use the Equip MyPension, you would have to roll your existing super into their fund on retirement. Your super is separated into three distinct investment ‘buckets’. The automatic rebalancing of this product would suit those who want to be a bit more “hands off”.

Equip MyPension option for maintaining a retirement income stream.

Cash – For regular income payments, usually comprised of three years income – about 20% of investment.
Conservative – Investments in low risk categories including cash and bonds – about 40% of investment.
Growth – Investments to grow your savings, subject to short term fluctuations – about 40% of investment.

The clever thing is how these buckets work together over time. When investment markets are good, any earnings in the conservative and growth buckets go into the cash bucket, locking in your gains (Automatically). If markets experience a downturn, we’ll leave any buckets that lose value untouched at the end of year, to allow them to recoup losses in future years.
EquipSuper MyPension

Slack investor has just two piles for his retirement – the Stable Income pile (Cash and Conservative) option and an Investments pile- and I do my own annual rebalancing. My investment pile is a bit more aggressive than the EquipSuper offering – more volatile, but Slack Investor likes to meddle and, is developing a “strong stomach”.