Financial Products | Slack Investor

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These voluntary contributions can be withdrawn from your super when you finally ready to purchase a home – by filling out an ATO form for a ‘determination’.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!

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.

Retirement Fees … and September 2023 – End of Month Update

Tax collectors – Marinus Van Reymerswale (c. 1490 – c. 1546)

The ruthless faces of the tax collectors depicted by Marinus Van Reymerswale do not ring true to Slack investor. These days, tax and fee collectors sit smugly behind desks as the fees and taxes roll in. Don’t get me wrong, Slack Investor is pleased to pay his fair share of tax … but excess fees for investing, that’s another story.

Most people have money in a super fund during their working life – this is normally known as an Accumulation Fund. When they retire, and the money can be released, they rely on this saved money to pay of debt – or fund their retirement. It is usual practice that you ask whoever runs your super fund when it is accumulating to also run your retirement fund – that pays you a pension at regular intervals.

For a fee, the super funds take care of the “back end” of this retirement fund – where your money is invested and all the administration for the fund. The Super provider sets up a new account within your super called an Account Based Pension (ABP). There is a great advantage in doing this as all earnings from from money transferred to this pension part of the fund are tax free if you are over 60. At 60, Slack Investor converted all of his accumulation funds into an Account Based Pension.

Naturally, Slack Investor is all for minimising these fees. Lets have a look at some of my favourite industry funds (Low cost high/performance) – Australian Super, Hostplus, UniSuper, and HESTA. Using the Chant West AppleCheck online tool available through the Australian Super site we can compare what they charge for running an accounts based pension.

For comparison, I invested our hypothetical ABP in the “conservative growth” option (21-40% shares) on all funds. This is usually the least risky of pre-mixed types of investments – and might be favoured by retirees. There are more other pre-mixed options that have better long-term performance – but these other options have more volatility. I have shown below the fees on a $550K account comprising of a $500 000 Account Based Pension together with a smaller $50 000 Accumulation account that you might have still running for any extra contributions.

FUND	10-yr Perf (%)	5-yr Perf (%)	Fees 500K Pension	Fees 50K Accum.	TOT Fees 550K
Australian Super	5.1	3.5	2602	322	$2924
HostPlus	4.7	2.9	3043	404	$3447
UniSuper	4.8	3.5	2696	356	$3052
HESTA	5.4	4.3	3152	362	$3514

The more you have … the more they charge.

Looking at just the cheapest of the above Industry Super providers, Australian Super with a pension account of $500K, $1m, and the current maximum amount for an accounts based pension $1.9m – again using the Chant West AppleCheck online tool.

Australian Super	Fees – Pension	Fees 50K Accum.	TOT Fees
$500K Pension Fund	2602	322	$2924
$1m Pension Fund	4802	322	$5124
$1.9m Pension Fund	8762	322	$9084

You could argue that these fees are reasonable, at around 0.5% of your invested funds, as there are inherent costs in investing and responsibly administrating these large amounts of money. Take the time to check what fees you are paying on your Super fund – and compare with a low cost/high performance fund using the AppleCheck tool – it might be time to switch funds!

Comparing Retirement fees with SMSF funds

Slack Investor is a great fan of the Self Managed Super Fund (SMSF) but recognizes that it is not for everyone – you must really be prepared to put a lot time and thought into the SMSF for it to be successful. To save on costs, rather than divesting responsibility to an accountant, Slack Investor uses a low-cost (no advice) provider and takes on a lot of the administration duties and investment responsibilities himself.

Unlike the Industry funds sliding scale for fees, a significant advantage in SMSF funds is that the costs are fixed – no matter what amount you have. For the 2023 financial year, Slack Investor’s costs through his provider eSuperfund were.

Task	Amount
Admin and Audit Costs (eSuperfund)	$1,330
Brokerage (10 trades)	$300
ETF Fees	$2,300
Time (50h@$50)	$2,500
TOTAL	$3,930

In the above example of annual fees, I have tried to include a charge for my own time at a nominal 50 hours at $50 per hour. On average, a hour per week. Most weeks I wouldn’t spend any time on my SMSF but, around tax time, and when making decisions about buying or selling, pensions, or contributions, I would spend a few hours thinking or researching. Annually, 50 hours is a fair approximation. I would gladly perform these tasks for free as finance is an interest and a hobby, but I’ve included them above to make a proper comparison – as not everyone is a Slack Investor.

Running an SMSF, because of their fixed costs makes more sense with a large super fund (>$500K). However, at the core of any successful self-managed fund (SMSF) is the amount of time and effort that the trustees (you, and other members of the fund) are willing to put into it.

Given the all the above data, it could be better, but the amount of fees that a good industry fund charges to run your pension seem reasonable at around 0.5% of funds under management. Slack Investor hopes that competition and transparency should gradually lower these fees.

September 2023 – End of Month Update

Slack Investor remains IN far all followed markets. The ASX 200 (-3.5%) and the S&P 500 (-4.9%) have had a poor month. However, the FTSE 100 is emerging from the doldrums with a positive month (+2.3%).

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.

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).

Persistence is hard … and March 2023 – End of Month Update

Salvador Dalí, The Persistence of Memory (1931) – MoMA

Dali’s painting “The Persistence of Memory” has been described as a “surrealist meditation on the collapse of our notions of a fixed cosmic order“. Slack Investor is not gifted in the interpretation of artworks but would “have a crack” and say the work was indicating a lack of permanence, or persistency, that we often associate with everyday things. What Dali called “the camembert of time”.

“The sole difference between myself and a madman … is the fact that I am not mad!”
Salvador Dali

Persistence : (Noun) the act of persisting or persevering; continuing or repeating behaviour – vocabulary.com

Persistency is a great investing quality that impresses Slack Investor – but I acknowledge the difficulty. Standard & Poor’s collect data from the US market on how consistently recent top performing share funds are able to keep producing winning records in subsequent years. The following graphic tracks the funds that were in the top 25% of performers in 2018 – and who stayed in the top quartile in successive years.

The percentage of US funds that remain in the top 25% of funds after a 1, 2, 3 and 4 year period – S&P Research – Not many! – Ifa.com

Over a five-year horizon “it was statistically near impossible to find consistent outperformance.”
S&P Research – Ifa.com

Just because a fund, or portfolio, did well in one year does not mean it will continue to perform well the next year. Slack Investor has found this himself with his best performing stocks often becoming the worst performing in the next year – such is the nature of stocks. The stock market often moves between being overvalued and undervalued – and it is the same for individual companies.

Most active (stock picking) funds do not exceed their long-term benchmarks

Not only do active managed funds struggle to maintain consistency, most of them underperform index funds. We are lucky that there are a group of economic boffins that keep an eye on things in the funds department. They are the known as SPIVA (S&P Indices Versus Active). Since 2002, they have been collecting world financial data and comparing actively managed funds to passive (Index) Funds. The 2022 data is now in and the disappointing theme continues. For Australian Equity (Share) funds, for the 5 and 10-yr horizons, respectively, 81.2% and 78.2% of funds underperformed the S&P/ASX 200.

For International equities, the performance of active funds was worse – Over the 5 and 10-year periods, more than 86% and 95% of funds underperformed, respectively.

The percentage of **underperforming** Australian funds in various categories over a 1-yr, 3-yr, 5-yr, 10-yr and 15-yr period – SPIVA 2022 Report

How to cope with inflation

To keep pace with inflation you must be invested somewhere – so that your investments can grow faster than inflation (cpi) over time (at least 5 years). I will explain in a future article why I prefer shares and ETF’s as the vehicle to do this over other appreciating assets. So, on this path, to be exposed to equities (or stocks) you can either buy

Active managed funds – Roll the dice here as most of these underperform Index funds after fees, but the minority showed some skill over benchmarks over a 5-yr period – but there is no guarantee that they will keep ahead of their benchmarks.
Individual stocks – this is what Slack Investor does – but some experience is helpful here!
Low-Cost Index Exchange Traded Funds (ETF’s) – this is the easiest path, and Stockspot have made the process even simpler by researching the best Index ETF’s in each class.

Exchange Traded Index Funds (ETF’s) for a Portfolio

Stockspot diligently analysed 640 of the largest managed funds available in Australia.

Australian Shares Index ETF

For Australian share exposure, Stockspot recommends the ETF ASX:VAS – as it has outperformed 74.3% of large cap Australian shares managed funds over 5 years with an Indirect Cost Ratio (Management Fee) of 0.1% and an annual return (over 5 years) 0f 9.0%.

Australian Small Companies Index ETF

Here, Stockspot recommends the ETF ASX: VSO – as it has outperformed 63.5% of small cap Australian shares managed funds over 5 years with an Indirect Cost Ratio (Management Fee) of 0.3% and an annual return (over 5 years) 0f 11.7%

International Shares Index ETF

For a swing at the world markets, Stockspot recommends the ETF ASX: IOO – as it has outperformed 97.5% of the large cap global managed funds, available in Australia, over 5 years with an Indirect Cost Ratio (Management Fee) of 0.4% and an annual return (over 5 years) 0f 14.2%.

March 2023 – End of Month Update

After a sparkling January, the calendar year has crawled along in share market gains. But, it’s “dividend season” now – and this cheers Slack Investor up greatly.

Declines this month for the Australian and UK markets (ASX 200 – 1.1%, FTSE 100 -3.1%). Those irrepressible optimists in the US keep powering on, with the S&P 500 up 3.5% – even though this is the most overvalued of Slack-followed markets.

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

Gold Digger … and January 2023 – End of Month Update

The 2019 BBC TVseries Gold Digger delves into the messy world of a wealthy older woman who is swept off her feet by a younger man. Are his intentions honourable?

The term “gold digger” has been around for a while and is not a nice label to have. Usually defined as people who are in, or are pursuing, romantic relationships primarily for financial gain. However, Slack Investor is resolved to start digging for gold himself. Not just now, but whenever the stock market gets a bit over-valued again.

She take my money when I’m in need
Yeah, she’s a triflin’ friend indeed
Oh, she’s a gold digger
Gold Digger – Kanye West and Jamie Foxx

What turned my attention to gold, and the need to start digging, was this remarkable table put out by Stockspot. Over the past 5 calendar years, when comparing Global Shares, Australian Shares, Emerging Share markets, Gold, and Bonds. Gold has topped the Investment performance table in 3 of the past 5 years! Diversification, it seems, is important.

Yearly returns comparison of Global Shares, Australian Shares, Emerging Share markets, Gold, and bonds – Stockspot – Indices used: S&P/ASX 300, MSCI World ex Australia, LBMA Gold AM Price AUD, MSCI Emerging Markets, and Bloomberg AusBond Composite 0+ Year – Click Image for enlargement

In their usual thorough way, Stockspot has investigated the best way to own gold as an investor. Rather than getting a few nuggets or gold bars, they like to use ETF’s to gain exposure to gold. They analysed three ETF’s

Global X Physical Gold (GOLD)
Perth Mint Gold (PMGOLD)
BetaShares Gold Bullion ETF – Currency Hedged (QAU)

Weighing up costs, buy/sell spreads, liquidity, size and the type of gold assets held they decided that Global X Physical Gold (GOLD) was the best Gold ETF to hold. The liquidity (the ability to quickly buy and sell your gold using an ETF) is a huge factor. The management costs of 0.4% p.a. sounded a bit steep to Slack Investor but, I suppose, there are costs in having to house and secure these gold bars somewhere in a vault in London.

Slack Investor has no financial relationship with Stockspot but thinks they offer excellent low-cost, automaticilly re-balanced investing portfolios. Some of Stockspot’s portfolios hold, at times, up to 15% gold!

Slack Investor will start out small and just dip his toe into the water as there is the general Slack reluctance to hold a non-income producing asset. However, I can’t argue with the results of having gold in your portfolio during times of crisis.

89-year-old oil billionaire J. Howard Marshall II and 27-yr-old Anna Nicole Smith. They married in 1994. Following Marshall’s death after 13 months of marriage, Anna Nicole Smith unsuccessfully battled his son over her husband’s estate – From Interview Magazine

The tragic life, of Anna Nicole Smith is an eventful tale of a woman often labelled as a modern-day gold digger. Slack Investor hopes his gold digging will end more fortunately. Hopefully at some time in the future, during the delightful times when the markets are considered overvalued, Slack Investor has made “a note to self” – start digging for gold – and buy some gold ETF as insurance.

January 2023 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets have had a bumper month to welcome the new year ( ASX 200 +6.2%; FTSE100 +4.3%; S&P500 +6.2%).

There was some adjusting upwards of the stop losses for the FTSE100 and the S&P500, with details on the UK Index, and US Index pages.

As indicated in the last post, the ASX market has reached a significant point at the end of the month. Shown in the bottom part of the chart, the Coppock indicator is moving upwards after a journey below the zero line. This is a prediction that the “bottom of the market” has passed and it might be a good time to buy (not advice). Also, the FTSE100 is moving upwards after a minimum – a good sign, but not a true Coppock prediction as the curve had not spent time below the zero line. The S&P500 Coppock curve has yet to turn upwards.

Monthly charts of the ASX 200, FTSE100 and S&P500 together with the Coppock Indicator in the lower section of each chart. The green arrows show the “bottom of the market” predictions using the Coppock Indicator. The red arrows show a possible time to sell – Click the chart for better resolution – Incrediblecharts.com

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).