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).

Corrective Lens and … October 2023 – End of Month Update

Last week, the ASX 200 has moved into correction territory to its lowest point since October 2022. Both the S&P 500 and the NASDAQ Index are already in technical corrections. The FTSE 100 is faring marginally better, down around 9% from its recent peak in February 2023.

In the world of stock markets, a 10% decline from a previous peak is known as a “Correction”. Never a nice time … but Slack Investor recommends that you just put on the big pants and get used to these things. Corrections are just part of the landscape of investing in shares and Slack Investor has often written about them – and the need to roll with them – if you are using stock markets to better your financial position.

On average, the (US) market declined 10% or more every 1.2 years since 1980, so you could even say corrections are common.
For the S&P500 – Covenant Wealth Advisors

In the Australian market, falls of 10% occur (on average) every two years – and can occur even more frequently.

If you can avoid it? – Don’t Sell

Throughout my investing career, I have been a net buyer of stocks. Selling only to raise some cash, or to shift out of one stock into a (hopefully) better performing one. Things are much the same in retirement – Though I seem to be trading less.

I have structured my portfolio into a stable income pile and the more adventurous investment pile. My living expenses are easily covered from the dividends from the investments pile and income from the stable pile. So I never have to sell shares when their value is discounted during a correction (>10% fall) or a crash (>20% fall).

This way I can reap the benefits of long term growth in the sharemarket. The data from 97 years of following the S&P 500 Index with a balanced (60% shares:40% bonds/cash) portfolio shows that, over a 5-yr period, the portfolio will outperform inflation 84% of times by an average annual amount of 5.48%. Holding the portfolio for 15 years, it has been ahead of inflation by 5.33% on 97% of occasions. Slack Investor would take those odds.

Balanced Portfolio – Long-term returns over inflation (US) – From Bob French – Firstlinks

Not for the faint hearted, but you can (historically) get an increase to returns by taking on more risk with a 100% shares portfolio. When calculated over a 15-yr period, The S&P 500 has been ahead of inflation by 7.08% (average p.a.) on 95% of occasions.

S&P 500 Long-term returns over inflation – From Bob French – Firstlinks

In light of the above two tables, Slack Investor shows indifference to these corrections … be patient – you will be rewarded.

October 2023 – End of Month Update

Slack Investor remains IN for the US Index S&P 500 and the FTSE 100. But is on SELL Alert for the Australian index shares – as the end of month stock price (6780) is below its monthly stop loss of 6917.

Slack investor is on SELL Alert for the ASX200 at October 31, 2023 due to a stop loss breach. I have a “soft sell” approach when I gauge that the market is not too overvalued. I will not sell against the overall trend – but monitor my index funds on a weekly basis.

Another negative month for Slack Investor followed markets (S&P 500 -2.2 %, and the FTSE 100 -3.8%, and the Australian stock market did the same (ASX 200 -3.8%).

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

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.

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).

The Hubris Ark

Cathie Wood CEO of Ark Invest – from Observer

hubris: (noun) – an extreme and unreasonable feeling of pride and confidence in yourself:
Cambridge Academic Content Dictionary

Cathie Wood is the CEO of Ark Innovation and is best known for her NASDAQ based flagship fund ETF (ARKK). She has been concentrating her bets on the “disruptive technologies,” such as artificial intelligence, genomics, blockchain and cryptocurrency, and clean energy. She is a big fan of Tesla and has made the prediction

Bitcoin will crack $1 million by 2030
Cathie Wood – The Street

Slack Investor is no seer … but at the October 14, 2022 price of 16240 USD, Bitcoin has quite a way to go to reach that mark. In the words of the great BBC TV character Sir Humphrey, this looks like a “very courageous” prediction Cathie!

The ARK Innovation ETF (Nasdaq: ARKK)

Wood, is a devout Christian, and has named her company after the sacred Ark of the Covenent. Cathie Wood is a household name in the US and has a huge number of loyal fans. Her funds had 60 billion USD under management at their peak. She was named by Bloomberg as Stock Picker of the Year in 2020 . The flagship ARKK fund gained a remarkable 152% in 2020, but since then, the performance has not been so stellar – ARKK is down 65% so far this year. In interviews, she often refers to her past success, and insists, over and over again, her performance should be judged over a five-year time horizon.

The Price chart of the ARKK ETF since 2017 –

Wood is nothing but confident. She hosts a monthly finance video – delightfully called “In the Know” and is a great defender of her fund. She sees “spectacular returns” for Ark Invest over the next five years. According to a recent article by New York magazine, her initial predictions for ARK Invest were annualized returns of 15 percent, “Now we think 50 percent.”

Slack Investor would agree that a 5-yr holding period is a good minimum to judge how a fund is performing – to allow for volatility and to allow growth stocks to grow. She might be right that tech stocks are undervalued at the moment. But let’s have a look at her results as a fund manager over the last 5 years. The total return of ARKK expressed as a compound annual growth rate (CAGR) since November 2017 was a not so impressive 3.5% when compared with other “no stock picking” index funds.

Instrument	Value Nov 2017	Value Nov 2022	5-yr CAGR
ARKK	36.44	43.31	3.5%
NASDAQ 100 TR	7159	13881	14.2%
S&P 500 TR	5212	8407	10.0%
FTSE 100 TR	6510	7564	3.1%
ASX 200 TR	56486	81102	7.5%

Based upon the 5 years preceding November 2022, the compound annual growth rate (CAGR) of various Total Return (TR) index values compared with the ARKK ETF (including dividends since Nov 2017 of $2.91 USD). These TR calculations include dividends. Data from Yahoo Finance and CAGR calculations from CAGRCalulator

Cathie Wood conducted a recent session at a Morgan Stanley event in Sydney. where she maintained her bullish outlook. According to the Financial Review, the fund manager essentially argued it’s the market that’s got it wrong, not her!

Slack Investor is far more humble … he “takes his licks” when times are bad – doesn’t “crow” when times are good – and is mostly wary when a new “stock guru” emerges.

In the stock market, volatility is the price he has to pay for being involved with long-term asset growth.

November 2022 – Mid-Month Update

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My small-scale, and often very frustrating, market timing experiment continues until its projected end in 2024. On a weekly signal for the FTSE 100 from the momentum following Directional Movement system. I have bought back into the UK index. I am back now to fully invested in the ASX Index, UK Index, US Index.

The buy signal can show itself as a downward dip in the trend strength indicator ADX (grey line) of the lower panel below. There are many ways of setting up this Directional Movement system. Slack Investor likes the “smoothing” that is enabled by a system that looks back over the previous 11 periods – but the complexities are best left for the Resources page.

FTSE 100 Weekly chart showing a BUY signal on the Directional movement Index *weekly chart. The weekly price ranges are at the top and Average Directional Movement Index (ADX) patterns below – From* Incredible Charts

The Index page has been updated for the UK Index .

Keep On Course … and September 2022 – End of Month Update

Randall Reeves encounters a storm in the Indian Ocean in 2017 – Is this what the current stock market turmoil feels like?

Slack Investor loves finding out about remarkable achievements. He came across the inspiring story of Randall Reeves who set himself the task of doing a solo “figure of 8” circumnavigation around the Americas and the Antarctic. This 64 400 km trip encompassed both polar regions and was achieved solo, in the 14m boat “Moli”, in 384 days.

… he (Randall) hit a severe storm in the Indian Ocean. Waves were breaking 200’ (61m) to 300’ (91m) in each direction, and his boat got knocked down so intensely his mast was fully submerged, breaking a window in the pilot house and flooding his electronics.
Extract from The Figure 8 Voyage – Randall Reeves

Randall Reeves during his adventure, after his circuit of the Antarctic and back to Cape Horn for the second time!.

I mention Randall Reeves achievements as he set himself a difficult challenge, that no one had achieved before, and succeeded on his second attempt. All we investors have to do, is pick a course to financial independence – and just keep going. Our boat might suffer a few perils along the way …. but we trust that it is a sound vessel – and it will get us home.

Bear Markets

Downturns aren’t rare events: Typical investors, in all markets, will endure many of them during their lifetime.
Vanguard, 2022

Slack Investor can speak with some experience here, as I have been an investor through all of the above bear markets … and they are never any fun! But, I have learned that … they all pass – and the stock market recovers, and always reaches new highs. The sometimes frustration of just “holding on” to your shares in a falling market must be weighed against the stresses of trying to time the market.

Keep on Course

Slack Investor has had mixed success in his timing the market experiment. The experiment is limited to index funds (Less than 3% of my Portfolio) and will run for another 2 years to make it a 20-year trial.

At the end of September 2022, my Index Timing strategy has outperformed the Australian Index (+1.4% p.a.) and the UK Index(+1.9% p.a.), but underperformed the US Index (-0.3% p.a.). My current feeling is that when considering that “time out of the market” means a loss of dividends, it is not worth the stress and effort and I will probably abandon the experiment in 2024 – after a 20-yr trial. The bulk (97%) of my Investments portfolio is run with the strategy of trying to buy good companies that are growing, tinkering a little, but generally just holding on!

The world MCSI AC Index is dominated by US companies (61.3%). The current 2022 World MCSI ACWI bear market is not shown in the above chart. Also, there is some argument whether the 2020 “Covid Crash” qualifies under the generally accepted definition of a Bear Market – a decline of 20%, or over, that lasts at least 2 months.

We humans naturally feel the need to do something when we see our investments fall in value. Slack Investor does not know if the worst is over, probably not! Slack Investor does know that, if you can avoid it, it is generally not a good idea to get rid of your risk-exposed assets during times of downturns – you are selling your assets cheaply in these times.

Vanguard have (below) kindly extracted the Bull markets (shaded in green) from the Bear markets (shaded in brown) for the MSCI All Country World Index since 1980 prior to January 2022. The Bull’s prevail and these pesky Bear markets will eventually pass – This chart is reassuring.

The Bull (shaded in green) and the Bear markets (shaded in brown) for the MSCI AC World Index since 1980. The gains/losses are expressed in percentage terms. – Vanguard

The World Index (MSCI AC), the S&P 500, the Dow Jones Industrial Average, and the Nasdaq are now in a bear market, and the S&P 500 has closed at a new 2022 low.

We might not be on a solo circumnavigation through dangerous waters … but the lesson here is to prevail. Tighten the belt if you have to, you have a plan! Endure the situation and try to distract yourself from the stock market with life’s enjoyable things.

The stock markets will do what they always have done, oscillate between over-priced to under-priced. The long-term gains provided by holding shares are well established. If you are still working, your regular saving and investing will be buying lots of shares through dollar-cost-averaging.

If you are retired, in these tough times, you have your stable income pile to help with your living expenses. There will be better times.

September 2022 – End of Month Update

Despite the above discussion, my small scale market timing experiment continues. Slack Investor is on SELL ALERT for Australian index shares (ASX 200), the US Index (S&P 500) and the UK Index (FTSE 100).

I have a “soft sell” approach when I gauge that the market is not too overvalued. I will not sell against the overall trend but monitor my index funds on a weekly basis once the monthly stop loss has been triggered.

All my followed Index funds have fallen below their stop loss values. Big monthly falls for the ASX 200 (-7.3%), S&P 500 (-9.4%), and the FTSE 100 (-4.1)%. Time for some distraction from the market carnage. There will be better times.

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 recalculated.

Spurious Correlations … and April 2022 – End of Month Update

Cheese Before Bed Will Not Give You Nightmares

Slack Investor is a lover … of cheese. He follows all cheese related literature and was shocked by the revelation that “Death by Bedsheet Entanglement” is highly correlated (0.95 Pearson R correlation) with cheese consumption. The thought that over 800 people died in the US in 2008 at the hand of their sleeping equipment is terrifying.

A quick explainer on the correlation coefficient, it is just a way to measure how strong the relationship is between two variables. The correlation coefficient ranges between +1.00 (perfect positive correlation) through zero (no correlation) to -1.00 (negative corrrelation)

The close association between cheese and bedsheet deaths – Click Image for more detail – Data sources: U.S. Office of Management and Budget and Centers for Disease Control & Prevention – From tylervigen.com

Slack Investor salutes Tyler Vigen here – a bloke who wrote a program that crawls through unrelated government data sets to find spurious correlations. The above chart is one of these random pairs of data that were thrown together by his program. Almost 50 000 of these graphs that show unlikely correlations have been found so far – and one more is produce every minute! Hats Off Tyler.

Correlation does not mean causation
First lecture in Statistics 101

In the cheese consumption case, it is hard to think that eating cheese actually causes bedsheet entanglement. The first step when trying to establish a link between two variables is correlation. Then, most importantly, experiments must be done to show that A actually causes B – Is there a reason that makes sense? Some people link cheese to nightmares, but there is no scientific evidence linking cheese to death by bedsheet … so, this high correlation is probably just due to chance and a limited data set (10-yr). There is likely to be a missing other variable that’s the true driver that causes the correlation. I would speculate that both variables might be linked to general population trends – but this would have to be tested.

Using Sector Correlations in Investing

Slack Investor has been banging on a bit about “Sectors” lately. and despite not feeling the need to match his portfolio with the sectors of the S&P 500 (Or ASX 200), sector analysis can be useful.

My Investments portfolio consists mostly of “growth stocks” in the Technology and Healthcare sectors. The table below shows a high correlation of these sectors with the total market – they will tend to move with the general market during an occasional downturn. The Nasdaq Composite is down about 23% from its November 2021 high – the Slack growth portfolio is down about 7 % so far this financial year – Not fun, but I do expect the occasional down year.

Sector correlations with the US stock Market – A Sector that would exactly move up and down with the US stocks would have a correlation of 1.00. Low scores ie Utilities do not move up and down the same way as stocks. – From Morningstar 2000-2018 data

However, I want my Stable Income pile, 30% of non-house wealth, to be much more conservative. It holds annuities, fixed interest products and some shares. The shares in the Stable pile need to have a low correlation with the general stock market – as, when the stock market does poorly, I want this pile to be OK.

For my Stable pile, I choose stock sectors that are not highly correlated with stock market fluctuations (circled in red below). I already have some REITS (Listed Real Estate – Correlation 0.59), and some Consumer Staples (Correlation 0.57) which Perhaps I should buy some more Utilities and REITS (real estate). When I get an opportunity, I would like to buy some Utilities (Correlation 0.40) for the Stable pile.

I am always on the lookout for spurious correlations and the 19-year data set, in the above table seems sufficient (would like longer!). Do the correlations make sense? For example, it seems reasonable that Utilities would have a low correlation with the general market. It is a sector that would be able to keep its earnings and maintain its stock price – even during a market downturn.

An asset that has an even lower correlation to the S&P 500 is Gold – and is often seen as a “hedge” to to the stock market. Over a 20-yr period (2000-2020), Gold has a correlation of -0.28 with Australian Equities and -0.12 with Global Equities

Gold has a low (and at times, negative) correlation to other assets
ETF Securities

Smarter people than Slack Investor provide compelling reasons for including Gold in your portfolio – to improve long term returns. But the pig-headed Slack Investor has not yet overcome his old fashioned view that Gold is a speculative investment that does not earn a dividend or interest.

April 2022 – End of Month Update

Slack Investor remains IN for Australian index shares and the FTSE 100 but OUT for the US Index S&P 500 due to a sell – back in January 2022.

Despite some big daily fluctuations, the FTSE 100 (+0.4%) and The ASX 200 (-0.9%) ended relatively flat this month. All is not well in the USA where inflation fears and some mixed results from the Tech sector allowed the S&P 500 to fall -8.8%.

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

Betting from the couch … and December 2021 – End of Month Update

The satirical website, the Betoota Advocate, have beautifully summed up the barrage of gambling ads on TV that saturate any sporting viewing on commercial TV – in a recent article “Game Of Cricket Interrupts Endless Stream Of Predatory Gambling Ads”

Australia: World leaders in Gambling losses

Slack Investor has long been appalled at the prevalence of gaming machines “pokies” in pubs in Australia. These “pokie rooms” are full of sad faces. With a machine “return-to-player percentage” of 85 -90% each gambler is methodically destroying any chance of achieving financial independence.

Australia is actually home to 20 per cent of the world’s pokie machines, because it is one of the few countries that allows machines outside of casinos.
From Eliza Bavin, Yahoo Finance

In 2019, NSW and Victorian poker machine gamblers lose an average of about $3500 a year in pubs and clubs – three times the average $1245 spent annually on electricity and gas. There are countless stories of the tragic consequences of poker machine addiction. Poker machines are concentrated in Australia’s poorest suburbs. The state governments are, in turn, addicted to the revenue from these gaming machines. However, this situation can’t be good for the community and it can be turned around. Western Australia has banned poker machines in Pubs and Clubs. If you want to ban these machines or reduce their harm in your state – Let your state representative know.

Gambling Losses in $USD – Australia are the biggest gambling losers, per capita, in the world! Not anything to be proud of- From savings.com.au

Online Gambling and Sports Betting

Pokies aren’t the only gambling demon. Online betting, which includes sports betting, is expected to be the fastest-growing gambling segment over the next 5 years, compounding at 11.5% per year. In 2017, sports betting accounted for 25% of all money bet by Australians. The target of these betting companies is young men (aged 18-34 years) who are most most likely to sign up for new online accounts and to be at risk of long term gambling-related harm.

Since March 2020, the stock markets have been quietly accumulating and Slack Investor has spent some quality time on the couch – Sometimes watching sport. Hitting me in the face have been an avalanche of betting advertisements enticing me to get an app, to lay down some hard-earned cash on a match outcome, identify a “first try scorer” or a “multi” (???). Always, I am advised to “gamble responsibly” but this guidance is always accompanied with a wry grin as they collect my credit card details.

Commercial TV networks all seem to have an overlay of gambling ads as they cling to this growing industry – as their other advertisers are looking elsewhere. One of Australia’s largest advertisers is Sportsbet, they spent $AUD 139 million on ads in 2020. It is all about “Brand awareness”. In 2021, US Sports betting companies have spent a staggering $USD 1.2 billion on acquiring new customers. This will only increase as more US states legalize sports betting. With brand awareness comes a desire to download an app, promotional codes are given for gambling credits, you give your own bank details, place a bet … and suddenly you are a customer, and subject to further online conversion.

Slack Investor can see that gambling can introduce a bit of excitement to a life, but I would always take the long view. What are the chances that I would succeed in any form of gambling with repeated trials – where the odds are set by hardened professional compilers. Rather than gambling, I would much rather invest in a growing companies that produces useful things. That’s enough excitement for me.

Gambling is a “tax on stupidity”
Attributed to Samuel Johnson – Or Voltaire (When talking about Lottery)

What can you do?

Three-quarters of 8 to 16-year-olds interviewed could name at least one gambling brand, and one-quarter could name four or more.
Based on a 2016 survey of Australian children in NSW and Victoria

If you would like tougher rules to stop the saturation of prime-time television with gambling ads in Australia, you can put the commercial TV Networks on Notice and register a complaint with the Free TV umbrella organization. It seems to be that the language they understand is the threat to move your viewing to the streaming services that don’t show harmful and repetitive gambling ads (Netflix, ABC iview etc.). Slack Investor is not sure how effective this is – but it made me feel better.

December 2021 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. All Slack Investor followed markets this month had substantial rises (ASX 200 +2.6%; FTSE 100 +4.6%; S&P 500 +4.4%).

Well, Santa did come to most index holders. The theory is that, in the US market, there is a lot of spending at this time of year (good for retail) and pay bonuses are also awarded at this time. The “Santa Claus Rally” has occurred 76% of the time between 1950 to 2019. Although this seems to be a regular calendar event, Slack Investor would not bet on it – as there also have been some sharp declines in December – particularly in the last ten years. Long-term accumulation for me – but it is a delight to see Santa when he comes.

Slack Investor has been busy with adjusting stop losses upwards again for the US Index. In these over-valued times for the US Index, and to a much lesser extent the Australian Index, I am keeping my stop loss within 10% of the end of month price. See the US Index page for details.

Monthly chart for the US Index (S&P 500) showing upward movement of the Slack stop loss from 4278 to 4495 – from Incredible charts

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.

Innovation

pizza scissors — Pizza scissors – The new “Must Have” – These highly rated Kitchen Maestro Pizza Scissors were available at **Amazon for $12 USD**, but sadly, for pre-Christmas shoppers – currently out of stock.

Fish swim, birds fly, humans think, create and innovate. Thinking is not something that people do because we like it, we do it because it is our way of surviving.
José Luis Álvarez – From KnowledgeWorks

An amazing trait that we humans have is the ability to innovate. Slack Investor admires the innovators and the intellectual capital that they bring to businesses. Ideas and research are a vital part of a growth company. Research and Development (R&D) may lead to more efficient production processes or better products that give a company future growth. I have long been a big fan of companies with a high spend on R&D and I am happy to invest in these stocks.

According to the data from EFPIA, in the percentages below, the big spenders are in just a few sectors. The survey looked at 2,500 companies around the world. Technology companies usually have a big R&D budget, but the pharmaceutical and biotechnology industry lead by spending 15% of revenue on R&D. NASDAQ figures for specific companies, show R&D expenditure for Google (Alphabet) was 15% of its revenue in 2020, CSL about 11%, and Microsoft 13%. Apple was a relatively low 7% – but they have a very small range of products.

Proportion of Revenue spent on R&D by each Industry sector – EFPIA

Just because a company has a high R&D spend does not always guarantee success. As well of the discovery of ideas that might be useful in the business, a company must be really good at the Incubation, and Acceleration of these ideas. It is important to look for an established record in the way a business brings new products to fruition.

However, there is a broad link between innovation and value. The Boston Consulting Group(BCG) compile a yearly list and map the performance of the 50 most innovative companies. In 2021, they found that the more innovative businesses had an average Total Shareholder Return (TSR) premium of 3.3% over the MSCI World Index.

Most Innovative Companies 2021 — Outperformance of the most Innovative companies – From the VisualCapitalist

“If I have 1,000 ideas and only one turns out to be good, I am satisfied.”
Alfred Nobel

Top 10 Most Innovative companies – published in the Visual Capitalist from BCG data.

The full list of top 50 innovators is worth a look and is a reminder that these are the companies that a lot of people interact with every day.

I have been a continual investor in the Betashares NASDAQ ETF (ASX: NDQ) that gives me access many of these great innovative companies. Every time that Slack Investor looks at the businesses that make up the NASDAQ 100, I think that this technology area must be where growth is still happening – and I want to be invested here.

According to GuruFocus the 12-mth forward PE of the NASDAQ 100 is 27 (A bit expensive) but the Return on Equity is at 18% – and growing (This is good).

Slack Investor also owns a slice of the Asian Technology giants with BetaShares Asia Technology Tigers ETF (ASX: ASIA). The heavy hand of Chinese government interference in some tech stocks has led to a pullback in price this year. But I have maintained my holding because Chinese companies like the search engine Baidu, the e-commerce giant Alibaba, and the technology beast Tencent will not be held back for long.

A good compromise, if you want a more whole world approach, is the ETFS Morningstar Global Technology ETF (ASX: TECH). This ETF has holdings distributed across the United States (89.6%), Australia (5.8%), Japan (2.4%), and Germany (2.2%) and has a “moat” filter that will only select companies that have built a competitive advantage around their businesses. All of this for a Management fee of less than 0.5%.

Innovative company shares do not always go up. An example of this is is the new Cathie Wood disruptive innovation stocks ETF – (ARKK). Early investors are very happy, recent investors not. However, with a 3-5 year time frame, exposure to the whole NASDAQ index – the top 100 of the (mostly) great NASDAQ companies must be a good thing.

This is not advice, but if I cant buy pizza scissors for Christmas – I might as well top up with some more NDQ or ASIA, or expand into TECH.