Superannuation | Slack Investor

Retirement sweet spot – a place to live is a good start!

Slack Investor has thought a lot about retirement – a lot!

Even though I liked most aspects of my jobs, the thought of doing what I want each day was most appealing. I read quite a few blogs on financial independence and they seem to fall into two main types. The “retire at 30” types and the “building of financial skills to gradually gain financial independence” types. Slack Investor is definitely in the latter camp and, without outside help, or big slabs of luck, I can’t really see a way of avoiding the 25-35 years of work to build up your funds before you then launch your retirement.

This post sets out with two of the building blocks to retirement – a home and some superannuation. You might be just starting your working life, or be in your forties and thinking … “Well, how do I get to my retirement from here?”

The recent Australian government Retirement Income Review emphasised that if your are renting in retirement then things are tough.

In retirement, renters have higher levels of financial stress. A significant proportion of retiree households that rent are in income poverty …”
The Australian Treasury Retirement income Review (2019)

Get a Roof

So take the advice of Flo Rida and Slack Investor and make it a big priority in your life to own a place to live. I know this seems like an impossibility to many as the cost of houses in Australia is eye -watering in the big cities. However, the place you want to own might be an apartment or, it doesn’t have to be in a capital city – it can be in one of the many fantastic regional towns!

From Australia’s most liveable regional cities. Not sure why “Distance to Alcohol” is a criteria – or what it means … might be good … might be bad!- but this is a nice selection of great Australian towns.

When you have found a place that you could retire to, the next step is to get yourself into the property market by saving for a deposit and buying a place. There will now be 30 years of pain … and then you own it! But, at least you have borrowed money for a “hopefully” appreciating asset. Make sure that any property you buy makes good sense – Schools, Transport, Parks, Shops, etc.

Another way to do this is “rentvesting”. This an option where you rent your place to live near your work while your are buying a place that you might want to retire to one day. Rentvesting makes sense when the costs to rent a place is cheaper than the buying costs (Loan Interest/Rates/Stamp Duty, etc). While you are renting in a share house or apartment the extra rental income from the property you own, and tax incentives, will allow you to use any surplus funds to invest in a share portfolio. Rentvesting can also increase your borrowing power and hopefully get a better property – Just don’t over extend yourself.

Get some Super

According to Investblue, in 2018, as boomers are retiring, the average retirement super balance in Australia for men is $270,710, and for women $157,049. This is not really enough, but an “average couple” would have over $400000. Things should get better as compulsory super has only been with us since 1991 . Boomers have had many advantages during a period of rapidly increasing asset prices – but compulsory superannuation over their whole working life was not one of them.

If you are relatively healthy and own your home outright, the Association of Superannuation Funds of Australia (ASFA) have estimated the annual retirement income required for a modest and comfortable lifestyle.

The Association of Superannuation Funds of Australia (ASFA) retirement standards for 2018

Using the average figures, there is a big gap between existing super saved and a comfortable lifestyle

80% of retirees fund their retirement years with a combination of superannuation and the age pension
Money Magazine June 2018

It is worth some study into how the pension and superannuation systems interact. The bare minimum to aim for is the “sweet spot” where under current rules, home owning couples can have $400000 in superannuation (singles $300000) and still qualify for the full government pension. Using this mix of super and the pension, when reaching the pension qualifying age of 67, a modest to comfortable retirement is possible under current rules.

Situation	Superannuation	Drawdown from Super @ 5%	Age Pension	Total Income
Single Home-owner	$300,000	$15,000	$19,210	$34,212
Couple Home-owner	$400,000	$20,000	$33,272	$53,272

Table from Realize Your Dream and based upon 2018 values

This “sweet spot” is our first “port of call” in super terms, and meant to demonstrate that if you own your own home and have a good chunk of super … then you are going to be OK in retirement.

Slack Investor hopes that you have got onto the idea of financial independence a bit earlier than aged 40. By starting to plan in your twenties or early thirties, you can aim to fund your own retirement … and, perhaps not wait until you are 67.

April 2020 – End of Month Update … The Real Cost of Early Super withdrawl

In relaxed lock down through the courtesy of COVID-19. But the stockmarkets never sleep.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 20.0% but there has been some optimism in the markets that there might be an eventual end to this wicked virus crisis. Rises in all followed markets ASX200 +8.8%, FTSE100 +4.0% and S&P500 +12.7%.

The rises in the UK and US have got Slack Investor back into the market with a change in momentum on the weekly charts signaling a re-entry. But it is with much trepidation – the rapid recovery seems to have been priced in a bit early!

Slack Investor has outlined in many posts about how to get out of trades with stop losses. But has been a bit lacking in detail on when to get back IN. When trend trading, my main tool for finding a buy signal is a trend following (or momentum) system called the Directional Movement Index. There are many ways of setting up this 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.

UK Index weekly chart showing the weekly price ranges at the top and Average Directional Movement Index (ADX) patterns below – From Incredible Charts

I am quite comfortable with the re-entry into the UK Index shown above, but the rapid swings for the US charts have the Slack method back IN, but so far, performing worse than the “buy and hold” method. I will continue this index market timing experiment for another 4 years (to make it a 20-year trial).

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

Super Withdrawal … should you?

“A Run On the bank” an etching from the 1930’s – from sutori.com

The Australian Government has gone into real governing mode and set up some measures to help people get through this COVID -19 crisis. They have established “JobKeeper” payments ($1500 per fortnight), doubled “JobSeeker” payments (up to $1100 per fortnight), and allowed the unemployed and people whose hours have been cut by 20 per cent to access up to $20000 of their super early. There are some rules.

Slack Investor understands that times are tough for the many who have lost their jobs, but is disturbed that 881,600 people had registered with the government for early superannuation access – and this could blow out to 1.5 million people. Unfortunately (particularly if you have credit card debt), this will be a necessary step for some. Slack investor implores those affected to exhaust all other options first – an early superannuation withdrawal does have repercussions further down the track.

Comparing potential withdrawal impacts at different ages

Investor’s current age	Years to retirement	Value of $10,000 at retirement	Value of $20,000 at retirement
67	0	$10,000	$20,000
57	10	$17,908	$35,817
47	20	$32,071	$64,143
37	30	$57,435	$114,870
27	40	$102,857	$205,714

Source: Vanguard calculations – These calculations show a significant projected eventual cost of super withdrawal. However, these raw figures do not allow for inflation. A projection allowing for inflation (2%) using the smartasset inflation calculator shows that the $10 000 withdrawal after 40 years will grow to a still significant $46578 in 2020 dollars ($102857 in 2060 dollars).

Slack Investor knows that accessing cash like this has consequences and that people should make an informed choice between their short term financial need and their long term financial position.

There is also the effect on your insurance with the withdrawal of super … if you go to a zero balance, your super-related death and disability insurance will cease. Even if you return to work, it will not automatically reinstated until your account balance reaches $6000.

A real-life example from the Slack Investor chronicles. A long long time ago in 1982, a 25-year old Slack Investor wanted to travel overseas for the first time. Funds were a bit short and he had saved some money … but not enough for a whole year travelling. I had a superannuation balance of $3500 (This would be worth almost $10000 in 2020 dollars using the smartasset inflation calculator).

Back in those days, prior to compulsory super, you were allowed to cash your super in – and I stupidly did. To save up this kind on money would have taken another 3 months of saving and working – I chose the instant gratification.

Slack Investor is a great believer in the “tried and true” problem solving method of

Research – Weigh up the pros and cons …
Make a decision
Move On … No Regrets – you have made the decision with the available facts.

However, the pulling out of my super when I was in my twenties is one of the few things that brings me just a tinge of regret.

The Hesta Retirement Balance Projection Calculator shows that my $3500 would have grown to nearly $31000 at my 62-year old retirement date (Assumptions: at 8% growth and 2% inflation). Slack Investor likes this calculator as it allows you to set assumptions that help account for inflation as well as growth.

Perhaps if I had just delayed my trip by a few months and worked a bit longer, I might have been able to retire just a little bit earlier. Ah well … we make our decisions and … such is life.

Be safe, be kind … and make an informed decision about releasing your super early.

January 2020 – End of Month Update … and Super Australia

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The ASX probably had a bit of catching up to do and put in a big month (+5.0%) – These type of rises make Slack Investor nervous! There was also an opportunity to revise upward the stop loss for the ASX 200. When the share price gets to be 20-25% above a stop loss on the monthly charts, I usually look for a sensible place to put a new stop loss at a higher value. The ASX 200 is still in an uptrend – and a “Higher Low” had been established at 6396 on the monthly chart. The Stop Loss was moved upward to 6396.

The FTSE100 (-3.4%) lost last month gains and the S&P500 was flat at (-0.2%). Both are still well above monthly stop loss levels.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 25.9%. There has been not much change in the past 3 months. There was a peak at 41% five months ago. The current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are still “switched ON”

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

The introduction and growth of Australian Super

Former Australian Prime Minister and Treasurer, Paul Keating introduced compulsory Australian Superannuation and often used “cut through” language. In this case, to reporter Richard Carleton. Background on what constitutes a “pissant” can be found at grammarist.com

Not really a fan of insulting language but sometimes it is necessary to cut through, and Paul Keating was a master of this art. Imagine what it was like back in 1991 – where Keating, with the help of Trade Union Leader Bill Kelty, was able to convince Australian unions and workers that an overdue 3% pay rise should go into compulsory savings. Instead of going into worker’s pockets, he argued that the payrise should go into a retirement scheme called “superannuation”. ABC economist Peter Martin describes this incredible feat of persuasion as a means to avoid inflation at a critical time in Australia’s economy.

The most excellent compulsory Australian super has been going since 1992, accounts for 9.5% of workers income, and now stands at 2.9 trillion AUD . According to ASFA, Australia is the 4th largest holder of pension fund assets in the world. But the Productivity commission says that super fees are still to high and that some super funds are duds. For most of your working life, you should be in a “growth” fund that is not a dud!. The Chant West compiled funds below have an excellent track record over 10 years – a good place to start.

From Morningstar, using *Chant West growth funds data, (61 – 80 per cent allocation to growth assets).* *Performance is shown net of investment fees and tax.*

New Australia Day please

In contrast to many current day politicians, Paul Keating was a real leader, prepared to argue the case for a proposal – even if it wasn’t initially popular.

Australia Day is currently celebrated on January 26th – The anniversary of when Captain Arthur Phillip took formal possession of the colony of New South Wales in 1788. This date does not sit well with many indigenous people who understandably see this as a commemoration of “invasion day”. It is time for a new date! – the anniversary of the opening of the first Federal Parliament in Melbourne, 9 May 1901 has been suggested.

May might be a bit cold though. Noel Pearson suggests the more inclusive celebration of both the 25th and 26th of January. The first day a recognition of the 65 000 years that indigenous Australians occupied the land – and a putting to bed the false idea of “Terra Nullius”. The second day, a celebration of modern Australia.

Nice work Noel … I am sure Paul Keating would approve – and two holidays instead of one … very Australian.

*Some thoughts from Paul Keating (and his speechwriter Don Watson) in his landmark Redfern Speech in 1992* from NITV 25-year anniversary of this address.

What’s that smell? … Banks!

With great thanks and acknowledgement to the insightful and talented Randy Glasbergen

KPMG have just reported that banks are starting to lose their shine and the big 4 banks in Australia have reached a “turning point”. Slack Investor would argue that, after a pretty good recovery post the GFC, Australian Banks have been in decline since early 2015. NAB is the last to confess this reporting season … They are all businesses that will find growth difficult.

With its full-year profit of $4.8 billion, down 13.6 per cent, it joined ANZ, Commonwealth and Westpac in announcing a big decline in earnings.
From abc news

The ASX Bank Index since 2000. Except for the GFC 2008/9, the banks have performed well – as well as paying high dividends. Things changed in March 2015 where, despite temporary recoveries, there has been a general decline in share price. From Investing.com

Self Managed Super Funds are a great place to park your super money for the hands-on investor. But, they are not for everyone. You really need to have a real interest in investing and at least $200 000 in your super savings. According to ATO Data, at 31 December 2017, the most commonly held SMSF share investments (by investment size) are below: There are a lot of banks!

Commonwealth Bank
Westpac Banking Corporation
National Australia Bank
Magellan Global Fund
BHP Billiton Limited
Platinum International Fund
ANZ Limited
Telstra Corporation
CSL
Wesfarmers

Not a bad portfolio for the past 10 years … but, the tide for the banks has already turned with low interest rates affecting margins, increased competition from the more nimble digital banks, the Hayne Royal commission “blowback” forcing the banks to separate from their profitable wealth management businesses, and recent dividend cuts announced. A closer look at the top 5 SMSF shares with financial statistics from the excellent marketscreener.com. The 1-yr returns over the past year for each stock are lifted from marketindex.com.au .

SMSF 2017 Top 5 Shares		P/E 2020	Yield %	ROE %	1-yr Ret %
Commonwealth Bank	CBA	15	5.5	13	12.4
Westpac Bank	WBC	14	5.9	11	-3.7
National Bank	NAB	12	6	12	16.7
BHP Billiton	BHP	12	5.3	22	10.9
ANZ	ANZ	12	6	12	-3.9
Average		13	5.7	14	6.5

Slack Investor can understand the lure of juicy bank dividends for SMSF funds. But, if the dividend is coming with a reducing share price due to the bank business shrinking – then this is not a good deal – and perhaps look to higher yield industrial shares or industrial/office REITs for that cherished income rather than banks.

Sing the praises for Return on Equity (ROE) and Earnings per Share (EPS) Growth

This is one of the first financial statistics that I look at when deciding on a company to buy. Return on Equity is a company’s Net Profit ÷ Average Shareholder Equity. If a company had a net worth of $10 million and made a profit of $2 million, its ROE would be 2/10 x 100 = 20%.

High ROE companies generate a lot of cash – this cash they can then use to grow their business. If they also have a good increase in their Earnings Per Share (EPS) – Slack Investor would classify them as “Growth” Companies.

CSL Earnings per Share- and projected EPS for 2022 -2024

Generally, companies with a ROE of >15% get Slack Investor’s attention but some businesses require lot of infrastructure before they can generate profit. For this reason ROE is best used to compare companies in the same industry. For contrast with the 2017 SMSF, let’s have a look at Slack Investor’s Top 5 stocks from the Portfolio page (This is not advice!). Data gathered from marketscreener.com and marketindex.com.au .

Slack Investor Top 5 Shares		P/E 2020	Yield %	ROE %	1-yr Ret %
CSL Ltd	CSL	38	1.2	35	38.3
Altium Ltd	ALU	46	1.6	31	44.9
Cochlear Ltd	COH	41	1.7	38	26
Macquarie Group Ltd	MQG	16	4.4	16	11.5
REA Group Ltd	REA	40	1.3	35	27.9
Average		36	2.0	31	29.7

The average ROE for the Slack Portfolio is much higher than for the 2017 SMSF top 5 (31% vs 14%) . They also all have a projected increasing Earnings per Share (EPS) – and this indicates the Slack preference for growth companies.

However, with growth comes volatility and the Slack Investor top 5 would not suit those who rely on their investments for income. The Slack portfolio would probably suit an investor with a longer term view and a separate income. If you are still working and want to grow your wealth through shares … then the ROE should be one of your guiding lights for company selection.

The Real October 2019 – End of Month Update … and Australia’s debt binge

Apologies to my faithful email subscribers, two days ago an unfinished version of this post was released into the ether. Slack Investor has rudimentary skills in the blogging arts and didn’t know how to recall the post. Anyway … this is what it was supposed to look like – with all information updated!

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets are a mixed bag with a flat ASX200 (-0.4%), and a dropping Brexit plagued FTSE100 (-2.2%). The good old US has shrugged off chants of “Lock him up” for their president and the S&P500 has had a monthly increase of 2.4%.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 31.0%, this has been gradually dropping since a peak at 41% two months ago. However, the current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are definitely “switched ON”

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

Household debt – the couch is getting a little uncomfortable

According to 55,000 respondents to the ABC’s Australia Talks National Survey, debt is a major problem for the nation.

On an individual level, 37 per cent are struggling to pay off their own debts, with almost half of millennials reporting that debt is a problem for them personally …
Australia Talks National Survey

Australia may not be in the top four countries for Rugby these days but we are one of the world leaders in terms of household debt. In fact, we are second only to Switzerland. I am ashamed to say Australia’s Household Debt is world class and edging towards 200% of income. With such a big chunk of our disposable income leaking to debt, it is no wonder that recent interest rate cuts are not having much effect on the economy as Australian consumers try to tighten the belts. According to the Reserve Bank, it seems that, with stagnant wages growth, most are coping with their debt by reducing their consumption.

Basically, the Australian economy is facing a long period of sluggish demand growth as our record high household debt becomes a giant millstone around the economy’s neck.
From macrobusiness.com.au

Debt can be multi-headed with mortgage, credit card, personal loans and education components. The ME Bank survey has found that there is stress in some parts of the community. If your employment income is steady, in these reducing interest rate times, the fortunate have been able to keep up existing monthly payments to reduce overall debt. This is a good strategy. Most Australian homeowners are ahead of their payments – so there is a bit of a buffer. RBA statistics show that the average borrower is almost 36 months ahead of their required payments. Though, there are worrying signs in some households.

Of households with debt, there was an increase in the
number expecting they ‘will not be able to meet their
required minimum payments on their debt’ and ‘can just
manage to make minimum payments on their debt’ in
the next 6–12 months – 43% combined compared to
38% in December 2017.
ME Bank survey

With the number of mature-age Australians carrying mortgage debt into retirement increasing rapidly, many are intending to use a portion of their super (which was supposed to fund retirement!) to try to extinguish their debts when they retire. The ME Bank Survey found that even with compulsory superannuation, only around 18% of households expect to ‘fund retirement with their own super’ (down four points in the past six months). The proportion of households expecting to ‘use both private savings and the government pension’ increased two points to 42%.

I hope that our politicians have a plan for all of this – although, as this involves a bit of thinking beyond the next election, I doubt it!

July 2019 – End of Month Update … and FY2019 Nuggets and Stinkers

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets are all in positive territory this month ( ASX 200 +2.9%; FTSE100 +2.2%; S&P500 +1.3%). All markets are still “exuberent”. However, checking out the US Yield Curve indicator at GuruFocus , the indicator again shows a weak positive result (Near zero, Just … +0.09%) so my monthly stop losses for Index funds are temporarily “switched off”.

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

Slack Investor Stinkers – FY 2019

Stinkers are part of investing in growth stocks. Growth stocks usually have a high Return on Equity (ROE>15%). By their nature, they have a relatively high PE ratio and are usually punished in the markets during reporting season if there is any bad news – and I am not too worried when this occurs – It is the total performance of the portfolio that counts. If they breach their monthly stop loss – I will review the stocks and ask myself the question – Factoring in what I know now about this company, would I still buy this stock at its current price? – If not, out it goes!

The percentage yearly returns quoted in this post include costs (brokerage) but are before tax. This raw figure can then be compared with other investment returns.

Costa Group (CGC) -34%

This should be a lesson to Slack Investor … try to avoid growth companies that do not set the price of its products i.e. are “price takers”. This agricultural company had some earnings revisions during January and May due to weather and some difficulties in their Morocco operations. I have hung in and still own the company as it looks cheap on projected price earnings … but another downgrade would test my good humour.

Costa Group (CGC) Daily Chart with some bad news in January and May 2019

Challenger (CGF) -30%

I have been listening to the story of this company for ages. Its income products (annuities) should really appeal to the retiring baby boomers. However, there has been a long slide in price of its shares. In a bit of “hands on” research, I had a look at their CarePlus product for a relative moving into Aged Care – Their package was difficult to sign up to, and the web examples used were underwhelming. Perhaps they market more to financial advisors than for retail investors. The good thing about reviewing the chart of a stock every week is that eventually you “wake up”. I sold the shares in March.

Dishonourable mentions to Corporate Travel (CTD), Platinum Capital (PMC) and Worley Parsons (WOR), which all lost more than 10% this financial year.

Slack Investor Gold Nuggets – FY 2019

By investing in companies with high return on Equity with a track record of increasing earnings, you can expose yourself to some pleasant surprises. The Return on Equity (ROE) and forward Price Earnings (PE) ratio values for each stock are found on the excellent Market Screener site.

ProMedicus (PME) +148%

Pro Medicus is an Australian company that produces medical imaging software for hospitals and medical specialists. Their products are used worldwide and there are e projected increasing sales. Their ROE 2020 is an excellent 41%,however, their projected PE ratio for 2020 is over 100. This is dangerous over value territory – and I am watching this stock closely for any price declines. But until then, I am riding this horse home.

Appen (APX) +101%

Appen supplies data services to global tech companies and their language division provides machine-learning technologies for devices. Perhaps because I don’t really understand what they do and because of their high estimated 2020 PE ratio of 61. I said thanks very much and then I got out of this stock last month. However, the price of this stock is still climbing! Ouch!

Rhipe (RHP) +79%

Rhipe is another tech company that I had a speculative interest in. It provides software licences that help their clients transition into a “cloud” environment. Rhipe has a working relationship with Microsoft in Australia but their high 2020 projected PE of 39 makes it another stock that may be overvalued and I am watching it closely.

Altium (ALU) +53%

Another fantastic year for ALU The designing of integrated circuit boards for technology products is proving to be a lucrative business. A high 2020 projected PE of 39 is a concern -but I really am smitten with this company – as they have been great growers of their business.

Service Stream (SSM) +52%

Service stream provides network services to Utility companies. This is the sort of company that Slack Investor loves. A high ROE of 20% and a reasonable 2020 projected PE of 19 with anticipated earnings growth.

Honourable mentions for Slack Investor portfolio stocks AMC and RHC that increased more than 20% in this financial year.

Slack Investor Total SMSF performance – FY 2019

In another good year for shares where Chant West reports median growth super funds made 7%, the FY 19 Slack Investor preliminary Total SMSF performance looks like coming in around 20%. Anyone can fluke one good year so 5-yr performance is a more useful benchmark to me and the Slack Portfolio now has a compounding annual 5-yr return of over 18%.

Not bad Slack Investor … now get back on the couch … with full FY 2019 results and benchmarks next post.

Robo On

When Robo Advice gets it wrong … Exterminate Financial Freedom! – Image from aminoapps.com

Last month’s post on robo advice had a look at a couple of options … but there is more. They all work in much the same way. In the “old days”, to enter the investing world you would have to register with a broker (e.g. Self Wealth, CommSec) to get access to shares or Exchange Traded Funds (ETFs) – and you would be charged brokerage for each buy and sell. Each ETF also has a management fee (usually 0.10% to 0.50% per year) but that is deducted from your returns internally.

A recent Choice article outlines two things have worked against young people investing in the stock market. Firstly, a lack of knowledge about how to start investing, and then, not having a decent stash of money saved up to make broker fees worthwhile.

With the robo advisors, small amounts are no problem. For a monthly fee they take care of the purchasing and the brokerage – This is usually a much easier experience as it takes less thought and action.

From the robo advice website you open an account and establish your identity.
After a few questions to get your risk profile, the robo advisor will suggest a portfolio of ETFs.
Your bank account details must be given to fund your initial portfolio of ETFs.
You might also setup a regular investment and some of the robo advisors ( Raiz and FirstStep have a cool rounding feature where your everyday card purchases are rounded to the nearest dollar – and the rounding excess will go towards your portfolio.
The Robo Adviser does regular rebalancing of your portfolio.

Robo your Investing

Lets Robo On, Six park, Stockspot, Raiz, Clover, QuietGrowth and FirstStep have some great offerings and are worth a look.

ROBO ADVISOR	Fee Schedule	$2,500 portfolio fees pa	$10,000 portfolio fees pa	$200,000 portfolio fees pa
Six Park	Minimum $10000. Management Fee 0.4% to 0.5%	……	$50	$1,000
Stockspot	Fixed fee of $66 pa for balances < $10k with asset based fees of 0.396% to 0.66% pa	$66	$66	$1,320
Raiz	$1.25 per month <$5K; 0.275% pa >$5K	$15	$27.50	$550
Clover	Minimum $2500. $5.50 per month <$10K; 0.45% -0.65% pa >$10K	$66	$71.50	$1,210
Quietgrowth	Minimum $2000. Promotion No Monthly Fees <$10K; 0.40% – 0.60% pa >$10K	$0	$0	$1,045
First Step	$1.25 per month <$5500; 0.275% pa >$5500	$15	$27.50	$550

The above prices were compiled July 2019 and should be checked before you start investing.

Robo your Super

All of the above Robo advisors will help you build up your ETF investments as a “side hustle”. But, there is a new way of adding to your existing super (hopefully you have made an effort to make sure it is an Industry Fund!) in a relatively painless way. Longevity has a mobile phone app that automatically tops up your Super calculated as a percentage of your everyday purchases – into whatever super account you choose. It is based on your everyday spending and then calculated as a percentage of your spend (default 1% – but go higher if you can -and maybe a set amount each payday!). At the minimum, if you spend $200 on groceries, this will generate a 2 dollar deduction at the end of the month. You can limit your monthly deductions to an amount – so that you don’t go negative in your everyday account.

Because Longevity operates in the superannuation environment it is taxed favourably compared to investments outside of super where earnings are taxed at your marginal tax rate.

What to do Now?

There is always a bit of inertia involved to enter the world of investing. More experienced investors who already have a lump of cash and a disciplined approach to saving perhaps don’t need savings apps like Raiz. They could buy ETF’s directly through a discount broker (e.g Self Wealth), or setup a more sophisticated robo account with Stockspot. Robo investment apps such as those in the above table aren’t after this demographic. Most Robo Advice platforms are targeting younger people who might not otherwise start investing until much later in life.

“Raiz aims to encourage its customers to be mindful of their spending and to start saving and investing some of their income … the average Raiz customer has made 11% per annum since launch
Raiz’s Managing Director, George Lucas. from Choice

Simple steps

When in doubt, do something.
Singer-Songwriter Harry Chapin of “Cats in the Cradle” fame

The beauty of Robo Apps and instruments is that they are an easy way for anyone to start investing. Slack Investor says … just start! The rounding and transactional nature of Raiz and Firststep really appeal to me. Slack Investor likes this sort of painless saving and would get either of these apps as a great first step into investing. I wish these vehicles were around in my younger days. There are risks involved (i.e. share prices going down!) – but hey, That’s Investing – and the risks diminish over period of time (say, 5 years) – According to ASIC, Risk is part of the investing experience.

Given the huge returns money invested early in life can generate, the costs of the lower priced robo devices (e.g Raiz, FirstStep, Longevity) of around $1.25 a month is very reasonable. Pick a platform, install their app and set your contributions – You are launched into the wonderful world of investing – get on that road!

June 2019 – End of Month Update … and “nudging” to good financial habits

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. If last month was a “Risk Off” then for the month of June they have slapped on the crazy pants and become definitely “Risk On”. The Slack Investor followed overseas markets have bounced back from a shocker last month (FTSE100 +3.7%; S&P500 +6.9%) and the ASX 200 powered on with +3.5%. All markets are above the monthly stop losses – but feeling a bit “frothy”. However, checking out the US Yield Curve indicator at GuruFocus shows a weak positive result (Near zero, Just … +0.09%) so my monthly stop losses for Index funds are temporarily “switched off”.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). – As it is the end of the Financial year and quarter, the Slack Portfolio has been updated with some stock exits and a gradual build up of cash. Now over 8% – A slack record!

Give us a Nudge

The classic Monty Python “Nudge Nudge” sketch – the full delights of this 3-minute romp can be found on youtube

We frail human beings do not behave rationally. It is easy to project a path to a well funded retirement on paper – yet so few really achieve it. A couple of clever cognitive psychologists , Danny Kahneman and Amos Tversky put some effort into studying human behaviour.

Mr Kahneman, an Israeli-American psychologist and Nobel economics laureate, has delivered a full catalogue of the biases, shortcuts and cognitive illusions to which our species regularly succumbs. In doing so he makes it plain that Homo economicus—the rational model of human behaviour beloved of economists—is as fantastical as a unicorn.
From The Economist – Not So Smart Now

To account for our lack of rational behaviour -it is sometimes necessary to give ourselves a nudge in the right direction by tricking our feeble brains into good habits.

Compulsory Saving

The best way to save money is to convince yourself that you didn’t really have it in the first place – and, as the new financial year starts, this is the time … seize the day and quarantine some of your hard earned cash.

There are lots of ways to do this

Direct debit funds to your Savings account from your transaction account – After every payday, set up a regular direct debit instruction with your bank to divert funds to your online savings account
Add to your Super – Set up with your paymaster to add to your superannuation through salary sacrifice – the first $25000 is taxed at only 15%. Or, you can make a contribution straight from your bank account directly to your super fund but there is a bit of ATO paperwork to claim its tax-free status.
Use a bit of robo technology to set up periodic payments and rounding up of your daily transactions – Use Raiz to set up a savings account that invests your savings in shares and bonds or Longevity to add to your super account – More on these robo bits next post.

May 2019 – End of Month Update … and, that recession vibe

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. In what the cool investor analyst types call a “Risk Off” month there were big falls in Slack Investor followed overseas markets (FTSE100 -3.5%; S&P500 -6.6%) – but for the moment, still above the monthly stop losses. Checking out the US Yield Curve indicator at GuruFocus shows a negative result (Just … -0.05% though!) so my monthly stop losses for Index funds are definitely “live”.

The Australian ASX200 had a positive month (+1.1%) – but this was due mainly to the election of a “business-friendly” government on May 18. General nervousness prevails though.

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

That Recession Vibe

Trump and Xi are shaping up for a trade war and I don’t like the smell of it … especially with news reports such as “If you want to talk, the door is open; if you want to fight, we’ll fight to the end,” said a Chinese TV anchor, capturing the mood in Beijing. – Image from Business Insider

Slack Investor is no great predictor of trends – But, whenever things are going well in the stock market, experienced investors naturally get skittish – Particularly when two belligerent world leaders are at loggerheads. There is a chance that all of this will get solved at the next G-20 in June. But Bloomberg analysts think it is more likely that the trade war will be long, messy—and expensive. Thanks Donald!

(The US economy is going OK) but … other countries remain sluggish or are slowing. Diminishing global growth could drag down the U.S. also. … although the Federal Reserve is now signaling a halt in its rate hiking, it has raised interest rates nine times since December 2015. At some point, those higher rates become the gravitational force that pulls down stock prices.
From Ray Martin at CBS News

All of this uncertainty is talked about constantly in the media and with trade war stuff thrown in as well, as all fans of The Castle know … ” It’s the Vibe!”, When all of this negative stuff gets too much. for a quick recession-busting refresher, try this Youtube highlights clip from the film.

Slack Investor has mentioned one of the pre-indicators of a recession, the US Bond Yield Curve, which has just gone into the “Red Zone”. The economist boffins have been very diligent at Citibank and have tracked a range of 18 economic statistics up to the end of April. The US Yield curve is just one of these and is #6 on the list. They compare current statistics with those from previous “proper” recessions.

The Citibank Global Bear Market Checklist

Citi’s Bear Market Checklist (BMC) shows only 4 out of 18 red flags, and suggests that it is too early to call the end of this ten year bull market. In previous cycles, the BMC red flags have accumulated gradually before rising exponentially in the last year of the bull market. Citi analysts would be more concerned when 7-8 factors are flagging caution.
From Citi Insights

So Slack Investor does what he does best … and leaves the economics research to those who can do it well … business as usual. There are a couple of my individual stocks (CTD, CGC, PMC) that are on the slide and may need attention. I will look at their numbers and outlooks (and charts) again this week on Market Screener . But other than that, I will ease, ever so slowly, into the couch.

Financial Advice – If you Must

Cartoon from the most witty and prolific Mark Lynch from toonpool

Slack Investor has long been in the school of “Educate Yourself” in financial matters and maintains this is the best way to do it – But a lot of people (Obviously not Slack Investor readers!) find financial organization very difficult. It is complicated to be across all the intricacies of saving, mortgages, superannuation, taxation, and investment. However, you can draw upon the wisdom of some smart financial bloggers here – Check out the Slack Blogroll – the internet is your friend.

If you must see a financial advisor, after the initial consultation, they will prepare a Statement of Advice – which should be the guiding document for your circumstances and contain a full disclosure of their fees.

According to the Productivity Commission, almost half of Australian adults need financial advice. With the industry coming under criticism for greed and conflicts of interest, it is difficult for consumers to be confident that they are receiving good advice.
from ABC News

Prepare for Layers of Fees

Let’s start with an example provided by ASIC – which I assume reflects typical financial advisor costs. Edward engages a financial planner to get a statement of advice together for his $400000 (including super). The adviser offers to put together a financial plan for $3,500 with a further implementation fee of $1,500. This almost doesn’t sound too bad so far – But, it is instructive to look at the full breakdown of costs below. Platform fees, ongoing advice fees, management fees and insurance premiums will result in poor Edward getting slugged $14000 in the first year and $9000 ongoing per annum. If these costs are typical, this is outrageous – He is paying 3.5% of his wealth initially, and then 2.3% ongoing. The fees can usually be paid separately or deducted from your investment income as part of your annual statement.

Example given by ASIC showing a financial advisor fee structure for the investing of Edwards assets of $400K From ASIC – Financial Advice Costs

The Hayne Royal commission exposed many cases where advisors were conflicted by personal gains (commissions, etc) when giving financial guidance. A lot of the commissions have been banned now, but there are sometimes internal incentives to recommend certain products. I don’t want to besmirch all advisors here, but it makes sense that you would have the best chance of getting good advice if your advisor was truly independent – There aren’t many of these according to ABC news, only about 60 in Australia – All are registered with the Independent Financial Advisers Association of Australia (IFAAA). But even with the independents, be wary of costs.

*Cartoon from the equally witty and prolific* Randy Glasbergen from source

If you don’t want to take the full responsibility for the nuts and bolts of financial independence onto yourself, I can see real benefits in seeing a knowledgeable fee-for-service financial advisor to set up a one-off tax effective savings structure that will guide you through the mid-thirties through till retirement. Or, it may be wise to get help for specific situations e.g., Self Managed Superannuation strategies.

Where I don’t see value is the too common situation where people front up to the financial planners on the doorstep of retirement with their life savings. There is the potential for an avalanche of fees – as well as the up front costs, each recommended product will have its own management fees.

Alternatives

Naturally, Slack Investor looks to reduce fees where possible. If you don’t want to go it alone along the “full monty” self-education route, there are some cheaper alternatives to the traditional financial advice model emerging. These Robo-Advice structures show promise for some aspects of the financial advisor’s job – How to steadily accumulate wealth and then, how to turn this wealth into an income to support your retirement. It’s new, it’s exciting it’s … Robo, it’s coming next month.